S-1/A

As filed with the Securities and Exchange Commission on January 16, 2009

Registration No. 333-147019

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 2

to

Form S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

PROSPER MARKETPLACE, INC.

(Exact name of registrant as specified in its charter)

Delaware	6199	73-1733867
(State or other jurisdiction of	(Primary Standard Industrial	(I.R.S. Employer
incorporation or organization)	Classification Code Number	Identification Number)

111 Sutter Street, 22nd Floor

San Francisco, CA  94104

(415) 593-5400

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Edward A. Giedgowd, Esq.

Chief Compliance Officer and General Counsel

111 Sutter Street, 22nd Floor

San Francisco, CA  94104

(415) 593-5400

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Whitney A. Holmes, Esq.

Brian D. Lewandowski, Esq.

Morrison & Foerster LLP

370 17th Street, Suite 5200

Denver, CO  80202

(303) 592-1500

Approximate date of commencement of proposed sale to the public:  From time to time after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	x

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed.  We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective.  This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED JANUARY 16, 2009

$500,000,000 Borrower Payment Dependent Notes

This is a public offering to lender members of Prosper Marketplace, Inc., or Prosper, of up to $500,000,000 in principal amount of Borrower Payment Dependent Notes, or “Notes,” issued by Prosper.

We will issue the Notes in a series, with each series of Notes dependent for payment on payments we receive on a specific borrower loan described in a listing posted on our person-to-person online credit auction platform, which we refer to as our “platform.”  Two types of listings appear on our platform:  (1) listings posted by individual consumer members of Prosper requesting individual consumer loans, which we refer to as “Prosper borrower loans,” and (2) listings posted by financial institutions registered with Prosper setting forth the terms of existing loans and retail installment sale contracts owned by the financial institutions and offered for sale to Prosper, which we refer to collectively as “open market loans.”  We refer to Notes dependent for payment on Prosper borrower loans as “Prosper Borrower Notes” and Notes dependent for payment on open market loans as “Prosper Open Market Notes.”

Important terms of the Notes include the following, each of which is described in detail in this prospectus:

·Our obligation to make payments on a Note will be limited to an amount equal to the lender member’s pro rata share of amounts we receive with respect to the corresponding borrower loan for that Note, net of any servicing fees.  We do not guarantee payment of the Notes or the corresponding borrower loans.

·The Notes are not obligations of the borrower members, or of the borrowers on open market loans, or of the financial institutions offering to sell an open market loan on our platform.

·The Prosper Borrower Notes will bear interest from the date of issuance, have a fixed rate, be payable monthly and have an initial maturity of three years from issuance, which we may change from time to time.

·The Prosper Open Market Notes will bear interest from the date of issuance, have a fixed rate, be fully amortizing and have an initial maturity of at least three months.

We will offer Notes to our lender members at 100% of their principal amount.  The Notes will be offered only through our website, and there will be no underwriters or underwriting discounts.

The Notes will be issued in electronic form only and will not be listed on any securities exchange.  The Notes will not be transferable except through our Note trading platform by a registered broker-dealer yet to be determined.  There can be no assurance, however, that a market for Notes will develop on our Note trading platform. Therefore, lender members must be prepared to hold their Notes to maturity.

This offering is highly speculative and the Notes involve a high degree of risk.  Investing in the Notes should be considered only by persons who can afford the loss of their entire investment.  See “Risk Factors” on page 21.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete.  Any representation to the contrary is a criminal offense.

The date of this prospectus is                  , 2009

TABLE OF CONTENTS

	Page
ABOUT THIS PROSPECTUS	ii
WHERE YOU CAN FIND MORE INFORMATION	ii
PROSPECTUS SUMMARY	1
THE OFFERING	4
QUESTIONS AND ANSWERS	9
RISK FACTORS	21
RISKS RELATED TO BORROWER DEFAULT	21
RISKS INHERENT IN INVESTING IN THE NOTES	28
RISKS RELATED TO PROSPER, OUR PLATFORM AND OUR ABILITY TO SERVICE THE NOTES	31
RISKS RELATING TO COMPLIANCE AND REGULATION	38
FORWARD-LOOKING STATEMENTS	41
USE OF PROCEEDS	42
PLAN OF DISTRIBUTION	42
FINANCIAL SUITABILITY REQUIREMENTS	42
ABOUT THE PLATFORM	43
SUMMARY OF MATERIAL AGREEMENTS	62
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS	72
BUSINESS	77
GOVERNMENT REGULATION	83
MANAGEMENT	85
EXECUTIVE COMPENSATION	90
TRANSACTIONS WITH RELATED PERSONS	93
PRINCIPAL SECURITYHOLDERS	95
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	98
LEGAL MATTERS	107
EXPERTS	107
INDEX TO FINANCIAL STATEMENTS	F-1

i

ABOUT THIS PROSPECTUS

This prospectus describes our offering of our Borrower Payment Dependent Notes, which we refer to in this prospectus as the “Notes.” This prospectus is part of a registration statement filed with the Securities and Exchange Commission, which we refer to as the “SEC.” This prospectus, and the registration statement of which it forms a part, speak only as of the date of this prospectus.  We will supplement this registration statement from time to time as described below.

Unless the context otherwise requires, we use the terms “Prosper,” “the Company,” “our company,” “we,” “us” and “our” in this prospectus to refer to Prosper Marketplace, Inc., a Delaware corporation.

The offering described in this prospectus is a continuous offering pursuant to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”).  Following the date of this prospectus, we plan to offer Notes continuously, and we expect that sales of Notes will occur on a daily basis through the operation of our platform.

We will prepare prospectus supplements to update this prospectus, such as to disclose changes to the terms of our offering of the Notes, provide quarterly updates of our financial and other information included in this prospectus and disclose other material developments.  We will file these prospectus supplements with the SEC pursuant to Rule 424(b) and post them on our website.  When required by SEC rules, such as when there is a “fundamental change” in our offering or the information contained in this prospectus, or when an annual update of our financial information is required by the Securities Act or SEC rules, we will file post-effective amendments to the registration statement of which this prospectus forms a part, which will include either a prospectus supplement or an entirely new prospectus to replace this prospectus.  We currently anticipate that post-effective amendments will be required, among other times, when we change material terms of the Notes offered through our platform. We currently expect that these changes will be disclosed in prospectus supplements posted on our website at the time of filing of the post-effective amendment, rather than through complete revisions to this prospectus.

WHERE YOU CAN FIND MORE INFORMATION

We have filed a registration statement on Form S-1 with the SEC in connection with this offering.  In addition, upon the effectiveness of our registration statement, we will be required to file annual, quarterly and current reports and other information with the SEC.  You may read and copy the registration statement and any other documents we have filed at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C.  20549.  Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room. Our SEC filings are also available to the public at the SEC’s Internet site at http://www.sec.gov.

This prospectus is part of the registration statement and does not contain all of the information included in the registration statement and the exhibits, schedules and amendments to the registration statement.  Some items are omitted in accordance with the rules and regulations of the SEC.  For further information with respect to us and the Notes, we refer you to the registration statement and to the exhibits and schedules to the registration statement filed as part of the registration statement.  Whenever a reference is made in this prospectus to any of our contracts or other documents, the reference may not be complete and, for a copy of the contract or document, you should refer to the exhibits that are a part of the registration statement.

ii

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.  You should read the following summary together with the more detailed information appearing in this prospectus, including our financial statements and related notes, and the risk factors beginning on page 21, before deciding whether to purchase our Notes.

Overview

Prosper provides a person-to-person online credit auction platform, which we refer to as our “platform,” that enables its borrower members to borrow money, its financial institution members who own existing loans and retail installment sale contracts to list those loans and contracts for sale, and its lender members to purchase Notes issued by Prosper, the proceeds of which facilitate the funding or sale of specific loans made to borrowers.

About the Platform

Our platform is an online auction-style marketplace that permits our lender members to bid on listings and purchase from Prosper Notes that are dependent for payment on payments we receive on the corresponding borrower loans described in the listing.  Two types of listings appear on our platform: (1) listings posted by individual consumer members of Prosper requesting individual consumer loans, which we refer to as “Prosper borrower listings” and “Prosper borrower loans,” respectively; and (2) listings posted by financial institutions registered with Prosper setting forth the terms of existing loans and retail installment sale contracts owned by the financial institutions and offered for sale to Prosper, which we collectively refer to as “open market listings” and “open market loans,” respectively.  We refer to borrowers on Prosper borrower loans and open market loans as “borrowers.”  We refer to the financial institutions, which may include commercial banks, savings banks, consumer finance companies and other types of financing entities, registered with Prosper and eligible to list open market loans for sale on our platform, as “originators.”

Each listing sets forth the desired loan amount or sales price, offered interest rate or yield percentage, and other information including but not limited to the Prosper Rating for the borrower, debt-to-income ratio, and certain credit information from the borrower’s credit report. Prosper borrower listings include the borrower’s self-reported, unless otherwise indicated, annual income range, occupation and employment status, and the borrower’s group affiliation, if any. Open market listings set forth a description of the collateral, if any, securing the borrower loan, and contain as much of the foregoing borrower credit and employment data as the originator provides.  Prosper borrower members are identified by a Prosper screen name but are not able to disclose in listings their identity or contact information to lenders.  Listings are displayed publicly on our platform, although certain information is only viewable by registered lender members.

Each listing will be assigned a proprietary credit rating by Prosper, referred to as the “Prosper Rating.”  The Prosper Rating is a letter that indicates the borrower’s level of risk and corresponds to an estimated average annualized loss rate range.  There are currently seven Prosper Ratings, represented by seven letter scores, but this, as well as the loss ranges associated with each, may change over time as the marketplace dictates.  For Prosper borrower listings, the Prosper Rating will be derived from two scores:  a consumer reporting agency score and an in-house custom score calculated using the historical performance of previous Prosper borrower loans with similar characteristics.  The use of these two scores will determine an estimated loss rate for each listing, which correlates to a Prosper Rating.  For open market listings, the originator will provide us with a loss rate on the type of loan being offered for sale, and we will translate the loss rate to a Prosper Rating.  This new rating system allows Prosper to maintain consistency when assigning a rating to the borrower regardless of originator, type of credit score used or type of loan being offered for sale.  See “About the Platform” for more information.

The Notes.  Our lender members will have the opportunity to buy Notes issued by Prosper.  We refer to Notes dependent for payment on payments we receive on a Prosper borrower loan as “Prosper Borrower Notes” and Notes dependent for payment on payments we receive on an open market loan as “Prosper Open Market Notes.”

Lender members access our platform and “bid” the amount they are willing to commit to the purchase of a Note that is dependent for payment on payments we receive on the corresponding borrower loan and the minimum interest rate or yield percentage they are willing to receive.  By making a bid on a listing, a lender member is committing to purchase from Prosper a Note in the principal amount of the lender’s winning bid.  The lender members who purchase the Notes will designate that the sale proceeds be applied to facilitate the funding or sale of a corresponding borrower loan listed on our platform. The Notes will be special, limited obligations of Prosper only and not obligations of any borrower.

1

The Notes are unsecured and holders of the Notes do not have a security interest in the corresponding borrower loans or the proceeds of those corresponding borrower loans—even though, in the case of Prosper Open Market Loans, the corresponding open market loan may be secured by personal property.  If Prosper were to become subject to a bankruptcy or similar proceeding, the holder of a Note would generally have a general unsecured claim against Prosper that may or may not be limited in recovery to such borrower payments.  To alleviate this risk, Prosper intends to grant a security interest in all present and future rights of Prosper to payment under the corresponding borrower loans and all moneys and property received by Prosper thereon to the trustee under the indenture for the Notes, referred to as the “indenture trustee,” for the benefit of the trustee and the holders of the Notes.  The indenture trustee may exercise its legal rights to the collateral only if an event of default has occurred under the indenture solely by reason of Prosper becoming subject to a bankruptcy or similar proceeding and not for any other reason.  See “Risk Factors—Risks Related to Prosper, Our Platform and Our Ability to Service the Notes.”

Prosper will pay principal and interest on each series of Notes in an amount equal to each such Note’s pro rata portion of the principal and interest payments, if any, Prosper receives on the corresponding borrower loan, net of Prosper’s servicing fee of 1% for Prosper Borrower Notes and 0.5% for Prosper Open Market Notes.  In addition, the originator of open market loans charges a servicing fee, which is deducted from principal and interest payments it receives on the open market loans.  Prosper will also pay to lender members any other amounts Prosper receives on each corresponding borrower loan, including late fees and prepayments, subject to the servicing fee, except that Prosper will not pay to lender members any non-sufficient funds fees for failed borrower payments or collection fees we, an originator or a third-party collection agency charge.  In addition, on Prosper Open Market Loans late fees may be retained by the originator servicing the open market loan.

Prosper Borrower Loans.  Our platform allows our borrower members to request loans by posting listings on the platform indicating a requested loan amount and the maximum interest rate they are willing to pay. All Prosper borrower loans are unsecured obligations of individual Prosper borrower members with a fixed interest rate and a loan term currently set at three years, which Prosper anticipates extending in the near future to between three months to seven years.  All Prosper borrower loans will have specified minimum and maximum principal amounts (currently between $1,000 to $25,000) and will be funded by WebBank, a Federal Deposit Insurance Corporation (“FDIC”) insured, Utah-chartered industrial bank.  After funding a loan, WebBank sells and assigns the loan to Prosper, without recourse to WebBank, in exchange for the principal amount of the borrower loan.  WebBank has no obligation to purchasers of the Notes.  For all Prosper borrower loans, except for our verification of the Prosper borrower member identity against data from consumer reporting agencies and other identity and anti-fraud verification databases, Prosper borrower listings are posted without our obtaining any documentation of the borrower’s ability to afford the loan.  In limited instances, we verify the income, employment, occupation or other information provided by Prosper borrower members in listings.  This verification is normally done after the listing has been created and bidding has ended, but before the loan is funded, and therefore the results of our verification are not reflected in the Prosper borrower listings.  Prosper borrower loans will be serviced by Prosper.  See “About the Platform.”

Open Market Loans.  Our platform permits originators to offer open market loans for sale by posting listings on the platform indicating an initial sale price of the loan and the yield percentage that corresponds to the sale price.  Open market loans have a fixed interest rate, maturities of at least three months and may be unsecured or secured by personal property.  Open market loans are existing loans that are owned by the originator that posted the listing, whether or not such originator originally made the loan.  Open market loans may include existing consumer loans or retail installment sale contracts as well as small business loans, where the borrower is a business entity, not an individual (although one or more individuals may be a guarantor of the loan).  Open market loans will be serviced, both before and after any default, by the originator.  In servicing open market loans the originator will use commercially reasonable efforts to service and collect the loans in accordance with industry standards customary for loans of the same general type and character as the open market loans.

Lender members access our platform and, by bidding, make purchase commitments for Notes that are dependent for payment on payments we receive on the corresponding open market loan for that series.  The actual bidding process for open market loans focuses on the projected “yield to maturity” of the remaining payments of the loan.  Lender members may bid by indicating a minimum yield percentage that they are willing to accept.  The initial sale price may be equal to, greater than or less than the outstanding balance of the open market loan listed for sale.  Similarly, the initial yield may be equal to, greater than or less than the interest rate the borrower is obligated to pay on the open market loan listed for sale.  The sale price and the yield are inversely proportionate.  As the yield is bid down, the sale price for the loan will increase.  Prosper’s bidding algorithm will take this into account, so if the current yield on a listing decreases as a result of bidding by lender members, the sale price will increase to an amount sufficient to produce the new yield, and additional bids will be allowed in to be applied toward the incremental increase in the sale price.

2

At the close of the auction bidding period, if the listing receives bids totaling the sale price of the open market loan at the winning yield percentage, the originator sells and assigns the loan to Prosper, without recourse to the originator, in exchange for the sale price of the open market loan as determined by the auction bidding process.  Originators offering open market loans for sale on the platform have no obligation to purchasers of the Notes.  Prosper Open Market Notes are not obligations of the borrowers on the open market loans, or of the originators offering to sell open market loans on the platform.  We will not verify the information provided by originators in open market listings but will represent and warrant to the holders of Prosper Open Market Notes that the originator has made commercially reasonable efforts to authenticate and verify the identity of the borrower under the corresponding open market loan.  Prosper will also perform a due diligence review on each originator prior to permitting the originator to list open market loans for sale on the platform. — See “About the Platform.”

Lender Member Portfolio Plans.  Lender members may also use our proprietary search engine to bid by creating a “portfolio plan” indicating the aggregate amount of funds to be bid on listings that meet specified criteria, including the maximum amount that may be bid on one listing, the minimum interest rate or minimum yield percentage the lender member is willing to receive and other borrower-specific criteria such as the Prosper Rating of borrowers, credit characteristics, group affiliation or debt-to-income ratio.  Lender members may have more than one portfolio plan in place at once and may bid selectively while one or more portfolio plans are in place.  See “About the Platform How to Bid to Purchase Notes.”

Corporate Information

We were incorporated in the State of Delaware in March 2005, and our principal executive offices are located at 111 Sutter Street, 22nd Floor, San Francisco, California 94104.  Prosper’s telephone number at this location is (415) 593-5400.  Prosper’s website address is www.prosper.com. Information contained on our website is not incorporated by reference into this prospectus.

From the launch of our platform in February of 2006 until October 16, 2008, the operation of our platform differed from the structure described in this prospectus, and we did not offer Notes.  Instead, our platform allowed lender members to purchase, and take assignment of, borrower loans directly.  Under that structure the borrower loans were evidenced by individual promissory notes in the amount of each lender member’s winning bid, which notes were thereafter sold and assigned to each lender member with a winning bid, subject to our right to service the borrower loans.  In addition, we previously assigned one of seven letter credit grades based on the borrower’s credit score and displayed the borrower’s credit grade in the listing posted on our platform. On the effective date of this prospectus, however, each listing will be assigned a Prosper Rating.  For Prosper borrower listings, the Prosper Rating will be derived from two scores:  a consumer reporting agency score and an in-house custom score calculated using the historical performance of previous Prosper borrower loans with similar characteristics. For open market listings, the originator will provide us with a loss rate on the type of loan being offered for sale, and we will translate the loss rate to a Prosper Rating.

From October 16, 2008 until the date of this prospectus, we did not offer lender members the opportunity to make any purchases on our platform. During this time, we also did not accept new lender registrations or allow new loan purchase commitments from existing lender members.  We continued to service all borrower loans originated on the platform on or before October 16, 2008, and lender members have been able to access their accounts, monitor their borrower loans and withdraw available funds without charges.  We also limited the borrowing side of our platform during this period.  Borrowers could still request loans, but those loan requests were forwarded to companies that had a pre-existing relationship with Prosper that could make or facilitate a loan to the borrower.

We have made significant changes to the operation of our lending platform that will become effective as of the date of this prospectus.  Our historical financial results and much of the discussion in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” reflects the structure of our lending platform and our operations prior to the date of this prospectus.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

3

THE OFFERING

Issuer Prosper Marketplace, Inc.

Securities offered Borrower Payment Dependent Notes, or “Notes,” issued in series, with each series of Notes dependent for payment on payments Prosper receives on a specific borrower loan.  Notes dependent for payment on a Prosper borrower loan are referred to as “Prosper Borrower Notes” and Notes dependent for payment on an open market loan are referred to as “Prosper Open Market Notes.”

Offering price 100% of principal amount of each Note.

Initial maturity date	Prosper Borrower Notes.  Maturities currently are for three years and match the maturity date of the corresponding Prosper borrower loan.  Prosper anticipates in the near future extending available loan terms to between three months to seven years at which time the Prosper Borrower Notes will have terms between three months to seven years.
	Prosper Open Market Notes.  Open market loans have maturities of at least three months and match the remaining term of the corresponding open market loan.

Final maturity date/
Extension of maturity date One year after the initial maturity date.  Each Note will mature on the initial maturity date, unless any principal or interest payments in respect of the corresponding borrower loan remain due and payable to Prosper upon the initial maturity date, in which case the maturity of the Note will be automatically extended to the final maturity date.  If there are any amounts under the corresponding borrower loan still due and owing to us after the final maturity date, we will have no further obligation to make payments on the Notes of the series even if we receive payments on the corresponding borrower loan after the final maturity date.

Interest rate Prosper Borrower Notes.  Each series of Prosper Borrower Notes will have a stated, fixed interest rate, which is the interest rate for the corresponding borrower loan. Prosper Open Market Notes.  Each series of Prosper Open Market Notes will have a stated, fixed interest rate equal to its yield percentage.

Setting interest rate for Prosper Borrower Notes Interest rates vary among the Prosper Borrower Notes, but each series of Notes that corresponds to a single Prosper borrower loan will have the same interest rate.  Interest rates are determined in an auction format for Prosper borrower loans.  Prosper borrower members list the maximum interest rate they are willing to pay, and lender members bid the minimum interest rate they are willing to receive.  The interest rate is determined at the end of a seven-day auction bidding period.  If by the end of the listing period a listing receives purchase commitments in an aggregate amount equal to the corresponding Prosper borrower loan being requested, then the interest rate is fixed for the term of the Notes at the minimum interest rate acceptable to all lender members who are the winning bidders for the Prosper Borrower Notes.  To the extent there are multiple bids at the same interest rate in an aggregate amount in excess of the requested loan amount, the bids placed earliest in time take precedence over later bids.  Prosper borrower members may elect to forego the potential benefits of auction bidding and designate their listing for “automatic funding,” in which case the bidding period will end automatically as soon as the listing receives bids totaling the amount requested in the listing, and the interest rate will be fixed at the minimum interest rate acceptable to all lender members who are winning bidders. See “About the Platform—How to Bid to Purchase Notes.”

Setting Interest Rate for Prosper Open Market Loans For open market loans, originators list the sale price for the open market loan and the yield percentage that corresponds to the sale price, the remaining principal balance of the loan and the interest rate the borrower is obligated to pay on the loan. The actual bidding process focuses on the projected “yield to maturity” of the remaining payments of the open market loan.  Lender members bid a minimum yield percentage that they are willing to accept through the auction format discussed above.  The final yield is the minimum

4

yield for which there is sufficient participation among bidders to accommodate the final sale price at the end of the auction period. To the extent there are multiple bids at the same yield in an aggregate amount in excess of the sale price, the bids placed earliest in time take precedence over later bids.  As the yield is bid down, the sale price for the loan will increase.  Prosper’s bidding algorithm will take this into account, so as the current yield on a listing decreases, the sale price will increase to an amount sufficient to produce the new yield, and additional bids will be allowed in to be applied toward the incremental increase in the sale price.  Originators may also elect to designate their listing for “automatic funding,” in which case the bidding period will end automatically as soon as the listing receives bids totaling the amount requested in the listing, and the yield percentage will be fixed at the minimum yield percentage acceptable to all lender members who are winning bidders. See “About the Platform—How to Bid to Purchase Notes.”

Payments on the Notes We will pay principal and interest on any Note a lender member purchases in an amount equal to the lender member’s pro rata portion of the principal and interest payments, if any, we receive on the corresponding borrower loan, net of our servicing fee of 1.0% for Prosper Borrower Notes and 0.5% for Prosper Open Market Notes.  We will also pay lender members any other amounts we receive on the corresponding borrower loan, including late fees and prepayments, subject to our servicing fee, except that we will not pay to lender members any non-sufficient funds fees or collection fees we, an originator or a third-party collection agency charge.  In addition, on Prosper Open Market Notes the orginator’s servicing fee (shown in the open market listing) will also be deducted from payments, if any, we receive on the open market loan, and late fees may be retained by the originator servicing the corresponding open market loan.  We will make any payments on the Notes when we receive the payments from the borrower or the originator with respect to the corresponding borrower loan.  See “Summary of Material Agreements—Indenture as Form of Notes” for more information.

Prosper borrower loans Lender members will designate Prosper to apply the proceeds from the sale of each series of Prosper Borrower Notes to the purchase of a corresponding Prosper borrower loan of an individual consumer who is a Prosper borrower member. Each Prosper borrower loan is a fully amortizing consumer loan made by WebBank to an individual Prosper borrower member.  Prosper borrower loans currently have a term of three years, but Prosper anticipates in the near future extending available loan terms to between three months to seven years.  Prosper borrower members may request loans within specified minimum and maximum principal amounts (currently between $1,000 and $25,000), which are subject to change from time to time.  WebBank subsequently assigns the borrower loan to Prosper without recourse to WebBank in exchange for the principal amount of the borrower loan.  Prosper borrower loans are repayable in monthly installments and are unsecured and unsubordinated.  Prosper borrower loans may be repaid at any time by Prosper borrower members without prepayment penalty.  Except for our verification of the Prosper borrower member’s identity against data from consumer reporting agencies and other identity and anti-fraud verification databases, Prosper borrower listings are posted without our obtaining any documentation of the borrower member’s ability to afford the loan.  In limited instances, we verify the income, employment, occupation or other information provided by Prosper borrower members in listings.  This verification is normally done after the listing has been created and bidding has ended, but before the loan has funded, and therefore the results of our verification are not reflected in the listings.  Prosper is responsible for servicing the Prosper borrower loans.  See “About the Platform” for more information.

Open market loans Lender members will designate Prosper to apply the proceeds from the sale of each series of Prosper Open Market Notes to the purchase of a corresponding open market loan listed for sale on our platform. Open market loans described in open market listings are existing loans that are owned by the originator that posted the listing, whether or not such originator originally made the loan, and may include secured or unsecured loans.  Open market loans may

5

include existing consumer loans or retail installment sale contracts as well as small business loans, where the borrower is a business entity, not an individual (although one or more individuals may be a guarantor of the loan).  Once approved by Prosper, originators can offer to sell loans involving borrowers of any level of creditworthiness, including non-prime and sub-prime borrowers.  All open market loans listed on the platform must be current and a minimum number of payments, as specified by Prosper and subject to change from time to time, must have been made on the loan.  Open market loans may have outstanding principal amounts in excess of the maximum amount a borrower member may request on the platform, and may be repayable more or less frequently than monthly, and may or may not allow the borrower to prepay the loan without prepayment penalty.  Each open market loan will have a fixed interest rate and maturities of three months or more.  All open market loans are sold and assigned by the originator to Prosper, without recourse to the originator, at the end of the auction bidding period, if successful, at which time the proceeds of the sale of the open market loan from the originator to Prosper are paid to the originator.  Open market loans will be serviced, both before and after default, by the originator (although our loan purchase agreement with the originator may provide that we have the right, in our discretion, to take over servicing in the event of the originator’s default on its servicing obligations).  In servicing borrower loans the originator will use commercially reasonable efforts to service and collect the borrower loans in accordance with industry standards customary for loans of the same general type and character as the borrower loans.  The originator is obligated to forward to Prosper any amounts it receives from such activities in respect of the open market loan.  See “About the Platform” for more information.

Security Interest—Ranking The Notes will not be contractually senior or contractually subordinated to any other indebtedness of Prosper.  All Notes will be unsecured special, limited obligations of Prosper.  The Notes do not restrict Prosper’s incurrence of other indebtedness or the grant or imposition of liens or security interests on the assets of Prosper and holders of the Notes do not directly have a security interest in the corresponding borrower loan or the proceeds of that loan.  In addition, Prosper Open Market Notes will not be secured by any collateral, even though the corresponding open market loan may be secured by personal property.  Although the originator is obligated to forward to Prosper any amounts it receives on the open market loans, including amounts received upon the sale of the collateral securing an open market loan, the holders of Prosper Open Market Notes do not have the right to foreclose on the collateral or to require that the originator take such action. See “About the Platform—Post-Funding Loan Servicing and Collection.” In the event of a bankruptcy or similar proceeding of Prosper, the relative rights of a holder of a Note, as compared to the holders of unsecured indebtedness of Prosper are uncertain.  To provide additional certainty regarding this risk, Prosper intends to grant the indenture trustee, for the benefit of the trustee and the holders of the Notes, a security interest in all present and future rights of Prosper to payment under the corresponding borrower loans and all moneys and property received by Prosper thereon.  The indenture trustee may exercise its legal rights to the collateral only if an event of default has occurred under the indenture solely by reason of Prosper becoming subject to a bankruptcy or similar proceeding and not for any other reason.  In such case, the indenture trustee, but not the holders of the Notes for that series, would have a secured claim, limited in recovery, to the right to receive payments on, and to all payments previously received by Prosper with respect to, the corresponding borrower loan for that series of Notes, but not with respect to any other borrower loan.  See “Risk Factors—Risks Related to Prosper, Our Platform and Our Ability to Service the Notes” for more information.

6

Servicing fee We receive a servicing fee equal to an annualized rate of 1.0% for Prosper Borrower Notes, and 0.5% for Prosper Open Market Notes, of the outstanding principal balance of the corresponding borrower loan, which we deduct from each lender member’s share of the borrower loan payments.  In addition, the originator of open market loans charges a servicing fee (shown in the open market listing), which is deducted from principal and interest payments it receives on the open market loans and which will reduce the effective yield of the open market loan below the stated yield percentage.  This reduction will be automatically taken into account by our platform in calculating the yield percentage during bidding on an open market listing.  See “About the Loan Platform—Post-Funding Loan Servicing and Collection” for more information.  

Use of proceeds We will use the proceeds of each series of Notes to purchase the corresponding borrower loan obtained by the Prosper borrower member or sold by an originator on our platform.

Electronic form and
transferability The Notes will be issued in electronic form only and will not be listed on any securities exchange.  The Notes will not be transferable except through the Note trading platform by a registered broker-dealer yet to be determined.  If Prosper establishes the trading platform on which the Notes may be resold, Prosper intends to charge all lender members who list their Notes for sale a nonrefundable administrative fee in a specified amount (currently $0.25) that is subject to change from time to time.  Listing fees will be charged and collected at the time the listing is posted on the trading platform by deducting the resale listing fee from the selling lender member’s funding account. There can be no assurance, however, that a market for Notes will develop on the trading platform. Therefore, lender members must be prepared to hold their Notes to maturity.  See “About the Platform—Trading Platform” for more information.

U.S. federal income tax consequences Although the matter is not free from doubt, Prosper intends to treat the Notes as debt instruments of Prosper that have original issue discount (OID) for U.S. federal income tax purposes.  Accordingly, a holder of a Note will be required to include OID in income as ordinary interest income for U.S. federal income tax purposes as it accrues (which may be in advance of interest payments on the Note), regardless of such holder’s regular method of tax accounting.  Prospective purchasers of the Notes should consult their own tax advisors regarding the U.S. federal, state, local and non-U.S. tax consequences of the purchase, ownership, and disposition of the Notes (including any possible differing treatments of the Notes).  See “Material U.S. Federal Income Tax Considerations” for more information.

Financial suitability Lender members should be aware that we may apply financial suitability standards or maximum investment limits to residents of certain states.  If established, before purchasing Notes, each lender member will be required to represent and warrant that he or she meets these minimum financial suitability standards and maximum investment limits.  See “Financial Suitability Requirements” for more information.

7

The following diagram illustrates the basic structure of our platform for a single series of Notes.  This graphic does not demonstrate many details of our platform, including the effect of pre-payments, late payments, late fees or collection fees.  See “About the Platform” for more information.

8

QUESTIONS AND ANSWERS

Q:Who is Prosper?

A:Prosper provides a person-to-person online credit auction platform that enables its borrower members to borrow money, its originator members to sell open market loans, and its lender members to purchase Notes issued by Prosper, the proceeds of which facilitate the funding or sale of specific loans made to borrowers.

Q:What is our platform?

A:Our platform is an online auction-style marketplace that permits our lender members to bid on listings and purchase from Prosper Notes that are dependent for payment on payments we receive on the corresponding borrower loans described in the listings.  Two types of listings appear on our platform: (1) listings posted by individual consumer members of Prosper requesting individual consumer loans, which we refer to as “Prosper borrower listings” and “Prosper borrower loans,” respectively; and (2) listings posted by financial institutions registered with Prosper setting forth the terms of existing loans and retail installment sale contracts owned by the financial institutions and offered for sale to Prosper, which we collectively refer to as “open market listings” and “open market loans,” respectively.  We refer to the financial institutions, which may include commercial banks, savings banks, consumer finance companies and other types of financing entities, registered with Prosper and eligible to list open market loans for sale on our platform, as “originators.”  Each listing sets forth the desired loan amount or sales price, offered interest rate or yield percentage, and other information including but not limited to the Prosper Rating for the borrower, debt-to-income ratio, and certain credit information from the borrower’s credit report. Prosper borrower listings include the borrower’s self-reported, unless otherwise indicated, annual income range, occupation and employment status, and the borrower’s group affiliation, if any. Open market listings set forth a description of the collateral, if any, securing the borrower loan, and contain as much of the foregoing borrower credit and employment data as the originator provides.  Prosper borrower members are identified by a Prosper screen name but are not able to disclose in listings their identity or contact information to lenders.  Listings are displayed publicly on our platform, although certain information is only viewable by registered lender members.

Q:Who is WebBank?

A:WebBank is an FDIC-insured Utah-chartered industrial bank that is authorized or permitted to make loans in the states where Prosper borrower members reside, and makes all Prosper borrower loans originated through our platform.

Q:Who are Originators?

A:We refer to the financial institutions, which may include commercial banks, savings banks, consumer finance companies and other types of financing entities, registered with Prosper and eligible to list open market loans for sale on our platform, as “originators.”

Q:What is a Prosper borrower listing?

A:A Prosper borrower listing is a request by a Prosper borrower member for a Prosper borrower loan in a specified amount, at an interest rate equal to the maximum interest rate set forth in the listing.  In addition to the Prosper borrower’s requested loan amount and maximum interest rate, listings will show the Prosper borrower member’s Prosper Rating, and will also show the borrower’s numerical credit score range, as well as the debt-to-income ratio, summary information from the borrower’s credit report, and self-reported occupation, employment status and range of income, and may include photos or the borrower’s narrative description of (i) why the loan is being requested and (ii) the borrower’s financial situation.  Prosper borrower listings may only be created by individuals registered as borrowers on our platform. Prosper borrower listings are displayed publicly on our platform, although certain information is only viewable by registered lender members.  The specific numerical credit score received from the credit reporting agency is not displayed or disclosed to anyone (including the borrower).

Q:What is an open market listing?

A:An open market listing is a listing posted by an originator on our platform that describes an existing loan owned by the originator upon which a series of Prosper Open Market Notes will be dependent for payment.  Open market listings display the sale price for the open market loan, the yield percentage that corresponds to the sales price, the remaining principal balance of the loan and the interest rate the borrower is obligated  

9

to pay on the loan.  The listing will describe the open market loan being offered for sale, including the name of the originator, the loan type, the origination date, the interest rate, remaining loan term, payment frequency and payment amount and projected loss rate and credit attributes of the borrower as of the time of the origination.  Listings in the open market will also show the Prosper Rating and the borrower’s credit score range at origination, as well as the current credit score range provided by the originator.  The Prosper Rating is determined, in part, based on the estimated loan loss rate as of the time the open market loan was originated as provided by the originator and does not consider historical performance of previous Prosper borrower loans.  In addition, open market listings set forth the servicing fee payable to the originator under the loan.  Finally, the open market listing will contain information regarding the status of the loan, including the current balance, a history of timeliness of payments to date, maturity date for the loan and a “starting price” for bidding.  Open market listings are formatted into a listing similar in design to Prosper borrower listings, but with additional information that will make these listings easily identifiable.

Q:What are the principal differences between a Prosper borrower listing and open market listing?

A:Open market loans have been underwritten by the credit standards of the originator and all borrower information set forth in the open market listing, including the expected loss rates, are supplied by the originator to Prosper.  We do not verify the information provided by originators in open market listings, including the identity of the borrower, but will represent and warrant to the holders of Prosper Open Market Notes that the originator has made commercially reasonable efforts to authenticate and verify the identity of the borrower under the corresponding open market loan.

On open market listings, the Prosper Rating and credit details of the borrower will be determined and will represent the borrower’s credit as of the time the open market loan was originated, not at the time the open market listing is posted on our platform.  Accordingly, much of the borrower’s credit information could be outdated.

In determining the Prosper Rating for open market loans, Prosper will rely on projected loss rates supplied by the originator.  Prosper believes that the originator will likely have a sufficient history to make meaningful projections involving credit risk.

Q:What are Prosper borrower loans?

A:Prosper borrower loans are unsecured obligations of individual borrower members with an interest rate determined in an auction format. Prosper borrower loans currently have a term of three years, but Prosper anticipates in the near future extending available loan terms to between three months to seven years.  Each Prosper borrower loan is originated through our website, funded by WebBank and sold and assigned to Prosper after it is made in exchange for the principal amount of the corresponding borrower loan.  Prosper borrower members may request loans within specified minimum and maximum principal amounts, currently between $1,000 and $25,000.  Prosper borrower loans are repayable in monthly installments and are unsecured and unsubordinated.  Prosper borrower loans may be repaid at any time by Prosper borrower members without prepayment penalty.  A Prosper borrower loan will be made to a borrower member only if the borrower’s listing has received bids totaling the full amount of the requested loan.

Q:What are open market loans?

A:Open market loans described in open market listings are existing loans that are owned by the originator that posted the listing, whether or not such originator originally made the loan, and may include secured or unsecured loans.  Open market loans may include existing consumer loans or retail installment sale contracts as well as small business loans, where the borrower is a business entity, not an individual (although one or more individuals may be a guarantor of the loan).  Once approved by Prosper, originators can offer to sell loans involving borrowers of any level of creditworthiness, including non-prime and sub-prime borrowers.  All open market loans listed on the platform must be current and a minimum number of payments, as specified by Prosper and subject to change from time to time, must have been made on the loan.  Open market loans may have outstanding principal amounts in excess of the maximum amount a borrower member may request on the platform, and may be repayable more or less frequently than monthly, and may or may not allow the borrower to prepay the loan without prepayment penalty.  Each open market loan will have a fixed interest rate and maturities of at least three months.  All open market loans are sold and assigned by the originator to Prosper, without recourse to the originator, at the end of the auction bidding period, if successful.  Open market loans will be serviced, both before and after default, by the originator.  Our loan purchase agreement with the originator may provide that we have the right, in our discretion, to take over servicing in the event of the originator’s default on its servicing obligations.

10

Q:Do lender members make loans directly to Prosper borrower members or purchase open market loans directly from originators?

A:No.  Lender members do not make loans directly to Prosper borrower members or purchase open market loans directly from originators.  Instead, lender members purchase Notes issued by Prosper, the proceeds of which are designated by the lender members who purchase the Notes to facilitate the funding or sale of the borrower loan described in the listing. We use all proceeds we receive from issuances of the Notes to purchase the corresponding borrower loans.  Even though lender members do not make loans directly to Prosper borrower members, or purchase loans directly from originators, the lender members will nevertheless be wholly dependent on the borrowers for repayment of the Notes.  If a borrower defaults on the payment obligations under the borrower loan, Prosper will not have any obligation to make payments to the holders of Notes dependent for payment on that borrower loan.

Q:Who are our lender members?

A:Our lender members are individuals and organizations that have the opportunity to buy our Notes.  Lender members must register on our website.  During lender registration, potential lender members must agree to a credit profile authorization statement for identification purposes, a tax withholding statement and the terms and conditions of the Prosper website, and must enter into a lender member registration agreement with Prosper, which will govern the terms under which a lender member may purchase Notes from Prosper.

Q:What is a bid?

A:A bid is a lender member’s commitment to purchase a Note in the principal amount of the lender member’s bid.  A borrower loan will be made or purchased if the listing has received bids totaling the full amount of the requested loan or sale price.  Lender members “bid” the amount they are willing to commit to the purchase of a Note that is dependent for payment on payments we receive on the borrower loan described in the listing, and the minimum interest rate or yield percentage the lender member is to receive.  Lenders must have funds in the amount of the bid in the Lender member’s funding account at the time the bid is made.  Currently, a bid may be between $50 and the full amount of the listing.  Once a bid is placed, it is irrevocable, and during the time a bid is a “winning” bid on the listing, the amount of the bid is not permitted to be withdrawn from the lender member’s funding account.  Lender member bids become “winning” bids if such bids are in the group of bids for Notes that, in an aggregate, correspond to the requested loan amount or sale price of the corresponding borrower loan and are in the lowest interest rate or yield percentage among all bids placed against the listing.

To the extent there are multiple bids at the same interest rate or yield percentage in an aggregate amount in excess of the requested loan amount or sale price, the bids placed earliest in time take precedence over later bids. When the total amount of all bids placed in the auction equals or exceeds the initial sale price, further bids have to be placed at least 0.05% below the current winning interest rate or yield percentage.  It is possible that only a portion of a lender member’s bid is winning on a listing.  Depending on the amount of the winning bids at the end of the auction period, there may be a winning bidder on a listing with a winning bid of less than $50.  There may be only one partial winning bidder.

Q:How are interest rates and payments calculated on Borrower Payment Dependent Notes?

A:The interest rate on a Borrower Payment Dependent Note is the rate determined by our platform’s auction system for the borrower loan that corresponds to the Note.  The interest rate on a Prosper borrower loan is the minimum interest rate for which there is sufficient participation among bidders, at the end of the auction period, to accommodate the requested loan amount set forth in the listing.  The interest rate on a Prosper open market loan is the minimum yield for which there is sufficient participation among bidders to accommodate the final sale price at the end of the auction period.  Payments on Prosper Borrower Notes are the same as borrower payments on Prosper borrower loans. Payments on Prosper Open Market Notes are in an amount sufficient to amortize the sale price of the open market loan over the remaining term of the open market loan at the yield percentage determined at the end of the auction bidding period.

Q:What is a Portfolio Plan?

A:Lender members may bid by creating a “portfolio plan” indicating the aggregate amount of funds to be bid on listings that meet specified criteria, including the maximum amount that may be bid on one listing, the minimum interest rate the lender member is willing to receive and other borrower-specific criteria such as the Prosper Rating or credit score

11

range of borrowers, credit, income and employment characteristics, group affiliations or debt-to-income ratio.  Lender members may have more than one portfolio plan in place at once and may bid selectively while one or more portfolio plans are in place.

Q:How does the bidding process differ for open market listings?

A:The bidding process for open market listings focuses on the projected “yield to maturity” of the remaining payments of the loan.  The originator offering the loan for sale sets an initial sale price and an initial yield. The yield is calculated as the internal rate of return of the anticipated cash flows assuming all loan payments are made as scheduled. The initial sale price may be equal to, greater than or less than the outstanding balance of the loan being offered for sale. Similarly, the initial yield may be equal to, greater than or less than the interest rate the borrower is obligated to pay on the open market loan being offered for sale. The sale price and the yield are inversely proportionate. An open market loan sold at a higher price than the outstanding balance will result in a yield lower than the borrower’s interest rate, and an open market loan sold at a lower price will result in a yield higher than the borrower’s interest rate.

If the initial sale price is equal to the outstanding principal balance of the loan being offered for sale, the initial yield shown in the listing will be equal to the borrower’s interest rate. If the initial sale price is greater than the outstanding principal balance of the loan being offered for sale, the initial yield shown in the listing will be lower than the borrower’s interest rate, and the loan will be offered at a premium. If the initial sale price is less than the outstanding principal balance of the loan being offered for sale, the initial yield shown will be higher than the borrower’s interest rate, and the loan will be offered at a discount.

Lender members bid at a minimum yield percentage that they are willing to accept.  The current yield as set forth in an open market listing at any given time during the duration of the listing is the minimum yield for which there is sufficient participation among bidders to accommodate any corresponding increase in the sale price. The final yield is the minimum yield for which there is sufficient participation among bidders to accommodate the final sale price at the end of the auction period. To the extent there are multiple bids at the same yield in an aggregate amount in excess of the sale price, the bids placed earliest in time take precedence over later bids.  As the yield is bid down, the sale price for the loan will increase.  Prosper’s bidding algorithm will take this into account, so as the current yield on a listing decreases, the sale price will increase to an amount sufficient to produce the new yield, and additional bids will be allowed in to be applied toward the incremental increase in the sale price.

When bidding commences on the listing, a lender member may place a bid by specifying an amount to invest and the lowest estimated yield the lender member is willing to receive.  If the total amount of all bids placed is less than the initial sale price, new bids can be placed at or below the initial yield.  If the listing receives sufficient bids to match the sale price of a loan at the winning yield percentage prior to the end of the auction, once ended, Prosper will purchase that loan from the listing originator.

Q:What are our Borrower Payment Dependent Notes?

A:Our lender members may purchase Borrower Payment Dependent Notes, or “Notes,” from Prosper.  We will issue the Notes in a series, with each series dependent for payment on payments we receives on a specific borrower loan.  Notes dependent for payment on a Prosper borrower loan are referred to as “Prosper Borrower Notes” and Notes dependent for payment on an open market loan are referred to as “Prosper Open Market Notes.”  The proceeds of each series of Notes will be designated by the lender members who purchase the Notes of the series to facilitate the funding or sale of a corresponding borrower loan obtained or sold through our platform.  Each series of Notes will have a stated interest rate.  For Prosper Borrower Notes, the interest rate will equal the interest rate for the corresponding Prosper borrower loan.  For Prosper Open Market Notes, the interest rate will equal the final yield percentage, which may be higher than or lower than the interest rate of the corresponding open market loan.  We will pay principal and interest on any Note you purchase in an amount equal to your pro rata portion of the principal and interest payments, if any, we receive on the corresponding borrower loan, net of our servicing fee of 1.0% for Prosper Borrower Notes and 0.5% for Prosper Open Market Notes.  In addition, the originator of open market loans charges a servicing fee, which is deducted from principal and interest payments it receives on the open market loans and which will reduce the effective yield of the open market loan below the stated yield percentage.  We will also pay you any other amounts we receive on the open market loans, including late fees and prepayments, subject to our servicing fee, if any, except that we will not pay you any non-sufficient funds fees or collection fees we or a third-party collection agency charge.  In addition, on Prosper open market loans late fees may be retained by the originator servicing the open market loan.  The servicing fee will reduce the effective yield on your Notes below their stated interest rate.  The Notes are special, limited

12

obligations of Prosper only and not the borrowers.  The Notes will be unsecured and do not represent an ownership interest in the corresponding borrower loans.

Q:What are the material differences between Prosper Borrower Notes and Prosper Open Market Notes?

A:All open market loans must be current and a minimum number of payments, as specified by Prosper and subject to change from time to time, must have been made on the loan.  Accordingly, as compared to Prosper Borrower Notes, Prosper Open Market Notes may have a significantly lower risk of identity theft or first payment default.

Unlike Prosper borrower loans, open market loans listed on our platform may be secured.  Although the open market loan upon which a Prosper Open Market Note is dependent for payment may be secured by personal property, the Prosper Open Market Notes will still be an unsecured obligation of Prosper.  The originator is obligated to forward to Prosper any amounts it receives on the open market loan, including amounts received upon the sale of the collateral securing an open market loan.  The holders of the Prosper Open Market Notes, however, do not have any right to enforce the security interest themselves or to require that the originator do so.  Any recoveries based on the liquidation of the collateral by the originator, will likely limit your losses in the event of borrower default.

Open market loans will be serviced, both before and after default, by the originator, although our loan purchase agreement with the originator may provide that we have the right, in our discretion, to take over servicing in the event of the originator’s default on its servicing obligations.  Prosper borrower loans will be serviced, both before and after default, by Prosper.

In addition to the above information, the holders of Prosper Open Market Notes may be exposed to risks different than those experienced by holders of Prosper Borrower Notes.  See “Risk Factors—Additional Risks for Prosper Open Market Notes.” for more information.

Q:How are the Notes being offered?

A:We are offering the Notes directly to lender members only through our website for a purchase price of 100% of the principal amount of the Notes.  We are not using any underwriters, and there will be no underwriting discounts.

Q:Will I receive a certificate for my Notes?

A:No.  The Notes are issued only in electronic form. This means that each Note will be stored on our website.  You can view a record of the Notes you own and the form of your Notes online and print copies for your records by visiting your secure, password-protected webpage in the “My Account” section of our website.

Q:Will the Notes be listed on an exchange?

A:No.  The notes will not be listed on any securities exchange.

Q:Will I be able to sell my Notes?

A:The Notes will not be transferable except through the Note trading platform by a registered broker-dealer yet to be determined.  There can be no assurance, however, that a market for Notes will develop on the trading platform. Therefore, lender members must be prepared to hold their Notes to maturity.  See “About the Platform—Trading Platform” for more information.

Q:Who are Prosper borrower members?

A:Any natural person at least 18 years of age who is a U.S. resident in a state where loans through the platform are available, with a bank account and a social security number that has registered with Prosper and passed our anti-fraud and identity verification process.  Prosper currently allows Prosper borrower members to post listings on our platform regardless of their income.  Prosper reserves the right to restrict access to our platform by setting minimum credit or other guidelines for borrowers.  Currently, a borrower must have a credit score of at least 640 (before October 16, 2008, the minimum was 620) in order to post a listing on our platform, without any restrictions.  Prosper borrowers with a credit score below 640 may only

13

post listings and obtain Prosper borrower loans through our platforms “open social” feature, where bids are made primarily from friends and family.

Q:Does Prosper verify the listing information provided by Prosper borrower members?

A:When a borrower registers on our platform, we obtain his or her social security number, state driver’s license or state identification card number and bank account information in an effort to verify the borrower’s identity against data from consumer reporting agencies and other identity and anti-fraud verification databases.  Except for our verification of the Prosper borrower member’s, Prosper borrower listings are posted without our obtaining any documentation of the borrower’s ability to afford the loan.  In limited instances, we verify the income, employment, occupation or other information provided by Prosper borrower members in listings.  This verification is normally done after the listing has been created and bidding has ended, but before the loan is funded, and therefore the results of our verification are not reflected in the Prosper borrower listings.

Q:Does Prosper verify the listing information provided by originators for open market loans?

A:The information in open market listings describing the borrower loan for sale is provided by the originator and is not verified by Prosper.  Prosper represents and warrants to the holders of each series of Notes, that the originator has made commercially reasonable efforts to authenticate and verify the identity of the borrower under corresponding open market loan upon which a series of Notes is dependent for payment.

Q:Are the Notes secured by any collateral?

A:No.  All Notes will be unsecured special, limited obligations of Prosper.  The Notes do not restrict Prosper’s incurrence of other indebtedness or the grant or imposition of liens or security interests on the assets of Prosper and holders of the Notes do not directly have a security interest in the corresponding borrower loan or the proceeds of that loan.  In addition, Prosper Open Market Notes will not be secured by any collateral, even if the corresponding open market loan is secured by personal property.  Although the originator is obligated to forward to Prosper any amounts it receives on the open market loans, including amounts received upon the sale of the collateral securing an open market loan, the holders of Prosper Open Market Notes do not have the right to foreclose on the collateral or to require that the originator take such action.

Prosper intends to grant the indenture trustee, for the benefit of the trustee and the holders of the Notes, a security interest in all present and future rights of Prosper to payment under the corresponding borrower loans and all moneys and property received by Prosper thereon.  The indenture trustee may exercise its legal rights to the collateral only if an event of default has occurred under the indenture solely by reason of Prosper becoming subject to a bankruptcy or similar proceeding and not for any other reason.  In such case, the indenture trustee, but not the holders of the Notes for

14

that series, would have a secured claim, limited in recovery, to the right to receive payments on, and to all payments previously received by Prosper with respect to, the corresponding borrower loan for that series of Notes, but not with respect to any other borrower loan.

Q:Who can be a lender member and place bids on our platform?

A:Any natural person at least 18 years of age who is a U.S. resident with a bank account and a social security number or any institution with a taxpayer identification number can be a lender member and place bids on our platform. In order to bid on a listing, a lender member must have funds on deposit in a Prosper funding account in at least the amount of the lender member’s bid.

Q:Can any person list open market loans for sale on our platform?

A:No.  Prior to approving an originator to list loans for sale, Prosper undertakes a due diligence process of the candidate institution.  Our objective is to confirm that the information provided by the originator will accurately describe the loan being listed for sale, and to establish service level agreements and reports to monitor critical processes on an ongoing basis.  This monitoring process includes both monthly reports and periodic on-site audits.  During this process we review the credit quality, underwriting and loss expectation of the open market loans.  We also review the originator’s processes with respect to loan origination, chain of title, documentation, balance calculation, record keeping system, servicing and collections, dispute resolution and end-of-loan procedures.  A copy of the report summarizing the due diligence is posted on the Prosper website for lender members to review.  Additional status information will be posted on the Prosper website so that investors can monitor the performance of open market loans sold by particular originators.

Q:Does Prosper or WebBank participate in the platform as a lender member?

A:No, neither Prosper nor WebBank participates in our platform as a lender member.  The directors or executive officers of Prosper have in the past and may in the future participate in their individual capacities as lender members on our platform. WebBank is the originating lender on all Prosper borrower loans made through our platform, and then sells and assigns the borrower loans to Prosper.

Q:Do lender members need to be licensed as a consumer lender or finance company?

A:Our platform is designed and structured in a manner such that the activities performed by lender members on our platform do not trigger state lending or finance company licensing requirements.  States that have lending or finance company licensing laws normally require a lending license for persons who engage in the business of making loans.  All borrower loans originated on our platform are made by WebBank from WebBank’s own funds, and WebBank is the named lender on all promissory notes representing borrower loans.  Prosper performs its identity and anti-fraud verification process on all Prosper borrower loans and services the Prosper borrower loans.  WebBank is the originating lender and has authority to make borrower loans in all states where loans through the platform are available.  Persons who register as lender members do not lend money, but rather purchase Notes issued by Prosper.  The proceeds of the sale of Notes are not disbursed to borrowers.  See “Government Regulation—Regulation and Consumer Protection Laws” for more information and “Risk Factors—Risks Inherent in Investing in the Notes” for more information.

Q:Can Prosper borrower members have more than one loan outstanding at any one time?

A:Yes.  Prosper borrower members may have up to two Prosper borrower loans originated through the platform outstanding at any one time, provided that the aggregate outstanding principal balance of both Prosper borrower loans does not exceed the then-current maximum allowable loan amount for Prosper borrower loans (currently $25,000).  Currently, to be eligible to obtain a second Prosper borrower loan while an existing loan is outstanding,

·Prosper borrower members must be current on their existing Prosper borrower loan, and must not have been more than fifteen days past due in making their most recent monthly Prosper borrower loan payments for a specified number of months (between six and twelve, depending on the borrower’s credit score range),

·Prosper borrower members may not post a listing for a second Prosper borrower loan within six to twelve months (depending on the borrower’s credit score range) following the date of origination of their existing Prosper borrower loan, and

15

·the Prosper borrower member’s Prosper Rating must not drop more than a specified number of points (currently twenty to forty points, depending on the borrower’s credit score range at time the existing loan was obtained) below what it was when the Prosper borrower member’s existing Prosper borrower loan was obtained.

Prosper borrower member eligibility requirements for second loans are subject to change from time to time.

Q:How much money can lender members bid on our platform?

A:Our platform currently allows lender members to bid as little as $50 and as much as the full amount of any particular listing, up to an aggregate amount of $5,000,000 for individuals and $50,000,000 for institutions.

Q:What is a Prosper Rating?

A:Each listing will be assigned a proprietary credit rating by Prosper, referred to as the Prosper Rating.  The Prosper Rating is a letter that indicates the borrower’s level of risk and corresponds to an estimated average annualized loss rate range.  There are currently seven Prosper Ratings, represented by seven letter scores, but this, as well as the loss ranges associated with each, may change over time as the marketplace dictates.  For Prosper borrower listings, the Prosper Rating will be derived from two scores:  a consumer reporting agency score and an in-house custom score calculated using the historical performance of previous Prosper borrower loans with similar characteristics.  For open market listings, the originator will provide us with a loss rate on the type of loan being offered for sale, and we will translate the loss rate to a Prosper Rating.  The use of these two scores will determine an estimated loss rate for each listing, which correlates to a Prosper Rating.  This new rating system allows Prosper to maintain consistency when assigning a rating to the borrower regardless of originator, type of credit score used or type of loan being offered for sale.  See “About the Platform—Prosper Rating Assigned to Borrowers,” for more information..

Q:Why did Prosper revise its credit grading system?

A:The goal of the new credit grading system is to have our credit grades align with loss rate tiers, rather than simply with credit score tiers.  The new credit grading system places less emphasis on the borrower’s credit score because, under our prior method, at times we experienced variations in loss rates among Prosper borrower members within the same credit grade due to variations in the borrower’s credit characteristics within a credit score tier.  Now that Prosper borrower loans have a record of repayment, the observed loss rates are a more reliable measure of loan performance than a borrower’s credit score.  In addition, a new grading system based on loss rates allows Prosper to maintain consistency when assigning a Prosper Rating to the borrower regardless of originator, type of credit score used or type of loan.  This is particularly important because with the introduction of open market listings on our platform, originators will be using a number of different credit scores.

Q:What is a debt-to-income ratio?

A:Part of a borrower’s credit profile displayed in listings is a debt-to-income ratio (or DTI).  DTI is a measurement of the borrower’s ability to take on additional debt.  This number takes into consideration how much debt the borrower had prior to requesting a borrower loan in addition to what the borrower’s debt will be if the requested borrower loan is made.  The DTI is expressed as a percentage and is calculated by dividing the borrower’s monthly income (before taxes) into his or her monthly non-housing debt payments.  In some instances, open market listings will include housing payments in the DTI.  Borrower income is self-reported, and Prosper does not verify any borrower’s income when calculating DTI for the listings.

Q:How do lender members receive payments on the Notes?

A:All payments on the Notes are processed through our platform. If and when we make a payment on a Note, the payment will be deposited in the lender member’s Prosper account.  Lender members may elect to have available balances in their Prosper account transferred to their bank account at any time, subject to normal execution times for such transfers (generally 2-3 days).  For open market loans, we will transfer borrower payments to the funding account of the lender members who own Notes corresponding to the borrower loan upon receipt of such payments from the originator servicing the open market loan. Any delay between the time an originator receives a borrower payment and the time the payment is transferred to the lender member’s funding account may reduce the yield to maturity displayed in the open market listing relating to the open market loan.

16

Q:What happens if a borrower misses a payment or does not repay the borrower loan?

A:Borrowers who miss payments face the same consequences as they would if they missed payments on any form of bank or other commercial credit obligation, including the reporting of late payments to consumer reporting agencies.  Borrowers also incur late fees for missed or delinquent payments, to the extent allowed by applicable law. Late fees collected by Prosper on Prosper borrower loans are passed on to the lender members who own the Notes dependent for payment on that borrower loan.  Late fees collected by originators on open market loans may be retained by the originator servicing the open market loan.

Prosper borrower loans.When a borrower’s payment is late, we communicate directly with the borrower to encourage repayment.  After 30 days, we refer the borrower loan to a nationally-licensed collection agency, which makes further attempts to collect delinquent amounts and have the borrowers bring the account current.  Borrower loans that become 120 days past due are charged off.  Depending on market conditions, we either sell charged off loans to an unaffiliated third party debt purchaser or continue to collect on those accounts, and we may in our discretion institute legal proceedings to collect the debt.  We report loan delinquencies and charge-offs to consumer reporting agencies, which negatively impacts the borrower’s credit file.  Borrowers whose loans are charged off are not permitted to post any further listings on our platform. See “About the Platform—Post-Funding Loan Servicing and Collection” for more information.

Open market loans.  Open market loans will be serviced, both before and after default, by the originator (although our loan purchase agreement with the originator may provide that we have the right, in our discretion, to take over servicing in the event of the originator’s default on its servicing obligations).  The originator may, in its sole discretion and subject to the agreed-upon servicing standards, refer a borrower loan to a collection agency at any time, or elect to initiate legal action to collect a borrower loan, repossess or foreclose upon any collateral securing a borrower loan, or sell a borrower loan to a third party debt buyer at any time. Any amounts received from borrowers will be forwarded to Prosper by the originator. In servicing borrower loans the originator may, in its discretion, utilize affiliated or unaffiliated third party loan servicers, repossessors, collection agencies or other agents or contractors.

Q:What guarantees do lender members have that a Note will be paid?

A:There are no guarantees that a Note will be paid.  See “Risk Factors—Risks Related to Borrower Default” for more information.

Q:Can lender members collect on late payments themselves?

A:No.  Under the lender registration agreement and the terms of the indenture, each lender member agrees that under no circumstances may a lender member attempt collection of a late payment, or any amounts owing on a borrower loan corresponding to their Note, themselves.  Lender members must depend on Prosper, the originator or third-party collection agents to pursue collection on delinquent Prosper borrower loans or open market loans.  If collection action must be taken in respect of a borrower loan, we, the originator or the collection agency will charge a collection fee of between 15% and 30% of any amounts that are obtained.  These fees will correspondingly reduce the amounts of any payments lender members receive on the Notes.

Q:What happens if a borrower repays early?

A:Prosper borrower members are permitted to make extra payments on, or prepay, their Prosper borrower loans in part or in their entirety at any time without penalty.  In general, borrower under open market loans have similar rights.  Depending on the particular loan type in question, borrowers on open market loans may or may not be permitted to prepay the loan without penalty.  In the event of a prepayment of the entire remaining unpaid principal amount of a borrower loan on which Notes are dependent, lender members will receive their pro-rata share of such prepayment, net of servicing fees, and interest will stop accruing after the date on which such prepayment is received by us.  If a borrower partially prepays a borrower loan, we will pay lender members their share of the prepayment amount we receive, net of servicing fees, and the amount of the prepayment will reduce the principal amount on the Note.  See “Risk Factors—Risks Inherent in Investing in the Notes” for more information.

Q:How are the Notes treated for United States federal income tax purposes?

A:Although the matter is not free from doubt, Prosper intends to treat the Notes as debt instruments of Prosper that have original issue discount (OID) for U.S. federal income tax purposes.  Accordingly, a holder of a Note will be required to

17

include OID in income as ordinary interest income for U.S. federal income tax purposes as it accrues (which may be in advance of interest payments on the Note), regardless of such holder’s regular method of tax accounting.  Prospective purchasers of the Notes should consult their own tax advisors regarding the U.S. federal, state, local and non-U.S. tax consequences of the purchase, ownership, and disposition of the Notes (including any possible differing treatments of the Notes).  See “Material U.S. Federal Income Tax Considerations” for more information.

Q:What is a group?

A:A group can be any collection of people with common interests, including social, cultural, ethnic, professional, educational, athletic, religious, or any other official or unofficial affiliation.  Groups may consist of Prosper borrower members, lender members or registered Prosper users who have not taken a role, or any combination of the above.  Groups allow people to join together for the common goal of borrowing money at better rates and give borrowers an additional incentive — the borrower’s reputation in the group — to meet their obligation to repay a borrower loan.  Prosper does not approve or verify the group membership criteria and any claims of group affiliation by Prosper borrower members or lender members may be erroneous.

Q:What are the benefits of group membership?

A:Prosper borrower listings identify the group, if any, to which the borrower belongs.  Prosper believes that a borrower’s identification with a group may attract bids from lender members with similar interests, resulting in borrower loans with potentially lower interest rates for the group’s borrowers, or a greater likelihood of loan funding.  As discussed above, Prosper does not verify the group membership criteria and any claims of group affiliation by Prosper borrower members or lender members may be erroneous.

Q:Do groups or group leaders guarantee the Prosper borrower loans requested by their members?

A:No.  Neither groups nor group leaders guarantee their members’ obligations under any borrower loan in any way, nor do group members guarantee the borrower loans of fellow group members.  Borrowers are fully responsible for their own credit obligations.

Q:Do groups or group leaders make bidding decisions or set rates for Prosper borrower loans requested by their members?

A:No.  Neither groups nor group leaders make bidding decisions or set interest rates, although members of groups who are lender members can affect rates by bidding on their fellow group members’ listings.

Q:How is Prosper regulated?

A:The servicing of Notes is subject to state and federal regulation.  Prosper and the Prosper borrower loans originated or sold on our platform must comply with applicable state laws, including licensing and disclosure requirements.  In addition, in connection with the origination, sale and servicing of borrower loans, we must comply with 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.  We are subject to examination, supervision, and potential regulatory investigations and enforcement actions by state and federal agencies, such as the Federal Trade Commission, that administer the federal consumer protection laws.  See “Government Regulation—Regulation and Consumer Protection Laws” for more information.

Q:How is WebBank regulated?

A:WebBank’s lending activities are subject to state and federal regulation.  WebBank and the borrower loans it makes must comply with applicable state lending laws, to the extent such laws are not preempted by federal law applicable to state-chartered industrial banks.  In addition, WebBank must comply with 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.  WebBank is subject to examination, supervision, and potential regulatory

18

investigations and enforcement actions by state agencies that regulate Utah-chartered industrial banks, and federal agencies, such as the FDIC, that regulate industrial banks and administer the federal consumer protection laws.  See “Government Regulation—Regulation and Consumer Protection Laws” for more information.

Q:How does Prosper make money from our platform?

A:    Each time a Prosper borrower loan is funded, the borrower is charged a transaction fee equal to a specified percentage (currently 2.5%) of the amount of the Prosper borrower loan, subject to a specified minimum fee (currently $75). Each time an open market loan is sold, the originator is charged a transaction fee equal to a specified percentage of the sale price of the open market loan, subject to a minimum transaction fee.  Transaction fees on Prosper borrower loans and open market loans are subject to change from time to time.  The transaction fee on Prosper borrower loans is paid by the borrower out of the proceeds of the Prosper borrower loan at the time the borrower loan is funded.  The transaction fee is paid to WebBank, and Prosper receives amounts equal to the transaction fees as compensation for loan origination activities.  The transaction fee on open market loans is paid out of the proceeds from the sale of the open market loans.  In addition, Prosper currently charges lender members a servicing fee equal to an annualized rate of 1.0% for Prosper Borrower Notes and 0.5% for Prosper Open Market Notes, of the outstanding principal balance of the corresponding borrower loan, which we deduct from each lender member’s share of the borrower loan payments.If Prosper establishes the trading platform on which the Notes may be resold, Prosper intends to charge all lender members who post a listing for the sale of a Note a nonrefundable administrative fee in a specified amount (currently $0.25) that is subject to change from time to time.  Listing fees will be charged and collected at the time the listing is posted on the trading platform by deducting the resale listing fee from the selling lender member’s funding account.

Q:Are there any risks associated with an investment in the Notes?

A:Yes.  The Notes are highly risky and speculative.  Investing in the Notes should be considered only by persons who can afford the loss of their entire investment.  In addition, the holders of Prosper Open Market Notes may be exposed to risks different than those experienced by holders of Prosper Borrower Notes.  See “Risk Factors—Risks Inherent in Investing in the Notes” and “Risk Factors—Additional Risks for Prosper Open Market Notes” for more information.

Q:Will lender members receive payments on the Notes in the event Prosper declares bankruptcy or otherwise experiences financial distress?

A:If Prosper were to become subject to a bankruptcy or similar proceeding, the rights of the holders of the Notes could be uncertain, and payments on the Notes may be limited, suspended or stopped even if the borrowers are making payments on the corresponding borrower loans.  The Notes are unsecured and holders of the Notes do not have a direct security interest in the corresponding borrower loans or the proceeds of those corresponding borrower loans.  The recovery, if any, of a holder on a Note may be substantially delayed.  Even funds held by Prosper in trust for the holders of Notes may potentially be at risk.  Prosper intends to grant the indenture trustee a first-priority security interest in Prosper’s right to receive payments and in all payments Prosper has received under the corresponding borrower loan for that series of Notes.  The indenture trustee may exercise its rights under the security interest only if an event of default has occurred under the indenture solely by reason of Prosper becoming subject to a bankruptcy or similar proceeding and not for any other reason.  Accordingly, if Prosper were to become subject to a bankruptcy or similar proceeding, the indenture trustee, but not the holders of a Note, would have a secured claim against Prosper limited in recovery to the corresponding borrower loan payments for that series of Notes.  See “Risk Factors—Risks Related to Prosper, Our Platform and Our Ability to Service the Notes” for more information.

Q:What if Prosper were to go out of business?

A:No new borrower loans would be created and, we would assign our servicing obligations to a suitable third party loan servicer.  All existing Notes would be serviced to completion by such third party loan servicer.  The third party loan servicer would take over the administrative responsibilities related to the Notes such as the collection and transfer of monthly payments, providing timely payment notices, monthly lender member statements and required tax documentation, overseeing the collection of delinquent Notes on behalf of the lender members, and reporting payment performance to consumer reporting agencies.  We have entered into a back-up servicing agreement with a loan servicing company who 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 who has extensive experience and knowledge entering into successor loan servicing agreements.  As well, they will provide monthly investor reports on our loan servicing activity that will be available to all registered users.  If Prosper is unable to assign its servicing obligations to a suitable third party loan servicer, borrowers would still be obligated to make payments on their Notes, but lender members’ ability to collect on

19

the Notes may be substantially impaired.  See “Risk Factors—Risks Related to Prosper, Our Platform and Our Ability to Service the Notes” for more information.

Q:What if WebBank were to go out of business?

A:If Prosper were unable to identify and reach agreement with a suitable state-chartered or federally-chartered bank to take the place of WebBank, loans would be made by Prosper under the authority of its state lending licenses or other applicable state law. See “Risk Factors—Risks Relating to Compliance and Regulation—We rely on our agreement with WebBank to originate loans to qualified borrower members on a uniform basis throughout the United States” for more information.

Q:What if an originator of an open market loan were to go out of business?

A:Open market loans will be serviced by the originator of the loan and not by Prosper.  Should an originator suspend its operations, there could be delays in the receipt of funds as Prosper transfers servicing operations for the open market loans to a backup servicer, as required by the master loan purchase agreement between Prosper and the originator.  In addition, in the event of a bankruptcy or similar proceeding of an originator, the relative rights of Prosper to receive payments under open market loans, as compared to the holders of unsecured indebtedness of the originator are uncertain.  See “Risk Factors—Additional Risks for Prosper Open Market Notes” for more information.

20

RISK FACTORS

Our Notes involve a high degree of risk.  You should carefully consider the risks described below before making a decision to invest in the Notes.  If any of the following risks actually occurs, you might lose all or part of your investment in the Notes.  You should also refer to the individual borrower profiles and borrower credit information provided on our platform.   

Risks Related to Borrower Default

The Notes are risky and speculative investments for suitable investors only.

You should be aware that the Notes offered through our platform are risky and speculative investments.  The Notes are special, limited obligations of Prosper and are depend entirely on payments to Prosper of obligations of borrowers under the corresponding borrower loans.  Prosper borrower loans are obligations of individual consumers, and open market loans may include existing consumer loans or retail installment sale contracts as well as small business loans, where the borrower is a business entity, not an individual (although one or more individuals may be a guarantor of the loan).  Notes are suitable only for investors of adequate financial means.  If you cannot afford to lose the entire amount of money you plan to bid and commit to purchase on Notes corresponding to borrower loans on our platform, you should not attempt to invest in the Notes.  You should not assume that a Note is an appropriate investment for you because it corresponds to a borrower loan listed on our platform.  

Payments on the Notes depend entirely on payments we receive on corresponding borrower loans.  If a borrower fails to make any payments on the corresponding borrower loan related to your Note, you will not receive any payments on your Note.

We will only make payments pro rata on the Notes of a series after we receive a borrower’s payment on the corresponding borrower loan, net of servicing fees.  We will not pay to lender members any non-sufficient funds fees or collection fees we, an originator or a third-party collection agency charge, and on open market loans late fees may be retained by the originator servicing the open market loan.  If we do not receive payments on the corresponding borrower loan related to your Note, you will not be entitled to any payments under the terms of the Notes, and you will not receive any payments.  

The Notes are special, limited obligations of Prosper only and are not directly  secured by any collateral or guaranteed or insured by any third party.

The Notes will not represent an obligation of borrowers or any other party except Prosper, and are special, limited obligations of Prosper.  The Notes are not directly secured by any collateral and are not guaranteed or insured by any governmental agency or instrumentality or any third party.  Although Prosper intends to grant the indenture trustee, for the benefit of the trustee and the holders of the Notes, a security interest in all present and future rights of Prosper to payment under the corresponding borrower loan for each series of Notes and all money and property received by Prosper, the holders of the Notes do not directly have a security interest in the corresponding borrower loans for that Series or in the proceeds thereof.  In addition, Prosper Open Market Notes will not be secured by any collateral, even though the corresponding open market loan may be secured by personal property.  Although the originator is obligated to forward to Prosper any amounts it receives on the open market loans, including amounts received upon the sale of the collateral securing an open market loan, the holders of Prosper Open Market Notes do not have the right to take any legal action under the security interest or to require that the originator take such action.

The Prosper borrower loans are not secured by any collateral or guaranteed or insured by any third party, and you must rely on Prosper, an originator, or a third-party collection agency to pursue collection against any borrower.

Prosper borrower loans are unsecured obligations of borrower members.  They are not secured by any collateral, and they are not guaranteed or insured by any third party or backed by any governmental authority in any way.  Prosper and its designated third-party collection agency will, therefore, be limited in their ability to collect on Prosper borrower loans.  In addition, while open market loans may be secured, the corresponding Prosper Open Market Note is not. Although the originator is obligated to forward to Prosper any amounts it receives on the open market loans, including amounts received upon the sale of the collateral securing an open market loan, the holders of Prosper Open Market Notes do not have the right to foreclose on the collateral or to require that the originator take such action.

Moreover, borrower loans are obligations of borrowers to Prosper as successor to WebBank, not obligations to holders of Notes.  Holders of Notes will have no recourse to borrower and no ability to pursue borrowers to collect payments under borrower loans.  Holders of Notes may look only to Prosper for payment of the Notes, and Prosper’s obligation to pay the Notes is limited as described in this prospectus.  Furthermore, if a borrower fails to make any payments on the borrower loan corresponding to a Note, the holder of that Note will not receive any payments on that Note.  The holder of that Note will not be able to pursue collection against any borrower and will not be able to obtain the identity of the borrower in order to contact the borrower about the defaulted borrower loan.  In addition, as described in this prospectus, in the unlikely event that we receive payments on the corresponding borrower loan relating to your Notes after the final maturity date, you will not receive payments on your Notes after maturity.  See “Summary of Material Agreements Indenture and Form of Notes.” for more information.

21

Some of the borrowers on our platform have “subprime” credit ratings, are considered higher than average credit risks, and may present a high risk of loan delinquency or default.

Some of the borrowers on our platform are people who have had difficulty obtaining loans from banks and other financial institutions on favorable terms, or on any terms at all, due to credit problems, limited credit histories, adverse financial circumstances, or high debt-to-income ratios.  Therefore, acquiring Notes dependent for payment on payments on the corresponding borrower loans to such borrowers may present a high risk of loan delinquency or default.  Since our inception in November 2005 through October 16, 2008, we have facilitated 28,940 borrower loans with an average original principal amount of $6,172 and an aggregate original principal amount of $178,622,722 on our platform.  As of December 31, 2008, of these outstanding loans, 61.1% were current, 16.5% were paid in full, 1.2% were 15 to 30 days late, and 4.8% were more than 30 days late.  In addition, of these outstanding loans:

·7,959 loans, or 27.5%, have ever been more than 15 days past due on at least one occasion;

·6,814 loans, or 23.5%, have been more than 30 days past due on at least one occasion at one time; and

·16.5% had defaulted (a borrower loan is considered to have defaulted when it is more than 120 days past due or has filed a bankruptcy which has been discharged).

Selected historical loss rates on the Notes can be found in this prospectus under the heading “About the Platform—Historical Information About Our Borrowers and Outstanding Borrower Loans.”  There can be no assurance that such historical loss rates will be indicative of future loss rates or the likelihood of the delinquency or default on any Note of a particular borrower.

Borrowers’ credit information may be inaccurate or may not accurately reflect the borrower’s creditworthiness, which may cause you to lose all or part of the price you paid for a Note.

We obtain borrower credit information from consumer reporting agencies, and assign loan requests a Prosper Rating based in part on the borrower’s credit score.  On open market loans offered for sale on the platform, we obtain credit information on the borrower from the originator, and such credit information is normally based on a consumer report obtained by the originator from a consumer reporting agency.  A credit score that forms a part of the Prosper Rating, assigned to a borrower may not reflect that borrower’s actual creditworthiness because the credit score may be based on outdated, incomplete or inaccurate consumer reporting data, and we generally do not verify the information obtained from the borrower’s credit report or information provided to us with respect to open market listings.  Similarly, the borrower credit data displayed in Prosper borrower listings may be based on outdated, incomplete or inaccurate consumer reporting data from the consumer report obtained on the borrower.  Moreover, lender members do not, and will not, have access to financial statements of borrower members or to other detailed financial information about borrower members.  In addition, we currently retrieve a subsequent consumer report and credit score for a Prosper borrower member after the previous consumer report is more than 30 days old.  Therefore, there is a risk that a borrower may have become delinquent in a payment, defaulted on a debt obligation, taken on more personal debt, or sustained other adverse financial events after the date the last consumer report was retrieved, and the Prosper Rating assigned to the borrower may not accurately reflect the borrower’s actual current creditworthiness.

As the Prosper Rating to be assigned to listings after the date of this prospectus is the result of a new credit grading system developed by Prosper, you should not look at the performance history of our borrower loans with the same letter grade as the Prosper Rating as a valid indication of how the borrower loan upon which a Note is dependent for payment will perform in the future.

Prosper will implement a new credit grading system on the effective date of this prospectus.  Each listing will be assigned a Prosper Rating that indicates the borrower’s level of risk and corresponds to an estimated average annualized loss rate range.  Initially, the Prosper Rating will be indicated by the same seven letter credit grades previously used to indicate the borrower’s credit grade for each borrower loan listed on our platform.  The Prosper Rating allows Prosper to maintain consistency when assigning a rating to the borrower regardless of originator, type of credit score used or type of loan being offered for sale. For Prosper borrower listings, the Prosper Rating will be derived from two scores:  a consumer reporting agency score and an in-house custom score calculated using the historical performance of previous Prosper borrower loans with similar characteristics. For open market listings, the originator will provide us with a loss rate on the type of loan being offered for sale, and we will translate the loss rate to a Prosper Rating.  Although the same seven letter credit grades will be used to represent the Prosper Rating, the letter credit grades will not be comparable as they are computed in a different  

22

manner and represents a different risk profile.  Moreover, Prosper adopted the new credit rating system, in part, due to variations in loss rates among Prosper borrowers with the same credit grade due to variations in the borrower’s credit characteristics within a credit score tier.  Accordingly, you should not look at the performance history of our borrower loans with a letter grade the same as the Prosper Rating as a valid indication of how the borrower loan upon which a Note is dependent for payment will perform in the future.

Information supplied by borrowers may be inaccurate or intentionally false.

Originators and Prosper borrowers supply a variety of unverified information that is included in the borrower loan listings on our website.  We do not verify this information, and this information may be inaccurate.  We do not verify the borrower information provided to us by originators on open market loans.  In addition, we generally do not verify a borrower’s stated income, employment status or occupation, and the information borrowers supply may be inaccurate or intentionally false.  Prosper borrowers may misrepresent their intentions for the use of borrower loan proceeds.  Prosper and WebBank do not verify any statements by Prosper borrowers as to how loan proceeds are to be used and do not confirm after loan funding how loan proceeds were used.  All listings are posted on our platform without our verifying the borrower’s stated income or employment status that appears in the listing.  In the limited cases in which we have selected Prosper borrower members for income and employment verification, the verification is normally done after the listing has been created and bidding has ended but prior to the time the Prosper borrower loan is funded.  From the period from September 1, 2007 to August 31, 2008, when we have conducted pre-funding income and employment verification approximately 56.4% of these borrowers have provided us with satisfactory responses and received a borrower loan; approximately 37.7% of these borrowers either did not provide satisfactory responses or did not respond, and their listings were cancelled; and approximately 5.9% of these borrowers either withdrew their listing or failed to receive bids totaling the amount of their requested loan.  The identity of borrowers is not revealed to lender members, and lender members also have no ability to obtain or verify borrower information either before or after they purchase a Note.  Potential lender members may only communicate with Prosper borrower members through Prosper website postings, and then only on an anonymous and unverified basis.  Lender members will not be able to communicate with the borrowers on open market loans.

If you rely on false, misleading or unverified information supplied by borrowers in deciding to purchase Notes, you may lose part or all of the purchase price you pay for a Note.  Borrower loan posting and borrower information available on the Prosper website will be statements made in connection with the purchase and sale of securities, and therefore subject to Rule 10b-5 of the Notes Exchange Act of 1934, as amended (the “Exchange Act”).  Borrower loan posting and borrower information filed in prospectus supplements will be subject to the liability provisions of the Securities Act.  In general, Section 10b-5 and the liability provisions of the Securities Act provide the purchaser of securities with a right to bring a claim against the issuer for damages arising from any untrue statement of material fact in this prospectus or any omission of a material fact made in connection with the sale of securities.  In this prospectus, we advise potential investors as to the limitations on the reliability of this information, and a lender member’s recourse in the event this information is false will be extremely limited. 

While we take many precautions to prevent borrower fraud, it is possible that fraud may occur and adversely affect a lender member’s ability to collect upon the Notes or delay the recoupment of a lender member’s investment.

We use identity and fraud checks with external databases to authenticate each Prosper borrower member’s identity.  No verification is made with respect to borrowers on open market loans offered for sale on the platform.  Although we use diligent efforts in this regard, there is a risk that our fraud checks could fail and fraud may occur.  Additionally, Prosper borrower members may misrepresent their intentions for the Prosper borrower loan proceeds or other information that we do not attempt to verify.  While we will repurchase Notes in limited circumstances, such as material default on the corresponding borrower loan resulting from verifiable theft of a borrower’s identity, or resulting from the failure of the corresponding borrower loan to comply at origination in material respects with applicable federal and state law, and the originator of the open market loans is under a similar obligation to repurchase open market loans from us, we are not obligated to repurchase a Note from you if your investment is not realized in whole or in part due to fraud (other than verifiable identity theft) in connection with a listing for the underlying borrower loan, or due to false or inaccurate statements or omissions of fact in a borrower’s listing, whether in credit data, borrower’s representations, user recommendations, group affiliations or similar indicia of borrower intent and ability to repay the borrower loan.  If Prosper repurchases a Note, only the outstanding principal balance will be returned to the lender member.  See “About the Platform—Indentity Fraud Reimbursement” for more information.

23

We do not have significant historical performance data about borrower performance on the borrower loans.  Loss rates on the borrower loans may increase and prior to investing you should consider the risk of non-payment and default under our outstanding borrower loans.

We are in the early stages of our development and have a limited operating history.  We began offering loans publicly through the platform in February of 2006.  Due to our limited operational history, we do not have significant historical performance data regarding Prosper borrower member performance on Prosper borrower loans, and we do not yet know what the long-term loan loss experience will be.  The estimated loss rates we display on the website and use to determine the Prosper Rating have been developed from our loss histories.  With respect to open market loans, the open market loan loss performance is provided to us by the originator and we do not verify this information.  Moreover, these loss rates occurred prior to the recent contraction in the global financial and credit markets and significant downturn in the United States economy and borrower loans originated or sold on our platform may default more often than similar loans have defaulted in the past.

If payments on the corresponding borrower loans relating to your Notes become more than 30 days overdue, it is likely you will not receive the full principal and interest payments that you expect to receive on your Notes due to collection fees, and you may not recover any of your original purchase price.

If a borrower fails to make a required payment on a borrower loan within 30 days of the due date, we will pursue reasonable collection efforts in respect of the borrower loan.  Referral of a delinquent borrower loan to a collection agency on the 31st day of its delinquency will be considered reasonable collection efforts.  Since our inception in November 2005 through October 16, 2008, we have facilitated 28,940 borrower loans.  With respect to our outstanding loans as of December 31, 2008:

·1.2% were 15 to 30 days late and 27.5% had been more than 15 days past due on at least one occasion; and

·4.8% were more than 30 days late and 23.5%, have been more than 30 days past due on at least one occasion.

If Prosper or an originator refers a loan to a collection agency, neither Prosper nor the originator will have any other obligation to attempt to collect that borrower loan.  We or an originator may also handle collection efforts in respect of a delinquent borrower loan directly.  If payment amounts on a delinquent borrower loan are received from a borrower more than 30 days after their due date, then we, the originator or, if the delinquent loan is referred to an outside collection agency, that collection agency, will retain a percentage of any funds recovered from such borrower as a servicing fee before any principal or interest becomes payable to you from recovered amounts in respect of Notes related to the corresponding borrower loan.  Collection fees range from 15% to 30% of recovered amounts.  See “About the Platform—Post-Funding Loan Servicing and Collection” for more information.

Prosper, the originator or the collection agency may not be able to recover some or all of the unpaid balance of a non-performing borrower loan, and a lender member who has purchased a Note dependent on the non-performing borrower loan would then receive nothing or a small fraction of the unpaid principal and interest of the Note.  In addition, although certain open market loans are secured by personal property, there is no guarantee the collateral securing the loan will be available or sufficient to cover the outstanding balance under the open market loan.  You must rely on the collection efforts of Prosper on Prosper borrower loans, the originator on open market loans or the collection agencies to which such borrower loans are referred. You are not permitted to attempt to collect payments on the borrower loans in any manner.

Loss rates on the borrower loans may increase as a result of economic conditions beyond our control and beyond the control of the borrower.

Borrower loan loss rates may be significantly affected by economic downturns or general economic conditions beyond our control and beyond the control of individual borrowers.  In particular, loss rates on borrower loans on which the Notes are dependent may increase due to factors such as prevailing interest rates, the rate of unemployment, the level of consumer confidence, residential real estate values, the value of the U.S. dollar, energy prices, changes in consumer spending, the number of personal bankruptcies, disruptions in the credit markets and other factors.  The recent contraction in the global financial and credit markets and significant downturn in the United States economy will likely result in an increased rate of default under the borrower loans in the future.  Accordingly, no reliance should be made on the historical loss rates on borrower loans in determining whether to purchase your Notes.  As the current economic crisis is largely unprecedented in recent history, we cannot predict the impact these events will have on a borrower’s ability to repay future borrower loans  

24

originated or offered for sale on our platform, although we do not expect the loss rate for borrower loans to decrease in the immediate future.

In the unlikely event that we receive payments on the corresponding borrower loans relating to your Notes after the final maturity date, you will not receive payments on your Notes after maturity.

Each Note will mature on the initial maturity date, unless any principal or interest payments in respect of the corresponding borrower loan remain due and payable to Prosper upon the initial maturity date, in which case the maturity of the Note will be automatically extended to the final maturity date.  If there are any amounts under the corresponding borrower loan still due and owing to Prosper after the final maturity, Prosper will have no further obligation to make payments on the Notes of the series even if Prosper receives payments on the corresponding borrower loan after the final maturity.

In general, the borrower loans on which the Notes are dependent do not restrict borrowers from incurring additional unsecured or secured debt, nor do they impose any financial restrictions on borrowers during the term of the borrower loan, which may impair your ability to receive the full principal and interest payments that you expect to receive on a Note.

If a borrower incurs additional debt after the date of the borrower loan, the additional debt may impair the ability of that borrower to make payments on his or her borrower loan and your ability to receive the principal and interest payments that you expect to receive on Notes dependent for payment on payments we receive on the corresponding borrower loans.  In addition, the additional debt may adversely affect the borrower’s creditworthiness generally, and could result in the financial distress, insolvency, or bankruptcy of the borrower.  To the extent that the borrower has or incurs other indebtedness and cannot pay all of his or her indebtedness, the borrower may choose to make payments to other creditors, rather than Prosper, on the borrower loan.

To the extent borrowers incur other indebtedness that is secured, such as mortgage, home equity or auto loans, the ability of the secured creditors to exercise remedies against the assets of the borrower may impair the borrower’s ability to repay the borrower loan on which your Note is dependent for payment.  Borrowers on Prosper borrower loans may also choose to repay obligations under secured indebtedness before repaying Prosper borrower loans originated through our platform because there is no collateral securing Prosper borrower loans.  A lender member will not be made aware of any additional debt incurred by a borrower, or whether such debt is secured, including with respect to open market loans.  In addition, the credit detail for borrowers under open market loans is shown as of the open market loan origination date and is not updated when an open market listing is posted on our platform.

Because the interest rate and yield payable on the Notes is determined through an auction process and is not tied directly to the creditworthiness of the borrower, the interest rate of the Notes may not be adequate to compensate you for the risks associated with the particular Note.

The interest rate and yield on a Note is the rate determined by our platform’s auction system and is fixed at the minimum interest rate or yield acceptable to all lender members who are the winning bidders at the expiration of the auction bidding period for Notes that are dependent for payment on payments we receive on the corresponding borrower loan described in the listing.  Because the interest rate and yield is not tied directly to the creditworthiness of the borrower, the interest rate and yield of the Notes may not be adequate to compensate you for the risks associated with the borrower loan upon which the Note is dependent for payment.

A borrower may request that his or her bank “chargeback” a payment on a borrower loan upon which a Note is dependent for payment and request a refund on that payment, resulting in a delinquency on the payment and a possible negative cash balance in your funding account.

A borrower chargeback is a process by which a borrower who has made a payment on a borrower loan has his or her bank cancel the payment or request a refund of that payment.  We avoid chargebacks by withholding payments to lender members until four business days after the payment was initiated.  If the chargeback occurs between four and 60 days after the initiation of payment, you must rely on us to contest the chargeback if we deem it appropriate.  If a borrower successfully processes a chargeback between four and 60 days after initiation of payment, such payment will be deducted from your Prosper account, and if you have withdrawn funds in the interim, a negative cash balance may result.

25

Peer-to-peer lending is a new lending method and our platform has a limited operating history.  Borrowers may not view or treat their obligations as having the same significance as traditional lending sources, such as bank loans and Prosper borrower loans may have a higher risk of default that loans with a similar credit score.

The investment return on the Notes depends on borrowers fulfilling their payment obligations in a timely and complete manner under the corresponding borrower loan.  Because our platform is a new concept, we do not have significant historical performance data regarding borrower performance on the borrower loans.  Borrowers may not view person-to-person lending obligations originated on our platform as having the same significance as other credit obligations arising under more traditional circumstances, such as loans from banks or other commercial financial institutions.  If a borrower neglects his or her payment obligations on a borrower loan upon which payment of the corresponding Note is dependent or chooses not to repay its borrower loan entirely, you may not be able to recover any portion of your investment in a Note.

Our platform may fail to comply with borrower protection laws such as state lending laws, or federal consumer protection laws such as the Truth in Lending Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act.  Borrowers may make counterclaims against us, any collection agency or you after collection actions have commenced.

Applicable state laws generally regulate interest rates and other charges and require certain disclosures.  In addition, other state laws, public policy and general principles of equity relating to the protection of consumers, unfair and deceptive practices and debt collection practices may apply to the origination, servicing and collection of a borrower loan upon which a series of Notes is dependent for payment.  The borrower loans are also subject to federal laws, including, without limitation, the federal Truth-in-Lending Act and Regulation Z promulgated thereunder, which require certain disclosures to the borrowers regarding the terms of the loan; the federal Equal Credit Opportunity Act and Regulation B promulgated thereunder, which prohibit discrimination on the basis of age, race, color, sex, religion, marital status, national origin, receipt of public assistance or the exercise of any right under the Consumer Credit Protection Act, in the extension of credit; and the federal Fair Credit Reporting Act, which regulates the use and reporting of information related to each borrower’s credit history.  We may not always have been and may not always be in compliance with these laws.  Failure to comply with the laws and regulatory requirements applicable to our business may, among other things, limit our, or a collection agency’s, ability to collect all or part of the principal of or interest on the borrower loans and, in addition, could subject us to damages, revocation of required licenses or other authorities, class action lawsuits, administrative enforcement actions, and civil and criminal liability, which may harm our business and ability to maintain our platform and may result in borrowers rescinding their borrower loans.  See “Government Regulation—Regulation and Consumer Protection Laws” for more information.

We regularly review the requirements of these laws and take measures aimed at ensuring that the borrower loans originated on our platform meet the requirements of all applicable laws.  However, determining compliance with all applicable laws is a complex matter and it is possible that our determination may be inaccurate or incorrect.  Also, changes in law, either due to court decisions, regulatory interpretations or rulings, or new legislation, may adversely affect the collectibility of a borrower loan.

In general, the borrower loans do not contain any cross-default or similar provisions.  If a borrower defaults on their debt obligations other than on the borrower loan, the ability to collect on borrower loan on which your Notes are dependent for payment may be substantially impaired.

In general, the borrower loans do not contain cross-default provisions.  A cross-default provision makes a default under certain debt of a borrower an automatic default on other debt of that borrower.  Because the borrower loans generally do not contain cross-default provisions, a borrower’s loan will not be placed automatically in default upon that borrower’s default on any of the borrower’s other debt obligations, unless there are independent grounds for a default on the borrower loan.  In addition, the borrower loan will not be referred to a third-party collection agency for collection because of a borrower’s default on debt obligations other than the borrower loan.  If a borrower defaults on debt obligations owed to a third party and continues to satisfy the payment obligations under the borrower loan, the third party may seize the borrower’s assets or pursue other legal action against the borrower before the borrower defaults on the borrower loan.  Payments on Notes may be substantially reduced if a borrower subsequently defaults on a corresponding borrower loan, and you may be unable to recoup any or all of your expected principal and interest payments on those Notes.

Borrowers may seek the protection of debtor relief under federal bankruptcy or state insolvency laws, which may result in the nonpayment of your Notes.

Borrowers on borrower loans may seek protection under federal bankruptcy law or similar laws.  If a borrower files for bankruptcy (or becomes the subject of an involuntary petition), a stay will go into effect that will automatically put any

26

pending collection actions on hold and prevent further collection action absent bankruptcy court approval.  If we receive notice that a borrower has filed for protection under the federal bankruptcy laws, or has become the subject of an involuntary bankruptcy petition, we will put the borrower’s loan account into “bankruptcy status.” When this occurs, we terminate automatic monthly ACH debits on Prosper borrower loans and we, and the originator with respect to open market loans, do not undertake collection activity without bankruptcy court approval.  Whether any payment will ultimately be made or received on a borrower loan after a bankruptcy status is declared depends on the borrower’s particular financial situation.  It is possible that the borrower’s liability on the borrower loan will be discharged in bankruptcy.  In most cases involving the bankruptcy of a borrower, unsecured creditors, including Prosper as the holder of the borrower loans, will receive nothing, or only a fraction of any amount outstanding on their borrower loans.  Moreover, although certain open market loans may be secured by personal property, there is no guarantee the collateral securing the loan will be available or sufficient to cover the outstanding balance under the open market loan.  See “About the Platform—Post-Funding Loan Servicing and Collection” for more information.

Federal law entitles borrowers who enter active military service to an interest rate cap and certain other rights that may inhibit the ability to collect on loans and reduce the amount of interest paid on the corresponding Notes.

Federal law provides borrowers on active military service with rights that may delay or impair our ability to collect on a borrower loan corresponding to your Note.  The Servicemembers Civil Relief Act, or “SCRA, “requires that the interest rate on preexisting debts, such as borrower loans, be set at no more than 6% while the qualified service member or reservist is on active duty.  A holder of a Note that is dependent on such a borrower loan will not receive the difference between 6% and the original stated interest rate for the borrower loan during any such period.  This law also permits courts to stay proceedings and execution of judgments against service members and reservists on active duty, which may delay recovery on any borrower loans in default, and, accordingly, payments on Notes that are dependent for payment on payments we receive on these corresponding borrower loans.  If there are any amounts under such a borrower loan still due and owing to Prosper after the final maturity of the Notes that correspond to the borrower loan, we will have no further obligation to make payments on the Notes, even if we later receive payments after the final maturity of the Notes.  We do not take military service into account in assigning credit grades to borrower loan requests.  In addition, as part of the borrower registration process, we do not request Prosper borrower members to confirm if they are a qualified service member or reservists within the meaning of the SCRA.  See “Government Regulation—Regulation and Consumer Protection Laws—Servicemembers Civil Relief Act” for more information.

The death of a borrower may substantially impair your ability to recoup the full purchase price of Notes that are dependent for payment on payments we receive on the corresponding borrower loan to that borrower or to receive the interest payments that you expect to receive on the Notes.

If a borrower with outstanding obligations under a borrower loan dies while the borrower loan is outstanding, generally, we or the originator will seek to work with the executor of the estate of the borrower to obtain repayment of the borrower loan.  However, the borrower’s estate may not contain sufficient assets to repay the borrower loan on which your Note is dependent for payment.  In addition, if a borrower dies near the end of a borrower loan, it is unlikely that any further payments will be made on the Notes corresponding to such borrower loan, because the time required for the probate of the estate may extend beyond the initial maturity date and the final maturity date of the Notes.

Prosper is not obligated to repurchase any Notes except in limited circumstances.  If Prosper is unable to meet its repurchase obligations, you may lose your entire investment in the Notes.

Prosper is not obligated to repurchase any Note except in limited circumstances, such as material default on a Note resulting from verifiable theft of a borrower’s identity, or resulting from the failure of the corresponding borrower loan to comply at origination in material respects with applicable federal and state law. Additionally, the lender registration agreement and the indenture provides that, in the event of a material breach of our representations and warranties, we must either cure the defect, repurchase the Note, or indemnify and hold the lender member harmless against losses resulting from the defect in the Note.  However, we are not obligated to repurchase a Note from a lender member if his or her investment is not realized in whole or in part due to fraud (other than verifiable identity theft) in connection with a listing, or due to false or inaccurate statements or omissions of fact in a borrower’s listing, whether in credit data, borrower representations, user recommendations, group affiliations or similar indicia of borrower intent and ability to repay the Notes.  Even if we are obligated to repurchase a Note, there can be no assurance that we will be able to meet our repurchase obligation.  If we are unable to meet our repurchase obligations with respect to such Note you may lose all of your investment in such Note.  See “About the Platform—Indentity Fraud Reimbursement” and “Summary of Material Agreements—Lender Registration Agreement” for more information.

27

Risks Inherent in Investing in the Notes

If you decide to invest through our platform and concentrate your investment in a single Note, you may increase your risk of borrower defaults.

Your expected return on your investment in the Notes depends on the performance of the borrowers on their respective obligations under the corresponding borrower loan.  There are a wide range of Prosper Ratings and listings on our platform and we expect some borrowers to default on their loans.  If you decide to invest through our platform and concentrate your investment in a single Note, your entire return will depend on the performance of a single borrower loan.  For example, if you plan to purchase $200 of Notes, and choose to invest the entire $200 in a single Note instead of in four $50 Notes corresponding to the borrower loans of four different borrowers, your entire $200 investment will depend on the performance of a single borrower loan.  It may be desirable to diversify your portfolio in order to reduce the risk that you could lose your entire investment due to a single default, or a small number of defaults.  However, diversification does not eliminate the risk that you may lose some, or all, of your investment in the Notes.

Our platform allows a borrower member to prepay a Prosper borrower loan at any time without penalty, and borrowers under open market loans have similar rights.  Borrower loan prepayments will extinguish or limit your ability to receive additional interest payments on a Note.

Borrower loan prepayment occurs when a borrower decides to pay some or all of the principal amount on a borrower loan earlier than originally scheduled.  Borrowers on Prosper borrower loans may decide to prepay all or a portion of the remaining principal amount at any time without penalty.  In general, borrowers under open market loans have similar rights.  In the event of a prepayment of the entire remaining unpaid principal amount of a borrower loan on which your Notes are dependent for payment, you will receive your share of such prepayment but further interest will not accrue after the date on which the payment is made.  If a borrower prepays a portion of the remaining unpaid principal balance on a borrower loan on which your Notes are dependent for payment, the term of the borrower loan will not change, but interest will cease to accrue on the prepaid portion.  If a borrower prepays a borrower loan in full or in part, you will not receive all of the interest payments that you originally expected to receive on Notes that are dependent for payment on payments we receive on the corresponding borrower loan, and you may not be able to find a similar rate of return on another investment at the time at which the borrower loan is prepaid.  Prepayments are subject to our 1.0% servicing fee and any servicing fee charged by the originator for open market loans, even if the prepayment occurs immediately after issuance of your Note.  See “Summary of Material Agreements Indenture and Form of Notes.” for more information.

Prevailing interest rates may change during the term of your Notes.  If this occurs, you may receive less value from your purchase of the Note in comparison to other ways you may invest your money.  Additionally, borrowers may prepay their borrower loans due to changes in interest rates, and you may not be able to redeploy the amounts you receive from prepayments in a way that offers you the return you expected to receive from the Notes.

The borrower loans on which the Notes are dependent for payment bear fixed, not floating, rates of interest, and currently have a term of three years, but Prosper anticipates in the near future extending available loan terms to between three months to seven years.  If prevailing interest rates increase, the interest rates on Notes you purchase might be less than the rate of return you could earn if you invested the purchase price in a different investment.

While you may still receive a return on your purchase price for the Notes through the receipt of amounts equal to the interest portion of a borrower’s payments on the corresponding borrower loan, if prevailing interest rates exceed the rate of interest payable on the borrower loan, the payments you receive during the term of the Note may not reflect the full opportunity cost to you when you take into account factors such as the time value of money.

There is no prepayment penalty for borrower members who prepay their Prosper borrower loans, and borrowers under open market loans have similar rights.  If prevailing interest rates on consumer loans decrease, borrowers may choose to prepay their borrower loans with money they borrow from other sources or other resources, and you may not receive the interest payments on Notes dependent for payment on payments we receive on those corresponding borrower loans that you expect to receive or be able to find an alternative use of your money to realize a similar rate of return at the time at which the Note is prepaid.

28

The Notes will not be listed on any securities exchange, will not be transferable except through the Note trading platform, and can be held only by our lender members.  You should be prepared to hold the Notes you purchase until they mature.

The Notes will not be listed on any securities exchange.  All Notes must be held by our lender members.  The Notes will not be transferable except through our Note trading platform. There can be no assurance that a market for Notes will develop on the trading platform, or that the trading platform will continue in operation.  Therefore, lender members must be prepared to hold their Notes to maturity.  See “About the Platform—Trading Platform” for more information.

If the Note trading platform fails to develop, or if the Note trading platform develops but you cannot find a purchaser for the Notes that you wish to resell, you will be forced to hold the Notes for their remaining term.

As soon as practicable after the date of this prospectus, Prosper intends to establish the Note trading platform on which the Notes may be resold to lender members.  We cannot guarantee that a resale market will develop for the Notes.

A Note for resale must be purchased in its entirety by a single lender member and Notes with a high outstanding principal balance may be more difficult to sell due to the smaller number of investors with the ability to purchase such Notes.  In addition your ability to resell your Note will likely be affected in any adverse changes in the credit status of the borrower under the corresponding borrower loan, in addition to the other risks discussed in this prospectus.  If these situations occur, you may be forced to hold the Note for its remaining term. After the date of this prospectus, except for sales on the note trading platform, the Notes will continue to be non-transferable.

If you choose to post your Notes for resale on the Note trading platform, you may not realize the expected return on your investment due to changes in the creditworthiness of the borrower under the corresponding borrower loan.

The ability to resell your Note on the Note trading platform (should the Note trading platform be successfully developed) does not guarantee that you will be able to find a lender member willing to buy the Note at a price acceptable to you, or at all.  If the borrower becomes delinquent in payments under the corresponding borrower loan upon which your Note is dependent for payment, your ability to resell the Note on our trading platform will be substantially impaired.  You may have to offer the Note for sale at a substantial discount, and there is no guarantee that you will receive the expected value of the Note or any value at all.  Additionally, lender members may be less willing to bid for and purchase your Note if prevailing interest rates have changed or other investing activities have proven more attractive while you have held the Note.

You do not earn interest on funds held in your lender member account with Prosper.

Your Prosper funding account represents an interest in a pooled bank account that does not earn interest.  See “About the Platform—How the Platform Operates” for more information.

The U.S. federal income tax consequences of an investment in the Notes are uncertain.

There are no statutory provisions, regulations, published rulings, or judicial decisions that directly address the characterization of the Notes or instruments similar to the Notes for U.S. federal income tax purposes.  Although the matter is not free from doubt, Prosper intends to treat the Notes as debt instruments of Prosper that have original issue discount (OID) for U.S. federal income tax purposes.  Accordingly, a holder of a Note will be required to include OID in income as ordinary interest income for U.S. federal income tax purposes as it accrues (which may be in advance of interest payments on the Note), regardless of such holder’s regular method of tax accounting.  You should be aware, however, that the U.S. Internal Revenue Service (IRS) is not bound by Prosper’s characterization of the Notes and the IRS or a court may take a different position with respect to the Notes’ proper characterization.  For example, the IRS could determine that, in substance, each lender member owns a proportionate interest in the corresponding borrower loan for U.S. federal income tax purposes, or for example, the IRS could instead treat the Notes as a different financial instrument (including, for example, an equity interest or a derivative financial instrument).  Any different characterization could significantly affect the amount, timing, and character of income, gain, or loss recognized in respect of a Note.  For example, if the Notes are treated as equity of Prosper, (i) Prosper would be subject to U.S. federal income tax on income, including interest, accrued on the borrower loans but would not be entitled to deduct interest or OID on the Notes, and (ii) payments on the Notes would be treated by the holder for U.S. federal income tax purposes as dividends (that may be ineligible for reduced rates of U.S. federal income taxation or the dividends-received deduction) to the extent of Prosper’s earnings and profits as computed for U.S. federal income tax purposes.  Such a characterization may significantly reduce the amount available to pay interest on the Notes.  Accordingly, prospective purchasers of the Notes are advised to consult their own tax advisors regarding the U.S. federal, state, local and

29

non-U.S. tax consequences of the purchase, ownership, and disposition of the Notes (including any possible differing treatments of the Notes).

Additional Risks for Prosper Open Market Notes

If you purchase a Prosper Open Market Note, you should be aware that the originator selling the corresponding open market loan upon which the Note is dependent for payment will have access to more detailed loan information than that set forth in the open market listing and will have a greater ability to access the risk of the open market loan listed for sale.

Although originators will represent and warrant to us that the originator did not use any adverse selection criteria, via scoring algorithm or manual file review, to select the borrower loans listed for sale on our platform, there is no guarantee that originators will not use such adverse selection criteria.  In most cases, originators will have access to more detailed information regarding the open market loan and the borrower under that loan than that set forth in the open market listing.  For example, lender members will not know the name of the borrower, have access to the borrower’s financial statements and may not be aware of adverse changes to the borrower’s credit history after the loan origination date.  Moreover, all open market listing information will be provided by the originator and will not be independently verified by us.  Accordingly, lender members will not have the same ability to determine the default risks of open market loans upon which a Prosper Open Market Note is dependant for payment as the person offering such loan for sale.

The holders of Prosper Open Market Notes may be exposed to risks different than those experienced by holders of Prosper Borrower Notes.

Holders of Prosper Open Market Notes may be exposed to risks different than those experienced by holders of Prosper Borrower Notes including the following:

·the projected loss rate provided by the originator for the open market loan may be inaccurate, which could adversely affect the accuracy of the Prosper Rating;

·the Prosper Rating and credit detail reflected in an open market listing are determined as of the loan origination date and may not accurately reflect the current risk of the open market loan;

·the information contained in open market listings is not independently verified by Prosper;

·open market loans will be serviced by the originator and not Prosper, which may introduce additional delays in the receipt of payments and information regarding the underlying open market loans.  In addition, Prosper will likely have limited abilities to collect on delinquent open market loans due to the terms of the servicing agreements with the originators;

·the possibility of reduced returns due to the repurchase of open market loans by the originator due to non-conformance with the terms and provisions of the loan  purchase agreement between Prosper and the originator;

·the possibility of reduced returns due to increased expenses or deteriorated value of the collateral securing an open market loan, if any; and

·in purchasing open market loans reflecting the financing of consumer goods and services, Prosper will be subject to all claims and defenses that borrower could assert against the originator.

Prosper Open Market Loans will be serviced by the originator and not Prosper, which could adversely affect or delay payments you receive under the Note.

Open market loans will be serviced by the originator of the loan and not by Prosper.  Although the originator has agreed to administer the open market loans serviced by it in a manner and to a standard consistent with servicing practices of prudent lending institutions servicing loans of the same type as the open market loans for their own account, there can be no assurance that it will do so.  Further, there can be no assurance that a third party servicer will forward payments collected from borrowers under such open market loans to Prosper in a timely manner or that such third party servicer will provide Prosper in a timely manner with the information required to be provided to the holders of Notes dependent for payment on that open market loan.  Any failure by the originator to collect payments due from borrowers under the open market loans or

30

to forward those payments to us or in a timely manner may impact the payment you receive under Notes dependent for payment on that open market loan.

Should an originator servicing an open market loan suspend its operations, or in the event of a bankruptcy or similar proceeding of an originator, there could be delays in the receipt of funds as Prosper transfers servicing operations for the open market loans to a backup servicer, as required by the master loan purchase agreements between Prosper and the originator.  If the originator becomes subject to a bankruptcy or similar proceeding, the rights of Prosper and the holders of Prosper Open Market Notes could be uncertain, and the originator’s payments to Prosper under the corresponding open market loans may be limited, suspended or stopped even if the borrowers are making payments on such borrower loans.

Risks Related to Prosper, Our Platform and Our Ability to Service the Notes

We face a contingent liability for potential securities law violations in respect of loans sold to our lender members from inception until October 16, 2008.  This contingent liability may impair our ability to operate our platform and service the borrower loans that correspond to your Notes.

Loans sold to lender members through our platform from our inception until October 16, 2008 may be viewed as involving an offering of securities that was not registered or qualified under federal or state securities laws.  To date, the following litigation has resulted from our prior operations.

·In November of 2008, the SEC instituted cease and desist proceedings, pursuant to Section 8A of the Securities Act, against us.  In connection with such proceedings, we made an offer of settlement and consented to the entry of a cease and desist order, in which we neither admitted nor denied liability, which was approved by the SEC on November 20, 2008.  The cease and desist order included a finding that we violated the registration requirements of the Securities Act, and required that we cease and desist from committing or causing any violations and any future violations in the future.

·On November 26, 2008, Prosper and the North American Securities Administrators Association, or “NASAA,” executed a settlement term sheet.  The term sheet sets forth the material terms of a consent order to resolve matters relating to our sale and offer of unregistered securities and the omission of material facts in connection with such offers and sales.  NASAA will recommend that each state adopt the terms of the settlement, however, the settlement is not binding on any state.  The terms of the settlement involved our payment of up to $1 million, which NASAA will allocate among the 50 states and the District of Columbia, where we conduct business, based on the loan sale transaction volume in each state.  We will not be required to pay any portion of the fine allocated to those states that do not execute a consent order with Prosper.  The terms of the settlement require the states to terminate their investigation of our activities related to the sale of securities before November 24, 2008.  We are currently negotiating the terms of the consent order for consideration by the states.  We have accrued approximately $425,000 in connection with the contingent liability arising from the settlement term sheet in accordance with SFAS No. 5, Accounting for Contingencies.

·On November 26, 2008, a class action lawsuit was filed against us the Superior Court of California, County of San Francisco, California.  The suit was brought on behalf of all loan note purchasers in our online lending platform from January 1, 2006 through October 14, 2008 and alleges that we offered and sold unqualified and unregistered securities in violation of the California and federal securities laws.  The lawsuit seeks class certification, damages, the right of rescission and the award of attorneys’ fees and costs against us.

As a result of our prior operations, our lender members who hold these loans may be entitled to rescind their purchase and be paid their unpaid principal amount of the borrower loans plus statutory interest.  In addition, As of September 30, 2008, the aggregate principal balance of loans purchased through our platform by purchasers not affiliated with Prosper was $178.6 million.  We have not recorded an accrued loss contingency in respect of this contingent liability, although we intend to continue to monitor the situation.  Generally, the federal statute of limitations for noncompliance with the requirement to register securities under the Securities Act is one year from the violation; however, the statute of limitations periods under state laws may extend for a longer period of time.  If a significant number of our lender members sought rescission, or if the class action securities lawsuit is successful, our ability to maintain our platform and service the borrower loans to which the Notes correspond may be adversely affected.

We have incurred operating losses since our inception and we anticipate that we will continue to incur net losses through 2010.  Our failure to obtain sufficient debt and equity financings and, ultimately, to achieve profitable operations and

31

 positive cash flows from operations could adversely affect Prosper’s ability to achieve its business objectives and continue as a going concern.

We have incurred operating losses since our inception and we anticipate that we will continue to incur net losses for a number of years as we grow our business.  For the nine months ended September 30, 2008 and the fiscal years ended December 31, 2007 and 2006, we had negative cash flows from operations of $6.9 million, $9.5 million and $6.0 million, respectively.  Additionally, since our inception through September 30, 2008, we have an accumulated deficit of $27.7 million.

We have financed our operations, to date, with proceeds from the sale of equity securities.  At September 30, 2008, we had approximately $13.0 million in cash and cash equivalents, which we believe will be sufficient to fund our operations through 2009.  We are dependent upon raising additional capital or debt financing to fund our current operating plan.  Our failure to obtain sufficient debt and equity financings and, ultimately, to achieve profitable operations and positive cash flows from operations could adversely affect our ability to achieve our business objectives and continue as a going concern.  Further, we can provide no assurances as to the availability or terms upon which the required financing and capital might be available.  These matters raise substantial doubt about our ability to continue as a going concern.  Our financial statements do not include any adjustments to reflect the possible effects on recoverability and classification of assets or the amounts and classification of liabilities that may result from our inability to continue as a going concern.

We have a limited operating history.  As an online company in the early stages of development, we face increased risks, uncertainties, expenses and difficulties.

As the number of borrowers, lender members and borrower loans originated on our platform increases, we will need to increase our facilities, personnel and infrastructure in order to accommodate the greater servicing obligations and demands on our platform. Additionally, as soon as practicable after the date of this prospectus, we intend to establish a Note trading platform on which the Notes may be resold to our lender members.  Although we cannot guarantee that a resale market will develop for the Notes, we expect that such addition to our platform may significantly increase the amount of borrower loan originations and sale activity on our platform. Our platform is dependent upon our website in order to maintain current listings and transactions in the Notes.  We must constantly add new hardware and update our software and website, expand our customer support services, and add new employees to maintain the operations of our platform as well as to satisfy our servicing obligations on the borrower loans and the Notes.  If we are unable to increase the capacity of our platform and maintain the necessary infrastructure, you may experience delays in receipt of payments on your Notes and periodic downtime of our systems.

The market in which we participate is competitive and, if we do not compete effectively, our operating results could be harmed.

The consumer lending market is competitive and rapidly changing.  With the introduction of new technologies and the influx of new entrants, we expect competition to persist and intensify in the future, which could harm our ability to increase volume on our platform.

Our principal competitors include major banking institutions, credit unions, credit card issuers and other consumer finance companies, as well as other person-to-person lending platforms, including Lending Club and Virgin Money.  Competition could result in reduced volumes, reduced fees or the failure of our person-to-person lending platform to achieve or maintain more widespread market acceptance, any of which could harm our business.  In addition, in the future we may experience new competition from more established Internet companies, such as eBay Inc., Google Inc., or Yahoo! Inc., possessing large, existing customer bases, substantial financial resources and established distribution channels.  If any of these companies or any major financial institution decided to enter the person-to-person lending business, acquire one of our existing competitors or form a strategic alliance with one of our competitors, our ability to compete effectively could be significantly compromised and our operating results could be harmed.

Most of our current or potential competitors have significantly more financial, technical, marketing and other resources than we do and may be able to devote greater resources to the development, promotion, sale and support of their platforms and distribution channels.  Our potential competitors may also have longer operating histories, more extensive customer bases, greater brand recognition and broader customer relationships than we have.  These competitors may be better able to develop new products, to respond quickly to new technologies and to undertake more extensive marketing campaigns.  Our industry is driven by constant innovation.  If we are unable to compete with such companies and meet the need for innovation, the use of our platform could stagnate or substantially decline.

32

If we fail to promote and maintain our brand in a cost-effective manner, we may lose market share and our revenue may decrease.

We believe that developing and maintaining awareness of the Prosper brand in a cost-effective manner is critical to achieving widespread acceptance of person-to-person lending through Prosper and attracting new borrower and lender members.  Furthermore, we believe that the importance of brand recognition will increase as competition in the person-to-person lending industry increases.  Successful promotion of our brand will depend largely on the effectiveness of our marketing efforts and the member experience on our platform. Historically, our efforts to build our brand have involved significant expense, and it is likely that our future marketing efforts will require us to incur significant additional expenses.  These brand promotion activities may not yield increased revenues and, even if they do, any revenue increases may not offset the expenses we incur to promote our brand.  If we fail to successfully promote and maintain our brand, or if we incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we may lose our existing members to our competitors or be unable to attract new members, which would cause our revenue to decrease and may impair our ability to maintain our platform.

If we are unable to increase transaction volumes, our business and results of operations will be affected adversely.

To succeed, we must increase transaction volumes on our platform by attracting a large number of borrowers and lender members in a cost-effective manner, many of whom have not previously participated in person-to-person lending.  If we are not able to attract qualified borrowers and sufficient lender members purchase commitments, we will not be able to increase our transaction volumes.  Additionally, we rely on a variety of methods to drive traffic to our website.  If we are unable to use any of our current or future marketing initiatives or the cost of these initiatives were to significantly increase, we may not be able to attract new borrowers and lender members in a cost-effective manner and, as a result, our revenue and results of operations would be affected adversely, which may impair our ability to maintain our platform.

We are subject to extensive federal, state and local regulation.  There can be no guarantee that we will be able to continue our servicing obligations.

We are subject to extensive federal, state and local regulation, non-compliance with which may expose us to adverse consequences.  Additionally, new laws and regulations could be enacted that could have a negative impact on our ability to service the Notes, provide a resale market for the Notes, or maintain our platform. We could suffer adverse consequences if we were to fail to comply, even inadvertently, with these laws and regulations.

Additionally, we are licensed as a finance lender under the California Finance Lender Law and are regulated and examined by the California Department of Corporations.  We hold similar lending licenses or authorizations in 23 other states, which also supervise and examine our activities.  If we do not comply with applicable laws, we could lose one or more of our licenses or authorizations, which may have an adverse effect on our ability to continue to perform our servicing obligations or to maintain our platform. See “Government Regulation—Regulation and Consumer Protection Laws” for more information.

The Federal Fair Debt Collection Practices Act and similar state debt collection laws regulate debt collection practices by “debt collectors” and prohibit debt collectors from engaging in certain practices in collecting, and attempting to collect, outstanding consumer loans.  For example, debt collectors are prohibited from contacting debtors at unreasonable times, revealing or discussing the nature of the debt with third parties, making false representations in association with efforts to collect the debt, seeking collection fees or other charges not permitted under contract or by state law, making threats of arrest or legal action without actual intention of action on the threat, and using abusive or profane language in the course of collection on the debt.  While Prosper obligates its collection agencies to comply with applicable law in collecting Prosper borrower loans, and Prosper’s agreements with originators requires that they comply with applicable law in collecting open market loans, it is possible that improper collection practices may occur which could adversely impact the collectibility of particular borrower loans originated or sold through our platform.

Our arrangements for back-up servicing are limited.  If we fail to maintain operations, you will experience a delay and increased cost in respect of your expected principal and interest payments on your Notes, and we may be unable to collect and process repayments from borrowers.

If we are unable to generate sufficient revenues from the fees we receive from borrowers and lender members as a result of the borrower loans originated or sold, the Notes issued on our platform, as well as Notes proposed to be resold by lender members on our Note trading platform (should it develop), our ability to maintain operations may be adversely affected.  If  

33

we were to fail or become insolvent, there would be no resale market for your Notes, and we would attempt to transfer our servicing obligations on the borrower loans and Notes to a third party pursuant to our contractual agreements with lender members.  We have entered into a back-up servicing agreement with a loan servicing company who is willing and able to transition servicing responsibilities in the event we can no longer do so.  If our platform fails or we became insolvent, we would attempt to transfer our loan servicing obligations to this third party back-up servicer.  There can be no assurance that this back-up servicer will be able to adequately perform the servicing of the outstanding borrower loans.  If this back-up servicer assumes the servicing of the borrower loans, the back-up servicer may impose additional servicing fees, reducing the amounts available for payments on the Notes.  Additionally, transferring these servicing obligations to our back-up servicer may result in delays in the processing and recovery of information with respect to amounts owed on the borrower loans or, if our platform becomes inoperable, may prevent us from servicing the borrower loans and making principal and interest payments on the Notes.  If our back-up servicer is not able to service the borrower loans effectively, your ability to receive principal and interest payments on your Notes may be substantially impaired.

We do not have patent protection for all of our proprietary technology.  It may be difficult and costly to protect our intellectual property rights, and we may not be able to ensure their protection.

Our ability to maintain our platform and perform our servicing obligations depends, in part, upon our proprietary technology.  We have applied for a patent covering various aspects of the operation of our platform; however, there can be no assurance that it will be granted, or if a patent were issued, that a third party may not be successful in challenging it.  Additionally, we may not protect our proprietary technology effectively, which would allow competitors to duplicate our products and adversely affect our ability to compete with them. A third party may attempt to reverse engineer or otherwise obtain and use our proprietary technology without our consent.  In addition, our platform may infringe upon claims of third-party patents and we may face intellectual property challenges from such other parties.  We may not be successful in defending against any such challenges or in obtaining licenses to avoid or resolve any intellectual property disputes.  Furthermore, our technology may become obsolete, and there is no guarantee that we will be able to successfully develop, obtain or use new technologies to adapt our platform to compete with other person-to-person lending platforms, should they develop.  If we cannot protect the proprietary technology embodied in and used by our platform from intellectual property challenges, or if our platform becomes obsolete, our ability to maintain our platform and our ability to perform our servicing obligations on the borrower loans and Notes could be adversely affected.

We rely on a third-party commercial bank to process transactions.  If we are unable to continue utilizing these services, our business and ability to service the Notes may be adversely affected.

Because we are not a bank, we cannot belong to and directly access the Automated Clearing House (ACH) payment network.  As a result, we currently rely on an FDIC-insured depository institution to process our transactions.  If we cannot continue to obtain such services from this institution or elsewhere, or if we cannot transition to another processor quickly, our ability to process payments will suffer and your ability to receive principal and interest payments on the Notes will be delayed or impaired.

If we were to become subject to a bankruptcy or similar proceeding, the rights of the holders of the Notes could be uncertain, and payments on the Notes may be limited, suspended or stopped.  Although Prosper intends to grant the indenture trustee a security interest in its right to receive payment under and in payments received under the borrower loans upon which the Notes are dependent for payment, the Notes themselves are unsecured and holders of the Notes do not directly have a security interest in the corresponding borrower loans or the proceeds of those corresponding borrower loans.  The recovery, if any, of a holder on a Note may be substantially delayed and substantially less than the principal and interest due and to become due on the Note.  Even funds held by Prosper in trust for the holders of Notes may potentially be at risk.

If we were to become subject to a bankruptcy or similar proceeding, the recovery, if any, of a holder of a Note may be substantially delayed in time and may be substantially less in amount than the principal and interest due and to become due on the Note.  Although prosper intends to grant the indenture trustee, for the benefit of the trustee and the holders of the Notes, a security interest in Prosper’s rights to payment under the corresponding borrower loans and all moneys and property received by Prosper thereon to mitigate this risk, the following consequences still may occur:

A bankruptcy or similar proceeding of Prosper may cause delays in borrower payments.  Borrowers may delay payments to Prosper on account of borrower loans because of the uncertainties occasioned by a bankruptcy or similar proceeding of Prosper, even if the borrowers have no legal right to do so, and such delay would reduce, at least for a time, the funds that might otherwise be available to pay the Notes corresponding to those borrower loans.  In addition, the  

34

commencement of the bankruptcy or similar proceeding may, as a matter of law, prevent Prosper from making regular payments on the Notes, even if the funds to make such payments are available.  Although Prosper intends to grant the indenture trustee, for the benefit of the trustee and the holders of the Notes, a security interest in all present and future rights of Prosper to payment under the corresponding borrower loans and all moneys and property received by Prosper thereon in order to mitigate this risk, the indenture trustee still would be required to enforce the security interest in a bankruptcy or similar proceeding of Prosper.  Because a bankruptcy or similar proceeding may nevertheless limit the trustee’s ability to make payments under the Notes which may effectively reduce the value of any recovery that a holder of a Note may receive (and no such recovery can be assured) by the time any recovery is available.

Interest accruing upon and following a bankruptcy or similar proceeding of Prosper may not be paid.  In bankruptcy or similar proceeding of Prosper, interest accruing on the Notes during the proceeding may not be part of the allowed claim of a holder of a Note.  If the holder of a Note receives a recovery on the Note (and no such recovery can be assured), any such recovery may be based on, and limited to, the claim of the holder of the Note for principal and for interest accrued up to the date of the bankruptcy or similar proceeding, but not thereafter.  Because a bankruptcy or similar proceeding may take months or years to complete, a claim based on principal and on interest only up to the start of the bankruptcy or similar proceeding may be substantially less than a claim based on principal and on interest through the end of the bankruptcy or similar proceeding.

In a bankruptcy or similar proceeding of Prosper, there may be uncertainty regarding whether a holder of a Note has any priority right to payment from the corresponding borrower loan.  In a bankruptcy or similar proceeding of Prosper, there may be uncertainty regarding whether a holder of a Note has any priority right to payment from the corresponding borrower loan.  Although Prosper intends to grant the indenture trustee, for the benefit of the trustee and the holders of the Notes, a security interest in Prosper’s right to payment and payments received with respect to the corresponding borrower loan for each series of Notes the holders of the Notes do not directly have a security interest in the proceeds of the corresponding borrower loan for that series or the proceeds thereof.  Accordingly, in a bankruptcy or similar proceeding of Prosper, the indenture trustee, but not the holders of the Notes for that series, would have a secured claim, limited in recovery, to the right to receive payments on, and to all payments previously received by Prosper with respect to, the corresponding borrower loan for that series of Notes, but not with respect to any other borrower loan.  If we or the indenture trustee fail to perfect the security interest properly, you may be required to share the proceeds of the borrower loan upon which your Note is dependent for payment with Prosper’s other creditors.  In addition, if proceeds from the corresponding borrower loan are either held by Prosper in the clearing account at the time of the bankruptcy or similar proceeding of Prosper, or not yet received by Prosper from borrowers at the time of the commencement of the bankruptcy or similar proceeding, such proceeds may be at greater risk than those proceeds that are already held by Prosper in the funding account at the time of the bankruptcy or similar proceeding.  To the extent that proceeds of the corresponding borrower loan would be shared with other creditors of Prosper, any secured or priority rights of such other creditors may cause the proceeds to be distributed to such other creditors before any distribution is made to you on your Note.  See “About the Platform—How the Platform Operates” for more information.

In a bankruptcy or similar proceeding of Prosper, there may be uncertainty regarding the rights of a holder of a Note, if any, to payment from funds in the master servicing account.  If a payment is made on a borrower loan corresponding to a Note before a bankruptcy or similar proceeding of Prosper is commenced, and those funds are held in the master servicing account and have not been used by Prosper to make payments on the Note as of the date the bankruptcy or similar proceeding is commenced, there can be no assurance that Prosper will or will be able to use such funds to make payments on the Note.  Other creditors of Prosper may be deemed to have rights to such funds that are equal to or greater than the rights of the holder of the Note.  See “About the Platform—Post-Funding Loan Servicing and Collections” for more information.

In a bankruptcy or similar proceeding of Prosper, there may be uncertainty regarding the rights of a holder of a Note, if any, to access funds in the funding account.  Although, we believe that amounts funded by our lender members into the FBO account at Wells Fargo should not be subject to claims of creditors of Prosper other than the lender members for whose benefit the funds are held, the legal title to the FBO account, and the attendant right to administer the FBO account would be property of Prosper’s bankruptcy estate.  As a result, if Prosper were to file for bankruptcy protection, the legal right to administer the funds in the FBO account would vest with the bankruptcy trustee or debtor in possession.  In that case, while neither Prosper nor its creditors should be able to reach those funds, the indenture trustee or the lender members may have to seek a bankruptcy court order lifting the automatic stay and permitting them to withdraw their funds.  Lender members may suffer delays in accessing their funds in the FBO account as a result.  Moreover, United States Bankruptcy Courts have broad powers and, if Prosper has failed to properly segregate or handle lender members’ funds, a bankruptcy court could determine that some or all of such funds were beneficially owned by Prosper and therefore that they became available to the creditors of Prosper generally.  See “About the Platform—Post-Funding Loan Servicing and Collections” for more information.

In a bankruptcy or similar proceeding of Prosper, the holder of a Note may be delayed or prevented from enforcing Prosper’s repurchase obligations in cases of confirmed identity fraud.  In a bankruptcy or similar proceeding of Prosper, any right of a holder of Note to require Prosper to repurchase the Note as a result of a confirmed identity fraud incident or other grounds for repurchase may not be specifically enforced, and such holder’s claim for such repurchase may be treated less favorably than a general unsecured obligation of Prosper.

35

In a bankruptcy or similar proceeding of Prosper, the implementation of back-up servicing arrangements may be delayed or prevented.  In a bankruptcy or similar proceeding of Prosper, our ability to transfer servicing obligations to a back-up servicer may be limited and subject to the approval of the bankruptcy court or other presiding authority.  The bankruptcy process may delay or prevent the implementation of back-up servicing, which may impair the collection of borrower loans to the detriment of the Notes.

If the security of our lender members’ and borrowers’ confidential information stored in our systems is breached or otherwise subjected to unauthorized access, your secure information may be stolen, our reputation may be harmed, and we may be exposed to liability.

Our platform stores our lender members’ and borrowers’ bank information and other personally-identifiable sensitive data.  Any accidental or willful security breaches or other unauthorized access could cause your secure information to be stolen and used for criminal purposes.  Security breaches or unauthorized access to secure information could also expose us to liability related to the loss of the information, time-consuming and expensive litigation and negative publicity.  If security measures are breached because of third-party action, employee error, malfeasance or otherwise, or if design flaws in our software are exposed and exploited, and, as a result, a third party or disaffected employee obtains unauthorized access to any of our lender members’ or borrowers’ data, our relationships with our members will be severely damaged, and we could incur significant liability.  Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until they are launched against a target, we and our third-party hosting facilities may be unable to anticipate these techniques or to implement adequate preventative measures.  In addition, many states have enacted laws requiring companies to notify individuals of data security breaches involving their personal data.  These mandatory disclosures regarding a security breach are costly to implement and often lead to widespread negative publicity, which may cause our members to lose confidence in the effectiveness of our data security measures.  Any security breach, whether actual or perceived, would harm our reputation, and we could lose members.

Any significant disruption in service on our website or in our computer systems could reduce the attractiveness of our platform and result in a loss of members.

Our ability to perform our servicing obligations could be materially and adversely affected by events outside of our control.  The satisfactory performance, reliability and availability of our technology and our underlying network infrastructure are critical to our operations, level of customer service, reputation and ability to attract new members and retain existing members.  Our system hardware is hosted in a hosting facility located in San Francisco, California, owned and operated by Rincon 365 Borrower, LLC.  We also maintain an off-site backup system located in Las Vegas, Nevada.  Rincon 365 Borrower, LLC does not guarantee that access to our website will be uninterrupted, error-free or secure.  Our operations depend on Rincon 365 Borrower, LLC’s ability to protect their and our systems in their facilities against damage or interruption from natural disasters, power or telecommunications failures, air quality, temperature, humidity and other environmental concerns, computer viruses or other attempts to harm our systems, criminal acts and similar events.  If our arrangement with Rincon 365 Borrower, LLC is terminated, or there is a lapse of service or damage to Rincon 365 Borrower, LLC’s facilities, we could experience interruptions in our service as well as delays and additional expense in arranging new facilities.  Any interruptions or delays in our service, whether as a result of Rincon 365 Borrower, LLC or other third-party error, our own error, natural disasters or security breaches, whether accidental or willful, could harm our relationships with our members and our reputation.  Additionally, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur.  Our disaster recovery plan has not been tested under actual disaster conditions, and we may not have sufficient capacity to recover all data and services in the event of an outage at the Rincon 365 Borrower, LLC facility.  These factors could prevent us from processing or posting payments on the borrower loans or the Notes, damage our brand and reputation, divert our employees’ attention, reduce our revenue, subject us to liability and cause members to abandon our platform, any of which could adversely affect our business, financial condition and results of operations.

Our ability to service the borrower loans and Notes may be adversely affected by computer viruses, physical or electronic break-ins and similar disruptions.

Our platform may be vulnerable to computer viruses, physical or electronic break-ins and similar disruptions.  If a “hacker” were able to infiltrate our platform, you would be subject to the increased risk of fraud or borrower identity theft and may experience losses on, or delays in the recoupment of amounts owed on, a fraudulently induced purchase of a Note.  Additionally, if a hacker were able to access our secure files, he or she might be able to gain access to your personal information.  While we have taken steps to prevent such activity from affecting our platform, if we are unable to prevent such  

36

activity, the value of your investment in the Notes and our ability to fulfill our servicing obligations and to maintain our platform would be adversely affected.

Competition for our employees is intense, and we may not be able to attract and retain the highly skilled employees whom we need to support our business.

Competition for highly skilled technical and financial personnel is extremely intense.  We may not be able to hire and retain these personnel at compensation levels consistent with our existing compensation and salary structure.  Many of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment.

In addition, we invest significant time and expense in training our employees, which increases their value to competitors who may seek to recruit them. If we fail to retain our employees, we could incur significant expenses in hiring and training their replacements and the quality of our services and our ability to serve borrowers and lender members could diminish, resulting in a material adverse effect on our business.

If we fail to retain our key personnel, we may not be able to achieve our anticipated level of growth and our business could suffer.

Our future depends, in part, on our ability to attract and retain key personnel.  Our future also depends on the continued contributions of our executive officers and other key technical personnel, each of whom would be difficult to replace.  In particular, Christian Larsen is critical to the management of our business and operations and the development of our strategic direction.  The loss of the services of Mr. Larsen or other executive officers or key personnel and the process to replace any of our key personnel would involve significant time and expense and may significantly delay or prevent the achievement of our business objectives.

Our growth could strain our personnel resources and infrastructure, and if we are unable to implement appropriate controls and procedures to manage our growth, we may not be able to successfully implement our business plan.

Our growth in headcount and operations since our inception has placed, and will continue to place, to the extent that we are able to sustain such growth, a significant strain on our management and our administrative, operational and financial reporting infrastructure.

Our success will depend in part on the ability of our senior management to manage the growth we achieve effectively.  To do so, we must continue to hire, train and manage new employees as needed.  If our new hires perform poorly, or if we are unsuccessful in hiring, training, managing and integrating these new employees, or if we are not successful in retaining our existing employees, our business may be harmed.  To manage the expected growth of our operations and personnel, we will need to continue to improve our operational and financial controls and update our reporting procedures and systems. The addition of new employees and the system development that we anticipate will be necessary to manage our growth will increase our cost base, which will make it more difficult for us to offset any future revenue shortfalls by reducing expenses in the short term. If we fail to successfully manage our growth, we will be unable to execute our business plan.

Purchasers of Notes will have no control over Prosper and will not be able to influence Prosper corporate matters.

We are not offering any equity in this offering.  Lender members who purchase Notes offered through our platform will have no equity interest in Prosper and no ability to vote on or influence our corporate decisions.  As a result, our stockholders will continue to exercise 100% voting control over all of our corporate matters, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our company or its assets.

37

Risks Relating to Compliance and Regulation

Our platform is a novel approach to borrowing that may fail to comply with borrower protection laws such as state lending laws, or federal and state consumer protection laws such as the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act and the Fair Debt Collection Practices Act and their state counterparts.  Borrowers may make counterclaims regarding the enforceability of their obligations after collection actions have commenced, or otherwise seek damages under these laws.  Compliance with such regimes is also costly and burdensome.

Our platform operates a novel program that must comply with regulatory regimes applicable to consumer credit transactions.  The novelty of our platform means compliance with various aspects of such laws is untested.  Certain state laws generally regulate interest rates and other charges and require certain disclosures, and require licensing for certain activities.  In addition, other state laws, public policy and general principles of equity relating to the protection of consumers, unfair and deceptive practices and debt collection practices may apply to the origination, servicing and collection of the borrower loans.  Our platform is also subject to other federal and state laws, such as:

·the Federal Truth-in-Lending Act and Regulation Z promulgated thereunder, and similar state laws, which require certain disclosures to borrowers regarding the terms of their borrower loans;

·the Federal Equal Credit Opportunity Act and Regulation B promulgated thereunder, which prohibit discrimination on the basis of age, race, color, sex, religion, marital status, national origin, receipt of public assistance or the exercise of any right under the Consumer Credit Protection Act, in the extension of credit;

·the Federal Fair Credit Reporting Act, which regulates the use and reporting of information related to each borrower member’s credit history; and

·the Federal Fair Debt Collection Practices Act and similar state debt collection laws, which regulate debt collection practices by “debt collectors” and prohibit debt collectors from engaging in certain practices in collecting, and attempting to collect, outstanding consumer loans.

We may not always have been, and may not always be, in compliance with these laws.  Compliance with these requirements is also costly, time-consuming and limits our operational flexibility.  See “Government Regulation—Regulation of Consumer Protection Laws” for more information.

Noncompliance with laws and regulations may impair our ability to facilitate the origination of or service borrower loans.

Generally, failure to comply with the laws and regulatory requirements applicable to our business may, among other things, limit our, or a collection agency’s, ability to collect all or part of the principal amount of or interest on the borrower loans on which the Notes are dependent and, in addition, could subject us to damages, revocation of required licenses or other authorities, class action lawsuits, administrative enforcement actions, and civil and criminal liability, which may harm our business and ability to maintain our platform and may result in borrowers rescinding their borrower loans.

Where applicable, we seek to comply with state lending, servicing and similar statutes.  In all U.S. jurisdictions with licensing or other requirements we believe may be applicable to the platform, we have obtained any necessary licenses or comply with the relevant requirements.  Nevertheless, if we are found to not comply with applicable laws, we could lose one or more of our licenses or authorizations or face other sanctions, which may have an adverse effect on our ability to continue to facilitate the origination of borrower loans through our platform, perform our servicing obligations or make our platform available to borrowers in particular states, which may impair your ability to receive the payments of principal and interest on your Notes that you expect to receive.  See “Government Regulation—Regulation of Consumer Protection Laws—State and Federal Laws and Regulations” for more information.

We rely on our agreement with WebBank to originate loans to qualified borrower members on a uniform basis throughout the United States.  If our relationship with WebBank were to end, we may need to rely on individual state lending licenses to originate borrower loans.

Borrower loan requests take the form of an application to WebBank, which currently makes all loans to our borrower members who request loans through our platform, and allows our platform to be available to borrowers on a uniform basis throughout the United States.  If our relationship with WebBank were to end or if WebBank were to cease operations, we may need to rely on individual state lending licenses to originate borrower loans.  Because we do not currently possess state

38

lending licenses in every U.S. state, we may be required to discontinue lending or limit the rates of interest charged on borrower loans in some states.  We may face increased costs and compliance burdens if our agreement with WebBank terminated.

Several lawsuits have sought to recharacterize certain loan marketers and other originators as lenders.  If litigation on similar theories were successful against us, Prosper borrower loans originated through the Prosper platform could be subject to state consumer protection laws in a greater number of states.

Several lawsuits have brought under scrutiny the association between high-interest “payday loan” marketers and out-of-state banks.  These lawsuits assert that payday loan marketers use out-of-state lenders in order to evade the consumer protection laws imposed by the states where they do business.  Such litigation has sought to recharacterize the loan marketer as the lender for purposes of state consumer protection law restrictions.  Similar civil actions have been brought in the context of gift cards.  We believe that our activities are distinguishable from the activities involved in these cases.

Additional state consumer protection laws would be applicable to the borrower loans originated or sold on our platform if we were recharacterized as a lender, and the borrower loans could be voidable or unenforceable.  In addition, we could be subject to claims by borrowers, as well as enforcement actions by regulators.  Even if we were not required to cease doing business with residents of certain states or to change our business practices to comply with applicable laws and regulations, we could be required to register or obtain licenses or regulatory approvals that could impose a substantial cost on us.  To date, no actions have been taken or threatened against us on the theory that we have engaged in unauthorized lending.  However, such actions could have a material adverse effect on our business.

As Internet commerce develops, federal and state governments may draft and propose new laws to regulate Internet commerce, which may negatively affect our business.

As Internet commerce continues to evolve, increasing regulation by federal and state governments becomes more likely.  Our business could be negatively affected by the application of existing laws and regulations or the enactment of new laws applicable to person-to-person lending.  The cost to comply with such laws or regulations could be significant and would increase our operating expenses, and we may be unable to pass along those costs to our members in the form of increased fees.  In addition, federal and state governmental or regulatory agencies may decide to impose taxes on services provided over the Internet.  These taxes could discourage the use of the Internet as a means of consumer lending, which would adversely affect the viability of our platform.

Our legal compliance burdens and costs will significantly increase as a result of operating as a public company following the date of this prospectus.  Our management will be required to devote substantial time to compliance matters.

After the date of this prospectus, we will become an SEC reporting company and will incur significant legal, accounting and other expenses that we did not incur previously.  Our management and other personnel will need to devote a substantial amount of time to SEC reporting compliance requirements.  Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.  For example, these rules and regulations may make it more expensive for us to obtain director and officer liability insurance coverage and more difficult for us to attract and retain qualified persons to serve as directors or executive officers.

In addition, the Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures.  In particular, for the year ending December 31, 2010, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act.  Our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses.  In order to comply with Section 404, we may incur substantial accounting expense, expend significant management time on compliance-related issues, and hire additional accounting and financial staff with appropriate experience and technical accounting knowledge.  Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.

39

If we are required to register under the Investment Company Act, our ability to conduct our business could be materially adversely affected.

The Investment Company Act of 1940, or the “Investment Company Act,” contains substantive legal requirements that regulate the manner in which “investment companies” are permitted to conduct their business activities.  We believe we have conducted, and we intend to continue to conduct, our business in a manner that does not result in our company being characterized as an investment company.  If, however, we are deemed to be an investment company under the Investment Company Act, we may be required to institute burdensome compliance requirements and our activities may be restricted, which would materially adversely affect our business, financial condition and results of operations.  If we were deemed to be an investment company, we may also attempt to seek exemptive relief from the SEC, which could impose significant costs and delays on our business.

Events beyond our control may damage our ability to maintain adequate records, maintain our platform or perform our servicing obligations.  If such events result in a system failure, your ability to receive principal and interest payments on the Notes would be substantially harmed.

If a catastrophic event resulted in our platform outage and physical data loss, our ability to perform our servicing obligations would be materially and adversely affected.  Such events include, but are not limited to, fires, earthquakes, terrorist attacks, natural disasters, computer viruses and telecommunications failures.  We store back-up records in offsite facilities located in San Francisco, California and Las Vegas, Nevada.  If our electronic data storage and back-up data storage system are affected by such events, we cannot guarantee that you would be able to recoup your investment in the Notes.

40

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve substantial risks and uncertainties.  All statements, other than statements of historical facts, included in this prospectus regarding Prosper borrowers, credit scores, our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements.  The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.  These forward-looking statements include, among other things, statements about:

·      the status of borrowers, the ability of borrowers to repay borrower loans and the plans of borrowers;

·      expected rates of return and interest rates;

·      the attractiveness of our platform;

·      our financial performance;

·      the impact of our new structure on our financial condition and results of operations;

·      the availability and functionality of our trading platform;

·      our ability to retain and hire necessary employees and appropriately staff our operations;

·      regulatory developments;

·      our intellectual property; and

·      our estimates regarding expenses, future revenue, capital requirements and needs for additional financing.

We may not actually achieve the plans, intentions or expectations disclosed in forward-looking statements, and you should not place undue reliance on forward-looking statements.  Actual results or events could differ materially from the plans, intentions and expectations disclosed in forward-looking statements.  We have included important factors in the cautionary statements included in this prospectus, particularly in the “Risk Factors” section, that could cause actual results or events to differ materially from forward-looking statements contained in this prospectus.  Forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

You should read this prospectus and the documents that we have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that actual future results may be materially different from what we expect.  We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

41

Use of Proceeds

We will use the proceeds of each series of Notes to facilitate the funding of a borrower loan through our platform designated by the lender members purchasing such series of Notes.  Proceeds of the sale of Notes are paid to WebBank for the purchase of borrower loans by Prosper from WebBank.  See “About the Platform” for more information.

Plan of Distribution

We will offer the Notes to our lender members at 100% of their principal amount.  The Notes will be offered only by Prosper through the Prosper website, and there will be no underwriters or underwriting discounts.  See “About the Platform” for more information.

Financial Suitability Requirements

The Notes are highly risky and speculative.  Investing in the Notes should be considered only by persons who can afford the loss of their entire investment.  Our platform currently allows lender members to bid as little as $50 and as much as the full amount of any particular listing, up to an aggregate amount of $5,000,000 for individuals and $50,000,000 for institutions.  We are currently seeking to register the offer and sale of our Notes in all 50 states and the District of Columbia.  As part of this process, we expect that certain states will impose minimum financial suitability standards and maximum investment limits for lender members who reside in their states.  Should this occur we will set forth these requirements in a supplement to this prospectus.  Under the lender registration agreement, lender members are required to represent and warrant that they satisfy the applicable minimum financial suitability standards and maximum investment limits of the state in which they reside.  Lender members who fail to satisfy any such requirements will not be permitted to purchase Notes.

42

ABOUT THE PLATFORM

Overview

Our platform enables our borrower members to borrow money, registered originators to list open market loans for sale and our lender members to purchase Notes issued by Prosper, the proceeds of which facilitate the funding or sale of specific loans made to borrowers.  The platform also allows for the formation of community groups and allows Prosper borrower members to participate on our platform as a member of a group.  Although Prosper borrower members do not need to join a group in order to request Prosper borrower loans on our platform, group affiliation may provide lender members additional information about a Prosper borrower member and may motivate borrower payment performance.

Online person-to-person lending is a new approach to consumer finance.  Person-to-person lending uses an Internet-based network to connect borrower and lender members.  Our platform generally provides transactional services for the online network, including screening borrowers for borrowing eligibility and facilitating payments.  Our platform allows Prosper borrower members and lender members to connect with each other using a combination of financial and social criteria.  Online person-to-person lending also entails significantly lower operating costs compared to traditional banking and commercial finance institutions because there are no physical branches and related infrastructure, no deposit-taking and interest payment activities and extremely limited third party loan underwriting activities.

As an early participant in the development of online person-to-person lending, Prosper views consumer finance delivered through an online person-to-person platform as an important new market opportunity.  Key drivers of person-to-person lending include the following:

·the possibility of lower interest rates for Prosper borrower members;

·the possibility of attractive interest rates and yield percentages for lender members;

·the possibility for all lender members and borrower members to help each other by participating in our platform to their mutual benefit;

·tightening consumer credit markets, particularly among traditional banking institutions; and

·growing acceptance of the Internet as an efficient and convenient forum for consumer transactions.

In addition, our platform permits originators to list for sale on our platform existing loans and retail installment sale contracts that they own for sale on our website, offering banks, consumer finance companies and other financing entities an additional liquidity option that currently does not exist.  Our lender members may bid and receive Prosper Open Market Notes dependent for payment on payments we receive on these open market loans.

How the Platform Operates

Our platform is an online auction-style marketplace that permits our lender members to bid on listings and purchase from Prosper, Notes that are dependent for payment on payments we receive on the corresponding borrower loans described in the listing.  Two types of listings appear on our platform: (1) listings posted by individual consumer members of Prosper requesting individual consumer loans, which we refer to as “Prosper borrower listings” and “Prosper borrower loans,” respectively; and (2) listings posted by financial institutions registered with Prosper, whom we refer to as “originators,” setting forth the terms of existing loans and retail installment sale contracts owned by the financial institutions and offered for sale to Prosper, which we collectively refer to as “open market listings” and “open market loans,” respectively.  We refer to borrowers on Prosper borrower loans and open market loans as “borrowers.”

Listings

Each listing sets forth the desired loan amount or outstanding balance, offered interest rate or yield percentage, and other information including but not limited to the Prosper Rating for the borrower, debt-to-income ratio, and certain credit information from the borrower’s credit report. Prosper borrower listings include the borrower’s self-reported, unless otherwise indicated, annual income range, occupation and employment status, and the borrower’s group affiliation, if any. Open market listings set forth a description of the collateral, if any, securing the borrower loan, and contain as much of the foregoing borrower credit and employment data as the originator provides.  Prosper borrower members are identified by a  

43

Prosper screen name but are not able to disclose in listings their identity or contact information to lenders.  Listings are displayed publicly on our platform, although certain information is only viewable by registered lender members.

Borrower Loans

Prosper borrower loans are unsecured, individual consumer loans within specified minimum and maximum principal amounts (currently between $1,000 and $25,000), requested by Prosper borrower members.  Prosper borrower members list the loan amount and the maximum interest rate they are willing to pay, and lender members bid the minimum interest rate they are willing to receive.  If by the end of the listing period a Prosper borrower listing receives purchase commitments in an aggregate amount equal to the corresponding Prosper borrower loan, the Prosper borrower member receives a fully amortizing consumer loan made by WebBank.  Prosper borrower loans currently have a term of three years, but Prosper anticipates in the near future extending available loan terms to between three months to seven years.  WebBank subsequently sells and assigns the borrower loan to Prosper without recourse to WebBank in exchange for the principal amount of the corresponding borrower loan.

Open market loans are existing loans with outstanding principal amounts that are not limited to the minimum and maximum amounts applicable to Prosper borrower loans.  Open market loans are owned by the originator that posted the listing, whether or not such originator originally made the loan.  Open market loans may include existing consumer loans or retail installment sale contracts as well as small business loans, where the borrower is a business entity, not an individual (although one or more individuals may be a guarantor of the loan).  Open market loans have a fixed interest rate, maturities of at least three months and may be unsecured or secured by personal property.  All open market loans are sold and assigned by the originator to Prosper, without recourse to the originator, at the end of the auction bidding period, if successful.

Verification

Prosper borrower listings are posted without our obtaining any documentation of the Prosper borrower member’s ability to afford the loan.  We do not verify the information provided by originators in open market listing but represent and warrant to the holders of Prosper Open Market Notes that the originator has made commercially reasonable efforts to authenticate and verify the identity of the borrower under the corresponding open market loan.  For all Prosper borrower loans, we verify the Prosper borrower member identity against data from consumer reporting agencies and other identity and anti-fraud verification databases, but generally do not verify any other information provided by Prosper borrower members that appear in a Prosper borrower listing.  In limited instances, we verify the income, employment, occupation or other information provided by Prosper borrower members in listings.  Participants in our platform must satisfy certain requirements before we permit a listing to be posted or bids to be placed on our platform.

Our platform operates online only and is available to Prosper borrower members, lender members and originators in all 50 states and the District of Columbia.  Our registration, processing and payment systems are automated and electronic.  We have no physical branches, no deposit-taking and interest payment activities and extremely limited loan underwriting activities.  We attract lender members and borrowers to our website, www.prosper.com, through a variety of sources.  We drive traffic through referrals from other parties (which include online communities, social networks and marketers), through search engine results and through online and offline advertising.  We are not dependent on any one source of traffic to our website.  As of October 31, 2008, our website was receiving an average of approximately 288,000 unique visitors per month.

Revenue

We generate revenue by charging originators transactions fees on open market loans sold to Prosper and lender members ongoing servicing fees on the Notes they have purchased, and from transaction fees paid by borrower members on Prosper borrower loans.  If Prosper establishes the trading platform on which the Notes may be resold, Prosper intends to charge all lender members who post a listing for the sale of a Note a nonrefundable administrative fee in a specified amount (currently $0.25) that is subject to change from time to time.

For the fiscal year ended December 31, 2007, we originated $80.8 million dollars of loans, a 187% increase from the prior year.  For the three months ended September 30, 2008, we originated $19.9 million in loans, an 8% increase from the same period in the prior year.  Because we collect small fees and other revenue from thousands of borrowers, no single borrower has accounted for more than 0.1% of our revenue during our fiscal year ended December 31, 2007 or any subsequent fiscal quarter.

44

Platform Participants and Registration Requirements

All platform participants must register with Prosper and agree to our platform rules and terms of use, including consent to receipt of disclosures electronically.  At the time of registration, individuals or authorized institutional agents must provide their name, address and an email address.  After responding to an email verification, registrants must agree to the terms and conditions (including the applicable registration agreement) for the specific role for which they are registering.

Prosper borrower members

A Prosper borrower member may be any natural person at least 18 years of age who is a U.S. resident in a state where loans through the platform are available, with a bank account and a social security number.  After passing Prosper’s anti-fraud and identity verification process, Prosper borrower members are assigned a Prosper Rating and can request unsecured Prosper borrower loans at interest rates which are determined by an auction process.  We allow Prosper borrowers to post listings on our platform regardless of their income.  We reserve the right to restrict access to our platform by setting minimum credit or other guidelines for Prosper borrower members.

We also allow individuals to post listings on our platform as a member of a group.  Prosper borrower members who are not already members of a group may request membership in a group in order to be eligible to post listings on our platform as part of a group.  Prosper borrower members’ group membership requests are forwarded by Prosper to the applicable group leader, who determines and communicates whether the borrower has been accepted into the group.  A Prosper borrower members may only belong to one group at a time.  Once accepted into a group, borrowers are eligible to post listings on our platform as part of the group.

Originators

Commercial banks, savings banks, consumer finance companies and other types of financing entities registered with Prosper are eligible to list open market loans for sale on our platform.  Prior to approving an originator to list loans for sale, Prosper undertakes a due diligence process of the candidate institution.  Our objective is to confirm that the information provided by the originator will accurately describe the loan being listed for sale, and to establish service level agreements and reports to monitor critical processes on an ongoing basis.  This monitoring process includes both monthly reports and periodic on-site audits.  During this process we review the credit quality, underwriting and loss expectation of the open market loans.  We also review the originator’s processes with respect to loan origination, chain of title, documentation, balance calculation, record keeping system, servicing and collections, dispute resolution and end-of-loan procedures.  A copy of the report summarizing the due diligence is posted on the Prosper website for lender members to review.  Additional status information will be posted so that investors can monitor the performance of open market loans sold by particular originators.

Lender members

Our lender members are individuals and organizations that have the opportunity to buy our Notes.  Lender members must register on our website.  During lender registration, potential lender members must agree to a credit profile authorization statement for identification purposes, a tax withholding statement and the terms and conditions of our website.  Lender members must also enter into a lender registration agreement with us, which agreement governs all sales of our Notes to the lender members.  Lender members are not required to give credit information to the same extent as Prosper borrower members, but they are required to provide, in the case of individuals, their social security number and state driver’s license or state identification card number, or, in the case of institutions, their taxpayer identification number, to us.  At the time a lender member registers with Prosper, the lender member must agree to the rules, limitations, processes and procedures established by Prosper for originating, servicing, collecting and transferring borrower loans through our platform.  Prior to bidding on a listing, lender members must transfer funds to an account maintained on our platform, which we refer to as a “funding account.” The funding account holds all funds supporting a lender member’s bids and all Note payments payable to the lender member are deposited in the funding account.

Group Leaders

An individual must be registered as a Prosper borrower member or a lender member on our platform in order to register as a group leader.  Group leaders are individuals who serve as the head of a group of Prosper borrower members or prospective borrowers on our platform. Groups can be any formal or informal collection of people with common interests, including social, cultural, ethnic, professional, education-based, geographical, athletic, religious or any other official or unofficial affiliation.  Group leaders are able to condition membership on personal facts and characteristics that may not be

45

available to lender members generally. Group leaders also have the ability, if they so choose, to review and approve their group members’ listings before they are posted on our platform for bidding.  Group leaders are notified of any delinquent payments by borrowers in their group, but are not allowed to take any collection actions.  Group leaders may only act as a leader of one group.  Group leaders may also participate in the marketplace as lender members and bid on listings of borrowers within or outside of their group.  Group leaders may also act as borrowers and request borrower loans as an “ungrouped” individual or as a member of a group other than their own.

WebBank.

WebBank is an FDIC-insured Utah-chartered industrial bank and direct lender that makes loans to Prosper borrower members and sells and assigns the promissory notes evidencing Prosper borrower loans to Prosper.

Prosper Rating Assigned to Borrowers

Each listing will be assigned a Prosper Rating.  The Prosper Rating is a letter that indicates the borrower’s level of risk and corresponds to an estimated average annualized loss rate range.  This rating system allows Prosper to maintain consistency when assigning a rating to the borrower regardless of originator, type of credit score or type of loan being offered for sale.  The current Prosper Ratings and the estimated loss ranges associated with them are as follows:

Prosper Rating	Est. Avg. Annual Loss Rate
AA		<=1%
A		1.1 – 2.5%
B		2.6 – 5.0%
C		5.1 – 7.5%
D		7.6 – 10.0%
E		10.1 – 15.0%
HR		>15%

There are currently seven Prosper Ratings, but this, as well as the loss ranges associated with each, may change over time as the marketplace dictates.

For Prosper borrower listings, the Prosper Rating will be estimated based on two scores: one obtained from a credit reporting agency and the other an in-house custom score built on the Prosper population. The use of these two scores will determine an estimated loss rate for each listing (based on the historical performance of previous Prosper loans), which then determines the Prosper Rating.  The matrix below provides an example of how this system works.  Each cell indicates an estimated loss rate based on the borrower’s scores.  Cells with similar loss rates are grouped together and mapped to Prosper Ratings.  Score ranges and estimated loss rates will continually be updated.  The score ranges and estimated loss rates provided here are for illustrative purposes only.

	Experian Scorex Plus Score*
Prosper score*	<551		—		700- 729		730- 764		765+
19.8-100	50	%(3)	—	(3)	30	%(3)	25	%(3)	20	%(3)
—	—	(3)	—		—		—		—
4.4-5.4	35	%(3)	—		6.0	%	2.0	%(2)	2.5	%(2)
3.0-4.3	30	%(3)	—		2.5	%(2)	1	%(1)	0	%(1)
0-2.9	25	%(3)	—		1.5	%(2)	1	%(1)	0	%(1)
Cell = estimated average annualized loss rate

* Experian:   higher score = lower risk

* Prosper:     lower score = lower risk

For example, in the matrix above:

(1) = Prosper Rating AA: expected losses <=1%

(2) = Prosper Rating A:    expected losses 1.1-2.5%

(3) = Prosper Rating HR: expected losses >15%

46

For open market listings, the originator will provide us with a loss rate on the type of loan being offered for sale, and we will translate the loss rate to a Prosper Rating.

Credit Report Score Range

In addition to the Prosper Rating, each Prosper borrower listing will also show the borrower’s numerical credit score range based on a credit score on the borrower obtained from a consumer reporting agency. Listings will also indicate the consumer reporting agency from which the consumer report and credit score was obtained, as well as the proprietary credit score used.

Prosper borrower listings will indicate the score range at time of the listing.  Listings on the trading platform will show the score range at origination as well as the credit score range at the time of listing.  Open market listings will show the score range at origination, and will show the credit score range at the time of listing only if the credit score range is provided by the originator.  The numerical credit score is not displayed or disclosed to anyone (including the borrower).

When a borrower initiates the process of posting a Prosper borrower listing on our platform, we check to see if we had obtained a credit report on that person.  Currently, if credit report on file for such borrower is more than 30 days old, we initiate an inquiry to retrieve a credit report on the borrower and then compute and assign the Prosper Rating.  With respect to open market listings, the originator (or Prosper with the originator’s authorization) may obtain an updated credit score on the borrower.  Borrowers’ Prosper Ratings are displayed with their listings and are available for viewing by lender members.

Part of a borrower’s credit profile is a DTI ratio.  DTI is a measurement of the borrower’s ability to take on additional debt.  This number takes into consideration how much debt the borrower had prior to requesting a borrower loan, in addition to what the borrower’s debt will be if the requested borrower loan is made.  The DTI is expressed as a percentage and is calculated by dividing the borrower’s monthly income (before taxes) into his or her monthly non-housing debt payments as shown on the borrower’s credit report taking into account the borrower loan amount being requested.  In some instances, open market listings will include housing payments in the DTI.  Borrower income is self-reported, and on the majority of loans originated on the platform we do not verify the borrower’s income.

Platform Listings

Prosper Borrower Loan Listings

Once a loan listing is completed by the borrower, the listing is posted on our website and then becomes available for bidding by lender members.  A Prosper borrower listing is a request by a Prosper borrower member for a Prosper borrower loan in a specified amount, at an interest rate equal to the maximum interest rate set forth in the listing.  Prosper borrower loans are unsecured obligations of individual borrower members with an interest rate determined in an auction format and with a specified loan term, currently set at three years, but which Prosper anticipates in the near future extending  to between three months to seven years.  Prosper borrower members may currently request loans within specified minimum and maximum principal amounts (currently between $1,000 and $25,000), which are subject to change from time to time.  Prosper borrower loans may be repaid at any time by Prosper borrower members without prepayment penalty.  A Prosper borrower loan will be made to a borrower member only if the borrower’s listing has received bids totaling the full amount of the requested loan.

In addition to the Prosper borrower’s requested loan amount and maximum interest rate, Lender members are able to view:

·the borrower’s Prosper Rating, and numerical credit score range;

·current interest rate and the annual percentage rate for the Prosper borrower loan;

·the total amount of bids that have been made to date toward Notes that will be dependent on the Prosper borrower loan;

·whether the borrower owns a home;

·DTI percentage;

47

·the number of accounts on which the borrower is currently late on a payment, including unpaid derogatory accounts;

·the total past-due amount the borrower owes on all delinquent and derogatory accounts;

·the number of 90† days past due delinquencies on the borrower’s credit report in the last 7 years;

·the number of negative public records (e.g., bankruptcies, liens, and judgments) on the borrower’s credit report over the last 12 months, and over the last 10 years;

·the month and year the borrower’s first recorded credit line (e.g., revolving, installment, or mortgage credit) was opened;

·the total number of credit lines appearing on the borrower’s credit report, along with the number that are open and current;

·the total balance on all of the borrower’s open revolving credit lines;

·the borrower’s bankcard utilization ratio, expressed as a percentage, reflecting the ratio of the total balance used, to the aggregate credit limit on, all of the borrower’s open bankcards;

·the number of inquiries made by creditors to the borrower’s credit report in the last six months;

·the borrower’s Prosper friends who have committed to purchase Notes dependent for payment on that Prosper borrower loan by bidding on the listing;

·questions posted by lender members that are answered by the borrower;

·the borrower’s group affiliations, if any;

·the number of lender members committed to purchasing Notes that will be dependent for payment on the Prosper borrower loan; and

·the Prosper borrower member’s self-reported income range, occupation, employment status, intended use of funds.

Prosper borrower members who use our platform must identify their intended use of the loan proceeds.  For Prosper borrower loans funded between January 1, 2008 and September 30, 2008, Prosper borrower members identified their intended use of loan proceeds as follows:

·debt consolidation (approximately 42%);

·personal use, such as weddings or medical expenses (approximately 21%);

·business use, such as financing their home-based or small businesses (approximately 16%);

·home improvement (approximately 5%);

·tuition or other education expenses (approximately 4%);

·financing the purchase of an automobile (approximately 3%); and

·other (approximately 9%).

48

Potential Prosper borrower members typically state the use of funds in a short sentence or clause, such as “Consolidate my credit card debt and be rid of it.” We historically have not verified, and do not plan in the future to verify or monitor, a borrower’s actual use of funds.

Although Prosper borrower members and lender members are anonymous to each other, lender members may ask Prosper borrower members questions about the loan listing and Prosper borrower members may, but are not required to, respond to such questions.  Prosper borrower members who respond to a lender member’s question may respond privately, or they may elect to have the question and answer posted publicly in the listing.  Lender members’ questions are not posted in the listing or displayed elsewhere on our website unless the Prosper borrower member elects to answer the question and elects to make the question and answer publicly available, in which case the question and answer appears in the listing.  We do not verify any Prosper borrower members’ responses to lender members’ questions.

Prosper borrower listings and Prosper borrower member information available on our website will be statements made in connection with the purchase and sale of securities, and therefore subject to Rule 10b-5 of the Exchange Act.  Prosper Borrower loan posting and borrower information filed in prospectus supplements will be subject to the liability provisions of the Securities Act.  In general, Section 10b-5 and the liability provisions of the Securities Act provide the purchaser of securities with a right to bring a claim against the issuer for damages arising from any untrue statement of material fact in this prospectus or any omission of a material fact made in connection with the sale of securities.  In this prospectus, we advise potential investors in the Notes as to the limitations on the reliability of borrower-supplied information.  A lender member’s recourse in the event this information is false will be extremely limited.

Borrower loan requests remain open for seven days, during which time lender members may make commitments, in the form of bids, to purchase Notes that will be dependent on the borrower loans.

Borrower and lender members may choose to belong to certain groups of people with common interests, including social, cultural, ethnic, professional, educational, athletic, religious, or any other official or unofficial affiliation.  Groups may consist of borrowers, lender members or registered Prosper users who have not taken a role, or any combination of the above.  Groups allow people to join together for the common goal of borrowing money at desirable interest rates and give borrowers an additional incentive—the borrower’s reputation within the group—to meet their obligation to repay a borrower loan.

Prosper borrower listings identify the group, if any, to which the borrower belongs.  We believe that a borrower’s identification with a group may attract bids from lender members with similar interests, resulting in borrower loans with potentially lower interest rates for the group’s borrowers, or a greater likelihood of loan funding.

Some groups are headed by group leaders who may invite prospective borrowers to our platform and display their groups on the Prosper website.  Group leaders do not guarantee payments on any borrower loan or Note.

Open Market Loan Listings

An open market listing is a listing posted by an originator on our platform that describes an existing loan owned by the originator upon which a series of Prosper Open Market Notes will be dependent for payment.  Originators list the sale price for the open market loan, the remaining principal balance of the loan and the interest rate the borrower is obligated to pay on the loan.  Open market loans may have outstanding principal amounts in excess of the maximum amount a borrower member may request on the platform, and unlike Prosper borrower loans may be repayable more or less frequently than monthly, and may or may not allow the borrower to prepay the loan without prepayment penalty.  All open market loans are sold and assigned by the originator to Prosper, without recourse to the originator, at the end of the auction bidding period, if successful.

The listing process for open market loans begins when the originator provides us with information regarding the open market loan they wish to list for sale on our platform.  In addition, to the information noted below, the originator provides personal information regarding the borrower, such as name, address, phone number, social security number and date of birth, and similar items. In the case of an auto loan, the file would contain the full vehicle identification number.  None of the personally identifiable information is displayed in the listing.

The information is formatted into a “listing” similar in design to Prosper borrower listings, but with additional information that will make these listings easily identifiable.

49

Lender members are able to view the following items, if provided by the originator:

·“starting price” for bidding;

·remaining principal balance;

·interest rate the borrower is obligated to pay on the loan;

·the current balance (by balance type);

·projected loss rate;

·the Prosper Rating, based on information as of the time of origination (rather than the time of listing);

·credit score range and related credit data obtained at origination for the borrower under the loan;

·the borrower’s credit score range at the time of listing, but no updated credit data;

·name of the originator;

·the loan type;

·the origination date;

·payment frequency, payment due date and payment amount;

·current projected end date for the loan.

In the case of a loan that is secured by collateral, the listing would contain information regarding the collateral, for example an auto loan would have information such as:

·the year, make and model,

·“status” of the car (such as new versus used),

·and the number of miles.

In addition, open market listings that involve loans secured by automobiles or other personal property would contain a notice that the assignee of a consumer credit contract for the financing of goods or services takes the obligation subject to claims and defenses the buyer may have against the seller of the goods or services in accordance with the Federal Trade Commission’s holder in due course rule.

Minimum Credit Criteria and Underwriting

Prosper Borrower Loans

When a borrower member requests a loan, we evaluate whether the borrower meets the underwriting criteria we established with WebBank with respect to the Prosper borrower loans.  The underwriting criteria applies for all Prosper borrower loans originated through our platform and may not be changed without WebBank’s consent.  The underwriting criteria requires, among other things, that borrowers have a minimum credit score of a specified threshold amount (currently 640), and no prior charge-offs on borrower loans originated through our platform.

Prosper borrower members with a credit score below the minimum threshold may only post listings and obtain a loan through our platform, through our “open social” feature, where bids are made primarily from friends and family.  For the open social listings, the Prosper borrower member must receive a specified percentage of bids from the Prosper borrower member’s friends before the listing would be open to bids from any lender member.

50

Borrower members may have up to two Prosper borrower loans outstanding at any one time, provided that the aggregate outstanding principal balance of both Prosper borrower loans does not exceed the then-current maximum allowable loan amount for Prosper borrower loans (currently $25,000).  Currently, to be eligible to obtain a second Prosper borrower loan while an existing loan is outstanding:

·Prosper borrower members must be current on their existing Prosper borrower loan, and must not have been more than fifteen days past due in making their most recent monthly Prosper borrower loan payments for a specified number of months (between six and twelve, depending on the borrower’s credit score range),

·Prosper borrower members may not post a listing for a second Prosper borrower loan within six to twelve months (depending on the borrower’s credit score range) following the date of origination of their existing Prosper borrower loan, and

·the Prosper borrower member’s Prosper Rating must not drop more than a specified number of points (currently twenty to forty points, depending on the borrower’s credit score range at time the existing loan was obtained) below what it was when the Prosper borrower member’s existing Prosper borrower loan was obtained.

Prosper borrower loan underwriting requirements, including eligibility requirements for second loans are subject to change from time to time.

Open Market Loans

Once approved, originators can offer to sell loans involving borrowers of any level of creditworthiness, including non-prime and sub-prime borrowers.  All open market loans listed on the platform must be current and a minimum number of payments, as specified by Prosper and subject to change from time to time, must have been made on the loan.

Borrower Financial Information is Generally Not Verified

Prosper Borrower Listings

Information presented in Prosper borrower loan listings that is provided by Prosper borrower members is generally unverified.  Lender members should not rely on unverified information provided by Prosper borrower members.  In instances where we choose to verify the income, employment and occupation or other information provided by Prosper borrower members in listings, the verification is normally done after the listing has been already been created and bidding has ended.  In such cases, the results of Prosper’s verification are not reflected in the listings themselves.

We reserve the right in our member agreements to verify the accuracy of all statements and information provided by Prosper borrower members, lender members and group leaders in connection with listings, bids and Prosper borrower loans.  We may conduct our review at any time—before, during or after the posting of a listing, or before or after the funding of a Prosper borrower loan.  If we are unable to verify material information with respect to a Prosper borrower member, listing or bid, we may cancel or refuse to post a listing, or cancel any or all bids against a listing.  We may also delay funding of a Prosper borrower loan in order to enable us to verify the accuracy of information provided by a Prosper borrower member, a lender member or a group leader in connection with the listing or bids, and to determine whether there are any irregularities with respect to the listing or bids.  We may also cancel the funding of a Prosper borrower loan, even if the listing garners a sufficient amount of purchase commitments for Notes to otherwise support the funding of the corresponding Prosper borrower loan, if material misstatements or inaccuracies are found in the listing or in other information provided by the Prosper borrower member.

In most instances, we do not verify the income, employment and occupation or other information provided by Prosper borrower members in listings.  The Prosper borrower member’s income, employment and occupation is self-reported, and we derive the Prosper borrower member’s DTI from a combination of the Prosper borrower member’s self-reported income and information from the Prosper borrower member’s credit report.  The credit data that appears in listings is taken directly from a credit report obtained on the Prosper borrower member from a consumer reporting agency, without any review or verification by Prosper.  We do not verify any statements by Prosper borrower members as to how Prosper borrower loan proceeds are to be used and does not confirm after Prosper borrower loan funding how loan proceeds were used.  Although Prosper borrower members may provide proof of homeownership to establish homeownership status, in most instances homeownership status is derived from the Prosper borrower member’s credit report, however, we do not verify this information; if the credit report reflects an active mortgage loan, the Prosper borrower member is presumed to be a homeowner.

51

In connection with our identity and anti-fraud verification of Prosper borrower members, we verify the deposit account from which the Prosper borrower member will make payments, to determine that the Prosper borrower member is a holder of record of the account.  Even if a listing receives bids in the total amount requested, Prosper will cancel the listing without funding the requested Prosper borrower loan if we are unable to verify the Prosper borrower member’s account.  While we attempt to authenticate each platform participant’s identity, our fraud checks could fail to detect identity theft, fraud and inaccuracies.  See “Risk Factors—Risks Related to Borrower Default” for more information.

For example between September 1, 2007 and August 31, 2008, we verified employment and income for only approximately 22.6% of Prosper borrower members.  When we perform these verifications, we contact Prosper borrower members by email or telephone to request additional information.

If the Prosper borrower members fail to provide satisfactory information in response to an income or employment verification inquiry, we may request additional information from the Prosper borrower members or cancel the Prosper borrower member’s listing or refuse to proceed with the funding of the Prosper borrower loan.  As discussed, we conduct income and employment verification entirely in our discretion as an additional credit and fraud screening mechanism. We determine whether to verify a Prosper borrower member’s income and employment information primarily based on our analysis of the following factors using a propriety algorithm and matrix:

·Prosper Rating;

·loan amount;

·stated income; and

·debt-to-income ratio.

Of the Prosper borrower members undergoing income verification for the period from September 1, 2007 to August 31, 2008:

·approximately 56.4% provided us with satisfactory responses and received a borrower loan;

·approximately 37.7% did not provide satisfactory responses, or did not respond, and their listings were cancelled; and

·approximately 5.9% either withdrew their listings, or failed to receive bids totaling the amount of their requested loan.

We believe that our ability to verify a Prosper borrower member’s income may be useful in certain circumstances in screening our platform against exaggerated income and employment representations from Prosper borrower members.  Lender members, however, should not rely on a Prosper borrower member’s stated employment or income or on our ability to perform income and employment verifications.  We cannot assure lender members that we will continue performing income and employment verifications.  We expect that the percentage of listings for which we conduct income and employment verifications, and the percentage of Prosper borrower members who ultimately have their income and employment verified, will decline as our volumes increase.  See “Risk Factors—Risks Related to Borrower Default—Information supplied by borrowers may be inaccurate or intentionally false” for more information.

Open Market Listings

The information in open market listings describing the borrower loan for sale is provided by the originator and is not verified by Prosper.  Prosper represents and warrants to the holders of each series of Notes, that the originator has made commercially reasonable efforts to authenticate and verify the identity of the borrower under corresponding open market loan upon which a series of Notes is dependent for payment.

Transaction Fees

Each time a Prosper borrower loan is funded, the borrower is charged a transaction fee equal to a specified percentage (currently 2.5%) of the amount of the Prosper borrower loan, subject to a specified minimum fee (currently $75), payable from the borrower’s loan proceeds at the time of funding of the borrower loan.  Each time an open market loan is sold, the  

52

originator is charged a transaction fee equal to a specified percentage of the sale price of the open market loan, subject to a minimum transaction fee.  The transaction fee is payable from the loan sale proceeds at the time the open market loan is sold to Prosper.  If Prosper establishes the trading platform on which the Notes may be resold, Prosper intends to charge all lender members who post a listing for the sale of a Note a nonrefundable administrative fee in a specified amount (currently $0.25) that is subject to change from time to time. Listing fees will be charged and collected at the time the listing is posted on the trading platform by deducting the resale listing fee from the selling lender member’s funding account.

How to Bid to Purchase Notes

Bidding on Prosper Borrower Loans

A bid on a Prosper borrower listing is a lender member’s binding commitment to purchase a Note in the principal amount of the lender member’s bid, should the listing receive bids totaling the full amount of the requested loan.  Lender members bid the amount they are willing to commit to purchase a Note dependent for payment on payments we receive on a borrower loan described in the listing, and the minimum interest rate they are willing to receive.  A Prosper borrower loan will be not made unless the listing has received bids totaling the full amount of the requested borrower loan.

We provide for two types of lender member bids.  Lender members can bid (i) selectively, by browsing through and bidding on one or more Prosper borrower listings or (ii) bid by making a “portfolio plan” by indicating the amount the lender member is willing to commit toward the purchase of Notes that will be dependent for payment on the corresponding borrower loans, the interest rate and borrower criteria and other characteristics of the Notes or Prosper borrower listing that the lender member would bid on if available.  Lender members can employ either or both methods of bidding.  Currently, the minimum amount a lender member may bid is $50, and the maximum amount a lender member may bid on a listing is the amount of the requested borrower loan.  The maximum aggregate amount an individual lender member may bid on our platform is currently $5,000,000 for individuals and $50,000,000 for institutions. Prosper may change the minimum bid amount or the maximum aggregate bid amounts from time to time.

To bid selectively, lender members may browse online through available Prosper borrower listings displayed on our platform by desired borrower loan amount, current auction interest rate, borrower Prosper Rating, debt-to-income ratio, and group and other borrower characteristics.  A lender member can bid on as many listings as the lender member desires, subject to the aggregate bidding limit.

To bid using a portfolio plan, the lender member enters an aggregate amount the lender member desires to bid, the maximum amount that may be bid on one Prosper borrower listing, the minimum interest rate the lender member is willing to receive, the acceptable borrower Prosper Rating or Ratings or other credit criteria, as well as any other listing criteria.  When a lender member makes a portfolio plan, bids will automatically be placed on any then-active Prosper borrower listings meeting the criteria selected.  Lender members can pause or cancel a portfolio plan, and can direct that, as new funds are deposited into the lender member’s funding account from Note payments or transfers of new funds, they be applied to the portfolio plan and automatically bid on listings that meet the criteria of the portfolio plan.  Lender members may have one or more portfolio plans bidding concurrently.

Both the selective and portfolio plan bidding methods enable lender members to diversify the risk of default of the corresponding borrower loans if they elect to do so.  It is solely up to the individual lender members to select their bidding method and the credit characteristics which are acceptable to the lender member and to determine a diversification strategy.

At the time a lender member makes a bid (whether selectively or through a portfolio plan) the lender member must have funds on deposit in the lender member’s funding account in at least the amount of the lender member’s outstanding bids.  Lender members may not withdraw bids once they are posted on a listing.  Bids expire automatically when they are no longer “winning” – i.e., when the bidding lender member is outbid – or when a listing expires without having received bids in the amount of the requested borrower loan or is withdrawn by a borrower or cancelled by Prosper.  Lender member bids become “winning” bids if such bids are in the group of bids for Notes that, in an aggregate, correspond to the requested loan amount of the corresponding Prosper borrower loan and are in the lowest interest rate among all bids placed against the listing.

To the extent there are multiple bids at the same interest rate in an aggregate amount in excess of the requested loan amount, the bids placed earliest in time take precedence over later bids. When the total amount of all bids placed in the auction equals or exceeds the initial loan amount, further bids have to be placed at least 0.05% below the current winning interest rate.  It is possible that only a portion of a lender member’s bid is winning on a Prosper borrower listing.  Depending on the amount of the winning bids at the end of the auction period, there may be a winning bidder on a listing with a winning bid of less than $50.  There may be only one partial winning bidder.

In order to make Note purchase commitments by bidding on Prosper borrower listings, lender members must have funds in their Prosper accounts in at least the amount of the lender member’s bid or bids.  Once a bid is placed, it is irrevocable, and during the time a bid is a “winning” bid on the listing, the amount of the bid is not permitted to be withdrawn from the lender member’s Prosper account.  Lender member bids become “winning” bids if such bids are in the group of bids for Notes that, in an aggregate, correspond to the amount of the requested borrower loan and are in the lowest interest rate among all bids placed against the listing.

53

It is expected that a single Prosper borrower loan that gets funded will receive Note purchase commitments from many different lender members.  For example, as of October 16, 2008, during the period in which our lender members purchased loans directly instead of Notes dependent for payment on the corresponding borrower loan, the average aggregate loan size was approximately $6,172 and the average loan purchase commitment per lender per loan was approximately $91.  If by the end of the seven-day listing period a Prosper borrower loan listing does not receive bids totaling the amount of the requested borrower loan, the listing expires and no loan is funded to the borrower.  Prosper borrower members whose listings expire due to an insufficient amount of bids may post a new loan listing on our platform.

Bidding on Open Market Loans

The bidding process for open market listings focuses on the projected “yield to maturity” of the remaining payments of the loan.  The originator offering the loan for sale sets an initial sale price and an initial yield. The yield is calculated as the internal rate of return of the anticipated cash flows assuming all loan payments are made as scheduled. The initial sale price may be equal to, greater than or less than the outstanding balance of the loan being offered for sale. Similarly, the initial yield may be equal to, greater than or less than the interest rate the borrower is obligated to pay on the open market loan being offered for sale. The sale price and the yield are inversely proportionate. An open market loan sold at a higher price than the outstanding balance will result in a yield lower than the borrower’s interest rate, and an open market loan sold at a lower price will result in a yield higher than the borrower’s interest rate.

If the initial sale price is equal to the outstanding principal balance of the loan being offered for sale, the initial yield shown in the listing will be equal to the borrower’s interest rate. If the initial sale price is greater than the outstanding principal balance of the loan being offered for sale, the initial yield shown in the listing will be lower than the borrower’s interest rate, and the loan will be offered at a premium. If the initial sale price is less than the outstanding principal balance of the loan being offered for sale, the initial yield shown will be higher than the borrower’s interest rate, and the loan will be offered at a discount.

Lender members bid at a minimum yield percentage that they are willing to accept.  The current yield as set forth in an open market listing at any given time during the duration of the listing is the minimum yield for which there is sufficient participation among bidders to accommodate any corresponding increase in the sale price. The final yield is the minimum yield for which there is sufficient participation among bidders to accommodate the final sale price at the end of the auction period. To the extent there are multiple bids at the same yield in an aggregate amount in excess of the sale price, the bids placed earliest in time take precedence over later bids.  As the yield is bid down, the sale price for the loan will increase.  Prosper’s bidding algorithm will take this into account, so as the current yield on a listing decreases, the sale price will increase to an amount sufficient to produce the new yield, and additional bids will be allowed in to be applied toward the incremental increase in the sale price.  Bids may be in amounts between $50 and the total current price. It is possible that only a portion of a lender member’s bid is winning on a listing. Depending on the amount of the winning bids at the end of the auction period, there may be a winning bidder on a listing with a winning bid of less than $50.

When bidding commences on the listing, a lender member may place a bid by specifying an amount to invest and the lowest estimated yield the lender member is willing to receive. If the total amount of all bids placed is less than the initial sale price, new bids can be placed at or below the initial yield. When the total amount of all bids placed in the auction equals or exceeds the initial sale price, further bids have to be placed at least 0.05% below the current winning yield.  If the listing receives sufficient bids to match the necessary sale price of a loan at the winning yield percentage prior to the end of the auction, once ended, Prosper will purchase that loan from the listing originator.

In order to make Note purchase commitments by bidding on open market listings, lender members must have funds in their Prosper accounts in at least the amount of the lender member’s bid or bids.  Once a bid is placed, it is irrevocable, and during the time a bid is a “winning” bid on the listing, the amount of the bid is not permitted to be withdrawn from the lender member’s Prosper account.  It is expected that a single open market loan listed for sale will receive Note purchase commitments from many different lender members.

Treatment of Lender Member Balances

In order to make Note purchase commitments by bidding on listings, lender members must have sufficient funds in their funding account at Prosper.  This is accomplished by having each lender member authorize an electronic transfer using the Automated Clearing House, or ACH, network from the lender member’s designated and verified bank account to the account we currently maintain at Wells Fargo Bank, N.A. “for the benefit of” our lender members.  This so-called “FBO account” is a pooled account titled in our name “for the benefit of” our lender members.

54

Funds in the FBO account will always be maintained at an FDIC member financial institution.  Our individual members have no direct relationship with Wells Fargo Bank, N.A. by virtue of participating on our platform as a borrower or lender member.  We maintain and administer the FBO account.  No Prosper monies are ever commingled with the assets of lender members in the FBO account.

Under the FBO account, we maintain sub-accounts for each of our lender members on our platform to track and report funds committed by lender members to purchase Notes dependent on borrower loans, as well as payments received from borrower members.  These record-keeping sub-accounts are purely administrative and reflect balances and transactions concerning the funds in the FBO account.

The FBO account is FDIC-insured on a “pass through” basis to the individual lender members, subject to applicable limits.  This means that each individual lender member’s balance is protected by FDIC insurance, up to the aggregate amounts established by the FDIC.  Other funds the lender member has on deposit with Wells Fargo Bank, N.A., for example, may count against the FDIC insurance limits.

Funds of a lender member may stay in the FBO account indefinitely.  Such funds may include funds in the lender member’s sub-account never committed to the purchase of Notes or committed to the purchase of Notes for which the corresponding borrower loan did not fund, and may also include payments received from Prosper related to Notes previously purchased.  Upon request by the lender member, we will transfer lender member funds in the FBO account to the lender member’s designated and verified bank account by ACH transfer, provided such funds are not already committed to the future purchase of Notes.

Prosper Borrower Loan Funding and Purchases of Notes

Once a Prosper borrower listing receives bids from lender members totaling the loan amount requested, we proceed with the funding of the corresponding Prosper borrower loan and with the sale of the Notes to the lender members who were the winning bidders on the listing.

Borrower members execute an electronic borrower registration agreement at the time they post a listing on the platform. After expiration of the bidding period for the listing and satisfactory completion of our pre-funding review, the borrower executes an electronic promissory note in favor of WebBank in the amount of the requested borrower loan.  Loan proceeds are then disbursed to the borrower’s account by ACH transfer.  WebBank then electronically endorses the promissory note to Prosper and sells and assigns the promissory note to Prosper without recourse to WebBank.  Borrower loans are sold and assigned by WebBank to Prosper on the first business day following loan disbursement.

We are obligated to maintain sufficient funds in a funding account maintained by WebBank to satisfy the daily projected borrower loan fundings.  WebBank funds all loans originated on the platform, and we disburse the loan proceeds on WebBank’s behalf to the borrower member who is receiving the borrower loan.

The promissory note and the borrower registration agreement contain customary agreements and covenants requiring the borrower members to repay their borrower loans and describing the process of posting listings and obtaining loans through our platform. Borrowers authorize the loan proceeds to be disbursed by ACH transfer into the borrower’s designated bank account.

Borrowers pay an origination fee upon successful funding of the borrower loan.  The origination fee is paid by the borrower out of the proceeds of the borrower loan at the time of funding.  The transaction fees are charged by WebBank, and we receive amounts equal to the transaction fees as compensation for loan origination activities.

Lender members know only the screen names, and do not know the actual names, of borrower members.  The actual names and mailing addresses of the borrower members are known only to us and WebBank.  We maintain custody of the electronically-executed promissory notes evidencing borrower loans and the Notes sold to lender members in electronic form on our platform.

After the funding of a Prosper borrower loan we issue a Note to a lender member and register the Note on our books and records.  We transfer the principal amount of the Note from such lender member’s sub-account under the FBO account to a funding account maintained by WebBank for our benefit.  This transfer represents the payment by the lender member of the purchase price for the Note.  These proceeds are paid to Prosper to reimburse us for our purchase from WebBank of the particular borrower loan selected by the lender member.  WebBank is the lender for all borrower loans to borrower members,

55

which allows our platform to be available on a uniform basis to borrower members throughout the United States.  The lender registration agreement provides that, in the event of a material breach of our representations and warranties, we must either cure the defect, repurchase the Note, or indemnify and hold the lender member harmless against losses resulting from the defect in the Note.

Open Market Loan Sales and Purchases of Notes

Once a Prosper borrower listing receives bids from lender members totaling the loan amount requested, we proceed with the funding of the corresponding Prosper borrower loan and with the sale of the Notes to the lender members.

Once an open market listing receives bids from lender members totaling the sale price, we proceed with the sale of the corresponding open market loan to Prosper and with the sale of the Notes to the lender members who were the winning bidders on the listing.  At the close of the auction bidding period the originator sells and assigns the loan to Prosper, without recourse to the originator, in exchange for the sale price of the open market loan as determined by the auction bidding process.  Prosper uses the proceeds of the sale of each series of Notes corresponding to the open market loan to purchase the open market loan from the originator.  The originator will provide us with a bill of sale evidencing the transfer of the open market loan to Prosper, and upon receipt of the bill of sale Prosper will electronically transfer funds to the originator in the amount of the sale price of the open market loan, less a transaction fee equal to a specified percentage of the sale price of the open market loan, subject to a minimum transaction fee.

Identity Fraud Reimbursement

We may repurchase Notes from our lender members if the corresponding borrower loan was obtained through identity fraud.  We generally recognize the occurrence of identity fraud upon receipt of a police report regarding the identity fraud.  This remedy for identity fraud only provides an assurance that our borrower identity verification is accurate; in no way is it a guarantee of a borrower’s self-reported information (beyond the borrower’s identity) or a borrower’s creditworthiness.  We expect the incidence of identity fraud on our platform to be low because of our identity verification process.  As of December 31, 2008, we had experienced 19 cases of confirmed identity fraud affecting 32 loans since our inception.  In these cases, we received a police report from the victim of the identity fraud, evidencing that identity fraud had occurred.  Following our receipt of those police reports, we repurchased from the lender members the promissory notes evidencing the affected borrower loans for the outstanding principal amount of those promissory notes.

Post-Funding Loan Servicing and Collection

Following the purchase of Notes and the funding or sale of the corresponding borrower loans, we begin servicing the borrower loans. We collect payments from borrowers on Prosper Borrower loans, and the originator collects payments from borrowers on open market loans. For both Prosper borrower loans and open market loans, we transfer amounts collected to the lender members who own Notes corresponding to the borrower loan.

We assess lender members a servicing fee in respect of their Notes.  Our servicing fee is equal to an amount corresponding to specified annualized rate applied to the outstanding principal balance on the corresponding borrower loan.  Currently, the servicing fee rate is 1.0% for Prosper borrower loans and 0.5% for open market loans, but Prosper may change the servicing fee rate from time to time.

Our procedures for collecting Prosper borrower loan payments generally involve the automatic debiting of borrower bank accounts by ACH transfer.  Such funds are transferred to a master servicing account in our name.  Thereafter, we make payments on the Notes by transferring the appropriate funds from the master servicing account to the FBO account and allocating amounts received on specific borrower loans to the appropriate lender member’s sub-account.  We transfer amounts due to us for servicing from the master servicing account to another operating account of ours.  A lender member may transfer uncommitted funds out of its FBO sub-account by ACH to the lender member’s designated bank account at any time, subject to normal execution times for such transfers (generally 2-3 days).

We disclose on our website to the relevant lender members and report to consumer reporting agencies regarding borrower members’ payment performance on Prosper borrower loans.  We have also made arrangements for collection procedures in the event of borrower member default.  When a Prosper borrower loan is past due and payment has not been received, we contact the borrower member to request payment.  After a 15-day grace period we assess a late payment fee.  The amount of the late payment fee is the greater of 5% of the unpaid installment amount or $15, or such lesser amount as may be provided by applicable law. This fee may be charged only once per late payment.  Amounts equal to any late payment

56

fees we receive on Prosper borrower loans are paid to holders of the Notes dependent for payment on the corresponding borrower loan.  We may also work with the borrower member to structure a new payment plan in respect of the borrower loan without the consent of any holder of the Notes corresponding to the borrower loan.

On the first failed payment of each billing period, we assess a non-sufficient funds fee in the amount of $15.  We retain 100% of this non-sufficient funds fee to cover our administrative expenses for processing failed payments.

If a Prosper borrower loan becomes more than thirty days past due, we identify the loan on our website as “1 month late,” and we refer the borrower loan to an outside collection agency.  Amounts equal to any recoveries we receive from the collection process are payable to lender members on a pro rata basis, subject to servicing fees and an additional collection fee between 15% and 30% of any amounts that are obtained.  The lender member is only charged the additional collection fee if we or the collection agency is able to collect a payment.

We keep lender members apprised of the delinquency status of Prosper borrower loans by identifying delinquent loans on our website as “1 month late,” “2 months late,” “3 months late,” or “current.” Prosper borrower loans that become more than 120 days overdue are charged off and designated as such on our website.  Through their online Prosper account lender members are able to monitor the borrower loans corresponding to their Notes, but cannot participate in or otherwise intervene in the collection process.

If a borrower member dies while a borrower loan is in repayment, we require the executor or administrator of the estate to send a death certificate to us.  Depending on the size of the estate, we may not be able to recover the outstanding amount of the loan.  If the estate does not include sufficient assets to repay the outstanding borrower loan in full, we will treat the unsatisfied portion of that borrower loan as charged off with zero value.  In addition, if a borrower member dies near the end of the term of a borrower loan, it is unlikely that any further payments will be made on the Notes corresponding to such borrower loan, because the time required for the probate of the estate may extend beyond the initial maturity date and the final maturity date of the Notes.

Our normal collection process for Prosper borrower loans changes in the event of a borrower member bankruptcy filing.  When we receive notice of the bankruptcy filing, as required by law, we cease all automatic monthly payments on the Prosper borrower loan and defer any other collection activity.  The status of the Prosper borrower loan, which the relevant lender members may view through their online Prosper account, switches to “bankruptcy.”  We then determine whether we have a basis to object to the inclusion of the debt in any bankruptcy action (e.g., based on the time between loan origination and bankruptcy filing).  If the proceeding is a Chapter 7 bankruptcy filing seeking liquidation, we attempt to determine if the proceeding is a “no asset” proceeding, based on instructions we receive from the bankruptcy court.  If the proceeding is a “no asset” proceeding, we take no further action and assume that no recovery will be made on the borrower loan.

In all other cases, we file a proof of claim involving the borrower member.  The decision to pursue additional relief beyond the proof of claim in any specific matter involving a borrower member will be entirely within our discretion and will depend upon certain factors including:

·if the borrower member used the proceeds of the borrower loan in a way other than that which was described in the borrower listing;

·if the bankruptcy is a Chapter 13 proceeding, whether the proceeding was filed in good faith and if the proposed plan reflects a “best effort” on the borrower member’s behalf; and

·our view of the costs and benefits to us of any proposed action.

Open market loans will be serviced, both before and after default, by the originator (although our loan purchase agreement with the originator may provide that we have the right, in our discretion, to take over servicing in the event of the originator’s default in its servicing obligations).  In servicing open market loans the originator will use commercially reasonable efforts to service and collect the open market loans in accordance with industry standards customary for loans of the same general type and character as the loans involved.  The originator may, in its sole discretion and subject to the agreed-upon servicing standards, refer a borrower loan to a collection agency at any time, or elect to initiate legal action to collect a borrower loan, repossess or foreclose upon any collateral securing a borrower loan, or sell a borrower loan to a third party debt buyer at any time.  The originator is obligated to forward to Prosper any amounts it receives from such activities in respect of the open market loan, including amounts received upon the sale of collateral securing an open market loan.  The holders of Prosper Open Market Notes do not have the right to take legal action to collect on the collateral under the corresponding open market loan or to require that the originator take such action.  In servicing borrower loans the originator may, in its discretion, utilize affiliated or unaffiliated third party loan servicers, repossessors, collection agencies or other agents or contractors.

57

For open market loans, we will transfer borrower payments to the funding account of the lender members who own Notes corresponding to the borrower loan upon receipt of such payments from the originator servicing the open market loan. Any delay between the time an originator receives a borrower payment and the time the payment is transferred to the lender member’s funding account may reduce the yield to maturity displayed in the open market listing relating to the open market loan.

Purchase of Notes by Prosper or Related Parties

Prosper does not participate on the platform as a lender.  Some of our executive officers, directors and shareholders have bid on and purchased loans originated through the platform from time to time in the past, and may purchase Notes in the future.  As of October 31, 2008, these individuals had purchased $936,625 in loans.  As certain of our executive officer and directors, by virtue of their duties as employees, have access to information not available to the general population of lender members.  We have adopted the following procedures to prevent and/or detect the improper use of non-public information in bidding activities by such officers and directors:

·Our corporate policies, distributed to all employees, prohibits an employee’s use of non-public information and any violation of this policy is grounds for immediate termination.

·Security features of our system limit access to data to information needed to perform employee’s job function.  These limitations are defined by “security group,” which corresponds to both job title and functional content and the number of employees that have access to such non-public information on a “bulk” or “query” basis is extremely limited.

·In addition to prevention efforts, our internal control department has developed a suite of audit trails and audits that are used to identify and investigate bidding activities that are classified as “suspicious.”

Trading Platform

Lender members may not transfer their Notes except through the resale trading platform operated by a registered broker-dealer yet to be determined.  See “About the Platform—Description of the Notes” for more information.  This trading platform is an internet-based trading platform on which our lender members may offer their Notes for sale or bid on and purchase Notes offered for sale.  Lender members must first establish a brokerage relationship with the registered broker-dealer operating the trading platform before using the trading platform.  In this section, we refer to lender members who have established such brokerage relationships as “subscribers.”  Only transactions involving the resale of a previously-issued Notes will be affected through the trading platform; the trading platform will not handle any aspect of transactions involving the initial offer and sale of Notes by Prosper.  Subscribers may post orders to sell their Notes on the trading platform at prices established by the subscriber.  Other subscribers will have the opportunity to view these prices, along with the listing for the borrower loan corresponding to the Note and the payment history of the corresponding borrower loan.

To cover administrative costs, Prosper intends to charge all lender members who post a listing for the sale of a Note a nonrefundable administrative fee in a specified amount (currently $0.25) that is subject to change from time to time.  The administrative fee will be deducted from the subscriber’s funding account at the time the resale listing is posted on the trading platform. In addition, all Notes traded through the trading platform will continue to be subject to the servicing fees charged by Prosper and the originator, as applicable depending on the type of borrower loan corresponding to a Note.

Subscribers who sell Notes on the trading platform will be subject to fees charged by the registered broker-dealer.  This fee is expected to equal to a specified percentage of the resale price of the Note sold.

We are not a registered national securities exchange, securities information processor, clearing agency, broker, dealer or investment adviser.  All securities services relating to the trading platform are provided by the registered broker-dealer.  Neither Prosper nor the registered broker-dealer will make any recommendations with respect to transactions on the trading platform. There is no assurance that subscribers will be able to establish a brokerage relationship with the registered broker-dealer.  Furthermore, we cannot assure subscribers that they will be able to sell Notes they offer for resale through the trading platform at the offered price or any other price nor can we offer any assurance that the trading platform will continue to be available to subscribers.

58

Resale of the Notes

The Notes may be resold to other subscribers through the trading platform. If a selling subscriber desires to sell a Note prior to the end of the Note’s term, the selling subscriber may post the Note for sale on the trading platform for resale in an auction format.  If a subscriber purchases the Note, then the Note will be transferred through the trading platform to the subscriber.  A Note resold through the trading platform must be purchased in its entirety by a single subscriber.  Once a Note has been resold through the trading platform to a subsequent subscriber, the Note may again be resold through the trading platform. After the date of this prospectus, the Notes will not be non-transferable except through the trading platform.

Notes Subject to Resale by Subscribers.  The Note trading platform will enable subscribers to resell Notes originated on our platform or purchased from other subscribers through the trading platform. Notes corresponding to Prosper borrower loans or open market loans that have become delinquent in borrower payments will be eligible for resale on the trading platform. There is no limit on the number of times a Note may be resold on the trading platform, so long as the Note is outstanding.

Lender Members Eligible to Bid on Resale Listings.  Lender members must first establish a brokerage relationship with the registered broker-dealer operating the trading platform before using the trading platform.  To open an account, the broker-dealer will likely require lender members to confirm that they satisfy certain minimum financial suitability standards and maximum investment limits, if any, that may be imposed by the state in which the lender member resides.  If the lender member does not satisfy these suitability requirements it will not be able to place bids on the platform.

Creation of Resale Listings.  Subscribers who want to sell one or more of their Notes may offer them for resale on the trading platform by creating and posting a “resale listing.”  Subscribers may offer to sell any or all of the Notes they own and may offer to resell more than one Note at the same time.

The subscriber will designate a minimum sale price the subscriber is willing to receive for the Note.

Resale listings will have a listing duration of seven days.  Selling subscribers may also add an “automatic sale” feature to their resale listing, which would end the bidding period on a resale listing immediately after the listing receives an initial bid equal to an automatic sale price set by the selling subscriber.  In such instances the Note would be immediately sold to the subscriber who placed the bid.

The selling subscriber may withdraw resale listings without charge at any time prior to expiration of the auction bidding period, before any bids are received.  Resale listings with at least one bid cannot be withdrawn by the selling lender.

Display of Resale Listings.  Resale listings will be displayed for auction on the trading platform, and include the selling subscriber’s screen name, the offered sale price of the Note, the interest rate on the Note and the remaining term of the Note, and the yield to maturity that corresponds to the offered sale price.  Resale listings will also include the repayment status on the Note (i.e., current or delinquent), the borrower’s payment history and the next scheduled payment on the Note.  Resale listings will also include the remaining duration of the resale listing, the number of bids, and whether the resale listing has an automatic sale feature.

Resale listings will include a link to the original listing (including the listing title, description, credit data, recommendations, questions and answers, and original bidding history) for the borrower loan that corresponds to the Note being offered for resale.  Although resale listings will be displayed publicly on the trading platform, the borrower’s payment history and corresponding listings will be viewable only by registered subscribers.

Bidding on Resale Listings.  Only registered subscribers are eligible to bid for and purchase Notes listed for resale on the trading platform. Subscribers may bid for and purchase one or more Notes from selling subscribers.  As with bidding on Prosper borrower listings and open market listings, subscribers who bid on resale listings must have funds on deposit in the subscriber’s funding account in at least the amount of the subscriber’s bid or bids; subscribers are prohibited from withdrawing amounts from the subscriber’s funding account to the extent any such withdrawal would reduce the balance below the aggregate amount of the subscriber’s pending bids on Prosper borrower listings, open market listings and resale listings.  Subscribers are not eligible to bid on their own resale listings.

Subscribers bidding on resale listings must bid for the full amount of the Note being sold, and there may be only one winning bidder for a Note offered for resale by a selling subscriber.

59

Subscribers bidding on resale listings can only bid selectively, by browsing through and choosing one or more resale listings that appeal to the subscriber.

Bids may be made by subscribers until the end of the auction period specified in the resale listing.  The selling subscriber may, however, end the auction bidding period early at any time after a winning bid is made.  The winning bidder is the subscriber who has bid the highest price as of the end of the auction bidding period (or the automatic sale price with respect to a resale listing with such a feature).

Proxy Bidding.  The trading platform will employ an automated proxy bidding system that enables bidding subscribers to place a bid higher than the then current minimum bid, and have bids continually applied against a resale listing, up to a specified maximum bid amount.  The maximum bid amount is hidden from view until competing bids push the current sale price higher than the bidder’s maximum bid.

Close of Bidding and Resale of Borrower Loans.  When a resale listing ends with a winning bidder, upon settlement of the sale, which will normally occur on the business day following expiration of the resale listing, the final sale price is withdrawn from the winning subscriber’s funding account to pay the selling subscriber. The registered broker-dealer’s fee is deducted from the sale price and retained by the registered broker-dealer.

Upon the selling subscriber’s receipt of the final net sale proceeds, the Note is sold, transferred and assigned by the selling subscriber to the winning bidder without recourse.  All further payments made on the Note following settlement of the sale will be credited to the account of the subscriber who purchased the Note from the previous subscriber.  The purchasing subscriber may retain ownership of the Note for the remainder of its term, or list the Note for resale on the trading platform. The electronic original Note is kept in the possession and control of Prosper, as servicer of the Note, for the remaining term of the Note.

Customer Support

We provide customer support to our borrower and lender members.  For most of our members, their experience is entirely web-based.  We include detailed information about our platform on our website.  We also post detailed fee information and the full text of our member legal agreements.

We make additional customer support available to members by email and phone.  Our customer support team is currently located at our headquarters in San Francisco, California.

Historical Information About Prosper Borrower Members and Outstanding Borrower Loans

The performance of borrower loans is a function of the credit quality of the borrowers and the risk and return preferences of the lender members.  Lender members can choose to pursue a variety of bidding strategies including strategies that may or may not maximize the return on their investment.  When making bidding decisions, lender members consider borrowers’ credit grades, debt-to-income ratios and other credit data and information displayed with listings.  The Prosper credit grades reflected in this section differ substantially from the credit grades for a Prosper Rating after the date of this prospectus.  Accordingly, you should not place substantial reliance on our historical information in connection with the risks of investing in Notes under this prospectus.  See “Risk Factors—Risks Related to Borrower Default.”

Since its inception in November 2005 through October 16th, 2008 Prosper had facilitated 28,940 borrower loans with an average original principal amount of $6,172 and an aggregate original principal amount of $178,622,722.  As of December 31, 2008, 61.1% were current, 16.5% were paid in full, 1.2% were 15 to 30 days past due, 4.8% were more than 30 days past due, and 16.5% had defaulted.  A borrower loan is considered to have defaulted when it is more than 120 days past due or has filed a bankruptcy which has been discharged.  In addition, of these loans 7,959 loans, or 27.5% , have ever been greater than 15 days past due at one time, and 6,814 loans, or 23.5%, have been more than 30 days past due at one time.

The defaulted loans as of December 31, 2008 were comprised of 4,771 borrower loans, equaling a total defaulted amount of $24,783,667.  Of these 4,771 defaulted loans, 681 are loans in which the borrowers filed for bankruptcy, equaling $4,121,037 in defaulted amount.

The following table presents additional aggregated information for the period from our inception to October 16, 2008 about delinquencies, default and borrower prepayments, grouped by the credit grade.  With respect to delinquent borrower loans, the following table shows the entire amount of the principal remaining due (not just that particular payment.)

60

Total Loan Originations

November 2005 - October 16th, 2008
(as of December 31, 2008)

	Total Loan Originations			Current Loans							15-30 Days Past Due
Credit Grade	Number	Amount		Number		Origination Amount			Outstanding Principal		Number		Origination Amount			Outstanding Principal
AA	3513	$	32,152,227	2213		$	21,373,696		$	15,002,386.12	19		$	342,551		$	263,496.64
A	3312	$	30,798,523	2206		$	20,088,625		$	13,965,201.46	29		$	399,090		$	266,513.84
B	4386	$	36,481,614	2992		$	23,907,328		$	16,654,503.91	52		$	514,099		$	364,560.29
C	5643	$	34,450,048	3743		$	20,903,835		$	14,170,896.87	67		$	455,153		$	311,297.61
D	5151	$	24,655,323	3239		$	14,395,669		$	9,537,631.65	71		$	342,488		$	234,886.42
E	3289	$	11,156,095	1703		$	5,036,920		$	3,020,543.47	43		$	130,625		$	84,224.10
HR	3505	$	8,602,274	1538		$	3,591,560		$	2,187,340.64	56		$	123,930		$	88,212.39
NC	141	$	326,618	43		91,876			$	30,631.65	3		$	6,701		$	2,687.81
	28940	$	178,622,722	17677		$	109,389,509		$	74,577,136	340		$	2,314,637		$	1,635,879
percent of total				61.1	%	61.2		%			1.2	%	1.3		%
	avg loan size:	$	6,172.17

	Paid In Full (1)					311† Days Past Due										Defaulted (2)
Credit Grade	Number		Origination Amount			Number		Origination Amount			Outstanding Principal			Number		Origination Amount			Charged Off Principal
AA	1091		$	7,386,382		76		$	1,227,582		$	891,086.56		114		$	1,822,016		$	1,447,967.15
A	724		$	5,364,100		128		$	1,804,246		$	1,348,718.78		225		$	3,142,462		$	2,512,447.99
B	713		$	4,791,245		199		$	2,158,003		$	1,594,745.78		430		$	5,110,939		$	4,269,230.00
C	782		$	4,509,006		280		$	2,010,491		$	1,481,460.65		771		$	6,571,563		$	5,512,454.83
D	697		$	3,078,240		287		$	1,451,639		$	1,044,808.95		857		$	5,387,287		$	4,507,471.68
E	437		$	1,541,416		194		$	539,978		$	436,735.33		912		$	3,807,156		$	3,217,787.34
HR	324		$	773,524		211		$	528,350		$		376,652.41	1376		$	3,584,910		$	3,138,437.79
NC	9		$	22,650		0		$	—		$	—		86		$	205,391		$	177,870.33
	4777		$	27,466,563		1375		$	9,820,289		$		7,174,208	4771		$	29,631,724		$	24,783,667
percent of total	16.5	%	15.4		%	4.8	%	5.5		%				16.5	%	16.6		%
														Default due to Delinquency:
																4090			85.7		%

(1) Includes loans with Final Payment in Progress		$	20,662,629.12	83.4	%
(2) includes all bans 5120 days past due
	Default due to Bankruptcy:
		681		14.3	%
		$	4,121,037.99	16.6	%

Because of our limited operating history, the data in the preceding table regarding loss experience may not be representative of the loss experience that will develop over time as additional borrower loans are originated through our platform and the borrower loans already originated through our platform have longer payment histories.  In addition, because of our limited operating history, the data in the table regarding prepayments may not be representative of the prepayments we expect over time as additional borrower loans are originated through our platform and the borrower loans already originated through our platform have longer payment histories.

The following table presents aggregated information about borrowers for loans originated over the period from our inception to October 16, 2008, grouped by credit grade:

Credit Grade	Number of Borrowers	Average Interest Rate		Average APR
AA	3513	11.5	%	12.2	%
A	3312	14.2	%	15.2	%
B	4387	16.5	%	17.5	%
C	5643	18.8	%	20.0	%
D	5151	21.2	%	22.4	%
E	3289	25.5	%	26.8	%
HR	3505	25.5	%	26.9	%
NC	141	23.3	%	24.2	%

The following table presents aggregated information for loans originated during the period from March 1, 2007 through October 16, 2008.  Income and employment is self-reported by borrowers at the time of their loan applications and verified in a limited number of instances.  Homeownership information is obtained from credit bureau reporting and Prosper does not independently verify this information except in limited instances where the information is provided by borrowers and verified.

Credit Grade	Percent of Borrowers Reporting Home Ownership		Average Job Tenure Months	Average Annual Gross Income	Average Debt To Income (excludes DTI>200%)
AA	77.3	%	76.0	72,040	19.96	%
A	57.1	%	67.4	58,811	24.29	%
B	54.6	%	71.3	56,419	27.52	%
C	49.9	%	70.0	53,029	25.20	%
D	29.7	%	63.5	46,814	25.54	%
E	27.9	%	65.5	48,205	23.97	%
HR	18.6	%	49.1	38,829	19 47	%

61

The following table presents aggregated information for loans originated from the period from March 1, 2007 to October 16, 2008 reported by a consumer reporting agency about Prosper borrowers at the time of their loan applications, grouped by credit grade.  Prosper has not independently verified this information:

Credit Grade	Average Experian ScoreXPlus	Average Number Current Delinquencies	Average Number Total Open Lines	Average Number Total Credit Lines
AA	792.3	0.12	9.72	26.59
A	737.5	0.27	9.01	24.65
B	697.6	038	8.78	25.15
C	656.8	0.70	8.12	25.07
D	619.5	1.05	7.89	23.77
E	578.3	2.20	7.62	26.63
HA	536.7	3.82	5.08	19.24

SUMMARY OF MATERIAL AGREEMENTS

Indenture and Form of Notes

General

The Notes will be issued in series under an indenture to be entered into between Prosper and a commercial bank yet to be determined.

Each series of Notes will correspond to one borrower loan.  All Notes will be U.S. dollar denominated, fully amortizing and have a fixed rate of interest.  The Notes of each series that correspond to Prosper borrower loans will have a stated interest rate that is the same as the interest rate for the corresponding borrower loan and an aggregate stated principal amount equal to the principal amount of the corresponding borrower loan. The Notes of each series that correspond to Prosper open market loans will have a stated interest rate that is the same as the yield percentage for the corresponding open market loan, and an aggregate stated principal amount equal to the sale price of the corresponding open market loan, as determined by the auction bidding process. The yield percentage and the sale price and may be equal to, greater than or less than the interest rate and the outstanding principal balance, respectively, of the open market loan.

Notwithstanding the foregoing, we have no obligation to make any payments on the Notes unless, and then only to the extent that, we have received payments on the corresponding borrower loan.  The Prosper Borrower Notes will also be subject to full or partial prepayment without penalty.  The Prosper Open Market Notes may or may not allow the borrower to prepay the loan without prepayment penalty.

62

The indenture will not limit the aggregate principal amount of Notes that Prosper can issue under the indenture, but each series of Prosper Borrower Notes will be effectively limited to the maximum allowable principal amount (currently $25,000) of a Prosper borrower loan.  If in the future we change the maximum allowable Prosper borrower loan amount, then the maximum aggregate principal amount of Prosper Borrower Notes per series would also increase.  The aggregate principal amount of Prosper Borrower Notes of each series will equal the principal amount of the corresponding borrower loan.  Each series of Prosper Open Market Notes is not limited to the minimum and maximum amounts applicable to Prosper borrower loans.

We will use all proceeds we receive from purchases of the Notes to purchase the corresponding borrower loans from WebBank or, if an open market loan, from the originator.

Maturity Dates

Prosper Borrower Notes currently have a term of three years, but Prosper anticipates in the near future extending available maturity dates to between three months to seven years.  Prosper Open Market Notes will have maturities of three months or more.  If there are amounts owing to Prosper in respect of the corresponding borrower loan at the initial maturity of a Note, the term of the Note will be automatically extended by one year, which we refer to as the “final maturity,” to allow the Note holder to receive any payments that we receive on the corresponding borrower loan after the maturity of the corresponding borrower loan.  Following the final maturity of a Note, the holder of that Note will have no rights to receive any further payments from Prosper even if the borrower under the corresponding borrower loan, or a bankruptcy trustee, subsequently remits payments to Prosper.

Ranking

The Notes will be unsecured special, limited obligations of Prosper.  Prosper will be obligated to make payments on each Note in a series only if and to the extent that Prosper receives principal or interest payments from the borrower on the corresponding borrower loan purchased by Prosper with the proceeds of that series, and such borrower loan payments will be shared ratably among all owners of Notes of the series after deduction of Prosper’s (and, if applicable, the originator’s) servicing fee.  Late fees collected by Prosper on Prosper borrower loans are passed on to the lender members who own the Notes dependent for payment on that borrower loan, whereas late fees collected by originators on open market loans may be retained by the originator servicing the open market loan.  In the event of a bankruptcy or similar proceeding of Prosper, the relative rights of the holder of a Note as compared to the holders of other unsecured indebtedness of Prosper with respect to payment from the proceeds of the borrower loan corresponding to that Note or other assets of Prosper is uncertain.  To provide additional certainty regarding this risk, Prosper intends to grant the indenture trustee, for the benefit of the trustee and the holders of the Notes, a security interest in all present and future rights of Prosper to payment under the corresponding borrower loans and all moneys and property received by Prosper thereon.  The indenture trustee may exercise its legal rights to the collateral only if an event of default has occurred under the indenture solely by reason of Prosper becoming subject to a bankruptcy or similar proceeding and not for any other reason.  In such case, the indenture trustee, but not the holders of the Notes for that series, would have a secured claim, limited in recovery, to the right to receive payments on, and to all payments previously received by Prosper with respect to, the corresponding borrower loan for that series of Notes, but not with respect to any other borrower loan.

The indenture will not contain any provisions that would limit Prosper’s ability to incur indebtedness in addition to the Notes.

Payments and Paying Agents

Subject to the limitations described below under “Limitations on Payments,” we will make payments of principal and interest on the Notes upon receiving Borrower Loan Payments (as defined below) in respect of the corresponding borrower loan, in accordance with the payment schedule for each Note.  Each Note will have a payment schedule providing for monthly payments over a term of equal to the corresponding borrower loan, on payment dates that fall on the due date for each installment of principal and interest on the corresponding borrower loan.

We request an ACH payment from a borrower on the day prior to the payment date (day 1), and receive payment the following day (day 2).  A borrower’s loan payment is initially deposited in our servicing account upon receipt and is not distributed to the lender member’s FBO account until the fourth day after the ACH payment was requested and the short return window for ACH funds has expired.  Lenders members can review their account statement online and see that it received payment on the Notes on the fourth day.  Upon maturity of the Note, the same process occurs.  Although payment to  

63

lender members under the Notes is four days after the applicable payment and maturity date, Prosper treats the payment date and maturity date of the Note to be the same as the dates set forth in the corresponding borrower loan.

The stated interest rate on each Note will be the same as the interest rate on the corresponding Prosper borrower loan or the yield percentage on the corresponding open market loan, and interest will be computed on the Note in the same manner as the interest on the corresponding borrower loan is computed.  The Servicing Fee described below will reduce the effective yield on the Notes below their stated interest rate.

“Business day” means each Monday, Tuesday, Wednesday, Thursday and Friday that is (1) not a day on which the Automated Clearing House system operated by the U.S. Federal Reserve Bank (the “ACH System”) is closed and (2) not a day on which banking institutions in San Francisco, California or New York, New York are authorized or obligated to close.

Limitations on Payments

Each holder of a Note’s right to receive principal and interest payments and other amounts in respect of that Note is limited in all cases to the holder’s pro rata portion of the Borrower Loan Net Payments, if any.  For each series of Notes, “Borrower Loan Net Payments” means the amounts, if any, equal to the Borrower Loan Payments from the corresponding borrower loan minus the applicable Servicing Fee.

“Borrower Loan Payments” for each series of Notes means all amounts received by Prosper in connection with the corresponding borrower loan, including without limitation, all payments or prepayments of principal and interest, any late fees on Prosper borrower loans and any amounts received by Prosper upon collection efforts with respect to the corresponding borrower loan, but excluding the non-sufficient funds fee, any collection fees imposed by Prosper or a third-party collection agency, or late fees collected by originators on open market loans.

The “Servicing Fee” is an amount equal to an annualized rate of 1.0% for Prosper Borrower Notes, and 0.5% for Prosper Open Market Notes, of the outstanding principal balance of the corresponding borrower loan prior to the application of the payment. In addition, generally the originator of open market loans charges a servicing fee (shown in the open market listing), which is deducted from principal and interest payments it receives on the open market loans and which will reduce the effective yield of the open market loan below the stated yield percentage.  The term “Servicing Fee” includes servicing fees charged by both Prosper and, if applicable, originators.

The “Non-sufficient Funds Fee” is a $15 fee or such lesser amount permitted by law charged by Prosper when our payment request is denied for any reason, including but not limited to, insufficient funds in the borrower member’s bank account or the closing of that bank account.

To the extent we do not receive the anticipated Borrower Loan Payments from a borrower loan, we will not make any payments on the Notes related to that borrower loan, and a holder of a Note will not have any rights against Prosper or the borrower member in respect of the Note or the borrower loan corresponding to such holder’s Note.

Prepayments

To the extent that a borrower member prepays a corresponding borrower loan, such prepayment amount will be a Borrower loan Payment and holders of Notes related to that corresponding borrower loan will be entitled to receive their pro rata shares of the prepayment, net of applicable Servicing Fees.

Mandatory Redemption

Upon the occurrence of a confirmed identity fraud incident with respect to a borrower loan, Prosper will redeem all of the Notes of the series corresponding to such borrower loan for 100% of the remaining outstanding principal amount of such Notes.  An “identity fraud incident” means that the corresponding borrower loan has been obtained as a result of verifiable identity theft or fraud on the part of the purported borrower member.  We may, in our discretion, require proof of the identity theft or fraud, such as a copy of the police report filed by the person whose identity was wrongfully used to obtain the corresponding borrower loan.

64

Servicing Covenant

We are obligated to use commercially reasonable efforts to service and collect Prosper borrower loans, in good faith, accurately and in accordance with industry standards customary for servicing loans such as the borrower loans.  If we refer a delinquent borrower loan to a collection agency on or after the 31st day of its delinquency, that referral shall be deemed to constitute commercially reasonable servicing and collection efforts.  We may, in our sole discretion and subject to our servicing standard, refer a Prosper borrower loan to a collection agency at any time, or elect to initiate legal action to collect a Prosper borrower loan or sell a Prosper borrower loan to a third party debt buyer at any time.  We will also be obligated to use commercially reasonable efforts to maintain backup servicing arrangements providing for the servicing of the borrower loans.

The agreement also provides that open market loans offered for sale on our platform will be serviced, both before and after default, by the originator.  In servicing open market loans the originator will use commercially reasonable efforts to service and collect the open market loans in accordance with industry standards customary for loans of the same general type and character as the open market loans.  The originator may, in its sole discretion and subject to the agreed-upon servicing standards, set forth in this Section, refer a open market loan to a collection agency at any time, or elect to initiate legal action to collect a open market loan, repossess or foreclose upon any collateral securing a open market loan, or sell a open market loan to a third party debt buyer at any time. Any amounts received from borrowers will be forwarded to Prosper by the originator.  In servicing borrower loans the originator may, in its discretion, utilize affiliated or unaffiliated third party loan servicers, repossessors, collection agencies or other agents or contractors.

Prosper Open Market Notes will not be secured by any collateral, even though the corresponding open market loan may be secured by personal property.  Although the originator is obligated to forward to Prosper any amounts it receives upon the sale of collateral securing an open market loan, the holders of Prosper Open Market Notes do not have the right to take any legal action under the security interest or to require that the originator take such action.

The indenture contains no financial covenants or other covenants limiting our operations or activities, including the incurrence of indebtedness.

Notification Requirements

Under the lender registration agreement, we agree to notify lender members within 90 days after we become aware that we have breached our representations and warranties under the lender registration agreement and notify them that we have elected to cure the breach or repurchase the applicable Note.  We keep lender members apprised of the delinquency status of borrower loans by identifying delinquent loans on our website as “1 month late,” “2 months late,” “3 months late,” or “current.”  Borrower loans that become more than 120 days overdue are charged off and designated as such on our website.  Lender members are able to monitor the borrower loans corresponding to their Notes, but cannot participate in or otherwise intervene in the collection process.

If a default with respect to the Notes of any series occurs and is continuing and if it is known to the trustee, the trustee is required to notify each holder of the Notes the subject of a default within 90 days after it occurs.  The Trustee may withhold the notice if and so long as a committee of its trust officers in good faith determines that withholding the notice is in the interests of the holders of the Notes of such series, except for defaults caused by Prosper failure to make principal and interest payments when required.

In addition, as required by Section 313(a) of the TIA, within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, the Trustee shall mail or transmit electronically to each Holder of Securities a brief report dated as of such May 15 that complies with TIA Section 313(a).

Consolidation, Merger, Sale of Assets

The indenture prohibits us from consolidating with or merging into another business entity or conveying, transferring or leasing our properties and assets substantially as an entirety to any business entity, unless:

·the surviving or acquiring entity is a U.S. corporation, limited liability company, partnership or trust and it expressly assumes our obligations with respect to the outstanding Notes by executing a supplemental indenture;

·immediately after giving effect to the transaction, no default shall have occurred or be continuing; and

·we have delivered to the trustee an officers’ certificate and an opinion of counsel, each stating that the transaction, and if a supplemental indenture is required in connection with such transaction, such supplemental indenture, comply with the indenture and all conditions precedent relating to such transaction have been complied with.

65

Denominations, Form and Registration

We will issue the Notes only in registered form and only in electronic form. This means that each Note will be stored on our website.  You can view a record of the Notes you own and the form of your Notes online and print copies for your records, by visiting your secure, password-protected webpage in the “My Account” section of our website.  We will not issue certificates for the Notes.  Lender members will be required to hold their Notes through our electronic Note register.

The laws of some states in the United States may require that certain persons take physical delivery in definitive, certificated form, of securities that they own.  This may limit or curtail the ability of such persons to purchase Notes.  We reserve the right to issue certificated Notes only if we determine not to have the Notes held solely in electronic form.

We and the trustee will treat the lender members in whose names the Notes are registered as the owners thereof for the purpose of receiving payments and for any and all other purposes whatsoever with respect to the Notes.

Restrictions on Transfer

The Notes will not be listed on any securities exchange.  All Notes must be held by our lender members.  The Notes will not be transferable except through the Note trading platform by a registered broker-dealer yet to be determined.  Under the terms of the Notes, any transfer of a Note will be wrongful unless (1) the transfer is effected on a trading system that we approve as a resale trading system and (2) the Note has been presented by the registered holder to us or our agent for registration of transfer.  The registrar for the Notes, which initially will be us, will not be obligated to recognize any purported transfer of a Note, except a transfer through the trading system or except as required by applicable law or court order.  There can be no assurance, however, that a market for Notes will develop on the trading system, or that the system will continue to operate.  Therefore, lender members must be prepared to hold their Notes to maturity.  See “About the Platform—Trading Platform” for more information.

No Sinking Fund

The Notes are fully amortizing and will not have the benefit of a sinking fund.

Events of Default

Under the terms of the indenture, any of the following events will constitute an event of default for a series of Notes:

·our failure to make required payments on the Notes for thirty days past the applicable due date;

·our failure to perform, or the breach of, any other covenant for the benefit of the holders of the Notes of such series which continues for 90 days after written notice from the Trustee or holders of 25% of the outstanding principal amount of the debt securities of all series for which such default exists as provided in the indenture, subject to an additional 90 day cure period; or

·specified events relating to our bankruptcy, insolvency or reorganization.

It is not a default or event of default under the terms of the indenture if we do not make payments when a borrower does not make payments on the borrower loan corresponding with the particular series of Notes.  In that case, we are not required to make payments on the Notes, so no default occurs.  See “Risk Factors—Risks Related to Borrower Default,” for more information.  An event of default with respect to one series of Notes is not automatically an event of default for any other series.

To provide additional certainty regarding this risk, Prosper intends to grant the indenture trustee, for the benefit of the trustee and the holders of the Notes, a security interest in all present and future rights of Prosper to payment under the corresponding borrower loans and all moneys and property received by Prosper thereon.  The indenture trustee may exercise its legal rights to the collateral only if an event of default has occurred under the indenture solely by reason of Prosper becoming subject to a bankruptcy or similar proceeding and not for any other reason.  In such case, the indenture trustee, but not the holders of the Notes for that series, would have a secured claim, limited in recovery, to the right to receive payments on, and to all payments previously received by Prosper with respect to, the corresponding borrower loan for that series of Notes, but not with respect to any other borrower loan.

66

If an event of default occurs due to bankruptcy, insolvency or reorganization as provided in the indenture then the stated principal amount of the Notes shall become due and payable immediately without any act by the trustee or any holder of Notes.

The holders of a majority in aggregate principal amount of the outstanding Notes of any series, by notice to the trustee (and without notice to any other holder of Notes), may on behalf of the holders of all Notes of the series waive an existing default with respect to such Notes and its consequences except (1) a default in the payment of amounts due in respect of such Notes or (2) a default in respect of a provision of the indenture that cannot be amended without the consent of each holder affected by such waiver.  When a default is waived, it is deemed cured, but no such waiver shall extend to any subsequent or other default or impair any consequent right.

A holder of any Note of any series may not institute a suit against us for enforcement of such holder’s rights under the indenture or pursue any other remedy with respect to the indenture or the Notes unless:

·the holder gives to the trustee written notice stating that an event of default with respect to the Notes is continuing;

·the holders of at least 25% in aggregate principal amount of the outstanding Notes of that series make a written request to the trustee to pursue the remedy;

·such holder or holders offer to the trustee security or indemnity satisfactory to it against any loss, liability or expense satisfactory to the trustee;

·the trustee does not comply with the request within 60 days after receipt of the notice, the request and the offer of security or indemnity; and

·the holders of a majority in aggregate principal amount of the outstanding Notes of that series do not give the trustee a direction inconsistent with such request during such 60-day period.

The indenture will require us every year to deliver to the trustee a statement as to performance of our obligations under the indenture and as to any defaults.

Satisfaction and Discharge of the Indenture

The indenture will generally cease to be of any further effect with respect to a series of Notes if:

·all of the Notes of that series (with certain limited exceptions) have been delivered for cancellation;

·or all Notes of that series not previously delivered for cancellation have become due and payable or will become due and payable within one year and we have deposited with the trustee as trust funds the entire amount sufficient to pay at maturity all of the amounts due with respect to those Notes;

if in either case, we also pay or cause to be paid all other sums payable under the indenture by us and deliver to the trustee an officers’ certificate and opinion of counsel stating that all conditions precedent to the satisfaction and discharge of the indenture have been complied with.

The indenture does not contain any provisions for legal or covenant defeasance of the Notes.

Governing Law

The indenture and the Notes will be governed by the laws of the State of New York without regard to any principle of conflict of laws that would require or permit the application of the laws of any other jurisdiction.

Information Concerning the Trustee

Prosper will select a commercial bank to serve as the trustee under the indenture.  From time to time, we maintain deposit accounts and conduct other banking transactions with the trustee and its affiliates in the ordinary course of business.

67

If and when the trustee becomes a creditor of ours, the trustee will be subject to the provisions of the Trust Indenture Act regarding the collection of claims against us.  The trustee and its affiliates will be permitted to engage in other transactions; however, if they acquire any conflicting interest, the conflict must be eliminated or the trustee must resign.

Lender Registration Agreement

When a lender member registers on the platform, the lender member enters into a lender registration agreement with us that governs the lender member’s purchases of Notes from time to time from us.  Under the agreement, we provide the lender member the opportunity through the platform to review borrower loan requests and , purchase Notes and instruct us to apply the proceeds from the sale of each Note to facilitate the funding or sale of, and our purchase of, a specific Prosper borrower loan or open market loan the lender member has designated.

Under the agreement, the lender member must commit to purchase a Note prior to the origination of the Prosper borrower loan, or the sale of the open market loan to which the Note corresponds.  At the time the lender member commits to purchase a Note by bidding on a listing the lender member must have sufficient funds in the lender member’s account with us to complete the purchase, and the lender member will not have access to those funds for as long as the lender member is a winning bidder on the listing.  Once the lender member makes a purchase commitment by bidding, it is irrevocable.  If the borrower loan does not receive purchase commitments for Notes totaling the amount of the requested Prosper borrower loan or the sale price for the open market loan, then we will inform the lender member and release him or her from the purchase commitment.

The lender member agrees that the lender member has no right to make any attempt, directly or through any third party, to take any action to collect from the borrower members on the lender member’s Notes or the corresponding borrower loans.

The lender member acknowledges that the Notes are intended to be debt instruments issued by Prosper that have original issue discount (OID) for U.S. federal income tax purposes and agrees not to take any position inconsistent with that treatment of the Notes for tax, accounting, or other purposes, unless required by law. The lender member also acknowledges that the Notes will be subject to the OID rules of the Internal Revenue Code of 1986, as amended, as described below under “About the Platform—Material U.S. Federal Income Tax Considerations—Taxation of Payments on the Notes.”

Representations and Warranties

The agreement describes the limitations on payments on the Notes, and the lender member acknowledges that:

·payment on the Notes, if any, depends entirely on the receipt of payments by Prosper in respect of the corresponding borrower loan;

·Prosper does not warrant or guarantee in any manner that the lender member will receive all or any portion of the principal or interest it expects to receive on any Note or realize any particular or expected rate of return;

·the amount received on a Note, if any, is specifically restricted to payments made by Prosper equal to the payments made by the borrower under the corresponding borrower loan, net of servicing fees;

·we do not make any representations as to a borrower’s ability to pay and do not act as a guarantor of any corresponding borrower loan payment or payments by any borrower.

Under the agreement, the lender member represents and warrants to Prosper that:

·the lender member has not made a decision in connection with any loan requests on our platform on any prohibited basis set forth in the Equal Credit Opportunity Act and Regulation B or any applicable state or local laws, regulations, rules or ordinances concerning credit discrimination;

·the lender member meets minimum financial suitability standards and maximum investment limits established for the trading platform, as then in effect, or as set forth in a supplement to the prospectus for residents of the state in which lender member resides and agrees to provide us with any additional documentation as we may require to verify such compliance;

·the lender member has received the prospectus, the indenture, including the form Note;

68

·the lender member has the legal competence and capacity, or corporate power and authority, to execute and perform the lender registration agreement and that you the lender registration agreement has been duly authorized, executed and delivered;

·the lender member has complied in all material respects with applicable federal, state and local laws in connection with its execution and performance of the lender member’s obligations under the lender registration agreement;

·if a legal entity, that the execution and performance of the lender registration agreement does not violate any provision of its charter documents; and

·if a legal entity, that the execution and performance of the lender registration agreement will not constitute or result in a breach or default under, or conflict with, any legal requirement or any agreement to which the lender member is bound.

Under the agreement, Prosper represents and warrants to the lender member that:

·we have complied in all material respects with applicable federal, state and local laws in connection with the offer and sale of the Note;

·the Note has been duly authorized and, following payment of the purchase price by the lender member and electronic execution, authentication and delivery, the Note, will constitute valid and binding obligation of Prosper enforceable against Prosper in accordance with its terms, except as the enforcement of the Note may be limited by applicable bankruptcy, insolvency or similar laws;

·prior to a lender member’s purchase of a Note, the loan proceeds have been fully disbursed to the borrower under the corresponding borrower loan;

·Prosper or, with respect to open market listings, the originator has made commercially reasonable efforts to authenticate and verify the identity of the borrower obligated on the borrower loan that correspond to the Note.

We also represent and warrant to the lender member that in the event of a material default under a Note that is the result of verifiable identity theft of the named borrower’s identity, determined in our sole discretion, that we will repurchase the Note by crediting the lender member’s Prosper funding account with the remaining unpaid principal balance of the Note.  Prosper is required to repurchase a Note under this provision until such Note is at least 120 days past-due, although Prosper may elect to do so earlier in its sole discretion.  The lender member agrees that in such circumstances the lender member will have no rights with respect to any such Notes except the crediting of the remaining principal balance of the Note to the lender member’s account.

In addition, we represent and warrant to the lender member, as of the date of the agreement and the date a commitment  to purchase a Note is made, that:

·we are a duly organized and validly existing corporation in good standing under the laws of Delaware and have corporate power to enter into and perform our obligations under the agreement;

·the agreement has been duly authorized, executed and delivered by Prosper;

·the Indenture has been duly authorized by Prosper and qualified under the Trust Indenture Act of 1939 and constitutes a valid and binding agreement of Prosper, enforceable against Prosper in accordance with its terms, except as the enforcement thereof may be limited by applicable bankruptcy, insolvency or similar laws.

Remedies

If we breach any of our representations and warranties and such breach materially and adversely affects a lender member’s interest in a Note, we agree to,

·cure the breach, if the breach is susceptible to cure,

69

·repurchase the Note, or

·indemnify and hold the lender member harmless against all losses (including losses resulting from the nonpayment of the Note), damages, expenses, legal fees, costs and judgments resulting from any claim, demand or defense that arising as a result of the breach.

We will determine, in our sole discretion, if a breach is susceptible to cure, whether will cure such breach, repurchase the Note or indemnify the lender member with respect to the Note.  If we elect to repurchase a Note, we will pay the lender member an amount equal to the remaining outstanding principal balance of the Note as of the date of repurchase. Upon any repurchase, the Note is transferred and assigned to Prosper, without recourse, and we are authorized to execute any endorsements or assignments necessary to effectuate the transfer and assignment of the Note on behalf of the lender member.

We will notify a lender member with 90 days after we become aware that we have breached our representations and warranties under the agreement at which time we will notify the lender member if we have elected to cure the breach or repurchase the note.

We are not obligated to repurchase a Note from a lender member if his or her investment is not realized in whole or in part due to fraud (other than verifiable identity theft) in connection with a listing or due to false or inaccurate statements or omissions of fact in a borrower’s listing, whether in credit data, borrower representations, user recommendations, group affiliations or similar indicia of borrower intent and ability to repay the Notes.

Servicing

The agreement provides that we will use commercially reasonable efforts to service and collect the borrower loans in accordance with industry standards customary for loans of the same general type and character as the Prosper borrower loans.  We may, in our sole discretion and subject to our servicing standard, refer a Prosper borrower loan to a collection agency at any time, or elect to initiate legal action to collect a Prosper borrower loan or sell a Prosper borrower loan to a third party debt buyer at any time.

The agreement also provides that open market loans offered for sale on our platform will be serviced, both before and after default, by the originator.  In servicing open market loans the originator will use commercially reasonable efforts to service and collect the open market loans in accordance with industry standards customary for loans of the same general type and character as the open market loans.  The originator may, in its sole discretion and subject to the agreed-upon servicing standards, set forth in this Section, refer a open market loan to a collection agency at any time, or elect to initiate legal action to collect a open market loan, repossess or foreclose upon any collateral securing a open market loan, or sell a open market loan to a third party debt buyer at any time. Any amounts received from borrowers will be forwarded to Prosper by the originator.  In servicing borrower loans the originator may, in its discretion, utilize affiliated or unaffiliated third party loan servicers, repossessors, collection agencies or other agents or contractors.

Form of Master Loan Purchase Agreement

The sale and transfer of the loans from each originator to Prosper will be governed by a master purchase agreement that will specify the type of loans eligible for listing for sale as well as the manner in which the transfer and servicing of open market loans sold to Prosper through the platform will occur.  The master purchase agreements will typically have a term of one year, renewable for additional one-year terms.  All loans sold to Prosper during the term of the agreement will be subject to the terms and conditions of the master purchase agreement and will become a part thereof as evidenced by electronic addendums comprised of the records in the listing file and the bill of sale.

The master purchase agreement will general require the originator to make the following representation and warranties to Prosper:

·that it has good title free of any lien or claim;

·that the borrower loans were originated and serviced in accordance with the requirements of all applicable laws;

·that no loan account is the subject of an unresolved dispute or any pending litigation;

·that the borrower under the borrower loan is not deceased;

70

·that the account holder has not filed for bankruptcy since the origination of the account;

·that all payments received as of the listing date have been applied as required by the terms of the borrower loan;

·that the borrower loan account balance is correct

·that no adverse selection via scoring algorithm or manual file review was used in determining what borrower loan to offer for sale on our platform; and

·that all electronic data provided is an accurate reflection of the originator’s electronic business records and the originator’s system of record is functioning in good order as of the date of production.

Originators will not make representations directly to the lender members who hold Notes dependent for pay on payments we receive on the corresponding open market loan sold by the originator.  In the event the originator is required to repurchase an open market loan under the terms of the master purchase agreement, upon our receipt of the repurchase price we distribute the proceeds to the holders of the Notes dependent for payment on that open market loan.

The master purchase agreement will set forth repurchase requirements and procedures for open market loans that fail to conform to the terms of the agreement.  The master purchase agreement or an ancillary agreement will contain the originator’s servicing and reporting requirements with respect to open market loans offered for sale on the platform, which will generally include or address:

·whether monthly statements are mailed to borrowers under the open market loans;

·the standards for the retention and availability of the underlying documentation for the open market loan;

·service level agreements for collecting on delinquent loans;

·the amount, manner and entity responsible for any fees arising out of the servicing;

·monthly reporting requirements for both normal status items and any defined exceptions; and

·processes for correctly managing any collateral securing the loan.

Under the agreement, the originator will agree to indemnify Prosper regarding any litigation arising from the origination, transfer or servicing of open market loans listed or sole on our platform.

71

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following discussion sets forth the material U.S. federal income tax considerations generally applicable to our lender members who purchase Notes.  This discussion is based on the U.S. Internal Revenue Code of 1986, as amended (the “Code”), Treasury regulations promulgated thereunder (“Treasury Regulations”), administrative pronouncements of the U.S. Internal Revenue Service (“IRS”) and judicial decisions, all as currently in effect and all of which are subject to change and to different interpretations.  Changes to any of the foregoing authorities could apply on a retroactive basis, and could affect the U.S. federal income tax consequences described below.

This discussion does not address all of the U.S. federal income tax considerations that may be relevant to a particular lender member’s circumstances, and does not discuss any aspect of U.S. federal tax law other than income taxation or any state, local or non-U.S. tax consequences of the purchase, ownership and disposition of the Notes.  This discussion applies only to lender members who hold the Notes as capital assets within the meaning of the Code (generally, property held for investment).  This discussion does not address U.S. federal income tax considerations applicable to lender members that may be subject to special tax rules, such as:

·securities dealers or brokers, or traders in securities electing mark-to-market treatment;

·banks, thrifts, or other financial institutions;

·insurance companies;

·regulated investment companies or real estate investment trusts;

·tax-exempt organizations;

·persons holding Notes as part of a “straddle,” “hedge,” “synthetic security” or “conversion transaction” for U.S. federal income tax purposes, or as part of some other integrated investment;

·partnerships or other pass-through entities;

·persons subject to the alternative minimum tax;

·certain former citizens or residents of the United States;

·non-U.S. Holders (as defined below); or

·“U.S. Holders” (as defined below) whose functional currency is not the U.S. dollar.

As used herein, a “U.S. Holder” is a beneficial owner of Notes that is, for U.S. federal income tax purposes, (i) an individual citizen or resident of the United States, (ii) a corporation (or any other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia, (iii) an estate whose income is subject to U.S. federal income tax regardless of its source, or (iv) a trust if (A) a United States court has the authority to exercise primary supervision over the administration of the trust and one or more U.S. persons (as defined under the Code) are authorized to control all substantial decisions of the trust or (B) it has a valid election in place to be treated as a U.S. person.  A “Non-U.S. Holder” is any beneficial owner of a Note that, for U.S. federal income tax purposes, is not a U.S. Holder and that is not a partnership (or other entity treated as a partnership for U.S. federal income tax purposes).

If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) holds 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.  A partnership holding Notes, and partners in such a partnership, should consult their own tax advisors with regard to the U.S. federal income tax consequences of the purchase, ownership and disposition of the Notes by the partnership.

THIS DISCUSSION OF THE MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED

72

TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR PERSON.  ACCORDINGLY, ALL PROSPECTIVE LENDER MEMBERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES RELATING TO THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES BASED ON THEIR PARTICULAR CIRCUMSTANCES.

Tax Characterization of the Notes

There are no statutory provisions, regulations, published rulings, or judicial decisions that directly address the characterization of the Notes or instruments similar to the Notes for U.S. federal income tax purposes.  However, although the matter is not free from doubt, Prosper intends to treat the Notes as debt instruments of Prosper that have original issue discount (OID) for U.S. federal income tax purposes.  Where required, Prosper intends to file information returns with the IRS in accordance with such treatment, in the absence of any change or clarification in the law, by regulation or otherwise, requiring a different characterization of the Notes.  You should be aware, however, that the U.S. Internal Revenue Service (IRS) is not bound by Prosper’s characterization of the Notes and the IRS or a court may take a different position with respect to the Notes’ proper characterization.  For example, the IRS could determine that, in substance, each lender member owns a proportionate interest in the corresponding borrower loan for U.S. federal income tax purposes, or for example, the IRS could instead treat the Notes as a different financial instrument (including, for example, an equity interest or a derivative financial instrument).  Any different characterization could significantly affect the amount, timing, and character of income, gain, or loss recognized in respect of a Note.  For example, if the Notes are treated as equity of Prosper, (i) Prosper would be subject to U.S. federal income tax on income, including interest, accrued on the borrower loans but would not be entitled to deduct interest or OID on the Notes, and (ii) payments on the Notes would be treated by the holder for U.S. federal income tax purposes as dividends (that may be ineligible for reduced rates of U.S. federal income taxation or the dividends-received deduction) to the extent of Prosper’s earnings and profits as computed for U.S. federal income tax purposes.  Such a characterization may significantly reduce the amount available to pay interest on the Notes.  Accordingly, prospective purchasers of the Notes are advised to consult their own tax advisors regarding the U.S. federal, state, local and non-U.S. tax consequences of the purchase, ownership, and disposition of the Notes (including any possible differing treatments of the Notes).

The following discussion assumes that each Note will be treated as a debt instrument of Prosper that will have original issue discount (OID) for U.S. federal income tax purposes.

Taxation of Payments on the Notes

A U.S. Holder of a Note will be required to include original issue discount (OID) in income as ordinary interest income for U.S. federal income tax purposes as it accrues under a constant yield method, regardless of such U.S. Holder’s regular method of tax accounting.  If a Note is paid in accordance with its payment schedule, the amount of OID includible in income by a U.S. Holder is anticipated to be based on the yield of the Note determined net of the 1.0% service charge, as described below, which yield will be lower than the stated interest rate on the Note.  As a result, the holder will generally be required to include an amount of OID in income that is less than the amount of stated interest paid on the Note.  On the other hand, if a payment on a Note is not made in accordance with such payment schedule, for example because the borrower member did not make timely payment in respect of the corresponding borrower loan, a U.S. Holder will be required to include such amount of OID in taxable income as interest even though such interest has not been paid.

The Treasury Regulations governing OID provide special rules for determining the amount and accrual of OID for debt instruments that provide for one or more alternative payment schedules applicable upon the occurrence of contingencies.  If the timing and amounts of the payments that comprise each payment schedule are known as of the issue date, and based on all the facts and circumstances as of the issue date, a single payment schedule for a debt instrument, including the stated payment schedule, is significantly more likely than not to occur, the amount and accrual of OID is determined based on that payment schedule.  In addition, under the applicable Treasury Regulations, remote and/or incidental contingencies generally may be ignored.  A contingency relating to the amount of a payment is incidental if, under all reasonably expected market conditions, the potential amount of the payment is insignificant relative to the total expected amount of the remaining payments on the debt instrument.  A contingency relating to the timing of a payment is incidental if, under all reasonably expected market conditions, the potential difference in the timing of the payment is insignificant.

The Notes provide for one or more alternative payment schedules because Prosper is obligated to make payments on a Note only to the extent that Prosper receives payments on the corresponding borrower loan.  The payment schedule for each Note provides for payments of principal and interest (net of the 1.0% service charge) on the Note in accordance with the payment schedule for the corresponding borrower loan.  In addition to scheduled payments, Prosper will prepay a Note to the

73

extent that a borrower member prepays the borrower loan corresponding to the Note, and late fees collected on Prosper borrower loans corresponding to a Note will be paid to the holders of the Note, whereas late fees collected by originators on open market loans may be retained by the originator servicing the loan.  Notwithstanding such contingencies, Prosper has determined to use the payment schedule of a Note to determine the amount and accrual of OID on the Note because Prosper believes that a Note is significantly more likely than not to be paid in accordance with such payment schedule and/or the likelihood of nonpayment, prepayment, or late payment by the borrower member on the borrower loan corresponding to such Note will be remote or incidental.  If in the future Prosper determines that the previous sentence does not apply to a Note, Prosper anticipates that it will be required to determine the amount and accrual of OID for such Note pursuant to the rules applicable to contingent payment debt instruments, which are described below, and shall so notify U.S. Holders of the Note.

Prosper’s determination is not binding on the IRS.  If the IRS determines that the Notes are “contingent payment debt instruments” due to the contingencies described above (or in the future, if Prosper so concludes with respect to a particular series of Notes), the Notes will be subject to special rules applicable to contingent payment debt instruments.  Such rules generally require a holder (i) to accrue interest income based on a projected payment schedule and comparable yield, which may be higher or lower than the stated interest rate on the Notes, and (ii) treat as ordinary income, rather than capital gain, any gain recognized on the sale, exchange, or retirement of the debt instrument.  This discussion assumes that the Notes are not subject to the contingent payment debt instrument rules.

The OID on a Note will equal the excess of the Note’s “stated redemption price at maturity” over its “issue price.” The stated redemption price at maturity of a Note includes all payments of principal and stated interest on the Note (net of the 1.0% service charge) under the payment schedule of the Note.  The issue price of the Notes will equal the principal amount of the Notes.

The amount of OID includible in a U.S. Holder’s income for a taxable year is the sum of the “daily portions” of OID with respect to the Note for each day during the taxable year in which the holder held the Note.  The daily portion of OID is determined by allocating to each day of any accrual period within a taxable year a pro rata portion of an amount equal to the product of such Note’s adjusted issue price at the beginning of the accrual period and its yield to maturity (properly adjusted for the length of the period).  Prosper intends to use 30-day accrual periods.  The adjusted issue price of a Note at the beginning of any accrual period should be its issue price, increased by the aggregate amount of OID previously accrued with respect to the Note, and decreased by any payments of principal and interest previously made on the Note (net of the 1.0% service charge).  A Note’s yield to maturity should be the discount rate that, when used to compute the present value of all payments of principal and interest to be made on the Note (net of the 1.0% service charge) under the payment schedule of the Note, produces an amount equal to the issue price of such note.

Cash payments of interest and principal (net of the 1.0% service charge) under the payment schedule on the Notes will not be separately included in income, but rather will be treated first as payments of previously accrued but unpaid OID and then as payments of principal.

Sale, Retirement or Other Taxable Disposition of Notes

Upon the sale, retirement or other taxable disposition of a Note, a U.S. Holder generally will recognize gain or loss equal to the difference, if any, between the amount realized upon the sale, retirement or other taxable disposition and the U.S. Holder’s adjusted tax basis in the Note.  In general, the U.S. Holder’s adjusted tax basis of the Note will equal the U.S. Holder’s cost for the Note, increased by the OID and market discount previously included in gross income by the holder, as discussed below, and reduced by any payments previously received by the holder in respect of the Note.

Except as described below with respect to any Note acquired at a market discount or, as discussed above, treated as a contingent payment debt instrument, such gain or loss generally will be capital gain or loss and will be long-term capital gain or loss if at the time of sale, retirement or other taxable disposition, such Note has been held for more than one year.  Under current U.S. federal income tax law, certain non-corporate U.S. Holders, including individuals, are eligible for preferential rates of U.S. federal income taxation in respect of long-term capital gains.  The deductibility of capital losses is subject to limitations under the Code.

Prepayments

As discussed above, Prosper will prepay a Note to the extent that a borrower member prepays the borrower loan corresponding to the Note.  If Prosper prepays a note in full, the Note will be treated as retired, and, as described above, a U.S. Holder generally will have gain or loss equal to the difference, if any, between the amount realized upon the retirement

74

and the U.S. Holder’s adjusted tax basis in the Note.  If Prosper prepays a Note in part, a portion of the Note will be treated as retired.  Generally, for purposes of determining (i) the gain or loss attributable to the portion of the Note retired and (ii) the OID accruals on the portion of the Note remaining outstanding, the adjusted issue price, holder’s adjusted tax basis, and the accrued but unpaid OID of the Note, determined immediately before the prepayment, will be allocated between the two portions of the Note based on the portion of the Note that is treated as retired.  The yield to maturity of a Note is not affected by a partial prepayment.

Market Discount

If a U.S. Holder purchases a Note on the trading platform for an amount that is less than the adjusted issue price of the Note at the time of purchase, the amount of the difference will be treated as “market discount” for U.S. federal income tax purposes, unless that difference is less than a specified de minimis amount.  Under the market discount rules, a U.S. Holder generally will be required to treat any principal payments received in respect of the Note, and any gain derived from the sale, retirement or other disposition of the Note, as ordinary income to the extent of the market discount that has accrued on the Note but that has not previously been included in gross income by the U.S. Holder.  Such market discount will accrue on the Note on a ratable basis over the remaining term of the Note unless the U.S. Holder elects to accrue market discount on a constant yield basis.  In addition, a U.S. Holder may be required to defer until the maturity of the Note, or its earlier disposition in a taxable transaction, the deduction of all or a portion of any interest expense incurred on indebtedness incurred or continued to purchase or carry such Note.

A U.S. Holder may elect to currently include market discount in gross income as it accrues, under either a ratable or constant yield method, in which case the rules described in the prior paragraph regarding characterization of payments and gain as ordinary income and the deferral of interest deductions will not apply.  An election to currently include market discount in gross income, once made, applies to all market discount obligations acquired by the U.S. Holder on or after the first taxable year to which the election applies and may not be revoked without the consent of the IRS.  Lender members should consult their own tax advisors before making this election.

Acquisition Premium

If a U.S. Holder purchases a Note on the trading platform for an amount greater than the Note’s adjusted issue price but less than the sum of all amounts payable on the Note after the purchase date, the Note will be treated as acquired at an acquisition premium. For a Note acquired with an acquisition premium, the amount of OID that the U.S. Holder must include in gross income with respect to the Note for any taxable year will be reduced by the portion of the acquisition premium properly allocable to such taxable year.

If a U.S. Holder purchases a Note on the trading platform for an amount in excess of the sum of all amounts payable on the Note after the purchase date, the U.S. Holder will not be required to include OID in income with respect to the Note.

Late Payments

As discussed above, late fees collected on Prosper borrower loans corresponding to the Notes will be paid to the holders of the Notes, whereas late fees collected by originators on open market loans may be retained by the originator servicing the loan.  Prosper anticipates that any late fees paid will be insignificant relative to the total expected amount of the remaining payments on the Note.  In such case, any late fees paid to a U.S. Holder of Notes should be taxable as ordinary income at the time such fees are paid or accrued in accordance with the U.S. Holder’s regular method of accounting for U.S. federal income tax purposes.

Nonpayment of Borrower Loans Corresponding to Note — Automatic Extension

In the event that Prosper does not make scheduled payments on a Note as a result of nonpayment by a borrower member on the borrower loan corresponding to the Note, a U.S. Holder must continue to accrue and include OID on a Note in taxable income until the initial maturity date or, in the case of an automatic extension, the final maturity date, except as described below. Solely for purposes of the OID rules, the Note may be treated as retired and reissued on the scheduled payment date for an amount equal to the Note’s adjusted issue price on that date.  As a result of such reissuance, the amount and accrual of OID on the Note may change.  At the time of the deemed reissuance, due to nonpayment by the borrower member, Prosper may not be able to conclude that it is significantly more likely than not that the Note will be paid in accordance with one payment schedule and/or that the likelihood of future nonpayment, prepayment, or late payment by the borrower member on the borrower loan corresponding to such Note will be remote or incidental.  Accordingly, the Note may become subject to the

75

contingent payment debt instrument rules.  In addition, in the event that a Note’s maturity date is automatically extended because amounts remain due and payable on the initial maturity date by the borrower member on the borrower loan corresponding to the Note, the Note likely will be treated as reissued and become subject to the contingent payment debt instrument rules.  As discussed above, contingent payment debt instruments are subject to special rules.  If Prosper determines that a Note is subject to the contingent payment debt instrument rules as a result of such a reissuance, it will notify the U.S. Holders and provide the projected payment schedule and comparable yield.

If collection on a Note becomes doubtful, a U.S. Holder may be able to stop accruing OID on the Note.  Under current IRS guidance, it is not clear whether a U.S. Holder may stop accruing OID if scheduled payments on a Note are not made.  U.S. Holders should consult their own tax advisors regarding the accrual and inclusion of OID in income when collection on a Note becomes doubtful.

Losses as a Result of Worthlessness

In the event that a Note becomes wholly worthless, a non-corporate U.S. Holder who did not acquire the Note as part of the holder’s trade or business generally should be entitled to deduct the holder’s adjusted tax basis in the Note as a short-term capital loss in the taxable year the Note becomes wholly worthless.  The portion of the U.S. Holder’s adjusted tax basis attributable to accrued but unpaid OID may be deductible as an ordinary loss, although such treatment is not entirely free from doubt.  Under Section 166 of the Code, corporate U.S. Holders and other U.S. Holders that acquired Notes as part of a trade or business generally are entitled to deduct as an ordinary loss any loss sustained during the taxable year on account of a Note becoming wholly or partially worthless.  U.S. Holders should consult their own tax advisors regarding the character and timing of losses attributable to Notes that become worthless in whole or in part.

Backup Withholding and Reporting

Generally, payments of principal and interest, and the accrual of OID, with respect to the Notes will be subject to information reporting and possibly to backup withholding.  Information reporting means that the payment is required to be reported to the holder of the Notes and the IRS.  Backup withholding means that we are required to collect and deposit a portion of the payment with the IRS as a tax payment on your behalf.  Backup withholding will be imposed at a rate of 28%.

Payments of principal and interest, and the accrual of OID, with respect to Notes held by a U.S. Holder, other than certain exempt recipients such as corporations, and proceeds from the sale of Notes through the U.S. office of a broker will be subject to backup withholding unless that U.S. Holder supplies us with a taxpayer identification number and certifies that its taxpayer identification number is correct or otherwise establishes an exemption.  In addition, backup withholding will be imposed on any payment of principal and interest, and the accrual of OID, with respect to a Note held by a U.S. Holder that is informed by the U.S. Secretary of the Treasury that it has not reported all dividend and interest income required to be shown on its U.S. federal income tax return or that fails to certify that it has not underreported its interest and dividend income.

A U.S. Holder that does not provide its correct taxpayer identification number may be subject to penalties imposed by the IRS.  In addition, any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against the holder’s U.S. federal income tax liability, provided that certain required information is furnished to the IRS.

76

BUSINESS

Overview

Prosper Marketplace, Inc. is the operator of an Internet credit auction platform. The platform is described in more detail in this prospectus under the caption “About the Platform.” Our platform provides a number of benefits to our borrowers.  We believe the key features of the Prosper experience are the following:

·better interest rates than those available from traditional banks;

·24-hour online availability to initiate a loan listing;

·convenient, electronic payment processing; and

·amortizing, fixed rate loans, which represent a more responsible way for consumers to borrow than revolving credit facilities.

Business Strengths

We believe that the following business strengths differentiate us from competitors and are key to our success:

·Interest rates set by the marketplace.  We believe that our auction bidding process provides an efficient method of setting interest rates for both borrowers and lenders, in a way that is fair and transparent to all parties.

·Open access.  We allow individuals with a wide range of credit characteristics to apply for loans, and enable them to leverage their social capital and receive loans from the lender community at large.

·Transparency and data availability.  By making all site transactions visible to our customers and available electronically for analysis, we allow our customers to better understand our marketplace and make better decisions about their activity.

·Open market listings provide additional liquidity option for financial institutions.  Our open market listings offer an effective and cost-effective method for financial institutions to unlock liquidity in their existing borrower loans, which may not exist in the current economic environment as such lenders can no longer pool and sell these loans in the securitization market.

Corporate History

We were incorporated in the State of Delaware in March 2005, and our principal executive offices are located at 111 Sutter Street, 22nd Floor, San Francisco, California 94104.  Prosper’s telephone number at that location is (415) 593-5400.  Prosper’s website address is www.prosper.com. Information contained on our website is not incorporated by reference into this prospectus.

From the launch of our platform in February 2006 until October 16, 2008, the operation of our platform differed from the structure described in this prospectus, and we did not offer Notes.  Instead, our platform allowed lender members to purchase, and take assignment of, borrower loans directly as described under “Prior Operation of Our Platform.”

Marketing

Our marketing efforts are designed to attract members to our website, to enroll them as members and to have them understand and utilize our services for borrowing or investing in Notes on our platform. We believe there are significant opportunities to increase the number of members who use our platform through additional marketing initiatives.  We employ a combination of paid and unpaid sources to market our platform. We also invest in public relations to build our brand and visibility.  We are constantly seeking new methods to reach more potential Prosper members.

77

We attract members in a variety of ways, including advertising, search engine results and word-of-mouth referrals.  We frequently hear from new borrowers that they heard about us from current borrowers.  In addition, we have been featured in a variety of media outlets, including television and print media.  We have also participated in interviews to promote Prosper.

We continuously measure website visitor-to-member conversion.  We test graphics and layout alternatives in order to improve website conversion.  We also seek to customize the website to our members’ needs whenever possible.  We carefully analyze visitor website usage to understand and overcome barriers to conversion.

For the year ended December 31, 2007, we spent approximately $2.9 million on marketing, and for the nine months ended September 30, 2008 we spent approximately $2.3 million on marketing.

Technology

Our system hardware is located in a hosting facility located in San Francisco, California, owned and operated by Rincon 365 Borrower, LLC under an agreement that expires in August 2011.  Generally, unless either party delivers a termination notice the agreement is automatically renewable for three year terms. The facility provides around-the-clock security personnel, video surveillance and biometric access screening and is serviced by onsite electrical generators, fire detection and suppression systems. The facility has multiple interconnects to the Internet, and we use Internap Network Services Corporation as our service provider.  We also maintain off-site backups in Las Vegas, Nevada.

We own all of the hardware deployed in support of our platform. We continuously monitor the performance and availability of our platform. We have a scalable infrastructure that utilizes standard techniques such as load-balancing and redundancies.

We have written our own accounting software to process electronic cash movements, record book entries and calculate cash balances in our members’ funding accounts.  We process electronic deposits and payments by originating ACH transactions.  Our software puts these transactions in the correct ACH transaction data formats and makes book entries between individual members’ accounts using a Write-Once-Read-Many (WORM) ledger system.

We have entered into a back-up servicing agreement with a loan servicing company who 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 who has extensive experience and knowledge entering into successor loan servicing agreements.  The third party will provide monthly investor reports on our loan servicing activity that will be available to all registered users.

Scalability

Our platform is designed and built as a highly scalable, multi-tier, redundant system. Our platform incorporates technologies designed to prevent any single point of failure within the data center from taking the entire system offline.  This is achieved by utilizing load-balancing technologies at the front-end and business layer tiers and clustering technologies in the backend tiers to allow us to scale both horizontally and vertically depending on platform utilization.  In addition, the core network load-balancing, routing and switching infrastructure is built with fully redundant hardware and sub-second failover between those devices.

Data integrity and security

All sensitive data that is transmitted to and from our customers and service providers is transacted using a secure transport protocol.  Communication of sensitive data via the web site to our customers is secured utilizing SSL 128-bit enabled encryption certificates provided by VeriSign.  Communication of sensitive data with our service providers is secured utilizing authenticated VPN, SSL 128-bit encryption and SSH protocols depending on the service providers’ requirements.  Storage of sensitive data is encrypted utilizing AES 256-bit and 3DES 168-bit cryptographic ciphers depending upon our service providers’ requirements and internal storage policies.  Access to the data by our employees is restricted based upon a least-privilege principle such that employees have access only to the information and systems needed to perform their function.  In the event of disaster, data is repeatedly stored securely at an offsite data center.

We protect the security of our platform using a multilayered defense strategy incorporating several different security technologies and points of monitoring.  At the perimeter of the network, multi-function security technologies implement firewall, intrusion prevention, anti-virus and anti-spam threat management techniques.  Internally, the network and hosts are segmented by function with another layer of firewalls and traffic inspection devices.  At the host level, our platform utilizes

78

host based intrusion prevention, antivirus, antispyware, and application control systems. Logging and monitoring for network security devices is done in real-time with notifications to the appropriate staff upon any suspicious event or action that requires attention.  Logging and monitoring of host systems is done in real-time to a centralized database with web based reporting and additional notification to the appropriate staff for any remediation.

Fraud detection

We consider fraud detection to be of utmost importance to the successful operation of our business.  We employ a combination of proprietary technologies and commercially available licensed technologies and solutions to prevent and detect fraud.  We employ techniques such as knowledge based authentication, or KBA, out-of-band authentication and notification, behavioral analytics and digital fingerprinting to prevent identity fraud.  We use services from third-party vendors for user identification, credit checks and OFAC compliance.  In addition, we use specialized third-party software to augment our identity fraud detection systems. In addition to our identity fraud detection system, we have a dedicated team which conducts additional investigations of cases flagged for high fraud risk.  See “About the Platform—Borrower Financial Information is Generally Not Verified” for more information.  We also enable our lender members to report suspicious activity to us, which we may then decide to evaluate further.

Engineering

We have made substantial investment in software and website development and we expect to continue or increase the level of this investment as part of our strategy to continually improve our platform. In addition to developing new products and maintaining an active online deployment, the engineering department also performs technical competitive analysis as well as systematic product usability testing.  As of September 30, 2008, our engineering team consisted of seven developers, one quality assurance manager, four quality assurance contractors, two product managers, one director of database systems, one database administrator, one director of network operations, one network engineer and the Chief Technology Officer.  Our engineering expense totaled $2.0 million for the fiscal year ended December 31, 2007 and approximately $1.7 million for the nine months ended September 30, 2008.

Competition

The market for person-to-person lending is competitive and rapidly evolving.  We believe the following are the principal competitive factors in the person-to-person lending market:

·fee structure;

·website attractiveness;

·member experience, including borrower loan funding rates and lender returns;

·acceptance as a social network;  

·branding; and

·ease of use.

The primary competitors of our platform are major credit card companies such as JPMorgan Chase Bank, Bank of America, Citibank, other commercial banks, savings banks and consumer finance companies.  We also face competition from other peer-to-peer platforms such as Lending Club and Virgin Money and other peer-to-peer platforms appear to be preparing to commence operations.

We may also face future competition from new companies entering our market, which may include large, established companies, such as eBay Inc., Google Inc. or Yahoo! Inc.  These companies may have significantly greater financial, technical, marketing and other resources than we do and may be able to devote greater resources to the development, promotion, sale and support of their consumer platforms. These potential competitors may be in a stronger position to respond quickly to new technologies and may be able to undertake more extensive marketing campaigns.  These potential competitors may have more extensive potential borrower bases than we do.  In addition, these potential competitors may have longer operating histories and greater name recognition than we do.  Moreover, if one or more of our competitors were to

79

merge or partner with another of our competitors or a new market entrant, the change in competitive landscape could adversely affect our ability to compete effectively.

Intellectual Property

Our intellectual property rights are important to our business.  We rely on a combination of copyright, trade secret, trademark, patent and other rights, as well as confidentiality procedures and contractual provisions to protect our proprietary technology, processes and other intellectual property.  We have filed a patent application in respect of our system.

Although the protection afforded by copyright, trade secret, trademark and patent law, written agreements and common law may provide some advantages, we believe that the following factors help us to maintain a competitive advantage:

·the technological skills of our software and website development personnel;

·frequent enhancements to our platform; and

·high levels of member satisfaction.

Our competitors may develop products that are similar to our technology.  For example, our legal agreements may be copied directly from our website by others.  We enter into confidentiality and other written agreements with our employees, consultants and service providers, and through these and other written agreements, we attempt to control access to and distribution of our software, documentation and other proprietary technology and information.  Despite our efforts to protect our proprietary rights, third parties may, in an authorized or unauthorized manner, attempt to use, copy or otherwise obtain and market or distribute our intellectual property rights or technology or otherwise develop a product with the same functionality as ours.  Policing all unauthorized use of our intellectual property rights is nearly impossible.  Therefore, we cannot be certain that the steps we have taken or will take in the future will prevent misappropriations of our technology or intellectual property rights.

We have developed our own software, and do not use software licensed to us by third parties, for processing electronic cash movements, recording book entries and calculating cash balances in our members’ Prosper accounts.

Employees

As of September 30, 2008, we employed forty-one full-time employees.  Of these employees:

·15 were in network and engineering;

·11 were in customer services, which includes the employees who conduct our collection activities;

·7 were in legal and finance;

·4 were in marketing; and

·4 were in general and administration.

None of our employees are represented by labor unions.  We have not experienced any work stoppages and believe that our relations with our employees are good.

Facilities

Our corporate headquarters, including our principal administrative, marketing, technical support and engineering functions, is located in San Francisco, California, where we lease workstations and conference rooms under a five year lease agreement that expires in July 2011.  We believe that our existing facilities are adequate to meet our current needs, and that suitable additional alternative spaces will be available in the future on commercially reasonable terms.

80

Legal Proceedings

In November of 2008, the SEC instituted cease and desist proceedings, pursuant to Section 8A of the Securities Act, against Prosper.  In anticipation of the institution of these proceedings, we submitted an offer of settlement, in which Prosper neither admitted nor denied liability, which was accepted by the SEC.  Pursuant to the offer, we consented to the entry of a cease and desist order, approved by the SEC on November 20, 2008, which included findings that we violated Sections 5(a) and (c) of the Securities Act and required us to cease and desist from committing or causing any violations and any future violations of Sections 5(a) and (c) of the Securities Act.

On November 26, 2008, Prosper and the North American Securities Administrators Association, or “NASAA,” executed a settlement term sheet.  The term sheet sets forth the material terms of a consent order to resolve matters relating to our sale and offer of unregistered securities and the omission of material facts in connection with such offers and sales.  NASAA will recommend that each state adopt the terms of the settlement, however, the settlement is not binding on any state.  The terms of the settlement involved our payment of up to $1 million, which NASAA will allocate among the 50 states and the District of Columbia, where we conduct business, based on the loan sale transaction volume in each state.  We will not be required to pay any portion of the fine allocated to those states that do not execute a consent order with Prosper.  The terms of the settlement require the states to terminate their investigation of our activities related to the sale of securities before November 24, 2008.  We are currently negotiating the terms of the consent order for consideration by the states.  We have accrued approximately $425,000 in connection with the contingent liability arising from the settlement term sheet in accordance with SFAS No. 5, Accounting for Contingencies.

On November 26, 2008, plaintiffs, Christian Hellum, William Barnwell and David Booth, individually and on behalf of all other plaintiffs similarly situated, filed a class action lawsuit against us, certain of our executive officers and our directors in the Superior Court of California, County of San Francisco, California.  The suit was brought on behalf of all loan note purchasers in our online lending platform from January 1, 2006 through October 14, 2008.  The lawsuit alleges that Prosper offered and sold unqualified and unregistered securities in violation of the California and federal securities laws.  The lawsuit seeks class certification, damages, the right of rescission and the award of attorneys’ fees and costs against Prosper and the other named defendants.  We intend to vigorously defend this lawsuit, however, the final outcome of this lawsuit is not presently determinable or estimable and there can be no assurance that the matter will be finally resolved in our favor.  If the lawsuit is not resolved in our favor, we might be obliged to pay damages, and might be subject to such equitable relief as a court may determine.

We are not currently subject to any other material legal proceedings.  Except for the above matters, we are not aware of any litigation matters which have had, or are expected to have, a material adverse effect on us.

Prior Operation of Our Platform

Our Prior Operating Structure

From the launch of our platform in February 2006 until October 16, 2008, the operation of our platform differed from the structure described in this prospectus, and we did not offer Notes.  Instead, our platform allowed lender members to purchase, and take assignment of, borrower loans directly.  Under that structure, the borrower loans were evidenced by individual promissory notes in the amount of each lender member’s winning bid, which notes were thereafter sold and assigned to each lender member with a winning bid, subject to our right to service the borrower loans.  Borrower loans resulting from listings posted prior to April 15, 2008 were made by Prosper and sold and assigned to the lender members who were winning bidders for the loans; loans resulting from listings posted on or after April 15, 2008 were made by WebBank and then subsequently sold and assigned by WebBank to Prosper, which in turn sold and assigned such loans to the lender members who were winning bidders for the loans.  In addition, we previously assigned one of seven letter credit grades based on the borrower’s credit score and displayed the borrower’s credit grade in the listing posted on our platform.  On the effective date of this prospectus, however, each listing will be assigned a Prosper Rating.  For Prosper borrower listings, the Prosper Rating will be derived from two scores:  a consumer reporting agency score and an in-house custom score calculated using the historical performance of previous Prosper borrower loans with similar characteristics. For open market listings, the originator will provide us with a loss rate on the type of loan being offered for sale, and we will translate the loss rate to a Prosper Rating.

From October 17, 2008 until the date of this prospectus, we did not offer lender members the opportunity to purchase loans on our platform. During this time, we also did not accept new lender registrations or allow new loan purchase commitments from existing lender members.  We continued to service all previously-funded borrower loans, and lender members had the ability to access their accounts, monitor their borrower loans and withdraw available funds.  During this

81

period, borrowers could still request loans, but those loan requests were forwarded to companies that had a pre-existing relationship with Prosper that could make or facilitate a loan to the borrower.  We have made significant changes to the operation of our lending platform that will become effective as of the date of this prospectus.  Our historical financial results and much of the discussion in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” reflects the structure of our lending platform and our operations prior to the date of this prospectus.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information.

Securities Law Compliance

Since our commencement of operations in February 2006 through October 16, 2008, we sold approximately $178.6 million of loans to our lender members through an operating structure that involved our sale and assignment of promissory notes directly to lender members.  We did not register the offer and sale of the promissory notes offered and sold through our platform under the Securities Act or under the registration or qualification provisions of state securities laws.  In our view, analyzing whether or not the operation of our platform involved an offer or sale of a “security” involved a complicated factual and legal analysis and was uncertain.  If the sales of promissory notes offered through our platform were viewed as a securities offering, we would have failed to comply with the registration and qualification requirements of federal and state law and our lender members who hold these promissory notes may be entitled to rescission of unpaid principal, plus statutory interest.  Generally, the federal statute of limitations for noncompliance with the requirement to register securities under the Securities Act is one year from the violation, although the statute of limitations period under various state laws may be for a longer period of time.  Due to the legal uncertainty regarding the sales of promissory notes offered through our platform under our prior operating structure, and as a result of discussions with the SEC and various state securities law administrators, we decided to restructure our operations to resolve such uncertainty.  We began our implementation of this decision on October 16, 2008, when we ceased offering lender members the opportunity to make loan purchases on our platform, ceased accepting new lender members registrations and ceased allowing new loan purchase commitments from existing lender members.  Furthermore, pursuant to this decision, we filed this prospectus, and the registration statement of which it forms a part, with the SEC, in which we describe the restructuring of our operations and our new operating structure.  We will resume transactions with lender members starting on the date of this prospectus.  Our decision to restructure our operations and cease sales of promissory notes offered through our platform effective October 16, 2008 limited this contingent liability, under federal law, so that it only related to the period from February 2006 until October 16, 2008 in which sales occurred under our prior operating structure.  We have, however, accrued approximately $425,000 in connection with the $1 million contingent liability arising from the settlement term sheet we entered into with NASAA on November 26, 2008 in accordance with SFAS No. 5, Accounting for Contingencies.  See “—Legal Proceedings” for more information.

The change in the operation of our platform, the resulting litigation, as well as our adoption of new accounting pronouncements, will have a significant impact on our financial statements and results of operations for periods following the effective date of the registration statement.  Because the Notes are a novel financing structure, we will continue to evaluate the impact the changes this shift in our operations will have on our financial condition, results of operations and cash flow. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Impact of New Lending Platform Structure” for more information.

82

GOVERNMENT REGULATION

Overview

The consumer loan industry is highly regulated.  Prosper, and the borrower loans made through our platform, are subject to extensive and complex rules and regulations, licensing and examination by various federal, state and local government authorities.  These authorities impose obligations and restrictions on our activities and the borrower loans made or sold through our platform. In particular, these rules limit the fees that may be assessed on the borrower loans, require extensive disclosure to, and consents from, our borrower members, prohibit discrimination and impose multiple qualification and licensing obligations on Prosper.  Failure to comply with these requirements may result in, among other things, revocation of required licenses or registration, loss of approved status, voiding of the loan contracts, indemnification liability to contract counterparties, class action lawsuits, administrative enforcement actions and civil and criminal liability.  While compliance with such requirements is at times complicated by our novel business model, we believe we are in substantial compliance with these rules and regulations.  These rules and regulations are subject to continuous change, however, and a material change could have an adverse effect on our compliance efforts and ability to operate.

Regulation and Consumer Protection Laws

State and Federal Laws and Regulations

Borrower loan origination activities on our platform and the servicing of Notes are subject to state and federal regulation.  WebBank and the borrower loans it makes must comply with applicable state usury and lending laws, including interest rate and fee limitations, and licensing and disclosure requirements.  In addition, Prosper and WebBank must comply with the federal Consumer Credit Protection Act, including, without limitation, 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.  Prosper and WebBank are subject to examination, supervision, and potential regulatory investigations and enforcement actions by state and federal agencies that regulate their activities, and federal agencies, including but not limited to the Utah Department of Financial Institutions and the FDIC with respect to WebBank and various state consumer credit regulatory agencies and the Federal Trade Commission with respect to Prosper.

State Licensing Requirements.  We hold consumer lending licenses or similar authorizations in 23 states and the District of Columbia.  We are subject to supervision and examination by the state regulatory authorities that administer the state lending laws.  The licensing statutes vary from state to state and variously prescribe or impose recordkeeping requirements; restrictions on loan origination and servicing practices, including limits on finance charges and the type, amount and manner of charging fees; disclosure requirements; requirements that licensees submit to periodic examination; surety bond and minimum specified net worth requirements; periodic financial reporting requirements; notification requirements for changes in principal officers, stock ownership or corporate control; restrictions on advertising; and requirements that loan forms be submitted for review.

WebBank is a Utah-chartered industrial bank organized under Title 7, Chapter 8 of the Utah Code and has its deposits insured by the FDIC.  WebBank is subject to supervision and examination by the Utah Department of Financial Institutions and the FDIC.  Applicable federal law preempts state usury limitations and permits FDIC-insured depository institutions, such as WebBank, to “export” the interest rates permitted under the laws of the state where the bank is located when making loans to borrowers who reside in other states, regardless of the usury limitations imposed by the state law of the borrower’s residence.  WebBank is located in Utah, and Utah law does not limit the amount of interest that may be charged on loans of the type offered through our platform. A few jurisdictions have elected to opt out of the federal usury preemption available to state-chartered, FDIC-insured banks.  To the extent that a WebBank borrower loan is deemed to be “made” in such a jurisdiction, the loan would be subject to the maximum interest rate limit of such jurisdiction.

Disclosure Requirements and Other Lending Regulations.  We are is also subject to and seeks to comply with state and federal laws and regulations applicable to consumer lending, including requirements relating to loan disclosure, credit discrimination, credit reporting, debt collection and unfair or deceptive business practices.  These laws and regulations may be enforced by state consumer credit regulatory agencies, state attorneys general, the Federal Trade Commission, and private litigants, among others.  Given our novel business model and the subjective nature of some of these laws and regulations, particularly laws regulating unfair or deceptive business practices, we may become subject to regulatory scrutiny or legal challenge with respect to our compliance with these requirements.

83

Truth-in-Lending Act.  The Truth-in-Lending Act (TILA), and the regulation issued by the Federal Reserve Board implementing TILA, Regulation Z, requires disclosure of, among other things, the annual percentage rate, the finance charge, the amount financed, the number of payments, and the amount of the monthly payment on consumer loans.  WebBank provides borrowers with a TILA disclosure form when borrower loans are originated and seeks to comply with TILA’s disclosure requirements relating to credit advertising.

Equal Credit Opportunity Act.  The Federal Equal Credit Opportunity Act (ECOA) and the regulation issued by the Federal Reserve Board implementing ECOA, Regulation B, prohibit discrimination in any aspect of a credit transaction, on the basis of race, color, religion, national origin, sex, marital status, age (with certain limited exceptions); because all or part of the applicant’s income derives from any public assistance program; or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act.  Prosper and WebBank comply with ECOA’s nondiscrimination requirements, and the lender registration agreement requires lender members to comply with ECOA in their bidding practices.  We also require individual group leaders who form groups on Prosper to comply with ECOA in that they are prohibited from excluding individuals from membership in a group on a prohibited basis.

ECOA also requires creditors to provide consumers with notice of adverse action taken on credit applications, giving the consumer the principal reasons why adverse action was taken.  We and/or WebBank also provide prospective borrowers who attempt but fail to obtain a borrower loan through our platform with an adverse action notice in compliance with the ECOA’s requirements.

Fair Credit Reporting Act.  The Federal Fair Credit Reporting Act (FCRA), administered by the Federal Trade Commission, promotes the accuracy, fairness and privacy of information in the files of consumer reporting agencies.  In addition to requirements on credit bureaus, the FCRA requires that users of consumer credit reports have a permissible purpose to obtain a credit report on a consumer and that persons who furnish loan payment information to credit bureaus report such information accurately.  The FCRA also has disclosure requirements for creditors who take adverse action on credit applications based on information contained in a credit report.  Prosper and WebBank have a permissible purpose for obtaining credit reports on borrower members and Prosper reports loan payment and delinquency information to the credit bureaus in compliance with the FCRA.  Prosper’s and WebBank’s adverse action notices contain the disclosures required by the FCRA.

Fair Debt Collection Practices Act.  The federal Fair Debt Collection Practices Act (FDCPA) provides guidelines and limitations on the conduct of third party debt collectors in connection with the collection of consumer debts.  The FDCPA limits certain communications with third parties, imposes notice and debt validation requirements, and prohibits threatening, harassing or abusive conduct in the course of debt collection.  While the FDCPA applies to third party debt collectors, debt collection laws of certain states, including California, impose similar requirements on creditors who collect their own debts.  In order to ensure compliance with the FDCPA, Prosper has contracted with professional third party debt collection agencies to engage in debt collection activities.  Prosper’s agreements with lender members and group leaders prohibit registered lender members and group leaders from attempting to directly collect on the Notes, and Prosper has established procedures to ensure that lender members and group leaders do not attempt to collect on the Notes themselves.

Servicemembers Civil Relief Act.  The Federal Servicemembers Civil Relief Act (SCRA) allows military members to suspend or postpone certain civil obligations so that the military member can devote his or her full attention to military duties.  In accordance with the SCRA, Prosper must adjust the interest rate of borrowers on active duty and other military personnel who qualify for and request relief.  If a borrower with an outstanding borrower loan is called to active military duty and can show that such military service has materially affected his or her ability to make payments on the borrower loan, Prosper will reduce the interest rate on the borrower loan to 6% for the duration of the borrower’s active duty.  During this period, the lender members on the borrower loan will not receive the difference between 6% and the interest rate that was established for the borrower loan by the auction bidding system on our platform. For borrowers to obtain an interest rate reduction on a borrower loan due to military service, we require the borrowers to send us a written request and a copy of the borrower’s mobilization orders.

We do not take military service into account in assigning credit grades to borrowers’ loan listings.

Electronic Funds Transfer Act.  The Federal Electronic Funds Transfer Act (EFTA) and the regulation issued by the Federal Reserve Board implementing the EFTA, Regulation E, place guidelines and restrictions on the electronic transfer of funds from consumers’ bank accounts, including preauthorized electronic fund transfers from consumers’ accounts to make loan payments.  Most transfers of funds in connection with the origination and repayment of Notes and bidding on our platform are done by Automated Clearing House (ACH) electronic transfers of funds subject to detailed timing and

84

notification rules and guidelines administered by the National Automated Clearinghouse Association (NACHA).  Transfers of funds on our platform are done in conformity with the EFTA and its regulations, as well as NACHA guidelines.

Electronic Signatures in Global and National Commerce Act.  The Federal Electronic Signatures in Global and National Commerce Act (ESIGN) and similar state laws authorize the creation of legally binding and enforceable agreements, including electronic loan agreements, utilizing electronic records and electronic signatures.  ESIGN imposes special requirements on businesses that want to use electronic records or signatures in consumer transactions and requires businesses to obtain from consumers electronic consent or confirmation to receive information electronically that a law requires to be in writing.  When a platform participant registers on our platform, we obtain his or her consent to transact business electronically with Prosper and WebBank and maintain electronic records in compliance with ESIGN requirements.

Privacy and Data Security Laws.  The Federal Gramm-Leach-Bliley Act (GLBA) limits the disclosure of nonpublic personal information about a consumer to nonaffiliated third parties and requires financial institutions to disclose certain privacy policies and practices with respect to its information sharing with both affiliates and nonaffiliated third parties.  A number of states have enacted privacy and data security laws requiring safeguards on the privacy and security of consumers’ personally identifiable information.  Our privacy policy conforms to GLBA requirements, and we have policies and procedures intended to maintain platform participants’ personal information securely, and we do not sell, rent or share such information with third parties for marketing purposes.

Bank Secrecy Act.  We check customer names against the list of Specially Designated Nationals maintained by the Office of Foreign Assets Control (OFAC) pursuant to the USA PATRIOT Act amendments to the Bank Secrecy Act (BSA), and its implementing regulation.  We have also has instituted procedures to comply with the anti-money laundering requirements of the USA PATRIOT Act and the BSA.

Foreign Laws and Regulations

We do not permit non-U.S. residents to register as members on our platform and does not operate outside the United States.  We are not, therefore, subject to foreign laws or regulations.

MANAGEMENT

The following table sets forth information about our executive officers and directors as of the date of this prospectus:

Name	Age	Position(s)
Christian A. Larsen	47	Chief Executive Officer, President and Director
Christopher Denend	41	Chief Technology Officer
Douglas Neal Fuller	49	Vice President of Operations
Edward A. Giedgowd	52	Corporate Secretary, Chief Compliance Officer and General Counsel
Kirk T. Inglis	42	Chief Financial Officer
S. Catherine Muriel	54	Chief Marketing Officer
James W. Breyer	47	Director
Lawrence W. Cheng	33	Director
Rajeev Date	37	Director
Paul M. Hazen	67	Director
Robert C. Kagle	52	Director

85

Christian A. Larsen co-founded Prosper and has served as our Chief Executive Officer and President, and one of its directors since inception.  Prior to joining Prosper, Mr. Larsen co-founded E-LOAN, Inc.  in 1996, and served as one of its directors from 1996 until its acquisition in October 2005, and as its Chairman from March 2001 until October 2005.  From 1999 to February 2005, Mr. Larsen served as Chief Executive Officer of E-LOAN, and from 1996 to 1998 and from January 2004 to June 2004, Mr. Larsen served as President of E-LOAN.  From 1992 to 1996, Mr. Larsen was the President of Palo Alto Funding Group, a mortgage brokerage he co-founded in 1992 and E-LOAN’s predecessor company.  Prior to attending business school, Mr. Larsen held positions at Chevron Corporation and NASA Ames Research Center.  Mr. Larsen holds an M.B.A. from Stanford University and a B.S. from San Francisco State University.

Rajeev Date has served as one of our directors since January 2009.  Mr. Date has served as the Managing Director in the Financial Institutions Group at Deutsche Bank Securities since August 2007, where his key responsibility is acting as a coverage officer for specialty finance firms and regional banks.  Prior to his current role, Mr. Date served as the Senior Vice President for Corporate Strategy and Development at Capital One Financial, where he led merger and acquisitions development efforts across U.S. banking and specialty finance markets.  Mr. Date has also spent several years with the financial institutions practice of the consulting firm McKinsey & Company, and was an attorney in both the private and public sectors before joining Capital One Financial.  Mr. Date is a graduate of the University of California at Berkeley, and the Harvard Law School.

Christopher Denend has served as our Chief Technology Officer since July 2008 and served as our Vice President of Engineering from May 2005 to June 2008.  Prior to joining Prosper, Mr. Denend spent seven years in executive engineering roles at Macromedia, a multimedia authoring and website development software company, where he managed the engineering team for Contribute, a web site editing tool for the consumer market.  Mr. Denend earned a B.A. in Electrical Engineering from Stanford University.

Douglas Neal Fuller has served as our Vice President of Operations since August 2007.  Prior to joining Prosper, Mr. Fuller served as the Chief Research Officer at Credigy, a provider of receivables managements services focused on purchasing distressed receivables, from July 2005 to July 2007.  Prior to Credigy, Mr. Fuller served as the principal consultant for Priority Perspective from September 2002 to June 2005, and as the Senior Vice President at First Select Corporation/Providian Financial from September 1999 to September 2002.  Mr. Fuller holds a Ph.D.  in Systems Engineering from the University of Virginia and a B.I.E. with highest honors from the Georgia Institute of Technology.

Edward A. Giedgowd has served as our Chief Compliance Officer, Secretary and General Counsel of since June of 2005.  Prior to joining Prosper, Mr. Giedgowd served as General Counsel at E-LOAN from October 1999 until June of 2005.  Prior to October 1999, Mr. Giedgowd was the head of the consumer finance practice group at the San Francisco law firm of Severson & Werson P.C., where he practiced for 17 years specializing in all aspects of consumer finance law, including regulatory compliance, mortgage and auto finance, licensing, the development of multistate direct and indirect lending programs. Mr. Giedgowd earned a J.D.  from Boston College in 1982 and a B.A. from the University of Massachusetts at Amherst in 1978.

Kirk T. Inglis has served as our Chief Financial Officer since November 2006.  Prior to joining Prosper, from June to November 2006, Mr. Inglis worked as a consultant for Wells Fargo Bank, N.A., consulting on the effectiveness of their online marketing program.  From 1994 to 2003, Mr. Inglis served in various positions with Providian Financial Corporation.  At Providian, Mr. Inglis served as President of First Select Corporation, the largest purchaser of charged-off credit card debt in the United States, from 2000 to 2001.  In addition, he served as Chief Financial Officer of GetSmart.com following its acquisition by Providian in 1999.  Mr. Inglis also developed the financial planning and control infrastructure for Providian Financial Corporation following the spin-off from its parent company in 1996.  Mr. Inglis holds an M.B.A. from Memphis State University and a B.A. from the University of Texas at Austin.

S. Catherine Muriel has served as our Chief Marketing Officer since July 2007.  Prior to joining Prosper, Ms. Muriel served as the Chief Marketing Officer of PayByTouch, a biometric payment transaction company, from January 2007 to June 2007.  Prior to PayByTouch, Ms. Muriel served as the Chief Marketing Officer of E-LOAN form May 2004 to October 2006 and as the Chief Marketing Officer of Upromise, the country’s largest private college savings loyalty service, from October 2002 to May 2004.  Ms. Muriel also served in executive level positions with AXA Financial, Prudential Financial and Citigroup’s credit card division.  Ms. Muriel holds a law degree from the London School of Economics and Political Science.

James W. Breyer has served as one of our directors since April, 2005.  Mr. Breyer has been a partner of Accel Partners, a venture capital firm, since 1990.  Mr. Breyer has served on the board of Wal-Mart Stores, Inc., a world-wide operator of retail

86

stores, since 2001 and on the board of Marvel Entertainment, Inc., a character-based entertainment company, since June 2006.  He also serves on the boards of other privately held companies.  Mr. Breyer is a member of the Board of Associates of the Harvard Business School and is Chairman of the Stanford Engineering Venture Fund.  Mr. Breyer holds a B.S.  from Stanford University and an M.B.A. from Harvard University, where he was named a Baker Scholar.

Lawrence W. Cheng has served as one of our directors since July 2006.  Mr. Cheng has been a Partner at Fidelity Ventures, a venture capital firm, since June 2007, and a Principal since February 2005.   From February 2000 to January 2005, Mr. Cheng was a senior associate at Battery Ventures and from 1998 to 2000, he was an associate of Bessemer Ventures.  Mr. Cheng currently serves on the boards of Mindshift Technologies, Inc., Cortera, Primatech (aka Stylesight) and MFG.com. Mr. Cheng holds a B.A. from Harvard College.

Paul M. Hazen has served as one of our directors since July 2006.  Mr. Hazen has served as the Chairman of the Board of Directors of KKR Financial Holdings LLC since July 2004.  Mr. Hazen joined Wells Fargo & Company in 1970, serving as Chairman of Wells Fargo from February 1997 to May 2001, Chairman and Chief Executive Officer from February 1997 to November 1998, Chief Executive Officer from January 1995 to February 1997, President and Chief Operating Officer from 1984 to 1995 and Vice Chairman from 1981 to 1984.  Mr. Hazen retired after he left his post as Chairman of Wells Fargo in May 2001.  During his retirement, Mr. Hazen acted as Chairman of Accel-KKR Company, Deputy Chairman and Lead Independent Director of Vodafone PLC and Lead Independent Director of Safeway, Inc.  Mr. Hazen is currently the Lead Independent Director of Safeway, Inc., the Chairman of Accel-KKR Company and KKR Financial Corp., and a director of Xstrata plc.  Mr. Hazen attended Amherst College and holds a B.S.  in Finance from the University of Arizona and an M.B.A. from the University of California at Berkeley.

Robert C. Kagle has served as one of our directors since April 2005.  Mr. Kagle has been the general partner of Benchmark Capital since its founding in May 1995.  He has served on the board of Jamba, Inc., and its predecessor, the Jamba Juice Company, a retailer of blended beverages and healthy snacks, since 1994.  Since 1999, he has served as a director of ZipRealty, Inc., a residential real estate brokerage firm. Mr. Kagle also serves on the boards of other privately held companies.  Mr. Kagle holds a B.S.  in Electrical and Mechanical Engineering from General Motors Institute (renamed Kettering University) where he was named a Sobey Scholar, and an M.B.A. from Stanford University.  Mr. Kagle is currently the Chairman of the Board of Trustees of Kettering University.

Board Composition and Election of Directors

Our board of directors currently consists of six members, all of whom were elected as directors pursuant to the terms of a voting rights agreement entered into among certain of our stockholders.  The board composition provisions of our voting rights agreement will continue following the date of this prospectus.  Holders of the Notes offered through our platform will have no ability to elect or influence our directors or approve significant corporate transactions, such as a merger or other sale of our company or its assets.

There are no family relationships among any of our directors or executive officers.

Director Independence

Because our common stock is not listed on a national securities exchange, we are not required to maintain a board consisting of a majority of independent directors or to maintain an audit committee, nominating committee or compensation committee consisting solely of independent directors.  Our board of directors has not analyzed the independence of our directors under any applicable stock exchange listing standards.  Holders of the Notes have no ability to elect or influence our directors.

Board Committees

Nominating Committee and Compensation Committee

We are not a “listed issuer” as defined under Section 10A-3 of the Exchange Act.  We are, therefore, not required to have a nominating or compensation committee comprised of independent directors.  We currently do not have a standing nominating or compensation committee and accordingly, there are no charters for such committees.  We believe that standing committees are not necessary and the directors collectively have the requisite background, experience, and knowledge to fulfill any limited duties and obligations that a nominating committee and a compensation committee may have.

87

Audit Committee and Audit Committee Financial Expert

We are not a “listed issuer” as defined under Section 10A-3 of the Exchange Act.  We are, therefore, not required to have an audit committee comprised of independent directors.  We currently do not have an audit committee and accordingly, there is no charter for such committee.  Our board of directors performs the functions of an audit committee.  We believe that our directors collectively have the requisite financial background, experience, and knowledge to fulfill the duties and obligations that an audit committee would have, including overseeing our accounting and financial reporting practices.

Director Compensation

During the year ended December 31, 2007, none of our directors received any compensation for service as a member of our board of directors.  Non-employee directors have not been reimbursed their travel and other expenses incurred in connection with attending our board meetings.

Limitations on Officers’ and Directors’ Liability and Indemnification Agreements

As permitted by Delaware law, our amended and restated certificate of incorporation and bylaws contain provisions that limit or eliminate the personal liability of our directors for breaches of duty to the corporation.  Our amended and restated certificate of incorporation and bylaws limit the liability of directors to the fullest extent permitted under Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breaches of their fiduciary duties as directors, except liability for:

·any breach of the director’s duty of loyalty to us or our stockholders;

·any act or omission not in good faith, believed to be contrary to the interests of the corporation or its shareholders, involving reckless disregard for the director’s duty, for acts that involve an unexcused pattern of inattention that amounts to an abdication of duty, or that involves intentional misconduct or knowing or culpable violation of law;

·any unlawful payments related to dividends, unlawful stock repurchases, redemptions, loans, guarantees or other distributions; or

·any transaction from which the director derived an improper personal benefit.

These limitations do not affect the availability of equitable remedies, including injunctive relief or rescission.  As permitted by Delaware law, our amended and restated certificate of incorporation and bylaws also provide that:

·we will indemnify our directors and officers to the fullest extent permitted by law;

·we may indemnify our other employees and other agents to the same extent that we indemnify our officers and directors; and

·we will advance expenses to our directors and officers in connection with a legal proceeding, and may advance expenses to any employee or agent; provided, however, that such advancement of expenses shall be made only upon receipt of an undertaking by the person to repay all amounts advanced if it should be ultimately determined that the person was not entitled to be indemnified.

The indemnification provisions contained in our amended and restated certificate of incorporation and s bylaws are not exclusive.

In addition to the indemnification provided for in our amended and restated certificate of incorporation and bylaws, we have entered into indemnification agreements with each of our directors.  The indemnification agreements require us, among other things, to indemnify such persons for all expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement (if such settlement is approved in advance by Prosper) actually and reasonably incurred by such person in connection with the investigation, defense or appeal of:

·any proceeding to which such person may be made a party by reason of,

88

·such person’s service as a director or officer of Prosper,

·any action taken by such person while acting as director, officer, employee or agent of Prosper, or

·such person’s actions while serving at the request of Prosper as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, and in any such case described above, whether or not serving in any such capacity at the time any liability or expense is or was incurred; or

·establishing or enforcing a right to indemnification under the agreement.

Under the indemnification agreements, we are not obligated to provide indemnification on account of any proceeding unless such person acted in good faith and in a manner reasonably believed to be in the best interests of Prosper, and with respect to criminal proceedings, such person had no reasonable cause to believe his conduct was unlawful.  The termination of a proceeding by judgment, settlement, conviction or upon a plea of nolo contendere or its equivalent does not, by itself, create the presumption that such person did not satisfy the above standards.  Moreover, with respect to third party proceedings, we are not obligated to provide indemnification if such person has been adjudged to be liable to Prosper, unless a court of competent jurisdiction determines such person is entitled to indemnification in view of all the circumstances of the case.  In addition, under the indemnification agreements, we are not obligated to provide indemnification:

·for any proceedings or claims initiated or brought voluntarily by such person and not by way of defense, other that a proceeding to establish such person’s right to indemnification;

·for any expenses incurred by such person with respect to any proceeding instituted by such person to enforce and interpret the terms of his indemnification agreement, unless a court of competent jurisdiction determines that each of the material assertions made by such person in that proceeding was not made in good faith or was frivolous;

·for any expenses and liabilities that have been paid directly to such person under a directors’ and officers’ liability insurance policy maintained by Prosper; and

·for expenses and payment of profits arising from the purchase and sale by such person of securities in violation of Section 16(b) of the Exchange Act.

The indemnification agreements also provide that we agree to indemnify such persons to the fullest extent permitted by law, even if such indemnification is not specifically authorized by the other provisions of the agreement or our amended and restated certificate of incorporation or bylaws.  Moreover, the indemnification agreements provide that any future changes under Delaware law that expand the ability of a Delaware corporation to indemnify its officers and directors are automatically incorporated into the agreements and that, to the extent permitted by law, any future changes under Delaware law that would limit the ability of a Delaware corporation to indemnify its officers and directors shall have no effect on our indemnification obligations as set forth in such agreements.

We also maintain a general liability insurance policy that covers certain liabilities of directors and officers of our corporation arising out of claims based on acts or omissions in their capacities as directors or officers.

We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and officers.  To the extent these provisions permit us to indemnify our officers and directors for liabilities arising under the Securities Act, however, we have been informed by the SEC that such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

89

EXECUTIVECOMPENSATION

Summary Compensation Table

The following table provides information regarding the compensation earned during the year ended December 31, 2007 by each person serving during the fiscal year ended December 31, 2007 as our principal executive officer or other executive officer, who we collectively refer to as our “named executive officers.”

Name and Principal Position	Year	Salary ($)		Bonus ($)		Option Awards ($)(1)		All Other Compensation	Totals ($)
Christian A. Larsen, Chief Executive Officer	2007	$	150,000	—		—		—	$	150,000
John Witchel, former Chief Technology Officer(2)	2007	$	150,000	—		—		—	$	150,000
Edward A. Giedgowd, Corporate Secretary, General Counsel	2007	$	175,000	$	25,000	$	11,971	—	$	211,971
Kirk T. Inglis—Chief Financial Officer	2007	$	180,000	—		—		—	$	180,000

(1) Calculated in accordance with SFAS No.  123R.

(2) Mr. Witchel resigned as our Chief Technology Officer on July 31, 2008.

We have granted equity awards primarily through our 2005 Stock Option Plan (the “2005 Plan”), which was adopted by our board of directors and stockholders to permit the grant of stock options to our officers, directors, employees and consultants.  The material terms of our 2005 Plan are further described under “Employee Benefit Plans—2005 Stock Option Plan” below.

In the fiscal year ended December 31, 2007, we granted Edward A.  Giedgowd incentive stock options to purchase 40,000 shares of our common stock under our 2005 Plan, at an exercise price equal to the fair market value on the date of grant.  Our board of directors determined the fair market value of our common stock in good faith based upon consideration of a number of relevant factors including the status of our development efforts, financial status and market conditions.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Stock-Based Compensation.”  The options granted to Mr. Giedgowd, have a term of ten years and vest over four years, with one quarter of the shares subject to the stock option vesting on the one year anniversary of the vesting commencement date and the remaining shares vesting in equal quarterly installments thereafter over three years.

Outstanding Equity Awards at December 31, 2007

The following table sets forth certain information regarding outstanding equity awards granted to our executive officers that remain outstanding as of December 31, 2007.

	Option Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Option Exercise Price		Option Expiration Date
Edward A. Giedgowd	85,416	14,584	$	.25	6/15/2015
Edward A. Giedgowd	17,500	22,500	$	.50	2/26/2017
Kirk T. Inglis	68,058	67,059	$	.50	12/11/2016

(1) All options have a term of ten years and vest over four years, with one quarter of the shares subject to vesting on the one year anniversary of the vesting commencement date and the remaining shares vesting in equal quarterly installments thereafter over three years.

90

Employee Benefit Plans

Stock Option Plan

In 2005, our stockholders approved the adoption of the 2005 Stock Option Plan.  On January 31, 2008 our board of directors approved an increase of the total number of options under the 2005 Plan by 500,000 and our stockholders approved the amendment.  The 2005 Plan will terminate upon the earliest to occur of (i) January 31, 2018, (ii) the date on which all shares of common stock available for issuance under the 2005 Plan have been issued as fully vested shares of common stock, and (iii) the termination of all outstanding stock options granted pursuant to the 2005 Plan.  The 2005 Plan provides for the grant of the following:

·incentive stock options under the federal tax laws (“ISOs”), which may be granted solely to our employees, including officers; and

·nonstatutory stock options (“NSOs”), which may be granted to our directors, consultants or employees, including officers.

Share Reserve.  As of the date hereof, an aggregate of 2,379,468 shares of our common stock are authorized for issuance under our 2005 Plan.  Shares of our common stock subject to options that have expired or otherwise terminate under the 2005 Plan without having been exercised in full again will become available for grant under the plan.  Shares of our common stock issued under the 2005 Plan may include previously unissued shares or reacquired shares bought on the market or otherwise.

Administration.  The 2005 Plan is administered by our board of directors, which may in turn delegate authority to administer the plan to a committee (the “Administrator”).  Subject to the terms of the 2005 Plan, our board of directors or its authorized committee determines recipients, the numbers and types of stock awards to be granted and the terms and conditions of the stock awards, including the period of their exercisability and vesting.  Subject to the limitations set forth below, our board of directors or its authorized committee will also determine the exercise price of options granted under the 2005 Plan.

Stock options will be granted pursuant to stock option agreements.  The exercise price for ISOs cannot be less than 100% of the fair market value of the common stock subject to the option on the date of grant.  The exercise price for NSOs cannot be less than 85% of the fair market value of the common stock subject to the option on the date of grant.  Options granted under the 2005 Plan will vest at the rate specified in the option agreement.  Unvested shares of our common stock issued in connection with an early exercise may be repurchased by us.  In general, the term of stock options granted under the 2005 Plan may not exceed ten years.  Unless the terms of an optionholder’s stock option agreement provide for earlier or later termination, if an optionholder’s service relationship with us, or any affiliate of ours, ceases due to disability or death, the optionholder, or his or her beneficiary, may exercise any vested options for up to 12 months, after the date the service relationship ends, unless the terms of the stock option agreement provide for earlier termination.  If an optionholder’s service relationship with us, or any affiliate of ours, ceases without cause for any reason other than disability or death, the optionholder may exercise any vested options for up to three months after the date the service relationship ends, unless the terms of the stock option agreement provide for a longer or shorter period to exercise the option.

Acceptable forms of consideration for the purchase of our common stock under the 2005 Plan, to be determined at the discretion of our board of directors at the time of grant, include (i) cash or (ii) the tendering of other shares of common stock or the attestation to the ownership of shares of common stock that otherwise would be tendered to Prosper in exchange for Prosper’s reducing the number of shares necessary for payment in full of the option price for the shares so purchased (provided that the shares tendered or attested to in exchange for the shares issued under the 2005 Plan may not be shares of restricted stock at the time they are tendered or attested to), or (iii) any combination of (i) and (ii) above.

Generally, an optionholder may not transfer a stock option other than by will or the laws of descent and distribution or a domestic relations order.  However, an optionholder may designate a beneficiary who may exercise the option following the optionholder’s death.

Limitations.  The aggregate fair market value, determined at the time of grant, of shares of our common stock with respect to ISOs that are exercisable for the first time by an optionholder during any calendar year under all of our stock plans may not exceed $100,000.  The options or portions of options that exceed this limit are treated as NSOs.  No ISO may be granted to any person who, at the time of the grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power unless the following conditions are satisfied:

91

·the option exercise price must be at least 110% of the fair market value of the stock subject to the option on the date of grant; and

·the term of any ISO award must not exceed five years from the date of grant.

Option Grants to Outside Directors and Consultants.  Options may be granted to outside directors in accordance with the policies established from time to time by the board of directors specifying the number of shares, if any, to be subject to each award and the time(s) at which such awards shall be granted.  All options granted to outside directors shall be NSOs and, except as otherwise provided, shall be subject to the terms and conditions of the 2005 Plan.  As of the date hereof, we have granted 100,000 options to Rajeev Date, an outside director.

Adjustments.  In the event that there is a specified type of change in our capital structure not involving the receipt of consideration by us, such as a stock split or stock dividend, the number of shares reserved under the 2005 Plan and the maximum number and class of shares issuable to an individual in the aggregate, and the exercise price or strike price, if applicable, of all outstanding stock awards will be appropriately adjusted.

Dissolution or Liquidation.  In the event of a proposed dissolution or liquidation of Prosper, the Administrator shall provide written notice to each participant at least 20 days prior to the effective date of such proposed transaction.  To the extent it has not been previously exercised, an award will terminate immediately prior to the consummation of such proposed action.  The Administrator may specify the effect of a liquidation or dissolution on any award of restricted stock or other award at the time of grant of such award.

Reorganization.  Upon the occurrence of a Reorganization Event (as defined below), each outstanding option shall be assumed or an equivalent option substituted by the successor corporation, except in the event that the successor corporation does not assume the option or an equivalent option is not substituted, then the Administrator shall notify the optionholder that one of the following will occur:

·all options must be exercised as of a specified time prior to the Reorganization Event or will be terminated immediately prior to the Reorganization Event; or

·all outstanding options will terminate upon consummation of such Reorganization Event and each participant will receive, in exchange therefore, a cash payment per share equal to the difference between the acquisition price per share and the exercise price.

A “Reorganization Event” is defined as (i) a merger or consolidation of Prosper with or into another entity, as a result of which all of our common stock is converted into or exchanged for the right to receive cash, securities or other property or (ii) any exchange of all of our common stock for cash, securities or other property pursuant to a share exchange transaction.

401(k) Plan

We maintain through our payroll and benefits service provider, a defined contribution employee retirement plan that covers all of our employees meeting certain eligibility requirements.  The 401(k) plan is designed to provide tax-deferred retirement benefits in accordance with the provisions of Section 401(k) of the Internal Revenue Code.  Eligible employees may defer up to 90% of eligible compensation up to the annual maximum as determined by the Internal Revenue Service, which is $15,500 for 2008.  Participants who are at least 50 years old can also make “catch-up” contributions, which in 2008 may be up to an additional $5,000 above the statutory limit.  Under the 401(k) plan, each employee is fully vested in his or her deferred salary contributions.  Employee contributions are held and invested by the plan’s trustee.  Prosper’s contributions to the plan are discretionary and we have not made any contributions to date.

92

TRANSACTIONS WITH RELATED PERSONS

Since our inception, we have engaged in the following transactions with our directors, executive officers and holders of more than 5% of our voting securities, and affiliates and immediate family members of our directors, executive officers and 5% stockholders.  We believe that all of the transactions described below were made on terms no less favorable to us than could have been obtained from unaffiliated third parties.

Participation in Our Platform

With the exception of Paul Hazen and Edward Giedgowd, our current executive officers and directors and 5% shareholders have bid on and purchased loans originated through the platform from time to time in the past, and may do so in the future.  As of October 31, 2008, these parties had facilitated the funding of $957,741.57 in loans through the platform. Christian Larsen has purchased loans in an aggregate amount of $410,991.82; James Breyer has purchased loans in an aggregate amount of $223,231.09; and Robert Kagle has purchased loans in an aggregate amount of $155,072.54.  The loans were obtained on terms and conditions that were not more favorable than those obtained by other lenders.

Financing Arrangements with Significant Shareholders, Directors and Officers

In March 2005, we awarded, for nominal value, an aggregate of 4,000,000 shares of common stock valued at $0.10 per share or $400,000, to our co-founders.  2,000,000 shares were issued to Christian A. Larsen, our Chief Executive Officer, and 2,000,000 shares were issued to John Witchel, our former Secretary and Chief Technology Officer.  1,000,000 shares were immediately vested and the remaining 3,000,000 shares were to vest over 3.5 years for services rendered.  The unvested shares were subject to a repurchase agreement if the founders leave Prosper, in which case we could elect to repurchase any unvested shares at the lesser price of $0.10 per share or the fair market value at the date service ceases.  As a result of Mr. Witchel’s departure on July 31, 2008, we repurchased the 75,000 unvested shares then held by Mr. Witchel for $7,500, or $0.10 per share.  All of Mr. Larsen’s shares were fully vested as of September 30, 2008.

In April 2005, we issued and sold to investors an aggregate of 4,023,999 shares of our Series A convertible preferred stock (“Series A”) at a purchase price of $1.875 per share for an aggregate consideration of $7,464,450, net of issuance costs of $80,550.  In February 2006, we issued and sold to investors an aggregate of 3,310,382 shares of our Series B convertible preferred stock (“Series B”) at a purchase price of $3.776 per share for an aggregate consideration of $12,412,301, net of issuance cost of $87,700.  In June 2007, we issued and sold to investors an aggregate of 2,063,558 shares of Series C convertible preferred stock (“Series C”) at a purchase price of $9.692 per share for an aggregate consideration of $19,919,009, net of issuance costs of $80,996.

The participants in these convertible preferred stock financings included the following holders of more than 5% of our capital stock or entities affiliated with them, as well as certain of our directors, as set forth in the following table.

Participant	Series A	Series B	Series C
James W. Breyer	266,600	42,632	20,630
Benchmark Capital Partners V, L.P.	2,000,000	317,797	30,953
Paul M. Hazen		129,767
Accel IX L.P. and its affiliates	1,733,400	275,435	134,137
Fidelity Ventures	1,853,814	257,945
Meritech Capital			773,834
Omidyar Network Fund LLC		662,076	72,225

Two of our directors, James W. Breyer and Robert C.  Kagle are affiliated with Accel IX L.P. and its affiliates and with Benchmark Capital Partners V, L.P., respectively.  The notes to our beneficial ownership table describe these affiliations in greater detail.  See “Principal Securityholders.”

93

In connection with our Series C convertible preferred stock financing, we entered into amended and restated investor rights, voting, and right of first refusal and co-sale agreements containing voting rights, information rights, rights of first refusal and registration rights, among other things, with certain holders of our convertible preferred stock and certain holders of our common stock.

Under the voting rights agreement, the investors in our convertible preferred stock, including the participants set forth above, have each agreed, subject to maintaining certain ownership levels, to exercise their voting rights so as to elect two designees of Series A preferred stock, one designee of Series B preferred stock, two common stockholder designees and one additional designee to our board of directors, as well as our chief executive officer, who shall also serve as one of the two common stockholder designees.  Under the terms of the investor rights agreement, the holders of at least a majority of the shares issuable upon conversion of our Series C convertible preferred stock have the right to demand that we file up to two registration statements so long as the aggregate amount of securities to be sold under a registration statement is at least $20 million.  These registration rights are subject to specified conditions and limitations.  In addition, if we are eligible to file a registration statement on Form S-3, holders of the shares having registration rights have the right to demand that we file a registration statement on Form S-3 so long as the aggregate amount of securities to be sold under the registration statement on Form S-3 is at least $10 million, subject to specified exceptions and conditions and limitations.  The investor rights agreement also provides that if we register any our shares for public sale, stockholders with registration rights will have the right to include their shares in the registration statement, subject to specified conditions and limitations.

Indemnification Agreements

Our amended and restated certificate of incorporation provides that we will indemnify our directors and officers to the fullest extent permitted by Delaware law. In addition, we have entered into separate indemnification agreements with each of our directors and executive officers.  For more information regarding these agreements, see “Management—Limitations on Officers’ and Directors’ Liability and Indemnification Agreements” for more information.

94

PRINCIPAL SECURITYHOLDERS

The following table sets forth information regarding the beneficial ownership of our common stock as of November 30, 2008, by:

·each beneficial owner of 5% or more of our common stock;

·each of our directors;

·each of our named executive officers;

·each person, or group of affiliated persons, who is known by us to beneficially own more than 5% of our common stock; and

·all of our directors and executive officers as a group.

Beneficial ownership is determined in accordance with the rules of the SEC.  These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities and include shares of common stock issuable upon the exercise of stock options that are immediately exercisable or exercisable within 60 days after November 30, 2008.  Except as otherwise indicated in the footnotes to the table below, all of the shares reflected in the table are shares of common stock and all persons listed below have sole voting and investment power with respect to the shares beneficially owned by them, subject to applicable community property laws.  The information is not necessarily indicative of beneficial ownership for any other purpose.

Percentage ownership calculations are based on 13,718,094 shares of common stock outstanding as of November 30, 2008, assuming conversion of all of our outstanding shares of convertible preferred stock.  Currently, each share of our convertible preferred stock, regardless of series, is convertible into one share of common stock at any time, at the discretion of the holder.

In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed outstanding shares of common stock subject to options and warrants held by that person that are currently exercisable or exercisable within 60 days of November 30, 2008.  We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person.  Beneficial ownership representing less than 1.0% is denoted with an asterisk (*).  Except as otherwise indicated in the footnotes to the table below, addresses of named beneficial owners are in care of Prosper Marketplace, Inc., 111 Sutter Street, 22nd Floor, San Francisco, CA 94104.

95

	Total Beneficial Ownership
Name of Beneficial Owner	Number of Shares	Beneficial Ownership Percentage
James W. Breyer(1)	2,472,564	18.02	%
Lawrence W. Cheng	—	—
Paul M. Hazen(2)	129,767	*
Kirk T. Inglis	72,647	*
Robert C. Kagle(3)	2,348,750	17.12	%
Christian A. Larsen(4)	2,006,621	14.63	%
Edward A. Giedgowd	115,370	*
John B. Witchel and Jessica W. Wheeler, JNTN (5)	1,925,000	14.03	%
All directors and executive officers as a group (11) (6)	13,464,447	98.15	%
Accel IX L.P. and its affiliates (7)	2,142,972	15.62	%
Benchmark Capital Partners V, L.P. (8)	2,348,750	17.12	%
DAG Ventures (9)	773,834	5.64	%
Fidelity Ventures (10)	2,111,759	15.39	%
Meritech Capital (11)	773,834	5.64	%
Omidyar Network Fund LLC (12)	734,301	5.35	%

(1)	Mr. Breyer directly owns 329,592 shares of convertible preferred stock and is deemed to indirectly own or control 2,142,972 shares of convertible preferred stock, of which 1,786,168 shares are held by Accel IX, L.P., 190,296 shares are held by Accel IX Strategic Partners L.P. and 166,508 shares are held by Accel Investors 2005 L.L.C.  Accel IX Associates L.L.C.  (“A9A”) is the general partner of Accel IX L.P. and Accel IX Strategic Partners L.P. and has sole voting and investment power over the shares held by these limited partnerships.  Mr. Breyer is one of the managing members of A9A and of Accel Investors 2005 L.L.C.  and, therefore, is deemed to share voting and investment power over the securities held by these entities.  Mr. Breyer disclaims beneficial ownership of the shares held by Accel IX, L.P., Accel IX Strategic Partners L.P. and Accel Investors 2005 L.L.C.  except to the extent of his pecuniary interest in such shares.
(2)	Represents shares of convertible stock indirectly held by Mr. Hazen through family trusts.  The Brandt Hazen 2005 Gift Trust and Brooke Hazen 2005 Gift Trust each own 6,620 shares, with 116,527 shares held by the Paul and Cassandra Hazen Trust, of which Mr. Hazen is a beneficiary and trustee.
(3)	Represents 2,348,750 shares of convertible preferred stock held by Benchmark Capital Partners V, L.P. Mr. Kagle is the managing member of Benchmark Capital Management Company V, LLC, the general partner of Benchmark Capital Partners V, L.P. and, therefore, is deemed to share voting and investment power over the securities held by Benchmark Capital Partners V, L.P. Mr. Kagle disclaims beneficial ownership of any of these shares except to the extent of his pecuniary interest therein.
(4)	Represents 6,621 shares of convertible preferred stock held directly and 2,000,000 shares of common stock held indirectly by Mr. Larsen through the Larsen-Lam Family Trust, for which Mr. Larsen and Lyna Lam serve as trustees.

96

(5)	Mr. Witchel resigned as the Chief Technology Officer and Secretary of Prosper on July 31, 2008.  The address of Mr. Witchel is 576 Eureka Street, San Francisco, California 94114.
(6)	Includes 181,396 shares of common stock potentially issuable upon the exercise of stock options that are exercisable within 60 days after November 30, 2008.
(7)	Excludes 329,592 shares of convertible preferred stock held directly by Mr. Breyer.  1,786,168 shares are held by Accel IX L.P., 190,296 shares are held by Accel IX Strategic Partners L.P. and 166,508 shares are held by Accel Investors 2005 L.L.C.  Accel IX Associates L.L.C.  (“A9A”) is the general partner of Accel IX L.P. and Accel IX Strategic Partners L.P. and has sole voting and investment power over the shares held by these limited partnerships.  Mr. Breyer is one of the managing members of A9A and of Accel Investors 2005 L.L.C.  and, therefore, is deemed to share voting and investment power over the securities held by these entities.  Mr. Breyer disclaims beneficial ownership of such shares except to the extent of his individual pecuniary interest therein.  The address of A9A and its affiliated entities is 428 University Avenue, Palo Alto, California 94301.
(8)	The address of Benchmark Capital Partners V, L.P. is 2480 Sand Hill Road, Suite 200, Menlo Park, California 94025.
(9)	Represents 583 shares of convertible preferred stock held by DAG Ventures GP Fund III, LLC, 565,308 shares of convertible preferred stock held by DAG Ventures III – QP, L.P., 53,175 shares of convertible preferred stock held by DAG Ventures III, L.P., 48,150 shares of convertible preferred stock held by DAG Ventures III-O, LLC, 10,318 shares of convertible preferred stock held by DAG Ventures III–Q, LLC and 96,300 shares of convertible preferred stock held by DAG Ventures I–N, LLC.  DAG Ventures I-N, LLC is the general partner of DAG Ventures I-N, LLC and has sole voting and investment power over these shares.  DAG Ventures Management III, LLC (“DAG Ventures”) is the general partner of the remaining partnerships listed above, and managing member of the remaining limited liability companies listed above and has sole voting and investment power over these shares.  The address of DAG Ventures and its affiliated entities is 251 Lytton Avenue, Suite 200, Palo Alto, California 94301.
(10)	Represents 2,073,578 shares of convertible preferred stock held by Fidelity Ventures IV, Limited Partnership, and 38,181 shares of convertible preferred stock held by Fidelity Ventures Principal IV, Limited Partnership.  Fidelity Ventures VII Limited Partnership, is the general partner of these limited partnerships, and has sole voting and investment power over these shares.  The address of Fidelity Ventures and its affiliated entities is 82 Devonshire Street, E16B, Boston, Massachusetts 02109.
(11)	Represents 13,852 shares of convertible preferred stock held by Meritech Capital Affiliates III L.P. and 759,982 shares of convertible preferred stock held by Meritech Capital Partners III L.P. Meritech Capital is the general partner of these partnerships and has sole voting and investment power over these shares.  The address of Meritech Capital and its affiliated entities is 245 Lytton Avenue, Suite 350, Palo Alto, California 94301.
(12)	Represents 13,852 shares of convertible preferred stock held by Meritech Capital Affiliates III L.P. and 759,982 shares of convertible preferred stock held by Meritech Capital Partners III L.P. The general partner of each of these funds, and Paul S.  Madera, the managing member of Meritech Management Associates III L.L.C., may be considered to share voting and dispositive power over these shares.  Each of Meritech Management Associates III, L.L.C., Meritech Capital Associates III, L.L.C.  and Mr. Madera disclaims beneficial ownership of these shares except to the extent of their respective pecuniary interests therein.  The address of each of these funds is c/o Meritech Capital Partners, 245 Lytton Avenue, Suite 350, Palo Alto, California 94301.

97

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with our financial statements and the related notes elsewhere in this prospectus.  This discussion contains forward-looking statements that involve risks and uncertainties.  Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including but not limited to those discussed in the section entitled “Risk Factors” and elsewhere in this prospectus.

Overview

Prosper provides a person-to-person online credit auction platform that enables its borrower members to borrow money and its lender members to purchase Notes issued by Prosper, the proceeds of which facilitate the funding or sale of specific loans made to borrowers.  Our platform enables our borrower members to request and obtain personal, unsecured loans by posting anonymous “listings” on the platform indicating the principal amount of the desired loan and the maximum interest rate the borrower is willing to pay.  Our platform also enables certain originators to offer “open market loans” for sale by posting listings on the platform indicating an initial sale price for the loan and the yield percentage that corresponds to the sale price of the loan.  We assign a Prosper Rating consisting of one of seven letter credit grades, based in part on the borrower’s credit score, to each borrower who requests a borrower loan and to borrowers on open market loans.  Prosper borrower members’ Prosper Rating and credit score range, debt-to-income ratios and other credit data are displayed with their listings and are available for viewing by lender members on an anonymous basis. Similar information, as provided by originators offering open market loans for sale on our platform, appears in listings for open market loans.

Lender members access our platform and “bid” the amount they are willing to commit to the purchase of a Note that is dependent for payment on the corresponding borrower loan and the minimum interest rate or yield percentage they are willing to receive.  By making a bid on a listing, a lender member is committing to purchase from Prosper a Note in the principal amount of the lender’s winning bid.  The lender members who purchase the Notes will designate that the sale proceeds be applied to facilitate the funding or sale of a corresponding borrower loan listed on our platform.  Loans originated to borrower members are made by WebBank, an FDIC-insured, Utah-chartered industrial bank, and sold and assigned to Prosper.

All loans requested and obtained by Prosper borrower members through our platform are unsecured obligations of individual borrower members with a fixed interest rate and a loan term currently set at three years, although Prosper anticipates in the near future extending available loan terms to between three months to seven years.  Open market loans have a fixed interest rate, maturities of at least three months and may be unsecured or secured by personal property.  With respect to loans resulting from listings posted by Prosper borrower members prior to April 15, 2008, Prosper is the originating lender for licensing and regulatory purposes.  All Prosper borrower loans resulting from listings posted on or after April 15, 2008 are funded by WebBank, an FDIC-insured, Utah-chartered industrial bank.  After funding a loan, WebBank assigns the loan to Prosper, without recourse to WebBank, in exchange for the principal amount of the borrower loan.  WebBank does not have any obligation to purchasers of the Notes.  For all Prosper borrower loans, except for our verification of the borrower identity against data from consumer reporting agencies and other identity and anti-fraud verification databases, listings are posted without our obtaining any documentation of the borrower’s ability to afford the loan.  In limited instances, we verify the income, employment, occupation or other information provided by Prosper borrower members in listings.  This verification is normally done after the listing has already been created and bidding has ended and therefore the results of our verification are not reflected in the listings.

Borrowers are charged an agency transaction fee equal to a specified percentage (currently 2.5%) of the amount of the borrower loan, subject to a specified minimum fee (currently $75), payable from the borrower’s loan proceeds at the time of funding of the borrower loan.  Transaction fees are charged by WebBank and Prosper receives amounts equal to the transaction fees as compensation for loan origination activities.  We also receive servicing fees at an annualized rate of 1.0% of the outstanding principal balance of a Prosper borrower member’s loan and 0.5% of the outstanding principal balance of open market loans, which we deduct from each lender member’s share of borrower loan payments.

We incorporated in Delaware in March 2005 and launched our public website, www.prosper.com on February 13, 2006.  As of September 30, 2008, our platform has facilitated approximately 28,750 borrower loans since its launch.

We have a limited operating history and have incurred net losses since our inception.  Our net loss was $2,028,240 and $8,275,562 for the three and nine months ended September 30, 2008 and $11,875,754 and $6,140,437 for the fiscal years ended December 31, 2007 and 2006.  At this stage of our development, we have funded our operations primarily with

98

proceeds from equity financings.  Over time, we expect that the number of borrowers and lender members and the volume of borrower loans originated through our platform will increase.  Once we are able to accept new commitments from our lender members on our platform, we will generate increased revenue from borrower transaction fees and non-sufficient funds fees and lender members’ servicing fees.  Our decision to temporarily stop accepting lender members commitments, effective from October 16, 2008 until the date of this prospectus, slowed the ramp up of our operations, resulting in a negative impact on our cash flow and liquidity projections for the fourth quarter of fiscal 2008 and the first quarter of fiscal 2009 due to a projected decrease in loan origination volume.

Our operating plan calls for a continuation of the current strategy of increasing transaction volume to increase revenue until we reach profitability and become cash-flow positive, which we do not expect to occur before 2010.

Subsequent Events

Subsequent to September 30, 2008, the following events have occurred:

·In November of 2008, the SEC instituted cease and desist proceedings, pursuant to Section 8A of the Securities Act, against us.  Pursuant to the offer of settlement submitted to the SEC (in which we neither admitted nor denied liability), we consented to the entry of a cease and desist order, which the SEC approved on November 20, 2008.  The order included findings that we violated Sections 5(a) and (c) of the Securities Act and required us to cease and desist from violating these provisions in the future.

·On November 26, 2008, Prosper and NASAA executed a settlement term sheet that set forth the material terms of a consent order to resolve matters relating to our sale and offer of unregistered securities in various states.  The settlement terms are not binding on any state until such state executes a consent order with Prosper.  Under the terms of the settlement, we agreed to a pay fine of up to $1 million to the states and the states will agree to terminate their investigation of our activities related to the sale of securities that occurred prior to November 24, 2008.  The $1 million penalty will be apportioned among the states by NASAA, based on our loan sale transaction volume in each state.  We will not be required to pay any portion of the fine allocated to those states that do not execute a consent order with Prosper.  We have accrued approximately $425,000 in connection with the contingent liability arising form the settlement term sheet in accordance with SFAS No. 5, Accounting for Contingencies.

·On November 26, 2008, a class action lawsuit was filed against us, certain of our executive officers and our directors.  The suit was brought on behalf of all loan note purchasers in our online lending platform from January 1, 2006 through October 14, 2008 and alleges that we offered and sold unqualified and unregistered securities in violation of California and federal securities laws.  Although we intend to vigorously defend this lawsuit, the final outcome of this lawsuit is not presently determinable or estimable.

For a more detailed description of these matters see “Business—Legal Proceedings.”

Critical Accounting Policies and Estimates

This discussion and analysis of our financial condition and consolidated results of operations is based on our financial statements, which we have prepared in accordance with generally accepted accounting principles.  The preparation of financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and the related disclosures.  Prosper bases its estimates on historical experience and on various other assumptions that Prosper believes to be reasonable under the circumstances.  Actual results could differ from those estimates.  Our significant accounting policies are more fully described in Note 2 to our consolidated financial statements included elsewhere in this prospectus.

Revenue Recognition

Prosper recognizes revenue in accordance with Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition in Financial Statements.  Under SAB No. 104, Prosper recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price of the services is fixed and determinable and collectibility is reasonably assured.

99

Transaction fees are charged as a percentage of the amount borrowed, subject to a specified minimum fee (currently2.5% for all borrowers, or $75, whichever is greater), and are recognized when the loan is funded to the borrower.  Transaction fees are charged by WebBank and Prosper receives amounts equal to the transaction fees as compensation for loan origination activities.

Loan servicing revenue includes loan servicing fees and non-sufficient funds fees.  Loan servicing fees are accrued daily based on the current outstanding loan principal balance held by third-party lenders, but are not recognized until payment is received due to uncertainty of collection of borrower loan payments.  Servicing fees for a loan vary based on the credit grade of the borrower.

Prosper charges a non-sufficient funds fee to borrowers on the first failed payment of each billing period.  Non-sufficient funds fees are charged to the borrower, collected and recognized immediately.

Borrower Loan Repurchase Obligation

Prosper is obligated to indemnify the lenders and repurchase the loans sold to the lenders in the event of violation of the applicable federal/state/local lending laws or verifiable identify theft.  Prosper’s limited operating history, the lack of industry comparables and the potential to impact financial performance make the Borrower Loan Repurchase Obligation a critical accounting policy.

Prosper accrues a provision for the repurchase obligation when the loans are funded to the lender in an amount considered appropriate to reserve for its repurchase obligation related to the loans sold to the lenders in the event of violation of the applicable federal/state/local lending laws or verifiable identify theft.  Determining the overall adequacy of our repurchase obligation is subjective in nature and requires judgment by management.  The loan repurchase obligation is estimated based on historical experience and includes a judgmental management adjustment due to our limited operating history, current economic conditions, the risk of new and as yet undetected fraud schemes, origination unit and dollar volumes, and the lack of industry comparables.  Management evaluates the reasonableness of its assumptions and estimates quarterly.

At December 31, 2007 and September 30, 2008, we have recorded a loan repurchase obligation of $100,151 and $100,067, respectively.  For the year ended December 2007 and the nine months ended September 30, 2008, we have repurchased loans of approximately $457,000 and $37,000, respectively, due to identity theft and legal and regulatory requirements.  Since the latter part of 2007, Prosper has been successful at identifying and preventing a number of fraud attempts involving a series of fraudulent loan requests as our risk indicators and related operational controls in this area have significantly improved.  Although we believe our fraud controls have resulted in a lower incidence of fraud in 2008, our controls are largely based on experience from past fraud attempts.

Servicing Rights

Prosper accounts for its servicing rights under the fair value measurement method of reporting in accordance with Statement of Financial Accounting Standards No. 156 (SFAS No. 156), Accounting for Servicing of Financial Assets – an Amendment of FAS 140.  Under the fair value method, Prosper measures servicing rights at fair value at each reporting date and reports changes in fair value in earnings in the period in which the changes occur.

Prosper estimates the fair value of the servicing rights using a discounted cash flow model to project future expected cash flows based upon a set of valuation assumptions Prosper believes market participants would use for similar rights.  The primary assumptions Prosper uses for valuing its servicing rights include prepayment speeds, default rates, cost to service, profit margin, and discount rate.  Prosper reviews these assumptions to ensure that they remain consistent with the market conditions.  Inaccurate assumptions in valuing servicing rights could affect Prosper’s results of operations.  The significant assumptions used in the calculation of servicing rights are discussed in detail in Note 6 to our consolidated financial statements included elsewhere in this prospectus.

Stock-Based Compensation

The Company accounts for its stock-based compensation for employees using fair-value-based accounting in accordance with SFAS No. 123R, Share-Based Payment (SFAS No. 123R).  SFAS No. 123R requires companies to estimate the fair value of stock-based awards on the date of grant using an option-pricing model.  The stock-based compensation related to awards that is expected to vest is amortized over the vesting term of the stock-based award, which is generally four years. 

100

Expected forfeitures of unvested options are estimated at the time of grant and reduce the recognized stock-based compensation expense.  The forfeitures were estimated based on historical experience.  The significant assumptions used in the calculation of stock based compensation are discussed in detail in Note 2 to our consolidated financial statements included elsewhere in this prospectus.

Prosper has granted options to purchase shares of common stock to nonemployees in exchange for services performed.  Prosper accounts for stock options, restricted stock, and warrants issued to nonemployees in accordance with the provisions of Emerging Issues Task Force (EITF) Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring or in Conjunction with Selling Goods, or Services, which requires that equity awards be recorded at their fair value.  Under SFAS No. 123R and EITF No. 96-18, we use the Black-Scholes model to estimate the value of options granted to non-employees at each vesting date to determine the appropriate charge to stock-based compensation.  The volatility of common stock was based on comparative company volatility.  The Black-Scholes model requires the input of highly subjective assumptions, including the expected stock price volatility.  Because Prosper’s equity awards have characteristics significantly different from those of traded options, the changes in the subjective input assumptions can materially affect the fair value estimate.

Internal Use Software and Website Development

Prosper accounts for internal use software costs, including website development costs, in accordance with the American Institute of Certified Public Accountants’ Statement of Position (SOP) No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, and Emerging Issues Task Force (EITF) No. 00-02, Accounting for Website Development Costs.  In accordance with SOP No. 98-1 and EITF No. 00-02, the costs to develop software for Prosper’s website and other internal uses are capitalized when management has authorized and committed project funding, preliminary development efforts are successfully completed, and it is probable that the project will be completed and the software will be used as intended.  Capitalized software development costs primarily include software licenses acquired, fees paid to outside consultants, and salaries for employees directly involved in the development efforts.

Prosper has capitalized certain costs to develop software for Prosper’s website and other internal uses.  Capitalized software development costs primarily include software licenses acquired, fees paid to outside consultants, and salaries for employees directly involved in the development effort.  In the years ended December 31, 2007 and December 31, 2006, Prosper capitalized $815 thousand and $711 thousand dollars, respectively.  For the nine months ended September 30, 2008 and 2007, the company capitalized approximately $189 thousand and $0, respectively.

101

Results of Operations

Our results of operations for the three and nine months ended September 30, 2008 and 2007, and for the fiscal years ended December 31, 2007 and 2006, together with the percentage change between periods, are set forth below.

Prosper Marketplace, Inc.

Consolidated Statement of Operations

	Three Months Ended						Change from previous period					Nine Months Ended						Change from previous period												Change from previous year
	September 30,						$ Increase					September 30,						$ Increase					Years Ended December 31,							$ Increase
	2008			2007			(Decrease)			%		2008			2007			(Decrease)			%		2007				2006			(Decrease)			%
	(unaudited)											(unaudited)
Operating income
Agency fees	$	406,250		$	202,664		$	203,586		100	%	$	1,330,020		$	688,162		$	641,858		93	%	$		890,445		$	300,372		$	590,073		196	%
Loan servicing fees	211,182			108,977			102,205			94	%	525,861			236,720			289,141			122	%	360,003				42,209			317,794			753	%
	617,432			311,641			305,791			98	%	1,855,881			924,882			930,999			101	%	1,250,448				342,581			907,867			265	%
Provision for loan repurchases	(4,989		)	(160,314		)	155,325			(97	)%	(33,893		)	(259,952		)	226,059			(87	)%	(390,326			)	(166,872		)	(223,454		)	134	%
Operating income after provision for loan repurchases	612,443			151,327			461,116			305	%	1,821,988			664,930			1,157,058			174	%	860,122				175,709			684,413			390	%
Other income
Investment income
Interest and dividends	108,360			277,915			(169,555		)	(61	)%	453,574			534,738			(81,164		)	(15	)%	908,232				668,295			239,937			36	%
Realized gains (losses) on marketable securities	—			23,514			(23,514		)	(100	)%	—			47,307			(47,307		)	(100	)%	(621,560			)	(54,844		)	(566,716		)	1033	%
Other income	2,324			1,026			1,298			127	%	2,939			(3,049		)	5,988			(196	)%	(2,324			)	102,588			(104,912		)	(102	)%
Total other income	110,684			302,455			(191,771		)	(63	)%	456.513			578,996			(122,483		)	(21	)%	284,348				716,039			(431,691		)	(60	)%
Operating expenses
Compensation and benefits	1,505,558			1,510,143			(4,585		)	(0	)%	4,801,251			4,257,997			543,254			13	%	5,676,204				3,141,455			2,534,749			81	%
Marketing and advertising	171,141			626,457			(455,316		)	(73	)%	2,283,934			2,232,019			51,915			2	%	2,863,065				845,463			2,017,602			239	%
Professional services	359,069			414,828			(55,759		)	(13	)%	1,194,862			1,070,753			124,109			12	%	1,629,854				1,337,625			292,229			22	%
Cost of services	215,964			154,785			61,179			40	%	730,582			502,982			227,600			45	%	678,018				383,785			294,233			77	%
Facilities and maintenance	177,075			171,788			5,287			3	%	521,164			499,376			21,788			4	%	686,873				372,784			314,089			84	%
Depreciation and amortization	209,472			170,737			38,735			23	%	601,695			469,751			131,944			28	%	650,013				404,236			245,777			61	%
General and administrative	113,088			85,877			27,211			32	%	420,575			241,652			178,923			74	%	836,197				546,837			289,360			53	%
Total operating expenses	2,751,367			3,134,615			(383,248		)	(12	)%	10,554,063			9,274,530			1,279,533			14	%	13,020,224				7,032,185			5,988,039			85	%
Loss before income taxes	(2,028,240		)	(2,680,833		)	652,593			(24	)%	(8,275,562		)	(8,030,604		)	(244,958		)	3	%	(11,875,754			)	(6,140,437		)	(5,735,317		)	93	%
Income taxes	—			—			—			n/a		—			—			—			n/a		—				—			—			n/a
Net Loss	$	(2,028,240	)	$	(2,680,833	)	$	652,593		(24	)%	$	(8,275,562	)	$	(8,030,604	)	$	(244,958	)	3	%	$	(11,875,754		)	$	(6,140,437	)	$	(5,735,317	)	93	%

Revenues

Our business model involves the charging of transaction fees to borrowers and servicing fees to lender members.  Borrowers are charged a transaction fee for loan origination services and the lender members pay a fee to us for managing the payments on the loans and maintaining account portfolios.  We also charge NSF fees to our borrowers for failed payments.  In addition, we generate revenue from interest earned on investments and cash and cash equivalents.

Borrower Transaction Fees

Our borrowers pay a one-time transaction fee at the time a borrower loan is funded.  This fee is equal to a specified percentage (currently 2.5%) of the amount of the Prosper borrower loan, subject to a specified minimum fee (currently $75), payable from the borrower’s loan proceeds at the time of funding of the borrower loan.  The borrower transaction fee is included in the annual percentage rate (APR) calculation provided to the borrowers and is deducted from the gross loan proceeds prior to disbursement of funds to the borrowers.  Borrowers are only charged a transaction fee if a borrower loan is funded.  In the past, transaction fees on the platform have ranged from 0.5% and 3.0% depending on the credit quality of the borrower, with a minimum fee of $25.

Loan Servicing Fees

Lender members are charged a servicing fee monthly on the Notes, which is accrued daily based on the current outstanding Note principal balance.  Currently the servicing fee is an annualized rate of 1.0% of the outstanding principal balance of the loan.  In the past servicing fees have been between 0% and 0.5% for some loans depending on credit grade.

Our procedures generally require the automatic debiting of borrower member bank accounts by automated clearing house (ACH) transfer, although we allow payment by check and bank draft.  We charge a non-sufficient funds fee to a borrower member to cover the cost we incur if an automatic payment fails and is rejected by the borrower member’s bank, for example if there is an insufficient balance in the bank account or if the account has been closed or otherwise suspended.  If an automatic payment fails we make up to two additional attempts to collect; however, there is no additional fee charged to

102

the borrower if these attempts fail.  We retain the entire amount of the non-sufficient funds fee, which is currently $15.00 per initial payment failure, or such lesser amount required by law, to cover our costs.

Loan repurchase Losses

Loan repurchase losses totaled $5 thousand for the three months ended September 30, 2008, a 97% decrease from the same period of the previous year.  For the nine months ended September 30, 2008, total loan repurchase losses were $34 thousand, down 87% (or $226 thousand) from the same period of the prior year.  Loan repurchase losses totaled $390 thousand for the full year 2007, up 134% over the $167 thousand in 2006.  In 2007, Prosper experienced a higher loan repurchase expense due to higher incidence of identity theft. By implementing additional fraud prevention and control procedures, incidents of identity theft and operational errors leading to loan repurchases have fallen dramatically in 2008.

Investment Income

Income from cash and investments held in bank accounts is recorded as it is earned.  At September 30, 2008 and at December 31, 2007, we had approximately $12.9 million and $20.3 million, respectively, in cash and cash equivalents.  Investment income decreased $193 thousand, or 64% for the three months ended September 2008 and decreased by $128 thousand, or 22%, for the first nine months September 2008, compared to the corresponding periods in the prior year.  The decrease in investment income quarter over quarter is primarily due to a 42% decrease in average income-earning balances and a change in the type of investments held in 2008 versus 2007.  In 2008, the Company invested primarily in money market funds.  Whereas in 2007 the majority of the portfolio was invested in mutual funds which returned higher yields than the money market funds.  The decrease of investment income for the nine months ended September 2008 versus the comparable period in 2007, was primarily due the change in the Company’s investments portfolio to lower yielding and lower risk investments.  For the 2007 fiscal year, investment income decreased by 53%, or $327 thousand, as compared to the 2006 fiscal year due to realized losses on sale of investments in the amount of $622 thousand and $55 thousand, respectively.  These losses were partially offset by a $240 thousand increase in interest and dividends generated by a 34% higher average investment-earning balances.

Operating Expenses

Prosper Marketplace, Inc.

Consolidated Statement of Operations

					Change from previous										Change from previous									Change from
	Three Months Ended				period					Nine Months Ended					period									previous year
	September 30,				$ Increase					September 30,					$ Increase				Years Ended December 31,					$ Increase
	2008		2007		(Decrease)			%		2008			2007		(Decrease)		%		2007			2006		(Decrease)		%
	(unaudited)									(unaudited)
Operating expenses
Compensation and benefits	$	1,505,558	$	1,510,143	$	(4,585	)	(0	)%	$		4,801,251	$	4,257,997	$	543,254	13	%	$	5,676,204		$	3,141,455	$	2,534,749	81	%
Marketing and advertising	171,141		626,457		(455,316		)	(73	)%	2,283,934			2,232,019		51,915		2	%	2,863,065			845,463		2,017,602		239	%
Professional services	359,069		414,828		(55,759		)	(13	)%	1,194,862			1,070,753		124,109		12	%	1,629,854			1,337,625		292,229		22	%
Cost of services	215,964		154,785		61,179			40	%	730,582			502,982		227,600		45	%	678,018			383,785		294,233		77	%
Facilities and maintenance	177,075		171,788		5,287			3	%	521,164			499,376		21,788		4	%	686,873			372,784		314,089		84	%
Depreciation and amortization	209,472		170,737		38,735			23	%	601,695			469,751		131,944		28	%	650,013			404,236		245,777		61	%
General and administrative	113,088		85,877		27,211			32	%	420,575			241,652		178,923		74	%	836,197			546,837		289,360		53	%
Total operating expenses	$	2,751,367	$	3,134,615	$	(383,248	)	(12	)%	$	10,554,063		$	9,274,530	$	1,279,533	14	%	$		13,020,224	$	7,032,185	$	5,988,039	85	%

Compensation and benefits was $1.5 million for the three months ended September 30, 2008 and $1.5 million for the same period last year.  For the nine months ended September 30, 2008, compensation and benefits was $4.8 million, a $0.5 million or 13% increase over the same period of the prior year.  Compensation expense for the year ended December 31, 2007 was $5.7 million versus $3.1 million for the year ended December 31, 2006, representing a $2.5 million or 81% increase.  This increase was primarily due to a $1.7 million increase in payroll related expenses and a $0.4 million increase in stock-based compensation.  Year over year, our employee headcount increased by 15 in the areas of operations, marketing, customer service and finance.

Marketing and advertising costs declined $455 thousand or 73% to $171 thousand during the three months ended September 30, 2008 as compared to the same period last year.  The reduction in marketing and advertising expense resulted from a shift in marketing programs and management’s decision to reduce spending in this area.

For the nine months ended September 30, 2008, marketing and advertising were $2.3 million, essentially the same as for the prior year.  Marketing and advertising expenses increased over 239% or $2.0 million for the fiscal year ended

103

December 31, 2007 over the prior fiscal year.  The increases in 2007 and the first six months of 2008 were related to an increase in both online and off-line advertising expenditures.  We expect marketing and advertising to remain at levels consistent with the quarter ending September 30, 2008.

Professional services expenses are comprised primarily of legal expenses and audit fees.  For the three months ended September 30, 2008, professional expenses were $359 thousand, a decrease of 13% or $56 thousand from the same period in the prior year.  Professional services for the nine months ended September 30, 2008 were $1.2 million, a 12% or $124 thousand increase over the comparable period in the prior year.  For the fiscal year ended December 31, 2007, professional services expenses were $1.6 million, a $292 thousand or a 22% increase over the prior year.  Overall, all of the above increases are primarily due higher levels of fees paid to outsourced service providers and consultants.  We expect that these expenses will increase in absolute terms due to the additional expenses related to becoming an SEC reporting company, including the cost of compliance and increased audit fees resulting from required SEC filings.

Cost of services expenses increased by $61 thousand or 40% for the three months ended September 30, 2008 to $216 thousand over the same period of last year primarily due to fees paid to third parties.  For the nine months ended September 30, 2008, these expenses totaled $731 thousand, a 45% or $228 thousand increase from the prior year.  For the fiscal year ended December 31, 2007, the costs of services were $678 thousand representing a $294 thousand or 77% increase over the year ended December 31, 2006.  The increases as described above were directly related to increased volume of listings and originated loans.  Cost of Services expense is comprised primarily of credit bureau fees, collections expenses, referral fees and other expenses directly related to loan funding and servicing.

Facilities and maintenance expenses were virtually unchanged for the three months and nine months ended September 30, 2008 and 2007.  For fiscal year ended December 31, 2007, facilities and maintenance expenses increased by $314 thousand or 84%.  This increase was primarily due the Company’s new corporate office lease and data co-location space.

Depreciation and amortization increased by 23% or $39 thousand for the three months ended September 30, 2008 over 2007.  For the nine months ended September 30, 2008, depreciation and amortization increased $132 thousand (or 28%) over 2007.  For the fiscal year ended December 31, 2007, depreciation and amortization expense increased by 61% compared to fiscal year end 2007.  The increases for all periods were primarily due to the increased capitalization of internal use software and from additional purchases of computer equipment.

General and administrative expenses increased 32% during the three months ended September 30, 2008 to $113 thousand over the same period of the prior year.  For the nine months ended September 30, 2008, general and administrative expenses totaled $421 thousand versus $242 thousand for the same period of the prior year.  For the fiscal year ended December 31, 2007, these expenses were $836 thousand, a 53% increase over the prior year.  A charge of $425 thousand was taken in the fourth quarter of 2007 related to potential penalties associated with state securities law compliance.  We expect that general and administrative expenses will increase in absolute terms due to the significant planned investment in infrastructure to support our growth and additional expense related to becoming a SEC reporting company, however we expect that these expenses, as a percentage of revenues, will decline.

Liquidity and Capital Resources

We have incurred operating losses since our inception and we anticipate that we will continue to incur net losses through 2010.  For the nine months ended September 30, 2008 and the fiscal years ended December 31, 2007 and 2006, we had negative cash flows from operations of $6.9 million, $9.5 million and $6.0 million, respectively.  Additionally, since our inception through September 30, 2008, we have an accumulated deficit of $27.7 million.

To date, we have financed our operations with proceeds from the sale of equity securities.  At September 30, 2008, we had approximately $13.0 million in cash and cash equivalents, which we believe will be sufficient to fund our operations through 2009.  The Company is dependent upon raising additional capital or debt financing to fund its current operating plan.  Failure to obtain sufficient debt and equity financings and, ultimately, to achieve profitable operations and positive cash flows from operations could adversely affect Prosper’s ability to achieve its business objectives and continue as a going concern.  Further, there can be no assurances as to the availability or terms upon which the required financing and capital might be available.  These matters raise substantial doubt about our ability to continue as a going concern.  Our financial statements do not include any adjustments to reflect the possible effects on recoverability and classification of assets or the amounts and classification of liabilities that may result from our inability to continue as a going concern.

104

Net cash used in operating activities was $6.9 million, for the nine months ended September 30, 2008, as compared to $6.6 for the corresponding period last year.  For the 2007 fiscal year, net cash used in operating activities was $9.5 million as compared to $6.0 million for the 2006 fiscal year.  Net cash used in operating activities from inception through September 30, 2008 consisted mostly of headcount costs, expenses for consultants and temporary personnel, marketing and advertising, and other professional service providers to the Company.

Net cash used in investing activities was $420 thousand for the nine months ended September 30, 2008 which consisted of the purchase of office property and equipment and capitalized internal use software.  For the comparable period last year, $387 thousand was used to purchase office and computer equipment and approximately $23 million was used for the purchase of marketable securities, net of proceeds of approximately $10 million from the sale of marketable securities.  For the 2007 fiscal year, net cash of $3.8 million was provided by investing activities.  This amount was comprised of $27 million proceeds received from the sale of marketable securities, partially offset by approximately $23 million used to purchase marketable securities and $0.5 million used to purchase office, property and equipment.  For fiscal year ended 2006, net cash of $1.3 million was used in investing activities.  This amount was comprised of $24 million in cash used to purchase marketable securities and $0.8 million used to purchase an intangible asset and property and equipment, partially offset by $24 million in proceeds received from the sale of marketable securities.

Net cash provided by financing activities was approximately $2 thousand for the nine months ended September 30, 2008, which consisted of $20 thousand used to repay long-term debt, partially offset by $18 thousand proceeds received from the issuance of common stock.  For the nine months ended September 30, 2007, financing activities provided net cash of $19.9 million which consisted of approximately $19.9 million proceeds received from the issuance of convertible preferred stock net of issuance costs.  For the year ended December 31, 2007, net cash provided by financing activities was $19.9 million as compared to $12.4 million for the year ended December 31, 2006.  Cash provided by financing activities consisted primarily of proceeds from the following preferred stock offerings:

·in February 2006, we sold 3,310,382 shares of our Series B convertible preferred stock in a private placement for net proceeds of $12,412,301; and

·in June 2007, we sold 2,063,558 shares of our Series C convertible preferred stock in a private placement for net proceeds of $19,919,009.

Since our inception, inflation and changing prices have not had a material effect on our business and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future.

Income Taxes

Effective January 1, 2007, Prosper adopted the provisions of The Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109 (FIN 48).  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes and prescribes a recognition threshold of more-likely-than-not to be sustained upon examination.  Upon adoption of FIN 48, our policy to include interest and penalties related to gross unrecognized tax benefits within our provision for income taxes did not change.

Due to the book and tax net losses incurred during the three and nine months ended September 30, 2008 and 2007, Prosper has not incurred any income tax expense during those periods.  For the nine months ended, the Company had federal and state net operating loss carry forwards of approximately $25 million and net capital losses of approximately $611,000.  The Company also has federal and California research and development tax credits of $294,000 and $309,000, respectively.  As of December 31, 2007, we had federal and state net operating loss carry forwards of approximately $17 million.  As of December 31, 2007, we also had federal and state research and development tax credit carry forwards of approximately $211,000 and $222,000 respectively.

Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes provides for the recognition of deferred tax assets if realization of such assets is more likely than not.  Based upon the weight of available evidence, which includes our historical operating performance and the reported cumulative net losses in all prior years, we have provided a full valuation allowance against our net deferred tax assets.  We will continue to evaluate the realizability of the deferred tax assets on a quarterly basis.

105

Off-Balance Sheet Arrangements

We do not engage in any off-balance sheet financing activities.  We do not have any interest in entities referred to as variable interest entities, which include special purpose entities and other structured finance entities.

Impact of New Lending Platform Structure

The historical information and accounting policies described in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as in our financial statements included elsewhere in this prospectus, reflect the operations and structure of our platform prior to the date of this prospectus.  Following the date of this prospectus we will implement the new structure described in “About the Platform” and begin issuing the Notes.  The change in our operation of our platform, as well as our adoption of certain new accounting pronouncements, will have a significant impact on our financial statements and results of operations for periods following the date of this prospectus.  Summarized below are the material changes we presently expect from the changes to our operations on the platform. Because the Notes are a novel financing structure, we will continue to evaluate the impact the changes this shift in our operations will have on our financial condition, results of operations and cash flow.

In conjunction with our new operating structure effective as of the date of this prospectus, we plan to adopt the provisions of Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Measurements (SFAS No. 159).  SFAS No.159 permits companies to choose to measure certain financial instruments and certain other items at fair value.  The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings.  We intend to apply the provisions of SFAS No. 159 to the Notes and borrower loans issued subsequent to the date of this prospectus on an instrument by instrument basis.  We do not anticipate applying the provisions of SFAS No. 159 to loans issued prior to the date of this prospectus.  In accordance with SFAS No. 159, we will disclose for each period for which an interim or annual income statement is presented the estimated amount of gains or losses included in earnings during the period attributable to changes in instrument-specific credit risk and how the gains or losses attributed to changes in instrument-specific credit risk were determined.  We will not record an allowance account related to borrower loans in which we have elected the fair value option.  The fair value of borrower loans is expected to be estimated using discounted cash flow methodologies adjusted for our expectation of both the rate of default of the loans and the amount of loss in the event of default.

As the provisions of SFAS No.159 will not be applied to eligible items existing at the date of this prospectus, adoption of SFAS No. 159 will not result in a cumulative-effect adjustment to our opening balance accumulated deficit.  In applying the provisions of SFAS No. 159, we will record assets and liabilities measured using the fair value option in a way that separates these reported fair values from the carrying values of similar assets and liabilities measured with a different measurement attribute.  We will report the aggregate fair value of the Notes and borrower loans as separate line items in the assets and liabilities sections of the balance sheet using the methods described in Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS No.157).

SFAS No. 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  Changes in fair value of the Notes and borrower loans subject to the provisions of SFAS No. 159 will be recognized in earnings, and fees and costs associated with the origination or acquisition of borrower loans will be recognized as incurred.

We will determine the fair value of the Notes and borrower loans in accordance with the fair value hierarchy established in SFAS No.157 which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  As observable market prices are not available for similar assets and liabilities, we believe the Notes and borrower loans should be considered Level 3 financial instruments under SFAS No.157.  For borrower loans, the fair value is expected to be estimated using discounted cash flow methodologies adjusted for our expectation of both the rate of default of the loans and the amount of loss in the event of default.  Our obligation to pay principal and interest on any Note is equal to the loan payments, if any, we receive on the corresponding borrower loan, net of our 1.0% servicing fee.  As such, the fair value of the Note is approximately equal to the fair value of the borrower loans, adjusted for the 1.0% servicing fee.  Any unrealized gains or losses on the borrower loans and Notes for which the fair value option has been elected will be reported separately in earnings.  The effective interest rate associated with the Notes will be less than the interest rate earned on the borrower loans due to the 1.0% servicing fee.  Accordingly, as market interest rates fluctuate, the resulting change in fair value of the fixed rate borrower loans and fixed rate Notes will not be the same.

106

We will also disclose the difference between the aggregate fair value and the aggregate unpaid principal balance of borrower loans for which the fair value option has been adopted.  In addition, we will disclose the aggregate fair value of borrower loans past due by 121 days or more and the fair value of borrower loans in nonaccrual status as well as the difference between the aggregate fair value and aggregate unpaid principal balance for loans that are 121 days or more past due and/or in nonaccrual status.  For borrower loans, we will disclose the estimated amount of gains or losses included in earnings during the period attributable to changes in instrument-specific credit risk and how the gains or losses attributable to changes in instrument-specific credit risk were determined.  For Notes with fair values that have been significantly affected during the reporting period by changes in the instrument-specific credit risk, we will disclose the estimated amount of gains and losses from fair value changes included in earnings that are attributable to changes in the instrument-specific credit risk, the qualitative information about the reasons for those changes and how the gains and losses attributable to changes in instrument-specific credit risk were determined.

To the extent payments are received subsequent to the maturity of a borrower loan, they will first be used to reduce the borrower loan balance reported at fair value, if any.  To the extent the reported fair value of the borrower loan is zero, any payments received subsequent to maturity will be recognized in earnings as a gain in the period received.

In accordance with the fair value option of SFAS No. 159, a borrower loan for which there is an unpaid portion at maturity and for which collection is in doubt would presumably have a zero or minimal fair value.  Any change in fair value of that particular borrower loan since the last reporting period would be included in earnings in the current period with any remaining fair value balance recorded as an asset on the balance sheet.

In the footnotes to our financial statements, we will reflect all significant terms of the Notes including their lack of recourse to Prosper.  As we receive scheduled payments of principal and interest on the borrower loans we will in turn make principal and interest payments on the Notes.  These principal payments will reduce the carrying value of the borrower loans and Notes.  If we do not receive payments on the borrower loans, we are not obligated to and will not make payments on the Notes.  The fair value of the Note is approximately equal to the fair value of the borrower loan, less the 1.0% service fee.  If the fair value of the borrower loan decreases due to our expectation of both the rate of default of the loan and the amount of loss in the event of default, there will also be a corresponding decrease in the fair value of the Note (an unrealized gain related to the Note and an unrealized loss related to the borrower loan).

The origination of Notes and scheduled principal payments will be shown as financing activities on the statement of cash flow. Consistent with the guidance of Emerging Issues Task Force (EITF) No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, we will record interest income on the borrower loans and interest expense on the Notes on the accrual method.

LEGAL MATTERS

The validity of the Notes offered by this prospectus has been passed upon by Morrison & Foerster LLP, Denver, Colorado.

EXPERTS

The financial statements as of December 31, 2007 and 2006, and for the years ended December 31, 2007 and 2006 are included in this prospectus have been so included in reliance on the report of Ernst & Young LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

107

PROSPER MARKETPLACE INC.

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Audited Financial Statements
Consolidated Balance Sheets as of December 31, 2007 and 2006	F-3
Consolidated Statements of Operations for the Years Ended December 31, 2007 and 2006	F-4
Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income for the Years Ended December 31, 2007 and 2006	F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007 and 2006	F-6
Notes to Consolidated Financial Statements at December 31, 2007 and 2006	F-7
Interim Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets as of September 30, 2008 (unaudited) and December 31, 2007	F-24
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2008 (unaudited) and September 30, 2007 (unaudited)	F-25
Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income for the Nine Months Ended September 30, 2008 and 2007 (unaudited)	F-26
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 (unaudited) and 2007 (unaudited)	F-27
Notes to Consolidated Financial Statements at September 30, 2008 (unaudited) and December 31, 2007	F-28

F-1

Report of Independent Registered Public Accounting Firms

To the Board of Directors the Stockholders of
Prosper Marketplace, Inc.

We have audited the accompanying consolidated balance sheets of Prosper Marketplace, Inc.  as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the two years in the period ended December 31, 2007.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  We were not engaged to perform an audit of the Company’s internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Prosper Marketplace, Inc.  at December 31, 2007 and 2006, and the consolidated results of its operations and its cash flows for the two years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States.

As discussed in Note 2 to the consolidated financial statements, in 2006, Prosper adopted Statement of Financial Accounting Standard No. 123 (revised 2004), Share-Based Payment.

As discussed in Note 2 to the consolidated financial statements, in 2007, Prosper adopted Statement of Financial Accounting Standard No. 156, Accounting for Servicing of Financial Assets – an Amendment of FAS 140.

/s/ Ernst & Young LLP

December 3, 2008
San Francisco, CA

F-2

Prosper Marketplace, Inc.

Consolidated Balance Sheets

	December 31,
	2007			2006
ASSETS
Cash and cash equivalents	$	20,280,105		$	5,969,564
Restricted cash	866,986			852,217
Marketable securities, available-for-sale	—			5,095,687
Loans receivable	355,567			117,414
Property and equipment, net of $885,665 and $356,550 accumulated depreciation as of December 31, 2007 and 2006, respectively	1,014,575			994,657
Prepaid and other assets	313,608			124,655
Intangible assets, net	412,500			533,232
Total assets	$	23,243,341		$	13,687,426
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	515,892		$	223,014
Accrued liabilities	1,202,730			360,719
Servicing rights	14,086			79,000
Loan repurchase obligation	100,151			166,871
Long-term debt, net of discount of $77,132 and $98,766 as of December 31, 2007 and 2006, respectively	282,868			281,234
Total liabilities	2,115,727			1,110,838
Commitments and contingencies (see Note 13)
Stockholders’ Equity
Convertible preferred stock – Series A ($0.001 par value; 4,023,999 shares authorized, issued and outstanding in 2007 and 2006)	4,024			4,024
Convertible preferred stock – Series B ($0.001 par value; 3,310,382 shares authorized, issued and outstanding in 2007 and 2006)	3,310			3,310
Convertible preferred stock – Series C ($0.001 par value; 2,063,558 shares authorized; 2,063,558 and none issued and outstanding in 2007 and 2006, respectively)	2,064			—
Common stock ($0.001 par value; 16,000,000 shares authorized; 3,662,476 shares and 1,249,576 shares issued and outstanding in 2007 and 2006, respectively)	3,663			1,250
Additional paid-in capital	40,493,256			20,070,953
Accumulated deficit	(19,378,703		)	(7,502,949		)
Total stockholders’ equity	21,127,614			12,576,588
Total liabilities and stockholders’ equity	$	23,243,341		$	13,687,426

The accompanying notes are an integral part of these consolidated financial statements.

F-3

Prosper Marketplace, Inc.

Consolidated Statements of Operations

	Years Ended December 31,
	2007			2006
Operating income
Agency fees	$	890,445		$	300,372
Loan servicing fees	360,003			42,209
	1,250,448			342,581
Provision for loan repurchases	(390,326		)	(166,872		)
Operating income after provision for loan repurchases	860,122			175,709
Other income
Investment income
Interest and dividends	908,232			668,295
Realized losses on marketable securities	(621,560		)	(54,844		)
Other income (expense)	(2,324		)	102,588
Total other income	284,348			716,039
Operating expenses
Compensation and benefits	5,676,204			3,141,455
Marketing and advertising	2,863,065			845,463
Professional services	1,629,854			1,337,625
General and administrative	836,197			546,837
Facilities and maintenance	686,873			372,784
Cost of services	678,018			383,785
Depreciation and amortization	650,013			404,236
Total operating expenses	—			—
Loss before income taxes	(11,875,754		)	(6,140,437		)
Income taxes	—			—
Net Loss	$	(11,875,754	)	$	(6,140,437	)
Net loss per share – basic and diluted	$	(3.77	)	$	(5.10	)
Weighted Average shares - basic and diluted net loss per share	3,152,655			1,204,824

The accompanying notes are an integral part of these consolidated financial statements.

F-4

Prosper Marketplace, Inc.

Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income

Years Ended December 31, 2007 and 2006

	Preferred Stock			Common Stock			Additional Paid			Accumulated			Accumulated Other
	Shares	Amount		Shares	Amount		In Capital			Deficit			Comprehensive Income (Loss)			Total
Balance as of December 31, 2005	4,023,999	$	4,024	1,162,674	$	1,163	$	7,584,843		$	(1,362,512	)	$	—		$	6,227,518
Issuance of convertible preferred stock, Series B	3,310,382	3,310					12,496,692									12,500,002
Offering costs on preferred stock							(87,700		)							(87,700		)
Issuance of common stock				38,777	39		19,350									19,389
Exercise of stock options				48,125	48		11,983									12,031
Compensation expense							45,785									45,785
Net loss										(6,140,437		)				(6,140,437		)
Balance as of December 31, 2006	7,334,381	$	7,334	1,249,576	$	1,250	$	20,070,953		$	(7,502,949	)	$	—		$	12,576,588
Issuance of convertible preferred stock, Series C	2,063,558	2,064					19,997,941									20,000,005
Offering costs on preferred stock							(80,996		)							(80,996		)
Issuance of common stock				2,330,500	2,331		238,765									241,096
Exercise of stock options				82,400	82		35,805									35,887
Compensation expense							230,788									230,788
Net loss										(11,875,754		)				(11,875,754		)
Change in unrealized loss on available-for-sale securities													(469,397		)	(469,397		)
Reclassification adjustment													469,397			469,397
Total comprehensive loss																(11,875,754		)
Balance as of December 31, 2007	9,397,939	$	9,398	3,662,476	$	3,663	$	40,493,256		$	(19,378,703	)	$	—		$	21,127,614

The accompanying notes are an integral part of these consolidated financial statements.

F-5

Prosper Marketplace, Inc.

Consolidated Statements of Cash Flows

	Years Ended December 31,
	2007			2006
Cash flows from operating activities:
Net loss	$	(11,875,754	)	$	(6,140,437		)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	650,013			404,236
Realized loss on sale of marketable securities	621,560			54,844
Stock-based compensation expense	471,884			51,932
Provision for loan repurchase obligation	390,326			166,871
Changes in fair value of servicing rights	(64,914		)	79,000
Amortization of discount on long-term debt and marketable securities	(41,573		)	(44,027			)
Changes in operating assets and liabilities:
Restricted cash	(14,769		)	(827,217			)
Loans receivable	(238,153		)	(108,118			)
Prepaid and other assets	(42,869		)	(68,649			)
Accounts payable and accrued liabilities	1,134,889			400,074
Loan repurchases	(457,046		)	—
Net cash used in operating activities	(9,466,406		)	(6,031,491			)
Cash flows from investing activities:
Proceeds from sale of available-for-sale marketable securities	26,924,288			23,573,027
Purchases of available-for-sale marketable securities	(22,533,038		)	(24,037,640			)
Purchases of property and equipment	(549,199		)	(528,793			)
Purchase of intangible asset	—			(320,000			)
Net cash provided by (used in) investing activities	3,842,051			(1,313,406			)
Cash flows from financing activities:
Proceeds from issuance of convertible preferred stock	20,000,005			12,500,002
Offering costs - convertible preferred stock	(80,996		)	(87,700			)
Proceeds from exercise of stock options	35,887			12,031
Principal repayment of long-term debt	(20,000		)	—
Net cash provided by financing activities	19,934,896			12,424,333
Net increase in cash and cash equivalents	14,310,541			5,079,436
Cash and cash equivalents at beginning of the year	5,969,564			890,128
Cash and cash equivalents at end of the year	$	20,280,105		$	5,969,564
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest	$	—		$	—
Income taxes	$	—		$	—
Supplemental disclosure of non-cash investing and financing activities:
Issuance of promissory note in acquisition of intangible asset, net of $109,583 discount				$	270,417
Issuance of 26,482 common shares in acquisition of intangible asset				$		13,242

The accompanying notes are an integral part of these consolidated financial statements.

F-6

Prosper Marketplace, Inc.

Notes to Financial Statements

December 31, 2007 and 2006

1.  Organization and Business

Prosper Marketplace, Inc. (Prosper, the Company, we, us, our) was incorporated in the state of Delaware on March 22, 2005. Prosper is an online marketplace for person-to-person lending. Prosper’s website provides an online auction where people list and bid on loans using Prosper’s online auction platform. Prosper’s lender members set the minimum interest rate that they are willing to earn and bid in increments of $50 to $25,000. Borrowers create loan listings from $1,000 up to $25,000 and set the maximum rate they are willing to pay on a loan. Prosper facilitates the lending and borrowing activities and acts as an agent to the lender by matching the lender and the borrower through its online auction platform. Prosper also handles all ongoing loan administration tasks, including loan servicing and collections on behalf of the lenders. Prosper generates revenue by collecting one-time fees from borrowers on funded loans and  from loan servicing fees paid by lender members.

Due to the legal uncertainty regarding the sales of promissory notes offered through the Prosper platform under the Company’s prior operating structure (See Note 13 — Commitments and Contingencies — Securities Law Compliance), the Company decided to restructure its operations to resolve such uncertainty.  The Company began its implementation of this decision on October 16, 2008, when it ceased offering lender members the opportunity to make purchases on the Prosper platform, ceased accepting new lender member registrations and ceased allowing new funding commitments from existing lender members.  Furthermore, pursuant to this decision, the Company updated its registration statement on Form S-1, with the SEC (See Note 15 — Subsequent Events), in which the Company described the restructuring of its operations and its new operating structure.  The Company will resume accepting new lender members and allowing transactions with lender members starting on the date such registration statement becomes effective.

In December 2008, the Company filed a registration statement with the Securities and Exchange Commission with respect to the offering of $500,000,000 of Borrower Payment Dependent Notes (the Notes).  The change in the operation of the Company’s platform, as well as the Company’s adoption of new accounting pronouncements, will have a significant impact on the Company’s financial statements and results of operations for periods following the effective date of that registration statement.  We will continue to evaluate the impact the changes this shift in our operations will have on our financial condition, results of operations and cash flow.

2.  Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements included the accounts of Prosper and its wholly-owned subsidiary, P2P Servicing, LLC, which was formed in October 2007.  All significant intercompany transactions and balances have been eliminated.  These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP).

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.  These include, but are not limited to, the following: valuation of marketable securities, valuation allowance on deferred tax assets, valuation and amortization periods of intangible assets, fair value of servicing liabilities, provision for loan repurchase obligation, stock-based compensation expense, and contingent liabilities.  Prosper bases its estimates on historical experience and on various other assumptions that Prosper believes to be reasonable under the circumstances.  Actual results could differ from those estimates.

Liquidity

As reflected in the accompanying financial statements, Prosper has incurred net losses, negative cash flows from operations since inception, and has an accumulated deficit of approximately $19 million as of December 31, 2007.  Since its inception, Prosper has financed its operations primarily through equity financing from various sources.  The Company is dependent upon raising additional capital or debt financing to fund its current operating plan.

F-7

Prosper Marketplace, Inc.

Notes to Financial Statements (continued)

December 31, 2007 and 2006

2.  Significant Accounting Policies (continued)

Liquidity (continued)

Failure to obtain sufficient debt and equity financings and, ultimately, to achieve profitable operations and positive cash flows from operations could adversely affect Prosper’s ability to achieve its business objectives and continue as a going concern.  Further, there can be no assurances as to the availability or terms upon which the required financing and capital might be available.  Our financial statements do not include any adjustments to reflect the possible effects on recoverability and classification of assets or the amounts and classification of liabilities that may result from our inability to continue as a going concern.

On June 15, 2007, Prosper finalized its Series C preferred stock financing and issued 2,063,558 shares at a price per share of $9.692 for aggregate cash consideration of $20 million. In the event Prosper is unable to generate sufficient revenues, it may be required to raise additional capital or reduce certain discretionary spending. Any additional financing may not be available in amounts or on terms acceptable to Prosper, if at all.

We believe that actions being taken by management as discussed above provide the opportunity to allow us to continue as a going concern.

Cash and Cash Equivalents

Prosper invests its excess cash primarily in money market funds and in highly liquid debt instruments of U.S.  municipalities, and the U.S. government and its agencies.  All highly liquid investments with stated maturities of three months or less from date of purchase are classified as cash equivalents.  Cash equivalents are recorded at cost, which approximates fair value.  Such deposits periodically exceed amounts insured by the FDIC.

Restricted Cash

At December 31, 2007 and 2006, restricted cash consists primarily of an irrevocable letter of credit held by a financial institution in connection with the Company’s office lease and cash deposits required to support the Company’s ACH activities and secured corporate credit cards.

Marketable Securities

The Company invests in various marketable securities and accounts for such investments in accordance with Statement of Financial Accounting Standard (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities.

Management determines the appropriate classification of its investments at the time of acquisition and reevaluates such determination at each balance sheet date.  Available-for-sale securities are carried at fair value, with unrealized gains and losses, net of tax, reported as a separate component of the Statements of Changes in Stockholders’ Equity in accumulated other comprehensive income. 

In determining realized gains and losses, the cost of the securities sold is based on the specific identification method.  The fair value of Prosper’s investments in marketable debt and equity securities, as well as bond and equity mutual funds, is based upon the quoted market price on the valuation date.

The Company periodically reviews its investments in marketable securities and impairs any securities whose decline in value is considered other-than-temporary.  The Company’s determination of whether a security is other than temporarily impaired incorporates both quantitative and qualitative information.  GAAP requires the exercise of judgment in making this assessment for qualitative information, rather than the application of fixed mathematical criteria.  The Company considers a number of factors including, but not limited to, the length of time and the extent to which the fair value has been less than cost, the financial condition and near term prospects of the issuer, the reason for the decline in fair value, changes in fair value subsequent to the balance sheet date, and other factors specific to the individual investment.  The Company’s assessment involves a high degree of judgment and accordingly, actual results may differ materially from the Company’s estimates and judgments.

Loans Receivable

Loans receivable primarily represent loans originated by Prosper on the last day of the year that are transferred to lenders on the next business day on a nonrecourse basis.

F-8

Prosper Marketplace, Inc.

Notes to Financial Statements (continued)

December 31, 2007 and 2006

2.  Significant Accounting Policies (continued)

Loan Repurchase Obligation

Prosper is obligated to indemnify the lenders and repurchase certain loans sold to the lenders in the event of violation of the applicable federal, state, or local lending laws, or verifiable identify theft.  The loan repurchase obligation is estimated based on historical experience.  Prosper accrues a provision for the repurchase obligation when the loans are funded.  Repurchased loans associated with federal,  state, or local lending laws, or verifiable identity thefts are written off at the time of repurchase.

Certain Risks and Concentrations

In the normal course of its business, Prosper encounters two significant types of risk: credit and regulatory.  Financial instruments that potentially subject Prosper to significant concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities and loans receivable.  Cash equivalents and marketable securities consist primarily of money market and mutual funds of highly liquid debt instruments of corporations and the U.S.  government and its agencies.  Prosper maintains cash and cash equivalents and its investments with high-quality financial institutions.  Prosper performs periodic evaluations of the relative credit standing of these financial institutions and has not sustained any credit losses from instruments held at financial institutions.  Loans receivable are unsecured and are primarily comprised of loans originated that last day of the reporting period that are in the process of being transferred to lenders.  As of December 31, 2007 and 2006, no single borrower accounted for more than 10% of Prosper’s total loan receivables, and no single lender or borrower represented more than 10% of Prosper’s total revenues in 2007 and 2006.

Prosper is subject to various regulatory requirements.  The failure to appropriately identify and address these regulatory requirements could result in certain discretionary actions by regulators that could have a material effect on Prosper’s financial position and results of operations. (See Note 13 — Commitments and Contingencies — Securities Law Compliance).

Fair Value of Financial Instruments

The carrying amounts of our financial instruments, including cash and cash equivalents, restricted cash, marketable securities, loans receivable, accounts payable and accrued liabilities, approximate fair value due to their liquidity or short maturities.

Property and Equipment

Property and equipment consists of computer equipment, office furniture and equipment, and software purchased or developed for internal use.  Property and equipment are stated at cost, less accumulated depreciation and amortization.  Depreciation and amortization are is computed using the straight-line method based on the estimated useful lives of the assets, which range from three to seven years.  Prosper capitalizes expenditures for replacements and betterments and expenses amounts for maintenance and repairs as they are incurred.  Depreciation and amortization commences once the asset is placed in service.

Internal Use Software and Website Development

Prosper accounts for internal use software costs, including website development costs, in accordance with the American Institute of Certified Public Accountants’ Statement of Position (SOP) No.  98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, and Emerging Issues Task Force (EITF) No.  00-02, Accounting for Website Development Costs.  In accordance with SOP No.  98-1 and EITF No.  00-02, the costs to develop software for Prosper’s website and other internal uses are capitalized when management has authorized and committed project funding, preliminary development efforts are successfully completed, and it is probable that the project will be completed and the software will be used as intended.  Capitalized software development costs primarily include software licenses acquired, fees paid to outside consultants, and salaries for employees directly involved in the development efforts.

F-9

Prosper Marketplace, Inc.

Notes to Financial Statements (continued)

December 31, 2007 and 2006

2.  Significant Accounting Policies (continued)

Internal Use Software and Website Development (continued)

Costs incurred prior to meeting these criteria, together with costs incurred for training and maintenance, are expensed.  Costs incurred for upgrades and enhancements that are considered to be probable to result in additional functionality are capitalized.  Capitalized costs are included in Property and Equipment (see Note 4) and amortized to expense using the straight-line method over their expected lives.  The Company evaluates its software assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.  Recoverability of software assets to be held and used is measured by a comparison of the carrying amount of the asset to the future net undiscounted cash flows expected to be generated by the asset.  If such software assets are considered to be impaired, the impairment to be recognized is the excess of the carrying amount over the fair value of the software asset.  No such impairment was present at December 31, 2007 and 2006 respectively.

Intangible Assets

Prosper records the purchase of intangible assets not purchased in a business combination in accordance with SFAS 142 Goodwill and Other Intangible Assets.  Prosper has an intangible asset resulting from the purchase of the “Prosper.com” domain name (see Note 5).  The intangible asset is amortized on a straight-line basis over five years.

Impairment of Long-Lived Assets Including Acquired Intangible Assets

In accordance with SFAS No.  144, Accounting for the Impairment or Disposal of Long-Lived Assets, Prosper reviews property and equipment and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying values of those assets may not be recoverable.  Recoverability of assets to be held and used is measured by comparing the carrying value of the asset to future net undiscounted cash flows that the assets are expected to generate.  If an asset is considered to be impaired, the impairment to be recognized equals the amount by which the asset’s carrying value exceeds its fair value.  Fair value is estimated using discounted net cash flows.  Long-lived assets that are to be disposed of by sale are reported at the lower of the carrying value or the fair value less the cost to sell.  Prosper observed no impairment indicators and did not recognize impairment charges in 2007 and 2006, respectively.

Revenue Recognition

Prosper recognizes revenue in accordance with Staff Accounting Bulletin (“SAB”) No.  104, Revenue Recognition in Financial Statements.  Under SAB No.  104, Prosper recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price of the services is fixed and determinable and collectibility is reasonably assured.

Agency fees are charged as a percentage of the amount borrowed ranging from 1% to 3% or $25 whichever is greater, and are recognized when the loan is funded to the borrower.

Loan servicing revenue includes monthly loan servicing fees and non-sufficient funds (NSF) fees.  Loan servicing fees are accrued daily based on the current outstanding loan principal balance held by third-party lenders but are not recognized until payment is received due to the uncertainty of collection of borrower loan payments.  Servicing fees for a loan vary based on the credit grade of the borrower.  Prosper charges a NSF fee to borrowers on the first failed payment of each billing period.  NSF fees are charged to the customer and collected and recognized immediately.

F-10

Prosper Marketplace, Inc.

Notes to Financial Statements (continued)

December 31, 2007 and 2006

2.  Significant Accounting Policies (continued)

Servicing Rights

Prosper accounts for its servicing rights under the fair value measurement method of reporting in accordance with SFAS No.  156, Accounting for Servicing of Financial Assets – an Amendment of FAS 140.  Under the fair value method, Prosper measures servicing assets at fair value at each reporting date and reports changes in fair value in earnings in the period in which the changes occur.  In 2007 and 2006, the Company recorded a servicing liability on its books since the fair value of fees charged were not sufficient to offset the costs.

Prosper estimates the fair value of the servicing rights using a discounted cash flow model to project future expected cash flows based upon a set of valuation assumptions Prosper believes market participants would use for similar rights.  The primary assumptions Prosper uses for valuing its servicing rights include prepayment speeds, default rates, cost to service, profit margin, and discount rate.  Prosper reviews these assumptions quarterly to ensure that they remain consistent with the market conditions.  Inaccurate assumptions in valuing the servicing right could affect Prosper’s results of operations.

Advertising and Promotional Expenses

Under the provisions of SOP 93-7, Reporting on Advertising Costs, the costs of advertising are expensed as incurred.  Advertising costs were approximately $2,863,000 and $845,000 for the years ended December 31, 2007 and 2006, respectively.

Stock-Based Compensation

The Company accounts for its stock-based compensation for employees using fair-value-based accounting in accordance with SFAS No.  123R, Share-Based Payment (SFAS No.  123R).  SFAS No.  123R requires companies to estimate the fair value of stock-based awards on the date of grant using an option-pricing model.  The stock-based compensation related to awards that is expected to vest is amortized over the vesting term of the stock-based award, which is generally four years.  Expected forfeitures of unvested options are estimated at the time of grant and reduce the recognized stock-based compensation expense.  The forfeitures were estimated based on historical experience.  The Company estimated its annual forfeiture rate to be 19.7% and 5% for the years ended December 31, 2007 and 2006, respectively.  Estimates of forfeitures are adjusted to actual over the vesting periods.  SFAS No.  123R was early adopted as of March 22, 2005 (inception date).

Prosper has granted options to purchase shares of common stock to nonemployees in exchange for services performed.  Prosper accounts for stock options and restricted stock issued to nonemployees in accordance with the provisions of Emerging Issues Task Force (EITF) Issue No.  96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring or in Conjunction with Selling Goods, or Services”, which requires that equity awards be recorded at their fair value.  Under SFAS No. 123R and EITF No. 96-18, Prosper uses the Black-Scholes model to estimate the value of options granted to nonemployees at each vesting date to determine the appropriate charge to stock-based compensation.  The volatility of common stock was based on comparative company volatility.

The fair value of stock option awards for 2007 and 2006 was estimated at the date of grant using the Black-Scholes model with the following average assumptions:

	2007			2006
Volatility of common stock	59.7		%	51.6		%
Risk-free interest rate	4.4		%	4.8		%
Expected life*	6.1 years			6.1 years
Dividend yield	0		%	0		%
Weighted-average fair value of grants	$	1.93		$	0.27

*For nonemployee stock option awards, the expected life is the contractual term of the award, which is generally ten years.

F-11

Prosper Marketplace, Inc.

Notes to Financial Statements (continued)

December 31, 2007 and 2006

2.  Significant Accounting Policies (continued)

Stock-Based Compensation (continued)

The Black-Scholes model requires the input of highly subjective assumptions, including the expected stock price volatility.  Because Prosper’s equity awards have characteristics significantly different from those of traded options, the changes in the subjective input assumptions can materially affect the fair value estimate.

Total stock-based compensation expense for employee and nonemployee stock-based awards reflected in the Consolidated Statements of Operations for the years ended December 31, 2007 and 2006 is approximately $472,000 and $52,000, respectively.  As of December 31, 2007, the unamortized stock-based compensation expense related to unvested stock-based awards was approximately $641,000, which will be recognized over the remaining vesting period of approximately 3 years.

Net Loss Per Share

Prosper computes net loss per share in accordance with SFAS No.  128, Earnings Per Share (SFAS No. 128).  Under SFAS No.128, basic net loss per share is computed by dividing net loss per share available to common shareholders by the weighted average number of common shares outstanding for the period and excludes the effects of any potentially dilutive securities.  Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the “treasury stock” and/or “if converted” methods as applicable.  At December 31, 2007, there were outstanding convertible preferred stock and options convertible into 9,397,939 and 1,608,025 common shares, respectively, which may dilute future earnings per share.  Due to the Company reporting a net loss for the years ended December 31, 2007 and 2006, there is no calculation of fully-diluted earnings per share as all common stock equivalents are anti-dilutive.

Income Taxes

Prosper uses the liability method to account for income taxes.  Under this method, deferred income tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.  Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Effective January 1, 2007, Prosper adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109 (FIN 48).  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes (SFAS No. 109), and prescribes a recognition threshold of more-likely-than-not to be sustained upon examination.  Upon adoption of FIN 48, our policy to include interest and penalties related to gross unrecognized tax benefits within our provision for income taxes did not change.  The adoption of the provisions of FIN 48 did not have a material impact on our financial position and results of operations.

Adoption of New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No.  157, Fair Value Measurements Effect of Recent Accounting Pronouncements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information.  SFAS No. 157 is effective for fiscal years beginning after November 15, 2007.  However, on December 14, 2007, the FASB issued proposed FSP FAS 157-b which would delay the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).  This proposed FSP partially defers the effective date of Statement 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of this FSP.  Effective for 2008, we will adopt SFAS No. 157 except as it applies to those nonfinancial assets and nonfinancial liabilities as noted in proposed FSP FAS 157-b.  The adoption of SFAS No. 157 as of January 1, 2008, did not have a material impact on our consolidated financial position, results of operations or cash flows.

F-12

Prosper Marketplace, Inc.

Notes to Financial Statements (continued)

December 31, 2007 and 2006

2.  Significant Accounting Policies (continued)

Adoption of New Accounting Pronouncements (continued)

In February 2007, the FASB issued SFAS No.  159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of SFAS No.  115 (SFAS No.  159).  SFAS No. 159 permits companies to choose to measure certain financial instruments and certain other items at fair value.  The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings.  SFAS No. 159 is effective for the Company beginning in the first quarter of fiscal year 2009, although earlier adoption is permitted.  (See Note 15 — Subsequent Events).  We intend to apply the provisions of SFAS No. 159 to the Notes and member loans issued on an instrument by instrument basis going forward.  We do not anticipate applying the provisions of SFAS No. 159 to member loans originated prior to the date of this prospectus.

3.  Cash and Cash Equivalents and Marketable Securities

Cash, cash equivalents and marketable securities consists of the following:

	December 31,
	2007		2006
Cash and cash equivalents:
Cash	$	949,954	$	933,117
Cash equivalents:
Money Market Mutual Funds	19,330,151		5,036,447
Total cash and cash equivalents	$	20,280,105	$	5,969,564
Marketable securities:
Debt and Equity Mutual Funds	—		5,095,687
Total marketable securities	$	—	$	5,095,687

Purchases of marketable securities in 2007 and 2006 were approximately $22.5 million and $24.0 million, respectively.  Proceeds from the sale of marketable securities were approximately $26.9 million and $23.6 million in 2007 and 2006, respectively.  Sales of marketable securities resulted in a net loss of approximately $622,000 in 2007, and approximately $55,000 in 2006.  No marketable securities were held at December 31, 2007.  The cost of securities sold is based on the specific identification method.

4.  Property and Equipment

Property and equipment consist of the following:

	December 31
	2007			2006
Property and equipment:
Computer equipment	$	904,373		$	502,397
Purchased software	144,607			104,563
Office equipment and furniture	36,710			33,049
Internal-use software	814,550			711,198
	1,900,240			1,351,207
Less accumulated depreciation and amortization	(885,665		)	(356,550		)
Total property and equipment, net	$	1,014,575		$	994,657

Depreciation and amortization expense for 2007 and 2006 was $529,281 and $333,808, respectively.  Prosper capitalized internal-use software costs in the amount of $103,351 and $87,699 for the years ended December 31, 2007 and 2006, respectively.

F-13

Prosper Marketplace, Inc.

Notes to Financial Statements (continued)

December 31, 2007 and 2006

5.  Intangible Assets and Promissory Note Payable

In 2006, Prosper paid a total of $603,659 to acquire “Prosper.com” domain name. The purchase price consisted of $320,000 cash, 26,483 shares of Prosper’s common stock valued at $0.50 per share (or $13,242) and a non-interest bearing promissory note of $380,000.  The note was discounted by $109,583 for a net payable of $270,417.  The promissory note is payable in annual installments of $20,000 due on the first, second, third, and fourth anniversary of the note and $300,000 due on the fifth anniversary of the note.  The discount on the note was calculated based on an imputed annual rate of 8% and is amortized to interest expense over the five year life of the loan.  Amortization of the discount on the note of $21,633 and $10,817 was recorded in the years ended 2007 and 2006, respectively.

	December 31,
	2007			2006
Intangible Asset:
Domain Name	$	603,659		$	603,659
Less amortization	(191,159		)	(70,427		)
Total Intangible Asset, net	$	412,500		$	533,232

Amortization expense related to the intangible asset was approximately $121,000 and $70,000 during the years ended December 31, 2007 and 2006, respectively.  Amortization expense related to this intangible asset is expected to be approximately $121,000 in fiscal 2008, 2009 and 2010.  In fiscal 2011, amortization expense related to this intangible asset is expected to be approximately $50,000.

6.  Servicing Rights

The servicing liability had a fair value of approximately $14,000 and $79,000 at December 31, 2007 and 2006, respectively.  Changes in the fair value of a $65,000 decrease and a $79,000 increase were recorded for the years ended December 31, 2007 and 2006.  At December 31, 2007 and 2006, key assumptions used in the valuation of servicing rights are as follow:

	December 31,
	2007	2006
Unpaid principal loan balance under service	$74,362,000	$24,336,000
Servicing fees	0.5% – 1.0%	0.5%
Projected prepayment speed	1.36%	1.44%
Discount rate	25%	25%

7.  Accrued Liabilities

As of December 31, 2007 and 2006, accrued liabilities consist of the following:

	December 31,
	2007		2006
Audit, tax and accounting	$	215,474	$	44,999
Payroll and benefits	184,543		87,874
Loan servicing costs	182,317		78,587
Legal accruals and fees	526,720		99,631
Deferred building lease incentive	55,061		49,628
Other	38,615		—
	$	1,202,730	$	360,719

F-14

Prosper Marketplace, Inc.

Notes to Financial Statements (continued)

December 31, 2007 and 2006

8.  Loan Repurchase Obligation

Changes in the loan repurchase reserve are summarized below:

	Year Ended
	December 31,
	2007			2006
Beginning of year balance:	$	166,871		$	—
Provision for loan repurchases	390,326			166,871
Loans repurchased	(457,046		)	—
End of year balance:	$	100,151		$	166,871

9.  Net Loss Per Share

Basic and diluted loss per share was calculated as follows:

	Year Ended
	December 31,
	2007			2006
Numerator:
Net loss	$	(11,875,754	)	$	(6,140,437	)
Denominator:
Weighted average shares used in computing basic and diluted net loss per share	3,152,655			1,204,824
Basic and diluted net loss per share	$	(3.77	)	$	(5.10	)

Due to losses attributable to common shareholders for each of the periods below, the following potentially dilutive shares are excluded from the diluted net loss per share calculation because they were anti-dilutive under the treasury stock method, in accordance with the FASB’s Statement of Financial Accounting Standards No.  128, Earnings per Share.

	Year Ended
	December 31,
	2007	2006
Excluded:
Weighted-average convertible preferred stock issued and outstanding	8,459,444	9,062,366
Weighted-average stock options issued and outstanding	1,208,874	709,265
Total weighted average common stock equivalents excluded from diluted net loss per common share computation	9,688,318	9,771,631

F-15

Prosper Marketplace, Inc.

Notes to Financial Statements (continued)

December 31, 2007 and 2006

10.  Stockholders’ Equity

Preferred Stock

Under Prosper’s articles of incorporation, preferred stock is issuable in series, and the Board of Directors is authorized to determine the rights, preferences, and terms of each series.

In April 2005, Prosper sold 4,023,999 shares of Series A convertible preferred stock (Series A) in a private placement for $7,464,450, net of issuance costs of $80,550.  In February 2006, Prosper sold 3,310,382 shares of Series B convertible preferred stock (Series B) in a private placement for $12,412,302, net of issuance cost of $87,700.  In June 2007, Prosper sold 2,063,558 shares of Series C convertible preferred stock (Series C) in a private placement for $19,919,009, net of issuance costs of $80,996.

Dividends

The holders of the Series A, Series B and Series C preferred stock are entitled to receive dividends at an annual rate of 8% per share for the preferred stock.  Such dividends shall be payable only when, as, and if declared by the Board of Directors.  To date, no dividends have been declared, and there are no dividends in arrears at December 31, 2007.  No dividends will be paid on any common stock of Prosper until dividends on the Series A, Series B and Series C shall have been paid or declared and set apart during that fiscal year.

Conversion

Each share of Series A, Series B and Series C is automatically converted into shares of common stock at the Series A, Series B and Series C conversion price then in effect upon the earlier of (i) the date specified by vote or written consent or agreement of holders of 60% of the voting power of the shares of the Series A, Series B and Series C then outstanding, or (ii) immediately prior to the closing of the sale of Prosper’s common stock in a firm commitment, underwritten public offering registered under the Securities Act of 1933, as amended (the Securities Act), at a public offering price (before underwriters’ discounts and expenses) of at least two times the Original Series A, Series B and Series C Issue Price (as defined, per share as adjusted for any stock splits, stock dividends or other recapitalizations), and with gross proceeds to Prosper of at least $30,000,000.

Liquidation Rights

In the event of any liquidation, dissolution, or winding up of Prosper, whether voluntary or involuntary, the holders of the preferred stock are entitled to receive prior and in preference to any distribution of any of the proceeds of such Liquidation Event to holders of common stock, $1.875 for each share of Series A, $3.776 for each share of Series B, and $9.692 for each share of Series C (as adjusted for any stock dividends, combinations, or splits), plus all declared but unpaid dividends (if any) on such share of preferred stock.  If upon the occurrence of such Liquidation Event, the assets and funds thus distributed among the holders of the Series A, Series B and Series C are insufficient to pay the preferential amount, then the entire assets and funds of Prosper legally available for distribution will be distributed ratably among the holders of the Series A, Series B and Series C in proportion to the preferential amount each such holder is otherwise entitled to receive.

Voting

Each holder of shares of the preferred stock shall be entitled to the number of votes equal to the number of shares of common stock into which such shares of preferred stock could be converted and shall have voting rights and powers equal to the voting rights and powers of the common stock (except as otherwise expressly provided herein or as required by law, voting together with the common stock as a single class) and shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of Prosper.  The holders of the preferred stock shall vote as one class with the holder of the common stock except with certain restrictions.

Each holder of common stock shall be entitled to one vote for each share of common stock held.

F-16

Prosper Marketplace, Inc.

Notes to Financial Statements (continued)

December 31, 2007 and 2006

10.  Stockholders’ Equity (continued)

Common Stock

Prosper is authorized to issue up to 16,000,000 shares of our common stock, $0.001 par value, of which 3,662,476 shares and 1,249,576 shares were issued and outstanding as of December 31, 2007 and 2006, respectively.

Common Stock Issued for Services

Employees

In March 2005, Prosper issued 4 million shares of common stock valued at $0.10 per share or $400,000 to the founders of the Company, of which 1 million shares were immediately vested and the remaining 3 million were to vest over 3.5 years for services rendered.  The unvested shares are subject to a repurchase agreement if the founders leave the Company whereby Prosper can choose to repurchase any unvested shares at the lesser price of $0.10 per share or the fair market value at the date service ceases.  At December 31, 2007, a total of 3,325,000 shares had vested.  Total compensation expense of $232,500 was recognized in 2007.  The remaining unvested balance of $67,500 was recognized in 2008.

During the years ended December 31, 2007 and 2006, the Company granted 3,000 and 1,000 fully vested common shares, respectively, to employees for services.  All shares in 2006 and 2,000 of the shares issued in 2007 were granted at $0.50 per share and 1,000 shares at $2.17 per share in 2007.  Expense of approximately $3,100 and $500 was recognized in 2007 and 2006, respectively.

Non-Employees

The Company granted 2,500 immediately vested common shares at $2.17 per share to nonemployees for services during the year ended December 31, 2007 and 12,294 immediately vested shares at $0.50 per share in 2006.  Expense of approximately $5,400 and $6,100 was recognized in 2007 and 2006, respectively

Common Stock Issued upon Exercise of Stock Options

During the year ended December 31, 2007, the Company issued 82,400 shares of common stock, upon the exercise of options for $35,887 of cash proceeds and 48,125 shares during 2006 for $12,031 of cash proceeds.

Common Stock Issued for Purchase of Intangibles

In 2006, Prosper issued 26,483 shares of common stock valued at $0.50 per share as partial payment to acquire the Prosper.com domain name (see Note 5).

11.  Stock Option Plan and Other Stock Compensation

In 2005, Prosper’s stockholders approved the adoption of the 2005 Stock Option Plan (the Plan).  Under the Plan, options to purchase up to 1,879,468 shares of common stock were reserved and may be granted to employees, directors, and consultants by the Board of Directors to promote the success of Prosper’s business.

Incentive stock options are granted to employees at an exercise price not less than 100% of the fair value of Prosper’s common stock on the date of grant.  Nonstatutory stock options are granted to consultants and directors at an exercise price not less than 85% of the fair value of Prosper’s common stock on the date of grant.  If options are granted to stockholders who hold 10% or more of Prosper’s common stock on the option grant date, then the exercise price shall not be less than 110% of the fair value of Prosper’s common stock on the date of grant.  The fair value is based on a good faith estimate by the Board of Directors at the time of each grant.  As there is no active trading market for these options, such estimate may ultimately differ from valuations completed by an independent party.  The options generally vest over four years, which is the same as the performance period.  In no event are options exercisable more than ten years after the date of grant.

F-17

Prosper Marketplace, Inc.

Notes to Financial Statements (continued)

December 31, 2007 and 2006

11.  Stock Option Plan and Other Stock Compensation (continued)

Option activity under the Option Plan is summarized as follows for the years below:

	Options Issued and Outstanding		Weighted- Average Exercise Price
Balance as of December 31, 2005	561,658		$	0.25
Options granted (weighted average fair value of $0.29)	1,047,322		$	0.50
Options exercised	(48,125	)	$	0.25
Options canceled	(206,875	)	$	0.47
Balance as of December 31, 2006	1,353,980		$	0.41
Options granted (weighted average fair value of $1.93)	820,500		$	1.13
Options exercised	(82,400	)	$	0.44
Options canceled	(484,055	)	$	0.58
Balance as of December 31, 2007	1,608,025		$	0.72
Options outstanding and exercisable at December 31, 2007	407,307		$	0.33

Other Information Regarding Stock Options

Additional information regarding common stock options outstanding as of December 31, 2007 is as follows:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted Avg. Remaining Life	Weighted Avg. Exercise Price		Intrinsic Value		Number Exercisable	Weighted Avg. Exercise Price		Intrinsic Value
$0.5 - $0.5	647,617	8.95	$	0.50	$	1,185,139	136,153	$	0.50	$	249,160
$1.38 - $1.38	430,000	9.65	$	1.38	408,500		—	—		—
$0.25 - $0.25	470,408	7.62	$	0.25	978,449		271,154	$	0.25	564,000
$2.17 - $2.17	60,000	9.91	$	2.17	9,600		—	—		—
	1,608,025	8.78	$	0.72	$	2,581,688	407,307	$	0.33	$	813,160

The intrinsic value is calculated as the difference between the value of Prosper’s common stock at December 31, 2007, which was $2.33 per share, and the exercise price of the options.

No compensation expense is recognized for unvested shares that are forfeited upon termination of service, and the stock-based compensation expense for the years ended December 31, 2007 and 2006 reflect the expenses that Prosper expects to recognize after the consideration of estimated forfeitures.

12.  Income Taxes

The Company did not have any current or deferred federal or state income tax expense for the years ended December 31, 2007 and 2006.  The income tax expense (benefit) differed from the amount computed by applying the U.S.  federal income tax rate of 34% to pretax loss as a result of the following:

F-18

Prosper Marketplace, Inc.

Notes to Financial Statements (continued)

December 31, 2007 and 2006

12.  Income Taxes (continued)

	For the Year Ended December 31, 2007					For the Year Ended December 31, 2006
Federal tax at statutory rate	$	(4,038,00	)	34.0	%	$	(2,090,000	)	34.0	%
State tax at statutory rate (net of federal benefit)	(713,000		)	6.5	%	(449,000		)	3.9	%
Change in valuation allowance	4,610,000			(38.8	)%	2,615,000			(42.6	)%
Other	171,000			(1.60	)%	(76,000		)	1.2	%
	$	—				$	—

Temporary items that give rise to significant portions of deferred tax assets and liabilities (tax- effected) at December 31, 2007 and 2006 are as follows:

	December 31
	2007			2006
Deferred tax assets:
Net operating loss carryforwards	$	6,791,000		$	2,882,000
Research & development tax credit	374,000			267,000
Accrued liabilities and other	749,000			126,000
	7,914,000			3,275,000
Deferred tax liabilities:
Other	(64,000		)	(36,000		)
	$	7,850,000		$	3,239,000
Valuation allowance	(7,850,000		)	(3,239,000		)
Net deferred tax asset	$	—		$	—

The net deferred tax asset of $7,850,000 at December 31, 2007 consists of a net current deferred tax asset of $677,000 and a net noncurrent deferred tax asset of $7,173,000.  The net deferred tax asset of $3,239,000 at December 31, 2006 consists of a net current deferred tax asset of $98,000 and a net noncurrent deferred tax asset of $3,141,000.

Under SFAS No.  109, Accounting for Income Taxes, a valuation allowance must be established when it is more likely than not that all or a portion of a deferred tax asset will not be realized.  The amount of valuation allowance would be based upon management’s best estimate of Prosper’s ability to realize the net deferred tax assets.  A valuation allowance can subsequently be reversed when management believes that the assets are realizable on a more-likely-than-not basis.

The Company has determined that its net deferred tax asset did not satisfy the recognition criteria set forth in SFAS No.  109 and, accordingly, established a valuation allowance for 100 percent of the net deferred tax asset.  Realization of the deferred tax assets is dependent upon future earnings, if any, the amount and timing of which are uncertain.  Accordingly, the net deferred tax assets have been fully offset by a valuation allowance of $7,841,000 and $3,239,000 for the years ended December 31, 2007 and 2006, respectively.

We file income tax returns in the United States and California.  Prosper has net operating loss carryforwards for both federal and California income tax purposes of approximately $17 million, available to reduce future income subject to income taxes.  The federal net operating loss carryforwards will begin to expire in 2025.  The California net operating loss carryforwards will begin to expire in 2015.  Prosper also has federal and California research and development tax credits of about $211,000 and $222,000.  The federal research credits will begin to expire in the year 2025, and the California research credits have no expiration date. The Company has capital loss carryforwards of $611,000 for both federal and California which will expire in 2012.

F-19

Prosper Marketplace, Inc.

Notes to Financial Statements (continued)

December 31, 2007 and 2006

12.  Income Taxes (continued)

The Company’s federal and California state income tax returns for tax years 2005 and beyond remain subject to examination by the Internal Revenue Service and Franchise Tax Board, respectively.  In addition, all of the net operating losses that may be used in future years are still subject to adjustment.

We do not expect our unrecognized tax benefits to change significantly over the next 12 months.  In connection with the adoption of FIN 48, Prosper will recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.  As of December 31, 2007, the Company has not accrued interest or penalties related to uncertain tax positions.

13.  Commitments and Contingencies

Future minimum lease payments

Prosper leases its corporate office and co-location facility under noncancelable operating leases that expire in July 2011 and August 2011, respectively.  Prosper’s corporate office lease has the option to renew for an additional three years.  Future minimum rental payments under these leases as of December 31, 2007 are as follows:

Year ending December 31:
2008	$	335,239
2009	297,002
2010	306,164
2011	181,713
Total future operating lease obligations	$	1,120,118

Rental expense under premises-operating lease arrangements was approximately $345,000 and $174,000 for the years ended December 31, 2007 and 2006, respectively.

Investment in Joint Venture

On December 21, 2007, the Company entered into a Joint Venture Agreement with SBI Holdings, Inc., a Japanese corporation for the establishment of a Japanese company (“SBI Prosper Co.  Ltd) which would emulate Prosper’s business model.  On January 23, 2008, Prosper purchased from SBI Prosper eighty shares of Common Stock representing a 40% share Company interest for an aggregate purchase price of 4,000,000 Yen or approximately $39,000.  This operating capital will be used primarily on costs associated with research of legal and regulatory costs.

Securities Law Compliance

From inception through October 16, 2008, the Company sold approximately $178.6 million of loans to unaffiliated lender members through the Prosper platform whereby the Company assigned promissory notes directly to lender members.  The Company did not register the offer and sale of the promissory notes offered and sold through the Prosper platform under the Securities Act of 1933 or under the registration or qualification provisions of the state securities laws.  The Company’s management believes that the question of whether or not the operation of the Prosper platform involved an offer or sale of a “security” involved a complicated factual and legal analysis and was uncertain.  If the sales of promissory notes offered through the Company’s platform were viewed as a securities offering, the Company would have failed to comply with the registration and qualification requirements of federal and state law and lender members who hold these promissory notes may be entitled to rescission of unpaid principal, plus statutory interest.  Generally, the federal statute of limitations for noncompliance with the requirement to register securities under the Securities Act of 1933 is one year from the violation.  See also Note 15 – Subsequent Events.

F-20

Prosper Marketplace, Inc.

Notes to Financial Statements (continued)

December 31, 2007 and 2006

13.  Commitments and Contingencies (continued)

Securities Law Compliance (continued)

The Company’s decision to restructure its operations and cease sales of promissory notes offered through the platform effective October 16, 2008 limited this contingent liability to the period from the launch of Prosper’s platform in February 2006 through October 16, 2008, the cessation of sales of promissory notes offered through the platform.

Except as disclosed in Note 15 – Subsequent Events, the Company has not recorded an accrued loss contingency in connection with the sale of promissory notes to lender members.  Accounting for loss contingencies involves the existence of a condition, situation or set of circumstances involving uncertainty as to possible loss that will ultimately be resolved when one or more future event(s) occur or fail to occur.  An estimated loss in connection with a loss contingency shall be recorded by a charge to current operations if both of the following conditions are met: first, the amount can be reasonably estimated; and second, the information available prior to issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements.

The Company has assessed the contingent liability related to prior sales of loans on the platform and has determined that the occurrence of the contingency is reasonably possible but not probable.  In addition, the Company is not able to reasonably estimate the amount of loss associated with the contingent liability.  In making its assessment that the contingency is not reasonably estimable and is not probable, the Company considered its view, described above, that analyzing whether or not the operation of the Prosper platform involved an offer or sale of a “security” involved a complicated factual and legal analysis and was uncertain.

14.  Postretirement Benefit Plans

Prosper has a 401(k) plan that covers all employees meeting certain eligibility requirements.  The 401(k) plan is designed to provide tax-deferred retirement benefits in accordance with the provisions of Section 401(k) of the Internal Revenue Code.  Eligible employees may defer up to 90% of eligible compensation up to the annual maximum as determined by the Internal Revenue Service.  Prosper’s contributions to the plan are discretionary.  Prosper has not made any contributions to the plan to date.

15.  Subsequent Events

In November of 2008, the Securities and Exchange Commission (SEC) instituted cease and desist proceedings, pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”), against Prosper. In anticipation of the institution of these proceedings, Prosper submitted an Offer of Settlement (the “Offer”) which was accepted by the SEC. Pursuant to the Offer, Prosper consented to the entry of an Order Instituting Cease and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933, Making Findings, and Imposing a Cease-and-Desist Order (“Order”).  The Order includes findings that Prosper violated Sections 5(a) and (c) of the Securities Act of 1933 (“Securities Act”), and requires that pursuant to Section 8A of the Securities Act, Prosper cease and desist from committing or causing any violations and any future violations of Sections 5(a) and (c) of the Securities Act. The Order was approved by the SEC on November 20, 2008.

On November 26, 2008, the Company signed a settlement term sheet with the North American Securities Administrators Association (“NASAA”) to pay penalties not to exceed $1.0 million to the States in order to resolve matters relating to Prosper’s alleged unregistered offer and sale of securities. The $1.0 million penalty would be allocated among the states where Prosper conducts business, based on the loan sale transaction volume in each state. However, Prosper will not be required to pay any portion of the fine to those states which elect not to participate in the settlement. The Company has accrued approximately $425,000 in connection with this contingent liability in accordance with SFAS No. 5, Accounting for Contingencies.

F-21

Prosper Marketplace, Inc.

Notes to Financial Statements (continued)

December 31, 2007 and 2006

15.  Subsequent Events (continued)

On November 26, 2008, a class action lawsuit was filed against the Company, certain of our executive officers and our directors in the Superior Court of California, County of San Francisco, California.  The suit was brought on behalf of all loan note purchasers in our online lending platform from January 1, 2006 through October 14, 2008.  The lawsuit alleges that Prosper offered and sold unqualified and unregistered securities in violation of the California and federal securities laws.  The lawsuit seeks class certification, damages, the right of rescission and the award of attorneys’ fees and costs against Prosper and the other named defendants.  The final outcome of this lawsuit is not presently determinable or estimable.

In December 2008, the Company filed a registration statement with the Securities and Exchange Commission with respect to the offering of $500,000,000 of Borrower Payment Dependent Notes (the Notes). The change in the operation of the Company’s platform, as well as the Company’s adoption of new accounting pronouncements, will have a significant impact on the Company’s financial statements and results of operations for periods following the effective date of that registration statement. We will continue to evaluate the impact the changes this shift in our operations will have on our financial condition, results of operations and cash flow.

On April 14, 2008, the Company entered into an agreement with a Utah-chartered industrial bank whereby all loans originated through the Prosper marketplace resulting from listings posted on or after April 15, 2008 are made by WebBank under its bank charter. The arrangement allows for loans to be offered to borrowers at uniform nationwide terms. The Company is required to pay WebBank a monthly fee.

On July 21, 2008, the Company re-negotiated its co-location facility lease for additional 3 year term ending August 31, 2011 for a total monthly commitment of $10,475.

From January 1, 2008 to December 2, 2008, the Company granted 415,000 stock options to employees under the 2005 Stock Option Plan.

F-22

Interim Consolidated Financial Statements (Unaudited)

F-23

Prosper Marketplace, Inc.

Consolidated Balance Sheets

	September 30,			December 31,
	2008			2007
	Unaudited			Audited
ASSETS
Cash and cash equivalents	$	12,975,066		$	20,280,105
Restricted cash	845,542			866,986
Servicing rights	73,954			—
Loans receivable	3,460			355,567
Property and equipment, net of $1,396,812 and $885,665 accumulated depreciation and amortization as of September 31, 2008 and December 31, 2007, respectively	923,710			1,014,575
Prepaid and other assets	357,443			313,608
Intangible assets, net	321,952			412,500
Total assets	$	15,501,127		$	23,243,341
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	867,818		$	515,892
Accrued liabilities	1,035,967			1,202,730
Servicing rights	—			14,086
Loan repurchase obligation	100,067			100,151
Long-term debt, net of discount of $55,368 and $77,132 as of September 30, 2008 and December 31, 2007, respectively	279,191			282,868
Total liabilities	2,283,043			2,115,727
Commitments and contingencies (see Note 13)
Stockholders’ Equity
Convertible preferred stock – Series A ($0.001 par value; 4,023,999 shares authorized, issued and outstanding as of September 30, 2008 and December 31, 2007)	4,024			4,024
Convertible preferred stock – Series B ($0.001 par value; 3,310,382 shares authorized, issued and outstanding as of September 30, 2008 and December 31, 2007)	3,310			3,310
Convertible preferred stock – Series C ($0.001 par value; 2,063,558 shares authorized; 2,063,558 issued and outstanding as of September 30, 2008 and December 31, 2007)	2,064			2,064
Common stock ($0.001 par value; 16,000,000 shares authorized; 4,322,505 shares and 3,662,476 shares issued and outstanding as of  September 30, 2008 and December 31, 2007, respectively)	4,323			3,663
Additional paid-in capital	40,858,628			40,493,256
Accumulated deficit	(27,654,265		)	(19,378,703		)
Total stockholders’ equity	13,218,084			21,127,614
Total liabilities and stockholders’ equity	$	15,501,127		$	23,243,341

The accompanying notes are an integral part of these consolidated financial statements.

F-24

Prosper Marketplace, Inc.

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Operating income
Agency fees	$	406,250		$	202,664		$	1,330,020		$	688,162
Loan servicing fees	211,182			108,977			525,861			236,720
	617,432			311,641			1,855,881			924,882
Provision for loan repurchases	(4,989		)	(160,314		)	(33,893		)	(259,952		)
Operating income after provision for loan repurchases	612,443			151,327			1,821,988			664,930
Other income
Interest and dividends	108,360			277,915			453,574			534,738
Realized gains on marketable securities	—			23,514			—			47,307
Other income (loss)	2,324			1,026			2,939			(3,049		)
Total other income	110,684			302,455			456,513			578,996
Operating expenses
Compensation and benefits	1,505,558			1,510,143			4,801,251			4,257,997
Marketing and advertising	171,141			626,457			2,283,934			2,232,019
Professional services	359,069			414,828			1,194,862			1,070,753
Cost of services	215,964			154,785			730,582			502,982
Facilities and maintenance	177,075			171,788			521,164			499,376
Depreciation and amortization	209,472			170,737			601,695			469,751
General and administrative	113,088			85,877			420,575			241,652
Total operating expenses	2,751,367			3,134,615			10,554,063			9,274,530
Loss before income taxes	(2,028,240		)	(2,680,833		)	(8,275,562		)	(8,030,604		)
Income taxes	—			—			—			—
Net Loss	$	(2,028,240	)	$	(2,680,833	)	$	(8,275,562	)	$	(8,030,604	)
Net loss per share – basic and diluted	$	(0.48	)	$	(0.82	)	$	(2.07	)	$	(2.65	)
Weighted Average shares - basic and diluted net loss per share	4,245,254			3,273,664			4,006,483			3,024,895

The accompanying notes are an integral part of these consolidated financial statements.

F-25

Prosper Marketplace, Inc.

Consolidated Statements of Stockholders’ Equity and Comprehensive Income

													Accumulated Other
	Preferred Stock			Common Stock			Additional			Accumulated			Comprehensive
	Shares	Amount		Shares	Amount		Paid-In Capital			Deficit			Income (Loss)			Total
Balance as of January 1, 2007 (Audited)	7,334,381	$	7,334	1,249,576	$	1,250	$	20,070,953		$	(7,502,949	)	$	—		$	12,576,588
Issuance of convertible preferred stock, Series C	2,063,558	2,064					19,997,941									20,000,005
Offering costs on preferred stock							(80,996		)							(80,996		)
Issuance of common stock				2,102,000	2,103		208,898									211,001
Exercise of stock options				73,650	74		33,626									33,700
Compensation expense							174,827									174,827
Net loss										(8,030,604		)				(8,030,604		)
Change in unrealized loss on available-for-sale securities													(469,397		)	(469,397		)
Total comprehensive loss																(8,500,001		)
Balance as of September 30, 2007 (Unaudited)	9,397,939	$	9,398	3,425,226	$	3,427	$	40,405,249		$	(15,533,553	)	$	(469,397	)	$	24,415,124
Balance as of January 1, 2008 (Audited)	9,397,939	$	9,398	3,662,476	$	3,663	$	40,493,256		$	(19,378,703	)	$	—		$	21,127,614
Issuance of common stock				605,500	605		71,330									71,935
Exercise of stock options				54,529	55		17,980									18,035
Compensation expense							276,062									276,062
Net loss										(8,275,562		)				(8,275,562		)
Balance as of September 30, 2008 (Unaudited)	9,397,939	$	9,398	4,322,505	$	4,323	$	40,858,628		$	(27,654,265	)	$	—		$	13,218,084

The accompanying notes are an integral part of these consolidated financial statements.

F-26

Prosper Marketplace, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
	2008			2007
Cash flows from operating activities:
Net loss	$	(8,275,562	)	$	(8,030,604	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	601,695			469,751
Realized gain on sale of marketable securities	—			(47,307		)
Stock-based compensation expense	347,997			385,827
Provision for loan repurchase obligation	33,809			195,927
Change in fair value of servicing rights	(88,040		)	(54,195		)
Amortization of discount on long-term debt and marketable securities	16,323			5,766
Changes in operating assets and liabilities:
Restricted cash	21,444			(5,806		)
Loans receivable	352,107			(171,523		)
Prepaid and other assets	(43,835		)	(73,029		)
Accounts payable and accrued liabilities	185,163			982,030
Loan repurchases	(33,893		)	(259,952		)
Net cash used in operating activities	(6,882,792		)	(6,603,115		)
Cash flows from investing activities:
Proceeds from sale of available-for-sale marketable securities	—			9,972,870
Purchases of available-for-sale marketable securities	—			(22,533,038		)
Purchases of property and equipment	(420,282		)	(387,469		)
Net cash used in investing activities	(420,282		)	(12,947,637		)
Cash flows from financing activities:
Proceeds from issuance of convertible preferred stock	—			20,000,005
Offering costs – convertible preferred stock	—			(80,996		)
Proceeds from issuance of common stock	18,035			33,701
Principal repayment of long-term debt	(20,000		)	(20,000		)
Net cash provided by (used in) financing activities	(1,965		)	19,932,710
Net increase (decrease) in cash and cash equivalents	(7,305,039		)	381,958
Cash and cash equivalents at beginning of the year	20,280,105			5,969,564
Cash and cash equivalents at end of the year	$	12,975,066		$	6,351,522
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest	$	—		$	—
Income taxes	$	—		$	—

The accompanying notes are an integral part of these consolidated financial statements.

F-27

Prosper Marketplace, Inc.

Notes to Consolidated Financial Statements

September 30, 2008 and December 31, 2007

(Unaudited)

1.  Organization and Business

Prosper Marketplace, Inc. (Prosper, the Company, we, us, our) was incorporated in the state of Delaware on March 22, 2005. Prosper is an online marketplace for person-to-person lending. Prosper’s website provides an online auction where people list and bid on loans using Prosper’s online auction platform. Prosper’s lender members set the minimum interest rate that they are willing to earn and bid in increments of $50 to $25,000. Borrowers create loan listings from $1,000 up to $25,000 and set the maximum rate they are willing to pay on a loan. Prosper facilitates the lending and borrowing activities and acts as an agent to the lender by matching the lender and the borrower through its online auction platform. Prosper also handles all ongoing loan administration tasks, including loan servicing and collections on behalf of the lenders. Prosper generates revenue by collecting one-time fees from borrowers on funded loans and from loan servicing fees paid by lender members.

Due to the legal uncertainty regarding the sales of promissory notes offered through the Prosper platform under the Company’s prior operating structure (See Note 13 — Commitments and Contingencies — Securities Law Compliance), the Company decided to restructure its operations to resolve such uncertainty. The Company began its implementation of this decision on October 16, 2008, when it ceased offering lender members the opportunity to make purchases on the Prosper platform, ceased accepting new lender member registrations and ceased allowing new funding commitments from existing lender members. Furthermore, pursuant to this decision, in December, 2008, the Company filed a registration statement on Form S-1, with the Securities and Exchange Commission (SEC) (See Note 15-Subsequent Events), in which the Company described the restructuring of its operations and its new operating structure. The Company will resume accepting new lender members and allowing transactions with lender members starting on the date such registration statement becomes effective.

In December 2008, the Company filed a registration statement with the Securities and Exchange Commission with respect to the offering of $500,000,000 of Borrower Payment Dependent Notes (the Notes). The change in the operation of the Company’s platform, as well as the Company’s adoption of new accounting pronouncements, will have a significant impact on the Company’s financial statements and results of operations for periods following the effective date of that registration statement. We will continue to evaluate the impact the changes this shift in our operations will have on our financial condition, results of operations and cash flow.

2.  Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements include the accounts of Prosper and its wholly-owned subsidiary, P2P Servicing, Inc., which was formed in October 2007.  All significant intercompany transactions and balances have been eliminated.  These interim financial statements may not include all information and notes necessary to constitute a complete set of financial statements under GAAP applicable to annual periods and accordingly should be read in conjunction with the financial information contained elsewhere in this Prospectus.  Management believes these unaudited consolidated financial statements reflect all adjustments, including those of a normal recurring nature, which are necessary for a fair presentation of the results for the interim periods presented.  The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. These include but are not limited to the following: valuation of marketable securities, valuation allowance on deferred tax assets, valuation and amortization periods of intangible assets, fair value of servicing liabilities, provision for loan repurchase obligation, stock-based compensation expense, and contingent liabilities. Prosper bases its estimates on historical experience and on various other assumptions that Prosper believes to be reasonable under the circumstances. Actual results could differ from those estimates.

F-28

Prosper Marketplace, Inc.

Notes to Consolidated Financial Statements (continued)

September 30, 2008 and December 31, 2007

(Unaudited)

2.  Significant Accounting Policies (continued)

Liquidity

As reflected in the accompanying financial statements, Prosper has incurred net losses, negative cash flows from operations since inception, and has an accumulated deficit of approximately $28 million as of September 30, 2008.  Since its inception, Prosper has financed its operations primarily through equity financing from various sources.  The Company is dependent upon raising additional capital or debt financing to fund its current operating plan.  Failure to obtain sufficient debt and equity financings and, ultimately, to achieve profitable operations and positive cash flows from operations could adversely affect Prosper’s ability to achieve its business objectives and continue as a going concern.  Further, there can be no assurances as to the availability or terms upon which the required financing and capital might be available.  Our financial statements do not include any adjustments to reflect the possible effects on recoverability and classification of assets or the amounts and classification of liabilities that may result from our inability to continue as a going concern.

On June 15, 2007, Prosper finalized its Series C preferred stock financing and issued 2,063,558 shares at a price per share of $9.692 for aggregate cash consideration of $20 million.  In the event Prosper is unable to generate sufficient revenues, it may be required to raise additional capital or reduce certain discretionary spending.  Any additional financing may not be available in amounts or on terms acceptable to Prosper, if at all.

We believe that actions being taken by management as discussed above provide the opportunity to allow us to continue as a going concern.

Cash and Cash Equivalents

Prosper invests its excess cash primarily in money market funds and in highly liquid debt instruments of U.S.  municipalities, and the U.S.  government and its agencies.  All highly liquid investments with stated maturities of three months or less from date of purchase are classified as cash equivalents.  Cash equivalents are recorded at cost, which approximates fair value.  Such deposits periodically exceed amounts insured by the FDIC.

Restricted Cash

At September 30, 2008 and December 31, 2007, restricted cash consists primarily of an irrevocable letter of credit held by a financial institution in connection with the Company’s office lease and cash deposits required to support the Company’s ACH activities and secured corporate credit cards.

Loans Receivable

Loans receivable primarily represent loans originated by Prosper on the last day of the reporting period that are transferred to lenders on the next business day on a nonrecourse basis.

Loan Repurchase Obligation

Prosper is obligated to indemnify the lenders and repurchase the loans sold to the lenders in the event of violation of the applicable federal, state, or local lending laws or verifiable identify theft.  The loan repurchase obligation is estimated based on historical experience.  Prosper accrues a provision for repurchase obligations when the loans are funded.  Repurchased loans associated with federal, state, or local lending laws or verifiable identity thefts are written off at the time of repurchase.

F-29

Prosper Marketplace, Inc.

Notes to Consolidated Financial Statements (continued)

September 30, 2008 and December 31, 2007

(Unaudited)

2.  Significant Accounting Policies (continued)

Certain Risks and Concentrations

In the normal course of its business, Prosper encounters two significant types of risk: credit and regulatory.  Financial instruments that potentially subject Prosper to significant concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities, and loans receivable.  Cash equivalents and marketable securities consist primarily of money market and mutual funds of highly liquid debt instruments of corporations and the U.S.  government and its agencies.  Prosper maintains cash and cash equivalents and its investments with high-quality financial institutions.  Prosper performs periodic evaluations of the relative credit standing of these financial institutions and has not sustained any credit losses from instruments held at financial institutions.  Loans receivable are unsecured and are primarily comprised of loans originated on the last day of the reporting period that are in the process of being transferred to lenders.  As of September 30, 2008 and December 31, 2007, no single borrower accounted for more than 10% of Prosper’s total loan receivables, and no single lender or borrower represented more than 10% of Prosper’s total revenues.

Prosper is subject to various regulatory requirements.  The failure to appropriately identify and address these regulatory requirements could result in certain discretionary actions by regulators that could have a material effect on Prosper’s financial position and results of operations (See Note 13 — Commitments and Contingencies — Securities Law Compliance).

Property and Equipment

Property and equipment consists of computer equipment, office furniture and equipment, leasehold improvements and software purchased or developed for internal use. Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method based on the estimated useful lives of the assets, which range from three to seven years. Prosper capitalizes expenditures for replacements and betterments and expenses amounts for maintenance and repairs as they are incurred.  Depreciation and amortization commences when the asset is placed in service.

Internal Use Software and Website Development

Prosper accounts for internal use software costs, including website development costs, in accordance with the American Institute of Certified Public Accountants’ Statement of Position (SOP) No.  98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, and Emerging Issues Task Force (EITF) No.  00-02, Accounting for Website Development Costs.  In accordance with SOP No.  98-1 and EITF No.  00-02, the costs to develop software for Prosper’s website and other internal uses are capitalized when management has authorized and committed project funding, preliminary development efforts are successfully completed, and it is probable that the project will be completed and the software will be used as intended.  Capitalized software development costs primarily include software licenses acquired, fees paid to outside consultants, and salaries for employees directly involved in the development efforts.

Costs incurred prior to meeting these criteria, together with costs incurred for training and maintenance, are expensed.  Costs incurred for upgrades and enhancements that are considered to be probable to result in additional functionality are capitalized.  Capitalized costs are included in Property and Equipment (see Note 4) and amortized to expense using the straight-line method over their expected lives.  The Company evaluates its software assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.  Recoverability of software assets to be held and used is measured by a comparison of the carrying amount of the asset to the future net undiscounted cash flows expected to be generated by the asset.  If such software assets are considered to be impaired, the impairment to be recognized is the excess of the carrying amount over the fair value of the software asset.  No such impairment was present at September 30, 2008 and December 31, 2007.

F-30

Prosper Marketplace, Inc.

Notes to Consolidated Financial Statements (continued)

September 30, 2008 and December 31, 2007

(Unaudited)

2.  Significant Accounting Policies (continued)

Intangible Assets

Prosper records the purchase of intangible assets not purchased in a business combination in accordance with SFAS No.  142 Goodwill and Other Intangible Assets.  Prosper has an intangible asset resulting from the purchase of the “Prosper.com” domain name (see Note 5).  The intangible asset is amortized on a straight-line basis over five years.

Impairment of Long-Lived Assets Including Acquired Intangible Assets

In accordance with SFAS No.  144, Accounting for the Impairment or Disposal of Long-Lived Assets.  Prosper reviews property and equipment and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying values of those assets may not be recoverable.  Recoverability of assets to be held and used is measured by comparing the carrying value of the asset to future net undiscounted cash flows that the assets are expected to generate.  If an asset is considered to be impaired, the impairment to be recognized equals the amount by which the asset’s carrying value exceeds its fair value.  Fair value is estimated using discounted net cash flows.  Long-lived assets that are to be disposed of by sale are reported at the lower of the carrying value or the fair value less the cost to sell.  Prosper observed no impairment indicators and did not recognize impairment charges in the nine months ended September 30, 2008 and year ended December 31, 2007.

Revenue Recognition

Prosper recognizes revenue in accordance with Staff Accounting Bulletin (SAB) No.  104, Revenue Recognition in Financial Statements.  Under SAB No.  104, Prosper recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price of the services is fixed and determinable and collectibility is reasonably assured.

Agency fees are charged as a percentage of the amount borrowed ranging from 1% to 3% or $75 whichever is greater, and are recognized when the loan is funded to the borrower.

Loan servicing revenue includes monthly loan servicing fees and non-sufficient funds (NSF) fees.  Loan servicing fees are accrued daily based on the current outstanding loan principal balance held by third-party lenders but are not recognized until payment is received due to the uncertainty of collection of borrower loan payments.  Servicing fees for a loan vary based on the credit grade of the borrower.  Prosper charges a NSF fee to borrowers on the first failed payment of each billing period.  NSF fees are charged to the customer and collected and recognized immediately.

Servicing Rights

Prosper accounts for its servicing rights under the fair value measurement method of reporting in accordance with SFAS No.  156, Accounting for Servicing of Financial Assets – an Amendment of FAS 140.  Under the fair value method, Prosper measures its servicing rights at fair value at each reporting date and reports changes in fair value in earnings in the period in which the changes occur.

Prosper estimates the fair value of the servicing rights using a discounted cash flow model to project future expected cash flows based upon a set of valuation assumptions Prosper believes market participants would use for similar rights.  The primary assumptions Prosper uses for valuing its servicing rights include prepayment speeds, default rates, cost to service, profit margin, and discount rate.  Prosper reviews these assumptions quarterly to ensure that they remain consistent with the market conditions.  Inaccurate assumptions in valuing the servicing rights could affect Prosper’s results of operations.

F-31

Prosper Marketplace, Inc.

Notes to Consolidated Financial Statements (continued)

September 30, 2008 and December 31, 2007

(Unaudited)

2.  Significant Accounting Policies (continued)

Advertising and Promotional Expenses

Under the provisions of SOP 93-7, Reporting on Advertising Costs, the costs of advertising are expensed as incurred.  Advertising costs were approximately $2.3 million and $2.2 million for the nine months ended September 30, 2008 and 2007, respectively.

Stock-Based Compensation

The Company accounts for its stock-based compensation for employees in accordance with SFAS No.  123R, Share-Based Payment (SFAS No.  123R).  SFAS No.  123R requires companies to estimate the fair value of stock-based awards on the date of grant using an option-pricing model.  The stock-based compensation related to awards that is expected to vest is amortized over the vesting term of the stock-based award, which is generally four years.  Expected forfeitures of unvested options are estimated at the time of grant and reduce the recognized stock-based compensation expense.  The forfeitures were estimated based on historical experience.  The Company estimated its annual forfeiture rate to be 21.3% and 19.7% for the nine months ended September 30, 2008 and 2007, respectively.  Estimates of forfeitures are adjusted to actual over the vesting periods.  SFAS No.  123R was early adopted as of March 22, 2005 (inception date).

Prosperhasgrantedoptionstopurchasesharesofcommonstocktononemployeesinexchangeforservices performed.Prosperaccountsforstockoptions andrestrictedstockissuedtononemployeesinaccordancewiththeprovisionsofEITFNo.96-18,AccountingforEquityInstrumentsThatAreIssuedtoOtherThanEmployeesforAcquiringorinConjunctionwith Selling Goods, or Services, which requires that equity awards be recorded at their fair value.  Under SFAS No.  123R and EITF 96-18, Prosper uses the Black-Scholes model to estimate the value of options granted to nonemployees at each vesting date to determine the appropriate charge to stock-based compensation.  The volatility of common stock was based on comparative company volatility.

The fair value of stock option awards for the nine months ended September 30, 2008 and 2007 was estimated at the date of grant using the Black-Scholes model with the following average assumptions:

	Three Months Ended September 30		Nine Months Ended September 30
	2008	2007	2008	2007
Volatility of common stock	65.7%	59.7%	61.4%	59.7%
Risk-free interest rate	3.2%	4.4%	2.9%	4.5%
Expected life*	7.0 years	6.1 years	6.1 years	6.1 years
Dividend yield	0%	0%	0%	0%
Weighted-average fair value of grants	$1.94	$2.72	$2.19	$1.90

*For nonemployee stock option awards, the expected life is the contractual term of the award, which is generally ten years.

The Black-Scholes model requires the input of highly subjective assumptions, including the expected stock price volatility.  Because Prosper’s equity awards have characteristics significantly different from those of traded options, the changes in the subjective input assumptions can materially affect the fair value estimate.

F-32

Prosper Marketplace, Inc.

Notes to Consolidated Financial Statements (continued)

September 30, 2008 and December 31, 2007

(Unaudited)

2.  Significant Accounting Policies (continued)

Stock-Based Compensation (continued)

Total stock-based compensation expense for employee and nonemployee stock-based awards reflected in the Consolidated Statements of Operations for the nine months ended September 30, 2008 and 2007 is approximately $355,000 and $386,000, respectively, and $139,000 and $61,000 for the three months ended September 30, 2008 and 2007.  As of September 30, 2008, the remaining stock-based compensation expense related to stock-based awards is approximately $611,000, which will be recognized over the remaining vesting period of approximately 2.6 years.

Net Loss Per Share

Prosper computes net loss per share in accordance with SFAS No.  128, Earnings Per Share.  Under SFAS No.128, basic net loss per share is computed by dividing net loss per share available to common shareholders by the weighted average number of common shares outstanding for the period and excludes the effects of any potentially dilutive securities.  Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the “treasury stock” and/or “if converted” methods, as applicable.  At September 30, 2008, there were outstanding convertible preferred stock and options convertible into 9,397,939 and 1,760,837 common shares, respectively, which may dilute future earnings per share.  Due to the Company reporting a net loss for the three- and nine-months ended September 30, 2008 and 2007, there is no calculation of fully-diluted earnings per share, as common stock equivalents are anti-dilutive.

Income Taxes

Prosper uses the liability method to account for income taxes.  Under this method, deferred income tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.  Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Effective January 1, 2007, Prosper adopted the provisions of the Financial Accounting Standards Board (FASB) Interpretation No.  48, Accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No.  109 (FIN 48).  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No.  109 Accounting for Income Taxes, and prescribes a recognition threshold of more-likely-than-not to be sustained upon examination.  Upon adoption of FIN 48, our policy to include interest and penalties related to gross unrecognized tax benefits within our provision for income taxes did not change.  The adoption of FIN 48 did not have a material impact on our financial position and results of operations.

Fair Value Measurement

Effective with the adoption of SFAS No. 157 Fair Value Measurements, the Corporation determines the fair values of its financial instruments based on the fair value hierarchy established in that standard, which requires an entity to maximize the use of quoted price and observable inputs and to minimize the use of unobservable inputs when measuring fair value.  Various valuation techniques are utilized, depending on the nature of the financial instrument, including the use of market prices for identical instruments, market prices for similar instruments, and discounted cash flow models.  When possible, active and observable market data for identical or similar financial instruments are utilized.  Alternatively, fair value is determined using assumptions that management believes a market participant would use in pricing the asset or liability.

Under SFAS No. 157, fair value measurements are classified among three levels based on the observability of the inputs used to determine fair value:

F-33

Prosper Marketplace, Inc.

Notes to Consolidated Financial Statements (continued)

September 30, 2008 and December 31, 2007

(Unaudited)

2.  Significant Accounting Policies (continued)

Fair Value Measurement (continued)

Level 1 — The valuation is based on quoted prices in active markets for identical instruments.

Level 2 — The valuation is based on observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 — The valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the instrument.  Level 3 valuations are typically performed using pricing models, discounted cash flow methodologies, or similar techniques, which incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument or valuations that require significant management judgment or estimation.

Prosper’s only asset or liability measured at fair value on a recurring basis are its servicing rights.  Servicing rights do not trade in an active open market with readily observable prices.  Although sales of servicing assets do occur, the precise terms and conditions typically would not be available.  Accordingly, management determines the fair value of its servicing rights using a discounted cash flow model to project future expected cash flows based upon a set of valuation assumptions Prosper believes market participants would use for similar rights.  The primary assumptions Prosper uses for valuing its servicing asset include prepayment speeds, default rates, cost to service, profit margin, and discount rate.  Prosper reviews these assumptions to ensure that they remain consistent with the market conditions.  Inaccurate assumptions in valuing the servicing right could affect Prosper’s results of operations.  Due to the nature of the valuation inputs, servicing assets are classified as Level 3.  See Note 6 for further discussion of the significant assumptions used to value its servicing rights.

Adoption of New Accounting Pronouncements

In February 2007, the FASB issued SFAS No.  159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of SFAS No.  115.  SFAS No.  159 permits companies to choose to measure certain financial instruments and certain other items at fair value.  The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings.  SFAS No.  159 is effective for the Company beginning in the first quarter of fiscal year 2009, although earlier adoption is permitted.  (See Note 15 — Subsequent Events).  We intend to apply the provisions of SFAS No.  159 to the Notes and member loans issued on an instrument by instrument basis going forward.  We do not anticipate applying the provisions of SFAS No.  159 to member loans originated prior to the date of this prospectus.

3.  Cash and Cash Equivalents

Cash, cash equivalents consists of the following:

	September 30, 2008		December 31, 2007
Cash and cash equivalents:
Cash	$	773,252	$	949,954
Money Market Mutual Funds	12,201,814		19,330,151
Total cash and cash equivalents	$	12,975,066	$	20,280,105

No marketable securities were held as of September 30, 2008 or December 31, 2007.  Realized gains of approximately $23,500 and $47,300 for the three and nine months ended September 30, 2007, respectively, were reported in the Statement of Operations.  Purchases of marketable securities for the nine months ended September 30, 2007 were approximately $23 million and proceeds from the sale of marketable securities during the same period were approximately $10 million.

F-34

Prosper Marketplace, Inc.

Notes to Consolidated Financial Statements (continued)

September 30, 2008 and December 31, 2007

(Unaudited)

4.  Property and Equipment

Property and equipment consist of the following:

	September 30, 2008			December 31, 2007
Property and equipment:
Computer equipment	$	1,058,643		$	904,373
Purchased software	183,039			144,607
Office equipment and furniture	45,436			36,710
Internal-use software	1,004,174			814,550
Leasehold improvements	29,230			—
	2,320,522			1,900,240
Less accumulated depreciation and amortization	(1,396,812		)	(885,665		)
Total property and equipment, net	$	923,710		$	1,014,575

Depreciation and amortization expense for the three and nine months ended September 30, 2008, was $179,289 and $511,147, respectively.  Depreciation and amortization expense for the same periods in 2007 was $135,074 and $362,764, respectively.

5.  Intangible Assets and Promissory Note Payable

In 2006, Prosper paid a total of $603,659 to acquire the “Prosper.com” domain name.  The purchase price consisted of $320,000 cash, 26,483 shares of Prosper’s common stock valued at $0.50 per share (or $13,242) and a non-interest bearing promissory note of $380,000.  The note was discounted $109,583 for a net payable of $270,417.  The promissory note includes both principal and interest and is payable in annual installments of $20,000 due on the first, second, third, and fourth anniversary of the note and $300,000 due on the fifth anniversary of the note.  The discount on the note was calculated based an imputed annual rate of 8% and is amortized to interest expense over the five year life of the loan.  Amortization of the discount on the note of $21,764 and $21,633 was recorded for the nine months ended September 30, 2008 and 2007, respectively.

	September 30, 2008			December 31, 2007
Intangible Asset:
Domain Name	$	603,659		$	603,659
Less amortization	(281,707		)	(191,159		)
Total Intangible Asset, net	$	321,952		$	412,500

Amortization expense related to the intangible asset was approximately $30,200 and $90,500 for the three and nine months ended September 30, 2008, respectively.  Amortization expense for the same periods in 2007 was approximately $35,700 and $107,000, respectively.  Amortization expense related to this intangible asset is expected to be approximately $121,000 in fiscal 2008, 2009 and 2010.  In fiscal 2011, amortization expense related to this intangible asset is expected to be approximately $50,000.

F-35

Prosper Marketplace, Inc.

Notes to Consolidated Financial Statements (continued)

September 30, 2008 and December 31, 2007

(Unaudited)

6.  Servicing Rights

The servicing liability had a fair value of $14,086 at December 31, 2007.  In 2008, a servicing asset of $73,954 was recorded since the fair value of fees charged exceeded the related costs.  Increases in the fair value of the asset resulted in a gain of approximately $32,600 and $88,000 for the three and nine months ended September 30, 2008 and a gain of approximately $16,800 and $54,200 for the comparable periods in 2007.

Prosper calculates the fair value of the servicing asset/liability based on the following assumptions:

	Three Months Ended September 30		Nine Months Ended September 30
	2008	2007	2008	2007
Unpaid principal loan balance under service	$90,059,000	$66,359,000	$90,059,000	$66,359,000
Servicing fees	1.0% & 0.5%	1.0% & 0.5%	1.0% & 0.5%	1.0% & 0.5%
Projected prepayment speed	1.20%	1.35%	1.20%	1.35%
Discount rate	25%	25%	25%	25%

7.  Accrued Liabilities

As of September 30, 2008, and December 31, 2007, accrued liabilities consist of the following:

	September 30, 2008		December 31, 2007
Audit, tax and accounting	$	262,273	$	215,474
Payroll and benefits	112,896		184,543
Loan servicing costs	35,604		182,317
Legal fees	520,819		526,720
Other	104,375		93,676
	$	1,035,967	$	1,202,730

8.  Loan Repurchase Obligation

Changes in the loan repurchase obligation are summarized below:

	Nine Months Ended
	September 30, 2008			September 30, 2007
Beginning of period balance:	$	100,151		$	166,871
Provision for loan repurchases	33,809			195,927
Loans repurchased and charged off	(33,893		)	(259,952		)
End of period balance:	$	100,067		$	102,846

F-36

Prosper Marketplace, Inc.

Notes to Consolidated Financial Statements (continued)

September 30, 2008 and December 31, 2007

(Unaudited)

9.  Net Loss Per Share

Basic and diluted loss per share is calculated as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Numerator:
Net loss	$	(2,028,240	)	$	(2,680,833	)	$	(8,275,562	)	$	(8,030,604	)
Denominator:
Weighted average shares used in computing basic and diluted net loss per share	4,245,254			3,273,664			4,006,483			3,024,895
Basic and diluted net loss per share	$	(0.48	)	$	(0.82	)	$	(2.07	)	$	(2.65	)

As Prosper recorded net losses for each of the periods presented, no common equivalent shares were included in the diluted net loss per share calculation because to do so would have been anti-dilutive.  The following table presents all common equivalent shares that could potentially dilute basic earnings per share in the future.

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2008	2007	2008	2007
Excluded:
Weighted-average convertible preferred stock issued and outstanding	9,397,939	9,397,939	9,397,939	8,143,175
Weighted-average stock options issued and outstanding	1,721,272	1,291,177	1,646,859	1,087,329
Total common stock equivalents excluded from diluted net loss per common share	11,119,211	10,689,116	11,044,798	9,230,504

10.  Stockholders’ Equity

Preferred Stock

Under Prosper’s articles of incorporation, preferred stock is issuable in series, and the Board of Directors is authorized to determine the rights, preferences, and terms of each series.

In April 2005, Prosper sold 4,023,999 shares of Series A convertible preferred stock (Series A) in a private placement for $7,464,450, net of issuance costs of $80,550.  In February 2006, Prosper sold 3,310,382 shares of Series B convertible preferred stock (Series B) in a private placement for $12,412,302, net of issuance costs of $87,700.  In June 2007, Prosper sold 2,063,558 shares of Series C convertible preferred stock (Series C) in a private placement for $19,919,009, net of issuance costs of $80,996.

F-37

Prosper Marketplace, Inc.

Notes to Consolidated Financial Statements (continued)

September 30, 2008 and December 31, 2007

(Unaudited)

10.  Stockholders’ Equity (continued)

Preferred Stock (continued)

Dividends

The holders of the Series A, Series B and Series C preferred stock are entitled to receive dividends at an annual rate of 8% per share for the preferred stock.  Such dividends shall be payable only when, as, and if declared by the Board of Directors.  To date, no dividends have been declared, and there are no dividends in arrears at September 30, 2008.  No dividends will be paid on any common stock of Prosper until dividends on the Series A, Series B and Series C shall have been paid or declared and set apart during that fiscal year.

Conversion

Each share of Series A, Series B and Series C is automatically converted into shares of common stock at the Series A, Series B and Series C conversion price then in effect upon the earlier of (i) the date specified by vote or written consent or agreement of holders of 60% of the voting power of the shares of the Series A, Series B and Series C then outstanding, or (ii) immediately prior to the closing of the sale of Prosper’s common stock in a firm commitment, underwritten public offering registered under the Securities Act of 1933, as amended (the Securities Act), at a public offering price (before underwriters’ discounts and expenses) of at least two times the Original Series A, Series B and Series C Issue Price (as defined, per share as adjusted for any stock splits, stock dividends or other recapitalizations), and with gross proceeds to Prosper of at least $30,000,000.

Liquidation Rights

In the event of any liquidation, dissolution, or winding up of Prosper, whether voluntary or involuntary, the holders of the preferred stock are entitled to receive prior and in preference to any distribution of any of the proceeds of such Liquidation Event to holders of common stock, $1.875 for each share of Series A, $3.776 for each share of Series B, and $9.692 for each share of Series C (as adjusted for any stock dividends, combinations, or splits), plus all declared but unpaid dividends (if any) on such share of preferred stock.  If upon the occurrence of such Liquidation Event, the assets and funds thus distributed among the holders of the Series A, Series B and Series C are insufficient to pay the preferential amount, then the entire assets and funds of Prosper legally available for distribution will be distributed ratably among the holders of the Series A, Series B and Series C in proportion to the preferential amount each such holder is otherwise entitled to receive.

Voting

Each holder of shares of the preferred stock shall be entitled to the number of votes equal to the number of shares of common stock into which such shares of preferred stock could be converted and shall have voting rights and powers equal to the voting rights and powers of the common stock (except as otherwise expressly provided herein or as required by law, voting together with the common stock as a single class) and shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of Prosper.  The holders of the preferred stock shall vote as one class with the holder of the common stock except with certain restrictions.

Each holder of common stock shall be entitled to one vote for each share of common stock held.

Common Stock

Prosper is authorized to issue up to 16,000,000 shares of our common stock, $0.001 par value, of which 4,322,505 shares and 3,662,476 shares were issued and outstanding as of September 30, 2008 and December 31, 2007, respectively.

F-38

Prosper Marketplace, Inc.

Notes to Consolidated Financial Statements (continued)

September 30, 2008 and December 31, 2007

(Unaudited)

10.  Stockholders’ Equity (continued)

Common Stock (continued)

Common Stock Issued for Services

Employees

In March 2005, Prosper issued 4 million shares of common stock valued at $0.10 per share or $400,000 to the founders of the Company, of which 1 million shares were immediately vested and the remaining 3 million were to vest over 3.5 years for services rendered.  The unvested shares are subject to a repurchase agreement if the founders leave the Company, whereby Prosper can choose to repurchase any unvested shares at the lesser of $0.10 per share or the fair market value at the date service ceases.  During the nine months ended September 30, 2008 and 2007, a total of 600,000 and 2,100,000 shares, respectively, vested.  As of September 30, 2008, 3,925,000 shares are considered issued and outstanding.  Total compensation expense of $60,000 and $210,000 was recognized for the nine months ended September 30, 2008 and 2007, respectively.  In August 2008 the Company exercised its option to repurchase 75,000 shares from a founder who left the Company’s service in July 2008 for the price of $.10 per share, or $7,500.  As a result, as of September 30, 2008, all founder shares of stock have been fully vested or repurchased and retired.

For the nine months ended September 30, 2008 and 2007, the Company granted 4,000 and 2,000 immediately vested common shares, respectively, to employees for services.  The 4,000 shares issued in 2008 were valued at $2.17 per share and the 2,000 shares in 2007 were valued at $0.50 per share.  Expense of $8,680 and $1,000 was recognized for the nine months ended September 30, 2008 and 2007, respectively.

Nonemployees

The Company granted 1,500 immediately vested common shares valued at $2.17 per share to non-employees for services during the nine months ended September 30, 2008.  There were no similar shares granted by the Company for the nine months ended at September 30, 2007.  Expense of $3,255 and $0 was recognized for the nine months ended September 30, 2008 and 2007, respectively.

Common Stock Issued upon Exercise of Stock Options

For the nine months ended September 30, 2008, the Company issued 54,529 shares of common stock upon the exercise of options for $18,033 of cash proceeds and 73,650 shares for the nine months ended September 30, 2007 for $33,700 of cash proceeds.

11.  Stock Option Plan and Other Stock Compensation

In 2005, Prosper’s stockholders approved the adoption of the 2005 Stock Option Plan (the Plan).  Under the Plan, options to purchase up to 1,879,468 shares of common stock were reserved and may be granted to employees, directors, and consultants by the Board of Directors to promote the success of Prosper’s business.  On January 31, 2008, the Board of Directors increased the total number of options under the Plan by 500,000 for a total of 2,379,468 options available for grant.

Incentive stock options are granted to employees at an exercise price not less than 100% of the fair value of Prosper’s common stock on the date of grant.  Nonstatutory stock options are granted to consultants and directors at an exercise price not less than 85% of the fair value of Prosper’s common stock on the date of grant.  If options are granted to stockholders who hold 10% or more of Prosper’s common stock on the option grant date, then the exercise price shall not be less than 110% of the fair value of Prosper’s common stock on the date of grant.  The fair value is based on a good faith estimate by the Board of Directors at the time of each grant.  As there is no active trading market for these options, such estimate may ultimately differ from valuations completed by an independent party.  The options generally vest over four years, which is the same as the performance period.  In no event are options exercisable more than ten years after the date of grant.

F-39

Prosper Marketplace, Inc.

Notes to Consolidated Financial Statements (continued)

September 30, 2008 and December 31, 2007

(Unaudited)

11.  Stock Option Plan and Other Stock Compensation (continued)

Option activity under the Option Plan is summarized below:

	Options Issued and Outstanding		Weighted-Average Exercise Price
Balance as of January 1, 2007	1,353,980		$0.41
Options granted (weighted average fair value of $1.93)	820,500		$1.13
Options exercised	(82,400	)	$0.44
Options canceled	(484,055	)	$0.58
Balance as of December 31, 2007	1,608,025		$0.72
Options granted (weighted average fair value of $2.19.)	415,000		$2.17
Options exercised	(54,529	)	$0.33
Options canceled	(207,659	)	$1.58
Balance as of September 30, 2008	1,760,837		$0.98
Options outstanding and exercisable at September 30, 2008	721,069		$0.54

Other Information Regarding Stock Options

Additional information regarding common stock options outstanding as of September 30, 2008, is as follows:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted Avg. Remaining Life	Weighted Avg. Exercise Price		Intrinsic Value		Number Exercisable	Weighted Avg. Exercise Price		Intrinsic Value
$0.25 - $0.25	416,658	6.83	$	0.25	$	704,152	324,643	$	0.25	$	548,647
$0.50 - $0.50	579,075	8.15	$	0.50	833,868		274,035	$	0.50	394,610
$1.38 - $1.38	422,604	8.90	$	1.38	236,658		122,391	$	1.38	68,539
$2.17 - $2.17	342,500	9.48	$	2.17	—		—	—		—
	1,760,837	8.28	$	0.98	$	1,774,678	721,069	$	0.54	$	1,011,796

The intrinsic value is calculated as the difference between the fair value of Prosper’s common stock at September 30, 2008, which was $1.94 per share, and the exercise price of the options.

The exercisable shares are calculated under the assumption that all vested shares are exercisable without restriction.

No compensation expense is recognized for unvested shares that are forfeited upon termination of service, and the stock-based compensation expense for the nine months ended September 30, 2008 and 2007 reflects the expenses that Prosper expects to recognize after the consideration of estimated forfeitures.

12.  Income Taxes

Due to the book and tax net losses incurred during the three and nine-month periods ended September 30, 2008 and 2007, Prosper has not incurred any income tax expense during those periods.  In addition, Prosper has maintained a valuation allowance for 100% of its net deferred tax asset because the realization of those deferred tax assets is dependent upon future earnings, and the amount and timing of those earnings, if any is uncertain.

F-40

Prosper Marketplace, Inc.

Notes to Consolidated Financial Statements (continued)

September 30, 2008 and December 31, 2007

(Unaudited)

13.  Commitments and Contingencies

Future Minimum Lease Payments

Prosper leases its corporate office and co-location facility under noncancelable operating leases that expire in July 2011 and August 2011, respectively.  Prosper’s corporate office lease has the option to renew for an additional three years.  Future minimum rental payments under these leases as of September 30, 2008 are as follows:

Quarter ending December 31, 2008	$	104,805
Years ending December 31:
2009	422,702
2010	431,863
2011	265,513
Total future operating lease obligations	$	1,224,883

Rental expense under premises-operating lease arrangements was $94,748 and $272,335 for the three and nine months ended September 30, 2008, respectively.  Rental expense for the comparable periods in 2007 was $85,017 and $251,772, respectively.

On April 14, 2008, the Company entered into a agreement with a Utah-chartered industrial bank whereby all loans originated through the Prosper marketplace resulting from listings posted on or after April 15, 2008 are made by WebBank under its bank charter.  The arrangement allows for loans to be offered to borrowers at uniform nationwide terms.  The Company is required to pay WebBank a monthly fee.

Securities Law Compliance

From inception through October 16, 2008, the Company sold approximately $178.6 million of loans to unaffiliated lender members through the Prosper platform whereby the Company assigned promissory notes directly to lender members.  The Company did not register the offer and sale of the promissory notes offered and sold through the Prosper platform under the Securities Act of 1933 or under the registration or qualification provisions of the state securities laws.  The Company’s management believes that the question of whether or not the operation of the Prosper platform involved an offer or sale of a “security” involved a complicated factual and legal analysis and was uncertain.  If the sales of promissory notes offered through the Company’s platform were viewed as a securities offering, the Company would have failed to comply with the registration and qualification requirements of federal and state law and lender members who hold these promissory notes may be entitled to rescission of unpaid principal, plus statutory interest.  Generally, the federal statute of limitations for noncompliance with the requirement to register securities under the Securities Act of 1933 is one year from the violation.  See also Note 15 — Subsequent Events.

The Company’s decision to restructure its operations and cease sales of promissory notes offered through the platform effective October 16, 2008 limited this contingent liability to the period from the launch of Prosper’s platform in February 2006 through October 16, 2008, the cessation of sales of promissory notes offered through the platform.

F-41

Prosper Marketplace, Inc.

Notes to Consolidated Financial Statements (continued)

September 30, 2008 and December 31, 2007

(Unaudited)

13.  Commitments and Contingencies (continued)

Securities Law Compliance (continued)

Except as disclosed in Note 15 – Subsequent Events, the Company has not recorded an accrued loss contingency in connection with the sale of promissory notes to lender members.  Accounting for loss contingencies involves the existence of a condition, situation or set of circumstances involving uncertainty as to possible loss that will ultimately be resolved when one or more future event(s) occur or fail to occur.  An estimated loss in connection with a loss contingency shall be recorded by a charge to current operations if both of the following conditions are met: first, the amount can be reasonably estimated; and second, the information available prior to issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements.

The Company has assessed the contingent liability related to prior sales of loans on the platform and has determined that the occurrence of the contingency is reasonably possible but not probable.  In addition, the Company is not able to reasonably estimate the amount of loss associated with the contingent liability.  In making its assessment that the contingency is not reasonably estimable and is not probable, the Company considered its view, described above, that analyzing whether or not the operation of the Prosper platform involved an offer or sale of a “security” involved a complicated factual and legal analysis and was uncertain.

14.  Postretirement Benefit Plans

Prosper has a 401(k) plan that covers all employees meeting certain eligibility requirements.  The 401(k) plan is designed to provide tax-deferred retirement benefits in accordance with the provisions of Section 401(k) of the Internal Revenue Code.  Eligible employees may defer up to 90% of eligible compensation up to the annual maximum as determined by the Internal Revenue Service.  Prosper’s contributions to the plan are discretionary.  Prosper has not made any contributions to the plan to date.

15.  Subsequent Events

In November of 2008, the Securities and Exchange Commission (SEC) instituted cease and desist proceedings, pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”), against Prosper. In anticipation of the institution of these proceedings, Prosper submitted an Offer of Settlement (the “Offer”) which was accepted by the SEC. Pursuant to the Offer, Prosper consented to the entry of an Order Instituting Cease and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933, Making Findings, and Imposing a Cease-and-Desist Order (“Order”).  The Order includes findings that Prosper violated Sections 5(a) and (c) of the Securities Act and requires that pursuant to Section 8A of the Securities Act, Prosper cease and desist from committing or causing any violations and any future violations of Sections 5(a) and (c) of the Securities Act. The Order was approved by the SEC on November 20, 2008.

On November 26, 2008, the Company signed a settlement term sheet with the North American Securities Administrators Association (“NASAA”) to pay penalties not to exceed $1.0 million to the States in order to resolve matters relating to Prosper’s alleged unregistered offer and sale of securities. The $1.0 million penalty would be allocated among the states where Prosper conducts business, based on the loan sale transaction volume in each state. However, Prosper will not be required to pay any portion of the fine to those states which elect not to participate in the settlement. The Company has accrued approximately $425,000 in connection with this contingent liability in accordance with SFAS No. 5, Accounting for Contingencies.

On November 26, 2008, a class action lawsuit was filed against the Company, certain of our executive officers and our directors in the Superior Court of California, County of San Francisco, California.  The suit was brought on behalf of all loan note purchasers in our online lending platform from January 1, 2006 through October 14, 2008.  The lawsuit alleges that Prosper offered and sold unqualified and unregistered securities in violation of the California and federal securities laws.  The lawsuit seeks class certification, damages, the right of rescission and the award of attorneys’ fees and costs against Prosper and the other named defendants.  The final outcome of this lawsuit is not presently determinable or estimable.

In December 2008, the Company filed a registration statement with the SEC with respect to the offering of $500,000,000 of Borrower Payment Dependent Notes (the Notes). The change in the operation of the Company’s platform, as well as the Company’s adoption of new accounting pronouncements, will have a significant impact on the Company’s financial statements and results of operations for periods following the effective date of that registration statement. We will continue to evaluate the impact the changes this shift in our operations will have on our financial condition, results of operations and cash flow.

F-42

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.Other Expenses of Issuance and Distribution

The following table indicates the expenses to be incurred in connection with the offering described in this Registration Statement, all of which will be paid by Prosper Marketplace, Inc.  All amounts are estimated except the Securities and Exchange Commission registration fee.

Securities and Exchange Commission registration fee	$		19,650
Accountants’ fees and expenses	$	*
Legal fees and expenses	$		*
Blue Sky fees and expenses	$		*
Miscellaneous	$	*
Total Expenses	$	*

*  To be filed by amendment

Item 14.Indemnification of Directors and Officers

Our amended and restated certificate of incorporation provides that the liability of the directors of Prosper for monetary damages shall be eliminated to the fullest extent under applicable law.  As permitted by Delaware law, our amended and restated certificate of incorporation and bylaws contain provisions that limit or eliminate the personal liability of our directors for breaches of duty to the corporation.  Our amended and restated certificate of incorporation and bylaws limit the liability of directors to the fullest extent permitted under Delaware law.  Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breaches of their fiduciary duties as directors, except liability for:

·any breach of the director’s duty of loyalty to us or our stockholders;

·any act or omission not in good faith, believed to be contrary to the interests of the corporation or its shareholders, involving reckless disregard for the director’s duty, for acts that involve an unexcused pattern of inattention that amounts to an abdication of duty, or that involves intentional misconduct or knowing or culpable violation of law;

·any unlawful payments related to dividends, unlawful stock repurchases, redemptions, loans, guarantees or other distributions; or

·any transaction from which the director derived an improper personal benefit.

These limitations do not affect the availability of equitable remedies, including injunctive relief or rescission.  As permitted by Delaware law, our amended and restated certificate of incorporation and bylaws also provide that:

·we will indemnify our directors and officers to the fullest extent permitted by law;

·we may indemnify our other employees and other agents to the same extent that we indemnify our officers and directors; and

·we will advance expenses to our directors and officers in connection with a legal proceeding, and may advance expenses to any employee or agent; provided, however, that such advancement of

II-1

expenses shall be made only upon receipt of an undertaking by the person to repay all amounts advanced if it should be ultimately determined that the person was not entitled to be indemnified.

The indemnification provisions contained in our amended and restated certificate of incorporation and s bylaws are not exclusive.

In addition to the indemnification provided for in our amended and restated certificate of incorporation and bylaws, we have entered into indemnification agreements with each of our directors.  The indemnification agreements require us, among other things, to indemnify such persons for all expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement (if such settlement is approved in advance by Prosper) actually and reasonably incurred by such person in connection with the investigation, defense or appeal of:

·any proceeding to which such person may be made a party by reason of,

·such person’s service as a director or officer of Prosper,

·any action taken by such person while acting as director, officer, employee or agent of Prosper, or

·such person’s actions while serving at the request of Prosper as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, and in any such case described above, whether or not serving in any such capacity at the time any liability or expense is or was incurred; or

·establishing or enforcing a right to indemnification under the agreement.

Under the indemnification agreements, we are not obligated to provide indemnification on account of any proceeding unless such person acted in good faith and in a manner reasonably believed to be in the best interests of Prosper, and with respect to criminal proceedings, such person had no reasonable cause to believe his conduct was unlawful.  The termination of a proceeding by judgment, settlement, conviction or upon a plea of nolo contendere or its equivalent does not, by itself, create the presumption that such person did not satisfy the above standards.  Moreover, with respect to third party proceedings, we are not obligated to provide indemnification if such person has been adjudged to be liable to Prosper, unless a court of competent jurisdiction determines such person is entitled to indemnification in view of all the circumstances of the case.  In addition, under the indemnification agreements, we are not obligated to provide indemnification:

·for any proceedings or claims initiated or brought voluntarily by such person and not by way of defense, other that a proceeding to establish such person’s right to indemnification;

·for any expenses incurred by such person with respect to any proceeding instituted by such person to enforce and interpret the terms of his indemnification agreement, unless a court of competent jurisdiction determines that each of the material assertions made by such person in that proceeding was not made in good faith or was frivolous;

·for any expenses and liabilities that have been paid directly to such person under a directors’ and officers’ liability insurance policy maintained by Prosper; and

·for expenses and payment of profits arising from the purchase and sale by such person of securities in violation of Section 16(b) of the Exchange Act.

The indemnification agreements also provide that we agree to indemnify such persons to the fullest extent permitted by law, even if such indemnification is not specifically authorized by the other provisions of the agreement or our amended and restated certificate of incorporation or bylaws.  Moreover, the indemnification agreements provide that any future changes under Delaware law that expand the ability of a Delaware corporation to indemnify its officers and directors are automatically incorporated into the agreements and that, to the extent

II-2

permitted by law, any future changes under Delaware law that would limit the ability of a Delaware corporation to indemnify its officers and directors shall have no effect on our indemnification obligations as set forth in such agreements.

We also maintain a general liability insurance policy that covers certain liabilities of directors and officers of our corporation arising out of claims based on acts or omissions in their capacities as directors or officers.

We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and officers.

Item 15.  Recent Sales of Unregistered Securities

Set forth below is information regarding shares of common and preferred stock issued, warrants exercisable for common and preferred stock issued, convertible notes issued and options granted by us since our inception.  Also included is the consideration, if any, received by us for such securities and information relating to the section of the Securities Act, or rule of the Securities and Exchange Commission, under which exemption from registration was claimed.  No underwriters were involved in the sale of any of the securities set forth below.

In March 2005, we awarded, for nominal value, an aggregate of 4,000,000 shares of common stock valued at $0.10 per share or $400,000, to our co-founders.  2,000,000 shares were issued to Christian A. Larsen, our Chief Executive Officer, and 2,000,000 shares were issued to John Witchel, our former Secretary and Chief Technology Officer.  These securities were sold in reliance on the exemption from the registration requirements of the Securities Act as set forth in Section 4(2) of the Securities Act relative to sales by an issuer not involving a public offering.

In April 2005, we issued and sold to investors an aggregate of 4,023,999 shares of our Series A convertible preferred stock (“Series A”) at a purchase price of $1.875 per share for an aggregate consideration of $7,464,450, net of issuance costs of $80,550.  In February 2006, we issued and sold to investors an aggregate of 3,310,382 shares of our Series B convertible preferred stock (“Series B”) at a purchase price of $3.776 per share for an aggregate consideration of $12,412,301, net of issuance cost of $87,700.  In June 2007, we issued and sold to investors an aggregate of 2,063,558 shares of Series C convertible preferred stock (“Series C”) at a purchase price of $9.692 per share for an aggregate consideration of $19,916,945, net of issuance costs of $80,996.  These securities were sold in reliance on the exemption from the registration requirements of the Securities Act as set forth in Section 4(2) of the Securities Act and Regulation D promulgated thereunder relative to sales by an issuer not involving a public offering.

During the years ended December 31, 2007 and 2006, we granted 3,000 and 1,000 fully vested common shares, respectively, to employees for services.  All shares in 2006 and 2,000 of the shares issued in 2007 were granted at $0.50 per share and 1,000 shares at $2.17 per share in 2007.  In addition, w granted 2,500 immediately vested common shares at $2.17 per share to non-employees for services during the year ended December 31, 2007 and 11,294 immediately vested shares at $0.50 per share in 2006.  In 2006, we issued 26,483 shares of common stock valued at $0.50 per share as partial payment to acquire the Prosper.com domain name.  These securities were sold or granted in reliance on the exemption from the registration requirements of the Securities Act as set forth in Section 4(2) of the Securities Act relative to sales by an issuer not involving a public offering.

Since our inception, we have granted stock options to purchase an aggregate of 2,944,480 shares of our common stock, of which options to purchase 898,589 shares were cancelled and options to purchase 185,054 shares were exercised.  The options were granted at various exercise prices as set forth in Note 11 to audited financial statements and interim financial statements included in the prospectus.  The options were granted to employees and consultants pursuant to our 2005 Plan or other written compensatory plans or arrangements. The shares of common stock issued upon exercise of options are deemed restricted securities for the purposes of the Securities Act.

The grants of stock options and the shares of common stock issuable upon the exercise of the options and the shares of restricted stock were issued pursuant to written compensatory plans or arrangements with our employees and consultants, in reliance on the exemption provided by Section 3(b) of the Securities Act and Rule 701 promulgated thereunder.

II-3

Item 16.  Exhibits

The exhibits to the registration statement are listed in the Exhibit Index to this registration statement and are incorporated by reference herein.

Item 17.Undertakings

The undersigned registrant hereby undertakes:

1.  To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

i.  To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

ii.  To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement.  Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.

iii.  To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

2.  That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

3.  To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

4.  That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, if the Registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness.  Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

5.  That, for the purpose of determining liability of the Registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

i.  Any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 424;

II-4

ii.  Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred to by the undersigned Registrant;

iii.  The portion of any other free writing prospectus relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and

iv.  Any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser.

6.  Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.  In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

II-5

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 2 to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Francisco, State of California, on the 16th day of January, 2009.

PROSPER MARKETPLACE, INC.
By	/s/ Christian A. Larsen
	Christian A. Larsen
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.

Name		Title	Date
/s/ Christian A. Larsen		Chief Executive Officer (Principal Executive
Christian A. Larsen		Officer); Director	January 16, 2009
*		Chief Financial Officer (Principal Financial
Kirk T. Inglis		and Accounting Officer)	January 16, 2009
*		Director
James W. Breyer			January 16, 2009
*		Director
Lawrence W. Cheng			January 16, 2009
*		Director
Paul m. Hazen			January 16, 2009
*		Director
Robert C. Kagle			January 16, 2009
*By:	/s/ Christian A. Larson
	Christian A. Larson Attorney-in-Fact

II-6

EXHIBIT INDEX

Exhibit
Number Description

3.1** Amended and Restated Certificate of Incorporation of the Registrant

3.2** Bylaws of the Registrant, dated March 22, 2005

4.1	Form of Borrower Payment Dependent Note (included as Exhibit A in Exhibit 4.2)
4.2	Form of Indenture between Prosper Marketplace, Inc. and to be named commercial bank

5.1* Opinion of Morrison & Foerster LLP

8.1* Opinion of Morrison & Foerster LLP

10.1 Form of Borrower Registration Agreement

10.2 Form of Lender Registration Agreement (Note Commitment, Purchase and Sale Agreement)

10.3 Loan Account Program Agreement, dated April 14, 2008, between WebBank and Prosper Marketplace, Inc.(1)

10.4** Loan Sale Agreement, dated April 14, 2008, between WebBank and Prosper Marketplace, Inc.(1)

23.1 Consent of Ernst & Young LLP

23.2* Consent of Morrison & Foerster LLP (included in Exhibit 5.1)

24.1** Power of Attorney (see page II- 6 of this registration statement)

25.1* Form T-1 Statement of Eligibility under Trust Indenture Act of 1939 of Trustee under the Indenture

*	To be filed by amendment
**	Previously filed
(1)	Certain portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406 of the Securities Act.

II-7

EX-4.2

Exhibit 4.2

PROSPER MARKETPLACE, INC.

BORROWER PAYMENT DEPENDENT NOTES

INDENTURE

DATED AS OF [      , 2009]

                                                                                      ,
AS TRUSTEE

CROSS REFERENCE TABLE(1)

TIA		INDENTURE
SECTION		SECTION
310	(a)(1)	6.8; 6.10
	(a)(2)	6.10
	(a)(3)	N.A.
	(a)(4)	N.A.
	(a)(5)	6.10
	(b)	6.8; 6.10
	(c)	N.A.
311	(a)	6.11
	(b)	6.11
	(c)	N.A.
312	(a)	2.6
	(b)	9.3
	(c)	9.3
313	(a)	6.6
	(b)	6.6
	(c)	6.6; 9.2
	(d)	6.6
314	(a)	3.2; 9.2
	(b)	N.A.
	(c)(1)	9.4
	(c)(2)	9.4
	(c)(3)	N.A.
	(d)	N.A.
	(e)	9.6
	(f)	3.3
315	(a)	6.1
	(b)	6.5; 9.2
	(c)	6.1
	(d)	6.1
	(e)	5.11
316	(a)(1)(A)	5.5
	(a)(1)(B)	5.4
	(a)(2)	N.A.
	(b)	5.7
	(c)	N.A.
317	(a)(1)	5.8
	(a)(2)	5.9
	(b)	2.5
318	(a)	9.1

N.A. means not applicable.

(1)   Note: This Cross Reference Table shall not, for any purpose, be deemed to be part of the Indenture.

TABLE OF CONTENTS

			Page
ARTICLE I	DEFINITIONS AND INCORPORATION BY REFERENCE		1
Section 1.1		DEFINITIONS	1
Section 1.2		OTHER DEFINITIONS	4
Section 1.3		INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT	4
Section 1.4		RULES OF CONSTRUCTION	4
ARTICLE II	THE SECURITIES		4
Section 2.1		FORMS GENERALLY	4
Section 2.2		TITLE, TERMS AND DENOMINATIONS	5
Section 2.3		EXECUTION, AUTHENTICATION, DELIVERY AND DATING	6
Section 2.4		REGISTRAR AND PAYING AGENT	7
Section 2.5		PAYING AGENT TO HOLD MONEY AND SECURITIES IN TRUST	7
Section 2.6		SECURITYHOLDER LISTS	8
Section 2.7		TRANSFER	8
Section 2.8		OUTSTANDING SECURITIES; DETERMINATIONS OF HOLDERS’ ACTION	8
Section 2.9		CANCELLATION	9
Section 2.10		PAYMENTS	9
Section 2.11		PERSONS DEEMED OWNERS	9
Section 2.12		CUSIP NUMBERS	9
ARTICLE III	COVENANTS		9
Section 3.1		PAYMENT OF SECURITIES	9
Section 3.2		SEC REPORTS	9
Section 3.3		COMPLIANCE CERTIFICATE; STATEMENT BY OFFICERS AS TO DEFAULT	10
Section 3.4		FURTHER INSTRUMENTS AND ACTS	10
Section 3.5		MAINTENANCE OF OFFICE OR AGENCY	10
Section 3.6		BORROWER LOAN SERVICING	10
ARTICLE IV	SUCCESSOR CORPORATION		11
Section 4.1		WHEN COMPANY MAY MERGE OR TRANSFER ASSETS	11
ARTICLE V	DEFAULTS AND REMEDIES		11
Section 5.1		EVENTS OF DEFAULT	11
Section 5.2		ACCELERATION	12
Section 5.3		OTHER REMEDIES	12
Section 5.4		WAIVER OF PAST DEFAULTS	13
Section 5.5		CONTROL BY MAJORITY	13
Section 5.6		LIMITATION ON SUITS	13

i

TABLE OF CONTENTS

			Page
Section 5.7		RIGHTS OF HOLDERS TO RECEIVE PAYMENT	13
Section 5.8		COLLECTION SUIT BY TRUSTEE	13
Section 5.9		TRUSTEE MAY FILE PROOFS OF CLAIM	13
Section 5.10		PRIORITIES	14
Section 5.11		UNDERTAKING FOR COSTS	14
Section 5.12		WAIVER OF STAY, EXTENSION OR USURY LAWS	14
ARTICLE VI	TRUSTEE		15
Section 6.1		DUTIES OF TRUSTEE	15
Section 6.2		RIGHTS OF TRUSTEE	15
Section 6.3		INDIVIDUAL RIGHTS OF TRUSTEE, ETC.	17
Section 6.4		TRUSTEE’S DISCLAIMER	17
Section 6.5		NOTICE OF DEFAULTS	17
Section 6.6		REPORTS BY TRUSTEE TO HOLDERS	17
Section 6.7		COMPENSATION AND INDEMNITY	17
Section 6.8		REPLACEMENT OF TRUSTEE	18
Section 6.9		SUCCESSOR TRUSTEE BY MERGER	19
Section 6.10		ELIGIBILITY; DISQUALIFICATION	19
Section 6.11		PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY	19
ARTICLE VII	SATISFACTION AND DISCHARGE		19
Section 7.1		DISCHARGE OF LIABILITY ON SECURITIES	19
Section 7.2		REPAYMENT TO THE COMPANY	20
ARTICLE VIII	SUPPLEMENTAL INDENTURES		20
Section 8.1		SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS	20
Section 8.2		SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS	21
Section 8.3		COMPLIANCE WITH TRUST INDENTURE ACT	22
Section 8.4		REVOCATION AND EFFECT OF CONSENTS, WAIVERS AND ACTIONS	22
Section 8.5		NOTATION ON OR EXCHANGE OF SECURITIES	22
Section 8.6		TRUSTEE TO SIGN SUPPLEMENTAL INDENTURES	22
Section 8.7		EFFECT OF SUPPLEMENTAL INDENTURES	22
ARTICLE IX	MISCELLANEOUS		22
Section 9.1		TRUST INDENTURE ACT CONTROLS	22
Section 9.2		NOTICES	22
Section 9.3		COMMUNICATION BY HOLDERS WITH OTHER HOLDERS	23
Section 9.4		CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT	23
Section 9.5		FORM OF DOCUMENTS DELIVERED TO TRUSTEE	24
Section 9.6		STATEMENTS REQUIRED IN CERTIFICATE OR OPINION	24

ii

TABLE OF CONTENTS

		Page
Section 9.7	SEPARABILITY CLAUSE	24
Section 9.8	RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR	24
Section 9.9	LEGAL HOLIDAYS	24
Section 9.10	GOVERNING LAW AND JURISDICTION; WAIVER OF JURY TRIAL	25
Section 9.11	NO RECOURSE AGAINST OTHERS	25
Section 9.12	SUCCESSORS	25
Section 9.13	EFFECT OF HEADINGS AND TABLE OF CONTENTS	25
Section 9.14	BENEFITS OF INDENTURE	25
Section 9.15	MULTIPLE ORIGINALS	25
Section 9.16	FORCE MAJEURE	25
EXHIBIT A - FORM OF SECURITY		A-1

iii

INDENTURE dated as of [      ], 2009, by and between Prosper Marketplace, Inc., a Delaware corporation (“Company”), and                                                                     , a national banking association incorporated and existing under the laws of the United States of America, as trustee (“Trustee”).

RECITALS OF THE COMPANY

The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of special limited obligations of the Company referred to as Borrower Payment Dependent Notes (herein called the “Securities”) to be issued in series as in this Indenture provided.

For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and ratable benefit of the Holders of the Securities or each series thereof as follows:

ARTICLE I

DEFINITIONS AND INCORPORATION BY REFERENCE

Section 1.1             DEFINITIONS.

“ACH System” means the Automated Clearing House system of the U.S. Federal Reserve Board or a successor system providing electronic funds transfers between banks.

“Affiliate” of any specified person means any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person.  For the purposes of this definition, “Control” when used with respect to any specified person means the power to direct or cause the direction of the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “Controlling” and “Controlled” have meanings correlative to the foregoing.

“Board of Directors” means the board of directors of the Company or any committee of such board authorized with respect to any matter to exercise the powers of the Board of Directors of the Company.

“Board Resolution” means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee.

“Borrower Loan” means a loan to an individual borrower loan originated or sold through the Company’s platform on its website www.prosper.com or any successor website, but only to the extent such Borrower Loan has been financed or purchased by the Company with the proceeds of the sale of Securities.  For the avoidance of doubt, the term “Borrower Loans” does not include any portion of an individual borrower loan originated or sold through the Company’s platform that has been financed or purchased by the Company from other sources of funding, or a portion of an borrower loan that has not been purchased by the Company with the proceeds of the sale of Securities and is retained by the financial institution offering the borrower loan for sale.

“Borrower Loan Net Payments,” with respect to a Borrower Loan, means all Borrower Loan Payments net of all applicable Servicing Fees.

“Borrower Loan Payments,” with respect to a Borrower Loan, means all amounts received by the Company, and not reversed through the ACH System or by virtue of checks returned unpaid due to insufficient funds or for other reasons, in connection with the repayment of such Borrower Loan, including without limitation, all payments or prepayments of principal and interest, any late fees and any amounts received by the Company upon collection efforts; provided, however, that Borrower Loan Payments shall not include any Non-sufficient Funds Fees or fees charged to the borrower for making payments in a manner other than as provided in the Borrower Loan received by the Company or by a third-party collection agency in respect of such Borrower Loan, attorneys’ fees or any collection fees imposed in connection with collection efforts on a delinquent Borrower Loan by the Company or by a third-party collection agency.

“Business Day” means, except as otherwise specified as contemplated by Section 2.2(c), with respect to any Place of Payment or any other particular location referred to in this Indenture or in the Securities, each Monday, Tuesday, Wednesday, Thursday and Friday that is (1) not a day on which the ACH System is closed and (2) not a day on which banking institutions are authorized or obligated by law or executive order to close in San Francisco, California or New York, New York.

“Capital Stock” for any corporation means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) stock issued by that corporation.

“Company” means the party named as the “Company” in the first paragraph of this Indenture until a successor replaces it pursuant to the applicable provisions of this Indenture and, thereafter, shall mean such successor.

“Company Request” or “Company Order” means a written request or order signed in the name of the Company (i) by its Chairman of the Board, a Vice Chairman, its Chief Executive Officer, its President or a Vice President, and (ii) by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee or, with respect to Sections 2.1, 2.2(c), 2.3, and 6.2, any other employee of the Company named in an Officers’ Certificate delivered to the Trustee.

“Default” means any event which is, or after notice or passage of time or both would be, an Event of Default.

“Dollar” or “$” means a dollar or other equivalent unit in such coin or currency of the United States as at the time shall be legal tender for the payment of public and private debts.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Final Maturity” means the date on which the Initial Maturity Date may be extended, as provided in any Security.

“Holder” or “Securityholder,” when used with respect to any Security, means, the person in whose name a Security is registered on the Registrar’s books.

“Indenture” means this Indenture, as amended or supplemented from time to time in accordance with the terms hereof and shall include the terms of a particular series of Securities established as contemplated in Section 2.2(c).

“Initial Maturity Date” means the scheduled due date on which the final installment of principal and interest is payable in any Security.

“Interest Payment Date,” when used with respect to any Security, means the Stated Maturity of an installment of interest on such Security.

“Maturity,” when used with respect to any Security, means the date on which an installment of Principal thereof or interest thereon becomes due and payable as therein or herein provided, whether at the Stated Maturity, Initial Maturity or Final Maturity, by declaration of acceleration, or otherwise.

“Non-sufficient Funds Fees” means any fee imposed by the Company or a third-party collection agency in respect of a Borrower Loan when the Company’s payment request is denied for any reason, including but not limited to non-sufficient funds in the borrower’s bank account or the closing of such bank account.

“Officer” means the Chairman of the Board, any Vice Chairman, the Chief Executive Officer, the President, any Vice President, the Treasurer, the Secretary, any Assistant Treasurer or any Assistant Secretary of the Company.

“Officers’ Certificate” means a written certificate containing the information specified in Sections 9.4 and 9.6, signed in the name of the Company (i) by its Chairman of the Board, a Vice Chairman, its Chief Executive Officer, its President or a Vice President, and (ii) by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee.

“Opinion of Counsel” means a written opinion containing the information specified in Sections 9.4 and 9.6, from legal counsel who is acceptable to the Trustee.  The counsel may be an employee of, or counsel to, the Company or the Trustee.

2

“Payment Date” means any Principal Payment Date or Interest Payment Date.

“Person” means any individual, corporation, partnership, joint venture, association, joint-stock company, limited liability company, trust, unincorporated organization, or government or any agency or political subdivision thereof.

“Place of Payment,” when used with respect to the Securities of any series, means the place or places where, subject to the provisions of Section 3.5, the Principal of and any interest on the Securities of that series are payable as specified as contemplated by Section 2.2(c).

“Platform” means the Company’s online auction-style marketplace for loans that facilitates loans to borrowers, and sales of previously-funded loans, with interest rates set through auction-style competitive bidding among individuals or institutions who become eligible to bid in the marketplace by registering with the Company.

“Principal” or “Principal Amount” of a Security, except as otherwise specifically provided in this Indenture, means the outstanding principal of the Security.

“Principal Payment Date,” when used with respect to any Security, means the Stated Maturity of an installment of Principal on such Security.

“Record Date” for the amounts payable on any Payment Date on the Securities of any series means the date specified for that purpose as contemplated by Section 2.2(c).

“SEC” means the Securities and Exchange Commission.

“Security” or “Securities” means the special limited obligations of the Company referred to as Borrower Paymentr Dependent Notes to be issued in series and authenticated and delivered under this Indenture.

“Securities Act” means the Securities Act of 1933, as amended.

“Securityholder” or “Holder,” when used with respect to any Security, means a person in whose name a Security is registered on the Registrar’s books.

“Servicing Fee” means, with respect to any Borrower Loan, an annualized rate of 1%, or such other percentage as specified by the Company with respect to a series of Securities, of the outstanding principal balance of the Borrower Loan.

“Stated Maturity,” when used with respect to any installment of Principal thereof or interest thereon, means the date specified in such Security as the fixed date on which an amount equal to such installment of Principal thereof or interest thereon is due and payable.

“Subsidiary” means, with respect to any person, a corporation of which a majority of the Capital Stock having voting power under ordinary circumstances to elect a majority of the board of directors of such corporation is owned by (i) such person, (ii) such person and one or more Subsidiaries or (iii) one or more Subsidiaries of such person.

“TIA” means the Trust Indenture Act of 1939 as in effect on the date of this Indenture, except as provided in Section 8.3.

“Trust Officer” means, when used with respect to the Trustee, any officer within the corporate trust department of the Trustee, including any vice president, assistant vice president, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such person’s knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture.

“Trustee” means the party named as the “Trustee” in the first paragraph of this Indenture until a successor replaces it pursuant to the applicable provisions of this Indenture and, thereafter, shall mean such successor.

3

“United States” means the United States of America, its territories, its possessions (including the Commonwealth of Puerto Rico), and other areas subject to its jurisdiction.

Section 1.2OTHER DEFINITIONS.

Term	Defined in Section
“Bankruptcy Law”	5.1
“Custodian”	5.1
“Defaulted Payment”	2.10
“Event of Default”	5.1
“Legal Holiday”	9.9
“Notice of Default”	5.1
“Outstanding”	2.8
“Paying Agent”	2.4
“Registrar”	2.4

Section 1.3INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.  Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture.  The following TIA terms used in this Indenture have the following meanings:

“Commission” means the SEC.

“Indenture Securities” means the Securities.

“Indenture Security Holder” means a Holder or Securityholder.

“Indenture to be Qualified” means this Indenture.

“Indenture Trustee” or “Institutional Trustee” means the Trustee.

“Obligor” on the indenture securities means the Company.

All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions.

Section 1.4RULES OF CONSTRUCTION.  Unless the context otherwise requires:

(a)a term has the meaning assigned to it;

(b)an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles in the United States as in effect from time to time;

(c)“or” is not exclusive;

(d)“including” means including, without limitation; and

(e)words in the singular include the plural, and words in the plural include the singular.

ARTICLE II

THE SECURITIES

Section 2.1FORMS GENERALLY.  The Securities of each series and the certificate of authentication in respect thereof shall be in substantially the form set forth on Exhibit A as shall be established by delivery to the Trustee of a Company Order, in each case with such appropriate insertions, omissions, substitutions

4

and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may, consistently herewith, be determined by the Officers executing such Securities as evidenced by their execution of the Securities.  The Securities shall be in fully registered form only and shall be printed, lithographed, engraved, word processed or evidenced in electronic form or produced by any combination of these methods or may be produced in any other manner, all as determined by the Officers executing such Securities as evidenced by their execution of such Securities.

Section 2.2TITLE, TERMS AND DENOMINATIONS.

(a)The aggregate Principal Amount of Securities that may be authenticated and delivered under this Indenture shall be unlimited.

(b)To the extent provided in, and except as otherwise permitted by, this Indenture, (1) the Securities shall be special limited obligations of the Company and (2) no payments of Principal and interest on the Securities of any series shall be payable unless the Company has received Borrower Loan Payments in respect of the Borrower Loan corresponding to such series, and then shall be payable equally and ratably on the Securities of such series only to the extent of the Borrower Loan Net Payments related to the Borrower Loan corresponding to such series.  No Holder of a Security shall have any recourse against the Company unless and then only to the extent that the Company (1) has failed to pay such Holder the Borrower Loan Net Payments in respect of the Borrower Loan corresponding to such Holder’s Security or (2) has otherwise breached a covenant in this Indenture.

(c)For each series of Securities there shall be established and, subject to Section 2.3, set forth, or determined in the manner provided, in a Company Order:

(i)the title of the Securities of the series (which shall distinguish the Securities of the series from all other Securities);

(ii)the limit upon the aggregate Principal Amount of the Securities of the series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of Securities of the series pursuant to Sections 2.7 or 8.5);

(iii)the Borrower Loan that corresponds to Securities of the series;

(iv)the Stated Maturity and Payment Dates of the Securities of the series and the Record Date for any amounts payable on any Payment Date;

(v)the stated rate at which the Securities of the series shall bear interest;

(vi)the place or places where, subject to the provisions of Section 3.5, the Principal of and or interest on Securities of the series shall be payable, any Securities of the series may be surrendered for registration of transfer and notices and demands to or upon the Company in respect of the Securities of the series and this Indenture may be served;

(vii)any restrictions on the transfer or transferability of Securities of the series;

(viii)the obligation, if any, of the Company to redeem Securities of the series at the option of a Holder thereof, the conditions, if any, giving rise to such obligation, and the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the series shall be purchased, in whole or in part;

(ix)the denominations in which any Securities of the series shall be issuable;

5

(x)any addition to or change in the Events of Default which apply to any Securities of the series and any change in the right of the Trustee or the requisite Holders of such Securities to declare the principal amount thereof due and payable pursuant to Section 5.2;

(xi)any addition to or change in the covenants set forth in Article III which apply to Securities of the series;

(xii)any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture, except as permitted by Section 8.1(g)); and

(xiii)any endorsement reflecting the transfer of any Borrower Payment Dependent Note upon resale of such Borrower Payment Dependent Note.

All Securities of a series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to a Company Order pursuant to this Section 2.2(c) or in any indenture supplemental hereto.

(d)Prior to the issuance of the initial series of Securities under this Indenture, a copy of the Board Resolution authorizing the execution, delivery and performance of this Indenture, shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of an Officers’ Certificate setting forth the general terms of the Securities.  Such Board Resolution and Officers’ Certificate shall provide general terms for Securities and provide either that the specific terms of each series shall be specified in a Company Order or that such terms shall be determined by the Company, or one or more of the Company’s agents designated in an Officers’ Certificate, in accordance with the Company Order as contemplated by Section 2.3.

Section 2.3EXECUTION, AUTHENTICATION, DELIVERY AND DATING.  The Securities shall be executed on behalf of the Company by its Chairman of the Board, one of its Vice Chairmen, its President or one of its Vice Presidents, or the Treasurer or any Assistant Treasurer.  The signature of any of these officers on the Securities may be electronic, manual or facsimile.

Securities bearing the electronic, manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities.

At any time and from time to time after the execution and delivery of this Indenture (and subject to delivery of the Board Resolution and Officers’ Certificate as set forth in Section 2.2 prior to the issuance of the initial series of Securities), the Company may authenticate and deliver Securities of any series and upon such authentication and delivery shall promptly provide a record of all such Securities executed and authenticated by the Company to the Trustee, together with a copy of the Company Order authorizing the authentication and delivery of such Securities;

In addition, prior to the issuance of the initial series of Securities, the Trustee shall receive, and shall be fully protected in conclusively relying upon, an Opinion of Counsel stating:

(a)that the forms of such Securities have been, and the terms of such Securities (when established in accordance with such procedures as may be specified from time to time in a Company Order, all as contemplated by and in accordance with a Board Resolution pursuant to Section 2.2(d), as the case may be) will have been, duly authorized by the Company and established in conformity with the provisions of this Indenture;

(b)that such Securities, when (1) executed by the Company, (2) completed, authenticated and delivered by the Company in accordance with this Indenture, and (3) issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms, subject to customary exceptions; and

6

(c)that all laws and requirements in respect of the execution and delivery by the Company of such Securities have been complied with.

The Trustee may conclusively rely, as to the authorization by the Company of any series of Securities, the form and terms thereof and the legality, validity, binding effect and enforceability thereof, upon the Opinion of Counsel and other documents delivered pursuant to Sections 2.1, 2.2(c) and 2.2(d) and this Section, as applicable, at or prior to the time of the first authentication of Securities of the initial series of Securities unless and until it has received written notification that such opinion or other documents have been superseded or revoked.  In connection with the authentication and delivery of Securities, the Trustee shall be entitled to assume, unless it has received written notice to the contrary or any of its Trust Officers has actual knowledge to the contrary, that the Company’s authentication and delivery such Securities do not violate any rules, regulations or orders of any governmental agency or commission having jurisdiction over the Company.

Each Security shall be dated the date of its authentication.

The Company may appoint an authenticating agent acceptable to the Trustee to authenticate Securities.  Unless otherwise provided in the appointment, an authenticating agent may authenticate Securities whenever the Company may do so.  Each reference in this Indenture to authentication by the Company includes authentication by such agent.

No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein duly executed by the Company by electronic or manual signature of an authorized signatory, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder.  The Company’s certificate of authentication shall be in substantially the following form:

This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.

PROSPER MARKETPLACE, INC.
as Authenticating Agent
By:
	Name:
	Title:

Section 2.4REGISTRAR AND PAYING AGENT.  The Company shall maintain, with respect to each series of Securities, an office or agency where such Securities may be presented for registration of transfer or for exchange (“Registrar”) and an office or agency where such Securities may be presented for purchase or payment (“Paying Agent”).  The Registrar shall keep a register of the Securities and of their transfer and exchange.  The Company may have one or more co-registrars and one or more additional paying agents.  The term Paying Agent includes any additional paying agent.

The Company shall enter into an appropriate agency agreement with respect to each series of Securities with any Registrar, Paying Agent or co-registrar.  The agreement shall implement the provisions of this Indenture that relate to such agent.  The Company shall notify the Trustee of the name and address of any such agent.  The Company or any Subsidiary or an Affiliate of either of them may act as Paying Agent, Registrar or co-registrar.

The Company initially will serve as the Registrar and Paying Agent in connection with such Securities.

Section 2.5PAYING AGENT TO HOLD MONEY AND SECURITIES IN TRUST.  Except as otherwise provided herein, prior to or on each due date of payments in respect of any series of Securities, the Company shall deposit with the Paying Agent with respect to such Securities a sum of money sufficient to make such payments when so becoming due.  The Company shall require each Paying Agent (other than the Trustee or the

7

Company) to agree in writing that the Paying Agent shall hold in trust for the benefit of Holders or the Trustee all money held by such Paying Agent for the making of payments in respect of the Securities of such series and shall notify the Trustee in writing of any default by the Company in making any such payment.  At any time during the continuance of any such default, a Paying Agent shall, upon the written request of the Trustee, forthwith pay to the Trustee all money so held in trust with respect to such Securities.  If the Company, a Subsidiary or an Affiliate of either of them acts as Paying Agent for a series of Securities, it shall segregate the money held by it as Paying Agent with respect to such Securities and hold it as a separate trust fund.  The Company at any time may require a Paying Agent for a series of Securities to pay all money held by it with respect to such Securities to the Trustee and to account for any money disbursed by it.  Upon doing so, such Paying Agent shall have no further liability for the money.

Section 2.6SECURITYHOLDER LISTS.  The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders of each series of Securities.  The Company shall cause to be furnished to the Trustee at least monthly on the first business day of each month a listing of Holders of each series of Securities dated within 15 days of the date on which the list is furnished and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders of each series of Securities.

Section 2.7TRANSFER.  Subject to any limitations on transferability set forth in a Security, upon surrender for registration of transfer of such Security at the office or agency of the Company designated pursuant to Section 3.5 for such purpose in a Place of Payment, the Company shall execute, authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denomination or denominations of a like aggregate Principal Amount and tenor.  The Company may (1) impose a reasonable service fee for any registration of transfer or exchange, which service fee shall be described on the Company’s website www.prosper.com and may be changed or waived from time to time and (2) the Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges that may be imposed in connection with the transfer of the Securities from the Securityholder requesting such transfer.

All Securities issued upon any registration of transfer of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer.

Every Security presented or surrendered for registration of transfer shall be accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar duly executed, by the Holder thereof or his attorney duly electronically or in writing.

Section 2.8OUTSTANDING SECURITIES; DETERMINATIONS OF HOLDERS’ ACTION.  Securities of any series “Outstanding” at any time are, as of the date of determination, all the Securities of such series theretofore authenticated by the Company for such series except for those cancelled by it, those delivered to it for cancellation and those described in this Section 2.8 as not outstanding.  A Security does not cease to be “Outstanding” because the Company or an Affiliate thereof is the Holder of the Security; provided, however, that in determining whether the Holders of the requisite Principal Amount of Outstanding Securities have given or concurred in any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any Affiliate of the Company shall be disregarded and deemed not to be outstanding, except that, in determining whether the Trustee shall be protected in conclusively relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which a Trust Officer of the Trustee actually knows to be so owned shall be so disregarded.  Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee’s right so to act with respect to such Securities and that the pledgee is not the Company or any Affiliate of the Company.  Subject to the foregoing, only Securities outstanding at the time of such determination shall be considered in any such determination.

If the Paying Agent (other than the Company) holds, in accordance with this Indenture, on the final Stated Maturity, money sufficient to pay Securities payable on that date in full, then on and after that date such Securities shall cease to be Outstanding.

8

Section 2.9CANCELLATION.  All Securities surrendered for payment, or registration of transfer, shall, if surrendered to any person other than the Company, be delivered to the Company and all Securities so delivered shall be promptly cancelled by it.  The Company may at any time cancel any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever and may cancel any Securities previously authenticated hereunder that the Company has not issued and sold.  The Company may not reissue, or issue new Securities to replace, Securities it has cancelled.

No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted in the form of Securities for any particular series or as permitted by this Indenture.

Section 2.10PAYMENTS.  Payment of Principal and interest on any Security which is payable, and is punctually paid or duly provided for, on any Payment Date shall be paid to the person in whose name that Security is registered at the close of business on the Record Date for such Payment Date.

Any payments on any Security of any series which is payable, but is not punctually paid or duly provided for, on any Payment Date (herein called “Defaulted Payment”) shall forthwith cease to be payable to the Holder on the relevant Record Date, and such Defaulted Payment may be paid by the Company to the Holder of the Security on a record date chosen by the Company and in any lawful manner, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this paragraph, such manner of payment shall be deemed practicable by the Trustee.

Subject to the foregoing provisions of this Section and Section 2.7, each Security delivered under this Indenture upon registration of transfer of any other Security shall carry the rights to payments, which were carried by such other Security.

Section 2.11PERSONS DEEMED OWNERS.  Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of Principal of and interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary.

Section 2.12CUSIP NUMBERS.  The Company in issuing the Securities may use “CUSIP” numbers (if then generally in use), and, if so, the Trustee shall use “CUSIP” numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers.  The Company will promptly notify the Trustee in writing of any change in the “CUSIP” numbers.

ARTICLE III

COVENANTS

Section 3.1PAYMENT OF SECURITIES.  The Company shall promptly make all payments in respect of each series of Securities in lawful money of the United States on the dates and in the manner provided in the Securities but solely from the sources provided pursuant to Section 2.2(b) and, to the extent not otherwise so provided, pursuant to this Indenture.  The Company shall have no liability or obligation with respect to the payment of the purchase price of any Securities except to the extent of the Borrower Loan Net Payments in respect of the Borrower Loan corresponding to such series.  At the Company’s option, payments of Principal or interest may be made by check or by transfer into an account administered by the Company “for the benefit of” the payee or to an account maintained by the trustee.

Section 3.2SEC REPORTS.  The Company shall file with the Trustee, within 15 days after it files such annual and quarterly reports, information, documents and other reports with the SEC, copies of its annual

9

report and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act.  The Company also shall comply with the other provisions of TIA Section 314(a).

Section 3.3COMPLIANCE CERTIFICATE; STATEMENT BY OFFICERS AS TO DEFAULT.  The Company shall deliver to the Trustee within 120 days after the end of each fiscal year (beginning with the fiscal year ending on December 31, 2009) an Officers’ Certificate, one of the signers of which shall be the principal executive officer, principal financial officer or principal accounting officer of the Company, stating whether or not the signers know of any Default that occurred during such period.  If they do, such Officers’ Certificate shall describe the Default and its status.

The Company shall deliver to the Trustee, as soon as possible and in any event within five days after the Company becomes aware of the occurrence of any Event of Default or an event which, with notice or the lapse of time or both, would constitute an Event of Default, an Officers’ Certificate setting forth the details of such Event of Default or default and the action which the Company proposes to take with respect thereto.

Section 3.4FURTHER INSTRUMENTS AND ACTS.  Upon request of the Trustee, the Company will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purposes of this Indenture.

Section 3.5MAINTENANCE OF OFFICE OR AGENCY.  The Company will maintain in each Place of Payment for such series an office or agency where Securities of that series may be presented or surrendered for payment, where Securities of that series may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served.  The office of the Company at 111 Sutter Street, 22nd Floor, San Francisco, California 94104 shall be such office or agency for all of the aforesaid purposes unless the Company shall maintain some other office or agency for such purposes and shall give prompt written notice to the Trustee of the location, and any change in the location, of such other office or agency.

The Company may also from time to time designate one or more other offices or agencies where the Securities of one or more series may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in accordance with the requirements set forth above for Securities of any series for such purposes.  The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.

Section 3.6BORROWER LOAN SERVICING.

(a)With respect to each series of Securities, the Company shall use commercially reasonable efforts to service and collect the Borrower Loan corresponding to such series, in good faith, accurately and in accordance with industry standards customary for servicing loans such as the Borrower Loans.  Notwithstanding the generality of the foregoing, (1) referral of a delinquent Borrower Loan to a collection agency on the 31st day of its delinquency shall be deemed to constitute commercially reasonable servicing and collection efforts; and (2) the Company shall have the right, at any time and from time to time, to amend or waive any term of such Borrower Loan, or in the case of a Borrower Loan that is more than 120 days delinquent, to write off and cancel such Borrower Loan without the consent of any Holder of any Securities of the series corresponding to such Borrower Loan.

(b)With respect to each series of Securities, the Company shall use commercially reasonable efforts to maintain backup servicing arrangements providing for the Borrower Loan corresponding to such series to be serviced and collected in good faith, accurately and in accordance with industry standards customary for servicing loans such as the Borrower Loans.

10

ARTICLE IV

SUCCESSOR CORPORATION

Section 4.1WHEN COMPANY MAY MERGE OR TRANSFER ASSETS.  The Company shall not consolidate with or merge with or into any other person or convey, transfer or lease its properties and assets substantially as an entirety to any person, unless:

(a)either (1) the Company shall be the continuing corporation or (2) the person (if other than the Company) formed by such consolidation or into which the Company is merged or the person which acquires by conveyance, transfer or lease the properties and assets of the Company substantially as an entirety (i) shall be a corporation, limited liability company, partnership or trust organized and validly existing under the laws of the United States or any state thereof or the District of Columbia and (ii) shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all of the obligations of the Company under the Securities and this Indenture;

(b)immediately after giving effect to such transaction, no Default shall have occurred and be continuing; and

(c)the Company shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, comply with this Article and that all conditions precedent herein provided for relating to such transaction have been satisfied.

The successor person formed by such consolidation or into which the Company is merged or the successor person to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of the Company under this Indenture with the same effect as if such successor had been named as the Company herein; and thereafter, except in the case of a lease of its properties and assets substantially as an entirety, the Company shall be discharged from all obligations and covenants under this Indenture, and the Securities.

ARTICLE V

DEFAULTS AND REMEDIES

Section 5.1EVENTS OF DEFAULT.  Unless otherwise specified as contemplated by Section 2.2(c) with respect to any series of securities, an “Event of Default” occurs, with respect to each series of the Securities individually, if:

(a)the Company defaults, subject in each case, to the limitations set forth in Sections 2.2(b) and 3.1 and in the Securities in the payment of any Principal of, or interest upon, any Security of such series when the same becomes due and payable and continuance of such default for a period of 30 days;

(b)the Company fails to comply with any of its agreements in the Securities or this Indenture (other than those referred to in clause (a) above and other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with or which has been expressly included in this Indenture solely for the benefit of a series of Securities other than such series) and such failure continues for 90 days after receipt by the Company of a Notice of Default; provided, however, that if the Company shall proceed to take curative action which, if begun and prosecuted with due diligence, cannot be completed within a period of 90 days, then such period shall be increased to such extent as shall be necessary to enable the Company diligently to complete such curative action;

(c)there shall have been the entry by a court of competent jurisdiction of (i) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Bankruptcy Law or (ii) a decree or order adjudging the Company bankrupt or insolvent, or seeking reorganization, arrangement, adjustment

11

or composition of or in respect of the Company under any applicable federal or state law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or ordering the wind up or liquidation of its affairs, and any such decree or order for relief shall continue to be in effect, or any such other decree or order shall be unstayed and in effect, for a period of 60 consecutive days;

(d)(i) the Company commences a voluntary case or proceeding under any applicable Bankruptcy Law or any other case or proceeding to be adjudicated bankrupt or insolvent, (ii) the Company consents to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Bankruptcy Law or to the commencement of any bankruptcy or insolvency case or proceeding against it, (iii) the Company files a petition or answer or consent seeking reorganization or substantially comparable relief under any applicable federal state law, (iv) the Company (1) consents to the filing of such petition or the appointment of, or taking possession by, a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Company or of any substantial part of its property, (2) makes an assignment for the benefit of creditors or (3) admits in writing its inability to pay its debts generally as they become due or (v) the Company takes any corporate action in furtherance of any such actions in this clause (d); or

(e)any other Event of Default provided with respect to Securities of that series.

“Bankruptcy Law” means Title 11, United States Code, or any similar federal or state law for the relief of debtors.  “Custodian” means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law.

A Default under clause (b) above is not an Event of Default until the Trustee notifies the Company, or the Holders of at least 25% in aggregate Principal Amount of the Outstanding Securities of all series for which such Default exists notify the Company and the Trustee, of the Default and the Company does not cure such Default within the time specified in clause (b) above after receipt of such notice.  Any such notice must specify the Default, demand that it be remedied and state that such notice is a “Notice of Default.”

Section 5.2ACCELERATION.  If an Event of Default specified in Section 5.1(c) or (d) occurs and is continuing, the Principal (or portion thereof) of all the Securities shall become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Securityholders, notwithstanding the second sentence of Section 3.1 hereof and without respect to whether there are or will be Borrower Loan Net Payments in respect of the Borrower Loans corresponding to the Securities.  The Holders of a majority in aggregate Principal Amount of all Outstanding Securities, by notice to the Trustee (and without notice to any other Securityholder) may rescind an acceleration and its consequences if (a) the rescission would not conflict with any judgment or decree, and (b) all Events of Default specified in Section 5.1(c) or (d) have been cured or waived.  No such rescission shall affect any subsequent Default or impair any right consequent thereto.  For avoidance of doubt, there shall be no acceleration of the Principal (or portion thereof) of any Securities upon the occurrence of and Event of Default other than an Event of Default specified in Section 5.1(c) or (d).

Section 5.3OTHER REMEDIES.  If an Event of Default with respect to a series of Outstanding Securities occurs and is continuing, the Trustee may pursue any available remedy to (a) collect the payment of the whole amount then due and payable on such Securities for Principal and interest, with interest upon the overdue Principal and, to the extent that payment of such interest shall be legally enforceable, upon overdue installments of interest from the date such interest was due, at the rate or rates prescribed therefor in such Securities and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including amounts due the Trustee under Section 6.7 or (b) enforce the performance of any provision of the Securities or this Indenture.

The Trustee may maintain a proceeding even if the Trustee does not possess any of the Securities or does not produce any of the Securities in the proceeding.  A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of, or acquiescence in, the Event of Default.  No remedy is exclusive of any other remedy.  All available remedies are cumulative.

12

Section 5.4WAIVER OF PAST DEFAULTS.  The Holders of a majority in aggregate Principal Amount of the Outstanding Securities of any series, by notice to the Trustee (and without notice to any other Securityholder), may on behalf of the Holders of all the Securities of such series waive an existing Default with respect to such series and its consequences except (a) an Event of Default described in Section 5.1(a) with respect to such series or (b) a Default in respect of a provision that under Section 8.2 cannot be amended without the consent of the Holder of each Outstanding Security of such series affected.  When a Default is waived, it is deemed cured, but no such waiver shall extend to any subsequent or other Default or impair any consequent right.

Section 5.5CONTROL BY MAJORITY.  The Holders of a majority in aggregate Principal Amount of the Outstanding Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee with respect to the Securities.  However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or that the Trustee determines in good faith is unduly prejudicial to the rights of other Securityholders or would involve the Trustee in personal liability.

Section 5.6LIMITATION ON SUITS.  A Holder of any Security of any series may not pursue any remedy with respect to this Indenture or the Securities unless:

(a)the Holder gives to the Trustee written notice stating that an Event of Default with respect to the Securities of that series is continuing;

(b)the Holders of at least 25% in aggregate Principal Amount of the Outstanding Securities of that series make a written request to the Trustee to pursue the remedy;

(c)such Holder or Holders offer to the Trustee security or indemnity satisfactory to it against any loss, liability or expense satisfactory to the Trustee;

(d)the Trustee does not comply with the request within 60 days after receipt of the notice, the request and the offer of security or indemnity; and

(e)the Holders of a majority in aggregate Principal Amount of the Outstanding Securities of that series do not give the Trustee a direction inconsistent with such request during such 60-day period.

A Securityholder may not use this Indenture to prejudice the rights of any other Securityholder or to obtain a preference or priority over any other Securityholder (it being understood that the Trustee does not have an affirmative duty to ascertain whether or not such actions or forbearances are unduly prejudicial to such Holders).

Section 5.7RIGHTS OF HOLDERS TO RECEIVE PAYMENT.  Notwithstanding any other provision of this Indenture, the right, which is absolute and unconditional, of any Holder of any Security to receive payment of the Principal of and (subject to Section 2.10) interest on such Security on the Stated Maturity or Maturities expressed in such Security held by such Holder, on or after the respective due dates expressed in the Securities, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected adversely without the consent of each such Holder.

Section 5.8COLLECTION SUIT BY TRUSTEE.  If an Event of Default described in Section 5.1(1) with respect to Securities of any series occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount owing with respect to such series of Securities and the amounts provided for in Section 6.7.

Section 5.9TRUSTEE MAY FILE PROOFS OF CLAIM.  In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the Principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee

13

shall have made any demand on the Company for the payment of overdue Principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise,

(a)to file and prove a claim for the whole amount of Principal and interest owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and any other amount due the Trustee under Section 6.7) and of the Holders of Securities allowed in such judicial proceeding,

(b)to terminate the Company’s rights to service the Borrower Loans and require the substitution of a backup servicer in place of the Company, and

(c)to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or similar official in any such judicial proceeding is hereby authorized by each Holder of Securities to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders of Securities, to pay the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.7.

Nothing herein contained shall be deemed to authorize the Trustee or the holders of Securities to authorize or consent to or accept or adopt on behalf of any Holder of a Security any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder of a Security in any such proceeding.

Section 5.10PRIORITIES.  If the Trustee collects any money pursuant to this Article V, it shall pay out the money in the following order and, in case of the distribution of such money on account of Principal or interest, upon presentation of the Securities, or both, as the case may be, and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:

FIRST: to the Trustee for amounts due under Section 6.7;

SECOND: to Securityholders for amounts due and unpaid for the Principal and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for Principal and interest, respectively; and

THIRD: the balance, if any, to the Company.

The Trustee may fix a record date and payment date for any payment to Securityholders pursuant to this Section 5.10.  At least 15 days before such record date, the Company shall mail or electronically transmit to each Securityholder and the Trustee a notice that states the record date, the payment date and amount to be paid.

Section 5.11UNDERTAKING FOR COSTS.  In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant (other than the Trustee) in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys’ fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant.  This Section 5.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 5.7 or a suit by Holders of more than 10% in aggregate Principal Amount of the Outstanding Securities of any series, or to any suit instituted by any Holder of any Security or coupon for the enforcement of the payment of the Principal of or interest on any Security or the payment of any coupon on or after the Stated Maturity or Maturities expressed in such Security.

Section 5.12WAIVER OF STAY, EXTENSION OR USURY LAWS.  The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury or other law wherever enacted, now

14

or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.

ARTICLE VI

TRUSTEE

Section 6.1DUTIES OF TRUSTEE.

(a)If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs.

(b)Except during the continuance of an Event of Default with respect to Securities of any series:

(i)the Trustee need perform only those duties that are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee; and

(ii)in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture.  However, in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein).

(c)The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that:

(i)this paragraph (c) does not limit the effect of paragraph (b) of this Section 6.1;

(ii)the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and

(iii)the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 5.5 or exercising any trust or power conferred upon the Trustee under this Indenture.

(d)Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (e) of this Section 6.1.

(e)The Trustee may refuse to perform any duty or exercise any right or power or extend or risk its own funds or otherwise incur any financial liability unless it receives indemnity satisfactory to it against any loss, liability or expense.

(f)Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law.  The Trustee shall not be liable for any interest on any money received by it except as the Trustee may otherwise agree in writing with the Company.

Section 6.2RIGHTS OF TRUSTEE.

(a)The Trustee may conclusively rely on any document believed by it to be genuine and to have been signed or presented by the proper person.  The Trustee need not investigate any fact or matter stated in the document.

15

(b)Before the Trustee acts or refrains from acting, it may require an Officers’ Certificate or an Opinion of Counsel.  The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers’ Certificate or Opinion of Counsel.

(c)The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers.

(d)The Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any resolution, Officers’ Certificate, Opinion of Counsel (or both), Company Order or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture, note, coupon, security or other paper believed to be genuine and to have been signed or presented by the proper party or parties.

(e)Any request, direction, order or demand of the Company mentioned herein shall be sufficiently evidenced by an Officers’ Certificate (unless other evidence in respect thereof be herein specifically prescribed); and any resolution of the Board of Directors may be evidenced to the Trustee by a copy thereof certified by the secretary or an assistant secretary of the Company.

(f)The Trustee may consult with counsel of its selection and any advice or Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted to be taken by it hereunder in good faith and in reliance thereon in accordance with such advice or Opinion of Counsel.

(g)The Trustee shall be under no obligation to exercise any of the trusts or powers vested in it by this Indenture at the request, order or direction of any of the Securityholders pursuant to the provisions of this Indenture, unless such Securityholders shall have offered to the Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities which might be incurred therein or thereby.

(h)Prior to the occurrence of an Event of Default hereunder and after the curing or waiving of all Events of Default, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, appraisal, bond, debenture, note, security or other paper or document unless requested in writing to do so by the Holders of not less than a majority in the aggregate principal amount of the Securities of such series then Outstanding; provided, that, if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of any such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require indemnity satisfactory to it against such expense or liabilities as a condition to proceeding; the reasonable expense of every such investigation shall be paid by the Company or, if paid by the Trustee or any predecessor trustee, shall be repaid by the Company upon demand.

(i)The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys not regularly in its employ and the Trustee shall not be responsible for any misconduct or negligence on the part of any such agent or attorney appointed with due care by it hereunder.

(j)The Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture.

(k)In no event shall the Trustee be responsible or liable for special, indirect, punitive or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit) irrespective of whether the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action.

(l)The Trustee shall not be deemed to have notice of any Default or Event of Default unless a Trust Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the designated corporate trust office of the Trustee, and such notice references the Securities and this Indenture.

16

(m)The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder.

(n)The Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder.

(o)The Trustee may request that the Company deliver a certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture.

Section 6.3INDIVIDUAL RIGHTS OF TRUSTEE, ETC.  The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee.  Any Paying Agent, Authenticating Agent, Registrar or co-registrar or any other agent of the Company may do the same with like rights.  However, the Trustee must comply with Sections 6.10 and 6.11.

Section 6.4TRUSTEE’S DISCLAIMER.  The recitals contained herein and in the Securities shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness of the same.  The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities.  The Trustee shall not be accountable for the Company’s use of the proceeds from the Securities and, shall not be responsible for any statement in the registration statement for the Securities under the Securities Act of 1933, as amended, or in the Indenture or the Securities or for the determination as to which beneficial owners are entitled to receive any notices hereunder.

Section 6.5NOTICE OF DEFAULTS.  If a Default with respect to the Securities of any series occurs and is continuing and if it is known to the Trustee, the Trustee shall give to each Holder of Securities of such series notice of such Default in the manner set forth in TIA Section 315(b) within 90 days after it occurs.  Except in the case of a Default described in Section 5.1(a) with respect to any Security of such series or a Default in the payment of any sinking fund installment with respect to any Security of such series, the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is in the interests of the Holders of Securities of such series.

Section 6.6REPORTS BY TRUSTEE TO HOLDERS.  If required by Section 313(a) of the TIA, within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, the Trustee shall mail or transmit electronically to each Holder of Securities a brief report dated as of such May 15 that complies with TIA Section 313(a).  The Trustee also shall comply with TIA Section 313(b) and (c).

A copy of each report at the time of its mailing or transmission to Holders of Securities shall be filed with the SEC.

Section 6.7COMPENSATION AND INDEMNITY.  The Company agrees:

(a)to pay to the Trustee from time to time such compensation as shall be agreed in writing between the Company and the Trustee for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);

(b)to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses, advances and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or willful misconduct; and

(c)to indemnify the Trustee for, and to hold it harmless against, any and all loss, liability, damage, claim or expense incurred without negligence or willful misconduct on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim

17

(whether asserted by the Company, a Holder or any other Person) or liability in connection with the exercise or performance of any of its powers or duties hereunder.

To secure the Company’s payment obligations in this Section 6.7, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee, except that held in trust to pay the Principal of or interest, if any, on particular Securities.

The Company’s obligations pursuant to this Section 6.7 shall survive the discharge or other termination of this Indenture or the resignation or removal of the Trustee.  When the Trustee incurs expenses after the occurrence of a Default specified in Section 5.1(c) or (d), the expenses are intended to constitute expenses of administration under any Bankruptcy Law.

Section 6.8REPLACEMENT OF TRUSTEE.  The Trustee may resign by so notifying the Company; PROVIDED, HOWEVER, no such resignation shall be effective until a successor Trustee has accepted its appointment pursuant to this Section 6.8.  The Holders of a majority in aggregate Principal Amount of the Outstanding Securities at the time outstanding may remove the Trustee with respect to the Securities by so notifying the Trustee and may appoint a successor Trustee, which successor Trustee shall, in the absence of an Event of Default, be reasonably acceptable to the Company.  The Company shall remove the Trustee if:

(a)the Trustee fails to comply with Section 6.10;

(b)the Trustee is adjudged bankrupt or insolvent;

(c)a receiver or public officer takes charge of the Trustee or its property; or

(d)the Trustee otherwise becomes incapable of acting.

If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, with respect to the Securities of one or more series, the Company shall promptly appoint, by resolution of its Board of Directors, a successor Trustee with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any series).

In the case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company.  Thereupon, the resignation or removal of the retiring Trustee shall become effective and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture.  The successor Trustee shall mail or electronically transmit a notice of its succession to Holders of Securities of the particular series with respect to which such successor Trustee has been appointed.  The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 6.7.

In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees as co-Trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental

18

indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, subject, nevertheless, to its lien, if any, provided for in Section 6.7.

If a successor Trustee with respect to the Securities of any series does not take office within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of a majority in aggregate Principal Amount of the Outstanding Securities of such series at the time outstanding may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series.

If the Trustee fails to comply with Section 6.10, any Holder of a Security of such series may petition any court of competent jurisdiction for the removal of such Trustee and the appointment of a successor Trustee.

Section 6.9SUCCESSOR TRUSTEE BY MERGER.  If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee.

Section 6.10ELIGIBILITY; DISQUALIFICATION.  The Trustee shall at all times satisfy the requirements of TIA Section 310(a)(1) and 310(a)(5).  The Trustee shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition.  The Trustee shall comply with TIA Section 310(b), including the optional provision permitted by the second sentence of TIA Section 310(b)(9).  In determining whether the Trustee has conflicting interests as defined in TIA Section 310(b)(1), the provisions contained in the proviso to TIA Section 310(b)(1) shall be deemed incorporated herein.

Section 6.11PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.  The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b).  A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein.

ARTICLE VII

SATISFACTION AND DISCHARGE

Section 7.1DISCHARGE OF LIABILITY ON SECURITIES.  This Indenture shall upon Company Request cease to be of further effect as to all Outstanding Securities or all Outstanding Securities of any series, as the case may be (except as to any surviving rights of registration of transfer of Securities herein expressly provided for), and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when:

(a)either

(i)all Outstanding Securities or all Outstanding Securities of any series, as the case may be, theretofore authenticated and delivered, (other than Securities or Securities of such series, as the case may be, for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 7.2) have been delivered to the Company or the Trustee for cancellation; or

(ii)all such Securities not theretofore delivered to the Company or the Trustee for cancellation,

(1)have become due and payable, or

19

(2)will become due and payable at their Stated Maturity within one year;

and the Company, in the case of (1) or (2) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose, an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee or the Company for cancellation, for principal and any interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity, as the case may be;

(b)the Company has paid or caused to be paid all other sums payable hereunder by the Company; and

(c)the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with.

The Trustee shall join in the execution of a document prepared by the Company acknowledging satisfaction and discharge of this Indenture on demand of the Company accompanied by an Officers’ Certificate and Opinion of Counsel and at the cost and expense of the Company.

Notwithstanding the satisfaction and discharge of this Indenture with respect to the Securities of any series, the obligations of the Company to the Trustee with respect to the Securities of that series under Section 6.7, the obligations of the Company to any Authenticating Agent and, if money shall have been deposited with the Trustee pursuant to clause (b) of this Section, Section 7.2 shall survive.  The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of Outstanding Securities.

Section 7.2REPAYMENT TO THE COMPANY.  The Trustee and the Paying Agent shall return to the Company on Company Request any money held by them for the payment of any amount with respect to the Securities that remains unclaimed for two years.  After return to the Company, Holders entitled to the money must look to the Company for payment as general creditors with limited recourse as described herein and in the Securities unless an applicable abandoned property law designates another person.

ARTICLE VIII

SUPPLEMENTAL INDENTURES

Section 8.1SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.  Without the consent of any Holders of Securities, the Company and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes:

(a)to evidence the succession of another corporation to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities; or

(b)to add to the covenants, agreements and obligations of the Company for the benefit of the Holders of all of the Securities or any series thereof, or to surrender any right or power herein conferred upon the Company; or

(c)to establish the form or terms of Securities of any series as permitted by Sections 2.1 and 2.2(c), respectively; or

(d)to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 6.8; or

20

(e)to cure any ambiguity, defect or inconsistency;

(f)to amend restrictions on transferability of any Securities on any series in any manner that does not adversely affect the rights of any Securityholder in any material respect; or

(g)to add to, change or eliminate any of the provisions of this Indenture (which addition, change or elimination may apply to one or more series of Securities), provided that any such addition, change or elimination shall neither (i) apply to any Security of any series created prior to the execution of such supplemental indenture and entitled to the benefit of such provision nor (ii) modify the rights of the Holder of any such Security with respect to such provision; or

(h)to secure the Securities; or

(i)to make any other change that does not adversely affect the rights of any Securityholder in any material respect.

Section 8.2SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.  With the written consent of the Holders of at least a majority in aggregate Principal Amount of the Outstanding Securities of each series affected by such supplemental indenture, the Company and the Trustee may amend this Indenture or the Securities of any series or may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of the Securities of such series and under this Indenture; provided, however, that no such amendment or supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby:

(a)change the Stated Maturity of the Principal of, or any installment of Principal or interest on, any such Security, or reduce the Principal Amount thereof or the rate of interest thereon that would be due and payable upon a declaration of acceleration of maturity thereof pursuant to Section 5.2, or change the Place of Payment where, or change the coin or currency in which, any installment of principal of or interest on, any such Security is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof;

(b)reduce the percentage in Principal Amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such amendment or supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) with respect to the Securities of such series provided for in this Indenture; or

(c)modify any of the provisions of this Section, Section 5.4 (clauses (a) and (b)) or 5.7, except to increase the percentage of Outstanding Securities of such series required for such actions to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby.

A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series.

It shall not be necessary for the consent of the Holders under this Section 8.2 to approve the particular form of any proposed amendment or supplemental indenture, but it shall be sufficient if such consent approves the substance thereof.

After an amendment or supplemental indenture under this Section 8.2 becomes effective, the Company shall mail or electronically transmit to each Holder of the particular Securities affected thereby a notice briefly describing the amendment.

21

Section 8.3COMPLIANCE WITH TRUST INDENTURE ACT.  Every supplemental indenture executed pursuant to this Article shall comply with the TIA as then in effect.

Section 8.4REVOCATION AND EFFECT OF CONSENTS, WAIVERS AND ACTIONS.  Until an amendment or waiver with respect to a series of Securities becomes effective, a consent to it or any other action by a Holder of a Security of that series hereunder is a continuing consent by the Holder and every subsequent Holder of that Security or portion of that Security that evidences the same obligation as the consenting Holder’s Security, even if notation of the consent, waiver or action is not made on the Security.  However, any such Holder or subsequent Holder may revoke the consent, waiver or action as to such Holder’s Security or portion of the Security if the Trustee receives the notice of revocation before the Company or an agent of the Company certifies to the Trustee that the consent of the requisite aggregate Principal Amount of the Securities of that series has been obtained.  After an amendment, waiver or action becomes effective, it shall bind every Holder of Securities of that series.

The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment or waiver with respect to a series of Securities.  If a record date is fixed, then notwithstanding the first two sentences of the immediately preceding paragraph, those persons who were Holders of Securities of that series at such record date (or their duly designated proxies), and only those persons, shall be entitled to revoke any consent previously given, whether or not such persons continue to be Holders after such record date.  No such consent shall be valid or effective for more than 90 days after such record date.

Section 8.5NOTATION ON OR EXCHANGE OF SECURITIES.  Securities of any series authenticated and delivered after the execution of any supplemental indenture with respect to such series pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture.  If the Company shall so determine, new Securities of such series so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any such supplemental indenture may be prepared ,executed, authenticated and delivered by the Company in exchange for outstanding Securities of that series.

Section 8.6TRUSTEE TO SIGN SUPPLEMENTAL INDENTURES.  The Trustee shall sign any supplemental indenture authorized pursuant to this Article VIII if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee.  If it does, the Trustee may, but need not, sign it.  In signing such amendment, the Trustee shall receive, and shall be fully protected in conclusively relying upon, an Officers’ Certificate and an Opinion of Counsel stating that such amendment is authorized or permitted by this Indenture.

Section 8.7EFFECT OF SUPPLEMENTAL INDENTURES.  Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby, except to the extent otherwise set forth thereon.

ARTICLE IX

MISCELLANEOUS

Section 9.1TRUST INDENTURE ACT CONTROLS.  If any provision of this Indenture limits, qualifies or conflicts with another provision hereof which is required to be included in this Indenture by the TIA, the required provision shall control.

Section 9.2NOTICES.  Any notice or communication shall be in writing and delivered in person, mailed by first-class mail, postage prepaid or transmitted electronically to any Holder at the registered address maintained in the Company’s records; PROVIDED, that any notice or communication by and among the Trustee and the Company may be made by telecopy and shall be effective upon receipt thereof and shall be confirmed in writing, mailed by first-class mail, postage prepaid, and addressed as follows:

22

if to the Company:
Prosper Marketplace, Inc.
111 Sutter Street, 22nd Floor
San Francisco, CA 94104
Attention: Chief Executive Officer
Facsimile:	415-598-1471
Email:  compliance@prosper.com
if to the Trustee:
Attention:
Facsimile:

The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications.

Any notice or communication given to a Holder of Securities shall be transmitted electronically to or mailed to such Securityholder at the Securityholder’s address as it appears on the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed.

Where this Indenture provides for notice in any manner, such notice may be waived in writing by the person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice.  Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.

Failure to electronically transmit or mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Holders of Securities of the same series.  If a notice or communication is electronically transmitted or mailed in the manner provided above, it is duly given, whether or not received by the addressee.

If the Company electronically transmits or mails a notice or communication to the Holders of Securities of a particular series, it shall electronically transmit or mail a copy to the Trustee and each Registrar, co-registrar or Paying Agent, as the case may be, with respect to such series.

In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give notice to Holders of Securities as set forth above, then such notification as shall be made with the acceptance of the Trustee shall constitute a sufficient notification for every purpose hereunder.  In any case where notice to Holders of Securities is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder of a Security shall affect the sufficiency of such notice with respect to other Holders of Securities.

Section 9.3COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.  Securityholders may communicate pursuant to TIA Section 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities.  The Company and the Trustee, the Registrar or the Paying Agent with respect to a particular series of Securities, and anyone else, shall have the protection of TIA Section 312(c).

Section 9.4CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.  Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee:

(a)an Officers’ Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and

23

(b)an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with.

Section 9.5FORM OF DOCUMENTS DELIVERED TO TRUSTEE.  In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.

Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous.  Any such Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.

Section 9.6STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.  Each Officers’ Certificate or Opinion of Counsel with respect to compliance with a covenant or condition provided for in this Indenture shall include:

(a)statement that each person making such Officers’ Certificate or Opinion of Counsel has read such covenant or condition;

(b)a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such Officers’ Certificate or Opinion of Counsel are based;

(c)a statement that, in the opinion of each such person, he has made such examination or investigation as is necessary to enable such person to express an informed opinion as to whether or not such covenant or condition has been complied with; and

(d)a statement that, in the opinion of such person, such covenant or condition has been complied with.

Section 9.7SEPARABILITY CLAUSE.  In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

Section 9.8RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR.  With respect to the Securities of a particular series, the Trustee with respect to such series of Securities may make reasonable rules for action by or a meeting of Holders of such series of Securities.  With respect to the Securities of a particular series, the Registrar and the Paying Agent with respect to such series of Securities may make reasonable rules for their functions.

Section 9.9LEGAL HOLIDAYS.  A “Legal Holiday” is any day other than a Business Day.  If any specified date (including an Interest Payment Date or Stated Maturity of any Security, or a date for giving notice) is a Legal Holiday at any Place of Payment or place for giving notice, then (notwithstanding any other provision of this Indenture or of the Securities other than a provision in the Securities of any series which specifically states that such provision shall apply in lieu of this Section) payment of interest or Principal need not be made at such Place of Payment, or such other action need not be taken, on such date, but the action shall be taken on the next succeeding day that is not a Legal Holiday at such Place of Payment with the same force and effect as if made on the Interest Payment Date, or at the Stated Maturity or such other date.

24

Section 9.10GOVERNING LAW AND JURISDICTION; WAIVER OF JURY TRIAL.  THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO ANY PRINCIPLE OF CONFLICTS OF LAW THAT WOULD REQUIRE OR PERMIT THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION.  THE COMPANY, THE TRUSTEE, AND EACH HOLDER OF A SECURITY (BY ACCEPTANCE THEREOF) THEREBY, (I) SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING RELATED TO THIS INDENTURE, (II) IRREVOCABLY WAIVES ANY DEFENSE OF LACK OF PERSONAL JURISDICTION IN SUCH SUITS AND (III) IRREVOCABLY WAIVES TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING BROUGHT IN THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK AND THAT SUCH SUIT, ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

EACH OF THE COMPANY AND THE TRUSTEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE, THE NOTES OR THE TRANSACTION CONTEMPLATED HEREBY.

Section 9.11NO RECOURSE AGAINST OTHERS.  A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation.  By accepting a Security, each Holder of such Security shall waive and release all such liability.  The waiver and release shall be part of the consideration for the issue of the Securities.

Section 9.12SUCCESSORS.  All agreements of the Company in this Indenture and the Securities shall bind its successor.  All agreements of the Trustee in this Indenture shall bind its successor.

Section 9.13EFFECT OF HEADINGS AND TABLE OF CONTENTS.  The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.

Section 9.14BENEFITS OF INDENTURE.  Nothing in this Indenture or in the Securities, express or implied, shall give to any person, other than the parties hereto and their successors hereunder and the Holders of Securities, any benefits or any legal or equitable right, remedy or claim under this Indenture.

Section 9.15MULTIPLE ORIGINALS.  The parties may sign any number of copies of this Indenture.  Each signed copy shall be an original, but all of them together represent the same agreement.  One signed copy is enough to prove this Indenture.

Section 9.16FORCE MAJEURE.  In no event shall the Trustee be responsible or liable for any failure or delay in the performance of its obligations hereunder arising out of or caused by, directly or indirectly, forces beyond its control, including, without limitation, strikes, work stoppages, accidents, acts of war or terrorism, civil or military disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss or malfunctions of utilities, communications or computer (software and hardware) services; it being understood that the Trustee shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.

25

	PROSPER MARKETPLACE, INC.
	By:
	Name:
	Title:
Attest:
Name:
Title:
		,
	as Trustee
	By:
	Name:
	Title:
Attest:
Name:
Title:

26

EXHIBIT A

Form of Security

FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, THIS NOTE IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT BECAUSE PAYMENTS ON THE NOTE ARE DEPENDENT ON PAYMENTS ON THE CORRESPONDING BORROWER LOAN. THE ISSUE PRICE OF THE NOTE IS THE STATED PRINCIPAL AMOUNT OF THIS NOTE, AND THE ISSUE DATE IS THE ORIGINAL ISSUE DATE. UPON REQUEST, THE COMPANY WILL PROMPTLY MAKE AVAILABLE TO THE HOLDER THE AMOUNT OF OID AND YIELD TO MATURITY

OF THIS NOTE. A HOLDER SHOULD CONTACT PROSPER MEMBER SUPPORT AT (866) 615-6319 OR support@prosper.com.

ANY TRANSFER, PLEDGE OR OTHER USE OF THIS NOTE FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL unless (1) such transfer is effected on a trading system that is recognized by the Company, and (2) this Note has been presented by the registered Holder (as defined below) to the Company or its agent for registration of transfer.

BORROWER PAYMENT DEPENDENT NOTE SERIES NO.                     (1)

PROSPER MARKETPLACE, INC.

No. [CUSIP ]

HOLDER:	(2)
CORRESPONDING BORROWER LOAN:						(3)
STATED PRINCIPAL AMOUNT OF THIS NOTE: U.S. $							(4)
AGGREGATE PRINCIPAL AMOUNT OF THIS SERIES OF NOTES: U.S. $								(5)
INTEREST RATE:		(6)
SERVICING FEE: AN ANNUALIZED RATE OF 1% OF OUTSTANDING PRINCIPAL AMOUNT OF THE BORROWER LOAN.
ORIGINAL ISSUE DATE:			(7)
INITIAL MATURITY DATE:					(8)
FINAL MATURITY DATE:				(9)

EXTENSION OF MATURITY DATE: Each Note will mature on the Initial Maturity Date, unless the maturity of the Note is extended to the Final Maturity Date subject to conditions described below.  In no event will the maturity of the Notes be extended beyond the Final Maturity Date.

PAYMENT DATES: Subject to the limitations on payment described below, the Company will make payments of principal and interest on or before the fourth Business Day following receipt of any Borrower Loan Net Payments by the Company in accordance with the payment schedule for this Note, which is available on the Holder’s account page at www.prosper.com, subject to prepayment at any time without penalty.

(1) Insert loan ID number for Corresponding Borrower Loan.

(2) Insert lender member’s screen name and member identification number.

(3) Insert description of Corresponding Borrower Loan.

(4) Insert principal amount of lender member’s Corresponding Borrower Loan.

(5) Insert aggregate principal amount of Corresponding Borrower Loan.

(6) Insert coupon stated on Corresponding Borrower Loan.

(7) Insert date corresponding to date of funding of Corresponding Borrower Loan.

(8) Insert date corresponding to stated maturity of Corresponding Borrower Loan.

(9) Insert date that is the first anniversary of the stated maturity of Corresponding Borrower Loan.

A-1

Prosper Marketplace, Inc., a corporation duly organized and existing under the laws of the State of Delaware (herein called the “Company”), for value received, hereby promises to pay to the person identified as the “Holder” above (the “Holder”), principal and interest on this Note in U.S. dollars in an amount equal to the Holder’s equal and ratable share of the Borrower Loan Net Payments on each Payment Date (in accordance with the payment schedule for this Note, which is available on the Holder’s account page at www.prosper.com and subject to prepayment) until the Initial Maturity Date or, if the maturity of the Note has been extended, until the Final Maturity Date.  For the avoidance of doubt, (1) no payments of principal and interest on this Note shall be payable unless the Company has received Borrower Loan Payments, and then only to the extent of Borrower Loan Net Payments in respect of those Borrower Loan Payments related to the Corresponding Borrower Loan identified above that have been received by the Company, and (2) no Holder of the Note shall have any recourse against the Company unless, and then only to the extent that, the Company has failed to pay such Holder the Borrower Loan Net Payments or otherwise breached a covenant in the Indenture described below that is applicable to the series of Notes of which this Note forms a part.  Subject to certain exceptions provided in the Indenture referred to below, the principal and interest payable on any Payment Date will be paid to the person in whose name this Note is registered at the close of business on the Record Date next preceding such Payment Date or maturity date.

“Record Date” shall mean the second Business Day immediately preceding each Interest Payment Date.

“Business Day” shall mean each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which the Automated Clearing House system operated by the U.S. Federal Reserve Bank (the “ACH System”) is closed and (2) not a day on which banking institutions are authorized or obligated by law or executive order to close in San Francisco, California or New York, New York.

If, on the Initial Maturity Date, any principal or interest payments in respect of the Corresponding Borrower Loan remain due and payable to the Company, the maturity date of this Note will be extended to the Final Maturity Date identified above.

If, on the Initial Maturity Date, no principal or interest payments in respect of the Corresponding Borrower Loan remain due and payable to the Company, the Note will mature on the Initial Maturity Date and no Borrower Loan Net Payments that the Company receives in respect of the Corresponding Borrower Loan after such Initial Maturity Date shall be required to be paid to the Holder of the Note.

All payments of principal and interest on this Note due to the Holder hereof shall be made in U.S. dollars, in immediately available funds, by intra-institution book entry transfer to the Holder’s designated sub-account in the trust account maintained by the Company at                                                                 , or such alternate account of the Holder designated by the Trustee in accordance with the Indenture.

All U.S. dollar amounts used in or resulting from the calculation of amounts due in respect of this Note shall be rounded to the nearest cent (with one-half cent being rounded upward).

This Note is one of a duly authorized series of special limited obligations of the Company (hereinafter called the “Securities”) all issued or to be issued under and pursuant to an Indenture dated as of [                                        , 2009] (hereinafter called the “Indenture”), duly executed and delivered by the Company and                                                                   , as trustee (hereinafter called the “Trustee”), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, duties and immunities thereunder of the Trustee and the rights thereunder of the holders of the Securities.  The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (the “TIA”), as in effect on the date of the Indenture.  The Securities are subject to, and qualified by, all such terms, certain of which are summarized hereon, and Holders are referred to the Indenture and the TIA for a statement of such terms.  As provided in the Indenture, the Securities may be issued in one or more separate series, which different series may be issued in various aggregate principal amounts, mature at different times, bear interest at different rates, be subject to different covenants and events of default, and otherwise vary as provided or permitted in the Indenture.

A-2

If an Event of Default described in Section 5.1(3) or (4) of the Indenture occurs and is continuing, the unpaid stated principal amount hereof will become and be immediately due and payable in the manner, with the effect and subject to the conditions provided in the Indenture.

The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of each series of Securities affected thereby, at the time Outstanding, evidenced as provided in the Indenture, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any indenture supplemental thereto or modifying in any manner the rights of the holders of this Note; provided, however, that no such supplemental indenture shall (1) change the Stated Maturity of the principal of, or any installment of principal or interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon that would be due and payable upon a declaration of acceleration of maturity thereof or change the place of payment where, or change the coin or currency in which, any installment of principal and interest on any such Security is payable or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof, (2) reduce the percentage in principal amount of the Outstanding Securities, the consent of whose Holders is required for any such amendment or supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of the Indenture or certain defaults thereunder and their consequences) with respect to the Securities, or (3) modify any of the provisions of Section 8.2, Section 5.4 (clauses (1) and (2)) or Section 5.7 of the Indenture, except to increase the percentage of Outstanding Securities required for such actions to provide that certain other provisions of the Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby.  The Indenture also contains provisions permitting the holders of a majority in aggregate principal amount of the Securities of all affected series at the time outstanding, on behalf of the holders of all the Securities of such series, to waive, insofar as those series are concerned, compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences.  Any such consent by the Holder of this Note (unless revoked as provided in the Indenture) shall be conclusive and binding upon such Holder and upon all future holders and owners of this Note and any Notes which may be issued upon the registration of transfer hereof or, irrespective of whether or not any notation thereof is made upon this Note or other such Notes.

This Note is not entitled to any sinking fund.  This Note is not redeemable at the option of the Holder.  The Company shall redeem all of the Outstanding Notes of the series of which this Note forms a part for the remaining unpaid principal balance of such Note if the Corresponding Borrower Loan has been obtained as a result of verifiable identity theft on the part of the purported borrower member. The Company may, in its reasonable discretion, require proof of the identity theft, such as a copy of a police report filed by the person whose identity was wrongfully used to obtain the fraudulently-induced Corresponding Borrower Loan, an identity theft affidavit or a bank verification letter (or all of the above) in order to determine that verifiable identity theft has occurred. The Company shall not be required to repurchase a Note until such Note is at least 120 days past-due, provided, however, that the Company may in its sole discretion elect to repurchase a Note at an earlier time.

The Notes are in registered form without coupons in denominations of $1.00 to $25,000.  The Notes may not be transferred and the transfer of Notes shall not be registered as provided in the Indenture unless such transfer is effected on a trading system that is recognized by the Company.  Upon due presentment for registration of transfer of this Note at the office or agency of the Company in San Francisco, California, a new Note or Notes in authorized denominations in Dollars for an equal aggregate principal amount and like interest rate and maturity will be issued to the transferee in exchange therefor, subject to the limitations provided in the Indenture, without charge except for (1) any stamp tax or other governmental charge imposed in connection therewith and (2) any transfer charges associated with the Company’s trading platform as described on its website at www.prosper.com.

The Company, the Trustee, and any paying agent may deem and treat the registered Holder hereof as the absolute owner of this Note at the Holder’s address as it appears on the register books of the Company as kept by the Company or duly authorized agent of the Company (whether or not this Note shall be overdue), for the purpose of receiving payment of or on account hereof and for all other purposes, and neither the Company nor the Trustee nor any paying agent shall be affected by any notice to the contrary.  All payments made to or upon the order of such registered Holder shall, to the extent of the sum or sums paid, effectively satisfy and discharge liability for moneys payable on this Note.

No recourse under or upon any obligation, covenant or agreement contained in the Indenture or any indenture supplemental thereto or in any Note, or because of any indebtedness evidenced thereby, shall be had

A-3

against any incorporator, or against any past, present or future shareholder, officer or director, as such, of the Company, either directly or through the Company, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or penalty or otherwise, all such personal liability of every such incorporator, shareholder, officer and director, as such, being expressly waived and released by the acceptance hereof and as a condition of and as part of the consideration for the issuance of this Note.

Unless otherwise defined herein, terms used herein which are defined in the Indenture shall have the respective meanings assigned thereto in the Indenture.  To the extent that provisions contained in this Note are inconsistent with the provisions set forth in the Indenture, the provisions contained herein will apply.

This Note shall be governed by and construed in accordance with the laws of the State of New York without regard to any principle of conflict of laws that would require or permit the application of the laws of any other jurisdiction.

This Note shall not be valid or become obligatory for any purpose until the Certificate of Authentication hereon shall have been signed by an authorized officer of the Company or its duly authorized agent under the Indenture referred to above.

IN WITNESS WHEREOF, Prosper Marketplace, Inc. has caused this instrument to be signed by its duly authorized officers.

Dated:
		PROSPER MARKETPLACE, INC.
		By:
		Name:
		Title:
CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Securities of the series of Securities designated therein referred to in the within-mentioned Indenture.
PROSPER MARKETPLACE, INC.
as Authenticating Agent
By:
	Name:
	Title:

A-4

EX-10.1

Exhibit 10.1

BORROWER REGISTRATION AGREEMENT

This Borrower Registration Agreement is made and entered into between you and Prosper Marketplace, Inc. (“Prosper”).

The Prosper marketplace is a person-to-person online credit auction platform (the “platform”) operated by Prosper for the registration of borrowers, lenders and group leaders, the receipt, display and matching of listings and bids for loans and the origination, sale, servicing and collection of principal of and interest and other charges payable on loans. All loans obtained by Prosper borrowers through the platform are made by WebBank, a Utah-chartered industrial bank (“WebBank”).  Prosper provides services to WebBank in connection with the origination of such loans and Prosper services all loans made to Prosper borrowers through the platform. The following Agreement describes the services and your rights and obligations should you elect to register as a borrower on the platform. Prosper and WebBank are collectively referred to in this Agreement as “we” or “us.”

1.  Registration as a Prosper Borrower. You are registering as a borrower in the Prosper marketplace, so that you may be eligible to post loan requests or “listings” for display on the platform to people who may be interested in bidding against one another in a competitive auction format to facilitate the funding of a loan to you by WebBank. We refer to the people who bid on listings as “lenders” even though all loans to Prosper borrowers obtained through the platform are made by WebBank. You agree to comply with the terms and provisions of this Agreement, the Terms of Use of the Prosper website, and the Prosper Policies, as those guidelines may be amended from time to time by Prosper in its sole discretion (collectively, the “Prosper Terms and Conditions”).

We reserve the right to restrict access to the platform to individuals who meet minimum credit guidelines and other criteria, as determined by us in our sole discretion.

2.  Authorization to Obtain Credit Report. You authorize us to obtain a credit report from a consumer credit reporting agency. We may use the credit report for any lawful purpose, including but not limited to (i) for authentication purposes, to make sure you are who you say you are, (ii) to determine how much non-mortgage debt you currently have, in order to determine your debt-to-income ratio, (iii) to obtain your credit score and assign you a Prosper Rating based in part on that score, and (iv) to identify and display certain information and characteristics from your credit profile, including but not limited to the number, age, type and status of the credit lines currently being reported, public records (such as bankruptcies and judgments) and mortgage loans appearing on your credit report, and the number of your recent requests for credit. Information from your credit report will be displayed on the Prosper website with your listings. You authorize us to verify information in your credit report, and you agree that Prosper may contact third parties to verify any such information. We will obtain your credit report each time you post a listing, except that we will not obtain a new credit report when you post listings within thirty (30) days following the posting of an earlier listing.

3.  Listings. You may request a loan from WebBank by posting a listing on the Prosper website. The minimum and maximum loan amounts you may request are posted on the Prosper website and are subject to change by us at any time without notice. To post a listing, you must provide the amount of the loan you are requesting and the maximum interest rate you are willing to pay. At the time you post a listing you must also provide your annual income, occupation and employment status. You authorize and agree that we may display in your listing any information from your credit file with the consumer credit reporting agency, including but not limited to the following information:

1

(i)	Your Prosper Rating;
(ii)	Your debt-to-income ratio, expressed as a percentage, reflecting the ratio between the amount of your monthly non-mortgage debt, as compared to the amount of monthly income that you indicated when completing your listing;
(iii)	Whether you own a home;
(iv)	The number of accounts on which you are currently late on a payment;
(v)	The total past-due amount you owe on all delinquent and charged-off accounts;
(vi)	The number of 90+ days past due delinquencies on your credit report in the last 7 years;
(vii)	The number of negative public records (e.g., bankruptcies, liens, and judgments) on your credit report over the last 12 months, and over the last 10 years;
(viii)	The month and year your first recorded credit line (e.g., revolving, installment, or mortgage credit) was opened;
(ix)	The total number of credit lines appearing on your credit report, along with the number that are open and current;
(x)	The total balance on all of your open revolving credit lines;
(xi)	Your bankcard utilization ratio, expressed as a percentage, reflecting the ratio of the total balance used, to the aggregate credit limit on, all of your open bankcards; and
(xii)	The number of inquiries made by creditors to your credit report in the last six months.

Listings may also display your self-reported occupation, employment status and range of income. If you are a member of a Prosper group when you post a listing, the listing will also identify your group; however, you do not have to be a member of a group to post a listing. You may also create a network of Prosper friends, and if one or more of your Prosper friends or your fellow group members bid on your listing, your listing will reflect that the bid was made by a fellow group member or a Prosper friend. Your Prosper friends who bid on your listing may also write a recommendation that will be displayed in your listing. Prosper friends do not guarantee payments on your loan, and bids and recommendations of your listing from your Prosper friends do not obligate the individual making the bid or recommendation to guarantee or make any payments on your loan.

You may not include any personally identifying information, including, without limitation, your name, address, phone number, email address, Social Security number or driver’s license number, or your bank account or credit card numbers in your listing or on your Prosper member web page, or elsewhere on the Prosper Website. Listings that include this information are subject to cancellation by Prosper, or deletion or redaction by Prosper of the personally identifying information, although Prosper is under no obligation to take such actions and you include such information solely at your own risk.

Prosper lenders may ask you questions about your loan listing and you may, but are not required to, respond to such questions.  If you do elect to respond to a lender’s question you may respond privately, or you may elect to have the question and answer posted publicly in the listing.  Lenders’ questions are not posted in the listing or displayed elsewhere on our website unless you elect to answer the question and elect to make the question and answer publicly available, in which case the question and answer appears in the listing.

Borrower listings are displayed on the Prosper website. This means that people who visit the Prosper website will be able to view your listing, and see your Prosper Rating, your debt-to income ratio and other information, provided, however, that certain information concerning your credit history will only be viewable by registered Prosper lenders. Upon your submission of a listing, you authorize Prosper to display the listing on the Prosper website for purposes of obtaining a loan and for enabling Prosper lenders who own Borrower Payment Dependent Notes (described in Section 5 below) corresponding to your loan to offer such Notes for sale to other lenders at any time while your loan is outstanding. You authorize and agree that Prosper may obtain and display updated information from your credit file with one or more consumer credit reporting agencies, as well as information about the payment history and status of your loan, on the Prosper website at any time or times that a Borrower Payment Dependent Note corresponding to your loan is offered for sale by lenders holding such Notes. To facilitate bids for your listing or for listings posted by lenders offering to sell a Borrower Payment Dependent Note corresponding to your loan. To facilitate bids for your listing, Prosper may forward the listing by email to third parties, including but not limited to registered Prosper lenders, and may display the listing in promotional, advertising and marketing materials, and you authorize Prosper to do so.

You authorize Prosper to verify your residence, income, occupation and any other information you provide in connection with a listing or your registration as a borrower, and you agree that Prosper may contact third parties to verify information you provide. If such information changes

2

after you post a listing but before the listing expires, you must either (i) promptly notify Prosper of the change, or (ii) withdraw your listing. For example, if, while your listing is displayed on the Prosper website, your state of residence changes or the annual income amount you provided to Prosper when you submitted your listing decreases materially, you must either notify Prosper of the change, or withdraw the listing. If you elect to withdraw your listing as a result of a change, you may (but are not required to) post a new listing containing the updated information. You cannot edit or amend your listing once it is posted on the Prosper website; however, you have the right to withdraw your listing at any time prior to expiration of the listing, and you may post another listing if you desire. Prosper reserves the right, in its sole discretion, to limit the number of listings you post or attempt to post on the Prosper website.

Each listing you post on the Prosper website is both a request for a loan and a commitment to borrow.

Loan Request. Your listing is a request for a loan in the amount specified in the listing, at an interest rate equal to the maximum interest rate set forth in your listing. If your listing is matched with lender bids totaling the amount of your requested loan, the interest rate on your loan may be lower than the maximum rate you specified, but it will never be higher. You will not receive a loan in an amount less than the amount specified in your listing, even if one or more bids match a portion of your requested loan amount. In order to post a listing on the Prosper website you must have a good faith intent to obtain and repay your loan and your listing must be consistent with that intent.

Commitment to Borrow. Each listing you post on the Prosper website is a commitment and promise to obtain a loan from WebBank. You have the right to withdraw your listing at any time prior to expiration of the listing. If your listing receives a lender bid in, or lender bids totaling, the amount of your requested loan, you will be entitled to receive a loan from WebBank in the amount you requested, subject to our right to verify information you provided in connection with your listing and your registration as a Prosper user and our other rights as described in Section 4 below.

AT THE TIME YOU SUBMIT YOUR LISTING, YOU ARE COMMITTING TO OBTAIN A LOAN IN THE AMOUNT SPECIFIED IN YOUR LISTING, AT THE MAXIMUM INTEREST RATE SET FORTH IN YOUR LISTING, SHOULD YOUR LISTING BE MATCHED WITH A BID IN, OR BIDS TOTALING, THE AMOUNT OF YOUR REQUESTED LOAN. YOU HAVE THE RIGHT TO WITHDRAW YOUR LISTING AT ANY TIME PRIOR TO EXPIRATION OF YOUR LISTING; HOWEVER, YOU HAVE NO RIGHT TO RESCIND ANY LOAN.

Number of Listings. You may post as many listings as you desire; however, Prosper reserves the right, in its sole discretion, to limit the number of listings you post or attempt to post on the Prosper website. You may have only one listing outstanding at a time.

Duration of Listings. When you post a listing, your listing will be displayed on the platform for seven (7) days or for such other time period that we may in our sole discretion establish and amend from time to time. However, if your listing receives a lender bid in, or lender bids totaling, the full amount of your requested loan prior to expiration of your listing, you may elect to end your listing early – you need not wait until your listing expires. You may also designate your listing for “automatic funding,” in which case your listing will end and no further bids on your listing will be accepted toward your listing as soon as your listing receives a bid or bids totaling the full amount of your requested loan. We reserve the right to make the automatic funding feature available only to borrowers with certain Prosper Ratings or other credit characteristics. When you post a listing, it will be displayed on the platform along with all other listings until you end the listing or the listing expires, or until the listing is withdrawn by you or by us as provided in Section 4 below.

3

Additional Loans. Subject to eligibility requirements that we may in our sole discretion establish and amend from time to time, you may have up to two loans outstanding at any one time, provided that the aggregate outstanding principal balance of your loans does not exceed the maximum loan amount for your state of residence. To be eligible to post a listing for a second loan, you must be current on your existing loan, and you must have a record of on-time monthly loan payment performance, within such guidelines as may be established and amended from time to time by us in our sole discretion. You may not post a listing for a second loan until a specified number of months has elapsed since the date you obtained your existing loan. The guidelines and eligibility requirements for second loans are posted on the Prosper website and are subject to change by us in our sole discretion at any time without notice.

Prohibited Activities. You agree that you will not, in connection with any listings, bids, loans or other transactions involving or potentially involving Prosper or WebBank, (i) make any false, misleading or deceptive statements or omissions of material fact in your listing; (ii) misrepresent your identity, or describe, present or portray yourself as a person other than yourself, whether in a narrative description or a photo in your listing; (iii) give to or receive from, or offer or agree to give to or receive from any Prosper lender or other person any fee, bonus, additional interest, kickback or thing of value of any kind in connection with a requested or existing loan or in exchange for such person’s bid, recommendation, or offer or agreement to bid on or recommend your listing; or (iv) represent yourself to any person, as a director, officer or employee, of Prosper or WebBank, unless you are such director, officer or employee.

4.  Right to Verify Information and Cancel Funding.

a. We reserve the right to verify the accuracy of all information provided by borrowers, lenders and group leaders in connection with listings, bids and loans. We also reserve the right to determine in our sole discretion whether a registered user is using, or has used, the Prosper website illegally or in violation of any order, writ, injunction or decree of any court or governmental instrumentality, for purposes of fraud or deception, or otherwise in a manner inconsistent with the Prosper Terms and Conditions or any agreement between Prosper or WebBank and such user. We may conduct our review at any time – before, during or after the posting of a listing, or before or after the funding of a loan. You agree to respond promptly to our requests for information in connection with your listing, accounts, or your registration with Prosper.

b. In the event we determine, prior to funding a loan, that a listing, or a bid for the listing, contains materially inaccurate information (including but not limited to unintended inaccuracies, inaccuracies resulting from errors by Prosper, or inaccuracies resulting from changes in the borrower’s income, residence or credit profile between the date a listing is posted and the date the listing is to be funded) or was posted illegally or in violation of any order, writ, injunction or decree of any court or governmental instrumentality, for purposes of fraud or deception, or otherwise in a manner inconsistent with the Prosper Terms and Conditions or any registration agreement, we may refuse to post the listing or, if the listing has already been posted, remove the listing from the platform and cancel all bids against the listing.

c. When a listing ends or expires with a bid or bids totaling the amount of a borrower’s requested loan, we may conduct a “pre-funding” review prior to funding the loan. Loan funding occurs when loan proceeds are disbursed into the borrower’s designated deposit account. We may, at any time and in our sole discretion, delay funding of a loan in order to enable us to verify the accuracy of information provided by borrowers, lenders and group leaders in connection with the listing or bids against the listing, and to determine whether there are any irregularities with respect to the listing or the bids against the listing. We may cancel or proceed with funding the loan, depending on the results of our pre-funding review. If funding is cancelled, the listing will be removed from the platform and all bids against the listing will be cancelled, and each bidder’s

4

funds will be returned to the Prosper funding account, available for further bidding. In the event we cancel funding of a loan, Prosper will notify the borrower, group leader (if any), and all bidders for the listing of our determination to cancel funding of the loan.

5.  Matching of Bids and Listings; Loan Funding.

a. Registered Prosper lenders will be able to review your listing and may commit funds to purchase, in various amounts, Borrower Payment Dependent Notes (“Notes”) that Prosper may issue to lenders who, as winning bidders for your listing, commit funds to facilitate the funding of your borrower loan.  The Notes Prosper issues to these lenders will be dependent for payment on payments we receive from you on your loan.  This means that the Prosper lenders who facilitated the funding of your loan will receive payments on their Notes only to the extent you make payments on your loan.  You acknowledge and agree that a lender’s commitment to purchase a Note corresponding to all or a portion of your loan from us does not confer any rights to you. You also acknowledge and agree that Prosper lenders make their own decisions whether to commit funds toward your loan.

b. Prosper’s auction platform will automatically match your listing with any bids that specify a minimum interest rate equal to or below the maximum interest rate you would accept. Bids are first matched with borrower listings with the highest offered interest rates above the bidder’s minimum interest rate, and thereafter the bids are matched to borrower listings with incrementally lower offered interest rates. Most listings are matched with multiple lender bids.

c. A match of your listing with one or more bids in the full amount of your requested loan results in a loan from WebBank to you, subject to our right to verify information as provided in this Agreement. The loan will be evidenced by a Promissory Note in the form set forth on the attached Exhibit A. Loan proceeds are disbursed into your designated deposit account. After loan funding, the loan will be sold by WebBank to Prosper, and Prosper will service the loan.

d. We do not warrant or guaranty that your listing will be matched with any bids. Your listing must receive a bid in, or bids totaling, the entire amount of your requested loan in order for a loan to be made. You will not receive a loan if, prior to withdrawal or expiration of your listing, only a portion (even a substantial portion) of your requested loan amount is matched with a bid or bids.

e. To safeguard your privacy rights, on listings your name and address will be shielded from the view of bidders and prospective bidders, and your identity as the borrower on the Promissory Note will be shielded from the winning bidders who purchase Notes dependent for payment on payments we receive from you on your loan. Only your Prosper screen name will appear on listings and Promissory Notes, and only the screen name of the bidders will appear with bids.

6.  Compensation.  If you receive a loan, you must pay WebBank an origination fee. The current fee amounts are posted in the Fees and Charges section of the Prosper website, and are subject to change by us at any time without notice. The transaction fee is paid by the borrower out of the loan proceeds at the time a loan is funded, so that the net amount of loan proceeds you receive will be less than the full amount of your loan.

7.  Making Your Loan Payments.  At the time you register as a borrower, you must provide your deposit account information to facilitate transfers of funds to and from your deposit account. You agree to make your loan payments by automated withdrawals from your designated account, or by the use of bank drafts drawn on your designated account. At the time you create your listing, you will be asked to choose the method of making your loan payments, and your loan payments will be made by the payment method you choose. Prosper will act as the servicer for all loans you obtain from WebBank through the platform, and all communications regarding your loan must be made to Prosper.

8. Authorization to Contact Your Group Leader. You acknowledge and agree that if you obtain a loan through the platform as a member of a group registered with Prosper, and your loan payment becomes fifteen (15) days past due, Prosper may notify your group leader of the delinquent payment. You also acknowledge and agree that if you obtain a loan through the platform, in the event your loan payment becomes fifteen (15) days past due Prosper may notify all of your designated Prosper friends who were winning bidders on your loan listing of your delinquent payment. Groups on Prosper are rated according to the collective payment

5

performance of the group’s members, so your failure to make loan payments when due may have a negative effect on your group’s rating.

9.  Collection & Reporting of Delinquent Loans. In the event you do not make your loan payments on time, WebBank or any subsequent owner of the loan will have all remedies authorized or permitted by the Promissory Note and applicable law. In addition, when a monthly payment becomes thirty (30) days past due, your loan may be referred to a collection agency for collection. Prosper may report loan payment delinquencies in excess of 30 days to one or more credit reporting agencies in accordance with applicable law. Subject to limitations of applicable law, you authorize and agree that Prosper or a collection agency may contact you at any or all of the telephone numbers you provide to Prosper at or after registration or any of your other telephone numbers.

10.  No Guarantee. NEITHER PROSPER NOR WEBBANK WARRANTS OR GUARANTEES (1) THAT YOUR LISTING WILL BE MATCHED WITH ANY BIDS, (2) THAT YOU WILL RECEIVE A LOAN AS A RESULT OF POSTING A LISTING, OR (3) THAT IF YOUR LISTING IS MATCHED YOU WILL RECEIVE A LOAN WITH AN INTEREST RATE LESS THAN THE MAXIMUM RATE SPECIFIED IN YOUR LISTING.

11.  Restrictions on Use. You are not authorized or permitted to use the Prosper website to obtain, or attempt to obtain, a loan for someone other than yourself. You must be an owner of the deposit account you designate for electronic transfers of funds, with authority to direct that loan payments be made from the account. Your designated account will be the account into which loan proceeds will be deposited, and from which loan payments will be made. Although you are registering as a borrower, you may also register and participate on the platform as a lender or as a group leader. If you participate on the platform as a lender any amounts in your Prosper funding account are subject to set-off against any delinquent amounts owing on any loan or loans you obtain as a Prosper borrower. If you obtain a loan and fail to pay your loan in full, whether due to default, bankruptcy or other reasons, you will not be eligible to post any further listings or re-register with Prosper as a borrower, lender or group leader. Prosper may in its sole discretion, with or without cause and with or without notice, restrict your access to the Prosper website or platform.

12.  Authority. You warrant and represent that you have the legal competence and capacity to execute and perform this Agreement.

13.  Termination of Registration. Prosper may in its sole discretion, with or without cause, terminate this Agreement at any time by giving you notice as provided below.  In addition, upon Prosper’s determination that you committed fraud or made a material misrepresentation in connection with a listing, bid or loan, performed any prohibited activity, or otherwise failed to abide by the terms of this Agreement or the Prosper Terms and Conditions, Prosper may, in its sole discretion, immediately and without notice, take one or more of the following actions: (i) terminate or suspend your right to post listings or otherwise participate on the platform; (ii) terminate this Agreement and your registration with Prosper. Upon termination of this Agreement and your registration with Prosper, any listings you have posted on the Prosper website shall terminate, and will be removed from the Prosper website immediately. Any loans you obtain prior to the effective date of termination resulting from listings you had placed on the Prosper website shall remain in full force and effect in accordance with their terms.

14.  Prosper’s Right to Modify Terms.  Prosper has the right to change any term or provision of this Agreement or the Prosper Terms and Conditions, provided, however, that Prosper does not have the right to change any term or provision of a Promissory Note evidencing a loan to which you are a party except as authorized in the Promissory Note. Prosper will give you notice of material changes to this Agreement, or the Prosper Terms and Conditions, in the

6

manner set forth in Section 17. You authorize Prosper to correct obvious clerical errors appearing in information you provide to Prosper, without notice to you, although Prosper expressly undertakes no obligation to identify or correct such errors. This Agreement, along with the Prosper Terms and Conditions, represent the entire agreement between you and Prosper regarding your participation as a borrower on the platform, and supersede all prior or contemporaneous communications, promises and proposals, whether oral, written or electronic, between you and Prosper with respect to your involvement as a borrower on the platform.

15.  Member Web Page Display and Content.  You may, but are not required to, maintain a “Prosper member web page” on the Prosper website, where you can post photos, content, logos or links to websites. If you elect to do so, you authorize Prosper to display on the Prosper website all such material you provide to Prosper. Any material you display on your member page must conform to the Prosper Terms and Conditions, as amended from time to time, and material you display or link to must not (i) infringe on Prosper’s or any third party’s copyright, patent, trademark, trade secret or other proprietary rights or right of publicity or privacy; (ii) violate any applicable law, statute, ordinance or regulation; (iii) be defamatory or libelous; (iv) be lewd, hateful, violent, pornographic or obscene; (v) violate any laws regarding unfair competition, anti-discrimination or false advertising; (vi) promote violence or contain hate speech; or (vii) contain viruses, trojan horses, worms, time bombs, cancelbots or other similar harmful or deleterious programming routines. You may not include or display any personally identifying information, including, without limitation, name, address, phone number, email address, Social Security number or driver’s license number, or bank account or credit card numbers of any Prosper member on your Prosper member web page, or elsewhere on the Prosper website.

16.  Notices.  All notices and other communications hereunder shall be given by email to your registered email address or will be posted on the Prosper website, and shall be deemed to have been duly given and effective upon transmission or posting. You can contact us by sending an email to support@prosper.com or calling us toll-free at (866) 615-6319. You also agree to notify Prosper if your registered email address changes, and you agree to update your registered residence address, mailing address and telephone number on the Prosper website if your address or telephone number changes.

17.  No Warranties.  EXCEPT FOR THE REPRESENTATIONS CONTAINED IN THIS AGREEMENT, PROSPER DOES NOT MAKE ANY REPRESENTATIONS OR WARRANTIES TO YOU OR ANY OTHER PARTY WITH REGARD TO YOUR USE OF THE PROSPER WEBSITE AND THE PLATFORM, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

18.  Limitation on Liability.  IN NO EVENT SHALL ANY PARTY TO THIS AGREEMENT BE LIABLE TO ANY OTHER PARTY FOR ANY LOST PROFITS OR SPECIAL, EXEMPLARY, CONSEQUENTIAL OR PUNITIVE DAMAGES, EVEN IF INFORMED OF THE POSSIBILITY OF SUCH DAMAGES. FURTHERMORE, NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY TO ANY OTHER PARTY REGARDING THE EFFECT THAT THE AGREEMENT MAY HAVE UPON THE FOREIGN, FEDERAL, STATE OR LOCAL TAX LIABILITY OF THE OTHER.

19.  Miscellaneous. You may not assign, transfer, sublicense or otherwise delegate your rights under this Agreement to another person without Prosper’s prior written consent. Any such assignment, transfer, sublicense or delegation in violation of this Section shall be null and void. This Agreement shall be governed by federal law and, to the extent that state law applies, the laws of the State of Utah. Any waiver of a breach of any provision of this Agreement will not be

7

a waiver of any other subsequent breach.  Failure or delay by either party to enforce any term or condition of this Agreement will not constitute a waiver of such term or condition. If any part of this Agreement is determined to be invalid or unenforceable under applicable law, then the invalid or unenforceable provision will be deemed superseded by a valid enforceable provision that most closely matches the intent of the original provision, and the remainder of the Agreement shall continue in effect. WebBank is not a party to this Agreement, but you agree that WebBank is a third-party beneficiary and is entitled to rely on your representations and authorizations, and other provisions of this Agreement. There are no other third party beneficiaries to this Agreement.

8

EXHIBIT A

PROMISSORY NOTE

Borrower Address:                                                                                             .

1.  Promise to Pay.  In return for a loan I have received, I promise to pay WebBank, a Utah-chartered Industrial Bank (“you”) the principal sum of                                         Dollars ($                    ), together with interest thereon commencing on the date of funding at the rate of          percent (        %) per annum simple interest. I understand that references in this Note to you shall also include any person to whom you transfer this Note.

2.  Payments.  This Note is payable in 36 monthly installments of $                       each, consisting of principal and interest, commencing on the                  day of                           , and continuing until the final payment date of                                     , which is the maturity date of this Note. The final payment shall consist of the then remaining principal, unpaid accrued interest and other charges due under this Note.  All payments will be applied first to any late charges then due, then to any unpaid fees incurred as a result of failed automated payments or returned checks or bank drafts as provided in Paragraph 11, then to interest then due and then to principal. No unpaid interest or charges will be added to principal.

3.  Interest.  Interest will be charged on unpaid principal until the full amount of principal has been paid.  Interest under this Note will accrue daily, on the basis of a 365-day year. If payments are made on time, my final payment will be in the amount of a regular monthly payment. If payments are paid late, a greater portion of the payment will be applied to accrued interest, a lesser portion (if any) will be applied to principal reduction, and the loan will not amortize as originally scheduled, resulting in a higher final payment amount. The interest rate I will pay will be the rate I will pay both before and after any default.

4.  Late Charge.  If the full amount of any monthly payment is not made by the end of fifteen (15) calendar days after its due date, I will pay you a late charge of                            . I will pay this late charge promptly but only once on each late payment.

5.  Waiver of Defenses.  Except as otherwise provided in this Note, you are not responsible or liable to me for the quality, safety, legality, or any other aspect of any property or services purchased with the proceeds of the loan.  If I have a dispute with any person from whom I have purchased such property or services, I agree to settle the dispute directly with that person.

6.  Certification; Exception to Waiver.  I certify that, to my knowledge, the proceeds of this loan will not be applied in whole or part to purchase property or services from any person to whom any interest this loan may be assigned. If, notwithstanding the preceding sentence, any person from whom I have purchased such property acquires any interest in this loan, then Paragraph 5 will not apply to the extent of that person’s interest, even if that person later assigns that person’s interest to another person.

7.  Method of Payment.  I will pay the principal, interest, and any late charges or other fees on this loan when due. Those amounts are called “payments” in this Note.  To ensure that my payments are processed in a timely and efficient manner, you have given me the choice of making my monthly payments (i) by automated withdrawal from an account that I designate using an automated clearinghouse (ACH) or other electronic fund transfer, or (ii) by bank drafts drawn by you on my behalf on my account each month; and I have chosen one of these methods.

9

If I close my account or if my account changes or is otherwise inaccessible such that you are unable to withdraw my payments from that account or draw bank drafts on the account, I will notify you at least three (3) days prior to any such closure, change or inaccessibility of my account, and authorize you to withdraw my payments from, or draw bank drafts on, another account that I designate.

With regard to payments made by automatic withdrawals from my account, I have the right to (i) stop payment of a preauthorized automatic withdrawal, or (ii) revoke my prior authorization for automatic withdrawals with regard to all further loan payments, by notifying the financial institution where my account is held, orally or in writing at least three (3) business days before the scheduled date of the transfer. I agree to notify you orally or in writing, at least three (3) business days before the scheduled date of the transfer, of the exercise of my right to stop a payment or to revoke my prior authorization for further automatic withdrawals.

8.  Default and Remedies. If I fail to make any payment when due in the manner required by Paragraph 7, I will be in default and you may at your option accelerate the maturity of this Note and declare all principal, interest and other charges due under this Note immediately due and payable. If you exercise the remedy of acceleration you will give me at least 30 days prior notice of acceleration.

9.  Prepayments.  I may prepay this loan in full or in part at any time without penalty.

10.  Waivers.  You may accept late payments or partial payments, even though marked “paid in full,” without losing any rights under this Note, and you may delay enforcing any of your rights under this Note without losing them. You do not have to (a) demand payment of amounts due (known as “presentment”), (b) give notice that amounts due have not been paid (known as “notice of dishonor”), or (c) obtain an official certification of nonpayment (known as “protest”). I hereby waive presentment, notice of dishonor and protest. Even if, at a time when I am in default, you do not require me to pay immediately in full as described above, you will still have the right to do so if I am in default at a later time. Neither your failure to exercise any of your rights, nor your delay in enforcing or exercising any of your rights, will waive those rights.  Furthermore, if you waive any right under this Note on one occasion, that waiver will not operate as a waiver as to any other occasion.

11. Insufficient Funds Charge. If I attempt to make a monthly payment, whether by check or bank draft or by automated withdrawal from my designated account, and the payment is unable to be made due to (i) insufficient funds in my account, (ii) the closure, change or inaccessibility of my account without my having notified you as provided in Paragraph 7, or (iii) for any other reason (other than an error by you), I will pay you an additional fee of $             for each check or bank draft returned or failed automated withdrawal, unless prohibited by applicable law.

12.  Attorneys’ Fees. To the extent permitted by law, I am liable to you for your legal costs if you refer collection of your loan to a lawyer who is not your salaried employee.  These costs may include reasonable attorneys’ fees as well as costs and expenses of any legal action.

13.  Loan Charges.  If a law, which applies to this loan and which sets maximum loan charges, is finally interpreted so that the interest or other loan charges collected or to be collected in connection with this loan exceed the permitted limits, then: (a) any such loan charge shall be reduced by the amount necessary to reduce the charge to the permitted limit; and (b) any sums already collected from me which exceeded permitted limits will be refunded to me. You may choose to make this refund by reducing the principal I owe under this Note or by making a direct payment to me.

14.  Assignment.  I may not assign any of my obligations under this Note without your written permission.  You do not have to give me your permission.  You may assign this Note at any time without my permission. Unless prohibited by applicable law, you may do so without telling me. 

10

My obligations under this Note apply to all of my heirs and permitted assigns. Your rights under this Note apply to each of your successors and assigns.

15.  Notices.  All notices and other communications hereunder shall be given in writing and shall be deemed to have been duly given and effective (i) upon receipt, if delivered in person or by facsimile, email or other electronic transmission, or (ii) one day after deposit prepaid for overnight delivery with a national overnight express delivery service.  Such notices must be properly addressed to the parties at the addresses set forth below unless a different address for notice is later provided in writing by giving notice pursuant to this Paragraph.

16.  Governing Law.    This Note is governed by federal law and, to the extent that state law applies, the laws of the State of Utah.

17.  Miscellaneous.   No provision of this Note shall be modified or limited except by a written agreement signed by both you and me. The unenforceability of any provision of this Note shall not affect the enforceability or validity of any other provision of this Note.

18.  Arbitration.  RESOLUTION OF DISPUTES:  I HAVE READ THIS PROVISION CAREFULLY, AND UNDERSTAND THAT IT LIMITS MY RIGHTS IN THE EVENT OF A DISPUTE BETWEEN YOU AND ME.  I UNDERSTAND THAT I HAVE THE RIGHT TO REJECT THIS PROVISION, AS PROVIDED IN PARAGRAPH (i) BELOW.

(a)   In this Resolution of Disputes provision:

(i)   “I,” “me” and “my” mean the borrower under this Note, as well as any person claiming through the borrower;

(ii)   “You” and “your” mean WebBank, any person servicing this Note for WebBank, and any subsequent holders of this Note or any interest in this Note, and each of their respective parents, subsidiaries, affiliates, predecessors, successors, and assigns, as well as the officers, directors, and employees of each of them; and

(iii)   “Claim” means any dispute, claim, or controversy (whether based on contract, tort, intentional tort, constitution, statute, ordinance, common law, or equity, whether pre-existing, present, or future, and whether seeking monetary, injunctive, declaratory, or any other relief) arising from or relating to this Note or the relationship between you and me (including claims arising prior to or after the date of the Note), and includes claims that are brought as counterclaims, cross claims, third party claims, or otherwise and disputes about the validity or enforceability of this Agreement or the validity or enforceability of this Resolution of Disputes provision.

(b)   Any Claim between you and me shall be resolved, upon the election of either you or me, by binding arbitration administered by the National Arbitration Forum (“NAF”), under its Code of Procedure (“Rules”).  I can obtain the Rules and other information about initiating arbitration by contacting the NAF at P.O. Box 50191, Minneapolis, MN 55405, or at www.adrforum.com.  Your address for serving any arbitration demand or claim is WebBank, c/o Prosper Marketplace, Inc., 111 Sutter Street, 22nd Floor, San Francisco, CA 94104, Attention: Legal Department.

(c)   Claims will be arbitrated by a single, neutral arbitrator, who shall be a retired judge or a lawyer with at least ten years experience.  You agree not to invoke your right to elect arbitration of an individual Claim filed by me in a small claims or similar court (if any), so long as the Claim is pending on an individual basis only in such court.

11

(d)   You will pay all filing and administration fees charged by the NAF and arbitrator fees up to $1,000, and you will consider my request to pay any additional arbitration costs.  If an arbitrator issues an award in your favor, I will not be required to reimburse you for any fees you have previously paid to the NAF or for which you are responsible.  If I receive an award from the arbitrator, you will reimburse me for the fees paid by me to the NAF.  Each party shall bear its own attorney’s, expert’s and witness fees, which shall not be considered costs of arbitration; however, if a statute gives me the right to recover these fees, or fees paid to the NAF, then these statutory rights will apply in arbitration.

(e)   Any in-person arbitration hearing will be held in the city with the federal district court closest to my residence, or in such other location as the parties may mutually agree.  The arbitrator shall apply applicable substantive law consistent with the Federal Arbitration Act, 9 U.S.C. § 1-16, and, if requested by either party, provide written reasoned findings of fact and conclusions of law.  The arbitrator shall have the power to award any relief authorized under applicable law.  Any appropriate court may enter judgment upon the arbitrator’s award.  The arbitrator’s decision will be final and binding except that: (1) any party may exercise any appeal right under the FAA; and (2) any party may appeal any award relating to a claim for more than $100,000 to a three-arbitrator panel appointed by the NAF, which will reconsider de novo any aspect of the appealed award.  The panel’s decision will be final and binding, except for any appeal right under the FAA.  Unless applicable law provides otherwise, the appealing party will pay the appeal’s cost, regardless of its outcome.  However, you will consider any reasonable written request by me for you to bear the cost.

(f)   Neither you nor I shall have the right to participate as a representative or member of any class of claimants in arbitration, and you and I further agree that claims of third parties shall not be joined in any arbitration between you and me, without the express written consent of both you and me.  Only the claims of or against persons relating to a single Note or listing (such as holders of Notes relating to a single listing) may be joined in a single arbitration.  The validity and effect of this paragraph (f) shall be determined exclusively by a court, and not by the NAF or any arbitrator.  The arbitrator shall have no power to arbitrate any Claims on a class action basis or Claims brought in a purported representative capacity on behalf of the general public, other borrowers, or other persons similarly situated.

(g)   If any portion of this Resolution of Disputes provision is deemed invalid or unenforceable for any reason, it shall not invalidate the remaining portions of this provision.  However, if paragraph (f) of this Resolution of Disputes provision is deemed invalid or unenforceable in whole or in part, then this entire Resolution of Disputes provision shall be deemed invalid and unenforceable.  The terms of this Resolution of Disputes provision will prevail if there is any conflict between the Rules and this provision.

(h)   THE PARTIES ACKNOWLEDGE AND AGREE THAT, EXCEPT AS EXPRESSLY PROVIDED IN THIS RESOLUTION OF DISPUTES PROVISION, THEY ARE WAIVING ALL RIGHTS TO A TRIAL BY COURT OR JURY AS A MEANS OF RESOLVING ANY DISPUTES ARISING OUT OF OR RELATING TO THIS AGREEMENT.  THEY ACKNOWLEDGE THAT ARBITRATION WILL LIMIT THEIR LEGAL RIGHTS, INCLUDING THE RIGHTS TO PARTICIPATE IN A CLASS ACTION, THE RIGHT TO A JURY TRIAL, THE RIGHT TO CONDUCT FULL DISCOVERY, AND THE RIGHT TO APPEAL (EXCEPT AS PERMITTED IN PARAGRAPH (e) OR UNDER THE FEDERAL ARBITRATION ACT).

(i)   I understand that I may reject this Resolution of Disputes provision, in which case neither you nor I will have the right to elect arbitration.  Rejection of this provision will not affect the remaining parts of this Agreement.  To reject this Resolution of Disputes provision, I must send us written

12

notice of my rejection within 30 days after the date that this Note was made.  I must include my name, address, and account number.  The notice of rejection must be mailed to WebBank, c/o Prosper Marketplace, Inc., 111 Sutter Street, 22nd Floor, San Francisco, CA 94104, Attention: Legal Department.  This is the only way that I can reject this Resolution of Disputes provision.

(j)   The parties acknowledge and agree that this arbitration agreement is made pursuant to a transaction involving interstate commerce and shall be governed by the Federal Arbitration Act.  This Resolution of Disputes provision shall survive the termination of this Note and the repayment of any or all amounts borrowed.

Arizona Residents: Notice: I understand that I may request that the initial disclosures prescribed in the Truth in Lending Act (15 United States Code sections 1601 through 1666j) be provided in Spanish before signing any loan documents.

Aviso Para Prestatarios En Arizona: Puedo solicitar que las divulgaciones iniciales prescritas en la Ley Truth in Lending Act (15 Código de los Estados Unidos secciones 1601 hasta 1666j) sean proporcionadas en español antes de firmar cualesquiera documentos de préstamos.

Missouri Residents: Oral agreements or commitments to loan money, extend credit or to forbear from enforcing repayment of a debt including promises to extend or renew such debt are not enforceable. To protect me (borrower) and you (creditor) from misunderstanding or disappointment, any agreements we reach covering such matters are contained in this writing, which is the complete and exclusive statement of the agreement between us, except as we may later agree in writing to modify it.

By signing this Note, I acknowledge that I (i) have read and understand all terms and conditions of this Note, (ii) agree to the terms set forth herein, and (iii) acknowledge receipt of a completely filled-in copy of this Note.

Date:
	[Borrower]
Last Updated:

13

EX-10.2

Exhibit 10.2

LENDER REGISTRATION AGREEMENT

(Note Commitment, Purchase and Sale Agreement)

This Lender Registration Agreement is made and entered into between you and Prosper Marketplace, Inc. (“Prosper”, “we”, or “us”). This Agreement will govern all purchases of Borrower Payment Dependent Notes that you may, from time to time, purchase from Prosper.

Prosper has filed with the U.S. Securities and Exchange Commission a registration statement on Form S 1 (No.                         ) (as amended from time to time, the “Registration Statement”) to register the continuous offering and sale of Notes issued by Prosper. The Registration Statement includes a prospectus related to the offering of the Notes by Prosper dated                          (as supplemented from time to time, the “Prospectus”). The Registration Statement became effective on                              pursuant to the rules and regulations of the U.S. Securities and Exchange Commission under the Securities Act of 1933, as amended. You acknowledge that the Registration Statement has been delivered to you. You should read the Prospectus carefully and retain a copy for your records.

1.  Registration as a Prosper Lender. You are registering as a lender in the Prosper marketplace, so that you may be eligible to post bids on listings displayed on Prosper’s online auction marketplace (the “platform”) and purchase from Prosper Borrower Payment Dependent Notes (“Notes”) issued by Prosper that are dependent for payment on payments we receive on the corresponding borrower loans described in the listings (“borrower loans”). You agree to comply with the terms and provisions of this Agreement, the Terms of Use of the Prosper website, and the policies posted on the Prosper website, as may be amended from time to time by Prosper in its sole discretion (collectively, the “Prosper Terms and Conditions”).

Your role as a Prosper “lender” is that of a purchaser of Notes issued by Prosper, and your rights and obligations as a purchaser or prospective purchaser of Notes are set forth below. Although you are referred to in this Agreement and on the Prosper website as a “lender,” you are not actually lending your money directly to Prosper borrowers, but are, instead, acting as an investor and making purchase commitments for Notes and purchasing Notes from Prosper, that are dependent for payment on payments we receive on borrower loans. Prosper uses the term “lender” instead of “investor” in this Agreement and on Prosper’s website for the convenience of Prosper users who appropriately view Prosper as a marketplace for connecting individuals who wish to borrow money, with people who have money and the desire to have loans funded to other individuals.

2.  Posting of Bids. Upon registration, you may post bids on listings displayed on the Prosper website. “Listings” are Prosper borrowers’ loan requests, or descriptions of existing borrower loans that are offered for sale by financial institutions registered with Prosper (referred to below as “originators”), that are displayed on the Prosper website along with desired loan amount or sales price, offered interest rate or yield percentage, and other information, including but not limited to, borrower credit grade, non-housing debt-to-income ratio, credit information from the borrower’s credit report, the borrower’s group affiliation (if any), the borrower’s self-reported (unless otherwise indicated) annual income range, occupation and employment status, and collateral (if any) securing the borrower loan. Borrowers are identified by a Prosper user name but are not able to disclose their identity or contact information to lenders.

On listings posted by Prosper borrowers, Prosper lenders may ask borrowers questions about their loan listings and borrowers may, but are not required to, respond to such questions.  Borrowers who elect to respond to a lender’s question may respond privately, or they may elect to have the question and answer posted publicly in the listing. Lenders’ questions are not posted in the listing or displayed elsewhere on our website unless the borrower elects to answer the question and elects to make the question and answer publicly available, in which case the question and answer appears in the listing. We do not verify any borrowers’ responses to lender members’ questions.

A bid by a lender on a listing is the lender’s commitment to purchase from Prosper a Note in the principal amount of the lender’s winning bid, provided that the listing has received bids totaling the full amount requested in the listing. Lenders “bid” the amount they are willing to commit to the purchase of a Note that is dependent for payment on payments we receive on the

1

corresponding borrower loan, and the minimum interest rate they are willing to receive. Lenders must have funds in the amount of the bid on deposit in the Prosper funding account (described below). Once a bid is placed, it is irrevocable, and during the time a bid is a “winning” bid on the listing, the amount of the bid is not permitted to be withdrawn from the lender’s Prosper funding account.  Lender bids become “winning” bids if such bids are in the group of bids for Notes that, in the aggregate, correspond to the principal amount or amount offered for of the corresponding borrower loan and are in the lowest interest rate among all bids placed against the listing.

Types of Listings. Two types of listings may be posted on the platform: (1) listings posted by Prosper borrowers requesting a loan (“Prosper borrower listings”), and (2) listings posted by originators describing existing loans owned by the originator and offered for sale on the platform (“open market listings”). All loans to borrowers resulting from Prosper borrower listings will be made to borrowers by WebBank, a Utah-chartered industrial bank (“WebBank”) from its own funds and then subsequently sold and assigned by WebBank to Prosper.  Borrower loans described in open market listings are existing loans that are owned by the originator that posted the listing, whether or not such originator originally made the loan, and may include secured or unsecured loans.

Types of Bids. You can bid selectively by browsing through listings and placing a bid on the listing or listings that you choose. You can also bid by making a “portfolio plan” by indicating the aggregate amount of your funds to be bid on listings that meet your specified criteria, the maximum amount that may be bid on one listing, the type of listing, the minimum interest rate you are willing to receive, and the specific borrower or loan criteria (for example, borrower credit grade, borrower income or employment characteristics, group affiliation, debt-to-income ratio, etc.) for the listings on which you wish to bid. You may also select from one of Prosper’s portfolio plans designed to bid on listings that reflect specific loss rates, or a range of loss rates, based on historical loan repayment performance of Prosper borrowers on loans originated through the Prosper marketplace. You may have more than one portfolio plan in place at one time, and you may bid selectively while one or more portfolio plans are in place.

Availability of Funds. At the time you place a bid you must have funds on deposit with Prosper in at least the amount of your bid, and you are not permitted to withdraw those funds for so long as your bid is “winning” as described in Section 3 below. Your funds will be placed in an FDIC-insured non-interest bearing account at Wells Fargo Bank, N. A. (the “Prosper funding account”) separate from Prosper’s own funds.  At the time you register as a lender, you must provide your deposit account information to facilitate electronic transfers of funds to and from the Prosper funding account and your deposit account. You will not earn interest on funds in the Prosper funding account. All of your funds in the Prosper funding account that are not committed to winning bids are available for further bidding. You may at any time request that your uncommitted funds in the Prosper funding account be returned to you, in which case Prosper will promptly return the remaining funds to your deposit account using the Automated Clearing House (“ACH”) network.

Your Note Purchase Commitment. Whether you bid selectively or by making a portfolio plan, each bid you post on the platform is a commitment and promise to purchase a Note issued by Prosper, with the proceeds of the sale of the Note used by Prosper to purchase the specific borrower loan described in the listing on which the bid was made. Once you place a bid, you may not cancel or withdraw the bid or reduce the amount of the bid, to the extent your bid has been matched with one or more listings.

AT THE TIME YOU SUBMIT A BID ON A LISTING, YOU ARE COMMITTING TO PURCHASE A NOTE ISSUED BY PROSPER IN THE AMOUNT OF YOUR BID, THAT IS DEPENDENT FOR ITS PAYMENT ON PAYMENTS WE RECEIVE ON THE BORROWER LOAN DESCRIBED IN THE LISTING, IN THE EVENT THE LISTING RECIEVES BIDS TOTALING THE FULL AMOUNT REQUESTED BY THE BORROWER OR ORIGINATOR THAT POSTED THE LISTING.

2

Limits on Bids. Lenders may bid the entire amount requested by the borrower or originator that posted the listing, or may bid a lesser amount, subject to a minimum bid amount of $50. If you make a portfolio plan, you can achieve risk diversification by designing your portfolio plan to bid your available funds in increments as low as $50 and designating in your portfolio plan that the incremental amount is the maximum amount that may be bid on any one listing. The aggregate amount of all of your bids, when added to the amount outstanding on all of your Notes, must not exceed five million dollars ($5,000,000) for individual lenders, or fifty million dollars ($50,000,000) for corporate or institutional lenders. Subject to these dollar limits, there is no limit on the amount of funds you may commit to bids on listings.

YOU AGREE THAT WHEN MAKING BIDS YOU WILL NOT DISCRIMINATE AGAINST ANY BORROWER OR GROUP ON THE BASIS OF RACE, COLOR, RELIGION, NATIONAL ORIGIN, SEX, MARITAL STATUS, AGE, SEXUAL ORIENTATION, MILITARY STATUS, THE BORROWER’S SOURCE OF INCOME, OR ANY OTHER BASIS PROHIBITED BY AN APPLICABLE FEDERAL, STATE OR LOCAL FAIR LENDING LAW, INCLUDING WITHOUT LIMITATION THE EQUAL CREDIT OPPORTUNITY ACT.

3.  Matching of Bids and Listings.

a. In order to bid on a listing, you must bid an amount equal to or less than the current auction interest rate for the listing. If you bid by making a portfolio plan, Prosper’s auction platform will automatically match your bids with any listings that offer an interest rate higher than your minimum acceptable interest rate, and otherwise meet your designated criteria. Unless you specify a different bid order, bids will be matched first with listings with the least time left for bidding.

b. When you place a bid on a listing, your bid will be compared to other lender bids placed against the listing, and will be considered to be “winning” to the extent the interest rate specified in your bid is (i) lower than existing bids against the listing, or (ii) equal to existing bids against the listing, provided the listing has not already received a bid or bids totaling the full amount requested by the borrower or financial institution that posted the listing. Your bid remains outstanding on a listing until you are outbid, or until the listing is withdrawn by the borrower or originator that posted the listing or removed by Prosper in accordance with Section 10 below. If you are outbid, or if the listing is withdrawn or removed, your bid will be cancelled, and your funds that were committed to your bid will be available for further bidding.

c. If a listing gets a bid or bids in an amount totaling the amount requested in the listing for the borrower loan, the bids that are winning bids at the time the listing expires are considered the winning bids for the listing.

d. Prosper does not warrant or guaranty that your bids will be become winning bids against any listings. In the event some, but not all, of the funds you bid become winning bids against a listing (for example, when you are the last winning bidder on a listing), you are committed to purchasing a Note issued by Prosper in the amount of the portion of your funds that is a winning bid against the listing, and the remainder of your funds (i.e., the unmatched funds) will remain in your Prosper funding account, available for further bidding.

e. In most instances a listing is matched with more than one bid, and you will be one of several lenders who purchase a Note in a series of Notes that correspond to the borrower loan described in the listing.  Each series of Notes will correspond to a single borrower loan, as

3

described in the listing, originated to a borrower or offered for sale through our platform by an originator. Payments to the lenders who purchase the Notes are dependent on payments received on the corresponding borrower loan.

f. To safeguard your privacy rights and those of your borrowers, on all Notes and promissory notes evidencing borrower loans, the identity and address of the borrower will be shielded from your view, and your identity as the purchaser and owner of Notes will be shielded from the borrowers. Only the borrower’s Prosper screen name will appear on listings, borrower loans and Notes for you to see, and only your Prosper screen name will appear with your bids.

4.  Funding and Sale of Borrower Loans.  Once a lender has committed to purchase a Note that is dependent for payment on the corresponding borrower loan and the listing for such borrower loan receives bids from lenders totaling the amount requested in the listing for the borrower loan, we proceed with the funding or sale of the corresponding borrower loan, and with the issuance and sale of Notes to the lenders who were the winning bidders on the listing. You must commit to the purchase of a Note through the platform before we will proceed with funding or sale of the borrower loan that corresponds to the Note you are committing to purchase.

Prosper Borrower Listings. With respect to Prosper borrower listings, funding occurs when loan proceeds are disbursed into the borrower’s designated deposit account. All borrower loans resulting from Prosper borrower listings will be made to Prosper borrowers by WebBank from WebBank’s own funds, and will be evidenced by a promissory note, in the form set forth on the attached Exhibit B, naming WebBank as the payee, in the amount of the requested loan. Following disbursement of loan proceeds to the borrower, the loan will be sold and assigned by WebBank to Prosper without recourse to WebBank. As described in Section 5 below, Prosper uses the proceeds of the sale of each series of Notes to purchase the corresponding borrower loan. 

Open Market Listings. With respect to open market listings, the loan offered for sale by originators as described in an open market listings will be sold and assigned by the originator to Prosper, without recourse to the originator, at the end of the auction bidding period.  As described in Section 5 below, Prosper uses the proceeds of the sale of each series of Notes to purchase the corresponding borrower loan from the originator.

5.  Purchase and Sale of Notes. At the time a borrower loan is funded and purchased by Prosper, we proceed with the issuance and sale of Notes to the lenders who were the winning bidders on the listing. The purchase price for any Notes you purchase from Prosper through the platform will be the principal amount of the Notes that you commit to purchase. The Notes shall be issued pursuant to an indenture (the “Indenture”) between Prosper and a trustee. Funds in the principal amount of each Note are transferred from each lender’s Prosper funding account to Prosper, as payment of the purchase price for the Note. Prosper will use the proceeds of the sale of each series of Notes to purchase the corresponding borrower loan from WebBank or from the originator, depending on the type of listing involved.

Terms of the Notes. The Notes shall have the terms and conditions described in the Prospectus, the Indenture and the Note. The Indenture and the Note are reproduced in Exhibit A to this Agreement, and Prospectus is available for you to review on the Prosper website. The form of promissory note evidencing borrower loans is reproduced in Exhibit B to this Agreement. The specific interest rate, maturity and other terms of the corresponding borrower loans are described

4

in the listings on the Prosper website, and in the promissory notes signed by the borrowers on the corresponding borrower loans. Subject to the servicing standard set forth in Section 6 below, you understand and agree that we may in our sole discretion, at any time and from time to time, amend or waive any term of a borrower loan, and we may in our sole discretion charge off any borrower loan that we deem uncollectible.

PAYMENT ON THE NOTES, IF ANY, DEPENDS ENTIRELY ON THE RECEIPT OF PAYMENTS BY PROSPER IN RESPECT OF THE CORRESPONDING BORROWER LOAN. PROSPER DOES NOT WARRANT OR GUARANTEE IN ANY MANNER THAT YOU WILL RECEIVE ALL OR ANY PORTION OF THE PRINCIPAL OR INTEREST YOU EXPECT TO RECEIVE ON ANY NOTE OR REALIZE ANY PARTICULAR OR EXPECTED RATE OF RETURN. THE AMOUNT YOU RECEIVE ON YOUR NOTE, IF ANY, IS SPECIFICALLY RESTRICTED TO PAYMENTS MADE BY US EQUAL TO THE PAYMENTS MADE BY THE BORROWER UNDER A BORROWER LOAN TO WHICH YOU COMMITTED NET OF OUR SERVICING FEE ON ALL BORROWER PAYMENTS. PROSPER DOES NOT MAKE ANY REPRESENTATIONS AS TO A BORROWER’S ABILITY TO PAY AND DOES NOT ACT AS A GUARANTOR OF ANY CORRESPONDING BORROWER LOAN PAYMENT OR PAYMENTS BY ANY BORROWER.

YOU UNDERSTAND AND AGREE THAT BORROWERS MAY DEFAULT ON THEIR PAYMENT OBLIGATIONS UNDER THE BORROWER LOANS AND THAT SUCH DEFAULTS WILL REDUCE THE AMOUNTS, IF ANY, YOU MAY RECEIVE UNDER THE TERMS OF ANY NOTES YOU HOLD THAT CORRESPOND TO THOSE BORROWER LOANS.

6.  Servicing and Collection of Borrower Loans. In servicing borrower loans Prosper will use commercially reasonable efforts to service and collect the borrower loans in accordance with industry standards customary for loans of the same general type and character as the borrower loans.  We may, in our sole discretion and subject to the servicing standard set forth in this Section, refer a borrower loan to a collection agency at any time, or elect to initiate legal action to collect a borrower loan or sell a borrower loan to a third party debt buyer at any time.

Existing borrower loans offered for sale on the platform in open market listings will be serviced, both before and after default, by the originator.  In servicing borrower loans the originator will use commercially reasonable efforts to service and collect the borrower loans in accordance with industry standards customary for loans of the same general type and character as the borrower loans.  The originator may, in its sole discretion and subject to the servicing standard set forth in this Section, refer a borrower loan to a collection agency at any time, or elect to initiate legal action to collect a borrower loan, repossess or foreclose upon any collateral securing a borrower loan, or sell a borrower loan to a third party debt buyer at any time. Any amounts received from borrowers will be forwarded to Prosper by the originator. In servicing borrower loans the originator may, in its discretion, utilize affiliated or unaffiliated third party loan servicers, repossessors, collection agencies or other agents or contractors.

7.  Representations and Warranties as to Notes Sold.  Prosper makes the following representations and warranties to you, with respect to each Note sold to you under this Agreement, as of the date the Note is sold, assigned and transferred to you:

a. Prosper has complied in all material respects with applicable federal, state and local laws in connection with the offer and sale of the Note.

b. The Note has been duly authorized and, following payment of the purchase price by you and electronic execution, authentication and delivery to you, will constitute valid and binding obligations of Prosper enforceable against Prosper in accordance with their terms, except as the enforcement of the Note may be limited by applicable bankruptcy, insolvency or similar laws;

c. The proceeds of the borrower loan corresponding to the Note sold have been fully disbursed to the borrower or the borrower’s designated payee prior to your purchase of the Note.

d. Prosper or, with respect to open market listings, the originator has made commercially reasonable efforts to authenticate and verify the identity of the borrower obligated on the borrower loan that correspond to the Note.

e. In the event of a material default under a Note you purchase from Prosper under this Agreement that is the result of verifiable identity theft of the named borrower’s identity, Prosper

5

will repurchase the Note by crediting your Prosper funding account with the remaining unpaid principal balance of the Note. The determination of whether verifiable identity theft has occurred shall be in Prosper’s sole discretion. We may require proof of the identity theft, such as a copy of a police report filed by the person whose identity was wrongfully used to obtain the fraudulently-induced borrower loan, an identity theft affidavit or a bank verification letter (or all of the above) in order to determine that verifiable identity theft has occurred. Prosper shall not be required to repurchase a Note under this subsection until such Note is at least 120 days past-due, provided, however, that Prosper may in its sole discretion elect to repurchase a Note at an earlier time. You agree that repurchase of your Note by Prosper is the sole remedy you will have with respect to any such Notes.

8.  Remedies; Cure and Repurchase of Loans.  In the event of a breach by Prosper of any of the foregoing representations and warranties that materially and adversely affects your interest in a Note sold to you under this Agreement, Prosper shall either (i) cure the breach, if the breach is susceptible to cure, (ii) repurchase the Note from you, or (iii) indemnify and hold you harmless against all losses (including losses resulting from the nonpayment of the Note), damages, expenses, legal fees, costs and judgments resulting from any claim, demand or defense that arising as a result of the breach. The decision whether a breach is susceptible to cure, or whether Prosper shall cure or repurchase a Note or indemnify you with respect to the Note, shall be in Prosper’s sole discretion. Upon discovery by Prosper of any such breach of the foregoing representations and warranties, Prosper shall give you notice of the breach, and of Prosper’s election to cure or repurchase the Note, no later than ninety (90) days after our discovery of the breach. In the event Prosper repurchases a Note, Prosper will pay you a repurchase price equal to the remaining outstanding principal balance of the Note as of the date of repurchase. The repurchase price will be paid to you by remittance into the Prosper funding account, and those funds will be available to you for further bidding. Upon any such repurchase, the Note shall be transferred and assigned by you to Prosper, in each case without recourse, and you authorize and agree that Prosper may execute any endorsements or assignments necessary to effectuate the transfer and assignment of the Note to Prosper. Prosper’s obligation to cure or repurchase a Note or indemnify you for a  breach of the foregoing representations and warranties pursuant to this Section is your sole remedy with respect to a breach of Prosper’s representations and warranties set forth in Section 7 above.

9. No Advisory Relationship. You acknowledge and agree that (i) the purchase and sale of the Notes pursuant to this Agreement is an arms-length transaction between you and Prosper; (ii) in connection with the purchase and sale of the Notes, Prosper is not acting as your agent or fiduciary; (iii) Prosper assumes no advisory or fiduciary responsibility in your favor in connection with the purchase and sale of the Notes; (iv) Prosper has not provided you with any legal, accounting, regulatory or tax advice with respect to the Notes; and (v) you have consulted your own legal, accounting, regulatory and tax advisors to the extent you have deemed it appropriate.

10.  Prosper’s Right to Verify Information and Cancel Funding.

a. Prosper reserves the right to verify the accuracy of all information provided by borrowers,  lenders, originators and group leaders in connection with listings, bids and loans. Prosper also reserves the right to determine in its reasonable discretion whether a registered user is using, or has used, the Prosper website illegally or in violation of any order, writ, injunction or decree of any court or governmental instrumentality, for purposes of fraud or deception, or otherwise in a manner inconsistent with the Prosper Terms and Conditions or any registration agreement between Prosper and such user.  Prosper may conduct its review at any time – before, during or after the posting of a listing, or before or after the funding of a borrower loan or sale of a Note. You agree to respond promptly to Prosper’s requests for information in connection with your bid, accounts, or your registration with Prosper.

6

b. In the event Prosper or WebBank, prior to the funding of a borrower loan, reasonably determines that a listing, or a bid for the listing, contains materially inaccurate information (including but not limited to unintended inaccuracies, inaccuracies resulting from errors by Prosper, or inaccuracies resulting from changes in the borrower’s income, residence or credit profile between the date a listing is posted and the date the listing is to be funded) or was posted illegally or in violation of any order, writ, injunction or decree of any court or governmental instrumentality, for purposes of fraud or deception, or otherwise in a manner inconsistent with the Prosper Terms and Conditions or any registration agreement, Prosper and WebBank may refuse to post the listing or, if the listing has already been posted, remove the listing from the Prosper marketplace and cancel all bids against the listing.

c. When a listing ends or expires with a bid or bids totaling the amount requested for the borrower loan, Prosper may conduct a “pre-funding” review prior to the funding of the borrower loan. Prosper may, at any time and in its sole discretion, delay funding of a borrower loan in order to enable Prosper to verify the accuracy of information provided by borrowers, lenders, originators and group leaders in connection with the listing or bids against the listing, and to determine whether there are any irregularities with respect to the listing or the bids against the listing. Prosper may cancel or proceed with funding the borrower loan, depending on the results of Prosper’s pre-funding review. If funding is cancelled, the listing will be removed from the Prosper marketplace and all bids against the listing will be cancelled, and each bidder’s funds will be returned to the Prosper funding account, available for further bidding. In the event Prosper cancels funding of a borrower loan, Prosper will notify the borrower, originator (as applicable), group leader (if any), and all bidders for the listing of Prosper’s determination to cancel funding of the loan.

d. In most instances, Prosper and WebBank do not verify the income, employment and occupation or other information provided by borrowers in listings. The borrower’s income, employment and occupation are self-reported, and the borrower’s non-housing debt-to-income ratio is determined by Prosper and WebBank from a combination of the borrower’s self-reported income and information from the borrower’s credit report. The credit data that appears in listings is taken directly from a credit report obtained on the borrower from a credit reporting agency, without any review or verification by Prosper or WebBank. Prosper and WebBank do not verify any statements by borrowers as to how loan proceeds are to be used and does not confirm after borrower loan funding how loan proceeds were used.  In most instances homeownership status is derived from the borrower’s credit report, but is not verified by Prosper or WebBank; if the report reflects an active mortgage loan, the borrower is presumed to be a homeowner. In connection with Prosper’s and WebBank’s identity and anti-fraud verification of borrowers, Prosper verifies the borrower’s deposit account to determine that the borrower is a holder of record of the account. The information in open market listings describing the borrower loan for sale is provided by the originator and is not verified by Prosper or WebBank.

11.  No Guarantee of Returns or Payments.

A. PROSPER DOES NOT WARRANT OR GUARANTEE THAT YOU WILL RECEIVE ANY RATE OF RETURN, OR ANY MINIMUM AMOUNT OF PRINCIPAL OR INTEREST ON ANY NOTE, OR ANY PRINCIPAL OR INTEREST AT ALL. THE AMOUNT YOU RECEIVE ON YOUR NOTES IS WHOLLY DEPENDENT UPON THE BORROWERS’ PAYMENT PERFORMANCE UNDER THE PROMISSORY NOTES EVIDENCING THE BORROWER LOANS CORRESPONDING TO YOUR NOTES. PROSPER DOES NOT GUARANTEE ANY BORROWER LOANS OR NOTES OBTAINED, PURCHASED OR SOLD THROUGH THE PLATFORM AND DOES NOT ACT AS A GUARANTOR OF ANY LOAN PAYMENT OR PAYMENTS BY ANY BORROWER.

7

B. YOU FURTHER UNDERSTAND AND ACKNOWLEDGE THAT BORROWERS MAY DEFAULT ON THE BORROWER LOANS CORRESPONDING TO YOUR NOTES, AND THAT SUCH DEFAULTS MAY NEGATIVELY AFFECT THE AMOUNT OF PRINCIPAL AND INTEREST YOU RECEIVE ON YOUR NOTES.

12.  Restrictions on Use. Except as provided in Section 14 below, you are not authorized or permitted to use Prosper to bid or purchase Notes for someone other than yourself. You must be an owner of the deposit account you designate for electronic transfers of funds, with authority to direct that funds be transferred to or from the account. Although you are registering as a lender, you may also register and participate in the Prosper marketplace as a borrower. If you obtain one or more borrower loans through the platform, amounts in your funding account are subject to set-off against any delinquent amounts owing on your loans. Prosper may in its sole discretion, with or without cause and with or without notice, restrict your access to the platform or the Prosper website.

13. Financial Suitability Representations and Warranties. You represent and warrant that you satisfy the applicable minimum financial suitability standards and maximum investment limits, established for the trading platform (or as set forth in a supplement to the Prospectus for residents of the state in which you reside), and you agree to provide any additional documentation reasonably requested by us, as may be required by the securities administrators of certain states, to confirm that you meet such minimum financial suitability standards and maximum investment limits. You understand that the Notes will not be listed on any securities exchange, that there may be no, or only a limited, trading platform for the Notes, that any trading of Notes must be conducted in accordance with federal and applicable state securities laws and that Note purchasers should be prepared to hold the Notes they purchase until the Notes mature.

14.  Your Other Representations and Warranties. You warrant and represent to Prosper, as of the date of this Agreement and as of any date that you commit to purchase Notes, that (i) you have received the Prospectus, the Indenture, and the form of the Note; (ii) you have the legal competence and capacity to execute and perform this Agreement and that you have duly authorized, executed and delivered this Agreement; and (iii) in connection with this Agreement you have complied in all material respects with applicable federal, state and local laws. In addition, if you are entering into this Agreement on behalf of a corporation, partnership, limited liability company or other entity (“institution”), you warrant and represent that (i) you have all necessary power and authority to execute and perform this Agreement on such institution’s behalf; (ii) the execution and performance of this Agreement will not violate any provision in the institution’s charter documents, by-laws, indenture of trust or partnership agreement, or other constituent agreement or instrument governing the formation or administration of your institution; and (iii) the execution and performance of this Agreement will not constitute or result in a breach or default under, or conflict with, any order, ruling or regulation of any court or other tribunal or of any governmental commission or agency, or any agreement or other undertaking to which the institution is a party or by which it is bound.

15.  Prosper’s Representations and Warranties. Prosper represents and warrants to you, as of the date of this Agreement and as of any date that you commit to purchase Notes, that: (a) it is duly organized and is validly existing as a corporation in good standing under the laws of Delaware and has corporate power to enter into and perform its obligations under this Agreement; (b) this Agreement has been duly authorized, executed and delivered by Prosper; (c) the Indenture has been duly authorized by Prosper and qualified under the Trust Indenture Act of 1939 and constitutes a valid and binding agreement of Prosper, enforceable against Prosper in accordance

8

with its terms, except as the enforcement thereof may be limited by applicable bankruptcy, insolvency or similar laws.

16.  Recommendations from Prosper Friends.  Prosper allows borrowers to create a network of Prosper friends, and obtain bids and recommendations of listings from one or more of the borrower’s designated Prosper friends. Recommendations accompanying bids from borrowers’ Prosper friends are displayed with borrowers’ listings. Prosper friends do not guarantee payments on any Note or on any corresponding borrower loan, and a bid or recommendation from a borrower’s Prosper friend does not obligate the individual making the bid or recommendation to guarantee or make any payments on any Note or on any corresponding borrower loan.

17.  Prohibited Activities. You agree that you will not do the following, in connection with any listings, bids, Notes, borrower loans or other transactions involving or potentially involving Prosper:

a. Represent yourself to any person, as a director, officer or employee of Prosper, or WebBank, unless you are such director, officer or employee;

b. Charge, or attempt to charge, any Prosper borrower any fee in exchange for your agreement to bid on or recommend a borrower’s listing, or propose or agree to accept any fee, bonus, additional interest, kickback or thing of value of any kind, in exchange for your agreement to bid on or recommend a borrower’s listing;

c. Engage in any activities that require a license as a loan broker, credit services organization, credit counselor, credit repair organization, lender or other regulated entity, including but not limited to soliciting loans or loan applications, quoting loan terms and rates, counseling borrowers on credit issues or loan options, in connection with any Prosper loan;

d. Take any action on your own to collect, or attempt to collect, directly or through any third party, any amount from any borrower on any of the borrower loans that correspond to your Notes;

e. Bring a lawsuit or other legal proceeding against any borrower on any borrower loan;

f. Contact borrowers on any borrower loans corresponding to your Notes without the borrower’s consent;

g. Contact any collection agency or law firm to which any borrower loan corresponding to your Note has been referred for collection;

h. Include or display any personally identifying information, including, without limitation, name, address, phone number, email address, Social Security number or driver’s license number, or bank account or credit card numbers of any Prosper member on your Prosper member web page, or elsewhere on or off of the Prosper website, including but not limited to on any forum, blog or website;

i. Contact a borrower, group leader or Prosper friend or take any action to collect, or attempt to collect, any amount from any group leader, any of the borrower’s Prosper friends that provided a recommendation of a listing relating to any borrower loans corresponding to your Notes, or take any action that directly or indirectly suggests that any borrower’s group leader or Prosper friend is obligated in any way on a borrower loan corresponding to any Note; or

9

j. Violate any applicable federal, state or local laws, including but not limited to, the Equal Credit Opportunity Act and other fair lending laws, Truth in Lending Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act, Federal Trade Commission Act, federal or state consumer privacy laws, state usury or loan fee statutes, state licensing laws, or state unfair and deceptive trade practices statutes.

18.  Tax Treatment.  The parties agree that the Notes are intended to be indebtedness of Prosper for U.S. federal income tax purposes. You agree that you will not take any position inconsistent with such treatment of the Notes for tax, accounting, or other purposes, unless required by law. You further acknowledge that the Notes will be subject to the original issue discount rules of the Internal Revenue Code of 1986, as amended, as described in the Prospectus. You acknowledge that you are prepared to bear the risk of loss of your entire purchase price for any Notes you purchase.

19.  Termination of Registration.  Prosper may in its sole discretion, with or without cause, terminate this Agreement by giving you notice as provided below. In addition, upon our reasonable determination that you committed fraud or made a material misrepresentation in connection with a listing, bid or loan, performed any prohibited activity, or otherwise failed to abide by the terms of this Agreement or the Prosper Terms and Conditions, Prosper may, in its sole discretion, immediately and without notice, take one or more of the following actions: (i) terminate or suspend your right to bid or otherwise participate in the Prosper marketplace; (ii) terminate this Agreement and your registration with Prosper. Upon termination of this Agreement and your registration with Prosper, any bids you have placed on the Prosper website shall terminate, and will be removed from the Prosper website immediately. Any Notes you purchase from Prosper prior to the effective date of termination shall remain in full force and effect in accordance with their terms.

20.  Indemnification.  In addition to your indemnification obligations set forth in Prosper’s Terms and Conditions, you agree to indemnify, defend, protect and hold harmless Prosper and its officers, directors, shareholders, employees and agents against all claims, liabilities, actions, costs, damages, losses, demands and expenses of every kind, known or unknown, contingent or otherwise, (i) resulting from any material breach of any obligation you undertake in this Agreement, including but not limited to your obligation to comply with any applicable laws; (ii) relating to the contents of your Prosper member web page, your own website or your business; (iii) resulting from your acts, omissions and representations (and those of your employees, agents or representatives) relating to Prosper; or (iv) asserted by third parties against Prosper alleging that the trademarks, trade names, logos or branding you use, display, link to or advertise infringes upon the intellectual property rights of any such third party. Your obligation to indemnify Prosper shall survive termination of this Agreement, regardless of the reason for termination.

21.  Prosper’s Right to Modify Terms.  Prosper has the right to change any term or provision of this Agreement or the Prosper Terms and Conditions. Prosper will give you notice of material changes to this Agreement, or the Prosper Terms and Conditions, in the manner set forth in Section 23. You authorize Prosper to correct obvious clerical errors appearing in information you provide to Prosper, without notice to you, although Prosper expressly undertakes no obligation to identify or correct such errors. This Agreement, along with the Indenture, Notes and Prosper Terms and Conditions, represent the entire agreement between you and Prosper regarding your participation as a lender on the platform, and supersede all prior or contemporaneous communications, promises and proposals, whether oral, written or electronic, between you and Prosper with respect to your involvement as a lender on the platform.

10

22.  Member Web Page Display and Content.  You may, but are not required to, maintain a “Prosper member web page” on the Prosper website, where you can post photos, content, logos or links to websites. If you elect to do so, you authorize Prosper to display on the Prosper website all such material you provide to Prosper. Any material you display on your member page must conform to the Prosper Terms and Conditions, as amended from time to time, and material you display or link to must not (i) infringe on Prosper’s or any third party’s copyright, patent, trademark, trade secret or other proprietary rights or right of publicity or privacy; (ii) violate any applicable law, statute, ordinance or regulation; (iii) be defamatory or libelous; (iv) be lewd, hateful, violent, pornographic or obscene; (v) violate any laws regarding unfair competition, anti-discrimination or false advertising; (vi) promote violence or contain hate speech; (vii) contain viruses, trojan horses, worms, time bombs, cancelbots or other similar harmful or deleterious programming routines.

23.  Notices.  All notices and other communications hereunder shall be given by email to your registered email address or will be posted on the Prosper website, and shall be deemed to have been duly given and effective upon transmission or posting. All notices, required disclosures and other communications from the trustee under the Indenture for the Notes to you will be transmitted to you by e-mail to your registered e-mail address. You can contact us by sending an email to support@prosper.com or calling us toll-free at (866) 615-6319. You also agree to notify us if your registered email address changes, and you agree to update your registered residence address on the Prosper website if you change your residence.

24.  No Warranties.  EXCEPT FOR THE REPRESENTATIONS CONTAINED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATIONS OR WARRANTIES TO THE OTHER PARTY, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

25.  Limitation on Liability.  IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY LOST PROFITS OR SPECIAL, EXEMPLARY, CONSEQUENTIAL OR PUNITIVE DAMAGES, EVEN IF INFORMED OF THE POSSIBILITY OF SUCH DAMAGES. FURTHERMORE, NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY TO THE OTHER REGARDING THE EFFECT THAT THE AGREEMENT MAY HAVE UPON THE FOREIGN, FEDERAL, STATE OR LOCAL TAX LIABILITY OF THE OTHER.

26.  Miscellaneous. The parties acknowledge that there are no third party beneficiaries to this Agreement. You may not assign, transfer, sublicense or otherwise delegate your rights under this Agreement to another person without Prosper’s prior written consent. Any such assignment, transfer, sublicense or delegation in violation of this Section shall be null and void. This Agreement shall be governed by the laws of the State of New York. Any waiver of a breach of any provision of this Agreement will not be a waiver of any other subsequent breach.  Failure or delay by either party to enforce any term or condition of this Agreement will not constitute a waiver of such term or condition. If any part of this Agreement is determined to be invalid or unenforceable under applicable law, then the invalid or unenforceable provision will be deemed superseded by a valid enforceable provision that most closely matches the intent of the original provision, and the remainder of the Agreement shall continue in effect. The parties agree to execute and deliver such further documents and information as may be reasonably required in order to effectuate the purposes of this Agreement.

11

EXHIBIT A

INDENTURE

12

EXHIBIT B

PROMISSORY NOTE

Borrower Address:                                                                                             .

1.  Promise to Pay.  In return for a loan I have received, I promise to pay WebBank, a Utah-chartered Industrial Bank (“you”) the principal sum of                                         Dollars ($                    ), together with interest thereon commencing on the date of funding at the rate of          percent (        %) per annum simple interest. I understand that references in this Note to you shall also include any person to whom you transfer this Note.

2.  Payments.  This Note is payable in monthly installments of $                       each, consisting of principal and interest, commencing on the                  day of                           , and continuing until the final payment date of                                     , which is the maturity date of this Note. The final payment shall consist of the then remaining principal, unpaid accrued interest and other charges due under this Note.  All payments will be applied first to any unpaid fees incurred as a result of failed automated payments or returned checks or bank drafts as provided in Paragraph 11, then to any late charges then due, then to interest then due and then to principal. No unpaid interest or charges will be added to principal.

3.  Interest.  Interest will be charged on unpaid principal until the full amount of principal has been paid.  Interest under this Note will accrue daily, on the basis of a 365-day year. If payments are paid after the scheduled due date, a greater portion of the payment will be applied to accrued interest, a lesser portion (if any) will be applied to principal reduction, and the loan will not amortize as originally scheduled, resulting in a higher final payment amount. The interest rate I will pay will be the rate I will pay both before and after any default.

4.  Late Charge.  If the full amount of any monthly payment is not made by the end of fifteen (15) calendar days after its due date, I will pay you a late charge of                            . I will pay this late charge promptly but only once on each late payment.

5.  Waiver of Defenses.  Except as otherwise provided in this Note, you are not responsible or liable to me for the quality, safety, legality, or any other aspect of any property or services purchased with the proceeds of the loan.  If I have a dispute with any person from whom I have purchased such property or services, I agree to settle the dispute directly with that person.

6.  Certification; Exception to Waiver.  I certify that, to my knowledge, the proceeds of this loan will not be applied in whole or part to purchase property or services from any person to whom any interest this loan may be assigned. If, notwithstanding the preceding sentence, any person from whom I have purchased such property acquires any interest in this loan, then Paragraph 5 will not apply to the extent of that person’s interest, even if that person later assigns that person’s interest to another person.

7. Method of Payment.  I will pay the principal, interest, and any late charges or other fees on this loan when due. Those amounts are called “payments” in this Note.  To ensure that my payments are processed in a timely and efficient manner, you have given me the choice of making my monthly payments (i) by automated withdrawal from an account that I designate

13

using an automated clearinghouse (ACH) or other electronic fund transfer, or (ii) by bank drafts drawn by you on my behalf on my account each month; and I have chosen one of these methods. If I close my account or if my account changes or is otherwise inaccessible such that you are unable to withdraw my payments from that account or draw bank drafts on the account, I will notify you at least three (3) days prior to any such closure, change or inaccessibility of my account, and authorize you to withdraw my payments from, or draw bank drafts on, another account that I designate.

With regard to payments made by automatic withdrawals from my account, I have the right to (i) stop payment of a preauthorized automatic withdrawal, or (ii) revoke my prior authorization for automatic withdrawals with regard to all further loan payments, by notifying the financial institution where my account is held, orally or in writing at least three (3) business days before the scheduled date of the transfer. I agree to notify you orally or in writing, at least three (3) business days before the scheduled date of the transfer, of the exercise of my right to stop a payment or to revoke my prior authorization for further automatic withdrawals.

8.  Default and Remedies. If I fail to make any payment when due in the manner required by Paragraph 7, I will be in default and you may at your option accelerate the maturity of this Note and declare all principal, interest and other charges due under this Note immediately due and payable. If you exercise the remedy of acceleration you will give me at least 30 days prior notice of acceleration.

9.  Prepayments.  I may prepay this loan in full or in part at any time without penalty.

10.  Waivers.  You may accept late payments or partial payments, even though marked “paid in full,” without losing any rights under this Note, and you may delay enforcing any of your rights under this Note without losing them. You do not have to (a) demand payment of amounts due (known as “presentment”), (b) give notice that amounts due have not been paid (known as “notice of dishonor”), or (c) obtain an official certification of nonpayment (known as “protest”). I hereby waive presentment, notice of dishonor and protest. Even if, at a time when I am in default, you do not require me to pay immediately in full as described above, you will still have the right to do so if I am in default at a later time. Neither your failure to exercise any of your rights, nor your delay in enforcing or exercising any of your rights, will waive those rights.  Furthermore, if you waive any right under this Note on one occasion, that waiver will not operate as a waiver as to any other occasion.

11. Insufficient Funds Charge. If I attempt to make a monthly payment, whether by check or bank draft or by automated withdrawal from my designated account, and the payment is unable to be made due to (i) insufficient funds in my account, (ii) the closure, change or inaccessibility of my account without my having notified you as provided in Paragraph 7, or (iii) for any other reason (other than an error by you), I will pay you an additional fee of $             for each check or bank draft returned or failed automated withdrawal, unless prohibited by applicable law.

12.  Attorneys’ Fees. To the extent permitted by law, I am liable to you for your legal costs if you refer collection of your loan to a lawyer who is not your salaried employee.  These costs may include reasonable attorneys’ fees as well as costs and expenses of any legal action.

13.  Loan Charges.  If a law, which applies to this loan and which sets maximum loan charges, is finally interpreted so that the interest or other loan charges collected or to be collected in connection with this loan exceed the permitted limits, then: (a) any such loan charge shall be reduced by the amount necessary to reduce the charge to the permitted limit; and (b) any sums already collected from me which exceeded permitted limits will be refunded to me. You may choose to make this refund by reducing the principal I owe under this Note or by making a direct payment to me.

14. Assignment.  I may not assign any of my obligations under this Note without your written permission.  You do not have to give me your permission.  You may assign this Note at any time

14

without my permission. Unless prohibited by applicable law, you may do so without telling me.  My obligations under this Note apply to all of my heirs and permitted assigns. Your rights under this Note apply to each of your successors and assigns.

15.  Notices.  All notices and other communications hereunder shall be given in writing and shall be deemed to have been duly given and effective (i) upon receipt, if delivered in person or by facsimile, email or other electronic transmission, or (ii) one day after deposit prepaid for overnight delivery with a national overnight express delivery service.  Such notices must be properly addressed to the parties at the addresses set forth below unless a different address for notice is later provided in writing by giving notice pursuant to this Paragraph.

16.  Governing Law.   This Note is governed by federal law and, to the extent that state law applies, the laws of the State of Utah.

17.  Miscellaneous.   No provision of this Note shall be modified or limited except by a written agreement signed by both you and me. The unenforceability of any provision of this Note shall not affect the enforceability or validity of any other provision of this Note.

18.  Arbitration.  RESOLUTION OF DISPUTES:  I HAVE READ THIS PROVISION CAREFULLY, AND UNDERSTAND THAT IT LIMITS MY RIGHTS IN THE EVENT OF A DISPUTE BETWEEN YOU AND ME.  I UNDERSTAND THAT I HAVE THE RIGHT TO REJECT THIS PROVISION, AS PROVIDED IN PARAGRAPH (i) BELOW.

(a)   In this Resolution of Disputes provision:

(i)   “I,” “me” and “my” mean the borrower under this Note, as well as any person claiming through the borrower;

(ii)   “You” and “your” mean WebBank, any person servicing this Note for WebBank, and any subsequent holders of this Note or any interest in this Note, and each of their respective parents, subsidiaries, affiliates, predecessors, successors, and assigns, as well as the officers, directors, and employees of each of them; and

(iii)   “Claim” means any dispute, claim, or controversy (whether based on contract, tort, intentional tort, constitution, statute, ordinance, common law, or equity, whether pre-existing, present, or future, and whether seeking monetary, injunctive, declaratory, or any other relief) arising from or relating to this Note or the relationship between you and me (including claims arising prior to or after the date of the Note), and includes claims that are brought as counterclaims, cross claims, third party claims, or otherwise and disputes about the validity or enforceability of this Agreement or the validity or enforceability of this Resolution of Disputes provision.

(b)   Any Claim between you and me shall be resolved, upon the election of either you or me, by binding arbitration administered by the National Arbitration Forum (“NAF”), under its Code of Procedure (“Rules”).  I can obtain the Rules and other information about initiating arbitration by contacting the NAF at P.O. Box 50191, Minneapolis, MN 55405, or at www.adrforum.com.  Your address for serving any arbitration demand or claim is WebBank, c/o Prosper Marketplace, Inc., 111 Sutter Street, 22nd Floor, San Francisco, CA 94104, Attention: Legal Department.

(c)   Claims will be arbitrated by a single, neutral arbitrator, who shall be a retired judge or a lawyer with at least ten years experience.  You agree not to invoke your right to elect arbitration of an individual Claim filed by me in a small claims or similar court (if any), so long as the Claim is pending on an individual basis only in such court.

15

(d)   You will pay all filing and administration fees charged by the NAF and arbitrator fees up to $1,000, and you will consider my request to pay any additional arbitration costs.  If an arbitrator issues an award in your favor, I will not be required to reimburse you for any fees you have previously paid to the NAF or for which you are responsible.  If I receive an award from the arbitrator, you will reimburse me for the fees paid by me to the NAF.  Each party shall bear its own attorney’s, expert’s and witness fees, which shall not be considered costs of arbitration; however, if a statute gives me the right to recover these fees, or fees paid to the NAF, then these statutory rights will apply in arbitration.

(e)   Any in-person arbitration hearing will be held in the city with the federal district court closest to my residence, or in such other location as the parties may mutually agree.  The arbitrator shall apply applicable substantive law consistent with the Federal Arbitration Act, 9 U.S.C. § 1-16, and, if requested by either party, provide written reasoned findings of fact and conclusions of law.  The arbitrator shall have the power to award any relief authorized under applicable law.  Any appropriate court may enter judgment upon the arbitrator’s award.  The arbitrator’s decision will be final and binding except that: (1) any party may exercise any appeal right under the FAA; and (2) any party may appeal any award relating to a claim for more than $100,000 to a three-arbitrator panel appointed by the NAF, which will reconsider de novo any aspect of the appealed award.  The panel’s decision will be final and binding, except for any appeal right under the FAA.  Unless applicable law provides otherwise, the appealing party will pay the appeal’s cost, regardless of its outcome.  However, you will consider any reasonable written request by me for you to bear the cost.

(f)   Neither you nor I shall have the right to participate as a representative or member of any class of claimants in arbitration, and you and I further agree that claims of third parties shall not be joined in any arbitration between you and me, without the express written consent of both you and me.  Only the claims of or against persons relating to a single Note or listing (such as holders of Notes relating to a single listing) may be joined in a single arbitration.  The validity and effect of this paragraph (f) shall be determined exclusively by a court, and not by the NAF or any arbitrator.  The arbitrator shall have no power to arbitrate any Claims on a class action basis or Claims brought in a purported representative capacity on behalf of the general public, other borrowers, or other persons similarly situated.

(g)   If any portion of this Resolution of Disputes provision is deemed invalid or unenforceable for any reason, it shall not invalidate the remaining portions of this provision.  However, if paragraph (f) of this Resolution of Disputes provision is deemed invalid or unenforceable in whole or in part, then this entire Resolution of Disputes provision shall be deemed invalid and unenforceable.  The terms of this Resolution of Disputes provision will prevail if there is any conflict between the Rules and this provision.

(h)   THE PARTIES ACKNOWLEDGE AND AGREE THAT, EXCEPT AS EXPRESSLY PROVIDED IN THIS RESOLUTION OF DISPUTES PROVISION, THEY ARE WAIVING ALL RIGHTS TO A TRIAL BY COURT OR JURY AS A MEANS OF RESOLVING ANY DISPUTES ARISING OUT OF OR RELATING TO THIS AGREEMENT.  THEY ACKNOWLEDGE THAT ARBITRATION WILL LIMIT THEIR LEGAL RIGHTS, INCLUDING THE RIGHTS TO PARTICIPATE IN A CLASS ACTION, THE RIGHT TO A JURY TRIAL, THE RIGHT TO CONDUCT FULL DISCOVERY, AND THE RIGHT TO APPEAL (EXCEPT AS PERMITTED IN PARAGRAPH (e) OR UNDER THE FEDERAL ARBITRATION ACT).

(i)   I understand that I may reject this Resolution of Disputes provision, in which case neither you nor I will have the right to elect arbitration.  Rejection of this provision will not affect the remaining parts of this Agreement.  To reject this Resolution of Disputes provision, I must send us written

16

notice of my rejection within 30 days after the date that this Note was made.  I must include my name, address, and account number.  The notice of rejection must be mailed to WebBank, c/o Prosper Marketplace, Inc., 111 Sutter Street, 22nd Floor, San Francisco, CA 94104, Attention: Legal Department.  This is the only way that I can reject this Resolution of Disputes provision.

(j)   The parties acknowledge and agree that this arbitration agreement is made pursuant to a transaction involving interstate commerce and shall be governed by the Federal Arbitration Act.  This Resolution of Disputes provision shall survive the termination of this Note and the repayment of any or all amounts borrowed.

Arizona Residents: Notice: I understand that I may request that the initial disclosures prescribed in the Truth in Lending Act (15 United States Code sections 1601 through 1666j) be provided in Spanish before signing any loan documents.

Aviso Para Prestatarios En Arizona: Puedo solicitar que las divulgaciones iniciales prescritas en la Ley Truth in Lending Act (15 Código de los Estados Unidos secciones 1601 hasta 1666j) sean proporcionadas en español antes de firmar cualesquiera documentos de préstamos.

Missouri Residents: Oral agreements or commitments to loan money, extend credit or to forbear from enforcing repayment of a debt including promises to extend or renew such debt are not enforceable. To protect me (borrower) and you (creditor) from misunderstanding or disappointment, any agreements we reach covering such matters are contained in this writing, which is the complete and exclusive statement of the agreement between us, except as we may later agree in writing to modify it.

By signing this Note, I acknowledge that I (i) have read and understand all terms and conditions of this Note, (ii) agree to the terms set forth herein, and (iii) acknowledge receipt of a completely filled-in copy of this Note.

Date: 

[Borrower]

Last Updated:

17

EX-10.3

Exhibit 10.3

Executed: 04/14/2008

CONFIDENTIAL TREATMENT REQUESTED BY PROSPER MARKETPLACE, INC.

WEBBANK

and

PROSPER MARKETPLACE, INC.

LOAN ACCOUNT PROGRAM AGREEMENT

Dated as of April 14, 2008

TABLE OF CONTENTS

		PAGE
1.	DEFINITIONS	1
2.	PROGRAM MARKETING AND SERVICES	1
3.	EXTENSION OF CREDIT	2
4.	CONSUMER DOCUMENTS AND CREDIT POLICY	2
5.	LOAN ACCOUNT PROCESSING AND ORIGINATION	2
6.	FUNDING LOANS; PAYMENT OF SERVICING FEE	3
7.	REPRESENTATIONS AND WARRANTIES	4
8.	OTHER RELATIONSHIPS WITH BORROWERS	7
9.	INDEMNIFICATION	8
10.	TERM AND TERMINATION	9
11.	CONFIDENTIALITY	11
12.	PROPRIETARY MATERIAL	12
13.	RELATIONSHIP OF PARTIES	13
14.	EXPENSES	13
15.	EXAMINATION	14
16.	INSPECTION; REPORTS	14
17.	GOVERNING LAW; WAIVER OF JURY TRIAL	14
18.	SEVERABILITY	14
19.	ASSIGNMENT	14
20.	THIRD PARTY BENEFICIARIES	14
21.	NOTICES	14
22.	AMENDMENT AND WAIVER	15
23.	ENTIRE AGREEMENT	15
24.	COUNTERPARTS	15

25.	INTERPRETATION	15
26.	AGREEMENT SUBJECT TO APPLICABLE LAWS	15
27.	FORCE MAJEURE	16
28.	JURISDICTION; VENUE	16
29.	INSURANCE	16
30.	COMPLIANCE WITH APPLICABLE LAWS; PROGRAM COMPLIANCE MANUAL	16
31.	PROHIBITION ON TIE-IN FEES	18
32.	NOTICE OF CONSUMER COMPLAINTS	18
33.	HEADINGS	18
34.	PRIVACY LAW COMPLIANCE	18
35.	MANNER OF PAYMENTS	18
36.	REFERRALS	18
37.	AUDITED FINANCIAL STATEMENTS	18

SCHEDULES AND EXHIBITS

SCHEDULE 1	Definitions
EXHIBIT A	The Program Website
EXHIBIT B	Credit Policy
EXHIBIT C	Form of Application
EXHIBIT D	Loan Account Documentation
EXHIBIT E	Sample Funding Statement
EXHIBIT F	Insurance Requirements
EXHIBIT G	Program Compliance Manual
EXHIBIT H	Third-Party Service Contractors
EXHIBIT I	Bank Secrecy Act Policy

THIS LOAN ACCOUNT PROGRAM AGREEMENT (this “Agreement”), dated as of April 14, 2008 (“Effective Date”), is made by and between WEBBANK, a Utah-chartered industrial bank having its principal location in Salt Lake City, Utah (“Bank”), and PROSPER MARKETPLACE, INC., a Delaware corporation, having its principal location in San Francisco, California (“Company”).

WHEREAS, Company is in the business of providing certain services necessary for the origination of consumer installment loans;

WHEREAS, Bank is in the business of originating various types of consumer loans, including installment loans; and

WHEREAS, the Parties desire to develop a program pursuant to which Company shall market and provide an online interface and certain operations services in connection with, and Bank shall originate, installment loans for qualifying consumers identified by Company.

NOW, THEREFORE, in consideration of the foregoing and the terms, conditions and mutual covenants and agreements herein contained, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Bank and Company mutually agree as follows:

1.Definitions. The terms used in this Agreement shall be defined as set forth in Schedule 1.

2.Program Marketing and Services.

(a)Bank hereby retains Company to serve as Bank’s marketing and operations vendor for the Program. As such, Company shall perform the following services for Bank and the Program:

(1)Company shall promote and otherwise market the Program and the Loan Accounts at Company’s own cost and in its sole discretion. In performing such promotion and other marketing services, Company may use any form of media and may devote such monetary and other resources as it deems appropriate in its sole discretion. Company’s promotion and marketing efforts shall not be required to produce any minimum number of Loan Accounts or other benefits to the Program during the Term of this Agreement or any year, month, or other period under this Agreement. Company may refer to Bank and the Program in promotional and marketing materials, including marketing scripts, upon the condition that any references to Bank and/or the Program in any such materials must receive the prior written approval of Bank, which approval shall not to be unreasonably withheld or delayed. Company shall ensure that all promotional and marketing materials shall be accurate and not misleading in all material respects. Company shall ensure that all promotional and marketing materials and strategies comply with Applicable Laws.

(2)Company shall host and maintain the Program Website and provide customer support, regulatory compliance, administrative, and other operational services to support Bank’s origination of Loan Accounts and the Program generally. Company shall provide such services in a manner consistent with Company obligations specified in this Agreement and as the Parties may mutually agree in writing from time to time.

1

	(b)	Bank acknowledges and agrees that (i) pursuant to Section 12 of this Agreement, Company is licensing to Bank valuable Proprietary Material of Company for use in the marketing and operation of the Program, which includes but is not limited to use of the Program Website; (ii) because the value of such Proprietary Material may be affected by Bank’s lending activities under the Program, Company requires Bank to perform and Bank hereby agrees to perform Bank’s lending activities under the Program with due regard to Company’s interests in such Proprietary Material and in close coordination with Company as specified hereafter in this Agreement; and (iii) the compensation to be paid by Bank to Company under this Agreement is in consideration of Company’s licensing of such Proprietary Material to Bank as well as Company’s marketing and operational services to Bank and the Program under this Agreement.
3.	Extension of Credit. Company acknowledges that approval of an Application creates a creditor-borrower relationship between Bank and Borrower which involves, among other things, the disbursement of Loan Proceeds. Nothing in this Agreement shall obligate Bank to extend credit to an Applicant or disburse Loan Proceeds if Bank determines that doing so would be an unsafe or unsound banking practice or that such extension of credit would be in violation of the Credit Policy. Bank shall use reasonable commercial efforts to provide Company prior notice of a decision not to extend credit to an Applicant or disburse Loan Proceeds in reliance on the preceding sentence and, in all instances where Bank does not provide such prior notice, Bank shall provide Company prompt notice after making a decision not to extend credit to an Applicant or disburse Loan Proceeds in reliance on the preceding sentence.
4.	Consumer Documents and Credit Policy. The following documents, terms and procedures (“Consumer Finance Materials”) that have been approved by Bank and that will be used by Bank initially with respect to the Loan Accounts are attached to this Agreement: (i) the Program Website (screen shots of each page of the Program Website) as Exhibit A; (ii) Credit Policy as Exhibit B; (iii) form of Application, including disclosures required by Applicable Laws, as Exhibit C; and (iv) form of Loan Account Agreement, privacy policy and privacy notices, and all other Applicant and Borrower communications as Exhibit D. The Consumer Finance Materials shall not be changed without the prior written consent of both Parties, which consent shall not be unreasonably withheld or delayed; provided, however, that Bank may change the Consumer Finance Materials upon written notice provided to Company but without Company’s prior written consent, to the extent that such change is required by Applicable Laws or necessitated by safety and soundness concerns, provided that, as between Bank and Company, Bank shall be solely responsible for each such change and any adverse legal or other consequences arising from it. The Parties acknowledge that each Loan Account Agreement and all other documents referring to the creditor for the Program shall identify Bank as the creditor for the Loan Accounts. Company shall ensure that the Consumer Finance Materials comply with Applicable Laws.
5.	Loan Account Processing and Origination.
	(a)	On behalf of Bank, Company shall process Applications received from Applicants via the Program Website (including retrieving credit reports) to determine whether the Applicant meets the eligibility criteria set forth in the Credit Policy and Bank’s “Know Your Customer” and anti-money laundering criteria (collectively, the “Bank Secrecy Act Policy”), which is attached hereto as Exhibit I, and which may be updated by Bank from time to time and such updates shall be effective upon notice to Company as set forth herein. Company shall respond to all inquiries from Applicants regarding the application

2

	process.
(b)	Company shall forward to Bank mutually agreed information including name, address, social security number and date of birth, regarding Applicants who meet the eligibility criteria set forth in the Credit Policy. Company shall have no discretion to override the Credit Policy with respect to any Applications.
(c)	Subject to the terms of this Agreement, Bank shall establish Loan Accounts with respect to Applicants who meet the eligibility criteria set forth in the Credit Policy.
(d)	Pursuant to procedures mutually agreed to by the Parties, Company shall deliver adverse action notices to Applicants who do not meet Credit Policy criteria or are otherwise denied by Bank.
(e)	Company shall deliver Program privacy notices and Loan Account Agreements to Borrowers.
(f)	Company shall hold and maintain, as custodian for Bank, all documents of Bank pertaining to Loan Accounts. Company shall periodically provide to Bank copies of records required to be maintained under the Bank Secrecy Act Policy and such other documents regarding Loan Accounts as requested by Bank, at intervals mutually agreed to by the Parties, but no less frequently than monthly.
(g)	Company shall perform the obligations described in this Section 5 and deliver any customer communications to Applicants and Borrowers as necessary to carry on the Program, all at Company’s own cost and in accordance with Applicable Laws.
(h)	Pursuant to Section 16, as Bank reasonably requires and upon reasonable advance written notice to Company, Bank may periodically audit Company for compliance with the terms of this Section 5 and the Agreement as a whole, including compliance with the standards set forth herein for Loan Account origination.

6.Funding Loans; Payment of Servicing Fee.

(a)	Company shall provide a Funding Statement to Bank by e-mail or as otherwise mutually agreed by the Parties by 5:00 PM Mountain Time on the Business Day prior to each Funding Date. Each Funding Statement shall (i) identify those Applicants whose Applications satisfy the requirements of the Credit Policy and with respect to whom Company requests that Bank establish Loan Accounts, and (ii) provide the Funding Amount to be disbursed by Bank on such Funding Date. The Funding Statement shall be in the form of Exhibit E.
(b)	Subject to timely receipt of the Funding Statement, Bank shall transfer the Funding Amount from the Funding Account to the Disbursement Account by ACH transfers originated by Company on each Funding Date. Company shall provide Bank the account number and routing number for the Disbursement Account prior to the first Funding Date.
(c)	Subject to timely receipt of the Funding Amount, Company shall disburse Loan Proceeds to Borrowers by ACH transfers from the Disbursement Account in accordance with the

3

Funding Statement on the Funding Date. Bank authorizes Company to deduct and retain from the Funding Amount the aggregate amount of the Origination Fees set forth on the Funding Statement as a Program servicing fee.

7.Representations and Warranties.

(a)	Bank hereby represents and warrants, as of the Effective Date, or covenants, as applicable, to Company that:
	(1)	Bank is an FDIC-insured Utah-chartered industrial bank, duly organized, validly existing under the laws of the State of Utah and has full corporate power and authority to execute, deliver, and perform its obligations under this Agreement; the execution, delivery and performance of this Agreement have been duly authorized, and are not in conflict with and do not violate the terms of the charter or bylaws of Bank and will not result in a material breach of or constitute a default under, or require any consent under, any indenture, loan or agreement to which Bank is a party;
	(2)	All approvals, authorizations, licenses, registrations, consents, and other actions by, notices to, and filings with, any Person that may be required in connection with the execution, delivery, and performance of this Agreement by Bank, have been obtained (other than those required to be made to or received from Borrowers and Applicants);
	(3)	This Agreement constitutes a legal, valid, and binding obligation of Bank, enforceable against Bank in accordance with its terms, except (i) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, receivership, conservatorship or other similar laws now or hereafter in effect, including the rights and obligations of receivers and conservators under 12 U.S.C. §§ 1821 (d) and (e), which may affect the enforcement of creditors’ rights in general, and (ii) as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity);
	(4)	There are no proceedings or investigations pending or, to the best knowledge of Bank, threatened against Bank (i) asserting the invalidity of this Agreement, (ii) seeking to prevent the consummation of any of the transactions contemplated by Bank pursuant to this Agreement, (iii) seeking any determination or ruling that, in the reasonable judgment of Bank, would materially and adversely affect the performance by Bank of its obligations under this Agreement, (iv) seeking any determination or ruling that would materially and adversely affect the validity or enforceability of this Agreement or (v) would have a materially adverse financial effect on Bank or its operations if resolved adversely to it;
	(5)	Bank is not Insolvent;
	(6)	The execution, delivery and performance of this Agreement by Bank comply with Utah and federal banking laws specifically applicable to Bank’s operations; provided that Bank makes no representation or warranty regarding compliance with Utah or federal banking laws relating to consumer protection, consumer

4

		lending, usury, loan collections, anti-money laundering, data security or privacy as they apply to the operation of the Program;
	(7)	The Proprietary Materials Bank licenses to Company pursuant to Section 12, and their use as contemplated by this Agreement, do not violate or infringe upon, or constitute an infringement or misappropriation of, any U.S. patent, copyright or U.S. trademark, service mark, trade name or trade secret of any person or entity and Bank has the right to grant the licenses set forth in Section 12 below; and
	(8)	Bank shall comply with Title V of the Gramm-Leach-Bliley Act and the implementing regulations of the FDIC, including but not limited to applicable limits on the use, disclosure, storage, safeguarding and destruction of Applicant information, and shall maintain commercially reasonable data security and disaster recovery protections that, at the least, are consistent with industry standards for the consumer lending industry.
(b)	Company hereby represents and warrants, as of the Effective Date, or covenants, as applicable, to Bank that:
	(1)	Company is a corporation, duly organized and validly existing in good standing under the laws of the State of Delaware, and has full power and authority to execute, deliver, and perform its obligations under this Agreement; the execution, delivery, and performance of this Agreement have been duly authorized, and are not in conflict with and do not violate the terms of the articles or bylaws of Company and will not result in a material breach of or constitute a default under or require any consent under any indenture, loan, or agreement to which Company is a party;
	(2)	All approvals, authorizations, consents, and other actions by, notices to, and filings with any Person required to be obtained for the execution, delivery, and performance of this Agreement by Company, have been obtained;
	(3)	This Agreement constitutes a legal, valid, and binding obligation of Company, enforceable against Company in accordance with its terms, except (i) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or hereafter in effect, which may affect the enforcement of creditors’ rights in general, and (ii) as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity);
	(4)	There are no proceedings or investigations pending or, to the best knowledge of Company, threatened against Company (i) asserting the invalidity of this Agreement, (ii) seeking to prevent the consummation of any of the transactions contemplated by Company pursuant to this Agreement, (iii) seeking any determination or ruling that, in the reasonable judgment of Company, would materially and adversely affect the performance by Company of its obligations under this Agreement, (iv) seeking any determination or ruling that would materially and adversely affect the validity or enforceability of this Agreement, or (v) would have a materially adverse financial effect on Company or its operations if resolved adversely to it;

5

	(5)	Company is not Insolvent;
	(6)	The execution, delivery and performance of this Agreement by Company, the Consumer Finance Materials and the promotional and marketing materials and strategies shall all comply with Applicable Laws; except that if Company requests that Bank change the Bank Secrecy Act Policy to cause it to include any measures needed to comply with the Bank Secrecy Act or the USA Patriot Act and Bank does not do so, then Company provides no representations or warranties regarding any elements of the Bank Secrecy Act or the USA Patriot Act compliance affected by the unchanged provisions.
	(7)	The Proprietary Materials Company licenses to Bank pursuant to Section 12, and their use as contemplated by this Agreement, do not violate or infringe upon, or constitute an infringement or misappropriation of, any U.S. patent, copyright or U.S. trademark, service mark, trade name or trade secret of any person or entity and Company has the right to grant the license set forth in Section 12 below; and
	(8)	Company shall comply with Title V of the Gramm-Leach-Bliley Act and the implementing regulations of the FDIC, including but not limited to applicable limits on the use, disclosure, storage, safeguarding and destruction of Applicant information, and shall maintain commercially reasonable data security and disaster recovery protections that at the least are consistent with industry standards for the consumer lending industry.
(c)	Bank hereby represents and warrants to Company as of each Funding Date that the Loan Proceeds that Bank is required to disburse on the Funding Date are being provided by Bank from its own resources, such as deposits, warehouse lines of credit, or other credit facilities of Bank.
(d)	Company hereby represents and warrants to Bank as of each Funding Date that:
	(1)	For each Loan Account and each disbursement of Loan Proceeds: (i) to the best of Company’s knowledge, all information in the related Application is true and correct, provided, however, that Company’s representation and warranty in this regard shall be subject to the following limitations: (A) Company does not verify the self-reported income, employment and occupation or other information provided by Applicants in listings, (B) each Applicant’s debt-to-income ratio is determined by Company from a combination of the Applicant’s self-reported income and information from the Applicant’s credit report and not otherwise verified by Company, (C) credit data that appears in Applications is taken directly from a credit report obtained on the Applicant from a credit reporting agency, without any review or verification by Company, (D) Company does not verify any statements by Applicants as to how Loan Proceeds are to be used and does not confirm after loan disbursement how Loan Proceeds were used, and (E) Applicants’ home ownership status is not verified by Company but is derived from the Applicant’s credit report, in that if the credit report reflects an active mortgage loan the Applicant is presumed to be a homeowner; (ii) the Loan Account is fully enforceable and all required disclosures to Borrowers have been delivered in compliance with Applicable Laws; (iii) the Loan Account Agreement and all other Loan Account documents are genuine and legally

6

		binding and enforceable, conform to the requirements of the Program and were prepared in conformity with the Program Compliance Manual; (iv) all necessary approvals required to be obtained by Company have been obtained; (v) nothing exists that would prohibit the sale of the Loan Accounts by Bank to Company under the Loan Sale Agreement, provided that Bank has taken no action (independent of action taken by Company on Bank’s behalf) that would prohibit the sale of the Loan Accounts by Bank to Company under the Loan Sale Agreement; and (vi) Bank is the sole owner of the Loan Accounts prior to any such sale of the Loan Accounts to Company, provided that Bank has taken no action (independent of action taken by Company on Bank’s behalf) that diminishes Bank’s ownership rights in the Loan Accounts;
	(2)	Each Borrower listed on a Funding Statement is eligible for a Loan Account under the Credit Policy; and each Borrower has submitted an Application; and
	(3)	The information on each Funding Statement is true and correct in all respects.
(e)	The representations and warranties of Bank and Company contained in this Section 7, except those representations and warranties contained in subsections 7(a)(4) and 7(b)(4), are made continuously throughout the term of this Agreement. In the event that any investigation or proceeding of the nature described in subsections 7(a)(4) and 7(b)(4) is instituted or threatened against either Party, such Party shall promptly notify the other Party of the pending or threatened investigation or proceeding.

8.Other Relationships with Borrowers.

(a)	Separate from the obligation to market Loan Accounts offered by Bank, and subject to the Program privacy policy and Applicable Laws, Company shall have the right, at its own expense, to solicit Applicants and/or Borrowers with offerings of other goods and services from Company and parties other than Bank, provided, however, that in the event that Company uses Bank’s name and/or Proprietary Materials in connection with such offerings, Company shall obtain Bank’s prior approval for such use.
(b)	Except as necessary to carry out its rights and responsibilities under this Agreement and the Loan Sale Agreement, Bank shall not use Applicant and/or Borrower information and shall not provide or disclose any Applicant and/or Borrower information to any Person, except to the extent required to do so under Applicable Laws or legal process.
(c)	Notwithstanding subsection 8(b), (i) Bank may make solicitations for goods and services to the public, which may include one or more Applicants or Borrowers; provided that Bank does not (A) target such solicitations to specific Applicants and/or Borrowers, (B) use or permit a third party to use any list of Applicants and/or Borrowers in connection with such solicitations or (C) refer to or otherwise use the name of Company; and (ii) Bank shall not be obligated to redact the names of Applicants and/or Borrowers from marketing lists acquired from third parties (e.g., subscription lists) that Bank uses for solicitations.
(d)	The terms of this Section 8 shall survive the expiration or earlier termination of this Agreement.

7

9.Indemnification.

(a)	Bank agrees to defend, indemnify, and hold harmless Company and its Affiliates, and the officers, directors, employees, representatives, shareholders, agents and attorneys of such entities (the “Company Indemnified Parties”) from and against any and all third party claims and actions, and all liability, judgments, damages, costs and expenses, including reasonable attorneys’ fees arising there from (together with third party claims and actions, “Losses”) to the extent arising from its (i) gross negligence, willful misconduct or breach of any of Bank’s representations, warranties, obligations or undertakings under this Agreement by Bank, or (ii) violation by Bank of any Utah or federal banking law specifically applicable to Bank’s operations other than Applicable Laws regarding consumer protection, consumer lending, usury, loan collection, anti-money laundering, data protection or privacy as they apply to the operation of the Program.
(b)	Company agrees to defend, indemnify, and hold harmless Bank and its Affiliates, and the officers, directors, employees, representatives, shareholders, agents and attorneys of such entities (the “Bank Indemnified Parties”) from and against any and all Losses to the extent arising from Company’s participation in the Program as contemplated by the Program Documents (including Losses arising from a violation of Applicable Laws or a breach by Company or its agents or representatives of any of Company’s representations, warranties, obligations or undertakings under the Program Documents), unless such Loss results from (i) the gross negligence or willful misconduct of Bank or (ii) a breach by Bank of any of Bank’s representations, warranties, obligations or undertakings under this Agreement.
(c)	The Company Indemnified Parties and the Bank Indemnified Parties are sometimes referred to herein as the “Indemnified Parties,” and Company or Bank, as an indemnitor hereunder, is sometimes referred to herein as the “Indemnifying Party.”
(d)	Any Indemnified Party seeking indemnification hereunder shall promptly notify the Indemnifying Party, in writing, of any notice of the assertion by any third party of any claim or of the commencement by any third party of any legal or regulatory proceeding, arbitration or action, or if the Indemnified Party determines the existence of any such claim or the commencement by any third party of any such legal or regulatory proceeding, arbitration or action, whether or not the same shall have been asserted or initiated, in any case with respect to which the Indemnifying Party is or may be obligated to provide indemnification (an “Indemnifiable Claim”), specifying in reasonable detail the nature of the Loss, and, if known, the amount, or an estimate of the amount, of the Loss, provided that failure to promptly give such notice shall only limit the liability of the Indemnifying Party to the extent of the actual prejudice, if any, suffered by such Indemnifying Party as a result of such failure. The Indemnified Party shall provide to the Indemnifying Party as promptly as practicable thereafter information and documentation reasonably requested by such Indemnifying Party to defend against the Indemnifiable Claim.
(e)	The Indemnifying Party shall have ten (10) days after receipt of any notification of an Indemnifiable Claim (a “Claim Notice”) to notify the Indemnified Party of the Indemnifying Party’s election to assume the defense of the Indemnifiable Claim and, through counsel of its own choosing, and at its own expense, to commence the settlement or defense thereof, and the Indemnified Party shall cooperate with the Indemnifying

8

Party in connection therewith if such cooperation is so requested and the request is reasonable; provided that the Indemnifying Party shall hold the Indemnified Party harmless from all its reasonable out-of-pocket expenses, including reasonable attorneys’ fees, incurred in connection with the Indemnified Party’s cooperation.  If the Indemnifying Party assumes responsibility for the settlement or defense of any such claim, (i) the Indemnifying Party shall permit the Indemnified Party to participate at its expense in such settlement or defense through counsel chosen by the Indemnified Party; provided that, in the event that both the Indemnifying Party and the Indemnified Party are defendants in the proceeding and the Indemnified Party shall have reasonably determined and notified the Indemnifying Party that representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them, then the fees and expenses of one such counsel for all Indemnified Parties in the aggregate shall be borne by the Indemnifying Party; and (ii) the Indemnifying Party shall not settle any Indemnifiable Claim without the Indemnified Party’s consent, which consent shall not be unreasonably withheld or delayed for any reason if the settlement involves only payment of money and releases the Indemnified Party from any and all liability related to such claim, and which consent may be withheld for any reason if the settlement involves more than the payment of money, including any admission by the Indemnified Party.  So long as the Indemnifying Party is reasonably contesting any such Indemnifiable Claim in good faith, the Indemnified Party shall not pay or settle such claim without the Indemnifying Party’s consent, which consent shall not be unreasonably withheld or delayed.  The Indemnified Party may pay or settle any such Indemnifiable Claim at any time if it waives its right to indemnification hereunder.

(f)If the Indemnifying Party does not notify the Indemnified Party within ten (10) days after receipt of the Claim Notice that it elects to undertake the defense of the Indemnifiable Claim described therein, or if the Indemnifying Party fails to contest vigorously any such Indemnifiable Claim, the Indemnified Party shall have the right, upon notice to the Indemnifying Party, to contest, settle or compromise the Indemnifiable Claim in the exercise of its reasonable discretion; provided that the Indemnified Party shall notify the Indemnifying Party prior thereto of any compromise or settlement of any such Indemnifiable Claim.  No action taken by the Indemnified Party pursuant to this paragraph (f) shall deprive the Indemnified Party of its rights to indemnification pursuant to this Section 9.

(g)The terms of this Section 9 shall survive the expiration or earlier termination of this Agreement.

10.Term and Termination.

(a)This Agreement shall have an initial term beginning on the Effective Date and ending twenty-four (24) months thereafter (the “Initial Term”) and shall renew automatically for two (2) successive terms of one (1) year each (each a “Renewal Term,” collectively, the Initial Term and Renewal Term(s) shall be referred to as the “Term”), unless either Party provides notice of non-renewal to the other Party at least ninety (90) days prior to the end of the Initial Term or any Renewal Term or this Agreement is earlier terminated in accordance with the provisions hereof.

(b)This Agreement shall terminate immediately upon the expiration or earlier termination of the Loan Sale Agreement.

9

(c)Either Party may terminate this Agreement without cause upon ninety (90) days’ prior written notice to the other party.

(d)A Party shall have a right to terminate this Agreement immediately upon written notice to the other Party in any of the following circumstances:

(1)any representation or warranty made by the other Party in this Agreement shall be incorrect in any material respect and shall not have been corrected within thirty (30) Business Days after written notice thereof has been given to such other Party;

(2)the other Party shall default in the performance of any obligation or undertaking under this Agreement and such default shall continue for thirty (30) Business Days after written notice thereof has been given to such other Party;

(3)the other Party shall commence a voluntary case or other proceeding seeking liquidation, reorganization, or other relief with respect to itself or its debts under any bankruptcy, insolvency, receivership, conservatorship or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, conservator, custodian, or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of a trustee, receiver, liquidator, conservator, custodian, or other similar official or to any involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing;

(4)an involuntary case or other proceeding, whether pursuant to banking regulations or otherwise, shall be commenced against the other Party seeking liquidation, reorganization, or other relief with respect to it or its debts under any bankruptcy, insolvency, receivership, conservatorship or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, conservator, custodian, or other similar official of it or any substantial part of its property; or an order for relief shall be entered against either Party under the federal bankruptcy laws as now or hereafter in effect; or

(5)there is a materially adverse change in the financial condition of the other Party.

(e)Bank shall not be obligated to approve Applications or establish new Loan Accounts after termination of this Agreement; provided, that Bank shall originate Loan Accounts to Applicants to whom Bank has issued a lending commitment prior to termination, unless this Agreement is terminated pursuant to subsection 10(b) or by Bank pursuant to subsection 10(d).

(f)The termination of this Agreement either in part or in whole shall not discharge any Party from any obligation incurred prior to such termination.

(g)Upon termination of this Agreement, Company shall purchase all Loan Accounts established by Bank prior to and on the date of termination that have not already been

10

purchased by Company.  After termination, Company shall purchase all Loan Accounts originated by Bank pursuant to subsection 10(e).

(h)The terms of this Section 10 shall survive the expiration or earlier termination of this Agreement.

11.Confidentiality.

(a)Each Party agrees that Confidential Information of the other Party shall be used by such Party solely in the performance of its obligations and exercise of its rights pursuant to the Program Documents.  Except as required by Applicable Laws or legal process, neither Party (the “Restricted Party”) shall disclose Confidential Information of the other Party to third parties; provided, however, that the Restricted Party may disclose Confidential Information of the other Party (i) to the Restricted Party’s Affiliates, agents, representatives or subcontractors for the sole purpose of fulfilling the Restricted Party’s obligations under this Agreement (as long as the Restricted Party exercises reasonable efforts to prohibit any further disclosure by its Affiliates, agents, representatives or subcontractors), provided that in all events, the Restricted Party shall be responsible for any breach of the confidentiality obligations hereunder by any of its Affiliates, agents, representatives or subcontractors, (ii) to the Restricted Party’s auditors, accountants and other professional advisors, or to a Regulatory Authority or (iii) to any other third party as mutually agreed by the Parties.

(b)A Party’s Confidential Information shall not include information that:

(1)is generally available to the public;

(2)has become publicly known, without fault on the part of the Party who now seeks to disclose such information (the “Disclosing Party”), subsequent to the Disclosing Party acquiring the information;

(3)was otherwise known by, or available to, the Disclosing Party prior to entering into this Agreement; or

(4)becomes available to the Disclosing Party on a non-confidential basis from a Person, other than a Party to this Agreement, who is not known by the Disclosing Party after reasonable inquiry to be bound by a confidentiality agreement with the non-Disclosing Party or otherwise prohibited from transmitting the information to the Disclosing Party.

(c)Upon written request or upon the termination of this Agreement, each Party shall, within thirty (30) days, return to the other Party all Confidential Information of the other Party in its possession that is in written form, including by way of example, but not limited to, reports, plans, and manuals; provided, however, that either Party may maintain in its possession all such Confidential Information of the other Party required to be maintained under Applicable Laws relating to the retention of records for the period of time required thereunder or stored on such Party’s network as part of standard back-up procedures (provided that such information shall remain subject to the confidentiality provisions of this Section 11).

11

(d)In the event that a Restricted Party is requested or required (by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any Confidential Information of the other Party, the Restricted Party shall provide the other Party with prompt notice of such request(s) so that the other Party may seek an appropriate protective order or other appropriate remedy and/or waive the Restricted Party’s compliance with the provisions of this Agreement.  In the event that the other Party does not seek such a protective order or other remedy, or such protective order or other remedy is not obtained, or the other Party grants a waiver hereunder, the Restricted Party may furnish that portion (and only that portion) of the Confidential Information of the other Party which the Restricted Party is legally compelled to disclose and shall exercise such efforts to obtain reasonable assurance that confidential treatment shall be accorded any Confidential Information of the other Party so furnished as the Restricted Party would exercise in assuring the confidentiality of any of its own Confidential Information.

(e)The terms of this Section 11 shall survive the expiration or earlier termination of this Agreement.

12.Proprietary Material.

(a)Each Party (“Licensing Party”) hereby provides the other Party (“Licensee”) with a non-exclusive right and license to use and reproduce the Licensing Party’s name, logo, registered or other trademarks and service marks (collectively, “Marks”) on the Applications, Loan Account Agreements, and other Consumer Finance Materials (including the Program Website), Program marketing materials, and any other publicly distributed or available Program materials, and to otherwise use the Marks and such copyrights, patents, and other intellectual property as the Licensing Party may designate or otherwise make available from time to time in the Licensing Party’s sole discretion (collectively with the Marks, “Proprietary Material”) for the purposes of or otherwise in connection with the fulfillment of Licensee’s obligations under this Agreement; provided, however, that (i) the Licensee shall at all times comply with any and all written instructions provided by the Licensing Party from time to time regarding the use of the Licensing Party’s Proprietary Material, and (ii) each Licensee acknowledges that, except for the license specifically provided in this Agreement, it shall acquire no interest in the Licensing Party’s Proprietary Material.  Upon termination of this Agreement, each such license will terminate, and the Licensee shall cease using the Licensing Party’s Proprietary Material. Neither Party may use the other Party’s Marks in any press release without the prior written consent of the other Party.

(b)Bank hereby acknowledges and agrees that, as between Bank and Company (i) as of the Effective Date, Company is the sole and exclusive owner of all pre-existing Marks, copyrights, patents, other intellectual property rights, software, other technology, and other tangible and intangible property used on or in connection with the Program Website, and its Company run predecessors;  and (ii) Company shall be the sole and exclusive owner of any and all modifications to such tangible and intangible property during the Term of this Agreement, including but not limited to any and all trademark, service mark, copyright, patent, and other intellectual property rights in and to such modifications, except as the Parties may otherwise agree in writing.  For avoidance of doubt, Company shall not obtain any rights in Bank’s Marks (other than the license described in subsection 12(a)) by virtue of incorporation of Bank’s Marks into the

12

Program Website.

13.Relationship of Parties.  The Parties agree that in performing their responsibilities pursuant to this Agreement, they are in the position of independent contractors.  This Agreement is not intended to create, nor does it create and shall not be construed to create, a relationship of partner or joint venturer or any association for profit between Bank and Company.

14.Expenses.

(a)Except as set forth herein, each Party shall bear the costs and expenses of performing its obligations under this Agreement.

(b)Company shall pay all wire transfer and ACH costs for transfers by Bank under the Program.  Company shall reimburse Bank for all third party fees incurred by Bank in connection with the performance of this Agreement.  Bank shall provide Company with notice of third party fees to be incurred by Bank in connection with performance of this Agreement as soon as practicable after Bank becomes aware of such fees.

(c)Company shall pay all costs of any credit reports it obtains on Applicants or Borrowers and any adverse action notices it delivers to Applicants or Borrowers in accordance with Company’s Application processing and Loan Account servicing responsibilities under this Agreement.

(d)Bank acknowledges receipt of [**] from Company as a one-time, fully earned payment to compensate Bank for costs associated with the start-up of the Program.  This fee is non-refundable.

(e)Each Party shall be responsible for payment of any federal, state, or local taxes or assessments associated with the performance of its obligations under this Agreement and for compliance with all filing, registration and other requirements with regard thereto.

(f)Company shall pay for Bank’s out-of-pocket legal fees and expenses incurred as of the Effective Date for due diligence in connection with, and negotiation and drafting of, the Program Documents in an amount not to exceed[**].  Bank acknowledges receipt of [**] as an advance toward such legal fees and expenses.  Bank shall present to Company periodic invoices reflecting such legal fees and expenses incurred.  Bank shall deduct such amounts from the advance.  Bank shall promptly remit back to Company any unused portion of the advance after execution of the Program Documents.  If, after the Effective Date, Company requests a change to the Program Documents or Consumer Finance Materials that requires legal review by Bank, Bank shall invoice Company for all out-of-pocket legal fees and expenses incurred as a result of such review.  Company shall pay such invoice within thirty (30) days of receipt of such invoice.

(g)Company shall reimburse Bank for all reasonable costs associated with Bank’s assignment to Company of Loan Accounts pursuant to Section 10.

(h)Company shall pay Bank [**] on the Effective Date as a one-time, fully earned payment to compensate Bank for the establishment and implementation of the Program.  This fee is non-refundable.

** Confidential Treatment Requested

13

15.Examination.  Each Party agrees to submit to any examination that may be required by a Regulatory Authority having jurisdiction over the other Party, during regular business hours and upon reasonable prior notice, and to otherwise provide reasonable cooperation to the other Party in responding to such Regulatory Authority’s inquiries and requests related to the Program.

16.Inspection; Reports.  Each Party, upon reasonable prior notice from the other Party, agrees to submit to an inspection of its books, records, accounts, and facilities relevant to the Program, from time to time, during regular business hours subject to the duty of confidentiality each Party owes to its customers and banking secrecy and confidentiality requirements otherwise applicable to each Party under Applicable Laws.  All expenses of inspection shall be borne by the Party conducting the inspection.  Notwithstanding the obligation of each Party to bear its own expenses of inspection, Company shall reimburse Bank for reasonable out of pocket expenses incurred by Bank in the performance of quarterly, on site reviews of Company’s financial condition, operations and internal controls, not to exceed the maximum amount per visit of [**].  Company shall store all documentation and electronic data related to its performance under this Agreement and shall make such documentation and data available during any inspection by Bank or its designee.  With such reasonable frequency and in such reasonable manner as mutually agreed by the Parties, Company shall report to Bank regarding the performance of its obligations.

17.Governing Law; Waiver of Jury Trial.  This Agreement shall be interpreted and construed in accordance with the laws of the State of Utah, without giving effect to the rules, policies, or principles thereof with respect to conflicts of laws.  THE PARTIES HEREBY EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING HEREUNDER.

18.Severability.  Any provision of this Agreement which is deemed invalid, illegal or unenforceable in any jurisdiction, shall, as to that jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining portions hereof in such jurisdiction or rendering such provision or any other provision of this Agreement invalid, illegal, or unenforceable in any other jurisdiction.

19.Assignment.  This Agreement and the rights and obligations created under it shall be binding upon and inure solely to the benefit of the Parties and their respective successors, and permitted assigns.  Neither Party shall be entitled to assign or transfer any interest under this Agreement (including, without limitation, by operation of law) without the prior written consent of the other Party, which shall not be unreasonable withheld or delayed.  No assignment made in conformity with this Section 19 shall relieve a Party of its obligations under this Agreement.  Company may use subcontractors in the performance of its obligations under this Agreement, subject to Bank’s prior written approval of each such subcontractor, which approval shall not be unreasonably withheld or delayed.  A list of subcontractors already approved by Bank is attached in the form of Exhibit H hereto.

20.Third Party Beneficiaries.  Nothing contained herein shall be construed as creating a third-party beneficiary relationship between either Party and any other Person.

21.Notices.  All notices and other communications that are required or may be given in connection with this Agreement shall be in writing and shall be deemed received (a) on the day delivered, if delivered by hand; (b) on the day transmitted, if transmitted by facsimile or e-mail with receipt confirmed; or (c)  three (3) business days after the date of mailing to the other Party, if mailed

** Confidential Treatment Requested

14

first-class postage prepaid, at the following address, or such other address as either Party shall specify in a notice to the other:

To Bank:	WebBank
	6440 S Wasatch Blvd.
	Suite 300
	Salt Lake City, UT 84121
	Attn: Gerry Smith
	E-mail Address: gerry@webbank.com
	Telephone: (801) 993-5001
	Facsimile: (801) 993-5015
To Company:	Prosper Marketplace, Inc.
	111 Sutter Street, 22nd Floor
	San Francisco, CA 94104
	Attn: Kirk T. Inglis
	E-mail Address: kirk@propser.com
	Telephone: (415) 593-5432
	Facsimile: (415) 362-7233

22.Amendment and Waiver.  This Agreement may be amended only by a written instrument signed by each of the Parties.  The failure of a Party to require the performance of any term of this Agreement or the waiver by a Party of any default under this Agreement shall not prevent a subsequent enforcement of such term and shall not be deemed a waiver of any subsequent breach.  All waivers must be in writing and signed by the Party against whom the waiver is to be enforced.

23.Entire Agreement.  The Program Documents, including this Agreement and its schedules and exhibits (all of which schedules and exhibits are hereby incorporated into this Agreement), constitute the entire agreement between the Parties with respect to the subject matter hereof, and supersede any prior or contemporaneous negotiations or oral or written agreements with regard to the same subject matter.

24.Counterparts.  This Agreement may be executed and delivered by the Parties in any number of counterparts, and by different parties on separate counterparts, each of which counterpart shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same instrument.

25.Interpretation.  The Parties acknowledge that each Party and its counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendments thereto, and the same shall be construed neither for nor against either Party, but shall be given a reasonable interpretation in accordance with the plain meaning of its terms and the intent of the Parties.

26.Agreement Subject to Applicable Laws.  If (a) either Party has been advised by legal counsel of a change in Applicable Laws or any judicial decision of a court having jurisdiction over such Party or any interpretation of a Regulatory Authority that, in the view of such legal counsel, would have a materially adverse effect on the rights or obligations of such Party under this Agreement or the financial condition of such Party, (b) either Party receives a request of any Regulatory

15

Authority having jurisdiction over such Party, including any letter or directive of any kind from any such Regulatory Authority, that prohibits or restricts such Party from carrying out its obligations under this Agreement, or (c) either Party has been advised by legal counsel that there is a material risk that such Party’s or the other Party’s continued performance under this Agreement would violate Applicable Laws, then the Parties shall meet and consider in good faith any modifications, changes or additions to the Program or the Program Documents that may be necessary to eliminate such result.  Notwithstanding any other provision of the Program Documents, including Section 10 hereof, if the Parties are unable to reach agreement regarding such modifications, changes or additions to the Program or the Program Documents within ten (10) Business Days after the Parties initially meet, either Party may terminate this Agreement upon five (5) days’ prior written notice to the other Party.  A Party may suspend performance of its obligations under this Agreement, or require the other Party to suspend its performance of its obligations under this Agreement, upon providing the other Party advance written notice, if any event described in subsections 26(a), (b) or (c) above occurs.

27.Force Majeure.  If any Party is unable to carry out the whole or any part of its obligations under this Agreement by reason of a Force Majeure Event, then the performance of the obligations under this Agreement of such Party as they are affected by such cause shall be excused during the continuance of the inability so caused, except that should such inability not be remedied within thirty (30) days after the date of such cause, the Party not so affected may at any time after the expiration of such thirty (30) day period, during the continuance of such inability, terminate this Agreement on giving written notice to the other Party and without payment of a termination fee or other penalty.  To the extent that the Party not affected by a Force Majeure Event is unable to carry out the whole or any part of its obligations under this Agreement because a prerequisite obligation of the Party so affected has not been performed, the Party not affected by a Force Majeure Event also is excused from such performance during such period.  A “Force Majeure Event” as used in this Agreement shall mean an unanticipated event that is not reasonably within the control of the affected Party or its subcontractors (including, but not limited to, acts of God, acts of governmental authorities, strikes, war, riot and any other causes of such nature), and which by exercise of reasonable due diligence, such affected Party or its subcontractors could not reasonably have been expected to avoid, overcome or obtain, or cause to be obtained, a commercially reasonable substitute therefore.  No Party shall be relieved of its obligations hereunder if its failure of performance is due to removable or remediable causes which such Party fails to remove or remedy using commercially reasonable efforts within a reasonable time period.  Either Party rendered unable to fulfill any of its obligations under this Agreement by reason of a Force Majeure Event shall give prompt notice of such fact to the other Party, followed by written confirmation of notice, and shall exercise due diligence to remove such inability with all reasonable dispatch.

28.Jurisdiction; Venue.  The Parties consent to the personal jurisdiction and venue of the federal and state courts in Salt Lake City, Utah for any court action or proceeding.  The terms of this Section 28 shall survive the expiration or earlier termination of this Agreement.

29.Insurance.  Company agrees to maintain insurance coverage on the terms and conditions specified in Exhibit F at all times during the term of this Agreement and to notify Bank promptly of any cancellation or lapse of any such insurance coverage.

30.Compliance with Applicable Laws; Program Compliance Manual.  Company shall comply with Applicable Laws, the Bank Secrecy Act Policy and the Program Compliance Manual in its performance of this Agreement, including Loan Account solicitation, Application processing and

16

preparation of Loan Account Agreements and other Loan Account documents.  Except as required by Applicable Laws, Company may not amend or otherwise modify the Program Compliance Manual without the prior written consent of Bank, which consent shall not be unreasonable withheld or delayed.  A copy of the Program Compliance Manual is attached hereto as Exhibit G.  Without limiting the foregoing, Company shall:

(a)apply to all Applicants customer identification procedures that comply with Section 326 of the USA PATRIOT Act of 2001 (“Patriot Act”) and the implementing regulations applicable to Bank (31 C.F.R. § 103.121);

(b)retain for five (5) years after a Loan Account is purchased from Bank, and deliver to Bank upon request: (i) the Applicant’s name, address, social security number, and date of birth obtained pursuant to such customer identification procedures; (ii) a description of the methods and the results of any measures undertaken to verify the identity of the Applicant; and (iii) a description of the resolution of any substantive discrepancy discovered when verifying the identifying information obtained;

(c)screen all Applicants against the Office of Foreign Assets Control list of Specially Designated Nationals and Blocked Persons, and reject any Applicant whose name appears on such list and notify Bank thereof;

(d)monitor, identify and report to Bank any suspicious activity that meets the thresholds for submitting a Suspicious Activity Report under the Bank Secrecy Act and the implementing regulations applicable to Bank (31 C.F.R. § 103.18);

(e)implement an anti-money laundering program to assist Bank in its compliance with Section 352 of the Patriot Act and the implementing regulations applicable to Bank (31 C.F.R. § 103.120);

(f)in addition to the information retained pursuant to subsection (b) above, retain the account number identifying a Borrower’s Loan Account for at least one (1) year after purchasing the Borrower’s Loan Account from Bank;

(g)upon receipt of a government information request forwarded by Bank to Company, (i) compare the names, addresses, and social security numbers on such government list provided by Bank with the names, addresses, and social security numbers of Borrowers for all Loan Accounts purchased from Bank within the prior twelve (12) months, and (ii) within one (1) week of receipt of such an information request, deliver to Bank a certification of completion of such a records search, which shall indicate whether Company located a name, address, or social security number match and, if so, provide for any such match: the name of the Borrower, the account number identifying the Borrower’s Loan Account, and the Borrower’s social security number, date of birth, address, or other similar identifying information provided by the Borrower, to assist Bank in its compliance with Section 314(a) of the Patriot Act and the implementing regulations applicable to Bank (31 C.F.R. § 103.100); and

(h)provide to Bank electronic copies of the information retained pursuant to subsections (b) and (g) above as mutually agreed to by the Parties, immediately

17

upon request.

Company will also provide to Bank an annual certification letter that it is complying with its obligations under this section.  Bank will comply with any reporting requirements of the Utah Department of Financial Institutions or the FDIC applicable to Bank’s performance of this Agreement.

31.Prohibition on Tie-In Fees.  Company shall not directly or indirectly impose or collect any fees, charges or remuneration relating to the processing or approval of an Application, the establishment of a Loan Account, or the disbursement of Loan Proceeds, unless such fee, charge or remuneration is set forth in the Consumer Finance Materials or approved by Bank.

32.Notice of Consumer Complaints.  Each Party shall notify the other Party if it receives any consumer complaint or if it becomes aware of any investigations or proceedings by any governmental authority relating to any aspect of the Program within five (5) days of receipt of such complaint or upon becoming aware of such investigation or proceeding, and each Party shall provide the other Party with all related documentation thereof, subject to any legal prohibitions on disclosure of such investigation or proceeding.

33.Headings.  Captions and headings in this Agreement are for convenience only, and are not to be deemed part of this Agreement.

34.Privacy Law Compliance.  Subject to Applicable Laws, Bank and Company shall comply with the privacy policy agreed upon by both Parties with respect to Applicants and Borrowers.

35.Manner of Payments.  Unless the manner of payment is expressly provided herein, all payments under this Agreement shall be made by ACH transfer to the bank accounts designated by the respective Parties.  Notwithstanding anything to the contrary contained herein, neither Party shall fail to make any payment required of it under this Agreement as a result of a breach or alleged breach by the other Party of any of its obligations under this Agreement or any other agreement, provided that the making of any payment hereunder shall not constitute a waiver by the Party making the payment of any rights it may have under the Program Documents or by law.

36.Referrals.  Neither Party has agreed to pay any fee or commission to any agent, broker, finder, or other person for or on account of such person’s services rendered in connection with this Agreement that would give rise to any valid claim against the other Party for any commission, finder’s fee or like payment.

37.Audited Financial Statements.  Within ninety (90) days following the end of Company’s fiscal year, Company shall deliver to Bank a copy of Company’s audited financial statements, prepared by an independent certified public accountant in accordance with generally accepted accounting principles.

18

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized officers as of the date first written above.

WEBBANK

By:	/s/ Gerry J. Smith
Name:	Gerry J. Smith
Title:	President and CEO
PROSPER MARKETPLACE, INC.
By:	/s/ Kirk Inglis
Name:	Kirk Inglis
Title:	Chief Financial Officer

19

Schedule 1

Definitions

(a)“ACH” means the Automated Clearinghouse.

(b)“Affiliate” means, with respect to a Party, a Person who directly or indirectly controls, is controlled by or is under common control with the Party.  For the purpose of this definition, the term “control” (including with correlative meanings, the terms controlling, controlled by and under common control with) means the  power to direct the management or policies of such Person, directly or indirectly, through the ownership of twenty-five percent (25%) or more of a class of voting securities of such Person.

(c)“Applicable Laws” means all federal, state and local laws, statutes,regulations and orders applicable to a Party or relating to or affecting any aspect of the Program including, without limitation, the Loan Accounts, the Program promotional and marketing materials and the Consumer Finance Materials, and all requirements of any Regulatory Authority having jurisdiction over a Party, as any such laws, statutes, regulations, orders and requirements may be amended and in effect from time to time during the term of this Agreement.

(d)“Applicant” means an individual who is a consumer who requests a Loan Account from Bank by posting a listing on the Program Website.

(e)“Application” means any request from an Applicant for a Loan Account in the form required by Bank including such requests received through the Program Website.

(f)“Bank” shall have the meaning set forth in the introductory paragraph of this Agreement.

(g)“Bank Indemnified Parties” shall have the meaning set forth in subsection 9(b).

(h)“Borrower” means an Applicant or other Person for whom Bank has established a Loan Account and/or who is liable, jointly or severally, for amounts owing with respect to a Loan Account.

(i)“Business Day” means any day, other than (i) a Saturday or Sunday, or (ii) a day on which banking institutions in the State of Utah are authorized or obligated by law or executive order to be closed.

(j)“Claim Notice” shall have the meaning set forth in subsection 9(e).

(k)“Company Indemnified Parties” shall have the meaning set forth in subsection 9(a).

(l)“Confidential Information” means the terms and conditions of this Agreement, and any proprietary information or non-public information of a Party, including a Party’s proprietary marketing plans and objectives, that is furnished to the other Party in connection with this Agreement.

(m)“Consumer Finance Materials” shall have the meaning set forth in Section 4.

(n)“Credit Policy” means the minimum requirements of income, residency, employment history, credit history, and/or other such considerations that Bank uses to approve or deny an Application and to establish a Loan Account.

(o)“Disbursement Account” means an account established and owned by Company and held at the Disbursement Institution against which wire transfers and ACH transfers are settled for payment of Loan Proceeds to Borrowers.

(p)“Disbursement Institution” means the depository institution at which the Disbursement Account is established, which initially shall be Wells Fargo Bank, N.A. and may be changed upon mutual agreement of the Parties.

(q)“Disclosing Party” shall have the meaning set forth in subsection 11(b)(2).

(r)“Effective Date” shall have the meaning set forth in the introductory paragraph of this Agreement.

(s)“Force Majeure Event” shall have the meaning set forth in Section 27.

(t)“Funding Account” means an account established and owned by Bank and held at the Funding Institution against which wire transfers or ACH transfers are settled for the payment of Loan Proceeds and Origination Fees to Company.

(u)“Funding Amount” means the aggregate amount, as listed on a Funding Statement, of all Loan Proceeds to be disbursed by Bank to Borrowers through Company’s Disbursement Account on each Funding Date and the related Origination Fees.

(v)“Funding Date” means the Business Day on which any pending Applications are approved.

(w)“Funding Institution” means the depository institution at which the Funding Account is established, which initially shall be Zions First National Bank and may be changed upon mutual agreement of the Parties.

(x)“Funding Statement” means the statement prepared by Company on a Business Day that contains (i) a list of all Applicants who meet the eligibility criteria set forth in the Credit Policy, for whom Bank is requested to establish Loan Accounts; and (ii) the computation of the Funding Amount and all information necessary for the transfer of Loan Proceeds and Origination Fees from the Funding Account to the Disbursement Account and distribution by Company of the Loan Proceeds to the accounts designated by the corresponding Borrowers, including depository institution names, routing numbers and account numbers; and (iii) such other information as shall be reasonably requested by Bank and mutually agreed to by the Parties.

(y)“Indemnifiable Claim” shall have the meaning set forth in subsection 9(d).

(z)“Insolvent” means the failure to pay debts in the ordinary course of business, the inability to pay its debts as they come due or the condition whereby the sum of an entity’s debts is greater than the sum of its assets.

2

(aa)“Licensee” shall have the meaning set forth in Section 12.

(bb)“Licensing Party” shall have the meaning set forth in Section 12.

(cc)“Loan Account” means a consumer installment loan account established by Bank pursuant to the Program.

(dd)“Loan Account Agreement” means the document containing the terms and conditions of a Loan Account including all disclosures required by Applicable Laws.

(ee)“Loan Sale Agreement” means that Loan Sale Agreement, dated as of April 14, 2008, between Bank and Company, pursuant to which Bank agrees to sell to Company, and Company agrees to purchase from Bank, the Loan Accounts.

(ff)“Loan Proceeds” means the funds disbursed to a Borrower pursuant to a Loan Account established by Bank under the Program.

(gg)“Losses” shall have the meaning set forth in subsection 9(a).

(hh)“Marks” shall have the meaning set forth in subsection 12(a).

(ii)“Origination Fee” means the up-front fee a Borrower pays to Bank under the Loan Account Agreement for origination of a Loan Account in the form of a pre-paid finance charge.

(jj)“Party” means either Company or Bank and “Parties” means Company and Bank.

(kk)“Person” means any legal person, including any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, governmental entity, or other entity of similar nature.

(ll)“Program” means the installment loan program pursuant to which Bank shall establish Loan Accounts and disburse Loan Proceeds to Borrowers pursuant to the terms of this Agreement, initially as described in Exhibit A attached hereto.

(mm)“Program Compliance Manual” means the policies and procedures for the implementation of the Program by Company, including the policies and procedures regarding the (i) solicitation and receipt of Applications, (ii) underwriting of Loan Accounts, (iii) processing of Applications, (iv) requirements of the USA PATRIOT Act Customer Identification Program, and (iv) initial and periodic Office of Foreign Assets Control screenings.

(nn)“Program Documents” means this Agreement and the Loan Sale Agreement.

(oo)“Program Website” means the website located at www.prosper.com, together with any other website on which the Program is offered to public, which shall be hosted and maintained by Company.

(pp)“Proprietary Material” shall have the meaning set forth in subsection 12(a).

3

(qq)“Regulatory Authority” means any federal, state or local regulatory agency or other governmental agency or authority having jurisdiction over a Party and, in the case of Bank, shall include, but not be limited to, the Utah Department of Financial Institutions and the Federal Deposit Insurance Corporation.

(rr)“Restricted Party” shall have the meaning set forth in subsection 11(a).

4

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the reference to our firm under the caption “Experts” and to the use of our report dated December 3, 2008 in Amendment No. 2 to the Registration Statement (Form S-1A) and related Prospectus of Prosper Marketplace Inc. for the registration of $500,000,000 Borrower Payment Dependent Notes.

San Francisco, California
January 16, 2009