As
filed with the Securities and Exchange Commission on May 5, 2010.
Registration No. 333-151827
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-Effective
Amendment No. 5
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
LendingClub Corporation
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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6199
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51-0605731
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(State or Other Jurisdiction of
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(Primary Standard Industrial
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(I.R.S. Employer
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Incorporation or Organization
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Classification Code No.)
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Identification No.)
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LendingClub Corporation
370 Convention Way
Redwood City, CA 94063
(650) 482-5233
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Renaud Laplanche, Chief Executive Officer
LendingClub Corporation
370 Convention Way
Redwood City, CA 94063
(650) 482-5233
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Jason Altieri, General Counsel
LendingClub Corporation
370 Convention Way
Redwood City, CA 94063
(650) 482-5233
Approximate date of commencement of proposed sale to the public:
As soon as practicable after
this Registration Statement is declared effective.
If any of the securities being registered on this form are offered on a delayed or continuous
basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the Securities Act),
check the following box.
þ
If this Form is filed to register additional securities for an offering pursuant to Rule
462(b) 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(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. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
þ
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(Do not check if a smaller reporting company)
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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 Section
8(a)
, may
determine.
Explanatory Note
This Post-Effective Amendment No. 5 relates to the Registration Statement on Form S-1 (File No.
333-151827) of LendingClub Corporation. The purpose of the amended and restated prospectus included
in this Post-Effective Amendment No. 5 is to revise and restate the prospectus dated as of October
13, 2008, as amended and restated effective July 30, 2009, to reflect:
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The provision of a five (5) year term on borrower loans and Notes;
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The addition of credit grade modifiers for member loans that have a five year term;
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Updated information about our interest rates and fees; and
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Updated financial information for the three and nine-month period ended December 31, 2009
(each unaudited).
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2
The information contained in this prospectus is not complete and may be changed. These securities
may not be sold 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 MAY 5, 2010
$600,000,000
Member Payment Dependent Notes
This is a public offering of up to $600,000,000 in principal amount of Member Payment
Dependent Notes issued by LendingClub. We refer to our Member Payment Dependent Notes as the
Notes.
We will issue the Notes in series. Each series will correspond to a single consumer loan
originated through our platform to one of our borrower members. In this prospectus, we refer to
these consumer loans as member loans, and we refer to the member loan funded with the proceeds we
receive from a particular series of Notes as the corresponding member loan or CM Loan for the
series.
Important terms of the Notes include the following, each of which is described in detail in
this prospectus:
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Our obligation to make payments on a Note will be limited to an amount equal to the
investors pro rata share of amounts we receive with respect to the corresponding member
loan for that Note, net of our 1.00% service charge. We do not guarantee payment of the
Notes or the corresponding member loans, and the Notes are not obligations of our borrower
members.
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The Notes will have a stated, fixed interest rate, which will be the rate for the
corresponding member loan. The range of interest rates is from 6.39%-21.64% and is based
upon a formula described in this prospectus.
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All Notes will bear interest from the date of issuance, be fully amortizing and be
payable monthly.
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The Notes will have the initial maturities and final maturities as set forth in the table
below:
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Initial Maturity
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Final Maturity
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Three-Year Term
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Three years from the date of issuance
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Five years from the date of issuance
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Five-Year Term
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Five years from the date of issuance
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Five years from the date of issuance
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The extension of the maturity date for a three-year Note only is described in this prospectus.
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We will offer all Notes at 100% of their principal amount. All Notes will be offered only
through our website to our members, and there will be no underwriters or underwriting
discounts.
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All Notes will be issued in electronic form only and will not be listed on any securities
exchange. Notes will not be transferable except through the Note Trading Platform by
FOLIO
fn
, which we also refer to as the trading platform. There can be no assurance,
however; that an active market for any Notes will develop on the trading platform or that
the trading platform will be available to residents of all states. Therefore, investors must
be prepared to hold their Notes to maturity.
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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 beginning on page 17.
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 ___, 2010.
3
ABOUT THIS PROSPECTUS
This prospectus describes our offering of our Member 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 LendingClub, the Company, our
company, we, us and our in this prospectus to refer to LendingClub Corporation, a Delaware
corporation. We have no subsidiaries.
This prospectus describes our offering of the Notes under two main headings: About the Loan
Platform and About LendingClub.
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). We offer Notes continuously, and
sales of Notes through our platform occur on a daily basis. Before we post a loan request on our
website and thereby offer the series of Notes corresponding to that member loan, as described in
About the Loan Platform, we prepare a supplement to this prospectus, which we refer to as a
posting report. In that posting report, we provide information about the series of Notes offered
for sale on our website that correspond to the posted member loan, if it is funded and closed, as
well as information about any other series of Notes then being offered for sale on our website. We
file these posting reports pursuant to Rule 424(b) under the Securities Act within two business
days of the initial posting of each loan request. We also make at least weekly filings of
supplements to this prospectus pursuant to Rule 424(b) under the Securities Act, which we refer to
as sales reports, in which we report sales of Notes we have issued since the filing of our most
recent sales report. The sales reports include information about the principal amount, loan grade
of the corresponding member loan, maturity and interest rate of each series of Notes sold. The
sales reports are also posted to our website.
We will prepare prospectus supplements to update this prospectus for other purposes, 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 after the date of this prospectus. 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 the post-effective amendments will be required, among
other times, when we change interest rates applicable to our Notes offered through our platform or
other material terms of the Notes. We will disclose these changes in prospectus supplements posted
on our website at the time the post-effective amendment becomes effective.
The Notes are not available for offer and sale to residents of every state. Our website will
indicate the states where residents may purchase Notes. We will post on our website any special
suitability standards or other conditions applicable to purchases of Notes in certain states that
are not otherwise set forth in this prospectus.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1, as amended, with the SEC in connection
with this offering. In addition, we 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 SECs 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 SECs 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.
5
We incorporate into this prospectus information we filed with the SEC in our Annual Report
on Form 10-K for the fiscal year ended March 31, 2009 and our Quarterly Reports on Form 10-Q for
the quarters ended June 30, 2009, September 30, 2009 and
December 31, 2009. This means that we disclose important information to you by referring to
our Annual Report on Form 10-K for the fiscal year ended March 31, 2009 or these specific Quarterly
Reports. The information incorporated by reference is considered to be part of this prospectus.
Information contained in this prospectus automatically updates and supersedes previously filed
information.
You may request a copy of our Annual Report on Form 10-K for the fiscal year ended March 31,
2009 and our Quarterly Reports on Form 10-Q for the quarters ended June 30, 2009, September 30,
2009, and December 31, 2009, respectively, which will be provided to you at no cost, by writing,
telephoning or emailing us. Requests should be directed to Member Support, 370 Convention Way,
Redwood City, CA 94063; telephone number (800) 964-7937; or emailed to contact@lendingclub.com. In
addition, our Annual Report on Form 10-K for the fiscal year ended March 31, 2009 and our Quarterly
Reports on Form 10-Q for the quarters ended June 30, 2009, September 30, 2009, and December 31,
2009, respectively, are also available on our website, www.lendingclub.com.
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 17,
before deciding whether to purchase our Member Payment Dependent Notes.
Overview
LendingClub is an online financial community that enables its borrower members to borrow money
and investors to purchase Member Payment Dependent Notes, the proceeds of which fund specific loans
made to individual borrower members. Our motto is Better Rates. Together. We operate in the space
known as social lending.
About the Loan Platform
Through our online platform, we allow qualified borrower members to obtain unsecured consumer
loans with interest rates that they find attractive. We also provide LendingClub investors with the
opportunity to indirectly fund specific member loans with credit characteristics, interest rates
and other terms the members find attractive by purchasing Notes that in turn are dependent for
payment on the payments we receive from those borrower member loans. As a part of operating our
lending platform, we verify the identity of members, obtain borrower members credit profiles from
consumer reporting agencies (which are also called credit bureaus) such as TransUnion, Experian or
Equifax and screen borrower members for eligibility to participate in the platform. We also service
the member loans on an ongoing basis. See About the Loan Platform.
The Notes
. LendingClub investors have the opportunity to buy Notes issued by LendingClub and
designate the corresponding member loans to be originated through our platform and funded with the
proceeds of their Note purchases. The Notes will be special, limited obligations of LendingClub
only and not obligations of any borrower member. The Notes are unsecured and holders of the Notes
do not have a security interest in the corresponding member loans or the proceeds of those
corresponding member loans, or in any other assets of LendingClub or the underlying borrower
member.
LendingClub will pay principal and interest on each Note in a series in an amount equal to
each such Notes pro rata portion of the principal and interest payments, if any, LendingClub
receives on the corresponding member loan funded by the proceeds of that series, net of
LendingClubs 1.00% service charge. LendingClub will also pay to investors any other amounts
LendingClub receives on each Note, including late fees and prepayments, subject to the 1.00%
service charge, except that LendingClub will not pay to investors any unsuccessful payment fees,
check processing and other processing fees, collection fees we or a third-party collection agency
charge and any payments due to LendingClub on account of the portion of the corresponding member
loan, if any, that LendingClub has funded itself. If LendingClub were to become subject to a
bankruptcy or similar proceeding, the holder of a Note will have a general unsecured claim against
LendingClub that may or may not be limited in recovery to borrower payments in respect of the
corresponding member loan. See Risk Factors If we were to become subject to a bankruptcy or
similar proceeding.
The Member Loans
. Member loans are unsecured obligations of individual borrower members, have
a fixed interest rate and either a three-year or five-year maturity. Except in the limited
instances in which we perform (i) income verification, which we indicate in the borrower loan
listing, or (ii) employment verification, member loans are made without obtaining any documentation
of the borrower members ability to afford the loan. Each member loan is originated through our
website and funded by WebBank at closing. WebBank is an FDIC-insured, Utah-chartered industrial
bank that serves as the lender for all member loans originated through our platform. Immediately
upon closing of a member loan, WebBank assigns the member loan (and all rights related thereto
including any security interest) to LendingClub, without recourse to WebBank, in exchange for the
aggregate purchase price we have received from investors who have committed to purchase Notes
dependent on payments to be received on such member loan plus any amounts of the
member loan that we have determined to fund ourselves. WebBank has no obligation to purchasers
of the Notes. See About the Loan Platform How the LendingClub Platform Operates Purchases of
Notes and Loan Closings.
6
Effective
__, 2010, we are expanding our product offering to provide a term of five (5) years for
borrower loans and the corresponding Notes, in addition to our current three (3) year term
offering.
LendingMatch
Portfolio Builder Tool. In browsing loan listings, investors may use our
LendingMatch system, a proprietary tool that creates a sample portfolio of Notes in response to
search criteria selected by the investor, such as term, target weighted average interest rate,
employment length, home ownership status, etc. See About the Loan Platform How the LendingClub
Platform Operates LendingMatch.
About LendingClub
We were incorporated in Delaware in October 2006 under the name SocBank Corporation. We
changed our name to LendingClub Corporation in November 2006. Our principal executive offices are
located at 370 Convention Way, Redwood City, CA 94063, and our telephone number is (800) 964-7937.
Our website address is www.lendingclub.com. Information contained on our website is not
incorporated by reference into this prospectus.
From the launch of our platform in May 2007 until April 7, 2008, the operation of our platform
differed from the structure described in this prospectus, and we did not offer Notes. Instead, our
platform allowed members to purchase, and take assignment of, member loans directly. Under that
structure, members were assigned anonymized, individual promissory notes corresponding in principal
amount to their purchase price, subject to our right to service the member loans.
From April 7, 2008 until October 13, 2008, we did not offer members the opportunity to make
any purchases on our platform. During that time, we also did not accept investor registrations or
allow new funding commitments from existing members. We continued to service all previously funded
member loans, and members had the ability to access their accounts, monitor their member loans and
withdraw available funds without changes. The borrowing side of our platform was generally
unaffected during that period. Borrower members could still apply for member loans, but those
member loans were funded and held only by LendingClub.
Starting October 13, 2008, we re-launched our platform and began offering Notes. Our
historical financial results and the discussion in About LendingClub reflect the fact that we
operated under a different structure prior to October 13, 2008. See About LendingClub.
THE OFFERING
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Issuer
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LendingClub Corporation.
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Notes offered
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Member Payment Dependent Notes, issued in series, with each series of Notes related to one
corresponding member loan.
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Offering price
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100% of principal amount of each Note.
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Initial maturity date
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Three or five years following the date of issuance.
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Final maturity date
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For all Notes, the final maturity date is five years from the date of issuance.
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Three-year Notes
extension of
maturity date
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Each three-year Note will mature on the initial maturity date, unless any principal or interest
payments in respect of the corresponding member loan remain due and payable to LendingClub upon
the initial maturity date, in which case the maturity of such three-year term Note will be
automatically extended to the final maturity date of five-years from the date of issuance.
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Five-year Notes no
extension of
maturity date
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The initial maturity date and final maturity date for five (5) year Notes are the same date,
five years from the date of issuance. Unlike three-year term Notes, the term of the five-year
Notes will not be extended.
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Treatment of
payments received
after final maturity
date
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If any amounts under a corresponding member loan are still due and owing to LendingClub after
the final maturity date, LendingClub will have no further obligation to make payments on the
Notes of the series. In the unlikely event LendingClub receives payments on the corresponding
member loan after the final maturity date, LendingClub will not make any further payments on the
Notes of the series.
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Interest rate
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Each series of Notes will have a stated, fixed interest rate, which is the interest rate for the
corresponding member loan.
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Payments on the Notes
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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 member
loan, net of our 1.00% service charge. We will also pay you any other amounts we receive on the
Notes, including late fees, penalties, except that we will not pay to investors any unsuccessful
payment fees, check or other processing fees, collection fees we or our third-party collection
agency charge or any payments due to LendingClub on account of portions of the corresponding
member loan, if any, funded by LendingClub itself. We will make any payments on the Notes within
four business days after we receive the payments from borrower members on the corresponding
member loan. The Notes are not guaranteed or insured by any third party or any governmental
agency. See About the Loan Platform Description of the Notes for more information.
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Corresponding member
loans to consumer
borrowers
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Investors who purchase Notes of a particular series will designate LendingClub to apply the
proceeds from the sale of that series of Notes to fund a corresponding member loan originated
through our platform to an individual consumer who is one of our borrower members. Each member
loan originated through our platform is for a specific term (three or five years) and is a
fully amortizing, unsecured consumer loan made by WebBank to an individual LendingClub borrower
member. WebBank subsequently assigns the member loan to LendingClub without recourse to WebBank
in exchange for the aggregate purchase price LendingClub has received from investors who have
committed to purchase Notes that are dependent on payments to be received on such corresponding
member loan. Member loans have fixed interest rates that will range from 6.39% to 21.64% and
are based upon a formula set forth in this prospectus.
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Member loans are repayable in monthly installments, are unsecured and will be unsubordinated.
Member loans may be repaid at any time by our borrower members without prepayment penalty. In
the case of a partial prepayment of a member loan and after payment of any applicable penalty,
we use the remainder to automatically reduce the outstanding principal which effectively reduces
the term of the loan as the monthly payment amount remains unchanged.
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Except in the limited instances in which we perform income verification, which we indicate in
the borrower loan listing (currently with an asterisk), or employment verification, member loans
are made without obtaining any documentation of the borrower members ability to afford the
loan. The decision to verify income or employment is made by our credit team and they do not
verify information solely at the request of an investor. See About the Loan Platform for more
information.
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Ranking
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The Notes will not be contractually senior or contractually subordinated to any other
indebtedness of LendingClub. The Notes will be unsecured special, limited obligations of
LendingClub. Holders of any Notes do not have a security interest in the assets of LendingClub,
the corresponding member loan, the proceeds of that loan or of any underlying assets of the
borrower. The Notes will rank effectively junior to the rights of the holders of our existing
or future secured indebtedness with respect to the assets securing such indebtedness.
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In the event of a bankruptcy or similar proceeding of LendingClub, the relative rights of the
holder of a Note as compared to the holders of other unsecured indebtedness of LendingClub are
uncertain. If LendingClub were to become subject to a bankruptcy or similar proceeding, the
holder of a Note will have an unsecured claim against LendingClub that may or may not be
limited in recovery to the corresponding member loan payments. For a more detailed description
of the possible implications if LendingClub were subject to a bankruptcy or similar proceeding,
see Risk Factors If we become subject to a bankruptcy or similar proceeding.
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As of December 31, 2009, LendingClub had approximately $7.3 million in outstanding senior
indebtedness that is secured by substantially all assets of LendingClub other than member loans
corresponding to the Notes, the proceeds of such member loans, the ITF account, and our
intellectual property rights. As of the same date, LendingClub also had approximately $2.6
million in outstanding senior indebtedness that is secured only by specific member loans funded
by LendingClub itself that do not correspond to any Notes and by the proceeds of such member
loans. The Notes do not restrict LendingClubs incurrence of other indebtedness or the grant or
imposition of liens or security interests on the assets of LendingClub, including on the member
loans corresponding to the Notes.
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Service charge
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Prior to making any payments on a Note, we will deduct a service charge equal to 1.00% of that
payment amount. See About the Loan Platform How the LendingClub Platform Operates
Post-Closing Loan Servicing and Collection for more information. The service charge will reduce
the effective yield on your Notes below their stated interest rate.
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Use of proceeds
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We will use the proceeds of each series of Notes to fund the corresponding member loan
originated through our platform from WebBank. See About the Loan Platform for more
information.
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Electronic form and
transferability
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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
FOLIO
fn
. There can be no assurance, however, that an active market for Notes will develop on the
trading platform, that particular Notes will be resold or that the trading platform will
continue to operate. The trading platform is not available to residents of all states.
Therefore, investors must be prepared to hold their Notes to maturity. See About the Loan
Platform Trading Platform.
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U.S. federal income
tax consequences
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Although the matter is not free from doubt, LendingClub intends to treat the Notes as
indebtedness of LendingClub for U.S. federal income tax purposes. As a result of such treatment,
the Notes will have original issue discount, or OID, for U.S. federal income tax purposes
because payments on the Notes are dependent on payments on the corresponding member loan.
Further, a holder of a Note will be required to include the OID in income as ordinary interest
income for U.S. federal income tax purposes as it accrues (which may be in advance of interest
being paid on the Note), regardless of such holders regular method of 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 and ownership of the Notes, including any
possible differing treatments of the Notes. See About the Loan Platform Material U.S. Federal
Income Tax Considerations for more information.
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Financial suitability
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Except as set forth below, to purchase Notes, investors must satisfy minimum financial
suitability standards and maximum investment limits. In states other than California and
Kentucky, investors must either:
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have an annual gross income of at least $70,000 and a net worth (exclusive of home, home
furnishings and automobile) of at least $70,000; or
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have a net worth (determined with the same exclusions) of at least $250,000.
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In California, investors:
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must have an annual gross income of at least $85,000 and a net worth (exclusive of home,
home furnishings and automobile) of at least $85,000; or
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must have a net worth (determined with the same exclusions) of at least $200,000.
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If a California investor does not satisfy either of the above tests,
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the investor may still invest up to, but no more than, $2,500.
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In Kentucky, investors
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must qualify as accredited investors as defined in Rule 501(a) of Regulation D of the
Securities Act.
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In addition, no investor may purchase Notes in an amount in excess of 10% of the investors net
worth, determined exclusive of home, home furnishings and automobile.
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Investors should be aware, however, that in the future we may apply more restrictive financial
suitability standards or maximum investment limits to residents of certain states. Before
purchasing Notes, each investor must represent and warrant that he or she meets the applicable
minimum financial suitability standards and maximum investment limits and resides in an approved
state. See About the Loan Platform Financial Suitability Requirements. We will post on our
website any special suitability standards or other conditions applicable to purchases of Notes
in certain states that are not otherwise set forth in this prospectus.
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9
The following diagram illustrates the basic structure of the LendingClub platform for a single
series of Notes. This graphic does not demonstrate many details of the LendingClub platform,
including the effect of pre-payments, late payments, late fees or collection fees. For additional
information about the structure of the LendingClub platform, see About the Loan Platform.
10
QUESTIONS AND ANSWERS
Q:
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Who is LendingClub?
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A:
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LendingClub is an online financial platform.
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Q:
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What is the LendingClub platform?
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A:
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Our platform allows qualified borrower members to obtain unsecured loans with interest rates that they find attractive. Our
platform also provides investors with the opportunity to invest in notes that are dependent on borrower member loans with
credit characteristics, interest rates and other terms the investors find attractive. As a part of operating our lending
platform, we verify the identity of members, obtain borrower members credit profiles from consumer reporting agencies,
such as TransUnion, Experian or Equifax, and screen borrower members for eligibility to participate in the platform. We
also service the member loans on an ongoing basis.
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Q:
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What are our Member Payment Dependent Notes?
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A:
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Investors may buy Member Payment Dependent Notes issued by LendingClub. In this prospectus, we refer to our Member Payment
Dependent Notes as the Notes. The proceeds of each series of Notes will be designated by the investors who purchase the
Notes of the series to fund a corresponding member loan originated through our platform to an individual consumer who is
one of our borrower members. Each series of Notes will have a stated interest rate, which is the interest rate for the
corresponding member 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 member loan, net of our 1.00%
service charge. We will also pay you any other amounts we receive on the Notes, including late fees and penalties, except
that we will not pay to investors any unsuccessful payment fees, check processing or other processing fees, collection fees
we or our third-party collection agency charge or any payments due to LendingClub on account of portions of the
corresponding member loan, if any, that LendingClub has funded itself. The service charge will reduce the effective yield
on your Notes below their stated interest rate. The Notes are special, limited obligations of LendingClub only and not the
borrower members. The Notes are unsecured and do not represent an ownership interest in the corresponding member loans,
their proceeds, or the assets of LendingClub.
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Q:
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Who are the investors in our Notes?
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A:
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Investors are individuals and organizations that have the opportunity to buy our Notes. Investors must register on our
website. During investor registration, potential investors must agree to a credit profile authorization statement for
identification purposes, a tax withholding statement and the terms and conditions of the LendingClub website, and must
enter into an investor agreement with LendingClub, which will govern all purchases of Notes the investor makes.
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Q:
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What are the member loans?
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A:
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The member loans are unsecured obligations of an individual borrower members with a fixed interest rate and an initial
maturity of either three- or five-years. Each member loan is originated through our website, funded by WebBank at closing,
and immediately assigned to LendingClub upon closing in exchange for the aggregate purchase price we have received from
investors who have committed to purchase the Notes dependent on payments to be received on such member loan. A member loan
will be issued to a borrower member if the loan has received funding commitments of at least 60% of the final, listed loan
amount, or if the borrower chooses they may accept funding for less than 60% of the loan amount after receiving partial
funding commitments. Except in the limited instances in which we perform income verification, which we currently indicate
in the borrower loan listing with an asterisk (*), or employment verification, member loans are made without obtaining any
documentation of the borrower members ability to afford the loan.
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Q:
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Do investors loan funds directly to borrower members?
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A:
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No.
Investors do not make loans directly to our borrower members. Instead, investors purchase Notes issued by LendingClub,
the proceeds of which are designated by the investors who purchased the Notes to fund a loan to an individual borrower
member originated through the LendingClub platform with WebBank. Even though investors do not make loans directly to
borrower members, they will nevertheless be wholly dependent on borrower members for repayment of any Notes investors may
purchase from LendingClub. If a borrower member defaults on the borrower members obligation to repay a corresponding
member loan, LendingClub will not have any obligation to make any payments on the related Notes.
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11
Q:
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What member loan amounts are available to borrowers on our platform?
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A:
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Borrowers may request member loans in amounts ranging from $1,000 to $25,000. Currently, we do not offer member loans in
Idaho, Indiana, Iowa, Kansas, Maine, Mississippi, Nebraska, North Carolina, North Dakota and Tennessee.
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Q:
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Who are our borrower members?
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A:
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LendingClub borrower members are individuals who have registered on our platform. All LendingClub borrower members:
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must be U.S. citizens or permanent residents;
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must be at least 18 years old;
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must have valid email accounts;
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must satisfy our credit criteria (as described below);
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must have U.S. social security numbers; and
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must have an account at a U.S. financial institution with a routing transit number.
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Q:
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Does LendingClub fund member loans itself on the platform?
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A:
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From time to time, LendingClub itself funds member loans or portions of member loans. We have no obligation to fund
member loans. To the extent we fund member loans, we will do so without purchasing Notes ourselves.
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Q:
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How does LendingClub verify a borrower members identity?
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A:
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During borrower registration, we verify the identity of members by comparing supplied names, social security
numbers, addresses and telephone numbers against the names, social security numbers, addresses and telephone numbers
in the records of a consumer reporting agency, as well as other anti-fraud and identity verification databases. We
also currently require each new borrower member to supply information about the members bank account.
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Q:
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What are the minimum credit criteria for borrower members to obtain a loan?
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A:
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After we receive a loan request from a borrower member, we evaluate whether the prospective borrower member meets
our credit criteria. Our borrower member credit criteria are designed to be consistent with WebBanks loan
underwriting requirements and require prospective borrower members to have:
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a minimum FICO score of 660 (as reported by a consumer reporting agency);
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a debt-to-income ratio (excluding mortgage) below 25%, as calculated by LendingClub based
on (i) the borrower members debt reported by a consumer reporting agency; and (ii) the
income reported by the borrower member, which is not verified unless we display we an icon
in the loan listing indicating otherwise; and
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a credit profile (as reported by a consumer reporting agency) without any current
delinquencies, recent bankruptcy, tax liens or non-medical related collections opened within
the last 12 months, and reflecting at least three accounts ever opened with at least two
accounts currently open, no more than 8 credit inquiries in the past six months, utilization
of credit limit not exceeding 100%, revolving credit balance of less than $150,000 and a
minimum credit history of 36 months.
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See About the Platform How the LendingClub Platform Operates Minimum Credit Criteria and
Underwriting for a more detailed description of our scoring process and evaluation of minimum
credit criteria.
Q:
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Are the member loans secured by any collateral?
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A:
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No, the borrower member loans are all unsecured obligations of the borrower member and are not
supported by any collateral.
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12
Q:
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What are LendingClub loan grades?
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A:
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For borrower members who qualify, we assign one of 35 loan grades, from A1
through G5, to each loan request, based on the borrower members:
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FICO score;
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requested loan amount;
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currently open accounts;
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number of credit inquiries in the past six months;
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utilization of credit limit;
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s
ize of revolving credit line;
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delinquencies and charge-offs; and
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length of credit history.
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Applying these grading criteria, the following factors lead to a loan request being more likely
to be designated grade A1 (the best unsecured loan grade):
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higher credit score;
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lower requested loan amount;
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fewer credit inquiries;
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at least six, but not more than 21, open accounts;
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utilization of credit limit between 5% and 85%; and
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greater length of credit history.
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See About the Loan Platform How the LendingClub Platform Operates Interest Rates for more
information.
Q:
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How do we set interest rates on unsecured member loans?
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A:
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Our interest rate working group sets the interest rates applicable to our loan
grades. After a loan requests loan grade has been determined, we assign an interest
rate to the loan request. For all loans, base interest rates will range between
6.39% and 21.64%. We set the interest rates we assign to borrower loan grades in
three steps. First, we determine LendingClub base rates. Second, we determine an
assumed default rate that attempts to project loan default rates for each grade.
Third, we use the assumed default rate to calculate an upward adjustment to the base
rates, which we call the Adjustment for Risk and Volatility. See About the Loan
Platform How the LendingClub Platform Operates Interest Rates.
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Q:
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When are the final payment dates for member loans and the corresponding Notes?
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A:
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For three (3) year term member loans and the corresponding Notes, the initial
maturity date is three (3) years from the date of issuance and, if payments remain
outstanding, the final maturity date is an additional two (2) years from the initial
maturity date (or five (5) years from the date of issuance).
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For five (5) year member loans and the corresponding Notes, the initial maturity date and final
maturity date are the same date, which is five (5) years from the date of issuance. The maturity
date for five (5) year term member loans and the corresponding Notes will not be extended.
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13
Q:
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Do you extend the maturity date of the three (3) year term member loans and corresponding
Notes?
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A:
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Yes.
If a balance remains on a three (3) year term member loan on the initial maturity date,
we will extend the maturity date of the member loan and the corresponding Notes by two (2)
years so that any interest and principal payments we receive during this extension period will
be distributed to you, subject to our 1.00% service charge.
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Q:
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Do you extend the maturity date of the five (5) year term member loans and corresponding
Notes?
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A:
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No
. We do not extend the maturity date of any five (5) year term member loan and corresponding Notes based upon a potential
tax issue that could result from an extension to greater than five (5) years. If the maturity date was extended beyond
five (5) years, a portion of the interest paid on the Notes would likely not be deductible by LendingClub.
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Q:
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What effects do the 1.00% service charge and our retaining certain fees have on the expected return of the Notes?
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A:
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The 1.00% service charge reduces both the interest and principal payments you receive on your Notes. The 1.00% service
charge also reduces any late fees or amounts obtained from collections (net of any collection fees or other costs charged
by us or our outside collection agency) that you may receive. Our retaining fees paid by borrower members directly in
addition to their required monthly payment has no effect on the payments you receive on your Notes. For a description of
our 1.00% service charge and other fees, see About the Loan Platform How the LendingClub Platform Operates
Post-Closing Loan Servicing and Collection. For illustrations of the effect of our 1.00% service charge on hypothetical
Note returns, see About the Loan Platform How the LendingClub Platform Operates Illustration of Service Charge and
Annual Returns For Fully Performing Loans of Each Sub-Grade and For Sub-Grades Based on the Assumed Default Rate and
About the Loan Platform How the LendingClub Platform Operates Illustration of Service Charge if Prepayment Occurs.
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Q:
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Will LendingClub make payments on a Note if the corresponding member loan for the Note defaults?
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A:
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No.
If the member loan corresponding to your Note defaults and the borrower member does not pay LendingClub, LendingClub
will not be obligated to make payments on your Note, and you will not receive any payments on your Note. We have no
obligation to make any payments of principal or interest on a Note unless, and then only to the extent that, we receive
payments in respect of the corresponding member loan, net of our 1.00% service charge. All payments are made on a pro rata
basis, including any payments due to LendingClub on account of portions of the corresponding member loan, if any, funded by
LendingClub itself. Therefore, if a borrower member makes only a partial payment on a corresponding member loan and
LendingClub has funded a portion of the member loan, all holders of Notes and LendingClub will be entitled to receive their
pro rata portion of the payment.
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Q:
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Are the Notes secured by any collateral?
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A:
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No.
The Notes are not secured by any collateral, including the corresponding member loans, and are not guaranteed or
insured by any third party or backed by any governmental agency.
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Q:
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If LendingClub were to become subject to a bankruptcy or similar proceeding, who would service the member loans?
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A:
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We have executed a backup and successor servicing agreement with Portfolio Financial Servicing Company (PFSC). Pursuant
to this agreement, PFSC stands ready to service the member loans. Following five business days prior written notice from
us or from the indenture trustee for the Notes, PFSC will begin servicing the member loans. If our agreement with PFSC were
to be terminated, we would seek to replace PFSC with another backup servicer.
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Q:
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How do investors receive payments on the Notes?
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A:
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All payments on the Notes are processed through the LendingClub platform. If and when we make a payment on your Notes, the
payment will be deposited in your LendingClub account. You may elect to have available balances in your LendingClub account
transferred to your bank account at any time, subject to normal execution times for such transfers (generally 2-3 days).
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14
Q:
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What is the in trust for bank account, and how does FDIC insurance apply to it?
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A:
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We maintain a pooled bank account titled in our name in trust for investors, which we refer to as the ITF account.
Investors unused fund balances are maintained in the ITF account, including funds committed for Note purchases that have
not yet closed
and payments on Notes that the investor has not withdrawn or invested in additional Notes. We
disclaim any economic interest in the assets in the ITF account, and no LendingClub monies are
ever commingled with the assets of investors in the ITF account. Funds in the ITF account are
maintained at an FDIC member financial institution, currently Wells
Fargo Bank, National Association (Wells Fargo). The ITF
account is FDIC-insured on a pass through basis to the individual investors, subject to
applicable limits. This means that each individual investors balance is protected by FDIC
insurance, up to the limits established by the FDIC. Other funds an individual investor has on
deposit with Wells Fargo for example, may count against any applicable FDIC insurance
limits. The ITF account is non-interest bearing. See About the Loan Platform How the
LendingClub Platform Operates Loan Funding and Treatment of Investor Balances.
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Q:
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Can investors collect on late payments themselves?
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A:
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No.
Investors must depend on LendingClub or our third-party collection
agents to pursue collection on delinquent member loans. If collection
action must be taken in respect of a member loan, we or the collection
agency may charge a collection fee of between 30% and 35% of any
amounts that are obtained. These fees will correspondingly reduce the
amounts of any payments you receive on the Notes.
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Q:
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What happens if a borrower member repays a member loan early?
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A:
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We allow borrower members to make extra payments on, or prepay, their
member loans in part or entirely at any time without penalty. In the
event of a prepayment of the entire remaining unpaid interest, fees
(if any), and principal amount of a member loan on which your Notes
are dependent, you will receive your share of such prepayment, net of
our service charge as full repayment of the Note. If a borrower member
partially prepays a member loan, we will pay you your share of the
prepayment amount we receive, net of our service charge, and we will
then automatically reduce the outstanding principal by the pre-paid
amount in excess of the current payment and penalties. The borrowers
monthly payment remains unchanged. With the reduced principal amount
and the unchanged monthly payment, the loan will be paid in full
earlier than the initial stated term of the loan, effectively reducing
its term.
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Q:
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How does LendingClub make money from the platform?
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A:
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We earn revenue from the fees we charge our borrower members and
investors. We charge borrower members origination fees, which will
range from 2.25% to 4.50%. Furthermore, regardless of loan grade or
term, an additional origination fee of 1.5% will be charged and paid
to us by borrowers upon successful closings of member loans made for
small business financing or to borrowers who are self-employed. This
fee will not be duplicated if a borrower is both self employed and
financing a small business. As the purpose of any loan is
self-reported by the borrower, we may not realize an increase in fees
as borrower members may not accurately report the purpose to avoid
this additional fee.
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We charge investors a service charge of 1.00% of all amounts paid by LendingClub to investors
with respect to each Note. We also earn interest on member loans to the extent that we fund those
member loans ourselves.
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Q:
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How are the Notes being offered?
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A:
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We are offering the Notes directly to our 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.
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Q:
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Will I receive a certificate for my Notes?
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A:
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No.
The Notes are issued only in electronic form. This means that each Note will be stored on
our website. You can view your Notes online and print copies for your records by visiting
your secure, password-protected webpage in the My Account section of our website.
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Q:
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How are the Notes treated for United States federal income tax purposes?
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A:
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Although the matter is not free from doubt, LendingClub intends to treat the Notes as
indebtedness of LendingClub for U.S. federal income tax purposes. As a result of such
treatment, the Notes will have original issue discount, or OID, for U.S. federal income tax
purposes because payments on the Notes are dependent on payments on the corresponding member
loan. Further, a holder of a Note will be required to include the OID in income as ordinary
interest income for U.S. federal income tax purposes as it accrues (which may be in advance
of interest being paid on the Note), regardless of such holders regular method of
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 and
ownership of the Notes, including any possible differing treatments of the Notes. See About
the
Loan Platform Material U.S. Federal Income Tax Considerations.
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15
Q:
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Will the Notes be listed on an exchange?
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A:
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No
. The Notes will not be listed on any securities exchange.
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Q:
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Will I be able to sell my Notes?
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A:
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The Notes will not be transferable except through the Note Trading Platform by FOLIO
fn
. There
can be no assurance, however, that an active market for Notes will develop on the trading
platform, that there will be a buyer for any particular Notes or that the trading platform
will continue to operate. The trading platform is not available to residents of all states.
Therefore, investors must be prepared to hold their Notes to maturity. See About the Loan
Platform Trading Platform.
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Q:
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Are there any risks associated with an investment in Notes?
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A:
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Yes.
The Notes are highly risky and speculative as you do not know the borrower members and
are investing based on limited, typically unverified, information. Investing in the Notes
should be considered only by persons who can afford the loss of their entire investment.
Please see Risk Factors. Please also see About the Loan Platform Financial Suitability
Requirements.
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16
RISK FACTORS
Our Notes involve a high degree of risk. In deciding whether to purchase Notes, you should
carefully consider the following risk factors. Any of the following risks could have a material
adverse effect on the value of the Notes you purchase and could cause you to lose all or part of
your initial purchase price or adversely affect future principal and interest payments you expect
to receive.
RISKS RELATING TO THE NOTES AND THE CORRESPONDING MEMBER LOANS ON WHICH THE NOTES ARE DEPENDENT
You may lose some or all of your initial purchase price for the Notes because the Notes are highly
risky and speculative. Only investors who can bear the loss of their entire purchase price should
purchase the Notes.
The Notes are highly risky and speculative because payments on the Notes depend entirely on
payments to LendingClub of unsecured consumer finance obligations of individual borrowers and
contemporaneous payments on the Notes, which are special, limited obligations of LendingClub. Notes
are suitable purchases only for investors of adequate financial means. If you cannot afford to lose
all of the money you plan to invest in Notes, you should not purchase Notes. You should not assume
that a Note is appropriate for you as an investment vehicle just because it corresponds to a loan
listed on the LendingClub platform or is included in a portfolio built based upon your investment
criteria through our portfolio building tool, LendingMatch.
Payments on each Note depend entirely on the payments, if any, we receive on the corresponding
member loan related to that Note. If a borrower member fails to make any payments on the
corresponding member loan related to your Note, you will not receive any payments on your Note.
We will make payments pro rata on a series of Notes, net of our service charge, only if we
receive the borrower members payments on the corresponding member loan. We will not pay to
investors any unsuccessful payment fees, check processing fees, collection fees we or our
third-party collection agency charge or payments due to LendingClub on account of portions of the
corresponding member loan, if any, funded by LendingClub itself. If we do not receive payments on
the corresponding member 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 failure of a borrower member to
repay a loan is not an event of default under the terms of the Notes.
The Notes are special, limited obligations of LendingClub only and are not secured by any
collateral or guaranteed or insured by any third party.
The Notes will not represent an obligation of borrower members or any other party except
LendingClub, and are special, limited obligations of LendingClub. The Notes are not secured by any
collateral and are not guaranteed or insured by any governmental agency or instrumentality or any
third party in any way.
Member loans are unsecured obligations and are not backed by any collateral or guaranteed or
insured by any third party, and you must rely on LendingClub and our designated third-party
collection agency to pursue collection against any borrower member.
Member loans are unsecured obligations of borrower members. They are not secured by any
collateral, not guaranteed or insured by any third party and not backed by any governmental
authority in any way. LendingClub and its designated third-party collection agency will, therefore,
be limited in their ability to collect member loans.
Moreover, unsecured member loans are obligations of borrower members to LendingClub as
successor to WebBank, not obligations to holders of Notes. Holders of Notes will have no recourse
against borrower members and no ability to pursue borrower members to collect payments under member
loans. Holders of Notes may look only to LendingClub for payment of the Notes, and LendingClubs
obligation to pay the Notes is limited as described in this document. Furthermore, if a borrower
member fails to make any payments on the member 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 obtain
the identity of the borrower member in order to contact the borrower member about the defaulted
member loan. In addition, in the unlikely event that we receive payments on the corresponding
member loan relating to the Notes after the final maturity date, you will not receive payments on
the Notes after final maturity. See About the Platform Description of the Notes.
17
The initial maturity date and final maturity date for five (5) year term loans is the same
date. As such, you will not receive any payments we may receive after the maturity date.
The initial maturity date of all five (5) year term loans will not be extend to a later date,
so the initial maturity date of a five (5) year term member loan will equal its initial maturity
date. Unlike the three (3) year term loans where the initial maturity date may be extended, the
maturity date of the five (5) year term loans will not be extended because if the maturity date
were extended beyond five (5) years a portion of the interest paid would likely not be deductible
by LendingClub. As a result, if we receive any principal and interest payments from a borrower
after the maturity date of a five (5) year term loan, we may retain 100% of these payments and are
not obligated to distribute these principal and interest payments to you.
Borrower member credit information may be inaccurate or may not accurately reflect the
borrower members creditworthiness, which may cause you to lose part or all of the purchase price
you pay for a Note.
LendingClub obtains borrower member credit information from consumer reporting agencies, such
as TransUnion, Experian or Equifax, and assigns loan requests one of 35 LendingClub loan grades,
from A1 through G5, based on the reported credit score, other information reported by the consumer
reporting agencies and the requested loan amount. See About the Loan Platform How the
LendingClub Platform Operates Minimum Credit Criteria and Underwriting. A credit score or loan
grade assigned to a borrower member may not reflect that borrower members actual creditworthiness
because the credit score may be based on outdated, incomplete or inaccurate consumer reporting
data, and LendingClub does not verify the information obtained from the borrower members credit
report. Additionally, there is a risk that, following the date of the credit report that
LendingClub obtains and reviews, a borrower member may have:
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become delinquent in the payment of an outstanding obligation;
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defaulted on a pre-existing debt obligation;
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taken on additional debt; or
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sustained other adverse financial events.
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Moreover, investors do not, and will not, have access to financial statements of borrower
members, or to other detailed financial information about borrower members.
Information supplied by borrower members may be inaccurate or intentionally false and should
generally not be relied upon.
Borrower members supply a variety of information that is included in the borrower member loan
listings on our website and in the posting reports and sales reports we file with the SEC. We do
not verify this information, and it may be inaccurate or incomplete. For example, we do not verify
a borrower members stated social affiliations (such as educational affiliations), home ownership
status, job title, employer or tenure, and the information borrower members supply may be
inaccurate or intentionally false. Borrower members may misrepresent their intentions for the use
of loan proceeds which also may result in us not obtaining certain fees from borrower members.
Unless we have specifically indicated otherwise in a loan listing, we do not verify a borrower
members stated income. For example, we do not verify borrower member paystubs, IRS Forms W-2,
federal or state income tax returns, bank and savings account balances, retirement account
balances, letters from employers, home ownership or rental records, car ownership records or any
records related to past bankruptcy and legal proceedings. In the limited cases in which we have
selected borrower members for income or employment verification, for the calendar year ended
December 31, 2009, approximately 63.3% of requested borrower members provided us with satisfactory
responses to verify their income or employment; approximately 8.2% of these borrower members have
provided information that failed to verify their stated information, and we removed those borrower
members loan postings; and approximately 28.6% of these borrower members failed to respond to our
request in full or responded stating that they did not wish to provide information, and we removed
those borrower members loan postings. The identity of borrower members is not revealed to
investors, and investors also have no ability to obtain or verify borrower member information
either before or after they purchase a Note. Potential investors may only communicate with borrower
members through LendingClub website postings, and then only on an anonymous basis. While we may
monitor website posting for appropriate content, we do not verify any information in the postings
nor do we respond to requests from investor or borrower members in any posting and any response to
the contrary should not be seen as accurate.
18
If you rely on false, misleading or unverified information supplied by borrower members in
deciding to purchase Notes, you may
lose part or all of the purchase price you pay for a Note. Loan posting and borrower member
information available on the LendingClub website will be statements made in connection with the
purchase and sale of securities, and therefore subject to Rule 10b-5 of the Securities Exchange Act
of 1934, as amended (the Exchange Act). Loan posting and borrower member information filed in
prospectus supplements will be subject to the liability provisions of the Securities Act. In this
document, we advise potential investors as to the limitations on the reliability of this
information, and an investors recourse in the event this information is false will be extremely
limited. Consequently, investors should rely on loan grade, which we determine based on third-party
credit report information, and the size of the loan request, and should not rely on unverified
information provided by borrower members.
While we take precautions to prevent borrower member identity fraud, it is possible that
identity fraud may still occur and adversely affect your ability to receive the principal and
interest payments that you expect to receive on those Notes.
We use identity checks with a third-party provider to verify each borrower members identity
and credit history, as described in more detail in About the Loan Platform How the LendingClub
Platform Operates New Member Registration. Notwithstanding our efforts, there is a risk that
identity fraud may occur and remain undetected by us. While we will repurchase Notes in limited
identity fraud circumstances involving the corresponding member loan, we are not otherwise
obligated to repurchase a Note from you for any other reason. As of December 31, 2009, we had
repurchased 14 Notes for identity fraud. If LendingClub repurchases a Note based on identity fraud
involving the corresponding member loan, you will only receive an amount equal to the outstanding
principal balance of the Note. See About the Loan Platform How the LendingClub Platform Operates
Identity Fraud Reimbursement.
We do not have significant historical performance data about borrower member performance on
LendingClub member loans. Default rates on the member loans may increase.
We are in the early stages of our development and have a limited operating history. We began
operations as an application on Facebook.com in May 2007. In September 2007, we expanded our
operations and launched our public website, www.lendingclub.com. Due to our limited operational
history, we do not have significant historical performance data regarding borrower member
performance on the member loans, and we do not yet know what the long-term loan loss experience
will be. The estimated default rates we use in calculating interest rates have not been developed
from LendingClub loss histories. Member loans originated through the LendingClub platform may
default more often than these estimated default rates. In addition, as we do not have experience
in making five-year unsecured consumer loans, the default rates on these loan types is uncertain
and may exceed our current expectations. As actual loan loss experience increases on the
LendingClub platform, we may change how interest rates are set, and investors who have purchased
Notes prior to any such changes will not benefit from these changes.
Default rates on the member loans may increase as a result of economic conditions beyond our
control and beyond the control of borrower members.
Member loan default rates may be significantly affected by economic downturns or general
economic conditions beyond our control and beyond the control of individual borrower members. In
particular, default rates on member 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 current, continued, significant downturn in the United States economy has caused
default rates on consumer loans to increase, and the downturn will likely result in increased
member loan default rates.
If payments on the corresponding member loans relating to the 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 the Notes due to collection fees and other costs, and you may not recover any
of your original purchase price.
If the borrower member fails to make a required payment on a member loan within 30 days of the
due date, LendingClub will pursue reasonable collection efforts in respect of the member loan.
Referral of a delinquent member loan to a collection agency on the 31st day of its delinquency will
be considered reasonable collection efforts. If we refer a loan to a collection agency, we will
have no other obligation to attempt to collect on delinquent loans. LendingClub may also handle
collection efforts in respect of a delinquent member loan directly. If payment amounts on a
delinquent member loan are received from a borrower member more than 30 days after their due date,
then we, or, if we have referred the delinquent loan to an outside collection agency, that
collection agency, will retain a percentage of any funds recovered from such borrower member as a
service fee before any principal or interest becomes payable to you from recovered amounts in
respect of Notes related to the corresponding member loan. Collection fees range from 30% to 35% of
recovered amounts. See About the Platform How the LendingClub Platform Operates Post-Closing
Loan Servicing and Collection.
19
LendingClub or the collection agency may not be able to recover some or all of the unpaid
balance of a non-performing member loan. You must rely on the collection efforts of LendingClub and
the designated collection agency, and you are not permitted to attempt to collect payments on the
member loans in any manner.
If you decide to invest through the platform and concentrate your investment in a single Note,
your entire return will depend on the performance of a single member loan.
Member loans originated through the LendingClub platform have a wide range of credit grades,
and we expect that some borrower members will default on their member loans. If you decide to
invest through the platform and concentrate your investment in a single Note, your entire return
will depend on the performance of a single member loan. For example, if you plan to purchase $100
of Notes, and choose to invest the entire $100 in a single Note instead of in four $25 Notes
corresponding to the member loans of four different borrowers, your entire $100 investment will
depend on the performance of a single member loan. Failing to diversify your investment increases
the risk of losing your entire investment due to a single borrower members default, or a small
number of borrower member defaults. Diversification, however, will not eliminate the risk that you
may lose some, or all, of the expected principal and interest payments on the Notes.
In the unlikely event that we receive payments on the corresponding member loans relating to the
Notes after the final maturity date, you will not receive payments on the Notes after final
maturity.
Each Note will mature on its initial maturity date of either three (3) or five (5) years from
its issuance date. Where any principal or interest payments in respect of a three-year term loan
remains due and payable to LendingClub upon the initial maturity date, the maturity of the
corresponding Note will be automatically extended to its final maturity date. The final maturity
date for all Notes will be five years after the issuance of the Note (and two years after the
initial maturity date of a corresponding three-year member loan). In the unlikely event there are
any amounts under the corresponding member loan still due and owing to LendingClub after the final
maturity, LendingClub will have no further obligation to make payments on the Notes of the series
even if LendingClub receives payments on the corresponding member loan after the final maturity.
The member loans on which the Notes are dependent do not restrict borrower members from incurring
additional unsecured or secured debt, nor do they impose any financial restrictions on borrower
members during the term of the member loan, which may impair your ability to receive the full
principal and interest payments that you expect to receive on a Note.
All member loans are credit obligations of individual borrower members. If a borrower member
incurs additional debt after obtaining a member loan through the LendingClub platform, the
additional debt may impair the ability of that borrower member to make payments on the borrowers
member loan and your ability to receive the principal and interest payments that you expect to
receive on Notes dependent on those loans. In addition, the additional debt may adversely affect
the borrower members creditworthiness generally, and could result in the financial distress,
insolvency, or bankruptcy of the borrower member. To the extent that the borrower member has or
incurs other indebtedness and cannot pay all of its indebtedness, the borrower member may choose to
make payments to creditors other than LendingClub.
As to these member loans, to the extent borrower members 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 member may impair the borrower members
ability to repay the unsecured member loan on which your Note is dependent. Since the member loans
are unsecured, borrower members may choose to repay obligations under other indebtedness before
repaying member loans originated through the LendingClub platform because the borrower members have
no collateral at risk. An investor will not be made aware of any additional debt incurred by a
borrower member, or whether such debt is secured.
Member loans do not contain any cross-default or similar provisions. If borrower members default
on their debt obligations other than the member loans, the ability to collect on member loans on
which the Notes are dependent may be substantially impaired.
The member loans do not contain cross-default provisions. A cross-default provision makes a
default under certain debt of a borrower member an automatic default on other debt of that borrower
member. Because the member loans do not contain cross-default provisions, a borrower members loan
will not be placed automatically in default upon that borrower members default on any of the
borrower members other debt obligations, unless there are independent grounds for a default on the
member loan. The member loans will not be referred to a third-party collection agency for
collection because of a borrower members default on debt obligations other than the member loans.
If a borrower member defaults on debt obligations owed to a third party and continues to satisfy
payment obligations under the member loans, the third party may seize the borrowers assets,
subject to LendingClubs security interest, or pursue other legal action against the borrower
member before the borrower member defaults on the member loans. Payments on Notes
may be substantially reduced if the borrower member subsequently defaults on the member loans
and you may be unable to recoup any or all of your expected principal and interest payments on
those Notes.
20
Borrower members may seek the protection of debtor relief under federal bankruptcy or state
insolvency laws, which may result in the nonpayment of the Notes.
Borrower members may seek protection under federal bankruptcy law or similar laws. If a
borrower member files for bankruptcy (or becomes the subject of an involuntary petition), a stay
will go into effect that will automatically put any pending collection actions, on hold and
prevent further collection action absent bankruptcy court approval. If we receive notice that a
borrower member has filed for protection under the federal bankruptcy laws, or has become the
subject of an involuntary bankruptcy petition, we will put the borrower members loan account into
bankruptcy status. When we put a member loan into bankruptcy status, we terminate automatic
monthly Automated Clearing House (ACH) debits and do not undertake collection activity without
bankruptcy court approval. Whether any payment will ultimately be made or received on a member loan
after a bankruptcy status is declared, depends on the borrower members particular financial
situation and the determination of the court. It is possible that the borrower members personal
liability on the member loan will be discharged in bankruptcy. In most cases involving the
bankruptcy of a borrower member with an unsecured loan, unsecured creditors, including LendingClub
as holder of the member loans, will receive only a fraction of any amount outstanding on their
member loans, if anything. See About the Loan Platform How the LendingClub Platform Operates
Post-Closing Loan Servicing and Collection.
Federal law entitles borrower members 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 borrower members on active military service with rights that may delay or
impair our ability to collect on a borrower member loan corresponding to your Note. The
Servicemembers Civil Relief Act requires that the interest rate on preexisting debts, such as
member 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 member loan will not receive the
difference between 6% and the original stated interest rate for the member 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 member loans in default,
and, accordingly, payments on Notes that are dependent on these member loans. If there are any
amounts under such a member loan still due and owing to LendingClub after the final maturity of the
Notes that correspond to the member 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 loan grades to borrower member loan requests. See About
LendingClub Government Regulation Licensing and Consumer Protection Laws Servicemembers Civil
Relief Act.
The death of a borrower member may substantially impair your ability to recoup the full purchase
price of Notes that are dependent on the member loan to that borrower member or to receive the
interest payments that you expect to receive on the Notes.
All borrower members are individuals. If a borrower member with outstanding obligations under
a member loan dies while the member loan is outstanding, generally, we will seek to work with the
executor of the estate of the borrower member to obtain repayment of the member loan. However, the
borrower members estate may not contain sufficient assets to repay the member loan on which your
Note is dependent. In addition, if a borrower member dies near the end of the term of an unsecured
member loan, it is unlikely that any further payments will be made on the Notes corresponding to
such member 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.
The LendingClub platform allows a borrower member to prepay a member loan at any time without
penalty. Borrower member loan prepayments will extinguish or limit your ability to receive
additional interest payments on a Note.
Borrower member loan prepayment occurs when a borrower member decides to pay some or all of
the principal amount on a member loan earlier than originally scheduled. A borrower member may
decide to prepay all or a portion of the remaining principal amount at any time without penalty. In
the event of a prepayment of the entire remaining unpaid principal amount of a member loan on which
the Notes are dependent, you will receive your share of such prepayment, net of our 1% service fee,
but further interest will not accrue after the date on which the payment is made. If a borrower
member prepays a portion of the remaining unpaid principal balance on a member loan on which the
Notes are dependent, we will reduce the outstanding principle amount and interest will cease to
accrue on the prepaid portion. The combination of the reduced principal amount and the unchanged
monthly payment, the effective term of the member loan will decline. If a borrower member prepays a
member 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 on that member loan, and you may not be
able to find a similar rate of return on another investment at the time at which the member loan is
prepaid. Prepayments are subject to
our 1.00% service charge, even if the prepayment occurs immediately after issuance of your
Note. The return on the Note may actually be negative if prepayment occurs within the first few
months after issuance. See About the Loan Platform Description of the Notes Prepayments.
21
Prevailing interest rates may change during the term of the member loan on which your Note is
dependent. 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, borrower members may prepay their member
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 member loans on which the Notes are dependent have a term of three or five years and bear
fixed, not floating, rates of interest. 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 your
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 members payments on the member loan, if
prevailing interest rates exceed the rate of interest payable on the member 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 member loans. If
prevailing interest rates on consumer loans decrease, borrower members may choose to prepay their
member loans with money they borrow from other sources or other resources, and you may not receive
the interest payments on Notes dependent on those member 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.
Investor funds in a LendingClub investor account do not earn interest.
Your LendingClub investor account represents an interest in a pooled demand deposit account
maintained by LendingClub in trust for investors (ITF account) that does not earn interest. For
a description of LendingClub member accounts, see About the Loan Platform How the LendingClub
Platform Operates Loan Funding and Treatment of Investor Balances. Investor funds committed to
purchase Notes represent binding commitments, and such committed funds may not be withdrawn from
member accounts (unless and until corresponding member loans included in the order are not funded,
in which case the corresponding funds become available to the investor again). Funds committed to
purchase Notes will not earn interest in the ITF account, and interest will not begin to accrue on
a Note until the corresponding member loan has closed and the Note is issued. For a description of
the loan closing process, see About the Loan Platform How the LendingClub Platform Operates
Purchases of Notes and Loan Closings.
The Notes will not be listed on any securities exchange, will not be transferable except through
the Note Trading Platform by FOLIOfn, and must be held only by LendingClub investors. 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 LendingClub
members. The Notes will not be transferable except through the Note Trading Platform by FOLIO
fn
Investments, Inc. (FOLIO
fn
), a registered broker-dealer. The trading platform is not available to
residents of all states. There can be no assurance that an active market for Notes will develop on
the trading platform, that there will be a buyer for any particular Notes listed for resale on the
trading platform or that the trading platform will continue to operate. Therefore, investors must
be prepared to hold their Notes to maturity. See About the Loan Platform Trading Platform.
The U.S. federal income tax consequences of an investment in the Notes are uncertain.
No authority directly addresses the treatment of the Notes or instruments similar to the Notes
for U.S. federal income tax purposes. Although the matter is not free from doubt, LendingClub
intends to treat the Notes as indebtedness of LendingClub for U.S. federal income tax purposes. As
a result of such treatment, the Notes will have original issue discount, or OID, for U.S. federal
income tax purposes because payments on the Notes are dependent on payments on the corresponding
member loan. Further, a holder of a Note will be required to include the OID in income as ordinary
interest income for U.S. federal income tax purposes as it accrues (which may be in advance of
interest being paid on the Note), regardless of such holders regular method of accounting. This
characterization is not binding on the IRS, and the IRS may take contrary positions. Any differing
treatment of the Notes could significantly affect the amount, timing and character of income, gain
or loss in respect of an investment in the Notes. Accordingly, all 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 and ownership of the Notes (including any possible
differing treatments of the Notes). For a discussion of the U.S. federal income tax consequences of
an investment in the Notes, see About the Loan Platform Material U.S. Federal Income Tax
Considerations.
22
RISKS RELATED TO LENDINGCLUB AND THE LENDINGCLUB PLATFORM
We have a limited operating history. As an online company in the early stages of development, we
face increased risks, uncertainties, expenses and difficulties.
If we are successful, the number of borrower members and LendingClub investors and the volume
of member loans originated through the LendingClub platform will increase, which will require us to
increase our facilities, personnel and infrastructure to accommodate the greater servicing
obligations and demands on the LendingClub platform. The LendingClub platform is dependent upon our
website to maintain current listings and transactions in the member loans and Notes. We must
constantly add new hardware and update our software and website, expand our customer support
services and retain an appropriate number of employees to maintain the operations of the
LendingClub platform, as well as to satisfy our servicing obligations on the member loans and make
payments on the Notes. If we are unable to increase the capacity of the LendingClub platform and
maintain the necessary infrastructure, you may experience delays in receipt of payments on the
Notes and periodic downtime of our systems.
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 the LendingClub platform by attracting a
large number of borrower members and investors in a cost-effective manner, many of whom have not
previously participated in an online financial community. We have experienced a high number of
inquiries from potential borrower members who do not meet our criteria for submitting a member loan
request. We have also experienced from time to time borrower member loan requests for amounts that
exceed the aggregate amount of investor purchase commitments. From time to time, we have relied on
our credit facilities with third parties, such as Silicon Valley Bank (SVB), Gold Hill Venture
Lending 03, LP (Gold Hill), and other lenders to borrow funds which we used to fund member loans
on the platform ourselves to partially address the shortfall between borrower member loan requests
and investor purchase commitments. We have fully drawn down these existing facilities.
All member loans are obligations of borrower members to LendingClub, and we issue Notes to
investors who fund a corresponding member loan, or portion of the member loan, originated through
our platform. When we fund member loans ourselves on the platform, we continue to directly hold the
member loan, or portion of the member loan, we have funded and do not issue Notes corresponding to
such member loans for our own account. We expect these shortfalls to continue for the foreseeable
future, and our ability to obtain funds to help address this shortfall may be subject to broader
developments in the credit markets, which have experienced unprecedented volatility and disruption.
If we are not able to attract qualified borrower members and sufficient investor 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 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 the
LendingClub platform.
We may need to raise substantial additional capital to fund our operations, and if we fail to
obtain additional funding, we may be unable to continue operations.
At this early stage in our development, we have funded substantially all of our operations
with proceeds from venture capital financings, private placements and bank financings. To continue
the development of the LendingClub platform, we will require substantial additional funds. For
example, our cash outflow to fund operations for the nine-month period ended December 31, 2009 and
the year ended March 31, 2009, was approximately $6.3 million and $10.3 million, respectively.
To strengthen our financial position, during the year ended March 31, 2009, we raised
$5,386,893, net of issuance costs, from the sale of 5,112,672 shares of our Series A convertible
preferred stock, $1,054,575 from the conversion of principal and interest on our convertible notes
into 990,212 shares of our Series A convertible preferred stock, and $11,897,738, net of issuance
costs, from the sale of 16,036,346 shares of our Series B convertible preferred stock. During the
year ended March 31, 2008, we raised $9,925,001, net of issuance costs, from the sale of 9,445,401
shares of our Series A convertible preferred stock and $1,499,265 from the sale of 2,216,500 shares
of our common stock. From October 2007 through March 31, 2009, we also raised $13,707,964 through
the issuance of notes payable in connection with our growth capital term loan, financing term loan
and private placement notes. During the nine months ended December 31, 2009, we raised $4,200,000
through the issuance of notes payable in connection with our May 2009 term loan and our private
placement notes.
On
April 14, 2010, we raised $24,389,996.42, net of estimated issuance costs, from the sale of
15,621,609 shares of our Series C convertible Preferred Stock.
23
To meet our financing requirements in the future, we may raise funds through equity offerings,
debt financings or strategic alliances. Raising additional funds may involve agreements or
covenants that restrict our business activities and options. Additional funding may not be
available to us on favorable terms, or at all. If we are unable to obtain additional funds, we may
be forced to reduce or terminate our operations.
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. We expect competition to
persist and intensify in the future, which could harm our ability to increase volume on the
LendingClub platform.
Our principal competitors include major banking institutions, credit unions, credit card
issuers and other consumer finance companies, as well as other social lending platforms.
Competition could result in reduced volumes, reduced fees or the failure of our social 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. and 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 social 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 demand for our platform could
stagnate or substantially decline.
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 LendingClub brand in a
cost-effective manner is critical to achieving widespread acceptance of our online financial
community and attracting new members. Successful promotion of our brand will depend largely on the
effectiveness of our marketing efforts and the member experience on the LendingClub 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 the LendingClub platform.
We have incurred net losses in the past and expect to incur net losses in the future. If we
become insolvent or bankrupt, you may lose your investment.
We have incurred net losses in the past and we expect to incur net losses in the future. As of
December 31, 2009, our accumulated deficit was $27.7 million and our total stockholders deficit
was $23.9 million. Our net loss for the three months ended December 31, 2009 and 2008, was $2.1
million and $2.6 million, respectively. We have not been profitable since our inception, and we may
not become profitable. In addition, we expect our operating expenses to increase in the future as
we expand our operations. If our operating expenses exceed our expectations, our financial
performance could be adversely affected. If our revenue does not grow to offset these increased
expenses, we may never become profitable. In future periods, we may not have any revenue growth, or
our revenue could decline. Our failure to become profitable could impair the operations of our
platform by limiting our access to working capital to operate the platform. If we were to become
insolvent or bankrupt, an event of default would occur under the terms of the Notes, and you may
lose your investment.
24
Our substantial senior secured indebtedness could adversely affect our financial performance,
ability to finance future operations, and our special, limited obligations in respect of the Notes.
We have incurred substantial senior secured indebtedness under bank credit facilities with SVB
and Gold Hill and other notes issued to other investors. The operating and financial restrictions
in these debt agreements, as well as the required debt service and
repayment obligations in these debt agreements, could adversely affect our financial
performance. In addition, our ability to borrow additional funds or otherwise finance our future
operations will be limited by the existence and terms of the debt agreements. If we are unable to
repay our obligations other than the Notes and otherwise finance our future operations, such
inability will have an adverse impact on our ability to operate our platform and service the Notes,
which could adversely affect the payments you receive on the Notes.
Our credit agreements contain restrictive covenants and other limitations that, if not
complied with, could result in a default under the credit agreements and an acceleration of our
obligations under the credit agreements. We are not certain whether we would have, or be able to
obtain, sufficient funds to make such accelerated payments, and a failure to do so could adversely
affect our ability to operate our platform and service the Notes, which could adversely affect the
payments you receive on the Notes.
We have secured our debt facilities by pledging significant assets to SVB, Gold Hill, Wells Fargo
and our other investors.
To induce SVB, Gold Hill, Wells Fargo, and other investors to enter into credit agreements or
other agreements with us, we have pledged certain of assets to Wells Fargo, SVB, Gold Hill and
other investors to secure our repayment obligations under these credit agreements or other
agreements, except that we have not pledged our intellectual property rights, the ITF account, the
corresponding member loan promissory notes (except in specific circumstances) or payments we
receive in respect of corresponding member loans (except in specific circumstances). If we are
unable to repay any amounts owed under these credit agreements or other agreements, we could
lose these pledged assets and be forced to discontinue our business operations. In addition,
because these obligations are secured, collectively, with a first priority lien against such
assets, we may have difficulty obtaining additional debt financing from another lender or obtaining
new debt financing on terms favorable to us, because a new lender may have to be willing to be
subordinate to our existing secured creditors.
The Notes rank effectively junior to the rights of the holders of our existing or future
secured indebtedness to the extent of the collateral for that secured indebtedness. The Notes do
not limit or prevent our incurring future indebtedness, whether unsecured or secured by all or a
portion of our assets.
Our arrangements for backup 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 the Notes, and we may be unable to collect and process repayments from borrower members.
We have made arrangements for only limited backup servicing. If our platform were to fail or
we became insolvent, we would attempt to transfer our member loan servicing obligations to our
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 member loans. If this back-up servicer assumes
the servicing of the member loans, the back-up servicer will 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 member loans or, if the LendingClub platform
becomes inoperable, may prevent us from servicing the member loans and making principal and
interest payments on the Notes. If our back-up servicer is not able to service the member loans
effectively, investors ability to receive principal and interest payments on their Notes may be
substantially 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 and suspended or stopped.
The Notes are unsecured and holders of the Notes do not have a security interest in the
corresponding member loans or the proceeds of those corresponding member 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 LendingClub in trust for the
holders of Notes may potentially be at risk.
If LendingClub 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. Specifically, the
following consequences may occur:
A bankruptcy or similar proceeding of LendingClub may cause delays in borrower member
payments
. Borrower members may delay payments to LendingClub on account of member loans because
of the uncertainties occasioned by a bankruptcy or similar proceeding of LendingClub, even if the
borrower members 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 member loans.
A bankruptcy or similar proceeding of LendingClub may cause delays in payments on Notes
. The
commencement of the bankruptcy or similar proceeding may, as a matter of law, prevent LendingClub
from making regular payments on the Notes, even if the funds to make such payments are available.
Because a bankruptcy or similar proceeding may take months or years to
complete, the suspension of payment 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.
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Interest accruing upon and following a bankruptcy or similar proceeding of LendingClub may
not be paid
. In bankruptcy or similar proceeding of LendingClub, 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 LendingClub, there may be uncertainty regarding
whether a holder of a Note has any priority right to payment from the corresponding member loan
.
The Notes are unsecured and holders of the Notes do not have a security interest in the
corresponding member loans or the proceeds of those corresponding member loans. Accordingly, the
holder of a Note may be required to share the proceeds of the corresponding member loan with any
other creditor of LendingClub that has rights in those proceeds. If such sharing of proceeds is
deemed appropriate, those proceeds that are either held by LendingClub in the clearing account at
the time of the bankruptcy or similar proceeding of LendingClub, or not yet received by
LendingClub from borrower members at the time of the commencement of the bankruptcy or similar
proceeding, may be at greater risk than those proceeds that are already held by LendingClub in
the in trust for, or ITF, account at the time of the bankruptcy or similar proceeding. To the
extent that proceeds of the corresponding member loan would be shared with other creditors of
LendingClub, any secured or priority rights of such other creditors may cause the proceeds to be
distributed to such other creditors before, or ratably with, any distribution made to you on your
Note. For a more detailed description of the clearing account and the ITF account, see About the
Loan Platform How the LendingClub Platform Operates Post-Closing Loan Servicing and
Collection.
In a bankruptcy or similar proceeding of LendingClub, there may be uncertainty regarding
whether a holder of a Note has any right of payment from assets of LendingClub other than the
corresponding member loan
. In a bankruptcy or similar proceeding of LendingClub, it is possible
that a Note could be deemed to have a right of payment only from proceeds of the corresponding
member loan and not from any other assets of LendingClub, in which case the holder of the Note
may not be entitled to share the proceeds of such other assets of LendingClub with other
creditors of LendingClub, whether or not, as described above, such other creditors would be
entitled to share in the proceeds of the member loan corresponding to the Note. Alternatively, it
is possible that a Note could be deemed to have a right of payment from both the member loan
corresponding to the Note and from some or all other assets of LendingClub, for example, based
upon the automatic acceleration of the principal obligations on the Note upon the commencement of
a bankruptcy or similar proceeding, in which case the holder of the Note may be entitled to share
the proceeds of such other assets of LendingClub with other creditors of LendingClub, whether or
not, as described above, such other creditors would be entitled to share in the proceeds of the
member loan corresponding to the Note. See About the Loan Platform Description of the Notes
Events of Default. To the extent that proceeds of such other assets would be shared with other
creditors of LendingClub, any secured or priority rights of such other creditors may cause the
proceeds to be distributed to such other creditors before, or ratably with, any distribution made
to you on your Note.
In a bankruptcy or similar proceeding of LendingClub, there may be uncertainty regarding the
rights of a holder of a Note, if any, to payment from funds in the clearing account
. If a
borrower member has paid LendingClub on a member loan corresponding to a Note before a bankruptcy
or similar proceeding of LendingClub is commenced, and those funds are held in the clearing
account and have not been used by LendingClub to make payments on the Note as of the date the
bankruptcy or similar proceeding is commenced, there can be no assurance that LendingClub will or
will be able to use such funds to make payments on the Note. Other creditors of LendingClub may
be deemed to have, or actually have, rights to such funds that are equal to or greater than the
rights of the holder of the Note. For a more detailed description of the clearing account, see
About the Loan Platform How the LendingClub Platform Operates Post-Closing Loan Servicing
and Collection.
In a bankruptcy or similar proceeding of LendingClub, there may be uncertainty regarding the
rights of a holder of a Note, if any, to access funds in the ITF account
. If a borrower has paid
LendingClub on a member loan corresponding to a Note before a bankruptcy or similar proceeding of
LendingClub is commenced, and those funds have been used by LendingClub to make payments on the
Note prior to the date the bankruptcy or similar proceeding is commenced, but the payments on the
Note continue to be held by LendingClub in an ITF account, there can be no assurance that the
holder of the Note will have immediate access to the funds constituting the payment or that the
funds constituting the payment will ultimately be released to the holder of the Note. While the
Trust Agreement states that funds in the ITF account are trust property and are not intended to
be property of LendingClub or subject to claims of LendingClubs creditors generally, there can
be no assurance that, if the matter were to be litigated, such litigation would not delay or
prevent the holder of a Note from accessing the portion of those funds in which the holder has an
interest. For a more detailed description of the ITF account, see About the Loan Platform How
the LendingClub Platform Operates Post-Closing Loan Servicing and Collection.
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In a bankruptcy or similar proceeding of LendingClub, there may be uncertainty regarding the
rights of a holder of a Note, if any, to the return of the purchase price of a Note if the
corresponding member loan has not been funded
. If the purchase price of a Note is paid to
LendingClub and a bankruptcy or similar proceeding of LendingClub is commenced, the holder of the
Note may not be able to obtain a return of the funds constituting the purchase price, even if the
member loan corresponding to the Note has not been funded as of the date that the bankruptcy or
similar proceeding is commenced and even if the funds are held by LendingClub in the ITF account.
For a more detailed description of the funding of member loans, see About the Loan Platform
How the LendingClub Platform Operates Purchases of Notes and Loan Closings.
In a bankruptcy or similar proceeding of LendingClub, the holder of a Note may be delayed or
prevented from enforcing LendingClubs repurchase obligations in cases of confirmed identity
fraud
. In a bankruptcy or similar proceeding of LendingClub, any right of a holder of Note to
require LendingClub to repurchase the Note as a result of a confirmed identity fraud incident may
not be specifically enforced, and such holders claim for such repurchase may be treated less
favorably than a general unsecured obligation of LendingClub as described and subject to the
limitations in this Risks Related to LendingClub and the LendingClub Platform If we were to
become subject to a bankruptcy or similar proceeding section. See About the Loan Platform
Description of the Notes Mandatory Redemption for further information on the repurchase
obligation of LendingClub upon a confirmed identity fraud incident.
In a bankruptcy or similar proceeding of LendingClub, the implementation of back-up
servicing arrangements may be delayed or prevented
. In a bankruptcy or similar proceeding of
LendingClub, our ability to transfer servicing obligations to our 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 member loans to the detriment of the Notes.
We rely on third-party banks to disburse member loan proceeds and process member loan payments,
and we rely on third-party computer hardware and software. If we are unable to continue utilizing
these services, our business and ability to service the member loans on which the Notes are
dependent may be adversely affected.
We rely on a third-party bank to disburse member loan amounts. Additionally, because we are
not a bank, we cannot belong to and directly access the ACH payment network, and we must rely on an
FDIC-insured depository institution to process our transactions, including loan payments and
remittances to holders of the Notes. We currently use Wells Fargo Bank, N.A. for these purposes.
Under the ACH rules, if we experience a high rate of reversed transactions (known as
chargebacks), we may be subject to sanctions and potentially disqualified from using the system
to process payments. We also rely on computer hardware purchased and software licensed from third
parties to operate our platform, including payment processing software licensed from BankServ. This
hardware and software may not continue to be available on commercially reasonable terms, or at all.
If we cannot continue to obtain these services, or if we cannot transition to another service
provider quickly, our ability to process payments and operate the LendingClub platform could
suffer, and your receipt of payments on the Notes could be delayed or impaired.
If the security of our members 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 borrower members and investors 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
members 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.
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Our ability to service the member loans or maintain accurate accounts may be adversely affected by
computer viruses, physical or electronic break-ins and similar disruptions.
The highly-automated nature of the LendingClub platform may make it an attractive target and
potentially vulnerable to computer viruses, physical or electronic break-ins and similar
disruptions. If a computer hacker were able to infiltrate the LendingClub platform,
you would be subject to an increased risk of fraud or borrower identity theft, and you may not
receive the principal or interest payments that you expect to receive on any Notes you were
fraudulently induced to purchase. Hackers might also disrupt the accurate processing and posting of
payments to accounts such as yours on the platform, or cause the destruction of data and thereby
undermine your rights to repayment of the Notes you have purchased. While we have taken steps to
prevent hackers from accessing the LendingClub platform, if we are unable to prevent hacker access,
your ability to receive the principal and interest payments that you expect to receive on Notes you
purchase and our ability to fulfill our servicing obligations and to maintain the LendingClub
platform would be adversely affected.
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.
If a catastrophic event resulted in a platform outage and physical data loss, our ability to
perform our servicing obligations would be materially and adversely affected. 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 Santa Clara, CA, owned and operated by SAVVIS. We also maintain a real time
backup system located in Washington, D.C. SAVVIS does not guarantee that our members access to our
website will be uninterrupted, error-free or secure. Our operations depend on SAVVISs 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 SAVVIS is terminated, or there is a lapse of service or
damage to SAVVIS 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 SAVVIS 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 a SAVVIS facility. These factors could prevent us
from processing or posting payments on the member 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 the LendingClub platform, any of which could adversely affect our business,
financial condition and results of operations.
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 LendingClub members could diminish, resulting in a material
adverse effect on our business.
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.
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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, Renaud Laplanche, our Founder
and Chief Executive Officer, and John G. Donovan, our Chief Operating Officer, are critical to the
management of our business and operations and the development of our strategic direction. The loss
of the services of Mr. Laplanche, Mr. Donovan 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.
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 the LendingClub platform and arrange member loans depends, in part,
upon our proprietary technology, including our proprietary portfolio tool builder system,
LendingMatch. We may be unable to protect our proprietary technology effectively, however, 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, the LendingClub 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 the LendingClub platform to compete with other person-to-person lending platforms as they
develop. If we cannot protect our proprietary technology from intellectual property challenges, or
if the platform becomes obsolete, our ability to maintain the platform, arrange member loans or
perform our servicing obligations on the member loans could be adversely affected.
Purchasers of Notes will have no control over LendingClub and will not be able to influence
LendingClub corporate matters.
We are not offering any equity in this offering. Purchasers of Notes offered through the
LendingClub platform will have no equity interest in LendingClub and no ability to vote on or
influence LendingClub corporate decisions. As a result, our stockholders will continue to exercise
100% voting control over all LendingClub 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.
RISKS RELATING TO COMPLIANCE AND REGULATION
The LendingClub platform is a novel approach to borrowing that may fail to comply with borrower
protection laws such as state usury laws, other interest rate limitations 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.
Borrower members 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.
The LendingClub platform operates a novel program that must comply with regulatory regimes
applicable to all consumer credit transactions. The novelty of our platform means compliance with
various aspect of such laws is untested. Certain 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
the member loans. Our platform is also subject to other federal and state laws, such as:
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the federal Truth-in-Lending Act and Regulation Z promulgated thereunder, and similar
state laws, which require certain disclosures to borrower members regarding the terms of
their member loans;
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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;
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the federal Fair Credit Reporting Act, which regulates the use and reporting of
information related to each borrower members credit history; and
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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.
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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
About LendingClub Government Regulation for more information regarding governmental regulation
of the LendingClub platform.
Noncompliance with laws and regulations may impair our ability to arrange or service member loans.
Failure to comply with the laws and regulatory requirements applicable to our business may,
among other things, limit our, or a collection agencys, ability to collect all or part of the
principal amount of or interest on the member 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 the LendingClub platform and may result in borrower
members rescinding their member loans.
Where applicable, we seek to comply with state small loan, loan broker, servicing and similar
statutes. Currently, we do not provide services to borrowers in Idaho, Indiana, Iowa, Kansas,
Maine, Mississippi, Nebraska, North Carolina, North Dakota and Tennessee. In all other U.S.
jurisdictions with licensing or other requirements we believe may be applicable to make loans, 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 or be required to obtain a license in such jurisdiction,
which may have an adverse effect on our ability to continue to arrange member loans through the
platform, perform our servicing obligations or make the LendingClub platform available to borrower
members in particular states, which may impair your ability to receive the payments of principal
and interest on the Notes that you expect to receive. See About LendingClub Government
Regulation for more information regarding governmental regulation of the LendingClub platform.
We rely on our agreement with WebBank to lend 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 arrange member loans.
Borrower member loan requests take the form of an application to WebBank, which cooperates
with us to lend to qualified LendingClub borrower members and allows our platform to be available
to borrowers on a uniform basis throughout the United States, except that we do not currently offer
member loans in Idaho, Indiana, Iowa, Kansas, Maine, Mississippi, Nebraska, North Carolina, North
Dakota and Tennessee. If our relationship with WebBank were to end, we may need to rely on
individual state lending licenses to arrange member loans. Because we do not currently possess
state lending licenses in every U.S. state, we may be required to discontinue lending or limit the
rates of interest charged on member loans in some states. We may face increased costs and
compliance burdens if our agreement with WebBank terminated.
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, successfully in some instances, 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.
Nevertheless, if litigation on similar theories were successful against us, additional state
consumer protection laws would be applicable to the member loans originated through the LendingClub
platform if we were recharacterized as the lender. The member loans could also be voidable or
unenforceable. In addition, we could be subject to claims by borrower members, 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 social 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 the LendingClub platform.
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Financial regulatory reform could result in restrictions, oversight and costs that have an adverse
effect on our business.
In June 2009, the Obama Administration proposed a white paper, Financial Regulatory Reform
A New Foundation: Rebuilding Financial Supervision and Regulation, that recommends overhauling the
financial regulatory system. The administrations plan urges Congress and regulators to adopt
changes to financial sector regulation and oversight, increasing the governments role in the
financial sector. The administrations proposal includes the creation of new federal agencies,
offices and councils. Members of Congress have also introduced a number of legislative proposals to
increase regulation of the financial services industry and impose restrictions on financial
services companies. If these proposals or other financial reform proposals are adopted, they may
result in restrictions, oversight and costs that have an adverse effect on our business. See About
LendingClub Government Regulation for more information regarding governmental regulation of the
LendingClub platform.
As a public reporting company, we face costly compliance burdens.
As a public reporting company, we face costly compliance burdens, requiring significant legal,
accounting and other expenses. Our management and other personnel must devote a substantial amount
of time to public company compliance requirements. 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 our fiscal year ending March 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 control over financial reporting, as required by Section 404A 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 public company experience and technical
accounting knowledge. Moreover, if we are not able to comply with the requirements of Section 404A
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.
If we discover a material weaknesses in our internal control over financial reporting which we are
unable to remedy, or otherwise fail to maintain effective internal control over financial
reporting, our ability to report our financial results on a timely and accurate basis may be
adversely affected.
We are not currently required to have an audit of our internal control over financial
reporting, and our independent registered public accounting firm has not performed such an audit.
Should such a requirement arise and should we or our auditors discover a material weakness in our
internal controls, our ability to report our financial results on a timely and accurate basis may
be adversely affected.
We face a contingent liability for potential securities law violations in respect of loans sold to
our members from May 2007 until April 7, 2008. This contingent liability may impair our ability to
operate our platform and service the member loans that correspond to the Notes.
Loans sold to members through our platform from our launch in May 2007 until April 7, 2008 may
be viewed as involving an offering of securities that was not registered or qualified under federal
or state securities laws. If the sale of these loans were viewed as an unregistered offering of
securities, our members who hold these loans may be entitled to rescind their purchase and be paid
their unpaid principal amount of the loans plus statutory interest. As of December 31, 2009, the
aggregate principal balance of these loans purchased through our platform by purchasers not
affiliated with LendingClub was $2.5 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. The statute of limitations
periods under state securities laws may extend for a longer period of time, and certain state
securities laws empower state officials to seek restitution or rescission remedies for purchasers
of unregistered securities. We have received inquiries from a number of states in respect of these
prior sales of loans; neither the SEC nor any state, however, has taken or threatened
administrative action or litigation over such loan sales. If a significant number of our members
sought rescission, if we were subject to a class action securities lawsuit or if we were subject to
lawsuits or administrative actions by the SEC or states in respect of these loans, our ability to
maintain our platform and service the member loans to which the Notes correspond may be adversely
affected.
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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.
32
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 LendingClub borrower members, credit scoring, FICO 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:
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the status of borrower members, the ability of borrower members to repay member loans and
the plans of borrower members;
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expected rates of return and interest rates;
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our ability to attract additional investors;
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the attractiveness of our lending platform;
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our financial performance;
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the availability and functionality of the trading platform;
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our ability to retain and hire necessary employees and appropriately staff our
operations;
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regulatory developments;
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our intellectual property; and
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our estimates regarding expenses, future revenue, capital requirements and needs for
additional financing.
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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.
ABOUT THE LOAN PLATFORM
Overview
LendingClub is an online financial community that enables its borrower members to borrow money
and investors to purchase Member Payment Dependent Notes, the proceeds of which fund loans made to
individual borrower members. Our motto is Better Rates. Together. We operate in the space known
as social lending. As of December 31, 2009, we had 258,890 registered members and had facilitated
the issuance of $76.6 million in member loans. As of December 31, 2009, LendingClub investors had
funded approximately $57.0 million of this $76.6 million total, and we had funded the remaining
amount ourselves. As of March 31, 2010, all member loans originated through the LendingClub
platform had three-year terms. We have never issued any loans with a five (5) year initial
maturity. Although we initially permitted member loans to have principal amounts as low as $500,
all member loans currently originated through the LendingClub platform have original principal
amounts between $1,000 and $25,000. As of December 31, 2009, the average aggregate LendingClub loan
to a single borrower member was approximately $9,252.
We aim to operate our platform at low cost to offer interest rates to our borrower members
lower than the rates they could obtain through credit cards or traditional banks and to offer
interest rates to investors on Notes that investors find attractive. Our lending platform operates
online only. Our registration, processing and payment systems are automated and electronic. We
encourage the use of electronic payments as the preferred means to disburse member loan proceeds
and remit cash payments on outstanding member loans. We have no physical branches, no
deposit-taking and interest payment activities and extremely limited loan underwriting activities.
33
We generate revenue by charging borrower members loan origination fees and by charging
investors ongoing servicing charges
relating to the Notes they have purchased. We also earn interest on member loans to the extent
that we fund those member loans ourselves. During the year ended March 31, 2009, our member loan
origination volume was $18.2 million and for the nine-months ended December 31, 2009 our member
loan origination volume was $43.6 million. Our members funded approximately $10.2 million of this
$18.2 million total and $39.1 million of this $43.6 million total, and we had funded the remaining
amounts ourselves.
We have positioned ourselves in the social lending market as a platform for higher quality
borrowers. To borrow on our platform, borrower members must have:
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a minimum FICO score of 660;
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a debt-to-income ratio (excluding mortgage) below 25%; and
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a credit report showing no current delinquencies, recent bankruptcies, tax liens or
non-medical related collections opened within the last 12 months, and reflecting:
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at least three accounts ever opened;
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at least two accounts currently open;
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no more than 8 credit inquiries in the past six months;
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utilization of credit limit not exceeding 100%;
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a revolving credit balance of less than $150,000; and
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a minimum credit history of 36 months.
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A borrower members debt-to-income ratio is calculated by LendingClub based on (i) the debt
(excluding mortgage) reported by a consumer reporting agency; and (ii) the income reported by the
borrower member. As described below, the income reported by the borrower member is not verified
unless we display an icon in the loan listing indicating otherwise. See About the Loan Platform
How the LendingClub Platform Operates Minimum Credit Criteria and Underwriting, where the
concepts of FICO, debt-to-income ratio, delinquency, recent bankruptcy, collections, open tax
liens, open accounts, credit inquiries, utilization of credit limit, and credit history are
discussed in detail. Our credit criteria differed prior to October 13, 2008, and we raised our
minimum FICO score from 640 to 660 effective November 25, 2008. See About LendingClub Business
Prior Operation of the LendingClub Platform Our Prior Operating Structure.
LendingClub preserves the anonymity of our borrower and investors, in that investors and
borrower members do not know, and are not permitted to obtain, each others actual names and
addresses. LendingClub members conduct transactions using LendingClub screen names. During our
member registration process, we verify the identity of members by comparing supplied information
against the records of a consumer reporting agency. We also currently require verification of bank
accounts. See About the Loan Platform How the LendingClub Platform Operates New Member
Registration, where our registration procedures are discussed.
We offer member loans through our platform to borrower members throughout the United States,
except that we do not currently offer member loans in Idaho, Indiana, Iowa, Kansas, Maine,
Mississippi, Nebraska, North Carolina, North Dakota and Tennessee. As of December 31, 2009, we are
not dependent on any single party for a material amount of our revenue.
Borrower members who use our platform must identify their intended use of member loan proceeds
in their initial loan request. As of December 31, 2009, among funded member loans (all of which
were unsecured), borrower members identified their intended use of loan proceeds as follows:
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refinancing high-interest loans and credit card debt (approximately 53%);
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financing their home-based or small businesses (approximately 6%); and
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significant expenses, such as home improvements or medical expenses (approximately 15%).
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We do not verify or monitor a borrower members actual use of funds following the funding of a
member loan.
34
We attract members to our website, www.lendingclub.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 December 31, 2009, our website on
average was receiving approximately 103,000 unique visitors per month.
The Online Social Lending Industry
Online social lending is a new approach to consumer finance. Social lending uses an
internet-based network to connect borrowers and investors. The provider of the lending platform, in
our case LendingClub, generally provides transactional services for the online network, including
screening borrowers for borrowing eligibility and facilitating payments. A social lending platform
allows borrowers and investors to connect with each other using a combination of financial and
social criteria. Online social 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
loan underwriting activities. We believe that the interest rates offered to our borrower members
through the LendingClub platform are better than the rates those borrower members would pay on
outstanding credit card balances or an unsecured loan from a bank, if they were able to obtain such
a loan.
As an early participant in the development of online social lending, LendingClub views
consumer finance delivered through an online social platform as an important new market
opportunity. Key drivers of social lending include the following:
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the possibility of lower interest rates for borrower members;
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the possibility of attractive interest rates for investors;
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the possibility for all members to help each other by participating in the platform to
their mutual benefit;
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tightening consumer credit markets, particularly among traditional banking institutions;
and
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growing acceptance of the internet as an efficient and convenient forum for consumer
transactions.
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How the LendingClub Platform Operates
New Member Registration
The first step in using our platform is new member registration. New members first register as
general LendingClub members. During registration, members establish online member screen names. New
members must agree to the terms and conditions of the LendingClub website, including agreeing to
conduct transactions and receive disclosures and other communications electronically.
Next, new members have the opportunity to register as borrower members or investors. Members
may also choose to register as both borrower members and investors. All LendingClub borrower
members:
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must be U.S. citizens or permanent residents;
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must be at least 18 years old;
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must have valid email accounts;
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must have U.S. social security numbers; and
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must have an account at a U.S. financial institution with a routing transit number.
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During borrower and investor registration, we verify the identity of members by comparing
supplied names, social security numbers, addresses and telephone numbers against the names, social
security numbers, addresses and telephone numbers in the records of a consumer reporting agency, as
well as other anti-fraud and identity verification databases. We also currently require each new
member to supply information about the members bank account including routing numbers, after which
we transfer between 1 and 99 cents from the bank account into the members newly created
LendingClub sub-account to verify that the bank account belongs to the member. Members must then
sign in to LendingClub and verify their bank accounts based on the amounts transferred.
During investor registration, potential investors must agree to a credit profile authorization
statement for identification purposes and a tax withholding statement, and must enter into an
investor agreement with LendingClub, which will govern all purchases of
Notes the investor makes through our platform. See About the Loan Platform Investor
Agreement for a detailed description of the investor agreement. Investors must also meet minimum
financial suitability requirements. See About the Loan Platform Financial Suitability
Requirements.
35
Likewise, during borrower registration, potential borrower members must agree to a credit
profile authorization statement and bank account authorization.
Borrower members must also enter into a borrower membership agreement with LendingClub. The
borrower membership agreement addresses the registration and loan request processes. In this
agreement, the borrower member authorizes us to obtain a consumer report, to use the consumer
report for specific purposes, to share certain information about the borrower member with investors
and to issue a loan to the borrower if they have received funding of 60% or more of the listed loan
amount. The borrower member also grants us a limited power of attorney to complete on the borrower
members behalf, one or more promissory notes in the amounts and on the terms made to the borrower
member by WebBank. WebBank is an FDIC-insured, state-chartered industrial bank organized under the
laws of the state of Utah that serves as the lender for all member loans originated through our
platform.
Borrower members also enter into a loan agreement with WebBank. In the loan agreement, the
borrower member authorizes WebBank to obtain and use a consumer report on the borrower member. The
loan agreement addresses the application process and the role of investors commitments to purchase
Notes corresponding to the borrower loan. The agreement explains that LendingClub may, but is not
obligated to, agree to fund all or a portion of a loan to the borrower member and that the borrower
accepts any loan if the loan has received funding of 60% or more of the listed loan amount. If a
loan is extended to the borrower member, the borrower member agrees to be bound by the terms of a
promissory note, the form of which is attached as an exhibit to the agreement. The borrower member
authorizes WebBank to debit the borrower members designated account by ACH transfer for each
payment due under the promissory note. The loan agreement also describes the parties rights in
regard to arbitration. The borrower member agrees that WebBank may assign its right, title and
interest in the loan agreement and the borrower members promissory notes to LendingClub.
Borrower Loan Requests
Borrower members submit loan requests online through the LendingClub website. Loan requests
must be between $1,000 and $25,000. Each loan request is an application to WebBank, which lends to
qualified LendingClub borrower members and allows our platform to be available to borrower members
on a uniform basis throughout the United States, except that we do not currently offer member loans
in Idaho, Indiana, Iowa, Kansas, Maine, Mississippi, Nebraska, North Carolina, North Dakota and
Tennessee. Currently, we allow borrower members to have up to two LendingClub member loans
outstanding at any one time, if the borrower member continues to meet our credit criteria. In
addition, to apply for a second LendingClub member loan, the borrower member must have already made
timely payments on the first member loan for at least six months. If a borrower member applies for
a second LendingClub member loan, we do not make any notation in the loan listing to indicate the
borrower members first member loan, except that the borrower members total indebtedness, as
reported in the credit report, will reflect the level of debt incurred from the previous loan.
Borrower members supply a variety of unverified information that is included in the borrower
member loan listings on our website and in the posting reports and sales reports we file with the
SEC. This information includes a borrower members stated social affiliations (such as educational
affiliations), home ownership status, job title, employer and tenure. Requested information also
includes a borrower members income, which typically is unverified. If we verify the borrower
members income, we will display an icon in the loan listing indicating that we have done so.
Investors have no ability to verify borrower member information. See About the Loan Platform How
the LendingClub Platform Operates Loan Postings and Borrower Member Information Available on the
LendingClub Website.
Minimum Credit Criteria and Underwriting
After we receive a loan request, we evaluate whether the prospective borrower member meets the
member loan credit criteria agreed upon with WebBank. The credit policy agreed upon with WebBank
provides the underwriting criteria for all loans originated through our platform, and the credit
policy may not be changed without the consent of WebBank. Under the current credit policy,
prospective borrower members must have:
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a minimum FICO score of 660 (as reported by a consumer reporting agency);
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a debt-to-income ratio (excluding mortgage) below 25%, as calculated by LendingClub based
on (i) the debt (excluding mortgage) reported by a consumer reporting agency; and (ii) the
income reported by the borrower member, which is not
verified unless we display an icon in the loan listing indicating otherwise; and
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36
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a credit profile (as reported by a consumer reporting agency) without any current
delinquencies, recent bankruptcy, tax liens or non-medical related collections opened within
the last 12 months, and reflecting:
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at least three accounts ever opened;
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at least two accounts currently open;
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no more than 8 credit inquiries in the past six months;
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a revolving credit balance of less than $150,000;
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utilization of credit limit not exceeding 100%; and
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a minimum credit history of 36 months.
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For purposes of the credit policy:
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debt-to-income ratio
means the borrowers aggregate monthly payment in respect of debt
obligations appearing on the borrowers credit report, other than those secured by real
estate, divided by the borrowers monthly income, as reported by the borrower;
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current delinquency
means a payment obligation of the borrower appearing on the
borrowers credit report that is 30 or more days late at the time the borrower applies for a
member loan on the LendingClub platform;
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recent bankruptcy
means a bankruptcy, as indicated by a credit report, that occurred
less than seven years before the date the borrower applies for a member loan on the
LendingClub platform;
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collection
means that a collections agency has reported an outstanding debt obligation
of the borrower to the consumer reporting agency and that the collection amount remains open
at the date the borrower applies for a member loan on the LendingClub platform;
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open tax lien
means a lien recorded by a tax authority appearing on the borrowers
credit report that has not been released by the applicable tax authorities;
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open account
means any credit account that the borrower can currently utilize reported
in the borrowers credit report;
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credit inquiry
means an instance recorded in the borrowers credit report in which a
lender has requested a copy of the borrowers credit report in response to the borrowers
request for a new credit facility or an extension of an existing one;
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utilization of credit limit
means the ratio obtained by dividing the outstanding
indebtedness of a borrower by the total indebtedness authorized under all of the borrowers
open credit lines, as reported on the borrowers credit report. It is possible for
utilization of credit limit to exceed 100% in the event a borrower borrows to the limit of
all open credit lines and interest accrues and is capitalized before the borrower makes any
repayments; and
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credit history
means the time elapsed since the borrower first opened a credit account,
as reported on the borrowers credit report.
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A FICO score is a numeric rating that ranges between 300 and 850 that rates a persons credit
risk based on past credit history and current credit situation. FICO scoring was developed by Fair
Isaac Corporation. FICO scores reflect a mathematical formula that is based on information in a
borrowers credit report, compared to information on other consumers. Consumers with higher scores
typically represent a lower risk of defaulting on their loans. There are three different FICO
scores, each with a separate name, which correspond to each of the three main U.S. consumer
reporting agencies. Equifax uses the BEACON score; Experian uses the Experian/Fair Isaac Risk
Model; and TransUnion uses the EMPIRICA score. The score from each consumer reporting agency
considers only the credit data available to that agency. Fair Isaac Corporation develops all three
FICO scores and makes the scores as consistent as possible across the three consumer reporting
agencies. Nevertheless, the three agencies sometimes have different information about a particular
borrower member, and that means the three FICO scores for that borrower member will vary by agency.
We currently obtain consumer credit information from a single consumer reporting agency, although
we may use other consumer
reporting agencies in the future.
37
As made available by Fair Isaac Corporation as of December 31, 2009 on its website,
myfico.com, from a source document dated 2007, consumers in the United States are distributed among
FICO scores as follows:
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Percentage of United
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FICO
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States Consumers
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300-499
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2
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%
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500-549
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5
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%
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550-599
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8
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%
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600-649
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12
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%
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650-699
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15
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%
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700-749
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18
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%
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750-799
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27
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%
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800-850
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13
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%
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The FICO scoring model takes into account the information in a consumers credit report, with
different kinds of information carrying differing weights. The FICO scoring model takes into
account five categories of data:
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historical timeliness of bill payments, with most recent activity given the most emphasis
(35% of the FICO score);
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total outstanding debt and the total amount of credit the consumer has available, with
consumers who consistently borrow to their credit limits having their scores reduced (30% of
the FICO score);
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length of credit history, with consumers with long credit histories with the same lenders
having their scores increased (15% of the FICO score);
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mix of credit, with consumers with a variety of revolving credit (such as credit cards)
and installment credit (such as car loans) having their scores increased (10% of the FICO
score); and
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new credit applications within the last year, with consumers who have higher numbers of
credit applications generally having their scores reduced (10% of the FICO score).
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FICO scores do not consider:
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age;
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race;
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sex;
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job or length of employment, including military status;
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income;
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education;
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marital status;
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whether the consumer has been turned down for credit;
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length of time at current address;
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whether the consumer owns a home or rents; or
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information not contained in the consumers credit report.
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38
After obtaining authorization from the borrower member, by arrangement with WebBank we obtain
a credit report from a consumer reporting agency to determine if the borrower member meets the
criteria explained in detail above: (i) a minimum FICO score of 660; (ii) a debt-to-income ratio
(excluding mortgage) below 25%, as calculated by LendingClub based on the debt (excluding mortgage)
reported by a consumer reporting agency, and the income reported by the borrower member, which is
not verified unless
we display an icon in the loan listing indicating otherwise; and (iii) a credit profile (as
reported by a consumer reporting agency) without any current delinquencies, recent bankruptcy, tax
liens or non-medical related collections opened within the last 12 months, and reflecting at least
three accounts ever opened, at least two accounts currently open, no more than 8 credit inquiries
in the past six months, utilization of credit limit not exceeding 100%, revolving credit balance of
less than $150,000, and a minimum credit history of 36 months.
From the relaunch of our platform on October 13, 2008 until December 31, 2009, only 9.62% of
individuals seeking member loans on our site (5,865 out of a total of 60,945) have met the initial,
unsecured credit criteria required to post their loan requests on our website For information
about how we have changed our credit policy over time, see About LendingClub Business Prior
Operation of the LendingClub Platform Our Prior Operating Structure.
During the loan application process, we also automatically screen borrower members using U.S.
Department of the Treasury Office of Foreign Asset Control (OFAC) lists, as well as our fraud
detection systems. See About LendingClub Business Technology Fraud Detection.
After submission of the application, we inform potential borrowers whether they qualify to
post a loan request on our platform. Potential borrowers then must enter into a borrower membership
agreement with LendingClub and a loan agreement with WebBank. These agreements set forth the terms
and conditions of the member loans and allow a borrower member to withdraw from a loan request at
any time before the member loan is funded. See About the Loan Platform How the LendingClub
Platform Operates New Member Registration.
For borrower members who qualify, pursuant to the credit policy we assign one of 35 loan
grades, from A1 through G5, to each loan request, based on the borrower members FICO score,
requested loan amount, currently open accounts, number of credit inquiries in the past six months,
utilization of credit limit and length of credit history. Applying these grading criteria, the
following factors lead to a loan request being more likely to be designated grade A1, which is the
highest unsecured loan grade: higher credit score; lower requested loan amount; fewer credit
inquiries; fewer open accounts, given a minimum of six open accounts; utilization of credit limit
between 5% and 85%; and greater length of credit history and a three year term.
Specifically, we use the following step grading process to assign sub-grades for all loan
applicants.
First, using the FICO credit score, we assign each loan an initial base sub-grade. Base
sub-grades are assigned as follows:
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Sub-Grade
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FICO
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A1
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770-850
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A2
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|
|
747-769
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A3
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|
|
734-746
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|
A4
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|
|
723-733
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|
A5
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|
714-733
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|
B1
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707-713
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|
B2
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700-706
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|
B3
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693-699
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B4
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686-692
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|
B5
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679-685
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|
C1
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675-678
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|
C2
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671-674
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|
C3
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668-670
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C4
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664-667
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C5
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660-663
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Grades D, E, F and G can only be assigned to a member loan as a result of downward credit
grade adjustments based on the requested loan amount and the credit report metrics described above:
currently open accounts, number of credit inquiries in the past six months, utilization of credit
limit and length of credit history.
Second, we modify the sub-grade based on the ratio of the requested loan amount to the
LendingClub pre-determined guidance limit. Guidance limits are as follows:
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Guidance
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|
Base Loan Grade
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|
Limit
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|
A
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|
$
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20,000
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|
B
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|
$
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12,500
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|
C
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|
$
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10,000
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39
There are no guidance limits for credit grades D-G as the loan grade used for this modifier is
the credit grade based upon the borrower members FICO credit score, which must be 660 or above.
Sub-grade modifications based on guidance limits are as follows:
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Sub-Grade
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|
Loan Amount/Guidance Limit
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|
Modifier
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0%-24%
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|
|
0
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|
25%-49%
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|
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(1
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)
|
50%-74%
|
|
|
(2
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)
|
75%-99%
|
|
|
(3
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)
|
100%-124%
|
|
|
(4
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)
|
125%-149%
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|
|
(5
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)
|
150%-174%
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|
(6
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)
|
175%-199%
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|
|
(8
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)
|
200%-224%
|
|
|
(10
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)
|
225%-249%
|
|
|
(12
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)
|
250%-274%
|
|
|
(14
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)
|
275%-299%
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|
|
(16
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)
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300% or more
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|
|
(18
|
)
|
Third, we modify the sub-grade according to the borrower members currently open accounts (as
reported by a consumer reporting agency). Sub-grade modifications based on currently open accounts
(as reported by a consumer reporting agency) and provided the Borrower member has opened at least
three accounts, are as follows:
|
|
|
|
|
|
|
Sub-Grade
|
|
Open Accounts
|
|
Modifier
|
|
0-1
|
|
Decline
|
|
2-3
|
|
|
(4
|
)
|
4
|
|
|
(2
|
)
|
5
|
|
|
(1
|
)
|
6-21
|
|
|
0
|
|
22
|
|
|
(2
|
)
|
23
|
|
|
(3
|
)
|
24
|
|
|
(4
|
)
|
25
|
|
|
(8
|
)
|
26 or more
|
|
|
(12
|
)
|
Fourth, we modify the sub-grade based on the borrower members number of credit inquiries in
the last six months (as reported by a consumer reporting agency). Sub-grade modifications based on
the number of credit inquiries in the last six months (as reported by a consumer reporting agency)
are as follows:
|
|
|
|
|
|
|
Sub-Grade
|
|
Number of Credit Inquiries in Last Six Months
|
|
Modifier
|
|
0-3
|
|
|
0
|
|
4
|
|
|
(1
|
)
|
5
|
|
|
(2
|
)
|
6
|
|
|
(4
|
)
|
7
|
|
|
(6
|
)
|
8
|
|
|
(10
|
)
|
9 or more
|
|
Decline
|
|
Fifth, we modify the sub-grade based on the borrower members utilization of his or her credit
limit. Sub-grade modifications based on utilization of credit limit are as follows:
|
|
|
|
|
|
|
Sub-Grade
|
|
Utilization of Credit Limits
|
|
Modifier
|
|
Less than 5.00%
|
|
|
(1
|
)
|
5.00%-84.99%
|
|
|
0
|
|
85.00%-89.99%
|
|
|
(1
|
)
|
90.00%-94.99%
|
|
|
(2
|
)
|
95.00%-97.99%
|
|
|
(4
|
)
|
98.00%-99.99%
|
|
|
(8
|
)
|
100.00% or more
|
|
Decline
|
|
40
Sixth, we modify the sub-grade based on length of the borrower members credit history.
Sub-grade modifications based on length
of credit history are as follows:
|
|
|
|
|
|
|
Sub-Grade
|
|
Length of Credit History
|
|
Modifier
|
|
Less than 36 months
|
|
Decline
|
|
37-42 months
|
|
|
(4
|
)
|
43-48 months
|
|
|
(3
|
)
|
49-54 months
|
|
|
(2
|
)
|
55-60 months
|
|
|
(1
|
)
|
More than 60 months
|
|
|
0
|
|
Seventh, we modify the sub-grade based on the term of the loan as follows:
|
|
|
|
|
|
|
Sub-Grade
|
|
Loan Term
|
|
Modifier
|
|
Three years
|
|
|
0
|
|
Five years
|
|
|
|
|
A1-A5
|
|
|
0
|
|
B1-B5
|
|
|
(2
|
)
|
C1-G5
|
|
|
(5
|
)
|
By adding the modifiers to the initial sub-grade, we arrive at the final sub-grade of the
requested loan based on the initial credit criteria.
Example
Assume a borrower member requests a $5,000 loan, and the borrower member has a FICO score of
700, 10 open accounts, four credit inquiries in the last six months, 50% utilization of credit
limit and more than 60 months of credit history. We would first assign this borrower a B2 sub-grade
because the borrowers FICO is 700. Next, we would make no sub-grade modification for open
accounts, because 10 open accounts is greater than 5 and less than 22. We would then lower the
borrower members initial B2 base sub-grade one level based on four credit inquiries in the last
six months, because four credit inquiries in the last six months results in a one level reduction
in sub-grade. We would make no sub-grade modification for 50% utilization of credit limit, since it
is greater than 5% but less than 85%, and we would make no sub-grade modification for length of
credit history, because the borrower member has more than 60 months of credit history. Because the
requested loan amount, $5,000, is between 25-49% of the guidance limit of $12,500 for B loan
grades, we would further lower the sub-grade one level due to the difference between the loan
amount and the guidance limit; $5,000 is 40% of $12,500. This loan request would therefore
ultimately be lowered two sub-grades from B2 to B4.
Borrower Financial Information is Generally Unverified
As discussed above, borrower member information presented in loan listings is generally
unverified even if the verification is requested by investors. In contrast to the information
provided by a consumer reporting agency and the requested loan amount, as described above regarding
our loan grading criteria, investors should not rely on unverified information provided by borrower
members.
Additionally, we generally do not verify a borrower members ability to afford a member loan
the borrower member has requested. For example, we do not review paystubs, IRS Forms W-2, federal
or state income tax returns, bank and savings account balances, retirement account balances,
letters from employers, home ownership or rental records, car ownership records or any records
related to past bankruptcy and legal proceedings.
From time to time, however, we verify a borrowers employment and income by requiring the
borrower to submit paystubs, IRS Forms W-2 or other tax records between the initial posting of a
loan request and any funding of a member loan. For the calendar ended December 31, 2009, we were
attempted to verify income or employment for approximately 49% of loan requests that proceed past
the initial credit check stage and are posted on the website although, for the reasons described
below, we ultimately have verified employment or income for approximately 31% of total borrower
members who received loans for that period. We perform these employment and income verifications
only during the time between when a borrower member posts a loan request and the time the loan
request is funded. We do not perform any income or employment verifications prior to the posting or
following member loan funding. When we perform these verifications, we contact borrower members by
email or telephone to request additional information. An icon appears in borrower loan listings to
indicate when we have verified the borrower members income.
41
As of December 31, 2009, we perform targeted income verification primarily in the following
situations:
|
|
|
if we believe there may be uncertainty about the borrower members employment or future
income. For example, the borrower member fails to state an employment or source of income;
the stability of the borrower members future income or employment status appears to be in
question (based, for example, on self-reported loan description); or a borrower member has
control over the accuracy of the information, such as being a principal of the company
providing the employment or income information;
|
|
|
|
|
if we detect conflicting or unusual information in the loan request;
|
|
|
|
|
if the loan amount is high;
|
|
|
|
|
if the borrower member is highly leveraged;
|
|
|
|
|
if we suspect the borrower member may have obligations not included in the borrower
members pre-loan or post-loan debt level, such as wage garnishment collection accounts; or
|
|
|
|
|
if we suspect a fraudulent loan request.
|
We also conduct random testing. From time to time, we also randomly select listings to verify
information for the purpose of testing our policies and for statistical analysis.
If the borrower member fails to provide satisfactory information in response to an income or
employment verification inquiry, we may remove the borrower members loan listing or request
additional information from the borrower member.
From the calendar year ended December 31, 2009 of the borrower members undergoing income or
employment verification:
|
|
|
approximately 63.3% of requested borrowers have provided us with satisfactory responses;
|
|
|
|
|
approximately 8.2% of these borrowers have provided information that failed to verify
their stated information, and we removed those borrower members loan postings; and
|
|
|
|
|
approximately 28.6% of these borrowers failed to respond to our request completely or
responded stating that they did not wish to provide information, and we removed those
borrower members loan postings.
|
We conduct income or employment verification entirely in our discretion as an additional
credit and loan screening mechanism. We believe that our ability to verify a borrower members
income may be useful in certain circumstances in screening our platform against exaggerated income
and employment representations from borrower members. Investors, however, should not rely on a
borrower members stated employment or income, except when such income or employment has been
verified as indicated on the loan details page, or on LendingClubs ability to perform income and
employment verifications. We cannot assure investors that we will continue performing income and
employment verifications. See Risk Factors Information supplied by borrower members may be
inaccurate or intentionally false.
Our participation in funding loans on the platform from time to time has had, and will
continue to have, no effect on our income and employment verification process, the selection of
loan requests verified or the frequency of income and employment verification.
Interest Rates
After a loan requests loan grade has been determined under the credit policy pursuant to our
agreement with WebBank, an interest rate is assigned to the loan request. Interest rates for member
loans will range from 6.39% to 21.64%.
The interest rates are assigned to borrower loan grades in three steps. First, the LendingClub
base rates are determined. Second, an assumed default rate is determined that attempts to project
loan default rates. Third, the assumed default rate is used to calculate an upward adjustment to
the base rates, which we call the Adjustment for Risk and Volatility.
42
The base rates are set by the interest rate working group. This group generally meets at least
once a quarter and includes our Chief Executive Officer; Chief Operations Officer; Director,
Platform Management; Senior Vice President, Legal and Collections; and Director, Product Strategy.
The working groups objective in setting the LendingClub base rates is to allocate the interest
rate spread that exists between the cost of credit for borrower members and the return on bank
deposits we understand are available to investors. We have selected this spread as an appropriate
starting place for our base rates for the following reasons:
|
|
|
For borrower members, we believe the interest rate for unsecured consumer credit
published by the Federal Reserve reflects the average interest rate at which our borrower
members could generally obtain other financing. We believe that the difference between that
interest rate and the base rate is a relevant measure of the savings that may be achieved by
our borrower members.
|
|
|
|
For investors, we believe the interest rate on certificates of deposit reflects a widely
available risk-free alternative investment for our members. We believe the difference
between that interest rate and the base rate is a relevant measure of the value that may be
delivered to our members.
|
By setting the initial allocation of the base rate near the middle of the spread between these
two interest rates, we believe roughly equal value may be provided to both our borrower members and
our investors. To make this initial base rate calculation, the working group calculates the average
between the interest rate for unsecured consumer credit published by the Federal Reserve,
commercial banks; all accounts, in Federal Reserve Statistical Release G19, and the interest rate
for 6-month certificates of deposit, secondary market; monthly, published by the Federal Reserve
in Federal Reserve Statistical Release H15.
Next, the working group modifies this initial allocation, based on the following factors:
|
|
|
general economic environment, taking into account economic slowdowns or expansions;
|
|
|
|
|
the balance of supply and demand on the LendingClub platform, taking into account whether
borrowing requests exceed investor commitments or vice versa; and
|
|
|
|
competitive factors, taking into account the rates set by other social lending platforms
and the rates set by major financial institutions.
|
The working group adjusts the LendingClub base rates from time to time based on this
methodology. In applying the adjustment to the base rate, the working group has established
different base rates for grades A1-A5, B1-B5 and C1-G5.
When the working group set our current effective January 20, 2010, the interest rate for
unsecured consumer credit published by the Federal Reserve, commercial banks; all accounts, in
Federal Reserve Statistical Release G19 was 14.90%, and the average interest rate on 6-month
certificates of deposit, secondary market; monthly, published by the Federal Reserve in Federal
Reserve Statistical Release H15 was 0.30%. The average of these two interest rates was 7.60%
(calculated as (14.90% + 0.30%)/2 = 7.60%). Applying the adjustments described above, the working
group determined an adjustment of -1.58% for grades A1-A5, .05% for grades B1-B5, and 1.05% for
grades C1-G5. Therefore, the working group set the LendingClub base rate at 6.02% for grades A1-A5,
7.65% for grades B1-B5 and 8.65% for grades C1-G5.
After the working group sets the LendingClub base rates, we determine assumed default rates.
The assumed default rate reflects LendingClubs attempt to project the default rate for member
loans of the loan grade. The 35 sub-grades, from A1 to G5, were obtained by dividing the difference
between the assumed default rate of sub-grade A1 and the assumed default rate of sub-grade G5 into
35 equal intervals and assigning a sub-grade to each interval.
Lastly, the working group adjusts the base rates upward to reflect an adjustment based upon to
the assumed default rate, volatility factors, investor value and other factors, which we
collectively refer to as the Adjustment for Risk and Volatility. The final interest rate is then
calculated by adding the LendingClub base rate and the adjustment for risk &volatility.
43
Set forth below is a chart describing the interest rates currently assigned to member loans
for each of the LendingClub loan grades:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed
|
|
|
LendingClub
|
|
|
Adjustment for
|
|
|
|
|
Sub-Grade
|
|
Default Rate
|
|
|
Base Rate
|
|
|
Risk & Volatility
|
|
|
Interest Rate
|
|
A1
|
|
|
0.16
|
%
|
|
|
6.02
|
%
|
|
|
0.37
|
%
|
|
|
6.39
|
%
|
A2
|
|
|
0.32
|
%
|
|
|
6.02
|
%
|
|
|
0.74
|
%
|
|
|
6.76
|
%
|
A3
|
|
|
0.47
|
%
|
|
|
6.02
|
%
|
|
|
1.12
|
%
|
|
|
7.14
|
%
|
A4
|
|
|
0.63
|
%
|
|
|
6.02
|
%
|
|
|
1.49
|
%
|
|
|
7.51
|
%
|
A5
|
|
|
0.79
|
%
|
|
|
6.02
|
%
|
|
|
1.86
|
%
|
|
|
7.88
|
%
|
B1
|
|
|
0.95
|
%
|
|
|
7.65
|
%
|
|
|
2.23
|
%
|
|
|
9.88
|
%
|
B2
|
|
|
1.11
|
%
|
|
|
7.65
|
%
|
|
|
2.60
|
%
|
|
|
10.25
|
%
|
B3
|
|
|
1.26
|
%
|
|
|
7.65
|
%
|
|
|
2.97
|
%
|
|
|
10.62
|
%
|
B4
|
|
|
1.42
|
%
|
|
|
7.65
|
%
|
|
|
3.34
|
%
|
|
|
10.99
|
%
|
B5
|
|
|
1.58
|
%
|
|
|
7.65
|
%
|
|
|
3.71
|
%
|
|
|
11.36
|
%
|
C1
|
|
|
1.74
|
%
|
|
|
8.65
|
%
|
|
|
4.05
|
%
|
|
|
12.73
|
%
|
C2
|
|
|
1.90
|
%
|
|
|
8.65
|
%
|
|
|
4.46
|
%
|
|
|
13.11
|
%
|
C3
|
|
|
2.05
|
%
|
|
|
8.65
|
%
|
|
|
4.83
|
%
|
|
|
13.48
|
%
|
C4
|
|
|
2.21
|
%
|
|
|
8.65
|
%
|
|
|
5.20
|
%
|
|
|
13.85
|
%
|
C5
|
|
|
2.37
|
%
|
|
|
8.65
|
%
|
|
|
5.57
|
%
|
|
|
14.22
|
%
|
D1
|
|
|
2.53
|
%
|
|
|
8.65
|
%
|
|
|
5.94
|
%
|
|
|
14.59
|
%
|
D2
|
|
|
2.69
|
%
|
|
|
8.65
|
%
|
|
|
6.31
|
%
|
|
|
14.96
|
%
|
D3
|
|
|
2.84
|
%
|
|
|
8.65
|
%
|
|
|
6.68
|
%
|
|
|
15.33
|
%
|
D4
|
|
|
3.00
|
%
|
|
|
8.65
|
%
|
|
|
7.03
|
%
|
|
|
15.70
|
%
|
D5
|
|
|
3.16
|
%
|
|
|
8.65
|
%
|
|
|
7.42
|
%
|
|
|
16.07
|
%
|
E1
|
|
|
3.32
|
%
|
|
|
8.65
|
%
|
|
|
7.80
|
%
|
|
|
16.45
|
%
|
E2
|
|
|
3.48
|
%
|
|
|
8.65
|
%
|
|
|
8.17
|
%
|
|
|
16.82
|
%
|
E3
|
|
|
3.63
|
%
|
|
|
8.65
|
%
|
|
|
8.54
|
%
|
|
|
17.19
|
%
|
E4
|
|
|
3.79
|
%
|
|
|
8.65
|
%
|
|
|
8.91
|
%
|
|
|
17.56
|
%
|
E5
|
|
|
3.95
|
%
|
|
|
8.65
|
%
|
|
|
9.28
|
%
|
|
|
17.93
|
%
|
F1
|
|
|
4.11
|
%
|
|
|
8.65
|
%
|
|
|
9.65
|
%
|
|
|
18.30
|
%
|
F2
|
|
|
4.26
|
%
|
|
|
8.65
|
%
|
|
|
10.02
|
%
|
|
|
18.67
|
%
|
F3
|
|
|
4.42
|
%
|
|
|
8.65
|
%
|
|
|
10.39
|
%
|
|
|
19.04
|
%
|
F4
|
|
|
4.58
|
%
|
|
|
8.65
|
%
|
|
|
10.76
|
%
|
|
|
19.41
|
%
|
F5
|
|
|
4.74
|
%
|
|
|
8.65
|
%
|
|
|
11.14
|
%
|
|
|
19.79
|
%
|
G1
|
|
|
4.90
|
%
|
|
|
8.65
|
%
|
|
|
11.51
|
%
|
|
|
20.16
|
%
|
G2
|
|
|
5.05
|
%
|
|
|
8.65
|
%
|
|
|
11.88
|
%
|
|
|
20.53
|
%
|
G3
|
|
|
5.21
|
%
|
|
|
8.65
|
%
|
|
|
12.25
|
%
|
|
|
20.90
|
%
|
G4
|
|
|
5.37
|
%
|
|
|
8.65
|
%
|
|
|
12.62
|
%
|
|
|
21.27
|
%
|
G5
|
|
|
5.53
|
%
|
|
|
8.65
|
%
|
|
|
12.99
|
%
|
|
|
21.64
|
%
|
The interest rate working group has adjusted the LendingClub base rate from time to time in
the past and will continue to do so. When the working group makes adjustment to our base rate, we
will supplement the prospectus and will file a post-effective amendment to the registration
statement of which this prospectus forms a part.
Illustration of Service Charge and Annual Returns For Fully Performing Loans of Each Sub-Grade and
For Sub-Grades Based on the Assumed Default Rate
The following tables illustrate hypothetical annual return information with respect to the
Notes, grouped by LendingClub sub-grade and term. The information in these tables is not based on
actual results for investors and is presented only to illustrate the effects by sub-grade on
hypothetical annual Note returns of LendingClubs 1.00% service charge and an assumed default
rates. By column, each table presents:
|
|
|
loan sub-grades;
|
|
|
|
|
the annual stated interest rate;
|
|
|
|
|
the hypothetical assumed default rate, as discussed above (see About the Loan Platform
How the LendingClub Platform Operates Interest Rates);
|
|
|
|
|
the reduction in the annual return of the hypothetical assumed default rate result due to
LendingClubs 1.00% service charge on both interest and principal payments; and
|
|
|
|
|
the hypothetical annual returns on Notes assuming the assumed default rate were to occur,
net of LendingClubs service charge.
|
44
For information about historical loan payment information and actual loss experience, see
About the Loan Platform Historical Information about Our Borrower Members and Outstanding
Loans.
Three-Year Term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction in Return
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Assuming Assumed
|
|
|
Returns Assuming
|
|
|
|
|
|
|
|
Assumed Default
|
|
|
Default Rate) Due to
|
|
|
Assumed Default Rate
|
|
|
|
|
|
|
|
Rate (as discussed
|
|
|
LendingClubs 1.00%
|
|
|
After LendingClubs
|
|
Loan Grade
|
|
Interest Rate
|
|
|
above)
|
|
|
Service Charge
|
|
|
1.00% Service Charge
|
|
A1
|
|
|
6.39
|
%
|
|
|
0.16
|
%
|
|
|
0.675
|
%
|
|
|
5.55
|
%
|
A2
|
|
|
6.76
|
%
|
|
|
0.32
|
%
|
|
|
0.676
|
%
|
|
|
5.76
|
%
|
A3
|
|
|
7.14
|
%
|
|
|
0.47
|
%
|
|
|
0.678
|
%
|
|
|
5.99
|
%
|
A4
|
|
|
7.51
|
%
|
|
|
0.63
|
%
|
|
|
0.679
|
%
|
|
|
6.19
|
%
|
A5
|
|
|
7.88
|
%
|
|
|
0.79
|
%
|
|
|
0.681
|
%
|
|
|
6.40
|
%
|
B1
|
|
|
9.88
|
%
|
|
|
0.95
|
%
|
|
|
0.689
|
%
|
|
|
8.23
|
%
|
B2
|
|
|
10.25
|
%
|
|
|
1.11
|
%
|
|
|
0.690
|
%
|
|
|
8.44
|
%
|
B3
|
|
|
10.62
|
%
|
|
|
1.26
|
%
|
|
|
0.692
|
%
|
|
|
8.66
|
%
|
B4
|
|
|
10.99
|
%
|
|
|
1.42
|
%
|
|
|
0.693
|
%
|
|
|
8.86
|
%
|
B5
|
|
|
11.36
|
%
|
|
|
1.58
|
%
|
|
|
0.695
|
%
|
|
|
9.07
|
%
|
C1
|
|
|
12.73
|
%
|
|
|
1.74
|
%
|
|
|
0.701
|
%
|
|
|
10.27
|
%
|
C2
|
|
|
13.11
|
%
|
|
|
1.90
|
%
|
|
|
0.702
|
%
|
|
|
10.49
|
%
|
C3
|
|
|
13.48
|
%
|
|
|
2.05
|
%
|
|
|
0.704
|
%
|
|
|
10.71
|
%
|
C4
|
|
|
13.85
|
%
|
|
|
2.21
|
%
|
|
|
0.705
|
%
|
|
|
10.91
|
%
|
C5
|
|
|
14.22
|
%
|
|
|
2.37
|
%
|
|
|
0.707
|
%
|
|
|
11.12
|
%
|
D1
|
|
|
14.59
|
%
|
|
|
2.53
|
%
|
|
|
0.708
|
%
|
|
|
11.33
|
%
|
D2
|
|
|
14.96
|
%
|
|
|
2.69
|
%
|
|
|
0.710
|
%
|
|
|
11.53
|
%
|
D3
|
|
|
15.33
|
%
|
|
|
2.84
|
%
|
|
|
0.711
|
%
|
|
|
11.75
|
%
|
D4
|
|
|
15.70
|
%
|
|
|
3.00
|
%
|
|
|
0.713
|
%
|
|
|
11.96
|
%
|
D5
|
|
|
16.07
|
%
|
|
|
3.16
|
%
|
|
|
0.715
|
%
|
|
|
12.16
|
%
|
E1
|
|
|
16.45
|
%
|
|
|
3.32
|
%
|
|
|
0.716
|
%
|
|
|
12.38
|
%
|
E2
|
|
|
16.82
|
%
|
|
|
3.48
|
%
|
|
|
0.718
|
%
|
|
|
12.59
|
%
|
E3
|
|
|
17.19
|
%
|
|
|
3.63
|
%
|
|
|
0.719
|
%
|
|
|
12.80
|
%
|
E4
|
|
|
17.56
|
%
|
|
|
3.79
|
%
|
|
|
0.721
|
%
|
|
|
13.01
|
%
|
E5
|
|
|
17.93
|
%
|
|
|
3.95
|
%
|
|
|
0.722
|
%
|
|
|
13.22
|
%
|
F1
|
|
|
18.30
|
%
|
|
|
4.11
|
%
|
|
|
0.724
|
%
|
|
|
13.42
|
%
|
F2
|
|
|
18.67
|
%
|
|
|
4.26
|
%
|
|
|
0.726
|
%
|
|
|
13.64
|
%
|
F3
|
|
|
19.04
|
%
|
|
|
4.42
|
%
|
|
|
0.727
|
%
|
|
|
13.85
|
%
|
F4
|
|
|
19.41
|
%
|
|
|
4.58
|
%
|
|
|
0.729
|
%
|
|
|
14.05
|
%
|
F5
|
|
|
19.79
|
%
|
|
|
4.74
|
%
|
|
|
0.731
|
%
|
|
|
14.27
|
%
|
G1
|
|
|
20.16
|
%
|
|
|
4.90
|
%
|
|
|
0.732
|
%
|
|
|
14.48
|
%
|
G2
|
|
|
20.53
|
%
|
|
|
5.05
|
%
|
|
|
0.734
|
%
|
|
|
14.70
|
%
|
G3
|
|
|
20.90
|
%
|
|
|
5.21
|
%
|
|
|
0.735
|
%
|
|
|
14.90
|
%
|
G4
|
|
|
21.27
|
%
|
|
|
5.37
|
%
|
|
|
0.737
|
%
|
|
|
15.11
|
%
|
G5
|
|
|
21.64
|
%
|
|
|
5.53
|
%
|
|
|
0.739
|
%
|
|
|
15.32
|
%
|
Five-Year Term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction in Return
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Assuming Assumed
|
|
|
Returns Assuming
|
|
|
|
|
|
|
|
Assumed Default
|
|
|
Default Rate) Due to
|
|
|
Assumed Default Rate
|
|
|
|
|
|
|
|
Rate (as discussed
|
|
|
LendingClubs 1.00%
|
|
|
After LendingClubs
|
|
Loan Grade
|
|
Interest Rate
|
|
|
above)
|
|
|
Service Charge
|
|
|
1.00% Service Charge
|
|
A1
|
|
|
6.39
|
%
|
|
|
0.16
|
%
|
|
|
0.419
|
%
|
|
|
5.81
|
%
|
A2
|
|
|
6.76
|
%
|
|
|
0.32
|
%
|
|
|
0.420
|
%
|
|
|
6.02
|
%
|
A3
|
|
|
7.14
|
%
|
|
|
0.47
|
%
|
|
|
0.422
|
%
|
|
|
6.24
|
%
|
A4
|
|
|
7.51
|
%
|
|
|
0.63
|
%
|
|
|
0.423
|
%
|
|
|
6.45
|
%
|
A5
|
|
|
7.88
|
%
|
|
|
0.79
|
%
|
|
|
0.425
|
%
|
|
|
6.66
|
%
|
B1
|
|
|
9.88
|
%
|
|
|
0.95
|
%
|
|
|
0.433
|
%
|
|
|
8.49
|
%
|
B2
|
|
|
10.25
|
%
|
|
|
1.11
|
%
|
|
|
0.434
|
%
|
|
|
8.69
|
%
|
B3
|
|
|
10.62
|
%
|
|
|
1.26
|
%
|
|
|
0.436
|
%
|
|
|
8.91
|
%
|
B4
|
|
|
10.99
|
%
|
|
|
1.42
|
%
|
|
|
0.437
|
%
|
|
|
9.12
|
%
|
B5
|
|
|
11.36
|
%
|
|
|
1.58
|
%
|
|
|
0.439
|
%
|
|
|
9.33
|
%
|
C1
|
|
|
12.73
|
%
|
|
|
1.74
|
%
|
|
|
0.445
|
%
|
|
|
10.53
|
%
|
C2
|
|
|
13.11
|
%
|
|
|
1.90
|
%
|
|
|
0.446
|
%
|
|
|
10.74
|
%
|
C3
|
|
|
13.48
|
%
|
|
|
2.05
|
%
|
|
|
0.448
|
%
|
|
|
10.96
|
%
|
C4
|
|
|
13.85
|
%
|
|
|
2.21
|
%
|
|
|
0.449
|
%
|
|
|
11.17
|
%
|
C5
|
|
|
14.22
|
%
|
|
|
2.37
|
%
|
|
|
0.451
|
%
|
|
|
11.38
|
%
|
D1
|
|
|
14.59
|
%
|
|
|
2.53
|
%
|
|
|
0.453
|
%
|
|
|
11.58
|
%
|
D2
|
|
|
14.96
|
%
|
|
|
2.69
|
%
|
|
|
0.454
|
%
|
|
|
11.79
|
%
|
D3
|
|
|
15.33
|
%
|
|
|
2.84
|
%
|
|
|
0.456
|
%
|
|
|
12.01
|
%
|
D4
|
|
|
15.70
|
%
|
|
|
3.00
|
%
|
|
|
0.458
|
%
|
|
|
12.21
|
%
|
D5
|
|
|
16.07
|
%
|
|
|
3.16
|
%
|
|
|
0.459
|
%
|
|
|
12.42
|
%
|
E1
|
|
|
16.45
|
%
|
|
|
3.32
|
%
|
|
|
0.461
|
%
|
|
|
12.64
|
%
|
E2
|
|
|
16.82
|
%
|
|
|
3.48
|
%
|
|
|
0.463
|
%
|
|
|
12.84
|
%
|
E3
|
|
|
17.19
|
%
|
|
|
3.63
|
%
|
|
|
0.464
|
%
|
|
|
13.06
|
%
|
E4
|
|
|
17.56
|
%
|
|
|
3.79
|
%
|
|
|
0.466
|
%
|
|
|
13.27
|
%
|
E5
|
|
|
17.93
|
%
|
|
|
3.95
|
%
|
|
|
0.468
|
%
|
|
|
13.47
|
%
|
F1
|
|
|
18.30
|
%
|
|
|
4.11
|
%
|
|
|
0.469
|
%
|
|
|
13.68
|
%
|
F2
|
|
|
18.67
|
%
|
|
|
4.26
|
%
|
|
|
0.471
|
%
|
|
|
13.90
|
%
|
F3
|
|
|
19.04
|
%
|
|
|
4.42
|
%
|
|
|
0.473
|
%
|
|
|
14.10
|
%
|
F4
|
|
|
19.41
|
%
|
|
|
4.58
|
%
|
|
|
0.475
|
%
|
|
|
14.31
|
%
|
F5
|
|
|
19.79
|
%
|
|
|
4.74
|
%
|
|
|
0.476
|
%
|
|
|
14.53
|
%
|
G1
|
|
|
20.16
|
%
|
|
|
4.90
|
%
|
|
|
0.478
|
%
|
|
|
14.73
|
%
|
G2
|
|
|
20.53
|
%
|
|
|
5.05
|
%
|
|
|
0.480
|
%
|
|
|
14.95
|
%
|
G3
|
|
|
20.90
|
%
|
|
|
5.21
|
%
|
|
|
0.482
|
%
|
|
|
15.16
|
%
|
G4
|
|
|
21.27
|
%
|
|
|
5.37
|
%
|
|
|
0.484
|
%
|
|
|
15.36
|
%
|
G5
|
|
|
21.64
|
%
|
|
|
5.53
|
%
|
|
|
0.485
|
%
|
|
|
15.57
|
%
|
45
Illustration of Service Charge if Prepayment Occurs
The LendingClub platform allows a borrower member to prepay a member loan at any time without
penalty, and all prepayments are subject to our 1.00% charge. Prepayments will reduce or eliminate
the interest payments you expect to receive on a Note.
Thus, assume for example that an investor purchases a $100.00 Note corresponding to a member
loan bearing interest at 8.00%. If the member loan is paid in full according to its terms over its
full three year term, the investor will receive aggregate Note principal payments of $99.00, or
$100.00 minus the 1.00% service charge, and aggregate Note interest payments of $12.62, or $12.75
minus the 1.00% service charge.
Assume, however, that the member loan corresponding to the Note is fully prepaid:
|
|
|
If the member loan is prepaid one month after issuance, the investor will receive a Note
principal payment of $99.00, or $100.00 minus the 1.00% service charge, and aggregate Note
interest payments of $0.66, or $0.67 minus the 1.00% service charge.
|
|
|
|
If the member loan is prepaid following the first 6 months of payment, the investor will
receive aggregate Note principal payments of $99.00, or $100.00 minus the 1.00% service
charge, and aggregate Note interest payments of $3.71, or $3.75 minus the 1.00% service charge.
|
|
|
|
If the member loan is prepaid following the first 12 months of payment, the investor will
receive aggregate Note principal payments of $99.00, or $100.00 minus the 1.00% service
charge, and aggregate Note interest payments of $6.81, or $6.88 minus the 1.00% service
charge.
|
|
|
|
If the member loan is prepaid following the first 24 months of payment, the investor will
receive aggregate Note principal payments of $99.00, or $100.00 minus the 1.00% service
charge, and aggregate Note interest payments of $11.08, or $11.19 minus the 1.00% service
charge.
|
For information about historical loan prepayment information, see About the Loan Platform
Historical Information about Our Borrower Members and Outstanding Loans.
Standard Terms of the Member Loans
LendingClub member loans are unsecured obligations of individual borrowers with a fixed
interest rate and a maturity of three- or five-years. Member loans have an amortizing, monthly
repayment schedule and may be repaid in whole or in part at any time without prepayment penalty. In
the case of a partial prepayment, we automatically reduce the outstanding principal and the term of
the loan is effectively reduced as the monthly payment is unchanged. See About the Loan Platform
Description of the Notes.
Loan Postings and Borrower Member Information Available on the LendingClub Website
Once a loan request is complete and we have assigned a loan grade and interest rate to the
requested loan, the request is subsequently posted on our website and then becomes available for
viewing by investors. Investors are also then able to commit to buy Notes that will be dependent
for their payments on that member loan. Loan requests appear under LendingClub screen names, not
actual names. Investors are able to view:
|
|
|
the requested loan amount;
|
|
|
|
loan grade (determined using the process described above), interest rate and annual
percentage rate for the member loan;
|
46
|
|
|
anonymized data from the borrower members credit report, including FICO score range,
level of debt, current delinquencies, recent bankruptcies, collections, open tax liens, open
accounts, credit inquiries, utilization of credit limit and length of credit history;
|
|
|
|
|
term, three or five-year;
|
|
|
|
the borrower members self-reported income and whether that income has been verified by
LendingClub;
|
|
|
|
|
the borrower members self-reported, unverified social affiliations;
|
|
|
|
total funding that has been committed to date to Notes that will be dependent on the
loan;
|
|
|
|
the number of investors committed to funding Notes that will be dependent on the member
loan; and
|
|
|
|
|
the borrower members self-reported intended use of funds.
|
Borrower members who use our platform must identify their intended use of their loans. As of
December 31, 2009, among funded member loans, borrower members identified their intended use of
loan proceeds as follows:
|
|
|
refinancing high-interest loans and credit card debt (approximately 53%);
|
|
|
|
|
financing their home-based or small businesses (approximately 6%); and
|
|
|
|
|
significant expenses, such as home improvements or medical expenses (approximately 15%)
|
Potential borrowers 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 members actual use of funds.
Borrower members may also list social affiliations. One basic affiliation listed for every
borrower member is the borrower members home state, which is based on the borrower members
verified address. Borrower members may also choose to list an affiliation with a company,
educational institution or association. We do not verify these additional stated affiliations, and
borrower members are not required to list them.
Investors are also able to view the following information provided by borrower members, which
we typically do not verify:
|
|
|
home ownership status;
|
|
|
|
|
job title;
|
|
|
|
|
employer;
|
|
|
|
|
length of employment with current employer;
|
|
|
|
|
gross income; and
|
|
|
|
debt-to-income ratio (excluding mortgage), as calculated by LendingClub based on (i) the
debt (excluding mortgage) reported by a consumer reporting agency; and (ii) the income
reported by the borrower member, which is not verified unless we display an icon in the loan
listing indicating otherwise.
|
We also post the following credit history information from the consumer reporting agency
report, and label the information as being provided by a credit bureau:
|
|
|
a numerical range of between 2 and 80 points within which the borrower members FICO
score falls, as set forth in the discussion of loan grade above;
|
|
|
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the borrower members earliest credit line;
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the borrower members number of open credit lines;
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47
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the borrower members total number of credit lines;
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the borrower members revolving credit balance;
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the borrower members revolving line utilization;
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the number of credit inquiries received by the consumer reporting agency with regard to
the borrower member within the last six months;
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the number of reported delinquencies in the past two years; and
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the length of time (in months) since the borrower members last reported delinquency.
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Although borrower members and investors are anonymous to each other, investors may post
questions on the loan listing and borrower members have the opportunity, but are not required, to
post public responses. We do not verify these responses.
Loan posting and borrower member information available on the LendingClub 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. Loan posting and borrower member information filed in prospectus
supplements will be subject to the liability provisions of the Securities Act. In this document, we
advise potential investors in the Notes as to the limitations on the reliability of borrower
member-supplied information. An investors recourse in the event this information is false will be
extremely limited.
Loan requests remain open for 14 days, during which time funding commitments to purchase Notes
that will be dependent on the loans may be made by investors unless funding commitments for Notes
aggregating the loan request amount are received earlier, in which case the member loan is funded
as soon as practicable.
How to Purchase Notes
After a loan request has been posted on the LendingClub website, individual investors who have
registered with LendingClub and who reside in states in which the Notes are available for sale may
commit to purchase Notes dependent on the member loan requested by the borrower member.
Investors navigate our website as follows. Investors may browse all active loan listings. They
may also use search criteria to narrow the list of loan listings they are viewing. The available
search criteria include loan grade, borrower member credit score range, number of recent
delinquencies and loan funding status, as well as a free-search field. The free-search field
returns results based on the word entered as the search. As investors browse the loan listings,
they can click on any of the listings to view additional detail. The loan detail page includes
general information about the borrower member and the loan request that is viewable by non-members,
and more detail (including credit data) viewable only by signed-in investors. Once signed-in,
investors may select any of the displayed loan listings and add them to their order, which is
akin to a shopping basket. Investors may add as many member loans as they want to their order,
provided that the aggregate amount of their order does not exceed the funds available in their
LendingClub customer accounts. Once an investor has finished building an order, the investor may
click the check out button, review the order one more time and then click the confirmation
button to commit funds to the order. Funds committed represent binding commitments to purchase
Notes issued by us that are dependent on the chosen member loans for payment. From that point on,
the funds committed by the investor are no longer available in the investors LendingClub account
and may no longer be withdrawn or committed to other loans (unless and until loans included in the
order are not funded, in which case the corresponding funds become available to the investor
again).
A single borrower members loan request is typically funded by Notes purchased by many
different investors. For example, during the period from October 13, 2008 to December 31, 2009, the
average aggregate unsecured loan size was approximately $9,766 and the average funding commitment
per investor per loan was approximately $105. Notes are available in a minimum denomination of
$25, and in $25 increments thereafter. In the event that a borrower members loan request does not
attract Note purchase commitments sufficient to funding for the member loan of at least 60% of the
listed loan amount, the borrower member ceases to be under an obligation to accept the loan,
although borrowers may still choose to accept partial funding (less than 60%) of their loan
requests or may request that their loan request be re-listed on the LendingClub platform. For the
period ended December 31, 2009, among borrower members whose loan requests were only partially
committed:
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approximately 51% chose to accept partial funding;
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approximately 11% chose to re-list their loan requests; and
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approximately 38% chose to decline partial funding and not relist their loan requests.
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48
LendingMatch
In making loan purchase commitments, as of December 31, 2009, roughly 40% of investors state
that they use LendingClubs LendingMatch portfolio tool builder, a proprietary tool that creates
a sample portfolio of Notes responsive to investment criteria selected by the investors either
selecting a target weighted average interest rate for the investors portfolio or by building a
portfolio based upon investment criteria selected by the investor. Investors may experiment with
LendingMatch search results on our website without committing to purchase Notes.
The following steps are involved in an investors use of LendingMatch:
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The investor indicates the aggregate principal amount of Notes that the investor wishes
to purchase, which we refer to as a portfolio.
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The investor may then input preferences corresponding to LendingClub risk levels, such as
by clicking LendingMatch search buttons or moving a cursor along a LendingMatch slider.
These risk levels are calculated by applying a proprietary formula. The calculation that
LendingMatch performs assumes an initial search result from the loan requests currently
available on the platform.
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By using the search inputs, the investor can submit queries for LendingMatch to present
potential Notes that match the investors search criteria (maximum debt-to-income ratio,
home ownership, previously funded loans, security interest, among others). LendingMatch then
displays a sample portfolio for the investor.
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The sample portfolio presented by LendingMatch contains a list of Notes, displaying
information about requested principal
amounts, interest rates and the maturity dates of each member loan on which a Note is
dependent. Self-reported social connections, if any, are also displayed. By changing the input
criteria, an investor can repeat the request for a sample portfolio and view a new portfolio.
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Once presented with a sample portfolio, an investor can choose to make modifications to
the sample portfolio by removing Notes, adding new Notes or changing the amount of each Note
purchased.
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The investor then submits the desired portfolio, gets a confirmation page and selects
confirm in order to buy the portfolio or go back to make further modifications or cancel
the portfolio altogether.
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If a loan request forming part of the portfolio is cancelled, either by LendingClub or by
the borrower member, and the member loan will not be available, investors will be offered
the opportunity to substitute a new loan request for the cancelled request. In this event,
LendingMatch will present investors with the option to replace the cancelled loan request
with another loan request of the same risk grade or a less risky risk grade or that meets
the other investment criteria selected by the investor. Thus, a B5 loan would be replaced
with the option to designate funding for another B5 loan and, if no B5 loan were available,
a B4 loan, and if no B4 loan were available, a B3 loan, and so forth.
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Investors may also browse loan requests or sort them using various search criteria including
interest rate, FICO score range, debt-to-income ratio (calculated as described above),
delinquencies in the last two years and percentage of the loan request already funded by Note
commitments.
Loan Funding and Treatment of Investor Balances
An investors commitment to purchase a Note dependent on a member loan is a binding
commitment, subject only to receipt of aggregate Note purchase commitments equal to at least 60% of
the loan request amount or, if the total loan request amount is funded less than 60% of the loan
request amount by investor Note purchase commitments or LendingClub, a borrower members decision
to accept partial funding. In order to make Note purchase commitments, investors must have
sufficient funds in their LendingClub accounts. This is accomplished by having each investor
authorize an electronic transfer using the ACH network from the investors designated and verified
bank account to the account currently maintained by LendingClub at
Wells Fargo, where Wells Fargo is acting in a separate capacity in
connection with the accounts it maintains on behalf of LendingClub
than as it does as trustee under an indenture governing the Notes,
in trust for investors (ITF account). The ITF
account is a pooled account titled in our name in trust
for LendingClub investors. The ITF
account is a non-interest bearing demand deposit account.
49
Funds in the ITF account will always be maintained at an FDIC member financial institution.
Individual LendingClub members have no direct relationship with Wells Fargo. We are the
trustee for the ITF account. In addition to outlining the rights of investors, the trust agreement
provides that we disclaim any economic interest in the assets in the ITF account and also provides
that each investor disclaims any right, title or interest in the assets of any other investor in
the ITF account. No LendingClub monies are ever commingled with the assets of investors in the ITF
account.
Under the ITF account, we maintain sub-accounts for each of the investors on our platform to
track and report funds committed by investors to purchase Notes dependent on member 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 ITF account.
The ITF account is FDIC-insured on a pass through basis to the individual investors, subject
to applicable limits. This means that each individual investors balance is protected by FDIC
insurance, up to the limits established by the FDIC. Other funds the investor has on deposit with
Wells Fargo, for example, may count against any applicable FDIC insurance limits.
Funds of an investor may stay in the ITF account indefinitely. Such funds may include:
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funds in the investors sub-account never committed to purchase Notes;
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funds committed to the purchase of Notes for which the underlying member loan did not
close; or
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payments received from LendingClub related to Notes previously purchased.
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Upon request by the investor, we will transfer investor funds in the ITF account to the
investors designated and verified bank account by ACH transfer, provided such funds are not
already committed to the future purchase of Notes.
Purchases of Notes and Loan Closings
Once an investor has decided to purchase one or more Notes that are dependent on member loans
and prefunded the investors LendingClub account with sufficient cash, we proceed with the purchase
and sale of the Notes to the investor and facilitate the closing of the corresponding member loans.
At a Note closing, when we issue a Note to an investor and register the Note on our books and
records, we transfer the principal amount of such Note from such investors sub-account under the
ITF account to a funding account maintained by WebBank. This transfer represents the payment by the
investor of the purchase price for the Note. These proceeds are designated for the funding of the
particular member loan selected by the investor. WebBank is the lender for all member loans to
borrower members, which allows our platform to be available on a uniform basis to borrower members
throughout the United States, except that we do not currently offer member loans in Idaho, Indiana,
Iowa, Kansas, Maine, Mississippi, Nebraska, North Carolina, North Dakota and Tennessee. We are
obligated to maintain sufficient funds in the funding account maintained by WebBank to satisfy the
daily projected member loan closings. WebBank disburses the loan proceeds to the borrower member
who is receiving the member loan. An individual member loan generally closes the first business day
after we receive Note funding commitments in an aggregate amount equal to the total amount of the
loan request, or when the borrower member agrees to take a lesser amount equal to the amount of
Note commitments received up to that time.
The borrower member executes an electronic loan agreement in favor of WebBank. At the closing
of the borrower members loan, we execute an electronic promissory note on the borrower members
behalf for the final loan amount under a power of attorney on behalf of the borrower member.
WebBank then electronically indorses the promissory note to LendingClub and assigns the borrower
members loan agreement to LendingClub without recourse to WebBank. Borrowers also electronically
execute a borrower membership agreement in which they grant us the power of attorney to execute
their promissory note and agree to have us service their member loan, among other things.
The promissory note and the loan agreement contain customary agreements and covenants
requiring the borrower members to repay their member loans and acknowledging LendingClubs role as
servicer for all the member loans. Borrowers authorize WebBank to disburse the loan proceeds by ACH
transfer.
Investors 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 in electronic form on our
platform.
50
Borrowers pay us an origination fee upon successful closing of the member loan. WebBank
deducts the origination fee from the loan amount prior to disbursing the net amount to the borrower
member and remits the fee to us. This fee is determined by the loan grade of the loan and will
range from 2.25% to 4.50% of the aggregate principal amount. The origination fees for three year
and five year terms are the same. The fees are:
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LendingClub
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Origination
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Loan Grade
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Fee
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A
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2.25
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%
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B
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3.75
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%
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C
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4.50
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%
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D
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4.50
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%
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E
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4.50
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%
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F
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4.50
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%
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G
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4.50
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%
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Furthermore, regardless of loan grade or term, an additional origination fee of 1.5% will be
paid to us by borrowers upon successful closings of member loans made for small business financing
or to borrowers who are self-employed. This fee will
not be
duplicated if a borrower is
both self employed and financing a small business.
Identity Fraud Reimbursement
We reimburse investors for the unpaid principal balance of a Note that is dependent on a
member loan obtained through identity fraud. We generally recognize the occurrence of identity
fraud upon receipt of a police report regarding the identity fraud. This reimbursement for identity
fraud only provides an assurance that our borrower identity verification is accurate; in no way is
it a guarantee of a borrowers self-reported information (beyond the borrowers identity) or a
borrower members creditworthiness. We expect the incidence of identity fraud on our platform to be
low because of our identity verification process. As of December 31, 2009, we had experienced
sixteen cases of confirmed identity fraud. In fourteen of these cases, we received a police report
from the victim of the identity fraud, evidencing that identity fraud had occurred. In the
remaining cases, the identity appeared to be completely faked. We reimbursed the investors who had
funded these sixteen member loans for the outstanding principal amount of these member loans.
Post-Closing Loan Servicing and Collection
Following the purchase of Notes and the closing of the corresponding member loans, we begin
servicing the member loans.
We assess investors a service charge in respect of their Notes. Our service charge is equal to
an amount corresponding to 1.00% of the following amounts received by LendingClub from borrower
members in respect of each corresponding member loan (in each case excluding any payments due to
LendingClub on account of portions of the corresponding member loan, if any, funded by LendingClub
itself):
Our procedures generally involve the automatic debiting of borrower bank accounts by ACH
transfer. If a borrower member chooses to pay by check, we impose a $15.00 check processing fee per
payment, subject to applicable law. We retain 100% of any check processing and other processing
fees we receive to cover our costs.
Member loan payments are transferred to a clearing account in our name where they remain for
four days or until the amounts clear, whichever is shorter. Thereafter, we make payments on the
Notes by transferring the appropriate funds to the ITF account and allocating amounts received on
specific member loans to the appropriate investors sub-account. We transfer amounts due to us for
servicing and borrower loans we hold from the clearing account to another operating account of
ours. An investor may transfer uncommitted funds out of the investors LendingClub sub-account in
the ITF account by ACH to the investors 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 investors and report to consumer reporting agencies
regarding borrower members payment performance on LendingClub member loans. We have also made
arrangements for collection procedures in the event of borrower member default. When a member 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 may, in our discretion, assess a late payment fee. The amount of
the late payment fee is the greater of 5.00% of the unpaid payment amount, or $15.00, 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 fees we
receive are paid to holders of the Notes dependent on the relevant member loans, net of our service
charge. We often choose not to assess a late payment fee when a borrower promises to return a
delinquent loan to current status and fulfills that promise. See About the Loan Platform
Historical Information about Our Borrower Members and Outstanding Loans. We may also work with the
borrower member to structure a new payment plan in respect of the member loan without the consent
of any holder of the Notes corresponding to that member loan. Under the indenture for the Notes, we
are required to use commercially reasonable efforts to service and collect member loans, in good
faith, accurately and in accordance with industry standards customary for servicing loans such as
the member loans.
51
Each time a payment request is denied due to insufficient funds in the borrowers account or
for any other reason, we may assess an unsuccessful payment fee to the borrower in an amount of
$15.00 per unsuccessful payment, or such lesser amount as may be provided by applicable law. We
retain 100% of this unsuccessful payment fee to cover our costs incurred because of the denial of
the payment.
If a member loan becomes 31 days overdue, we identify the loan on our website as Late
(31-120), and we either refer the member loan to an outside collection agent, currently AR Assist,
LLC, or to our in-house collections department. Currently, we generally use our in-house
collections department as a first step when a borrower member misses a member loan payment. In the
event that our initial in-house attempts to contact a borrower member are unsuccessful, we
generally refer the delinquent account to the outside collection agent. Amounts equal to any
recoveries we receive from the collection process are payable to investors on a pro rata basis,
subject to our deduction of our 1.00% service charge and an additional collection fee. The investor
is only charged the additional collection fee if the collection agency or LendingClub are able to
collect a payment. These fees, which are a percentage of the amount recovered, are listed below:
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30% if the member loan is less than 60 days past due and no more than 90 days from the
date of origination;
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35% in all other cases, except litigation; and
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30%, or hourly attorneys fees, in the event of litigation, plus costs.
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Investors are able to monitor the status of collections as the status of a member loan
switches from Late (15-30 days) to Late (31-120 days) to current for example, but cannot
participate in or otherwise intervene in the collection process.
The following table summarizes the fees that we charge and how these fees affect investors:
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Description of Fee
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Fee Amount
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When Fee is Charged
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Effect on Investors
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Service charge on
Notes
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1.00% of the
principal, interest
and late fees
received by
LendingClub from
borrower members in
respect of each
corresponding
member loan (in
each case excluding
any payments due to
LendingClub on
account of portions
of the
corresponding
member loan, if
any, funded by
LendingClub itself)
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At the time of any
payments on the Notes,
including Note payments
resulting from
prepayments or partial
payments on
corresponding member
loans
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The service charge will reduce the
effective yield on your Notes
below their stated interest rate
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Member loan late fee
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Assessed in our
discretion; if
assessed, the late
fee is the greater
of 5.00% of the
unpaid installment
amount, or $15.00,
or such lesser
amount as may be
provided by
applicable law, and
may be charged only
once per late
payment
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In our discretion, when
a member loan is past
due and payment has not
been received after a
15-day grace period
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Amounts equal to any late payment
fees we receive are paid to
holders of the Notes corresponding
to the relevant member loan, net
of our 1.00% service charge
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Member loan
unsuccessful
payment fee
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$15.00 per
unsuccessful
payment, or such
lesser amount as
may be provided by
applicable law
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May be assessed each
time a payment request
is denied, due to
insufficient funds in
the borrowers account
or for any other reason
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We retain 100% of this
unsuccessful payment fee to cover
our costs incurred because of the
denial of the payment
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52
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Description of Fee
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Fee Amount
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When Fee is Charged
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Effect on Investors
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Member loan
collection fee
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Only charged after
a member loan
becomes 31 days
overdue if the
collection agency
or LendingClub is
able to collect an
overdue payment;
collection fee is a
percentage of the
amount recovered:
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At the time of
successful collection
after a member loan
becomes 31 days overdue
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Collection fees charged by us or a
third-party collection agency will
reduce payments and the effective
yield on the related Notes;
collection fees will be retained
by us or the third-party
collection agency as additional
servicing compensation
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30% if
the member
loan is less than
60 days past due
and no more than 90
days from the date
of origination;
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35% in
all other
cases, except
litigation; and
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30%,
or hourly
attorneys fees, in
the event of
litigation, plus
costs
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Check processing fee
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$15.00 per check
processed for any
payments made by
check
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At the time a payment
by check is processed
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We retain 100% of this check
processing fee to cover our costs
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If a borrower member dies while a member loan is in repayment, we require the executor or
administrator of the estate to send a death certificate to us. We then file a claim against the
borrower members estate to attempt to recover the outstanding loan balance. 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 member loan in full, we will treat the
unsatisfied portion of a member loan as defaulted with zero value. In addition, if a borrower
member dies near the end of the term of a member loan, it is unlikely that any further payments
will be made on the Notes corresponding to such member 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 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 member loan. We also defer any other collection activity. The status of the member
loan, which the relevant investors may view, switches to bankruptcy. We next determine what we
believe to be an appropriate approach to the members bankruptcy. 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 member
loan.
In all other cases, LendingClub will 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
LendingClub borrower member will be entirely within our discretion and will depend upon certain
factors including:
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if the borrower member used the proceeds of a LendingClub member loan in a way other than
that which was described the borrower members loan application;
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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 members behalf; and
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our view of the costs and benefits to LendingClub of any proposed action.
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Participation in the Funding of Loans by LendingClub and Its Affiliates
From time to time, qualified loan requests on our platform are not fully committed to by
investors. To address these situations, LendingClub has itself funded portions of certain member
loan requests. As of December 31, 2009, we had funded approximately $20.1 million of loan requests.
Although we have no obligation to do so, we may fund portions of loan requests in the future.
Our affiliates, including our executive officers, directors and 5% stockholders, also have
funded portions of loans requests from time to time in the past, and may do so in the future. As of
December 31, 2009, these affiliates had funded $563,800 of loan requests.
53
Trading Platform
Investors may not transfer their Notes except through the resale trading platform operated by
FOLIO
fn
Investments, Inc.
(FOLIO
fn
), a registered broker-dealer. See About the Loan Platform Description of the
Notes Restrictions on Transfer. This trading platform is an internet-based trading platform on
which LendingClub investors who establish a brokerage relationship with the registered
broker-dealer operating the trading platform may offer their Notes for sale. In this section, we
refer to LendingClub investors who have established such brokerage relationships as subscribers.
Only transactions involving resales of previously issued Notes will be effected through the trading
platform; the trading platform will not handle any aspect of transactions involving the initial
offer and sale of Notes by LendingClub. 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 historical information from the original loan posting
for the member loan corresponding to the Note, an updated credit score range of the borrower member
and the payment history for the Note.
Currently, the only fees payable by subscribers in respect of the trading platform are the
fees charged by the registered broker-dealer to subscribers who sell Notes. This fee is currently
equal to 1.00% of the resale price of the Note sold.
All Notes traded through the trading platform will continue to be subject to LendingClubs
ongoing fees, including the ongoing 1.00% service charge.
LendingClub is 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 FOLIO
fn
. Neither LendingClub nor FOLIO
fn
will make any
recommendations with respect to transactions on the trading platform. There is no assurance that
investors will be able to establish a brokerage relationship with the registered broker-dealer.
Furthermore, LendingClub 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 LendingClub
offer any assurance that the trading platform will continue to be available to subscribers. The
trading platform is not available to residents of all states.
Customer Support
We provide customer support to our borrower members and investors. For most LendingClub
members, their experience is entirely web-based. We include detailed frequently asked questions
(FAQs) 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 located at our headquarters in Redwood City, California.
Historical Information about Our Borrower Members and Outstanding Loans
As of December 31, 2009, LendingClub had facilitated 8,277 member loans with an average
original principal amount of $9,252 and an aggregate original principal amount of $76,581,325, out
of which $49,520,619 of outstanding principal balance had been through at least one billing cycle.
Out of these loans, 594 member loans with an aggregate original principal amount of $5,095,050, or
6.65% had prepaid, while out of the total outstanding principal balance, 89.22% were current, 0.71%
were 16 to 30 days late, 3.36% were more than 30 days late, and 6.67% were defaulted. A member loan
is considered as having defaulted when at least one payment is more than 120 days late.
The 6.67% of defaulted loans as of December 31, 2009 were comprised of 420 member loans,
equaling a total defaulted amount of $3,303,797. Of these defaulted loans, 302 loans representing
$2,254,408 in defaulted amount were defaults due to delinquency, while the remaining 118 loans were
loans in which the borrower member filed for a Chapter 7 bankruptcy seeking liquidation,
representing $1,049,389 in defaulted amount.
During the three months ended December 31, 2009, of the 5,399 member loans which were not
delinquent prior to the start of the quarter, 166 member loans became delinquent for some amount of
time during the quarter, excluding those that entered the 0 15 day grace period. Of those loans
which became delinquent for more than 15 days during the quarter, we charged late fees totaling
$2,653 on 97 loans and received late fees of $484 on those same 97 loans.
54
The following table presents aggregated information about borrower members and their loans for
the period from May 24, 2007 to December 31, 2009, grouped by the loan grade assigned by us all
loans are unsecured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Total
|
|
|
|
Number of
|
|
|
Average Interest
|
|
|
Average Annual
|
|
|
Funded
|
|
Loan Grade
|
|
Borrowers
|
|
|
Rate
|
|
|
Percentage Rate
|
|
|
Commitment
|
|
A1
|
|
|
56
|
|
|
|
7.24
|
%
|
|
|
7.82
|
%
|
|
$
|
4,372
|
|
A2
|
|
|
190
|
|
|
|
7.54
|
%
|
|
|
8.14
|
%
|
|
|
4,214
|
|
A3
|
|
|
350
|
|
|
|
7.89
|
%
|
|
|
8.51
|
%
|
|
|
5,996
|
|
A4
|
|
|
440
|
|
|
|
8.86
|
%
|
|
|
9.48
|
%
|
|
|
6,794
|
|
A5
|
|
|
563
|
|
|
|
9.17
|
%
|
|
|
9.83
|
%
|
|
|
8,629
|
|
B1
|
|
|
347
|
|
|
|
10.57
|
%
|
|
|
12.27
|
%
|
|
|
8,609
|
|
B2
|
|
|
393
|
|
|
|
10.85
|
%
|
|
|
12.49
|
%
|
|
|
10,551
|
|
B3
|
|
|
434
|
|
|
|
11.26
|
%
|
|
|
12.98
|
%
|
|
|
11,154
|
|
B4
|
|
|
466
|
|
|
|
11.59
|
%
|
|
|
13.30
|
%
|
|
|
10,274
|
|
B5
|
|
|
497
|
|
|
|
11.89
|
%
|
|
|
13.55
|
%
|
|
|
9,523
|
|
C1
|
|
|
483
|
|
|
|
12.12
|
%
|
|
|
14.09
|
%
|
|
|
8,897
|
|
C2
|
|
|
418
|
|
|
|
12.48
|
%
|
|
|
14.48
|
%
|
|
|
9,545
|
|
C3
|
|
|
409
|
|
|
|
12.77
|
%
|
|
|
14.73
|
%
|
|
|
9,435
|
|
C4
|
|
|
399
|
|
|
|
13.07
|
%
|
|
|
15.03
|
%
|
|
|
9,240
|
|
C5
|
|
|
360
|
|
|
|
13.44
|
%
|
|
|
15.45
|
%
|
|
|
9,111
|
|
D1
|
|
|
304
|
|
|
|
13.73
|
%
|
|
|
15.95
|
%
|
|
|
10,021
|
|
D2
|
|
|
297
|
|
|
|
14.11
|
%
|
|
|
16.35
|
%
|
|
|
9,793
|
|
D3
|
|
|
278
|
|
|
|
14.35
|
%
|
|
|
16.53
|
%
|
|
|
9,926
|
|
D4
|
|
|
259
|
|
|
|
14.52
|
%
|
|
|
16.63
|
%
|
|
|
9,379
|
|
D5
|
|
|
197
|
|
|
|
14.83
|
%
|
|
|
16.90
|
%
|
|
|
9,685
|
|
E1
|
|
|
163
|
|
|
|
15.11
|
%
|
|
|
17.17
|
%
|
|
|
10,111
|
|
E2
|
|
|
177
|
|
|
|
15.23
|
%
|
|
|
17.26
|
%
|
|
|
9,707
|
|
E3
|
|
|
139
|
|
|
|
15.59
|
%
|
|
|
17.53
|
%
|
|
|
9,830
|
|
E4
|
|
|
115
|
|
|
|
15.55
|
%
|
|
|
17.35
|
%
|
|
|
9,931
|
|
E5
|
|
|
99
|
|
|
|
16.16
|
%
|
|
|
18.07
|
%
|
|
|
10,487
|
|
F1
|
|
|
69
|
|
|
|
16.22
|
%
|
|
|
17.99
|
%
|
|
|
10,636
|
|
F2
|
|
|
68
|
|
|
|
16.81
|
%
|
|
|
18.71
|
%
|
|
|
11,878
|
|
F3
|
|
|
46
|
|
|
|
16.85
|
%
|
|
|
18.69
|
%
|
|
|
12,191
|
|
F4
|
|
|
47
|
|
|
|
17.46
|
%
|
|
|
19.42
|
%
|
|
|
10,934
|
|
F5
|
|
|
38
|
|
|
|
17.78
|
%
|
|
|
19.80
|
%
|
|
|
11,613
|
|
G1
|
|
|
35
|
|
|
|
18.08
|
%
|
|
|
20.05
|
%
|
|
|
11,409
|
|
G2
|
|
|
26
|
|
|
|
18.30
|
%
|
|
|
20.09
|
%
|
|
|
8,562
|
|
G3
|
|
|
22
|
|
|
|
18.23
|
%
|
|
|
19.83
|
%
|
|
|
10,777
|
|
G4
|
|
|
42
|
|
|
|
18.59
|
%
|
|
|
20.28
|
%
|
|
|
13,379
|
|
G5
|
|
|
51
|
|
|
|
19.12
|
%
|
|
|
20.94
|
%
|
|
$
|
10,574
|
|
55
The following table presents aggregated information for the period from May 24, 2007 to
December 31, 2009, self-reported by borrower members at the time of their loan applications,
grouped by the loan grade assigned by us. We do not independently verify this information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Borrowers
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Stating They Own Their
|
|
|
Job Tenure
|
|
|
Average Annual
|
|
|
Average Debt-to-
|
|
Grade
|
|
Own Homes
|
|
|
in Months
|
|
|
Gross Income
|
|
|
Income Ratio
1
|
|
A1
|
|
|
58.93
|
%
|
|
|
76
|
|
|
$
|
61,226
|
|
|
|
7.20
|
%
|
A2
|
|
|
62.11
|
%
|
|
|
72
|
|
|
|
75,019
|
|
|
|
7.76
|
%
|
A3
|
|
|
56.86
|
%
|
|
|
78
|
|
|
|
70,433
|
|
|
|
8.98
|
%
|
A4
|
|
|
53.41
|
%
|
|
|
72
|
|
|
|
60,745
|
|
|
|
10.31
|
%
|
A5
|
|
|
54.88
|
%
|
|
|
72
|
|
|
|
70,597
|
|
|
|
11.08
|
%
|
B1
|
|
|
44.67
|
%
|
|
|
62
|
|
|
|
66,512
|
|
|
|
10.93
|
%
|
B2
|
|
|
49.11
|
%
|
|
|
72
|
|
|
|
73,466
|
|
|
|
11.19
|
%
|
B3
|
|
|
48.62
|
%
|
|
|
78
|
|
|
|
73,640
|
|
|
|
12.32
|
%
|
B4
|
|
|
46.57
|
%
|
|
|
64
|
|
|
|
68,562
|
|
|
|
12.85
|
%
|
B5
|
|
|
41.65
|
%
|
|
|
58
|
|
|
|
61,650
|
|
|
|
12.28
|
%
|
C1
|
|
|
45.76
|
%
|
|
|
64
|
|
|
|
65,477
|
|
|
|
12.51
|
%
|
C2
|
|
|
44.26
|
%
|
|
|
60
|
|
|
|
60,427
|
|
|
|
12.61
|
%
|
C3
|
|
|
43.03
|
%
|
|
|
56
|
|
|
|
65,862
|
|
|
|
13.35
|
%
|
C4
|
|
|
44.36
|
%
|
|
|
70
|
|
|
|
67,391
|
|
|
|
14.21
|
%
|
C5
|
|
|
39.72
|
%
|
|
|
64
|
|
|
|
72,826
|
|
|
|
13.47
|
%
|
D1
|
|
|
42.43
|
%
|
|
|
64
|
|
|
|
66,846
|
|
|
|
13.37
|
%
|
D2
|
|
|
41.75
|
%
|
|
|
75
|
|
|
|
67,426
|
|
|
|
13.49
|
%
|
D3
|
|
|
46.76
|
%
|
|
|
67
|
|
|
|
63,459
|
|
|
|
13.56
|
%
|
D4
|
|
|
40.15
|
%
|
|
|
55
|
|
|
|
61,884
|
|
|
|
13.33
|
%
|
D5
|
|
|
42.64
|
%
|
|
|
56
|
|
|
|
67,001
|
|
|
|
13.29
|
%
|
E1
|
|
|
42.33
|
%
|
|
|
56
|
|
|
|
66,831
|
|
|
|
13.98
|
%
|
E2
|
|
|
37.29
|
%
|
|
|
55
|
|
|
|
59,909
|
|
|
|
14.02
|
%
|
E3
|
|
|
41.01
|
%
|
|
|
59
|
|
|
|
67,988
|
|
|
|
13.61
|
%
|
E4
|
|
|
46.96
|
%
|
|
|
70
|
|
|
|
69,721
|
|
|
|
14.89
|
%
|
E5
|
|
|
43.43
|
%
|
|
|
57
|
|
|
|
70,475
|
|
|
|
14.87
|
%
|
F1
|
|
|
46.38
|
%
|
|
|
59
|
|
|
|
69,108
|
|
|
|
15.46
|
%
|
F2
|
|
|
44.12
|
%
|
|
|
79
|
|
|
|
78,649
|
|
|
|
15.85
|
%
|
F3
|
|
|
43.48
|
%
|
|
|
82
|
|
|
|
78,010
|
|
|
|
18.38
|
%
|
F4
|
|
|
44.68
|
%
|
|
|
68
|
|
|
|
65,793
|
|
|
|
16.61
|
%
|
F5
|
|
|
44.74
|
%
|
|
|
68
|
|
|
|
73,945
|
|
|
|
12.98
|
%
|
G1
|
|
|
51.43
|
%
|
|
|
43
|
|
|
|
57,068
|
|
|
|
19.08
|
%
|
G2
|
|
|
46.15
|
%
|
|
|
62
|
|
|
|
86,769
|
|
|
|
17.31
|
%
|
G3
|
|
|
50.00
|
%
|
|
|
67
|
|
|
|
77,037
|
|
|
|
18.42
|
%
|
G4
|
|
|
59.52
|
%
|
|
|
58
|
|
|
|
103,235
|
|
|
|
16.49
|
%
|
G5
|
|
|
62.75
|
%
|
|
|
67
|
|
|
$
|
104,092
|
|
|
|
18.55
|
%
|
|
|
|
1
|
|
Average debt to income ratio, excluding mortgage
debt, calculated by us based on (i) the debt reported by a consumer reporting
agency, and (ii) the income reported by the borrower member.
|
56
The following table presents aggregated information for the period from May 24, 2007 to
December 31, 2009, reported by a consumer reporting agency about our borrower members at the time
of their loan applications, grouped by the loan grade assigned by us. As used in this table,
Delinquencies in the Last Two Years means the number of 30+ days past-due incidences of
delinquency in the borrower members credit file for the past two years. See About the Loan
Platform How the LendingClub Platform Operates Minimum Credit Criteria and Underwriting for a
more detailed discussion of delinquencies. We do not independently verify this information. All
figures other than loan grade are agency reported:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Number of
|
|
|
Average
|
|
|
Average
|
|
|
|
Average
|
|
|
Open
|
|
|
Total
|
|
|
Revolving
|
|
|
Revolving
|
|
|
Inquiries in
|
|
|
Delinquencies
|
|
|
Months
|
|
|
|
FICO
|
|
|
Credit
|
|
|
Credit
|
|
|
Credit
|
|
|
Line
|
|
|
the Last
|
|
|
in the Last
|
|
|
Since Last
|
|
Grade
|
|
Score
|
|
|
Lines
|
|
|
Lines
|
|
|
Balances
|
|
|
Utilizations
|
|
|
Six Months
|
|
|
Two Years
|
|
|
Delinquency
|
|
A1
|
|
|
777
|
|
|
|
8
|
|
|
|
22
|
|
|
$
|
12,793
|
|
|
|
17.19
|
%
|
|
|
1
|
|
|
|
0
|
|
|
|
31
|
|
A2
|
|
|
774
|
|
|
|
10
|
|
|
|
23
|
|
|
|
11,940
|
|
|
|
15.52
|
%
|
|
|
1
|
|
|
|
0
|
|
|
|
44
|
|
A3
|
|
|
768
|
|
|
|
9
|
|
|
|
22
|
|
|
|
11,082
|
|
|
|
18.45
|
%
|
|
|
1
|
|
|
|
0
|
|
|
|
44
|
|
A4
|
|
|
756
|
|
|
|
9
|
|
|
|
22
|
|
|
|
13,039
|
|
|
|
23.96
|
%
|
|
|
1
|
|
|
|
0
|
|
|
|
42
|
|
A5
|
|
|
749
|
|
|
|
9
|
|
|
|
22
|
|
|
|
14,583
|
|
|
|
29.24
|
%
|
|
|
1
|
|
|
|
0
|
|
|
|
40
|
|
B1
|
|
|
737
|
|
|
|
9
|
|
|
|
21
|
|
|
|
13,919
|
|
|
|
33.55
|
%
|
|
|
1
|
|
|
|
0
|
|
|
|
36
|
|
B2
|
|
|
736
|
|
|
|
9
|
|
|
|
21
|
|
|
|
15,329
|
|
|
|
34.22
|
%
|
|
|
1
|
|
|
|
0
|
|
|
|
46
|
|
B3
|
|
|
729
|
|
|
|
9
|
|
|
|
21
|
|
|
|
18,575
|
|
|
|
39.57
|
%
|
|
|
1
|
|
|
|
0
|
|
|
|
40
|
|
B4
|
|
|
719
|
|
|
|
9
|
|
|
|
21
|
|
|
|
17,731
|
|
|
|
43.18
|
%
|
|
|
1
|
|
|
|
0
|
|
|
|
40
|
|
B5
|
|
|
712
|
|
|
|
9
|
|
|
|
19
|
|
|
|
17,273
|
|
|
|
46.71
|
%
|
|
|
1
|
|
|
|
0
|
|
|
|
37
|
|
C1
|
|
|
703
|
|
|
|
9
|
|
|
|
20
|
|
|
|
17,527
|
|
|
|
51.68
|
%
|
|
|
1
|
|
|
|
0
|
|
|
|
39
|
|
C2
|
|
|
702
|
|
|
|
9
|
|
|
|
20
|
|
|
|
15,667
|
|
|
|
51.62
|
%
|
|
|
2
|
|
|
|
0
|
|
|
|
41
|
|
C3
|
|
|
696
|
|
|
|
9
|
|
|
|
21
|
|
|
|
17,110
|
|
|
|
54.37
|
%
|
|
|
2
|
|
|
|
0
|
|
|
|
38
|
|
C4
|
|
|
693
|
|
|
|
10
|
|
|
|
21
|
|
|
|
16,705
|
|
|
|
55.72
|
%
|
|
|
2
|
|
|
|
0
|
|
|
|
36
|
|
C5
|
|
|
687
|
|
|
|
9
|
|
|
|
20
|
|
|
|
14,470
|
|
|
|
57.06
|
%
|
|
|
2
|
|
|
|
0
|
|
|
|
34
|
|
D1
|
|
|
686
|
|
|
|
9
|
|
|
|
21
|
|
|
|
19,586
|
|
|
|
56.36
|
%
|
|
|
2
|
|
|
|
0
|
|
|
|
34
|
|
D2
|
|
|
685
|
|
|
|
9
|
|
|
|
20
|
|
|
|
18,327
|
|
|
|
57.96
|
%
|
|
|
2
|
|
|
|
0
|
|
|
|
34
|
|
D3
|
|
|
682
|
|
|
|
10
|
|
|
|
20
|
|
|
|
16,319
|
|
|
|
58.43
|
%
|
|
|
2
|
|
|
|
0
|
|
|
|
36
|
|
D4
|
|
|
678
|
|
|
|
9
|
|
|
|
19
|
|
|
|
16,531
|
|
|
|
61.42
|
%
|
|
|
2
|
|
|
|
0
|
|
|
|
33
|
|
D5
|
|
|
678
|
|
|
|
9
|
|
|
|
20
|
|
|
|
20,184
|
|
|
|
58.84
|
%
|
|
|
2
|
|
|
|
0
|
|
|
|
34
|
|
E1
|
|
|
675
|
|
|
|
10
|
|
|
|
21
|
|
|
|
17,797
|
|
|
|
63.43
|
%
|
|
|
2
|
|
|
|
0
|
|
|
|
34
|
|
E2
|
|
|
672
|
|
|
|
10
|
|
|
|
20
|
|
|
|
18,286
|
|
|
|
62.62
|
%
|
|
|
2
|
|
|
|
0
|
|
|
|
35
|
|
E3
|
|
|
667
|
|
|
|
9
|
|
|
|
19
|
|
|
|
18,086
|
|
|
|
67.77
|
%
|
|
|
2
|
|
|
|
1
|
|
|
|
29
|
|
E4
|
|
|
666
|
|
|
|
10
|
|
|
|
20
|
|
|
|
18,495
|
|
|
|
65.14
|
%
|
|
|
4
|
|
|
|
0
|
|
|
|
37
|
|
E5
|
|
|
668
|
|
|
|
10
|
|
|
|
21
|
|
|
|
18,343
|
|
|
|
65.23
|
%
|
|
|
3
|
|
|
|
0
|
|
|
|
26
|
|
F1
|
|
|
670
|
|
|
|
10
|
|
|
|
23
|
|
|
|
22,755
|
|
|
|
66.08
|
%
|
|
|
3
|
|
|
|
0
|
|
|
|
32
|
|
F2
|
|
|
673
|
|
|
|
10
|
|
|
|
22
|
|
|
|
24,500
|
|
|
|
66.07
|
%
|
|
|
3
|
|
|
|
0
|
|
|
|
30
|
|
F3
|
|
|
668
|
|
|
|
11
|
|
|
|
24
|
|
|
|
25,915
|
|
|
|
62.52
|
%
|
|
|
3
|
|
|
|
0
|
|
|
|
38
|
|
F4
|
|
|
667
|
|
|
|
11
|
|
|
|
22
|
|
|
|
23,906
|
|
|
|
68.47
|
%
|
|
|
3
|
|
|
|
0
|
|
|
|
31
|
|
F5
|
|
|
667
|
|
|
|
10
|
|
|
|
22
|
|
|
|
21,431
|
|
|
|
68.92
|
%
|
|
|
3
|
|
|
|
0
|
|
|
|
27
|
|
G1
|
|
|
672
|
|
|
|
10
|
|
|
|
21
|
|
|
|
16,786
|
|
|
|
64.23
|
%
|
|
|
3
|
|
|
|
0
|
|
|
|
30
|
|
G2
|
|
|
662
|
|
|
|
12
|
|
|
|
23
|
|
|
|
24,168
|
|
|
|
67.41
|
%
|
|
|
3
|
|
|
|
0
|
|
|
|
28
|
|
G3
|
|
|
659
|
|
|
|
13
|
|
|
|
22
|
|
|
|
20,190
|
|
|
|
66.17
|
%
|
|
|
4
|
|
|
|
0
|
|
|
|
33
|
|
G4
|
|
|
656
|
|
|
|
13
|
|
|
|
28
|
|
|
|
38,085
|
|
|
|
67.43
|
%
|
|
|
3
|
|
|
|
0
|
|
|
|
34
|
|
G5
|
|
|
658
|
|
|
|
13
|
|
|
|
30
|
|
|
$
|
57,534
|
|
|
|
67.71
|
%
|
|
|
4
|
|
|
|
1
|
|
|
|
26
|
|
The following table presents additional aggregated information for the period from May 24,
2007 to December 31, 2009, about delinquencies, default and borrower prepayments, grouped by the
loan grade assigned by us. The interest rate, default and delinquency information presented in the
table includes data only for member loans that had been issued for more than 45 days as of December
31, 2009, and therefore have been through at least one billing cycle. With respect to late member
loans, the following table shows the entire amount of the principal remaining due, not just that
particular payment. The third and fifth columns show the late member loan amounts as a percentage
of member loans issued for more than 45 days. Member loans are placed on nonaccrual status and
considered as defaulted when they become 120 days late. The data presented in the table below comes
from a set of member loans that have been outstanding, on average, for approximately twenty-one
months.
57
Because of our limited operating history, the data in the following table regarding loss
experience may not be representative of the loss experience that will develop over time as
additional member loans are originated through our platform and the member loans already originated
through our platform have longer payment histories. In addition, because of our limited operating
history, the data in the following table regarding prepayments may not be representative of the
prepayments we expect over time as additional member loans are originated through our platform and
the member loans already originated through our platform have longer payment histories.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 30
|
|
|
15 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Days
|
|
|
Days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
|
Late
|
|
|
Late
|
|
|
30+ Days
|
|
|
30+ Days
|
|
|
|
|
|
|
Default
|
|
|
of
|
|
|
of Loans
|
|
|
|
|
|
|
Prepaid
|
|
Grade
|
|
($)
|
|
|
(%)
|
|
|
Late ($)
|
|
|
Late (%)
|
|
|
Default ($)
|
|
|
(%)
|
|
|
Loans
|
|
|
Prepaid
|
|
|
Prepaid ($)
|
|
|
(%)
|
|
A1
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
56
|
|
|
|
5
|
|
|
|
7,700
|
|
|
|
3.14
|
%
|
A2
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
816
|
|
|
|
0.11
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
190
|
|
|
|
26
|
|
|
|
96,800
|
|
|
|
12.09
|
%
|
A3
|
|
|
3,027
|
|
|
|
0.16
|
%
|
|
|
11,909
|
|
|
|
0.64
|
%
|
|
|
3,011
|
|
|
|
0.16
|
%
|
|
|
350
|
|
|
|
34
|
|
|
|
180,600
|
|
|
|
8.61
|
%
|
A4
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
17,474
|
|
|
|
0.68
|
%
|
|
|
5,551
|
|
|
|
0.21
|
%
|
|
|
440
|
|
|
|
32
|
|
|
|
223,400
|
|
|
|
7.47
|
%
|
A5
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
55,930
|
|
|
|
1.37
|
%
|
|
|
18,333
|
|
|
|
0.45
|
%
|
|
|
563
|
|
|
|
32
|
|
|
|
208,900
|
|
|
|
4.30
|
%
|
B1
|
|
|
18,350
|
|
|
|
0.75
|
%
|
|
|
35,253
|
|
|
|
1.45
|
%
|
|
|
31,096
|
|
|
|
1.28
|
%
|
|
|
347
|
|
|
|
33
|
|
|
|
255,150
|
|
|
|
8.54
|
%
|
B2
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
71,675
|
|
|
|
2.03
|
%
|
|
|
77,788
|
|
|
|
2.20
|
%
|
|
|
393
|
|
|
|
24
|
|
|
|
257,775
|
|
|
|
6.22
|
%
|
B3
|
|
|
27,061
|
|
|
|
0.71
|
%
|
|
|
55,197
|
|
|
|
1.45
|
%
|
|
|
74,977
|
|
|
|
1.96
|
%
|
|
|
434
|
|
|
|
29
|
|
|
|
232,000
|
|
|
|
4.79
|
%
|
B4
|
|
|
23,964
|
|
|
|
0.62
|
%
|
|
|
78,890
|
|
|
|
2.04
|
%
|
|
|
134,455
|
|
|
|
3.47
|
%
|
|
|
466
|
|
|
|
30
|
|
|
|
318,200
|
|
|
|
6.65
|
%
|
B5
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
126,912
|
|
|
|
3.12
|
%
|
|
|
159,948
|
|
|
|
3.93
|
%
|
|
|
497
|
|
|
|
41
|
|
|
|
384,450
|
|
|
|
8.12
|
%
|
C1
|
|
|
29,056
|
|
|
|
0.78
|
%
|
|
|
88,867
|
|
|
|
2.38
|
%
|
|
|
114,162
|
|
|
|
3.06
|
%
|
|
|
483
|
|
|
|
36
|
|
|
|
348,375
|
|
|
|
8.11
|
%
|
C2
|
|
|
10,878
|
|
|
|
0.31
|
%
|
|
|
69,264
|
|
|
|
1.97
|
%
|
|
|
142,953
|
|
|
|
4.06
|
%
|
|
|
418
|
|
|
|
30
|
|
|
|
264,500
|
|
|
|
6.63
|
%
|
C3
|
|
|
42,015
|
|
|
|
1.22
|
%
|
|
|
82,667
|
|
|
|
2.40
|
%
|
|
|
188,237
|
|
|
|
5.45
|
%
|
|
|
409
|
|
|
|
26
|
|
|
|
243,725
|
|
|
|
6.32
|
%
|
C4
|
|
|
24,098
|
|
|
|
0.72
|
%
|
|
|
74,704
|
|
|
|
2.23
|
%
|
|
|
153,789
|
|
|
|
4.60
|
%
|
|
|
399
|
|
|
|
22
|
|
|
|
178,600
|
|
|
|
4.84
|
%
|
C5
|
|
|
5,623
|
|
|
|
0.20
|
%
|
|
|
77,285
|
|
|
|
2.78
|
%
|
|
|
170,738
|
|
|
|
6.13
|
%
|
|
|
360
|
|
|
|
19
|
|
|
|
170,625
|
|
|
|
5.20
|
%
|
D1
|
|
|
6,000
|
|
|
|
0.22
|
%
|
|
|
74,435
|
|
|
|
2.69
|
%
|
|
|
194,361
|
|
|
|
7.03
|
%
|
|
|
304
|
|
|
|
18
|
|
|
|
150,500
|
|
|
|
4.94
|
%
|
D2
|
|
|
14,919
|
|
|
|
0.61
|
%
|
|
|
53,378
|
|
|
|
2.17
|
%
|
|
|
113,932
|
|
|
|
4.64
|
%
|
|
|
297
|
|
|
|
16
|
|
|
|
158,725
|
|
|
|
5.46
|
%
|
D3
|
|
|
11,820
|
|
|
|
0.50
|
%
|
|
|
100,687
|
|
|
|
4.24
|
%
|
|
|
127,100
|
|
|
|
5.36
|
%
|
|
|
278
|
|
|
|
13
|
|
|
|
110,650
|
|
|
|
4.01
|
%
|
D4
|
|
|
819
|
|
|
|
0.04
|
%
|
|
|
69,731
|
|
|
|
3.36
|
%
|
|
|
192,318
|
|
|
|
9.27
|
%
|
|
|
259
|
|
|
|
17
|
|
|
|
150,225
|
|
|
|
6.18
|
%
|
D5
|
|
|
4,255
|
|
|
|
0.26
|
%
|
|
|
58,889
|
|
|
|
3.55
|
%
|
|
|
103,190
|
|
|
|
6.23
|
%
|
|
|
197
|
|
|
|
8
|
|
|
|
63,950
|
|
|
|
3.35
|
%
|
E1
|
|
|
34,093
|
|
|
|
2.19
|
%
|
|
|
21,042
|
|
|
|
1.35
|
%
|
|
|
85,937
|
|
|
|
5.51
|
%
|
|
|
163
|
|
|
|
13
|
|
|
|
135,975
|
|
|
|
8.25
|
%
|
E2
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
27,616
|
|
|
|
1.75
|
%
|
|
|
181,069
|
|
|
|
11.49
|
%
|
|
|
177
|
|
|
|
13
|
|
|
|
118,100
|
|
|
|
6.87
|
%
|
E3
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
66,708
|
|
|
|
5.11
|
%
|
|
|
41,097
|
|
|
|
3.15
|
%
|
|
|
139
|
|
|
|
10
|
|
|
|
145,050
|
|
|
|
10.62
|
%
|
E4
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
75,729
|
|
|
|
6.81
|
%
|
|
|
153,992
|
|
|
|
13.84
|
%
|
|
|
115
|
|
|
|
11
|
|
|
|
99,175
|
|
|
|
8.68
|
%
|
E5
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
23,624
|
|
|
|
2.61
|
%
|
|
|
53,358
|
|
|
|
5.90
|
%
|
|
|
99
|
|
|
|
14
|
|
|
|
168,700
|
|
|
|
16.25
|
%
|
F1
|
|
|
33,725
|
|
|
|
4.66
|
%
|
|
|
19,632
|
|
|
|
2.71
|
%
|
|
|
119,024
|
|
|
|
16.45
|
%
|
|
|
69
|
|
|
|
8
|
|
|
|
93,625
|
|
|
|
12.76
|
%
|
F2
|
|
|
2,602
|
|
|
|
0.33
|
%
|
|
|
21,501
|
|
|
|
2.70
|
%
|
|
|
124,085
|
|
|
|
15.56
|
%
|
|
|
68
|
|
|
|
3
|
|
|
|
40,250
|
|
|
|
4.98
|
%
|
F3
|
|
|
16,750
|
|
|
|
3.61
|
%
|
|
|
34,347
|
|
|
|
7.41
|
%
|
|
|
97,710
|
|
|
|
21.07
|
%
|
|
|
46
|
|
|
|
8
|
|
|
|
67,525
|
|
|
|
12.04
|
%
|
F4
|
|
|
3,726
|
|
|
|
0.82
|
%
|
|
|
45,846
|
|
|
|
10.13
|
%
|
|
|
85,596
|
|
|
|
18.91
|
%
|
|
|
47
|
|
|
|
3
|
|
|
|
14,500
|
|
|
|
2.82
|
%
|
F5
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
21,566
|
|
|
|
5.33
|
%
|
|
|
53,986
|
|
|
|
13.33
|
%
|
|
|
38
|
|
|
|
2
|
|
|
|
28,000
|
|
|
|
6.34
|
%
|
G1
|
|
|
24,486
|
|
|
|
6.70
|
%
|
|
|
1,447
|
|
|
|
0.40
|
%
|
|
|
24,128
|
|
|
|
6.60
|
%
|
|
|
35
|
|
|
|
4
|
|
|
|
59,400
|
|
|
|
14.88
|
%
|
G2
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
18,514
|
|
|
|
8.32
|
%
|
|
|
46,408
|
|
|
|
20.85
|
%
|
|
|
26
|
|
|
|
3
|
|
|
|
10,600
|
|
|
|
4.76
|
%
|
G3
|
|
|
4,243
|
|
|
|
1.79
|
%
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
45,923
|
|
|
|
19.37
|
%
|
|
|
22
|
|
|
|
4
|
|
|
|
46,300
|
|
|
|
19.53
|
%
|
G4
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
9,680
|
|
|
|
1.76
|
%
|
|
|
114,112
|
|
|
|
20.69
|
%
|
|
|
42
|
|
|
|
4
|
|
|
|
47,925
|
|
|
|
8.53
|
%
|
G5
|
|
|
7,543
|
|
|
|
1.56
|
%
|
|
|
66,784
|
|
|
|
13.78
|
%
|
|
|
70,730
|
|
|
|
14.59
|
%
|
|
|
51
|
|
|
|
3
|
|
|
|
15,075
|
|
|
|
2.80
|
%
|
For information about member loan modifications following delinquencies, see Description of
the Notes Servicing Covenant.
58
The following table presents aggregated information for the period from May 24, 2007 to
December 31, 2009 on the results of our collection efforts for all corresponding member loans that
became more than 30 days past due at any time, grouped by credit grade. For purposes of this
analysis, we have excluded the 14 loans that we repurchased due to identity fraud.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
Principal
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collected
|
|
|
Number of
|
|
|
Balance of
|
|
|
Amount
|
|
|
|
Number
|
|
|
|
|
|
|
Aggregate
|
|
|
on
|
|
|
Loans
|
|
|
Loans
|
|
|
Recovered
|
|
|
|
of Loans
|
|
|
|
|
|
|
Amount
|
|
|
Accounts
|
|
|
Charged-
|
|
|
Charged-Off
|
|
|
on Loans
|
|
|
|
in
|
|
|
Origination
|
|
|
Sent to
|
|
|
Sent to
|
|
|
Off Due to
|
|
|
Due to
|
|
|
Charged-
|
|
|
|
Collection
|
|
|
Amount
|
|
|
Collections
|
|
|
Collections
|
|
|
Delinquency
|
|
|
Delinquency
|
|
|
Off
|
|
Grade
|
|
(1)
|
|
|
(1)
|
|
|
(1)
|
|
|
(2)
|
|
|
(3)
|
|
|
(3)
|
|
|
(4)
|
|
A
|
|
|
29
|
|
|
|
206,225
|
|
|
|
22,969
|
|
|
|
12,790
|
|
|
|
5
|
|
|
|
20,480
|
|
|
|
0
|
|
B
|
|
|
100
|
|
|
|
930,775
|
|
|
|
117,360
|
|
|
|
46,449
|
|
|
|
37
|
|
|
|
237,858
|
|
|
|
3,120
|
|
C
|
|
|
161
|
|
|
|
1,461,575
|
|
|
|
203,941
|
|
|
|
93,978
|
|
|
|
67
|
|
|
|
456,316
|
|
|
|
0
|
|
D
|
|
|
133
|
|
|
|
1,210,875
|
|
|
|
160,483
|
|
|
|
69,254
|
|
|
|
61
|
|
|
|
464,158
|
|
|
|
1,538
|
|
E
|
|
|
105
|
|
|
|
920,425
|
|
|
|
142,601
|
|
|
|
63,298
|
|
|
|
51
|
|
|
|
351,314
|
|
|
|
69
|
|
F
|
|
|
63
|
|
|
|
787,025
|
|
|
|
125,780
|
|
|
|
35,042
|
|
|
|
36
|
|
|
|
341,093
|
|
|
|
0
|
|
G
|
|
|
34
|
|
|
|
387,900
|
|
|
|
64,533
|
|
|
|
24,869
|
|
|
|
15
|
|
|
|
162,577
|
|
|
|
140
|
|
Total
|
|
|
625
|
|
|
|
5,904,800
|
|
|
|
837,667
|
|
|
|
345,680
|
|
|
|
272
|
|
|
|
2,033,797
|
|
|
|
4,867
|
|
|
|
|
1)
|
|
Represents accounts 31 to 120 days past due.
|
|
2)
|
|
Represents the gross amounts collected on corresponding member loans while such
accounts were in collection during the 31-120 days past-due period. This amount does not
represent payments received after an account has been sent to collection, cured and
returned to current status. Of this amount, investors received $363,522 (99%). The
remainder was fees to us of $3,672 (1%). The amounts retained by us are reflected as loan
servicing fees in our consolidated financial statements.
|
|
3)
|
|
Represents accounts that have been delinquent for 120 days at which time the account is
charged-off. Any money recovered after 120 days is no longer included as amounts collected
on accounts sent to collection.
|
|
4)
|
|
Represents the gross amounts we received on charged-off accounts after the accounts
were charged-offe.g., a dollar received on an account 122 days past due.
|
Use of Proceeds
We will use the proceeds of each series of Notes to fund a member loan through the LendingClub
platform designated by the investors purchasing such series of Notes. See About the Loan Platform
for more information.
Plan of Distribution
We will offer the Notes to LendingClub investors at 100% of their principal amount. The Notes
will be offered only by LendingClub through the LendingClub website, and there will be no
underwriters or underwriting discounts. See About the Loan 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.
In addition, minimum financial suitability standards and maximum investment limits have been
established for investors. These minimum suitability standards and maximum investment limits are as
follows. Any additional or different requirements for residents of the state in which you reside
will be added by prospectus supplement.
In states other than California or Kentucky, investors must either:
|
|
|
have an annual gross income of at least $70,000 and a net worth (exclusive of home, home
furnishings and automobile) of at least $70,000; or
|
|
|
|
have a net worth (determined with the same exclusions) of at least $250,000.
|
59
In California, investors:
|
|
|
must have an annual gross income of at least $85,000 and a net worth (exclusive of home,
home furnishings and automobile) of at least $85,000; or
|
|
|
|
must have a net worth (determined with the same exclusions) of at least $200,000.
|
If a California investor does not satisfy either of the above tests, the investor may still
invest up to $2,500 in our Notes.
In Kentucky, investors
|
|
|
must qualify as accredited investors as defined in Rule 501(a) of Regulation D of the
Securities Act.
|
In addition, no investor may purchase Notes in an amount in excess of 10% of the investors
net worth, determined exclusive of home, home furnishings and automobile.
Investors must represent in the investor agreement that they meet the applicable minimum
suitability requirements.
Description of the Notes
General
The Notes will be issued in series under an indenture dated October 10, 2008, as amended,
between LendingClub and Wells Fargo.
Each series of Notes will correspond to one borrower member loan. All Notes will be U.S.
dollar denominated, fully amortizing and have a fixed rate of interest. The Notes of each series
will have a stated interest rate that is the same as the interest rate for the corresponding
borrower member loan and an aggregate stated principal amount equal to the investors aggregate
commitment to purchase Notes the proceeds of which they have designated to fund the corresponding
member loan.
Notwithstanding the foregoing, LendingClub has no obligation to make any payments on the Notes
unless, and then only to the extent that, LendingClub has received payments on the corresponding
member loan, as described under Payments on the Notes. The Notes will also be subject to
prepayment without penalty under certain circumstances as described under Prepayments.
Notes of each series will have an initial term of three or five years and four business days,
which is four business days longer than the term of the corresponding member loan. The four
business days allow us to assure the finality of the transfer of funds under the ACH rules after we
receive payments from borrower members. If there are amounts owing to LendingClub in respect of the
corresponding member loan with a three-year term at the initial maturity of a Note, the term of the
Note will be automatically extended to the fifth anniversary of initial issuance, which we refer to
as the final maturity, to allow the holder to receive any payments that LendingClub receives on
the corresponding member loan after the maturity of the corresponding member loan. LendingClub will
not extend the term for any Note corresponding to a loan with a term of five-years. Following the
final maturity of a Note, the holder of that Note will have no rights to receive any further
payments from LendingClub.
The indenture does not limit the aggregate principal amount of Notes that LendingClub can
issue under the indenture, but each series of Notes will be effectively limited to a maximum
principal amount of $25,000, which is the largest possible initial principal amount of a member
loan. If in the future LendingClub changes the maximum amount of a permitted borrower loan request,
then the maximum aggregate principal amount of Notes per series would also increase. The aggregate
principal amount of Notes of each series will equal the aggregate amount of funds designated by
investors to fund the corresponding member loan. When LendingClub funds some or all of a member
loan itself, no Notes will be issued to LendingClub for the amounts of the member loan that
LendingClub determines to fund itself.
We will use all proceeds we receive from purchases of the Notes to purchase the corresponding
member loans from WebBank.
60
Ranking
The Notes will not be contractually senior or contractually subordinated to any other
indebtedness of LendingClub. The Notes will be unsecured special, limited obligations of
LendingClub. LendingClub will be obligated to pay principal and interest on each Note in a series
only if and to the extent that LendingClub receives principal, interest or late fee payments from
the borrower member on the corresponding member loan funded by the proceeds of that series, and
such borrower member loan payments will be shared ratably among all Notes of the series after
deduction of LendingClubs service charge and any payments due to LendingClub on account of the
portions of the member loan, if any, funded by LendingClub itself. In the event of a bankruptcy or
similar proceeding of LendingClub, the relative rights of the holder of a Note as compared to the
holders of other unsecured indebtedness of LendingClub with respect to payment from the proceeds of
the member loan corresponding to that Note or other assets of LendingClub is uncertain. If
LendingClub were to become subject to a bankruptcy or similar proceeding, the holder of a Note will
have an unsecured claim against LendingClub that may or may not be limited in recovery to the
corresponding borrower member loan payments.
The indenture does not contain any provisions that limit LendingClubs ability to incur
indebtedness in addition to the Notes.
Payments and Paying Agents
Subject to the limitations described under Limitations on Payments, LendingClub will make
payments of principal and interest on the Notes within four business days of receiving Member Loan
Payments (as defined below) in respect of the corresponding member loan, in accordance with the
payment schedule for each Note. Each Note will have a payment schedule providing for either 36 or
60 monthly payments on payment dates that fall four business days following the due date for each
installment of principal and interest on the corresponding member loan. The extra four business
days allow us to assure the finality of the transfer of funds under the ACH rules after we receive
payments from borrowers.
The stated interest rate on each Note will be the same as the interest rate on the
corresponding member loan and interest will be computed and will accrue on the Note in the same
manner as the interest on the corresponding member loan is computed and accrues. The Service Charge
described below will reduce the effective yield on your Notes below their stated interest rate.
LendingClub will be the initial paying agent for the Notes. LendingClub will make all required
payments on each Note to the LendingClub account of the holder in whose name the Note is registered
on the record date for the relevant payment date. The record date for each payment date shall be
the second business day prior to the actual payment date. If a payment date falls on a date that is
not a business day, then such payment will be made on the next succeeding business day.
Business day
means each Monday, Tuesday, Wednesday, Thursday and Friday that is (1) not a
day on which the ACH 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 Notes right to receive principal and interest payments and other amounts in
respect of that Note is limited in all cases to the holders pro rata portion of the Member Loan
Net Payments, if any.
For each series of Notes,
Member Loan Net Payments
means the amounts, if any, equal to the
Member Loan Payments from the corresponding member loan minus the applicable Service Charge.
Member Loan Payments
for each series of Notes means all amounts received by LendingClub in
connection with the corresponding member loan, including without limitation, all payments or
prepayments of principal and interest, any late fees and any amounts received by LendingClub upon
collection efforts with respect to the corresponding member loan, but excluding the Unsuccessful
Payment Fee, any check processing fees, any collection fees imposed by LendingClub or LendingClubs
third-party collection agency and any payments due to LendingClub on account of portions of the
corresponding member loan, if any, funded by LendingClub itself.
The
Service Charge
is an amount equal to 1.00% of all Member Loan Payments.
61
The
Unsuccessful Payment Fee
is a $15.00 fee or such lesser amount permitted by law charged
by LendingClub when LendingClubs payment request is denied for any reason, including but not
limited to, insufficient funds in the borrower members bank account or the closing of that bank
account.
To the extent that anticipated Member Loan Payments from a member loan are not received by
LendingClub, no payments will be due and payable by LendingClub on the Notes related to that member
loan, and a holder of a Note will not have any rights against LendingClub, the borrower member or
the member loan corresponding to such holders Note.
Prepayments
To the extent that a borrower member prepays a corresponding member loan, such prepayment
amount will be a Member Loan Payment and holders of Notes related to that corresponding member loan
will be entitled to receive their pro rata shares of the prepayment net of the applicable service
charge. In the case of a partial prepayment of a corresponding member loan, we automatically reduce
the outstanding principal and the term of the loan is effectively reduced as the monthly payment
amount remains unchanged.
Mandatory Redemption
Upon the occurrence of a confirmed identity fraud incident with respect to a member loan,
LendingClub will redeem all of the Notes of the series corresponding to such member loan for 100%
of the outstanding principal amount of such Notes. An identity fraud incident means that the
corresponding member loan has been obtained as a result of 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 member loan.
Servicing Covenant
LendingClub is obligated to use commercially reasonable efforts to service and collect the
member loans, in good faith, accurately and in accordance with industry standards customary for
servicing loans such as the member loans. If LendingClub refers a delinquent member loan to a
collection agency on the 31st day of its delinquency, that referral shall be deemed to constitute
commercially reasonable servicing and collection efforts. Furthermore, LendingClub may, at any time
and from time to time, amend or waive any term of a member loan, and may transfer, sell or cancel
any member loan where any payment is more than 120 days delinquent without the consent of any
holder of any Notes of the series corresponding to such member loan. As of December 31, 2009, we
have restructured the payment schedules of approximately 200 member loans, and we have modified the
terms of two member loans to accept payment of less than the principal amount originally borrowed.
Of the approximately 200 member loans with restructured payment schedules, the new payment
schedules called for 100% principal repayment and additional interest payments to reflect the
changed payment schedules. As of December 31, 2009, we have never transferred or sold a member
loan. In the event that LendingClub undertakes such a modification, waiver, transfer, sale or
cancellation, LendingClub will notify the relevant investor by email, and the impact of such action
will be reflected in the investors account. See About the Loan Platform How the LendingClub
Platform Operates Post-Closing Loan Servicing and Collection for a description of LendingClubs
imposition of late fees. LendingClub will also be obligated to use commercially reasonable efforts
to maintain backup servicing arrangements providing for the servicing of the member loans.
The indenture contains no financial covenants or other covenants limiting LendingClubs
operations or activities, including the incurrence of indebtedness.
Consolidation, Merger, Sale of Assets
The indenture prohibits LendingClub 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;
|
|
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immediately after giving effect to the transaction, no default shall have occurred or be
continuing; and
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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.
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Denominations, Form and Registration
Except as may be provided otherwise for a particular series of Notes, we will issue Notes in
denominations of $25 or integral multiples of $25. The Notes will be issued only in registered form
and only in electronic form. This means that each Note will be stored on our website. You can view
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.
Investors will be required to hold their Notes through LendingClubs electronic Note register.
The laws of some states in the United States 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 investors 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 LendingClub
members. The Notes will not be transferable except through the Note Trading Platform by FOLIO
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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 an active market for Notes
will develop on the trading system, that particular Notes will be resold or that the system will
continue to operate. The trading platform is not available to residents of all states. Therefore,
investors must be prepared to hold their Notes to maturity. See About the Loan Platform Trading
Platform.
Full Amortization; No Sinking Fund
The Notes are fully amortizing. There will be no sinking fund for the Notes.
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:
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failure by LendingClub to make required payments on the Notes for 30 days past the
applicable due date;
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failure by LendingClub 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
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specified events relating to LendingClubs bankruptcy, insolvency or reorganization.
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It is not a default or event of default under the terms of the indenture if we do not make
payments when a borrower member does not make payments to us on the member loan corresponding with
the particular series of Notes. In that case, LendingClub is not required to make payments on
Notes, so no default occurs. See Risk Factors Payments on the Notes depend entirely on payments
we receive on corresponding member loans. An event of default with respect to one series of Notes
is not automatically an event of default for any other series.
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 such notes 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.
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A holder of any Note of any series may not institute a suit against us for enforcement of such
holders rights under the indenture or pursue any other remedy with respect to the indenture or the
Notes unless:
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the holder gives to the trustee written notice stating that an event of default with
respect to the Notes is continuing;
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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;
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such holder or holders offer to the trustee security or indemnity satisfactory to it
against any loss, liability or expense satisfactory to the trustee;
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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
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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.
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The indenture requires us every year to deliver to the trustee a statement as to performance
of our obligations under the indenture and as to any defaults.
A default in the payment of any of the Notes or a default with respect to the Notes that
causes them to be accelerated, may give rise to a cross-default under our other indebtedness.
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:
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all of the Notes of that series (with certain limited exceptions) have been delivered for
cancellation; or
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all of the 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;
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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
Wells Fargo is the trustee under the indenture. From time to time, we maintain
deposit accounts including and conduct other banking transactions with the trustee and its
affiliates in the ordinary course of business. 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.
Investor Agreement
When an investor registers on the platform, the investor enters into an investor agreement
with us that governs the investors purchases of Notes from time to time from us. Under the
agreement, we provide the investor the opportunity through the platform to review loan requests,
purchase Notes and instruct us to apply the proceeds from the sale of each Note to the funding of a
specific
member loan the investor has designated.
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Under the agreement, the investor must commit to purchase a Note to fund a member loan prior
to the origination of that loan. At the time the investor commits to purchase a Note the investor
must have sufficient funds in the investors account with us to complete the purchase, and the
investor will not have access to those funds after making the purchase commitment unless and until
we notify the investor that the member loan will not be funded. Once the investor makes a purchase
commitment, it is irrevocable regardless of whether the full amount of the borrower members loan
request is funded. If the member loan does not close, then we will inform the investor and release
him or her from the purchase commitment.
The agreement describes our limited obligation to redeem Notes in the case of identity fraud,
which is described above. The investor agrees that in such circumstances the investor will have no
rights with respect to any such Notes except the crediting of the purchase price to the investors
account.
The investor agrees that the investor 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 investors Notes or
the corresponding member loans.
The investor acknowledges that the Notes are intended to be indebtedness of LendingClub 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 investor
also acknowledges that the Notes will be subject to the original issue discount rules of the
Internal Revenue Code of 1986, as amended, as described under Material U.S. Federal Income Tax
Considerations Taxation of Payments on the Notes.
The investor acknowledges that the Notes are not transferable at this time and that the
investor intends to hold the Notes until maturity and has no intention to distribute the Notes.
The agreement describes the limitations on payments on the Notes, which are described above.
We expressly disclaim any representations as to a borrower members ability to pay the
corresponding member loan and do not act as a guarantor of any corresponding member loan payments
by any borrower member.
The parties make customary representations and warranties to each other, and the investor
represents and warrants that the investor has not made a decision in connection with any loan
requests on the LendingClub 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 investor acknowledges and agrees that we assume no advisory or fiduciary responsibility in
the investors favor in connection with the purchase and sale of the Notes and we have not provided
the investor with any legal, accounting, regulatory or tax advice with respect to the Notes.
The investor represents and warrants that the investor meets minimum financial suitability
standards and maximum investment limits. See About the Loan Platform Financial Suitability
Requirements.
The agreement provides that neither party is liable to the other party for any lost profits,
or special, exemplary, consequential or punitive damages.
The agreement provides that it is subject to binding arbitration. It also provides that the
parties waive a jury trial in any litigation related to the agreement and any member loans or other
agreements related to the investor agreement. The agreement 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.
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Material U.S. Federal Income Tax Considerations
The following discussion sets forth the material U.S. federal income tax considerations
generally applicable to purchasers of 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 investors 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 investors 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
investors that may be subject to special tax rules, such as:
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securities dealers or brokers, or traders in securities electing mark-to-market
treatment;
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banks, thrifts, or other financial institutions;
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insurance companies;
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regulated investment companies or real estate investment trusts;
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tax-exempt organizations;
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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;
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partnerships or other pass-through entities;
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persons subject to the alternative minimum tax;
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certain former citizens or residents of the United States;
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Non-U.S. Holders (as defined below); or
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U.S. Holders (as defined below) whose functional currency is not the U.S. dollar.
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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 TO BE,
LEGAL OR TAX ADVICE TO ANY PARTICULAR PERSON. ACCORDINGLY, ALL PROSPECTIVE INVESTORS 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.
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Classification of the Notes
No authority directly addresses the treatment of the Notes or instruments similar to the Notes
for U.S. federal income tax purposes. In general, a taxpayer is bound by the form of a transaction
for U.S. federal income tax purposes. In form, the Notes will be obligations of LendingClub.
Accordingly, although the matter is not free from doubt, LendingClub intends to treat the Notes as
indebtedness of LendingClub for U.S. federal income tax purposes.
The IRS may take contrary positions and, accordingly, no assurance can be given that the IRS
or a court will agree with the tax characterizations and tax consequences described below. Where
the form of a transaction does not reflect the economic realities of the transaction, the substance
rather than the form should determine the tax consequences. Each series of Notes will correspond to
a member loan, and LendingClub has no obligation to make any payments on the Notes unless, and then
only to the extent that, LendingClub has received payments on the corresponding member loan.
Accordingly, the IRS could determine that, in substance, each investor owns a proportionate
interest in the corresponding member loan for U.S. federal income tax purposes. The IRS could also
determine that the Notes are not indebtedness of LendingClub but another financial instrument.
The following discussion is based upon the assumption that each Note will be treated as a debt
instrument of LendingClub for U.S. federal income tax purposes. Any differing treatment of the
Notes could significantly affect the amount, timing and character of income, gain or loss in
respect of an investment in the Notes. Accordingly, all 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).
Taxation of Payments on the Notes
The Notes will have original issue discount, or OID, for U.S. federal income tax purposes
because the interest on the Notes is not unconditionally payable by LendingClub but rather payments
are made to the investors to the extent payments are received by LendingClub on the corresponding
member loan. A U.S. Holder of a Note will be required to include such 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. Holders regular method of tax accounting. If a Note is paid in accordance
with its payment schedule, which will be available on the holders account page at
www.lendingclub.com, 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 1.00% 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 member 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 LendingClub is
obligated to make payments on a Note only to the extent that LendingClub receives payments on the
corresponding member loan. The payment schedule for each Note, which will be available on the
holders account page at www.lendingclub.com, provides for payments of principal and interest (net
of the 1.00% service charge) on the Note in accordance with the payment schedule for the
corresponding member loan. In addition to scheduled payments, LendingClub will prepay a Note to the
extent that a borrower member prepays the member loan corresponding to the Note, and late fees
collected on the member loan corresponding to a Note will be paid to the holders of the Note.
Notwithstanding such contingencies, LendingClub has determined to use the payment schedule of a
Note to determine the amount and accrual of OID on the Note because LendingClub 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
member loan corresponding to such Note will be remote or incidental. If in the future LendingClub
determines that the previous sentence does not apply to a Note, LendingClub 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.
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LendingClubs 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 LendingClub 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 to (i)
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 and treat any loss recognized on such a disposition as an ordinary loss to the extent of
prior OID inclusions and as capital loss thereafter. 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 Notes 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 1.00% 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. Holders 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
Notes adjusted issue price at the beginning of the accrual period and its yield to maturity
(properly adjusted for the length of the period). 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 1.00% service charge). A Notes 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 1.00% 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 1.00% 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. Holders adjusted tax basis in the Note. In
general, the U.S. Holders adjusted tax basis of the Note will equal the U.S. Holders 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 (presently effective for taxable years beginning before January
1, 2011), 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, LendingClub will prepay a Note to the extent that a borrower member
prepays the member loan corresponding to the Note. If LendingClub 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 and the U.S.
Holders adjusted tax basis in the Note. If LendingClub 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, holders 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.
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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. Investors 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
Notes 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 the member loan corresponding to the Notes will be
paid to the holders of the Notes. LendingClub 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. Holders regular method of accounting for
U.S. federal income tax purposes.
Nonpayment of Member Loans Corresponding to Note Automatic Extension
In the event that LendingClub does not make scheduled payments on a Note as a result of
nonpayment by a borrower member on the member 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 for a three (3) year term loan, 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 Notes 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, LendingClub 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 member loan corresponding to such Note will be remote
or incidental. Accordingly, the Note may become subject to the contingent payment debt instrument
rules. In addition, in the event that a three (3) year term Notes maturity date is automatically
extended because amounts remain due and payable on the initial maturity date by the borrower member
on the member 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 LendingClub 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.
The maturity date on a five (5) year term Note will not be extended. If a Note had a maturity
date beyond five (5) years, the applicable high yield debt obligation provisions would likely apply
because payments on the Notes are dependent on payments on the corresponding member loans and so
have significant OID. The applicable high yield debt obligation provisions only apply to loans
with terms longer than 5 years (and meet certain other requirements). The applicable high yield
debt obligation provisions would disallow a deduction to LendingClub for a portion of the interest
paid on the Notes.
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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 U.S. Holder generally should be entitled
to deduct the holders adjusted tax basis in the Note as a capital loss in the taxable year the
Note becomes wholly worthless. The portion of the U.S. Holders 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. U.S. Holders should consult their own tax advisors regarding the
character and timing of losses attributable to Notes that become worthless.
Backup Withholding and Information Reporting
In general, LendingClub will be required to provide information returns to non-corporate U.S.
Holders, and corresponding returns to the IRS, with respect to (i) payments, and accruals of OID,
on the Notes and (ii) payments with respect to proceeds from a sale, retirement or other taxable
disposition of a Note. In addition, a non-corporate U.S. Holder may be subject to backup
withholding (currently at a 28% rate) on such payments if the U.S. Holder (i) fails to provide an
accurate taxpayer identification number to the payor; (ii) has been notified by the IRS of a
failure to report all interest or dividends required to be shown on its U.S. federal income tax
returns; or (iii) in certain circumstances, fails to comply with applicable certification
requirements or otherwise establish an exemption from backup withholding.
Any amounts withheld under the backup withholding rules will be allowed as a refund or a
credit against a U.S. Holders U.S. federal income tax liability provided the required information
is furnished to the IRS on a timely basis. U.S. Holders should consult their tax advisors regarding
the application of information reporting and backup withholding rules in their particular
situations, the availability of an exemption therefrom, and the procedure for obtaining such an
exemption, if applicable.
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ABOUT LENDINGCLUB
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
See Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations of our Annual Report on Form 10-K for the fiscal year ended March 31, 2009, pages 49 to
60, which is incorporated by reference in this prospectus and as updated by Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations of our Quarterly Reports
on Form 10-Q for the fiscal quarters ended June 30, 2009 (pages 23-32), September 30, 2009 (pages
24-33), December 31, 2009 (pages 24-33), which are incorporated by reference in this prospectus.
On April 14, 2010, we issued 15,621,609 shares of Series C convertible preferred stock, pursuant to
Rule 506, for aggregate cash consideration of $24,489,996. In connection with the issuance and
sale of these shares we amended and restated our certificate of incorporation to: (i) increase our
authorized capital stock to 117,116,801; (ii) increase the authorized shares of common stock to
68,000,000, decrease the authorized shares of Series A convertible preferred stock to 17,06,275,
decrease the authorized shares of Series B convertible preferred stock to 16,410,526, and created a
new series of convertible preferred stock (Series C) with 15,700,000 shares authorized, in addition
to other certain changes. Moreover, we increased the number of shares of common stock reserved for
issuance under our 2007 Stock Incentive Plan to 9,096,778 shares.
We have entered into a Security Agreement with Wells Fargo Bank, National Association (Wells
Fargo) pursuant to which we granted to Wells Fargo a security interest in the clearing account in
exchange for the release of $500,000 in restricted cash that was held to compensate Wells Fargo in
the event an ACH transaction was revoked. In connection with this transaction and pursuant to
amendments to the current loan agreements with SVB and Goldhill, we also granted to SVB and
GoldHill, a security interest in the clearing account that is junior to Wells Fargos interest on
the first $1,500,000.
As of March 31, 2010, we did not offer member loans in Idaho, Indiana, Iowa, Kansas, Maine,
Mississippi, Nebraska, North Carolina, North Dakota and Tennessee.
BUSINESS
Overview
LendingClub is the operator of the online financial community described in more detail in this
document under the caption About the Loan Platform. Our platform provides a number of benefits to
our borrower members. We believe the key features of the LendingClub experience are the following:
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Better interest rates than those available from traditional banks;
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24-hour online availability to initiate a loan request;
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Convenient, electronic payment processing; and
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Amortizing, fixed rate loans, which represent a more responsible way for consumers to
borrow than revolving credit facilities.
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Business Strengths
We believe that the following business strengths differentiate us from competitors and are key
to our success:
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Focus on high quality borrowers
. Our current initial credit criteria require borrower
members to have: (i) a minimum FICO score of at least 660; (ii) a debt-to-income ratio
(excluding mortgage) below 25%, as calculated by LendingClub based on the debt reported by a
consumer reporting agency, and the income reported by the borrower member, which is not
verified unless we display an icon in the loan listing indicating otherwise; and (iii) a
credit file without any current delinquencies, recent bankruptcy, tax liens or non-medical
related collections opened within the last 12 months, and reflecting at least three accounts
ever opened, at least two accounts currently open, no more than 8 credit inquiries in the
past six months, utilization of credit limit not exceeding 100%, revolving credit of less
than $150,000 and a minimum credit history of 36 months.
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Social connections among our members
. We believe that the ability of members to discover
how they are related through social connections, education, workplace and geography has
helped forge a sense of community among our members, which we believe will help lead to low
delinquency rates due to a sense of social obligation.
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Efficient distribution channels
. We acquire many of our members through online
communities, social networks and marketers in a cost-efficient way.
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Superior technology
. We believe our LendingMatch technology helps investors easily
diversify their Note purchases to correlate with corresponding member loans that the
investors select as the most suitable for them, based on their needs.
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Corporate History
We were incorporated in Delaware in October 2006 under the name SocBank Corporation. We
changed our name to LendingClub Corporation in November 2006. In May 2007, we began operations as
an application on Facebook.com. In August 2007, we expanded our operations with the launch of our
public web site, www.lendingclub.com. We have been operating since December 2007 pursuant to an
agreement with WebBank, an FDIC-insured, Utah state-chartered industrial bank that serves as the
lender for all loans originated through our platform.
Marketing
Our marketing efforts are designed to attract members to our website, to enroll them as
members and to close transactions with them. We employ a combination of paid and unpaid sources to
market the LendingClub platform. We also invest in public relations to build our brand and
visibility. We measure website visitor-to-member conversion and test graphics and layout
alternatives to improve website conversion. We also seek to customize our website to our members
needs whenever possible. We carefully analyze visitor website usage to understand and overcome
barriers to conversion. In the year ended March 31, 2009, we spent approximately $1.6 million on
marketing and for the nine-months ended December 31, 2009 we spent approximately $2.9 million.
Technology
Our system hardware is located in a hosting facility located in Santa Clara, California, owned
and operated by SAVVIS under an agreement that expires in March 2010, which we may look to renew at
that time, although we reserve the opportunity to evaluate competing hosting offers. Under the
terms of our agreement with SAVVIS, the agreement generally will be automatically renewed for
successive six month terms, unless either party delivers a termination notice. 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 Tier 1 interconnects to the internet. We also maintain a real time backup system
located in Washington, D.C.
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 executed a license agreement with BankServ, which allows us to use BankServ software
on our platform to help process electronic cash movements, record book entries and calculate cash
balances in our members LendingClub accounts. We process electronic deposits and payments by
originating ACH transactions. BankServs software allows us to put these transactions in the
correct ACH transaction data formats. We also use BankServ software to make book entries between
individual members accounts as a Write-Once-Read-Many (WORM) system. Our agreement with BankServ
has an initial term of three years starting from April 2007 and then generally will be
automatically renewed for successive one year terms, unless either party delivers a termination
notice. Under the agreement, BankServ is required to maintain a copy of its source code in escrow
to protect LendingClub against loss of access to this software in the event that BankServ
permanently ceases to conduct business. If our agreement with BankServ were to be terminated, we
would seek to replace this software with a competing software product.
We have also executed a backup and successor servicing agreement with Portfolio Financial
Servicing Company (PFSC). Pursuant to this agreement, PFSC will prepare and then stand ready to
service the member loans. Following five business days prior written notice from us or from the
indenture trustee for the Notes, PFSC will begin servicing the member loans. Pursuant to our
agreement with PFSC, we have agreed to pay PFSC monthly start-up preparation fees and a one-time
preparation fee, and then to pay PFSC a monthly standby fee. Upon PFSC becoming the servicer of the
member loans, we will pay PFSC a one-time declaration fee, and PFSC will be entitled to retain up
to 5% of the amounts it collects as servicer. Our agreement with PFSC has an initial term of three
years starting from September 2008 and then generally will be automatically renewed for successive
one-year terms, unless either party delivers a termination notice. If our agreement with PFSC were
to be terminated, we would seek to replace PFSC with another backup servicer.
Scalability
Our platform is highly scalable, because it does not contain any single point of processing
that might restrict or reduce the capacity of the overall system. The platform is designed as a
collection of many small symmetrical servers capable of replacing each other with no strict
dependency between them. This design allows us to either scale up either by deploying one or a
limited small number of our servers and configuring them to take advantage of the machine they run
on, or deploying a large number of servers and configuring them to run on lightweight machines. Our
online deployment employs a fast load balancer as a reverse proxy for all the machines containing
the actual symmetrical servers, which allows us to intercept end-user requests and route them to
the least busy server.
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Data integrity and security
All data received from end users or from our business counterparties are transported in a
secure manner; for example, we only expose data or actions pages of our application in SSL mode. We
have received an SSL certificate from VeriSign. For communication with our banking counterparties,
we require a dedicated, fully authenticated connection (VPN), in addition to the SSL encryption of
the data. Data storage follows specific rules for specific cases. For example, the most sensitive
information is stored using one-way encryption, which makes it impossible to read in the clear,
while the next level of data security uses regular encryption, which requires a key in order to
decrypt the data, and for regular data, a set of access control rules have been created to limit
the visibility of the data and to protect the privacy of each user.
LendingClub utilizes state of the art network firewall technology for perimeter level threat
protection. The philosophy of least privilege is used throughout the infrastructure. In short, each
person has access to only what they must have access to in order to do their job. The following are
used as part of LendingClubs security process: centralized logging with custom real-time alerts
(servers and firewalls), host based intrusion detection, individual firewalls in addition to TCP
wrappers, system / service level monitoring, active blocking of attacks, disabled root ssh logins,
and centralized configuration management. In addition, no two accounts use the same name on any two
servers.
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 (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 also have a dedicated team which conducts additional investigations of cases
flagged for high fraud risk by verifying the income and employment data reported by borrower
members. See About the Platform How the LendingClub Platform Operates Borrower Financial
Information is Generally Unverified. We also enable investors 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
the LendingClub 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 December 31, 2009, we had an engineering team of 8
permanent employees and 8 contractors working on designing and implementing the ongoing releases of
the LendingClub platform. Our product management team, which directs and organizes our software and
website development efforts, includes a system architect, a product manager, a data analyst, a
quality assurance manager and a data center director. Our engineering expense totaled $1.9 million
for the year ended March 31, 2009 and $1.3 million for the nine-months ended December 31, 2009,
respectively.
Competition
The market for social lending is competitive and rapidly evolving. We believe the following
are the principal competitive factors in the social lending market:
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pricing and fees;
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website attractiveness;
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member experience, including borrower full funding rates and investor returns;
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acceptance as a social network;
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branding; and
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ease of use.
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We face competition from other social lending platforms. We also face competition from major
banking institutions, credit unions, credit card issuers and other consumer finance companies.
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We may also face future competition from new companies entering our market, which may include
large, established companies, such as eBay Inc., Google Inc. and 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 lending 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 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 LendingMatch 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:
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the technological skills of our software and website development personnel;
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frequent enhancements to our platform; and
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high levels of member satisfaction.
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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 partners, 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 our solution. 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.
LendingClub
and
LendingMatch
are registered trademarks in the United States.
We use software licensed to us by third parties to operate certain aspects of our loan
platform, including payment processing software licensed from BankServ and software licensed from
Hart Software that provides us with access to and delivery of credit report information. If we were
to lose the right to use any of the software we license or such software malfunctions, our ability
to process payments and operate the platform could suffer until we can transition to another
service provider or repair the cause of the malfunctioning software.
Employees
As of April 15, 2010, we employed 37 full-time employees. Of these employees:
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17 were in sales, marketing and customer service;
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8 were in engineering; and
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12 were in general and administration, which includes the employees who conduct our
collection activities.
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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.
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Facilities
Our corporate headquarters, including our principal administrative, marketing, technical
support and engineering functions, are currently located in Redwood City, California. The lease is
for 5,800 square feet with an option to acquire an additional 1,200 square feet on the same terms
and conditions. The lease expires on December 31, 2011. We believe that the new facilities will be
adequate to meet our current needs, that we have the ability to request more space as needed, and
that suitable additional alternative spaces will be available in the future on commercially
reasonable terms.
Legal Proceedings
We are not currently subject to any material legal proceedings. We are not aware of any
litigation matters which have had, or are expected to have, a material adverse effect on us. We
have received inquiries from a number of states in respect of the prior sales of loans under our
prior operating structure, as described under Prior Operation of the LendingClub Platform;
neither the SEC nor any state, however, has taken or threatened administrative action or litigation
over such loan sales.
Prior Operation of the LendingClub Platform
Our Prior Operating Structure
From the launch of our platform in May 2007 until April 7, 2008, the operation of our platform
differed from the structure described elsewhere in this document, and we did not offer Notes.
Instead, our platform allowed members to purchase assignments of unsecured member loans directly.
Under this structure, members received anonymized individual promissory notes with original
principal amounts corresponding to their purchase price. Each member loan was automatically divided
from inception into separate promissory notes in amounts that matched the purchase commitments from
members for the particular member loan. At closing, WebBank indorsed the promissory notes to us,
and we assigned each promissory note to the applicable member, subject to our loan sale and
servicing agreement. Our loan sale and servicing agreement provided that we retained the right to
service the member loans. Borrower member names appeared as LendingClub screen names on the
electronically executed promissory notes. We maintained custody of the promissory notes on behalf
of members. We charged members a fee of 1.00% of all payments of interest, principal, late fees and
recoveries received in respect of the member loans. We disclaimed any obligation to guarantee the
promissory notes or support the credit risk of borrower members.
From April 7, 2008 until October 13, 2008, we did not offer members the opportunity to make
any purchases on our platform. During this time, we also did not accept investor registrations or
allow new funding commitments from existing members. We continued to service all previously funded
member loans, and members had the ability to access their accounts, monitor their member loans, and
withdraw available funds without changes. The borrowing side of our platform was generally
unaffected during this period. Borrower members could still apply for member loans, but these
member loans were funded and held only by LendingClub. Our decision to temporarily stop accepting
member purchase commitments, effective from April 7, 2008 until October 13, 2008, slowed the ramp
up of our operations and expended liquidity as we funded member loans ourselves during this period.
In addition, our credit criteria and loan grading criteria differed over time from the credit
criteria and loan grading criteria described elsewhere in this document. During the period from our
inception until October 13, 2008, under our minimum borrower member criteria, our prospective
borrower members needed to have:
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a minimum FICO score of 640 (as reported by a consumer reporting agency);
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a debt-to-income ratio (excluding mortgage) below 30%, as calculated by LendingClub based
on (i) the borrower members debt reported by a consumer reporting agency; and (ii) the
income reported by the borrower member, which we verified for approximately 25% of loan
requests that proceeded past the initial credit check stage and were posted on our website;
and
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a credit profile (as reported by a consumer reporting agency) without any current
delinquencies, recent bankruptcy, collections or open tax liens.
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Under this former loan grading criteria, for borrower members that qualified, we assigned one
of 35 loan grades, from A1 through G5, to each loan request, based on the borrower members FICO
score, debt-to-income ratio (calculated as described above) and requested loan amount. A higher
credit score, lower debt-to-income ratio and lower requested loan amount were factors that led to a
loan request being more likely to be designated grade A1.
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Effective October 13, 2008, we changed our minimum borrower member criteria to the criteria
reflected elsewhere in this document, except that the minimum FICO score remained 640. Effective
November 25, 2008, we raised the minimum FICO score to 660.
Securities Law Compliance
From May 2007 through April 2008, we sold approximately $7.4 million of member loans to
investor members who were unaffiliated with us through our platform whereby we assigned promissory
notes directly to investor members. We did not register the offer and sale of the promissory notes
offered and sold through our platform under the Securities Act of 1933 or under the registration or
qualification provisions of the state securities laws. Our management believes that the question of
whether or not the operation of our platform involved an offer or sale of a security involved a
complicated factual and legal analysis that 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 investor 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. The statute of
limitations periods under state securities laws for sales of unregistered securities may extend for
a longer period of time, and certain state securities laws empower state officials to seek
restitution or rescission remedies for purchasers of unregistered securities. We have received
inquiries from a number of states in respect of these prior sales of loans; neither the SEC nor any
state, however, has taken or threatened administrative action or litigation over such loan sales.
For a description of our platform as currently operated, see About the Loan Platform and About
LendingClub Managements Discussion and Analysis Effect of the New Lending Platform Structure.
Our decision to restructure our operations and cease sales of promissory notes offered through
the platform effective April 7, 2008 limited this contingent liability so that it only relates to
the period from the launch of our platform in May 2007 until April 7, 2008, the termination of
sales under our prior operating structure.
We have not recorded an accrued loss contingency under FASB ASC 450 in connection with this
contingent liability. Accounting for loss contingencies pursuant to FASB ASC 450 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.
Additionally, accounting for a loss contingency requires management to assess each event as
probable, reasonably possible or remote. Probable is defined as the future event or events are
likely to occur. Reasonably possible is defined as the chance of the future event or events
occurring is more than remote but less than probable, while remote is defined as the chance of the
future event or events occurring is slight. 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. We have assessed the contingent liability related
to prior sales of member loans on the platform in accordance with FASB ASC 450 and have determined
that the occurrence of the contingency is reasonably possible. In accordance with FASB ASC 450, we
have estimated the range of loss as of December 31, 2009 as between $0 and $2.54 million, which is,
as of December 31, 2009, the aggregate outstanding principal balance of member loans sold to
persons unaffiliated with us from inception through April 7, 2008. In making this assessment, we
considered our view, described above, that analyzing whether or not the operation of our platform
involved an offer or sale of a security involved a complicated factual and legal analysis that
was uncertain. In addition, we considered our belief that investor members have received what they
expected to receive in the transactions under our prior operating structure. Generally, the
performance of the outstanding member loans had, in our view, delivered to investor members the
benefits they expected to receive in using our platform.
Due to the legal uncertainty regarding the sales of promissory notes offered through our
platform under our prior operating structure as described above, we decided to restructure our
operations to resolve such uncertainty. We began our implementation of this decision on April 7,
2008, when we ceased offering investor members the opportunity to make purchases on our platform,
ceased accepting new investor member registrations and ceased allowing new funding commitments from
existing investor members. We then filed the registration statement (the Registration Statement)
with the SEC to register the issuance and sale of Notes under our new operating structure. We
resumed accepting new investor members and allowing transactions with investor members starting
October 13, 2008, after the date the Registration Statement became effective.
The change in the operation of our platform, as well as our adoption of new accounting
pronouncements, had 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
flows.
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We adopted the provisions of FASB ASC 820 and FASB ASC 825. FASB ASC 825 permits companies to
choose to measure certain financial instruments and certain other items at fair value. FASB ASC 825
requires that unrealized gains and losses on items for which the fair value option has been elected
be reported in earnings. We applied the provisions of FASB ASC 825 to the CM Loans and Notes issued
under our prospectus, but did not apply the provisions of FASB ASC 825 to prior member loans which
were sold to our investor members.
GOVERNMENT REGULATION
Overview
The consumer loan industry is highly regulated. LendingClub, and the member 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 member loans made through the LendingClub platform. In
particular, these rules limit the fees that may be assessed on the member loans, require extensive
disclosure to, and consents from, our participants, prohibit discrimination and impose multiple
qualification and licensing obligations on LendingClub. 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, 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.
Licensing And Consumer Protection Laws
State Licensing Requirements
LendingClub is a licensed lender or loan broker in a number of states and is otherwise
authorized to conduct its activities on a uniform basis in all other states and the District of
Columbia, with the exceptions of Idaho, Indiana, Iowa, Kansas, Maine Mississippi, Nebraska, North
Carolina, North Dakota and Tennessee. LendingClub does not currently provide services to borrower
members who are residents of Idaho, Indiana, Iowa, Mississippi, Nebraska, North Carolina, North
Dakota and Tennessee. State licensing statutes impose a variety of requirements and restrictions,
including:
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recordkeeping requirements;
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restrictions on loan origination and servicing practices, including limits on finance
charges and fees;
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disclosure requirements;
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examination requirements;
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surety bond and minimum net worth requirements;
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financial reporting requirements;
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notification requirements for changes in principal officers, stock ownership or corporate
control;
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restrictions on advertising; and
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review requirements for loan forms.
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The statutes also subject LendingClub to the supervisory and examination authority of state
regulators in certain cases. Because of our relationship with WebBank, we are generally able to
arrange loans on a uniform basis with borrowers located throughout the United States except for the
states of Idaho, Indiana, Iowa, Kansas, Maine Mississippi, Nebraska, North Carolina, North Dakota
and Tennessee.
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State Usury Limitations
Applicable federal law and judicial interpretations permit FDIC-insured depository
institutions, such as WebBank, to export the interest rate permitted under the laws of the state
where the bank is located, regardless of the usury limitations imposed by the state law of the
borrowers residence unless the state has chosen to opt out of the exportation regime. 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 the LendingClub platform. Although some states have opted out of the
exportation regime, judicial interpretations support the view that such opt outs only apply to
loans made in those states. A loan made through the LendingClub platform by WebBank may be
subject to state usury limits if the loan is deemed subject to the usury laws of a state that has
opted-out of the exportation regime.
State Disclosure Requirements and Other Substantive Lending Regulations
LendingClub also is subject to state laws and regulations that impose requirements related to
loan disclosures and terms, credit discrimination, credit reporting, debt collection and unfair or
deceptive business practices. Our ongoing compliance program seeks to comply with these
requirements.
Truth in Lending Act
The Truth in Lending Act (TILA), and Regulation Z, which implements it, require lenders to
provide consumers with uniform, understandable information concerning certain terms and conditions
of their loan and credit transactions. These rules apply to WebBank as the creditor for member
loans originated on the LendingClub platform, but because the transactions are carried out on our
hosted website, we facilitate compliance. For closed-end credit transactions of the type provided
through our platform, these disclosures include providing the annual percentage rate, the finance
charge, the amount financed, the number of payments and the amount of the monthly payment. The
creditor must provide the disclosures before the loan is closed. TILA also regulates the
advertising of credit and gives borrowers, among other things, certain rights regarding updated
disclosures and the treatment of credit balances. Our platform provides borrowers with a TILA
disclosure at the time a borrower member posts a loan request on the platform. If the borrower
members request is not fully funded and the borrower chooses to accept a lesser amount offered, we
provide an updated TILA disclosure. We also seek to comply with TILAs disclosure requirements
related to credit advertising.
Equal Credit Opportunity Act
The federal Equal Credit Opportunity Act (ECOA) prohibits creditors from discriminating
against credit applicants on the basis of race, color, sex, age, religion, national origin, marital
status, or the fact that all or part of the applicants income derives from any public assistance
program or the fact that the applicant has in good faith exercised any right under the federal
Consumer Credit Protection Act or any applicable state law. Regulation B, which implements ECOA,
restricts creditors from requesting certain types of information from loan applicants and from
making statements that would discourage on a prohibited basis a reasonable person from making or
pursuing an application. These requirements apply both to a lender such as WebBank as well as to a
party such as LendingClub that regularly participates in a credit decision. Investors may also be
subject to the ECOA in their capacity as purchasers of Notes, if they are deemed to regularly
participate in credit decisions. In the underwriting of member loans on the platform, both WebBank
and LendingClub seek to comply with ECOAs provisions prohibiting discouragement and
discrimination. As further measures, borrowers are instructed not to provide the type of
information that creditors are not permitted to request from applicants under the ECOA and the
investor agreement requires investors to comply with the ECOA in their selection of member loans
they designate for funding. The ECOA also requires creditors to provide consumers with timely
notices of adverse action taken on credit applications. WebBank and LendingClub provide prospective
borrowers who apply for a loan through the platform but are denied credit with a joint adverse
action notice in compliance with the ECOA requirements (see also below regarding Fair Credit
Reporting Act).
Fair Credit Reporting Act
The federal Fair Credit Reporting Act (FCRA) promotes the accuracy, fairness and privacy of
information in the files of consumer reporting agencies. FCRA requires a permissible purpose to
obtain a consumer credit report, and requires persons to report loan payment information to credit
bureaus accurately. FCRA also imposes disclosure requirements on creditors who take adverse action
on credit applications based on information contained in a credit report. Effective August 1, 2009,
creditors such as LendingClub must also develop and implement an identity theft prevention program
for combating identity theft. WebBank and LendingClub have a permissible purpose for obtaining
credit reports on potential borrowers and also obtain explicit consent from borrowers to obtain
such reports. As the servicer for the member loans, LendingClub accurately reports member loan
payment and delinquency information to consumer reporting agencies. LendingClub provides a combined
ECOA/FCRA adverse action notice to a rejected borrower on WebBanks behalf at the time the borrower
is rejected that includes the required disclosures. LendingClub has
implemented an identity theft prevention program.
78
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 impose similar requirements on creditors who collect their own debts. LendingClubs
agreement with its investors prohibits investors from attempting to directly collect on the member
loans. Actual collection efforts in violation of this agreement are unlikely given that investors
do not learn the identity of borrower members. LendingClub has contracted with a professional
third-party debt collection agent, AR Assist, LLC, to collect delinquent accounts. AR Assist, and
its debt-collection affiliate AR Assist Alliance Partners, are required to comply with the FDCPA
and all other applicable laws in collecting delinquent accounts of LendingClub borrower members.
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 information sharing with affiliated
and nonaffiliated entities as well as to safeguard personal customer information. A number of
states have similarly enacted privacy and data security laws requiring safeguards to protect the
privacy and security of consumers personally identifiable information and to require notification
to affected customers in the event of a breach. LendingClub has a detailed privacy policy, which
complies with GLBA and is accessible from every page of our website. LendingClub maintains
participants personal information securely, and does not sell, rent or share such information with
third parties for marketing purposes. In addition, LendingClub takes a number of measures to
safeguard the personal information of its members and protect against unauthorized access.
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. The SCRA requires LendingClub to adjust the interest rate of borrowers who
qualify for and request relief. If a borrower member with an outstanding member loan is called to
active military duty and can show that such military service has materially affected the members
ability to make payments on the loan, LendingClub will reduce the interest rate on the loan to 6%
for the duration of the borrower members active duty. During this period, the investors who have
purchased Notes dependent on such member loan will not receive the difference between 6% and the
loans original interest rate. For a borrower member to obtain an interest rate reduction on a
member loan due to military service, we require the borrower member to send us a written request
and a copy of the borrower members mobilization orders. As of May 1, 2009, we have received fewer
than 10 such requests. We do not take military service into account in assigning loan grades to
borrower member loan requests.
Other Regulations
Electronic Fund Transfer Act and NACHA Rules
The federal Electronic Fund Transfer Act (EFTA), and Regulation E, which implements it,
provides guidelines and restrictions on the electronic transfer of funds from consumers bank
accounts. In addition transfers performed by ACH electronic transfers are subject to detailed
timing and notification rules and guidelines administered by the National Automated Clearinghouse
Association (NACHA). Most transfers of funds in connection with the origination and repayment of
the member loans are performed by ACH. LendingClub obtains necessary electronic authorization from
members for such transfers in compliance with such rules. Transfers of funds through the platform
are executed by Wells Fargo and conform to the EFTA, its regulations and NACHA
guidelines.
Electronic Signatures in Global and National Commerce Act/Uniform Electronic Transactions Act
The federal Electronic Signatures in Global and National Commerce Act (ESIGN) and similar
state laws, particularly the Uniform Electronic Transactions Act (UETA), authorize the creation
of legally binding and enforceable agreements utilizing electronic records and signatures. ESIGN
and UETA require businesses that want to use electronic records or signatures in consumer
transactions to obtain the consumers consent to receive information electronically. When a
borrower or investor registers on the platform, LendingClub obtains his or her consent to transact
business electronically and maintains electronic records in compliance with ESIGN and UETA
requirements.
79
Bank Secrecy Act
In cooperation with WebBank, LendingClub implements the various anti-money laundering and
screening requirements of applicable federal law. With respect to new borrower members, LendingClub
applies the customer verification program rules and screens names against the list of Specially
Designated Nationals maintained by OFAC pursuant to the USA PATRIOT Act amendments to the Bank
Secrecy Act (BSA) and its implementing regulation. LendingClub also has an anti-money laundering
policy and procedures in place to voluntarily comply with the anti-money laundering requirements of
the USA PATRIOT Act and the BSA.
New Laws and Regulations
From time to time, various types of federal and state legislation are proposed and new
regulations are introduced that could result in additional regulation of, and restrictions on, the
business of consumer lending. We cannot predict whether any such legislation or regulations will be
adopted or how this would affect our business or our important relationships with third parties
such as WebBank. In addition, the interpretation of existing legislation may change or may prove
different than anticipated when applied to our novel business model. For example, if we identify
any states in which licensing or registration is required, we intend to proceed with licensing or
registration in the affected state. If any state asserts jurisdiction over our business in a manner
that we did not expect, we will consider whether to challenge the assertion or proceed with
licensing or registration in the affected state. Compliance with such requirements could involve
additional costs, which could have a material adverse effect on our business. As a consequence of
the extensive regulation of commercial lending in the United States, our business is particularly
susceptible to being affected by federal and state legislation and regulations that may increase
the cost of doing business.
In addition, see Risk Factors Financial regulatory reform could result in restrictions,
oversight and costs that have an adverse effect on our business regarding the risks of government
financial regulatory reform plans.
Foreign Laws and Regulations
LendingClub does not permit non-U.S. residents to register as members on the platform and does
not operate outside the United States. It is, therefore, not subject to foreign laws or
regulations.
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MANAGEMENT
Executive Officers, Directors and Key Employees
The following table sets forth information regarding our executive officers, directors and key
employees as of December 31, 2009:
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Name
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Age
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Position(s)
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Executive Officers and Directors:
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Renaud Laplanche
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|
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39
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Director and Chief Executive Officer
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John G. Donovan
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45
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Chief Operating Officer
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Howard Solovei
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47
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Vice President, Finance and Administration
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Jeffrey M. Crowe
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52
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Director
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Daniel T. Ciporin
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52
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Director
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Rebecca Lynn
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36
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|
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Director
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Key Employees:
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|
|
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Soulaiman Htite
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|
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36
|
|
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Vice President, Engineering
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Executive Officers and Directors
Renaud Laplanche
Mr. Laplanche
has served as Chief Executive Officer, Founder and Director since January 2007.
From September 1999 to June 2005, Mr. Laplanche served as the Founder & CEO of TripleHop
Technologies, a VC-backed enterprise software company, whose assets were acquired by Oracle
Corporation in June 2005. After the acquisition by Oracle, Mr. Laplanche served as Head of Product
Management, Search Technologies, for Oracle Corporation from June 2005 to October 2006. From
January 1995 to September 1999 Mr. Laplanche served as an associate at Cleary Gottlieb Steen &
Hamilton in their New York and Paris offices. Mr. Laplanche was honored with the HEC Entrepreneur
of the Year award in 2002 and won the French sailing championship twice, in 1988 and 1990. Mr.
Laplanche received a post-graduate DESS-DJCE degree (Tax and Corporate Law) from Université de
Montpellier, Montpellier, France and an M.B.A. degree from HEC Business School, Paris, France.
John G. Donovan
Mr. Donovan
has served as Chief Operating Officer since January 2007. Mr. Donovan served as a
member of our board of directors from August 2007 to March 2009. From January 1988 to February
2005, Mr. Donovan worked for MasterCard Worldwide serving in multiple Vice President positions
including Global Marketing (March 1993 to April 1998), Debit Product Development (April 1998 to
April 2003) and Credit Product Development (May 2003 to February 2005). From February 2005 to
January 2007, Mr. Donovan served as Chief Product Officer and Chief Operating Officer at E4X Inc.
He was a Financial Analyst of Corporate Finance at JP Morgan Chase from September 1987 to January
1988. Mr. Donovan received his undergraduate degree in Management and Economics from Long Island
University.
Howard Solovei
Mr. Solovei
has served as Vice President, Finance and Administration since December 2008. Mr.
Solovei brings over 20 years of public and private finance experience, most recently as Chief
Financial Officer of Intraop Medical Corporation, a publicly traded medical device manufacturer,
from January 2003 to October 2008. Mr. Solovei was responsible for all accounting and finance
functions including fundraising, investor relations, Intraops transition to a public company in
February 2005, SEC reporting, SOX compliance and human resources. Prior to that, Mr. Solovei served
as Chief Financial Officer of Phoenix American Inc., where he gained 14 years experience in leasing
and equipment finance. At Phoenix, Mr. Solovei was responsible for the management of nearly $1
billion of leased assets, $600 million of bank agreements for the companys more than 30
partnerships and corporate entities as well as securitized debt offerings of $280 million. Mr.
Solovei holds a B.S. degree in Business Administration from the University of California, Berkeley.
81
Jeffrey M. Crowe
Mr. Crowe
has been a member of our board of directors since August 2007. Mr. Crowe was
CEO-in-residence with Norwest Venture Partners from January 2002 to December 2003, joined the firm
as a Venture Partner in January 2004 and became a General Partner in January 2005. He focuses on
seed and mid stage investments in software, internet and consumer arenas. Mr. Crowe also currently
serves on the board of deCarta, Jigsaw, Nano-Tex, Turn and Tuvox. Mr. Crowe is also actively
involved with TellAPal, Cast Iron Systems, myYearbook and Sojern. From December 1999 to April 2001,
Mr. Crowe served as President, Chief Operating Officer and Director of DoveBid, Inc., a privately
held business auction firm. From May 1990 to November 1999, Mr. Crowe served as Chief Executive
Officer of Edify Corporation, a publicly traded enterprise software company. Mr. Crowe holds an
M.B.A. degree from Stanford Graduate School of Business, where he was an Arjay Miller Scholar, and
a B.A. degree in History from Dartmouth College.
Daniel T. Ciporin
Mr. Ciporin
has been a member of our board of directors since August 2007. Mr. Ciporin joined
Canaan Partners in March 2007 as a Venture Partner specializing in digital media and communications
investments. From January 1999 to June 2005 Mr. Ciporin served as Chairman and Chief Executive
Officer of Shopping.com, a publicly traded online comparison shopping service. From March 2006 to
March 2007, Mr. Ciporin served as Chairman of the Internet Lab, a U.S.-Israeli incubator for
early-stage consumer internet startups. From June 1997 to January 1999, Ciporin served as Senior
Vice President of MasterCard International, where he managed global debit services. Mr. Ciporin is
also a member of the board of directors of Primedia Inc., a target media company. Mr. Ciporin is
also on the board of directors of the following private companies: OpenSky, Inc., Gemvara, Inc.,
Peer39, Inc., adap.tv Inc. and FiftyOne, Inc. Mr. Ciporin earned his A.B. degree from Princeton
Universitys Woodrow Wilson School of Public and International Affairs and his M.B.A. degree from
Yale University.
Rebecca Lynn
Ms. Lynn
has been a member of our board of directors since March 2009. Ms. Lynn joined
Morgenthaler Ventures in 2007 and became a Principal of Morgenthaler Ventures in 2008. She focuses
on early-stage investments in mobile, health 2.0, internet services and financial services
companies. She also serves on the boards of OpinMind and Autonet. Ms. Lynn began her career at
Procter and Gambles corporate headquarters where she worked in international new product market
entry. She spent time in both Cincinnati and Mexico City developing new products for the market and
launching a new category in Latin America. She then joined NextCard and spent four years at the
company. At NextCard, she led product development efforts and later served as the Vice President of
Marketing. After NextCard, from 2003 to 2007, she ran her own consulting business, Marengo
Marketing, focusing on online marketing for financial services and affiliate marketing. Ms. Lynn
holds a J.D./M.B.A. degree from the Haas School of Business and U.C. Berkeley School of Law at the
University of California at Berkeley and a B.S. degree in chemical engineering from the University
of Missouri.
Key Employees
Soulaiman Htite
Mr. Htite
has served as our Vice President of Technology since February 2007. From September
2001 to February 2007, Mr. Htite served as Senior Development Manager for Oracle Corporation, a
world leader in enterprise software systems, where he began in April 1997. Mr. Htite successfully
completed various research and development projects for Oracles Server Technologies group centered
on real-time collaboration, automated diagnosability, multi-tenancy and online services high
availability. During his employment with Oracle, Mr. Htite also served as an architecture
consultant for several high profile customers. Mr. Htite received both his Bachelors and Masters
Degrees in Computer Networking and Software Engineering from the University of Montreal.
Board Composition and Election of Directors
Our board of directors currently consists of four 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 hereof. Holders of the Notes offered through the LendingClub platform have no
ability to elect or influence our directors or approve significant LendingClub corporate
transactions, such as a merger or other sale of our company or its assets.
82
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.
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. The 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. Therefore, we do not believe that it is necessary at this time to
search for a person who would qualify as an audit committee financial expert.
Director Compensation
During the year ended March 31, 2009, none of our directors received any compensation for
service as a member of our board of directors. Non-employee directors are reimbursed for reasonable
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 and California law, our amended and restated certificate of
incorporation and amended and restated 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 amended and restated bylaws limit the liability of
directors to the fullest extent under applicable law. Delaware and California law provide that
directors of a corporation will not be personally liable for monetary damages for breaches of their
fiduciary duties as directors, except liability for:
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any breach of the directors duty of loyalty to us or our stockholders;
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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 directors 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;
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any unlawful payments related to dividends, unlawful stock repurchases, redemptions,
loans, guarantees or other distributions; or
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any transaction from which the director derived an improper personal benefit.
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83
These limitations do not apply to liabilities arising under federal securities laws and do not
affect the availability of equitable remedies, including injunctive relief or rescission.
As permitted by Delaware and California law, our amended and restated certificate of
incorporation and amended and restated bylaws also provide that:
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we will indemnify our directors and officers to the fullest extent permitted by law;
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we may indemnify our other employees and other agents to the same extent that we
indemnify our officers and directors; and
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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.
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The indemnification provisions contained in our amended and restated certificate of
incorporation and amended and restated bylaws are not exclusive.
In addition to the indemnification provided for in our amended and restated certificate of
incorporation and amended and restated bylaws, we have entered into indemnification agreements with
each of our directors. These agreements require us, among other things, to indemnify such persons
for all direct costs of any type or nature, including attorneys fees, actually and reasonably
incurred by such person in connection with the investigation, defense or appeal of: (1) any
proceeding to which such person may be made a party by reason of (i) such persons service as a
director or officer of LendingClub, (ii) any action taken by such person while acting as director,
officer, employee or agent of LendingClub, or (iii) such persons actions while serving at the
request of LendingClub as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan 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 (2) establishing or enforcing a right to indemnification under the
agreement.
Under these agreements, LendingClub is not obligated to provide indemnification: (1) on
account of any proceeding with respect to (i) remuneration paid to such person in violation of law,
(ii) an accounting, disgorgement or repayment of profits made from the purchase or sale by such
person of securities of LendingClub against such person pursuant to the provisions of Section 16(b)
of the Exchange Act, or other provisions of any federal, state or local statute or rules and
regulations thereunder, (iii) conduct that was in bad faith, knowingly fraudulent or deliberately
dishonest or constituted willful misconduct (but only to the extent of such specific
determination), or (iv) conduct that constitutes a breach of such persons duty of loyalty or
resulting in any personal profit or advantage to which such person is not legally entitled; (2) for
any proceedings or claims initiated or brought by such person not by way of defense; (3) for any
amounts paid in settlement without LendingClubs written consent; or (4) if such indemnification
would be in violation of any undertaking appearing in and required by the rules and regulations
promulgated under the Securities Act, or in any registration statement filed with the SEC. We
believe that these provisions and agreements are necessary to attract and retain qualified persons
as directors and officers.
In addition, we 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.
EXECUTIVE COMPENSATION
See Item 11. Executive Compensation of our Annual Report on Form 10-K for the fiscal year
ended March 31, 2009, pages 65 to 69, which is incorporated by reference in this prospectus.
84
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.
LendingClub Platform Participation
Our Chief Executive Officer, Renaud Laplanche, purchased $435,650 in member loans through the
LendingClub platform during the period in which we allowed members to purchase assignments of
member loans directly. Under our new structure, Mr. Laplanche has purchased $281,125 in Notes to
provide full funding for the related member loan listings and improve the platform experience for
our borrower members. In respect of these Notes, as of January 18, 2010 Mr. Laplanche had received
principal payments of $31,858.23 and interest payments of $8,690.58. These Notes had an average
nominal interest rate of 12.82%. Mr. Laplanches purchases were made on terms and conditions that
were not more favorable than those obtained by other members.
To test the operation of the platform, our Chief Executive Officer and Chief Operations
Officer both received member loans during the beta testing phase of our platform. Such member loans
were on the same terms as the terms generally available to other borrower members, and these member
loans have already been repaid. No director or officer of LendingClub has received a member loan
since this time. Our corporate policies now prohibit directors and executive officers from
receiving member loans through our platform.
Financing Arrangements with Directors or Executive Officers
Beginning in October 2006 through various dates during the year ended March 31, 2008, the
Company received advances from Mr. Laplanche that provided a total of $240,712 in working capital
at no interest. The Company borrowed the money in a series of draws, and the amount received from
Mr. Laplanche was $35,774 as of March 31, 2007, and all subsequent advances were repaid as of March
31, 2008. Similarly, in February 2009 Mr. Laplanche advanced a total of $195,000 to the Company for
working capital purposes at no interest. The balance was fully repaid in March 2009.
In the year ended March 31, 2009, we issued a series of promissory notes to accredited
investors that are repayable over three years and bear interest at the rate of 12% per annum. One
of our directors, Daniel T. Ciporin, purchased promissory notes in the aggregate amount of
$250,000. In consideration of his purchase of those promissory notes, Mr. Ciporin also received
warrants to purchase 28,168 shares of our convertible preferred stock.
Financing Arrangements with Significant Stockholders
In August 2007, we issued and sold to investors an aggregate of 9,637,401 shares of Series A
convertible preferred stock at a purchase price of $1.065 per share, for aggregate consideration of
$10,263,831. On September 29, 2008, we issued and sold 3,802,815 additional shares of Series A
convertible preferred stock at a purchase price of $1.065 per share, for aggregate cash
consideration of $4,050,000. In December 2008, we issued an additional 1,309,857 shares of Series A
convertible preferred stock for aggregate cash consideration of $1,395,000.
In January 2008, we issued subordinated convertible promissory notes to Norwest Venture
Partners X, LP (Norwest) and Canaan VII L.P. (Canaan), with principal sums of $500,000 each,
under the terms of a note and warrant purchase agreement. The convertible notes were subordinate to
our capital loan facility and our credit facility and bore interest at a rate of 8% per annum.
Principal and interest were due in full on the maturity date of January 24, 2010, unless an equity
financing with total proceeds of at least $3 million occurred prior to such date. If such an equity
financing occurred, the principal balance and accrued interest of the notes would automatically
convert into equity securities at the same price and under the same terms as those offered to the
other equity investors. In connection with our issuance of additional shares of Series A
convertible preferred stock on September 29, 2008, we issued 990,212 shares of Series A convertible
preferred stock in connection with the conversion of these convertible notes, which had an
outstanding principal balance of $1,000,000 and accrued interest of $54,575.
In connection with the convertible note issuances, we also issued warrants to purchase a
number of shares of our convertible preferred stock. We issued a warrant to purchase 117,371 shares
of our convertible preferred stock to each of Norwest and Canaan, each with an exercise price of
$1.065 per share. The warrants will terminate in January 2015.
85
The warrants contain a net exercise provision under which its holder may, in lieu of payment
of the exercise price in cash,
surrender the warrant and receive a net amount of shares based on the fair market value of our
common stock at the time of exercise of the warrant after deduction of the aggregate exercise
price. The warrants also provide for the same registration rights that holders of our Series A
convertible preferred stock are entitled to receive pursuant to our amended and restated investor
rights agreement, as amended. The warrants contain provisions for the adjustment of the exercise
price and the aggregate number of shares issuable upon the exercise of the warrants in the event of
stock dividends, stock splits, reorganizations, reclassifications and consolidations.
In March 2009, we issued 16,036,346 shares of Series B convertible preferred stock for
aggregate cash consideration of $11,999,998.
In April 2010, we issued 15,621,609 shares of Series C convertible preferred stock for
aggregate cash consideration of $24,489,996.42.
The participants in these convertible preferred stock financings included the following
holders of more than 5% of our voting securities or entities affiliated with them. The following
table presents the number of shares issued to these related parties in these financings:
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Series A
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Series B
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Series C
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Participants
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Preferred Stock
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Preferred Stock
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Preferred Stock
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Norwest Venture Partners X, LP
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6,955,200
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3,091,663
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3,112,840
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Canaan VII L.P.
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6,955,199
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1
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3,046,057
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1
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3,055,431
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1
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Morgenthaler Venture Partners IX, L.P.
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9,354,536
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1,913,631
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Foundation Capital
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6,665,816
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1
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Includes 104,327, 45,691 and 45,831 shares of Series A,
B and C convertible preferred stock, respectively, purchased by Daniel T.
Ciporin. Mr. Ciporin is a Venture Partner with Canaan Partners, which is
affiliated with Canaan VII L.P.
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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 amended and restated voting rights agreement, certain investors in our convertible
preferred stock, including Norwest, Canaan and Morgenthaler Venture Partners IX, L.P.
(Morgenthaler) have each agreed, subject to maintaining certain ownership levels, to exercise
their voting rights so as to elect one designee of Norwest, one designee of Canaan and one designee
of Morgenthaler to our board of directors, as well as our chief executive officer. Foundation
Capital does not have the right to designate a member of our board of directors. Under the terms
of the investor rights agreement, the holders of at least 65% of the shares issuable upon
conversion of our 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 $10 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 $1,000,000, 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 About LendingClub Management Limitations
on Officers and Directors Liability and Indemnification Agreements.
86
PRINCIPAL SECURITYHOLDERS
See Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters of our Annual Report on Form 10-K for the fiscal year ended March 31, 2009,
pages 69 to 71, which is incorporated by reference in this prospectus.
LEGAL MATTERS
The validity of the Notes we are offering has been passed upon by Fenwick & West LLP. Certain
investment funds affiliated with the firm collectively own less than 1% of our shares of preferred
stock.
EXPERTS
The financial statements as of March 31, 2009 and 2008, and for the years ended March 31, 2009
and 2008, incorporated in this prospectus have been so included in reliance on the report of
Armanino McKenna LLP, an independent registered public accounting firm, given on the authority of
said firm as experts in auditing and accounting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM & FINANCIAL STATEMENTS
See the following information included in our Annual Report on Form 10-K for the fiscal year
ended March 31, 2009, pages F-1 to F-27, which are incorporated by reference in this prospectus:
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Report of Independent Registered Public Accounting Firm;
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Balance Sheets as of March 31, 2009 and 2008, and the related Statements of Operations,
Preferred Stock and Stockholders Deficit and Cash Flows for each of the two years in the
period ended March 31, 2009; and
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Notes to those financial statements.
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The
financial statements (unaudited) for the period ended
December 31, 2009 and as of the three
and nine month periods ended December 31, 2008 and 2009, respectively, are incorporated in this
prospectus.
See the following information included in our Quarterly Report on Form 10-Q for the period
ended December 31, 2009 and as of the three and nine month periods ended December 31, 2008 and
2009, respectively, pages 4-24, which are incorporated by reference in this prospectus:
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Balance Sheets as of the nine months ended December 31, 2009 (unaudited);
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the related Statements of Operations, Preferred Stock and Stockholders Deficit for the
three and nine month periods ended December 31, 2008 and 2009 (unaudited), respectively;
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Statement of Cash Flows for the three and nine month periods ended December 31, 2009
(unaudited); and
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Notes to those unaudited financial statements.
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87
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 LendingClub Corporation. All
amounts are estimated except the Securities and Exchange Commission registration fee.
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Amount
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Securities and Exchange Commission registration fee
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$
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23,580
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Accountants fees and expenses
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$
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500,000
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Legal fees and expenses
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$
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2,327,650
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Blue Sky fees and expenses
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$
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907,290
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Miscellaneous
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$
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100,000
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Total Expenses
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$
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3,838,520
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Item 14.
Indemnification of Directors and Officers
Our amended and restated certificate of incorporation provides that the liability of the
directors of LendingClub for monetary damages shall be eliminated to the fullest extent under
applicable law.
Section 102 of the General Corporation Law of the State of Delaware permits a corporation to
eliminate the personal liability of directors of a corporation to the corporation or its
stockholders for monetary damages for a breach of fiduciary duty as a director, except where the
director breached his duty of loyalty, failed to act in good faith, engaged in intentional
misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock
repurchase in violation of Delaware corporate law or obtained an improper personal benefit.
Section 204 of the California General Corporation Law, to the extent it is applicable to
LendingClub, permits a corporation to eliminate the personal liability of a director for monetary
damages in an action brought by or in the right of the corporation for breach of a directors
duties to the corporation and its shareholders, except that a provision may not eliminate or limit
the liability of directors (i) for acts or omissions that involve intentional misconduct or a
knowing and culpable violation of law, (ii) for acts or omissions that a director believes to be
contrary to the best interests of the corporation or its shareholders or that involve the absence
of good faith on the part of the director, (iii) for any transaction from which a director derived
an improper personal benefit, (iv) for acts or omissions that show a reckless disregard for the
directors duty to the corporation or its shareholders in circumstances in which the director was
aware, or should have been aware, in the ordinary course of performing the directors duties, of a
risk of serious injury to the corporation or its shareholders, (v) for acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of the directors duty
to the corporation or its shareholders, (vi) for contracts or transactions between the director and
the corporation or (vii) for approving a distribution, loan or guaranty in violation of California
corporate law.
Section 145 of the General Corporation Law of the State of Delaware provides that a
corporation has the power to indemnify a director, officer, employee or agent of the corporation,
or a person serving at the request of the corporation for another corporation, partnership, joint
venture, trust or other enterprise in related capacities against expenses (including attorneys
fees), judgments, fines and amounts paid in settlements actually and reasonably incurred by the
person in connection with an action, suit or proceeding to which he was or is a party or is
threatened to be made a party to any threatened, ending or completed action, suit or proceeding by
reason of such position, if such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, and, in any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful, except that, in the case
of actions brought by or in the right of the corporation, no indemnification shall be made with
respect to any claim, issue or matter as to which such person shall have been adjudged to be liable
to the corporation unless and only to the extent that the Court of Chancery or other adjudicating
court determines that, despite the adjudication of liability but in view of all of the
circumstances of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
88
Section 317 of the California General Corporations Law likewise generally authorizes a court
to award, or a corporations board of directors to grant, indemnity to directors and officers who
are parties or are threatened to be made parties to any proceeding (with certain similar
exceptions) by reason of the fact that the person is or was an agent of the corporation, against
expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in
connection with the proceeding if that person acted in good faith and in a manner the person
reasonably believed to be in the best interests of the corporation.
Our amended and restated certificate of incorporation provides that we are authorized to
provide indemnification of directors, officers, employees or other agents of LendingClub, or
persons who are or were serving at the request of LendingClub as directors, officers, employees or
agents of another corporation, partnership, joint venture, trust or other enterprise, for breach of
duty to LendingClub and its stockholders through bylaw provisions or through agreements with the
agents, or through stockholder resolutions, or otherwise, in excess of the indemnification
otherwise permitted by Section 317 of the California General Corporation Law, subject, at any time
LendingClub is subject to the California General Corporation Law, to the limits on such excess
indemnification set forth in Section 204 of the California General Corporation Law described above.
Our amended and restated bylaws provide that (i) LendingClub is required to indemnify its
directors and officers to the fullest extent permitted by the Delaware General Corporation Law,
(ii) LendingClub may, in its discretion, indemnify other employees or agents to the extent
permitted by applicable law, (iii) LendingClub is required to advance all expenses incurred by its
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, (iv) the rights conferred in
LendingClubs bylaws are not exclusive and (v) LendingClub may not retroactively amend the bylaws
provisions relating to indemnity.
We have entered into indemnification agreements with each of our directors. These agreements
require us, among other things, to indemnify such persons for all direct costs of any type or
nature, including attorneys fees, actually and reasonably incurred by such person in connection
with the investigation, defense or appeal of: (1) any proceeding to which such person may be made a
party by reason of (i) such persons service as a director or officer of LendingClub, (ii) any
action taken by such person while acting as director, officer, employee or agent of LendingClub, or
(iii) such persons actions while serving at the request of LendingClub as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan
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 (2) establishing or enforcing
a right to indemnification under the agreement.
Under these agreements, LendingClub is not obligated to provide indemnification: (1) on
account of any proceeding with respect to (i) remuneration paid to such person in violation of law,
(ii) an accounting, disgorgement or repayment of profits made from the purchase or sale by such
person of securities of LendingClub against such person pursuant to the provisions of Section 16(b)
of the Exchange Act, or other provisions of any federal, state or local statute or rules and
regulations thereunder, (iii) conduct that was in bad faith, knowingly fraudulent or deliberately
dishonest or constituted willful misconduct (but only to the extent of such specific
determination), or (iv) conduct that constitutes a breach of such persons duty of loyalty or
resulting in any personal profit or advantage to which such person is not legally entitled; (2) for
any proceedings or claims initiated or brought by such person not by way of defense; (3) for any
amounts paid in settlement without LendingClubs written consent; or (4) if such indemnification
would be in violation of any undertaking appearing in and required by the rules and regulations
promulgated under the Securities Act, or in any registration statement filed with the SEC.
We maintain a general liability insurance policy that covers certain liabilities of our
directors and officers arising out of claims based on acts or omissions in their capacities as
directors or 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.
89
(a) Issuances of Capital Stock, Warrants and Promissory Notes
On October 2, 2006, we issued and sold 335 shares of our common stock to our founder for a
purchase price of $3.35 and in consideration of services rendered. These securities were sold in
reliance on the exemption from the registration requirements of the Securities Act, as set forth in
Section 4(2) under the Securities Act relative to sales by an issuer not involving any public
offering.
Between October 15, 2006 and July 2, 2007, we issued and sold an aggregate of 231 shares of
our common stock to 16 accredited investors for an aggregate purchase price of $2,209,268. These
securities were sold in reliance on the exemption from the registration requirements of the
Securities Act, as set forth in Section 4(2) under the Securities Act and Regulation D promulgated
thereunder relative to sales by an issuer not involving any public offering.
Between May 30, 2007 and August 2, 2007, we issued warrants to purchase an aggregate of 25
shares of common stock to a corporate investor in consideration of the purchase of common stock and
two non-employee individuals in consideration for services rendered, each at an exercise price of
$0.01 per share. These securities were sold in reliance on the exemption from the registration
requirements of the Securities Act, as set forth in Section 4(2) under the Securities Act relative
to sales by an issuer not involving any public offering.
On August 20, 2007, we implemented a 13,000-for-1 stock split, which resulted in the Company
having 7,358,000 shares of common stock issued and outstanding on such date. This stock split did
not involve the offer or sale of a security.
Between August 21, 2007 and October 4, 2007, we issued and sold an aggregate of 9,637,401
shares of our convertible Series A preferred stock to six accredited investors for an aggregate
purchase price of $10,263,831, and in connection with these issuances we issued an additional
832,000 shares of our common stock to our existing stockholders for no additional consideration.
These securities were sold in reliance on the exemption from the registration requirements of the
Securities Act, as set forth in Section 4(2) under the Securities Act and Regulation D promulgated
thereunder relative to sales by an issuer not involving any public offering.
Between December 10, 2007 and March 6, 2008, we issued warrants to purchase an aggregate of
646,009 shares of Series A preferred stock to three existing stockholders and our lenders at an
exercise price of $1.065 per share. These securities were sold in reliance on the exemption from
the registration requirements of the Securities Act, as set forth in Section 4(2) under the
Securities Act relative to sales by an issuer not involving any public offering.
On January 24, 2008, we issued convertible notes to two existing accredited investor
stockholders for an aggregate purchase price of $1,000,000. These securities were sold in reliance
on the exemption from the registration requirements of the Securities Act, as set forth in Section
4(2) under the Securities Act and Regulation D promulgated thereunder relative to sales by an
issuer not involving any public offering.
Between April 25, 2008 and August 31, 2008, we issued and sold secured promissory notes and
warrants to purchase an aggregate of 463,176 shares of our Series A convertible preferred stock to
20 accredited investors, including four existing securityholders, for an aggregate purchase price
of $4,407,964. These securities were sold in reliance on the exemption from the registration
requirements of the Securities Act, as set forth in Section 4(2) under the Securities Act and
Regulation D promulgated thereunder relative to sales by an issuer not involving any public
offering.
On September 29, 2008, we issued and sold 3,802,815 shares of our Series A convertible
preferred stock to three accredited investors, including two existing securityholders, for
aggregate cash consideration of $4,050,000, and the Company issued 990,212 shares of Series A
convertible preferred stock to these two existing securityholders in connection with the conversion
of $1,000,000 of convertible notes. These securities were sold in reliance on the exemption from
the registration requirements of the Securities Act, as set forth in Section 4(2) under the
Securities Act and Regulation D promulgated thereunder relative to sales by an issuer not involving
any public offering.
On October 7, 2008, we issued warrants to purchase an aggregate of 37,558 shares of Series A
convertible preferred stock to an existing lender at an exercise price of $1.065 per share. These
securities were sold in reliance on the exemption from the registration requirements of the
Securities Act, as set forth in Section 4(2) under the Securities Act relative to sales by an
issuer not involving any public offering.
90
Between October 16, 2008 and November 12, 2008, we issued warrants to purchase 39,436 shares
of Series A convertible preferred stock to an existing lender at an exercise price of $1.065 per
share. These securities were sold in reliance on the exemption from the registration requirements
of the Securities Act, as set forth in Section 4(2) under the Securities Act relative to sales by
an issuer not involving any public offering.
Between October 22, 2008 and November 19, 2008, we issued and sold 276,995 shares of our
Series A convertible preferred stock to four accredited investors, including one existing
securityholder, for aggregate cash consideration of $295,000. These securities were sold in
reliance on the exemption from the registration requirements of the Securities Act, as set forth in
Section 4(2) under the Securities Act and Regulation D promulgated thereunder relative to sales by
an issuer not involving any public offering.
Between October 27, 2008 and December 19,2008, the Company issued an additional 1,309,857
shares of Series A convertible preferred stock to six accredited investors, including two existing
securityholders, for aggregate cash consideration of $1,395,000. These securities were sold in
reliance on the exemption from the registration requirements of the Securities Act, as set forth in
Section 4(2) under the Securities Act relative to sales by an issuer not involving any public
offering.
In December 2008, the Company issued warrants to purchase 28,170 shares of Series A
convertible preferred stock to an existing lender at an exercise price of $1.065 per share. These
securities were sold in reliance on the exemption from the registration requirements of the
Securities Act, as set forth in Section 4(2) under the Securities Act relative to sales by an
issuer not involving any public offering.
In March 2009, the Company issued 16,036,346 shares of Series B convertible preferred stock to
seven accredited investors, including five existing securityholders, for aggregate cash
consideration of $11,999,998. These securities were sold in reliance on the exemption from the
registration requirements of the Securities Act, as set forth in Section 4(2) under the Securities
Act and Regulation D promulgated thereunder relative to sales by an issuer not involving any public
offering.
On May 18, 2009, the Company issued warrants to purchase an aggregate of 374,180 shares of
Series B convertible preferred stock to two existing lenders at an exercise price of $0.7483 per
share. These securities were sold in reliance on the exemption from the registration requirements
of the Securities Act, as set forth in Section 4(2) under the Securities Act relative to sales by
an issuer not involving any public offering.
In April 2010, the Company issued 15,621,609 shares of Series C convertible preferred stock to
10 accredited investors, including 8 existing securityholders, for aggregate cash consideration of
$24,489,996.42. These securities were sold in reliance on the exemption from the registration
requirements of the Securities Act, as set forth in Section 4(2) under the Securities Act and
Regulation D promulgated thereunder relative to sales by an issuer not involving any public
offering.
No underwriters were involved in the foregoing sales of securities.
(b) Stock Options and Restricted Stock
From January 22, 2007 through December 31, 2009, we have granted stock options to purchase an
aggregate of 4,058,278 shares of our common stock (1,430,077 of which have either expired or been
cancelled, and 76,988 of which have been exercised) with exercise prices ranging from $0.23 to
$0.27 per share, as adjusted, to employees and consultants pursuant to our 2007 plan or other
written compensatory plans or arrangements. From January 22, 2007 through December 31, 2009, an
aggregate of 76,988 shares have been issued upon the exercise of stock options for an aggregate
consideration of $20,789. The shares of common stock issued upon exercise of options are deemed
restricted securities for the purposes of the Securities Act.
In
connection with our Series C financing, we increased the number of
shares of common stock reserved for issuance under our 2007 Stock
Incentive Plan to 9,096,778 shares.
The grants of stock options and the shares of common stock issuable upon the exercise of the
options as described in this paragraph (b) of Item 15 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.
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.
91
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. 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.
92
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly caused this
Post-Effective Amendment No. 5 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Sunnyvale, California, on the 5th day of May 2010.
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LENDINGCLUB CORPORATION
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By:
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/s/ Renaud Laplanche
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Renaud Laplanche
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Chief Executive Officer
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Pursuant to the requirements of the Securities Act, this Post-Effective Amendment No. 5 to
Registration Statement has been signed by the following persons in the capacities and on the dates
indicated.
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Signature
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Title
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/s/ Renaud Laplanche
Renaud Laplanche
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Chief Executive Officer and Director
(Principal Executive Officer)
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May 5, 2010
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/s/ Howard Solovei
Howard Solovei
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Vice President, Finance and
Administration
(Principal Financial
Officer and Principal
Accounting
Officer)
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May 5, 2010
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Director
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May 5, 2010
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Director
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May 5, 2010
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Director
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May 5, 2010
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* By:
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/s/ Renaud Laplanche
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Renaud Laplanche
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Attorney-in-Fact
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93
Exhibit Index
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Exhibit
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Number
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Description
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3.1
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Amended and Restated Certificate of Incorporation of LendingClub Corporation, as amended (incorporated by
reference to Exhibit 3.1 of the Companys 8-K, filed April 20, 2010)
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3.2
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Amended and Restated Bylaws of LendingClub Corporation (incorporated by reference to Exhibit 3.2 of the
Companys Annual Report on Form 10-K, filed June 17, 2009)
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4.1
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Form
of three-year Member Payment Dependent Note (included as Exhibit A in
Exhibit 4.5)
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4.2
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Form of Indenture between LendingClub Corporation and Wells Fargo Bank, National Association
(incorporated by reference to Exhibit 4.2 of the Companys Amendment #3 to Form S-1, Registration No.
333-151827, filed October 9, 2008)
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4.3
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First Supplemental Indenture, dated July 10, 2009, between LendingClub Corporation and Wells Fargo Bank,
National Association (incorporated by reference to Exhibit 4.3 of the Companys Post-Effective Amendment
No. 3, Registration No. 333-151827, filed July 23, 2009)
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4.4
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Form of Investor Agreement (incorporated by reference to Exhibit 4.4 of the Companys Post-Effective
Amendment No. 4, Registration No. 333-151827, filed January 19, 2010)
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4.5
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Second Supplemental Indenture,
dated May 5, 2010, between LendingClub Corporation and Wells Fargo Bank,
National Association
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4.6
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Form
of five-year Member Payment Dependent Note (included as
Exhibit B in Exhibit 4.5)
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5.1
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Opinion of Fenwick & West LLP
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8.1
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Opinion of Fenwick & West LLP
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10.1
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Form of Loan Agreement
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10.2
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Form of Borrower Membership Agreement
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10.3
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Second Amended and Restated Loan and Security Agreement, dated as of August 3, 2009, between LendingClub
Corporation and Silicon Valley Bank (incorporated by reference to Exhibit 10.1 of the Companys Form 8-K,
filed August 11, 2009)
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10.4
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Amended and Restated Loan and Security Agreement, dated as of August 3, 2009, between LendingClub
Corporation, the Gold Hill Lenders referenced on Exhibit A attached thereto, Gold Hill Venture Lending
03, LP, and Silicon Valley Bank (incorporated by reference to Exhibit 10.2 of the Companys Form 8-K,
filed August 11, 2009)
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10.5
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First Amendment to Amended And Restated Loan and Security Agreement, dated April 15, 2010, by and among
LendingClub Corporation, Gold Hill Venture Lending 03, LP, and Silicon Valley Bank
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10.6
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First Amendment to Second Amended And Restated Loan And Security Agreement, dated April 15, 2010, by and
between Silicon Valley Bank and LendingClub Corporation
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10.7
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LendingClub Corporation 2007 Stock Incentive Plan, as amended (incorporated by reference to Exhibit 10.5
of the Companys Form S-1, filed June 20, 2008)
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10.8
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Amendment No. 3 to LendingClub Corporation 2007 Stock Incentive Plan (incorporated by reference to
Exhibit 10.8 of the Companys Annual Report on Form 10-K, filed June 17, 2009)
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10.9
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Form of Secured Promissory Note (incorporated by reference to Exhibit 10.6 of the Companys Form S-1
(Registration No. 333-151827), filed June 20, 2008)
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10.10
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Form of Warrant (incorporated by reference to Exhibit 10.7 of the Companys Form S-1, filed June 20, 2008)
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10.11
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Loan Account Program Agreement, dated as of December 10, 2007, by and between LendingClub Corporation and
WebBank (incorporated by reference to Exhibit 10.11 of the Companys Form 10-K, filed June 17, 2009)
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10.12
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Loan Sale Agreement, dated as of December 10, 2007, by and between LendingClub Corporation and WebBank
(incorporated by reference to Exhibit 10.12 of the Companys Form 10-K, filed June 17, 2009)
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94
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Exhibit
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Number
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Description
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10.13
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First Amendment to Loan Account Program Agreement, dated as of April 30, 2008, by and between LendingClub
Corporation and WebBank (incorporated by reference to Exhibit 10.13 of the Companys Form 10-K, filed
June 17, 2009)
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10.14
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Second Amendment to Loan Account Program Agreement and First Amendment to Loan Sale Agreement, dated as
of October 8, 2008, by and between LendingClub Corporation and WebBank (incorporated by reference to
Exhibit 10.14 of the Companys Form 10-K, filed June 17, 2009)
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10.15
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Hosting Services Agreement, dated as of October 6, 2008, between LendingClub Corporation and FOLIO
fn
Investments, Inc. (incorporated by reference to Exhibit 10.15 of the Companys Form 10-K, filed June 17,
2009)
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10.16
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Services Agreement, dated as of October 6, 2008, by and between LendingClub Corporation and FOLIO
fn
Investments, Inc. (incorporated by reference to Exhibit 10.16 of the Companys Form 10-K, filed June 17,
2009)
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10.17
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License Agreement, dated as of October 6, 2008, by and between LendingClub Corporation and FOLIO
fn
Investments, Inc. (incorporated by reference to Exhibit 10.17 of the Companys Form 10-K, filed June 17,
2009)
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10.18
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Series A Preferred Stock Purchase Agreement, dated as of August 21, 2007, by and among LendingClub
Corporation, and each of those persons whose names are set forth on the Schedule of Purchasers attached
thereto as Exhibit A (incorporated by reference to Exhibit 10.18 of the Companys Form 10-K, filed June
17, 2009)
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10.19
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Series B Preferred Stock Purchase Agreement, dated as of March 13, 2009, by and among LendingClub
Corporation, and each of those persons whose names are set forth on the Schedule of Purchasers attached
thereto as Exhibit A (incorporated by reference to Exhibit 10.19 of the Companys Form 10-K, filed June
17, 2009)
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10.20
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Series C Preferred Stock Purchase Agreement, dated as of April 14, 2010, by and among LendingClub
Corporation, and each of those persons whose names are set forth on the Schedule of Purchasers attached
thereto as Exhibit A (incorporated by reference to Exhibit 99.1 of the Companys Form 8-K, filed April
20, 2010)
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10.21
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Amended and Restated Investor Rights Agreement, dated as of April 14, 2010, by and among LendingClub
Corporation and the investors listed on Exhibit A thereto (incorporated by reference to Exhibit 99.2 of
the Companys Form 8-K, filed April 20, 2010)
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10.22
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Amended and Restated Voting Agreement, dated as of April 14, 2010, by and among LendingClub Corporation,
those certain holders of the Companys Common Stock listed on Exhibit A thereto, the persons and entities
listed on Exhibit B thereto, and the persons and entities listed on Exhibit C thereto (incorporated by
reference to Exhibit 99.3 of the Companys Form 8-K, filed April 20, 2010)
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10.23
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Amended and Restated Right of First Refusal and Co-Sale Agreement, dated as of April 14, 2010, by and
among LendingClub Corporation, each of the persons and entities listed on Exhibit A thereto, and each of
the persons listed on Exhibit B thereto (incorporated by reference to Exhibit 99.4 of the Companys Form
8-K, filed April 20, 2010)
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10.24
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Warrant to Purchase Stock, dated May 18, 2009, issued to Silicon Valley Bank (incorporated by reference
to Exhibit 10.2 of the Companys Form 8-K, filed May 22, 2009)
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10.25
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Warrant to Purchase Stock, dated May 18, 2009, issued to Gold Hill Venture Lending 03, LP (incorporated
by reference to Exhibit 10.3 of the Companys Form 8-K, filed May 22, 2009)
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10.26
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Security Agreement: Specific Rights to Payment, dated April 15, 2010, by and between Wells Fargo Bank,
National Association and LendingClub Corporation.
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23.1
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Consent of Armanino McKenna LLP
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23.2
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Consent of Fenwick & West, LLP (incorporated by reference from Exhibit 5.1)
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24.1
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Power of Attorney (previously filed)
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