Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Exemption from the requirements under National Instrument 45-106 Prospectus and Registration Exemptions relating to the filing of reports of trade with respect to distributions of loan agreements by borrowers/issuers to lenders/investors and with respect to distributions of investment contracts by the promoter to lenders/investors -- Exemption from the requirements under OSC Rule 45-501 Ontario Prospectus and Registration Exemptions respecting the delivery of an offering memorandum to the Ontario Securities Commission with respect to documents made available to lenders/investors on the promoter's website -- Promoter plans to operate a peer-to-peer lending (P2P lending) system -- Only accredited investors will be able to invest in loan agreements and investment contracts on promoter's website -- Loan agreement is (or is likely) a security issued by a borrower/issuer -- The structure of the system is (or is likely) a an investment contract and a security issued by promoter -- A loan request of a borrower/issuer may constitute an offering memorandum -- Certain documents and information on promoter's website may constitute an offering memorandum -- Nature of P2P lending website makes it impractical for parties to file reports of trade and deliver offering memoranda within 10 days of trade -- Promoter will instead file reports of trade and deliver offering memoranda within 10 days of the end of each month on behalf of itself and borrowers/issuers -- Exemption granted subject to numerous conditions to address regulatory and investor protection concerns in respect of P2P lending websites, including condition that promoter be registered as an investment counsel and portfolio manager and as a limited market dealer.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, s. 147.

National Instrument 45-106 Prospectus and Registration Exemptions, ss. 6.1(a), 6.3, 7.1.

OSC Rule 45-501 Ontario Prospectus and Registration Exemptions, s. 6.4.

September 8, 2009

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO (THE "JURISDICTION")

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

COMMUNITYLEND INC.

(THE "FILER" OR "COMMUNITYLEND")

DECISION

BACKGROUND

The principal regulator in the Jurisdiction has received an application from the Filer, on behalf of the Borrowers/issuers (as defined below) and itself, for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") that the Filer and the Borrowers/issuers be exempted from:

(a) the requirements under section 6.1(a) of National Instrument 45-106 Prospectus and Registration Exemptions ("NI 45-106") relating to filing reports of trade (the "Report of Trade Requirements") with respect to the distributions of loan agreements ("Loan Agreements") by Borrowers/issuers to Lenders/investors (as defined below) and with respect to distributions of Investment Contracts (as defined below) by the Filer to Lenders/investors;

(b) the requirements under section 6.3 of NI 45-106 respecting the content of Form 45-106F1 Report of Exempt Distribution (the "Report of Trade Form Requirements"); and

(c) the requirements respecting the delivery of an offering memorandum to securities regulatory authorities (the "Offering Memorandum Delivery Requirements") with respect to documents made available to Lenders/investors on the Filer's website (collectively, with the Report of Trade Requirements and the Report of Trade Form Requirements, the "Exemption Sought").

Under the Process For Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application; and

(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System ("MI 11-102") is intended to be relied upon in British Columbia and Québec (collectively, with Ontario, the "Applicable Jurisdictions").

INTERPRETATION

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

REPRESENTATIONS

This decision is based on the following facts represented by the Filer:

1. CommunityLend will operate an online peer-to-peer lending system (the "System") in the Applicable Jurisdictions. The System will operate as an alternative to traditional lending sources by facilitating loans ("Loans") between borrowers ("Borrowers/issuers") and lenders ("Lenders/investors") who are seeking better rates on, respectively, their borrowing needs or a portion of their investable assets.

2. The System will operate entirely on the internet and is designed to allow Lenders/investors individually to make bids on portions of consumer Loans. The investments which will be available to Lenders/investors upon the launch of the System are relatively short term (maximum term is three years) and the maximum aggregate permitted size of the Loan amount for each Borrower/issuer is $25,000.

3. All prospective Borrowers/issuers will be required to satisfy the minimum credit criteria established by CommunityLend at the time they apply to register in the System. These minimum credit criteria will include minimum thresholds of credit ratings and affordability ratings, among other factors. The ratings will be presented by CommunityLend based on Borrowers/issuers' input and certain external input. At the launch of the System, the minimum credit criteria will be set at a level consistent with typical bank requirements which are considered to represent "prime risk borrowers" (which is not generally the same as borrowers to whom a bank will lend at its "prime rate"). CommunityLend may adjust the minimum credit criteria as it deems appropriate over time, as long as the criteria only includes "prime risk borrowers" and excludes "subprime risk borrowers". Only prospective Borrowers/issuers who meet the minimum credit criteria will be allowed to register in the System as Borrowers/issuers.

Securities

4. Since the Loan Agreement is evidence of indebtedness of the Borrower/issuer, it is (or is likely) a "security" as that term is defined under applicable securities legislation. The Borrower/issuer would therefore be the issuer of that security under applicable securities legislation. Each Loan Agreement entered into on the System will only have a single Borrower/issuer.

5. Since the structure of the System (the "CommunityLend Structure") creates rights and obligations among Borrowers/issuers, Lenders/investors and CommunityLend, the CommunityLend Structure is (or is likely) an investment contract ("Investment Contract") and therefore a "security" as that term is defined under applicable securities legislation. CommunityLend would therefore be the sole issuer of that security under applicable securities legislation.

General Business Description

6. CommunityLend will facilitate the entering into of Loan Agreements between Borrowers/issuers and Lenders/investors through a bidding process which will occur on the restricted pages of the System (the "Restricted Pages"), an interactive online web-based environment which is only accessible to registered users.

7. Borrowers/issuers will create and post loan requests ("Loan Requests") for their desired loans which will include Borrowers/issuers' initial offered interest rates for their Loan Requests. The determination of the initial offered interest rate will be at the Borrower/issuer's sole discretion, subject to the minimum interest rate requirements set by CommunityLend.

8. Lenders/investors will fill portions of a Loan Request until the Loan Request is fully funded. Lenders/investors will be able to bid directly for portions of a Borrower/issuer's Loan through a competitive auction process if the Borrower/issuer has elected for his or her fully funded Loan Request to proceed to the competitive auction process at the time the Loan Request was created. The result of this bidding activity will be that each Borrower/issuer, for the most part, will have his or her Loan filled by multiple Lenders/investors.

9. Once the Loan Request has closed for bidding and provided the Borrower/issuer has indicated his or her acceptance of an initial disclosure statement-loan closing stage with respect to such Loan Request, a Loan Agreement will be executed by CommunityLend as agent of both Borrower/issuer and Lender/investor as per the borrower registration agreement (the "Borrower Registration Agreement") and the lender registration and account agreement ("Lender Registration and Account Agreement").

10. The Loan Agreement will stipulate the terms and conditions of the Loan and is conditional on a satisfactory final financial review with respect to the Borrower/issuer. If the final financial review is unsatisfactory, CommunityLend will cancel the Loan Request and it will be removed from the System.

11. CommunityLend will not be a party to the Loan Agreement. CommunityLend will facilitate the administrative aspects of the Loans between Lenders/investors and Borrowers/issuers, including Loan disbursements, Loan payments, and, in the event of Loan default, all collection activity.

12. The identity of Lenders/investors and Borrowers/issuers on the System will be known only by CommunityLend and, where required, by its agents under confidentiality agreements. However, CommunityLend may disclose Borrowers/issuers' identifying information to Lenders/investors in limited circumstances pursuant to its litigation policy.

CommunityLend Licenses and Registrations

13. CommunityLend will carry on business in the Applicable Jurisdictions. The public pages of its website ("Public Pages") will make clear that participation on the System is limited to residents in Ontario, Québec and British Columbia. Any prospective Lenders/investors and Borrowers/issuers who are not resident in the three Applicable Jurisdictions will not be permitted to register on the System. CommunityLend will screen prospective participants' province of residence through an identity verification process.

14. CommunityLend has been registered as a dealer in the category of limited market dealer ("LMD") in Ontario, and as an adviser in the category of investment counsel/portfolio manager ("ICPM") or the equivalent in all the Applicable Jurisdictions. Should proposed National Instrument 31-103 Registration Requirements and Exemptions come into force, CommunityLend will be registered as a dealer in the category of exempt market dealer ("EMD") at that time, and will apply for registration in the category of EMD in the remaining Applicable Jurisdictions.

15. CommunityLend has obtained, or will obtain all registrations and licenses that it has determined are required (federally and in each Applicable Jurisdiction) and will comply with applicable non-securities legislation, namely, federal and provincial financial institutions legislation, provincial consumer protection legislation, provincial consumer reporting legislation, provincial and federal privacy and freedom of information legislation, Criminal Code provisions, federal anti-money laundering and terrorist financing legislation and federal Interest Act provisions (the "Applicable Non-Securities Laws"). Where practical, appropriate mechanisms have been built into the System and otherwise manual procedures have been established, to ensure compliance with Applicable Non-Securities Laws.

CommunityLend Website

16. CommunityLend will operate a website that includes Public Pages and Restricted Pages.

17. The Public Pages will be completely accessible to all members of the public. The Restricted Pages will only be accessible by registered users and will include active Loan Requests.

18. CommunityLend will make available an Application Program Interface or "API" service to API eligible participants, subject to the appropriate agreements. The API service will allow API eligible participants to download all data on all Loan Requests (with the exception of any identifying data, such as name, address, telephone, employer, references, or publicly known personally identifiable information).

System Participants

Lenders/Investors

19. A prospective lender who wishes to participate in the System as a Lender/investor must register as a Lender/investor by completing all of the requirements of the lender registration process to the satisfaction of CommunityLend.

20. Accredited Investors (as defined below) will be divided into three categories for the purposes of the System:

(a) Lenders/investors who are Accredited Investors enumerated in:

(i) paragraphs (a) to (d), (f) to (i), (n), (o) and (p) of the definition of "accredited investor" in section 1.1 of NI 45-106;

(ii) paragraph (s) of that definition as it pertains to paragraphs (a) to (d) of the definition; and

(iii) paragraph (t) of that definition as it pertains to the above categories,

(the "Institutional Accredited Investors").

(b) Lenders/investors who are Accredited Investors enumerated in:

(i) paragraphs (e), (m), (q), (r), (u) and (v) of the definition of "accredited investor" in section 1.1 of NI 45-106; and

(ii) paragraph (t) of that definition as it pertains to the above categories,

(the "Non-Institutional Accredited Investors").

(c) Lenders/investors who are Accredited Investors enumerated in paragraphs (j), (k) and (l) of the definition of "accredited investor" in section 1.1 of NI 45-106 (the "Individual Accredited Investors").

(Institutional Accredited Investors, Non-Institutional Accredited Investors and Individual Accredited Investors are collectively referred to as the "Accredited Investors").

21. Registered Lenders/investors will have two ways of participating in the System, both of which are available to them at their option, subject to diversification requirements and cumulative loss limits:

(a) participation by Accredited Investors as facilitated participants ("Facilitated Participants") in an automatic bidding process facilitated by CommunityLend and referred to as "Standing Bids". Under the Facilitated Participation option, Facilitated Participants will not be directly involved in the matching process but rather will rely on the System to automatically match their bids with Loan Requests; and/or

(b) participation by Accredited Investors as active participants ("Active Participants") in an active bidding process where Lenders/investors make decisions about which Loan Requests to bid on, at what interest rates and in what amounts. Under the Active Participation option, Lenders/investors will personally view Loan Requests posted in the System and will have autonomy and discretion with respect to the Loan Requests in which they wish to participate.

Borrowers/Issuers

22. A prospective borrower who wishes to participate in the System as a Borrower/issuer must register as a Borrower/issuer by completing all of the requirements of the borrower registration process to the satisfaction of CommunityLend.

23. Only prospective Borrowers/issuers who meet minimum credit criteria will be allowed to register in the System as Borrowers/issuers.

Prohibition

24. Directors, officers and employees of CommunityLend or any affiliate of CommunityLend (as well as immediate family members of directors, officers and employees of CommunityLend or its affiliates) and connected or related issuers of CommunityLend, as defined under applicable securities legislation, will not be permitted to participate as Borrowers/issuers or Lenders/investors.

Summary of Registration Processes

25. In order for prospective Borrowers/issuers and Lenders/investors to utilize the System, they will be required to go through various stages of screening, registrations, applications and reviews. CommunityLend will comply with all securities legislation applicable in the Jurisdictions, including know-your-client and suitability requirements.

26. Prospective Lenders/investors and Borrowers/issuers who wish to register on the System will be required as a first step to choose a user name and provide an email address.

Lender/investor Registration Process

27. After creating a user name, prospective Lenders/investors will then be required to complete all of the following procedures to complete the Lender/investor registration process:

(a) the Accredited Investor certification process as described below under the heading "Accredited Investor Certification Process";

(b) a Lender/investor know-your-client review and a two-stage Lender/investor suitability review

(c) enter into a Lender Registration and Account Agreement;

(d) identity verification;

(e) banking validation; and

(f) transfer of $100 to the Trust Account (defined below).

Borrower/issuer Registration Process

28. After creating a user name, potential Borrowers/issuers will then be required to complete all of the following procedures to complete the Borrower/issuer registration process:

(a) a Borrower/issuer know-your-client review and a Borrower/issuer suitability review:

(b) enter into a Borrower Registration Agreement;

(c) identity verification;

(d) the loan application process; and

(e) banking validation.

Identity Verification

29. As part of their registration processes, prospective Lenders/investors and Borrowers/issuers will be required to complete identity verification where they are individuals. Alternative offline processes exist for prospective Lenders/investors who are not individuals.

30. Identity verification will include online identity verification through the use of the Equifax eID-Verifier System process for both Lenders/investors and Borrowers/issuers. Manual processes will be used for Institutional and Non-Institutional Accredited Investors and where required for other potential participants.

31. Potential Lenders/investors and Borrowers/issuers with addresses from outside of Ontario, Québec and British Columbia will automatically be rejected in the registration process through the use of the Equifax eID-Verifier System.

Borrower Registration Agreement

32. Anyone resident in Ontario, Québec or British Columbia with a Canadian bank account, who is a natural person and has the legal capacity to contract, may apply to register as a Borrower/issuer on the System. A prospective Borrower/issuer must have reached the legal age of majority in his or her Applicable Jurisdiction of residence. A corporation, a partnership or other business organization may not be a Borrower/issuer.

33. As part of the borrower registration process, prospective Borrowers/issuers will be required to enter into a Borrower Registration Agreement. The Borrower Registration Agreement is a standard form contract available on the Public Pages. Pursuant to the Borrower Registration Agreement, the Borrower/issuer appoints CommunityLend as its agent with full power and authority to complete the Loan Agreement on behalf of the Borrower/issuer.

34. Under the Borrower Registration Agreement, all Borrowers/issuers will agree that CommunityLend may have a legal right to disclose Borrowers/issuers' personal information to regulatory authorities having jurisdiction over CommunityLend (e.g., in connection with reporting transaction information in the Monthly Report (defined below) on persons who participate in transactions on the System), including the names and addresses of the Borrowers/issuers. CommunityLend will disclose the information and obtain the authorization described under the heading "Authorization of Indirect Collection of Personal Information for Distributions in Ontario" in the attached Appendix A.

Lender Registration and Account Agreement

35. Any Accredited Investor who is resident in Ontario, Québec or British Columbia with a Canadian bank account and who has the legal capacity to contract may apply to register as a Lender/investor on the System. A prospective Lender/investor who is a natural person must have reached the legal age of majority in his or her Applicable Jurisdiction of residence.

36. Once the Accredited Investor certification process has been completed to the satisfaction of CommunityLend, prospective Lenders/investors will be required to enter into a Lender Registration and Account Agreement. The Lender Registration and Account Agreement is a standard-form contract available on the Public Pages. Pursuant to the Lender Registration and Account Agreement, the Lender/investor appoints CommunityLend as its agent with full power and authority to complete the Loan Agreement on behalf of the Lender/investor.

37. Upon completion of the Lender/ registration process, the prospective Lender/investor will be required to transfer $100 to the Trust Account. This amount will be applied towards future Bids of Lenders/investors.

38. Under the Lender Registration and Account Agreement, all Lenders/investors will agree that CommunityLend may have a legal right to disclose Lenders/investors' personal information to regulatory authorities having jurisdiction over CommunityLend (e.g., in connection with reporting transaction information in the Monthly Report on persons who participate in transactions on the System), including the names and addresses of the Lenders/investors. CommunityLend will disclose the information and obtain the authorization described under the heading "Authorization of Indirect Collection of Personal Information for Distributions in Ontario" in the attached Appendix A.

39. Lenders/investors may not assign, transfer, sublicense or otherwise delegate any of their rights under the Lender Registration and Account Agreement to another person. There will be no secondary market established by CommunityLend for the Investment Contracts or the Loans.

40. For the purposes of the Monthly Report, CommunityLend will consider the date of the transfer of $100 to the Trust Account by the Lender/investor pursuant to the Lender Registration and Account Agreement as the date of issuance of an Investment Contract by CommunityLend to the Lender/investor.

Accredited Investor Certification Process

41. Prospective Lenders/investors that select the Individual Accredited Investor categories will be required to complete the Accredited Investor certification process. Prospective Lenders/investors will be provided with a description of the various categories of the definition of an Accredited Investor. Each prospective Lender/investor will be required to indicate in a certificate (the "Accredited Investor Certificate") within which category of the definition of Accredited Investor the Lender/investor qualifies. Lenders/investors that are Institutional Accredited Investors and Non-Institutional Accredited Investors will be given instructions to contact CommunityLend "offline", where they will be subject to a manual Accredited Investor certification process by CommunityLend which will also include obtaining a similar Accredited Investor Certificate from such Lenders/investors and any other supporting documentation that may be necessary in the particular circumstances. In the case of Institutional and Non-Institutional Accredited Investors, this will require obtaining copies of financial statements, incorporation documentation and by-laws, among other documents.

42. Lenders/investors that elect the Facilitated Participation option will be required to confirm and re-certify their eligibility as an Accredited Investor at the time of creating a Standing Bid and annually thereafter. Lenders/investors who elect the Active Participation option will be required to confirm and re-certify their eligibility as an Accredited Investor before each and every bid.

43. Accredited Investor Certificates will be addressed to CommunityLend and to the Borrowers/issuers.

44. Under the Lender Registration and Account Agreement, all Lenders/investors will be required to represent to CommunityLend that they are an Accredited Investor as detailed in their current Accredited Investor Certificate on file with CommunityLend. Each Lender/investor will be required to notify CommunityLend promptly of any changes to his or her status as an Accredited Investor.

45. If, after registration as a Lender/investor, CommunityLend becomes aware that the Lender/investor is not, or there is a reasonable basis for believing that the Lender/investor is not, an Accredited Investor, CommunityLend will take appropriate actions.

Diversification Requirements and Cumulative Loss Limits

46. The System will also impose specific diversification requirements on Lenders/investors who are Individual Accredited Investors or Non-Institutional Accredited Investors. All Lenders/investor who are an Individual Accredited Investor or a Non-Institutional Accredited Investor:

(a) will be limited to investing not more than $100,000 on the System;

(b) will be prohibited from investing more than 10% of the funds in his or her account in any one Loan, provided, however, that the Lender/investor will be able to bid $100 against any Loan even if such bid exceeds 10% of the funds in his or her account (i.e., where the balance in the account is less than $1,000);

(c) will not be permitted to hold more than 10% of any one Loan; and

(d) may, where appropriate, be subject to further diversification requirements as determined by the second stage determination of the Lender/investor suitability review.

47. There will be no diversification requirements for Lenders/investors who are Institutional Accredited Investors. However, Lenders/investors who are Institutional Accredited Investors will be subject to the second stage determination of the Lender/investor suitability review.

48. Lenders/investors who are Individual Accredited Investors or Non-Institutional Accredited Investors will be subject to cumulative loss limits. In particular, if Loans in which a Lender/investor has invested become delinquent to the extent of 25% or more of the Lender/investor's portfolio of Loans, then Lenders/investors will be precluded from bidding on a new Loan until the ratio of delinquent loans falls back below 25%. The cumulative loss limits may be adjusted subject to the second stage determination of the Lender/investor suitability review. Lenders/investors will be automatically precluded from bidding on a Loan Request if, as a result of such bidding, they will be in breach of the diversification requirements or cumulative loss limits imposed by the System.

Borrower Suitability Review

49. CommunityLend will conduct the Borrower/issuer suitability review through the loan application process, an initial financial review, and a final financial review.

Loan Application Process for Registered Borrowers/issuers

50. Once registered on the System, Borrowers/issuers will be required to go through the loan application process each time they create a Loan Request. Each Loan Request will be subject to an initial financial review conducted by CommunityLend before it can be posted in the System.

51. CommunityLend will update a Borrower/issuer's credit information before each new Loan Request is posted, subject to CommunityLend's discretion not to do so where, for example, the credit report showing a history of how consistently a Borrower/issuer pays his or her financial obligations had been retrieved within 30 days from the date of the Loan Request and no issues have arisen with respect to the Borrower/issuer's creditworthiness, therefore satisfying CommunityLend that it still possesses reliable, current credit information pertaining to the Borrower/issuer. If after an update, a Borrower/issuer no longer meets the minimum credit criteria, the Loan Request will not be posted.

52. Lenders/investors will be advised in the Loan Request that the ratings presented by CommunityLend are based on information obtained within 30 days from the date of the Loan Request.

53. A Borrower/issuer may have up to two Loans outstanding at any one time, provided that the aggregate outstanding principal balance of the two Loans does not exceed the $25,000 maximum Loan amount specified by CommunityLend. The minimum Loan amount is currently set at $1,000.

54. To be eligible to post a Loan Request for a second Loan, a Borrower/issuer must not be in default on his or her existing Loan, and he or she must not have been delinquent in making his or her last two monthly Loan payments or have been delinquent by one payment on three or more occurrences in a 12-month period. The Borrower/issuer may not post a Loan Request for a second Loan within six months following the date the first Loan Agreement was entered into. The Borrower/issuer may not apply for a Loan on the System in order to repay another existing Loan previously obtained on the System. Subject to this requirement, a Borrower/issuer may post as many Loan Requests over time as he or she desires; however, CommunityLend reserves the right to limit the number of Loan Requests a Borrower/issuer posts, or attempts to post, on the System.

Minimum Interest Rates

55. Based on a risk-adjusted formula reviewed on a regular basis, CommunityLend will assign to all credit ratings, as adjusted, applicable minimum interest rates. Minimum interest rates will be set out in a minimum interest rates schedule. By imposing minimum interest rates for the Borrower/issuer's particular credit rating, as adjusted, CommunityLend will control the interest rates at which the Borrower/issuer may create a Loan Request. Borrowers/issuers will not be able to include an offered interest rate in their Loan Requests which is lower than the minimum interest rate for their particular credit rating, as adjusted. Borrowers/issuers will be able to post Loan Requests at offered interest rates which are higher than the minimum interest rate for their particular credit rating.

Loan Request Process

56. The Loan Request process is a three-stage process:

(a) the creation of a Loan Request by a prospective Borrower/issuer;

(b) the initial financial review of the prospective Borrower/issuer's Loan Request, Loan application and registration processes by CommunityLend; and

(c) the posting of the Loan Request in the System upon successful completion of the initial financial review by CommunityLend.

57. The Loan Request will include the following information:

(a) the Borrower/issuer's user name;

(b) the Borrower/issuer's province of residence;

(c) the Loan amount;

(d) the offered interest rate for the Loan Request;

(e) the annual percentage rate as required under consumer protection legislation;

(f) the Borrower/issuer's credit rating;

(g) the Borrower/issuer's affordability rating;

(h) the Borrower/issuer's stability rating;

(i) the purpose of the Loan; and

(j) the status of the Loan (i.e. the degree funded) and the bid history.

58. A Borrower/issuer may also choose to include other relevant information he or she would like to share in his or her Loan Request, subject to the terms of the Borrower Registration Agreement.

59. Each time a Borrower/issuer submits a Loan Request for an initial financial review, he or she will be required to certify that the information provided in his or her registration with CommunityLend, the information provided by him or her to CommunityLend during his or her Loan application process and the information provided in the Loan Request is true and complete as of the date submitted.

60. The content of Loan Requests will be reviewed by CommunityLend during the initial financial review and posted in the System.

Registered Users' Protection

61. CommunityLend has adopted a security policy which is aimed at preserving the integrity of the CommunityLend website and protection of personal data of registered users.

62. Registered users will not have each other's e-mail addresses.

Loan Agreement

63. Upon satisfactory completion of the final financial review, a Loan Agreement between the Borrower/issuer and each Lender/investor who had a winning bid that is in place on a fully funded Loan Request at the time of the loan request closure (each a "Winning Bid") will automatically be created for each Winning Bid. The System will insert the user names, date, Loan amount, interest rate and payment dates into the standard form Loan Agreement. At this time, an electronic confirmation of the Loan Agreement will be sent to the Borrower/issuer and each Lender/investor and the Borrower/issuer and Lenders/investors will have the ability to print the Loan Agreement.

64. The Loan Agreement is a standard form contract available on the Public Pages and will stipulate the terms and conditions of the Loan, including the amount of the Loan, the term of the Loan, the interest rate, the terms of repayment, events of default and collection procedure on default, and will set out other terms and conditions common to a Loan Agreement.

65. At launch, all Loan Agreements will be for a three year term and all of the rights and obligations will be the same in each Loan Agreement, with the exception of the Loan amount, interest rate, scheduled repayment amounts and payment dates. CommunityLend will make the System available for shorter terms, using the same Loan Agreement, over time.

66. The Loan Agreement will contain a promise by the Borrower/issuer to repay the Lender/investor. The Loan Agreements are unsecured debt obligations of the individual Borrowers/issuers without any obligation on CommunityLend's part or recourse against CommunityLend for payment of principal or interest or other charges on the Loan. CommunityLend will not be a party to any Loan Agreement.

67. For the purposes of the Monthly Report, CommunityLend will consider the date of the electronic confirmation of the Loan Agreement as the date of issuance of an evidence of indebtedness by the Borrower/issuer to the Lender/investor.

68. The Loan Agreements may not be assigned, transferred, sold or securitized, in whole or in part, by Borrowers/issuers or Lenders/investors. There will be no secondary market established by CommunityLend for the Loans or the Investment Contracts.

69. Details of all Loan Agreements will be available for viewing by all registered Lenders/investors and Borrowers/issuers.

Funding of Loans, Loan Disbursements and Record Keeping

70. Pursuant to an account agreement to be entered into between CommunityLend and a Canadian chartered bank, all Lenders/investors' funds will be deposited into an "in trust" account maintained at the bank for this purpose (the "Trust Account"). In addition, CommunityLend will execute a declaration of trust for the benefit of the Lenders/investors in proportion to their respective interests in the funds maintained in the Trust Account.

71. Payments by Borrowers/issuers to Lenders/investors will also flow through the Trust Account.

72. Lenders/investors' and Borrowers/issuers' funds placed in the Trust Account will not be co-mingled with CommunityLend's own funds.

73. CommunityLend will maintain appropriate accounting records for each Lender/investor and Borrower/issuer which will track amounts deposited by each Lender/investor into the Trust Account and other information including outstanding Bids, amounts extended as Loans to Borrowers/issuers, the status of repayment on those Loans, details regarding repayment of Loans in default, and collection charges.

74. Loans will be repaid by automatic, pre-authorized monthly or biweekly electronic transfers from the Borrower/issuer's bank account to the Trust Account, and, at the option of the Lender/investor, the funds will be either electronically remitted to the Lender/investor's bank account or held to the credit of the Lender/investor in the Trust Account for future Loan purposes.

75. All Loans will be prepayable by the Borrowers/issuers without penalty.

76. Lenders/investors will be able to access their lender account information online at any time and view detailed information on all their account activity. Similarly, Borrowers/issuers will be able to access their Loan account information online.

Loan Default

77. Upon the occurrence of any event of default under a Loan Agreement, CommunityLend will, as agent for the Lenders/investors, determine whether to accelerate the principal amount and all accrued and unpaid interest and other charges due under the Loan Agreement and whether to accept lower payments and/or interest adjustments.

78. If a Loan is in default, the Lender/investor and the Borrower/issuer will be notified at regular intervals beginning immediately after the default. Failure to rectify the default position within the time period set out in the collection policy will result in the delinquent Loan being referred (but not sold) by CommunityLend for collection to a duly licensed arm's-length collection agency. CommunityLend will use all reasonable efforts to ensure that any collection agencies it engages to collect Loans will do so in good faith.

79. All collection activity with respect to delinquent loans will be initiated by CommunityLend as agent for the Lenders/investors and conducted in accordance with the collection policy posted on the Public Pages. All collection costs incurred by the Lenders/investors in connection with the collection of the delinquent loans will be disclosed in the collection policy and the fee schedule. CommunityLend will charge Lenders/investors, without mark-up or margin of any kind, the fees charged by the collection agency.

80. If the Loan has not been collected in 150 days, the balance of the Loan will be referred by CommunityLend to a second collection agency.

81. Delinquent Loans will be noted on the Borrower/issuer's Loan status which will be viewable by all registered users.

82. If the Borrower/issuer defaults on the Loan and the Loan proves uncollectible as a result of the default, the Borrower/issuer's rights to access the System will be suspended, and, as a result, the Borrower/issuer will not be able to create or post any Loan Requests unless the Borrower/issuer repays his or her delinquent loan with accrued interest in full.

83. Lenders/investors will be unable to collect delinquent loans themselves.

Litigation Policy and Arbitration of Disputes

84. If a Lender/investor has a legal dispute with a Borrower/issuer in respect of a misrepresentation (as defined in applicable securities legislation) made by the Borrower/issuer in his or her Loan Request, the Loan Agreement provides that all legal disputes will be referred to a single arbitrator for binding arbitration at Lender/investor's option in accordance with a litigation policy.

85. Should a Lender/investor opt to refer his or her dispute with the Borrower/issuer to arbitration, the Lender/investor will be required to have his or her dispute resolved in the manner set out in the Loan Agreement. CommunityLend will provide the Lender/investor with identifying information of the Borrower/issuers only for the purposes of enforcing the arbitrator's decision in court.

86. Should a Lender/investor opt not to refer his or her dispute with the Borrower/issuer to arbitration, the Lender/investor will be required to pursue his or her claim by way of court action in which case the Lender/investor will be required to seek a court order compelling CommunityLend to provide the Lender/investor with the name and other relevant information that CommunityLend has on file for the Borrower/issuer.

87. If a Lender/investor has a legal dispute with CommunityLend in respect of the Lender Registration and Account Agreement or a Borrower/issuer has a legal dispute with CommunityLend in respect of the Borrower Registration Agreement, each of those agreements provide that all legal disputes will be referred to a single arbitrator for binding arbitration in accordance with the provisions set out in those agreements. Lender/investors who are Individual Accredited Investors and all Borrower/issuers will be entitled, by virtue of consumer protection legislation, to opt out of arbitration as the means of settling a dispute with CommunityLend.

88. Thus, the only parties for whom arbitration will be mandatory will be Lenders/investors who are either Institutional Accredited Investors or Non-Institutional Accredited Investors.

89. If the relevant agreements specify a limitation period for any voluntary or mandatory arbitration in respect of an alleged misrepresentation (as defined in applicable securities legislation) in a Borrower Offering Memorandum (defined below) or a CommunityLend Offering Memorandum (defined below), that limitation period shall not be less than the limitation period in section 138 of the Securities Act (Ontario).

Risk of CommunityLend Discontinuing Operations

90. CommunityLend's bankruptcy or other possible discontinuance of its operations will not result in the acceleration of any outstanding Loans and all Borrowers/issuers will continue to be obligated to the respective Lenders/investors under the terms of their Loan Agreements.

91. In the event CommunityLend discontinues its operations:

(a) all unfilled Loan Requests will be cancelled;

(b) no new Loan Requests will be permitted to be posted; and

(c) all Lenders/investors' funds in the Trust Account will be returned to the Lenders/investors.

92. Since servicing the Loans continuously depends on an intermediary such as CommunityLend, CommunityLend will take a number of steps to deal with the possibility of it discontinuing operations including:

(a) establishing a mechanism for a third party such as a trustee, receiver, administrative agent or debt collection agency to step in to ensure that the Loan administration process will continue for the benefit of Lenders/investors;

(b) ensuring that all Borrower/issuer Loan payments will continue to flow through the Trust Account; and

(c) backing-up data related to the System to ensure that all such data is safely stored and readily accessible by a third-party in the event of CommunityLend's discontinuance of operations.

Fees

93. CommunityLend will at all times maintain a current fee schedule setting out all fees and charges payable by Lenders/investors and Borrowers/issuers in the System on its Public Pages. The fee schedule will disclose the method of calculation for each such fee.

94. Registered individuals of CommunityLend will be compensated with salary, a bonus program (which will be based on personal and corporate achievement of goals, rather than individual transactional goal attainment) and an employee stock option plan. CommunityLend will not pay commissions, bonuses or other forms of compensation to its Registered Individuals based on transactional volumes on the System (other than compensation based on the overall performance of CommunityLend).

Offering Memoranda

95. A Loan Request of a Borrower/issuer may constitute an "offering memorandum" (as that term is defined under applicable securities legislation) of a Borrower/issuer (the "Borrower Offering Memorandum").

96. The following documents or information (the "CommunityLend Offering Memorandum") may constitute an "offering memorandum" (as that term is defined under applicable securities legislation) of CommunityLend:

(a) the Lender Registration and Account Agreement and all documents incorporated by reference into the Lender Registration and Account Agreement;

(b) the following information on the Public Pages:

(i) basic promotional material about the System, including a demonstration of, and information about, how the System operates;

(ii) general Loan performance data;

(iii) other information on the lending market generally to assist Lenders/investors in the bidding process;

(iv) explanations and examples of how CommunityLend collects and presents the information relating to credit ratings, minimum interest rates, affordability ratings, stability ratings and Loan performance;

(v) a fee schedule outlining all fees and charges payable by Lenders/investors and Borrowers/issuers in the System and minimum interest rates schedules;

(vi) FAQs that answer common questions; and

(vii) corporate information and contact information for CommunityLend,

but not the content of blogs, forums, and community pages or CommunityLend's interactive electronic communications;

(c) a risk disclosure statement ("Risk Disclosure Statement"); and

(d) all information in a Loan Request provided exclusively by CommunityLend, rather than the Borrower/issuer.

In addition, the Lender Registration and Account Agreement will set out the procedures to be followed if a Loan goes into default or if CommunityLend discontinues operations.

97. All visitors to the website will see a statement in plain language that only Accredited Investors resident in one of the Applicable Jurisdictions may be Lenders/investors and the Loan Agreements and Investment Contracts are not suitable investments for retail investors. The statement will contain a hyperlink to a page on the website that states that although securities regulatory authorities have granted exemptive relief to CommunityLend from certain requirements under securities legislation, no securities regulatory authority has approved or expressed an opinion about the securities offered on CommunityLend's website. CommunityLend will not make any statement that contradicts this statement.

98. CommunityLend will ensure that its website does not contain promotional statements or material that cannot be reasonably supported or misrepresentations.

99. CommunityLend will monitor any blogs, forums, or similar interactive communication channels on its website and within 48 hours remove any material from its website that it deems inappropriate, including material that raises investor protection concerns.

Technology

100. CommunityLend will have in place appropriate systems to protect Borrowers/issuers' and Lenders/investors' confidential information and customer privacy.

101. All data relating to bids will be stored permanently in the System. If a registered user wishes to download the Loan Agreement, Lender Registration and Account Agreement or Borrower Registration Agreement he or she can do so. All CommunityLend's policies, agreements, disclosure statements, and cautionary statements will be printable.

Advertising

102. All advertising, marketing or related materials ("Advertising") of CommunityLend will comply with applicable securities legislation. CommunityLend will ensure that:

(a) any Advertising does not contain promotional statements or material that cannot be reasonably supported or misrepresentations;

(b) any Advertising only contains information that is also included in the CommunityLend Offering Memorandum and is presented in a fair and balanced manner; and

(c) any Advertising used to find or solicit potential Lenders/investors clearly and prominently states that only Accredited Investors resident in one of the Applicable Jurisdictions may be Lenders/investors.

Furthermore, CommunityLend will not use the word "prime" as a descriptor of any of the requested Loans or Borrowers/issuers on its website or in any Advertising.

Supporting Documents

103. The written information, documents and materials ("Supporting Documents") the Filer has provided for the purposes of review by staff of the Ontario Securities Commission are accurate as at the date of this decision, including Supporting Documents relating to:

(a) the structure, operation and administration of the System, including matters relating to information technology and electronic funds transfer;

(b) the officers, directors, shareholders and employees of the Filer and its parent company, including:

(i) the qualifications, knowledge and experience of the officers, directors and employees of the Filer relating to consumer lending, the financial services industry, electronic commerce and nascent businesses, and

(ii) the persons who will be responsible for legal and regulatory affairs and compliance;

(c) the organization, business and affairs of the Filer and its parent company, including the business model of the Filer and its existing and proposed plans for financing; and

(d) the Filer's existing or proposed arrangements with third party service providers,

except to the extent the Supporting Documents have been otherwise modified or superseded by a statement contained in a subsequently delivered Supporting Document or a representation in this decision. Furthermore, the Filer will be revising the text of the proposed website pages and online contracts and policies which it previously delivered to comply with the representations and conditions in this decision.

DECISION

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:

1. in respect of the Report of Trade Requirements and the Report of Trade Form Requirements,

(a) within 10 days after the end of the month in which a distribution of Investment Contracts or Loan Agreements occurs, the Filer files a completed report (prepared using the Alternative Form 45-106F1 attached as Appendix A to this decision) on behalf of itself and the Borrowers/issuers with the securities regulatory authorities in the Applicable Jurisdictions in which the distribution takes place (the "Monthly Report");

(b) at the same time that it files a Monthly Report in an Applicable Jurisdiction, the Filer delivers a private and confidential list of Lenders/investors (prepared using Schedule 1 of Alternative Form 45-106F1 attached as Appendix A to this decision) on behalf of itself and the Borrowers/issuers to the securities regulatory authority in the Applicable Jurisdiction in which the distribution takes place; and

(c) at the same time that it files a Monthly Report in an Applicable Jurisdiction, the Filer pays the following fees on behalf of itself and the Borrowers/issuers to the securities regulatory authority in the Applicable Jurisdiction:

(i) in British Columbia, a single fee for the filing of a Form 45-501F1 under the British Columbia Securities Regulation, namely a fee equal to the greater of (i) $100, or (ii) 0.03% of the proceeds realized by the Borrowers/issuers from the distribution to purchasers in British Columbia (i.e., 0.03% of the gross aggregated value of Loans distributed to Lenders/investors in British Columbia);

(ii) in Québec, a single fee for the filing of a Form 45-501F1 under the Quebec Securities Regulation, namely a fee equal to 0.025% of the gross aggregated value of the securities distributed in Québec, subject to a minimum of $250 of Loans distributed to Lenders/investors in Québec; and

(iii) in Ontario, a single fee for the filing of a Form 45-501F1 under OSC Rule 13-502 Fees, namely a fee of $500;

2. in respect of the Offering Memorandum Delivery Requirements,

(a) within 10 days after the end of the month in which the System is made available to Accredited Investors, the Filer delivers a copy of the CommunityLend Offering Memorandum to the securities regulatory authorities in Ontario and Quebec;

(b) within 10 days after the end of the month in which an amendment is made to the CommunityLend Offering Memorandum, the Filer delivers a copy of the portion of the CommunityLend Offering Memorandum that is amended, together with a certification by a senior executive officer of the Filer confirming that the remaining portions of the CommunityLend Offering Memorandum remain unamended, to the securities regulatory authorities in Ontario and Quebec;

(c) within 10 days after the end of the month in which the Filer provides any other document to Lenders/investors on the Filer's website that is an offering memorandum under the Legislation, the Filer delivers a copy of the document to securities regulatory authorities in Ontario and Quebec; and

(d) within 10 days after the end of the month in which a Loan Request is made available for Bidding by a Borrower/issuer, the Filer delivers a copy of the Loan Request on behalf of the Borrower/issuer to the securities regulatory authorities in Ontario and Quebec;

3. the Filer complies with the representations in this decision and the conditions in Appendix B of this decision;

4. the Filer is currently registered as an ICPM (or the equivalent) in the Applicable Jurisdictions and as an LMD (or the equivalent) in Ontario; and

5. the Exemption Sought will cease to be effective in the Applicable Jurisdictions on July 31, 2011 (the "Expiry Date"). As of the Expiry Date no new Loan Requests may be offered on the System and no new Investment Contracts will be issued; however, CommunityLend may continue to provide servicing, collection, record-keeping and other services in respect of outstanding Loans that have not been repaid in full. CommunityLend will ensure that during the period prior to the Expiry Date, no Loan Request with an offer period extending beyond the Expiry Date will be posted in the System. Any Loan Requests which have not been fully funded and closed for bidding as of the Expiry Date will be cancelled, unless CommunityLend has been granted an extension to the Exemption Sought on or prior to the Expiry Date.

As to the Exemption Sought from the Report of Trade Requirements and the Report of Trade Form Requirements:

"Michael Brown"
Assistant Manager, Corporate Finance

As to the Exemption Sought from the Offering Memorandum Delivery Requirements:

"James E. A. Turner"
"Margot C. Howard"
Vice-Chair
Commissioner
Ontario Securities Commission
Ontario Securities Commission

 

APPENDIX A

ALTERNATIVE FORM 45-106F1

MONTHLY REPORT OF EXEMPT DISTRIBUTIONS

This is the form required under a decision document dated [insert date] issued under National Policy 11-203 for a monthly report of exempt distributions.

Issuer Information

Item 1: State the full name of the issuer of the security distributed and the address and telephone number of its head office. If the issuer of the security distributed is an investment fund, state the name of the fund as the issuer, and provide the full name of the manager of the investment fund and the address and telephone number of the head office of the manager. Include the former name of the issuer if its name has changed since last report.

CommunityLend Inc. ("CommunityLend") -- Investment Contracts
Borrowers/issuers on CommunityLend's Website -- Loan Agreements

This report is submitted by:

CommunityLend
900-317 Adelaide St. W.
Toronto, Ontario, M5V 1P9
Telephone: 416-646-2177
Facsimile: 416-646-1418

for itself and as agent on behalf of the Borrowers/issuers who issued Loan Agreements on its website.

Item 2: State whether the issuer is or is not a reporting issuer and, if reporting, each of the jurisdictions in which it is reporting.

The issuers are not reporting issuers.

Item 3: Indicate the industry of the issuer by checking the appropriate box next to one of the industries listed below.

[ ] Bio-tech
Mining
Financial services
[ ] exploration/development
[ ] investment companies and funds
[ ] production
[ ] mortgage investment companies
[ ] Oil and gas
[ ] Forestry
[ ] Real estate
[ ] Hi-tech
[ ] Utilities
[ ] Industrial
[ ] Other (describe)
 
CommunityLend operates a peer-to-peer lending website and the Borrowers/issuers are individuals who issue Loan Agreements on its website
_________________________

Details of Distribution

Item 4: Complete Schedule I to this report. Schedule I is designed to assist in completing the remainder of this report.

Item 5: State the distribution date. If the report is being filed for securities distributed on more that one distribution date, state all distribution dates.

Investment Contracts were issued by CommunityLend on [list dates on which Lenders/investors transferred $100 to the Trust Account pursuant to their Lender Registration and Account Agreements during the reporting month].

Loan Agreements were issued by Borrowers/issuers using CommunityLend's website on [list dates on which electronic confirmations of Loan Agreements were sent to the Borrower/issuer and each Lender/investor during the reporting month].

Item 6: For each security distributed:

a. describe the type of security;

Investment Contracts issued by CommunityLend
Loan Agreements issued by Borrowers/issuers using CommunityLend's website

b. state the total number of securities distributed. If the security is convertible or exchangeable, describe the type of underlying security, the terms of exercise or conversion and any expiry date; and

[Insert total number of new Lenders/investors who transferred $100 to the Trust Account pursuant to their Lender Registration and Account Agreements during the reporting month] new Investment Contracts were issued to Lenders/investors by CommunityLend.

[Insert aggregate dollar amount of new Loan Agreements for which electronic confirmations were sent to the Borrower/issuer and each Lender/investor during the reporting month] aggregate amount of new Loan Agreements were issued by Borrowers/issuers using CommunityLend's website.

c. state the exemption(s) relied on.

Section 2.3 of National Instrument 45-106.

Item 7: Complete the following table for each Canadian and foreign jurisdiction where purchasers of the securities reside. Do not include in this table, securities issued as payment for commissions or finder's fees disclosed under item 8, below.

For Investment Contracts issued by CommunityLend:

Total dollar value raised from

Each jurisdiction

Number of

purchasers in the jurisdiction

where purchasers reside

purchasers

(Canadian $)

 

Quebec

[Insert number of new

None

Lenders/investors]

 

British Columbia

[Insert number of new

None

Lenders/investors]

 

Ontario

[Insert number of new

None

Lenders/investors]

 

Total number of Purchasers

[Insert number of new

Lenders/investors]

 

Total dollar value of distribution in all

None

jurisdictions (Canadian $)

For Loan Agreements issued by Borrowers/issuers using CommunityLend's website:

Total dollar value raised from

Each jurisdiction

Number of

purchasers in the jurisdiction

where purchasers reside

purchasers

(Canadian $)

 

Quebec

[Insert number of

[Insert total amount of new Loans

Lenders/investors]

during reporting month]

 

British Columbia

[Insert number of

[Insert total amount of new Loans

Lenders/investors]

during reporting month]

 

Ontario

[Insert number of

[Insert total amount of new Loans

Lenders/investors]

during reporting month]

 

Total number of Purchasers

[Insert number of

Lenders/investors]

 

Total dollar value of distribution in all

[Insert total amount of new Loans

jurisdictions (Canadian $)

during reporting month]

Commissions and finder's fee

Item 8: Complete the following by providing information for each person who has received or will receive compensation in connection with the distribution(s). Compensation includes commissions, discounts or other fees or payments of a similar nature. Do not include payments for services incidental to the distribution, such as clerical, printing, legal or accounting services.

If the securities being issued as compensation are or include convertible securities, such as warrants or options, please add a footnote describing the terms of the convertible securities, including the term and exercise price. Do not include the exercise price of any convertible security in the total dollar value of the compensation unless the securities have been converted.

For the reporting month,

    aggregate Lender Administration Fees of $[insert total amount] were paid to CommunityLend by [insert number] Lenders/investors using CommunityLend's Website.

    aggregate Borrower Administration Fees of $[insert total amount] were paid to CommunityLend by [insert number] Borrowers/issuers using CommunityLend's Website.

    CommunityLend did not pay commissions, finder's fees or other compensation to any person in connection with the distribution of Investment Contracts by CommunityLend to Lenders/investors or the distribution of Loan Agreements by Borrowers/issuers to Lenders/investors.

Item 9: If a distribution is made in Ontario, please include the attached "Authorization of indirect Collection of Personal Information for Distributions in Ontario". The "Authorization of indirect Collection of Personal Information for Distributions in Ontario" is only required to be filed with the Ontario Securities Commission.

Certificate

On behalf of the issuers, I certify that the statements made in this report are true.

Date:

[Insert date of filing]

_________________________

 
COMMUNITYLEND INC. (for itself and as agent
on behalf of the Borrowers/issuers who issued
Loan Agreements on its Website)
 
By:
[Insert signature]
_________________________
Roger Couldrey
Chief Operating Officer
(416) 646-2177 x102

Item 10: State the name, title and telephone number of the person who may be contacted with respect to any questions regarding the contents of this report, if different that the person signing the certificate.

Not applicable.

IT IS AN OFFENCE TO MAKE A MISREPRESENTATION IN THIS REPORT.

Notice - Collection and Use of Personal Information

The personal information prescribed by this form is collected on behalf of and used by the securities regulatory authorities or, where applicable, the regulators under the authority granted in securities legislation for the purposes of the administration and enforcement of the securities legislation.

If you have any questions about the collection and use of this information, contact the securities regulatory authority or, where applicable, the regulator in the jurisdiction(s) where the form is filed, at the address(es) listed at the end of this report.

Authorization of Indirect Collection of Personal Information for Distributions in Ontario

The attached Schedule I contains personal information of Lenders/investors and Borrowers/issuers and details of the distribution(s). CommunityLend Inc. (for itself and as agent on behalf of the Borrowers/issuers who issued Loan Agreements on its Website) hereby confirms that each Lender/investor and Borrower/issuer listed in Schedule I of this report

(a) has been notified by CommunityLend Inc.

i. of the delivery to the Ontario Securities Commission of the information pertaining to the person as set out in Schedule I,

ii. that this information is being collected indirectly by the Ontario Securities Commission under the authority granted to it in securities legislation,

iii. that this information is being collected for the purposes of the administration and enforcement of the securities legislation of Ontario, and

iv. of the title, business address and business telephone number of the public official in Ontario, as set out in Form 45-106F1, who can answer questions about the Ontario Securities Commission's indirect collection of the information, and

(b) has authorized the indirect collection of the information by the Ontario Securities Commission.

PRIVATE AND CONFIDENTIAL

 

Schedule I

Complete the following table.

Do not include in this table, securities issued as payment of commissions or finder's fees disclosed under item 8 of this report.

The information in this schedule will not be placed on the public file of any securities regulatory authority or, where applicable, regulator. However, freedom of information legislation in certain jurisdictions may require the securities regulatory authority or, where applicable, regulator to make this information available if requested.

For Investment Contracts issued by CommunityLend:

[Complete the following table for each Lender/investor who transferred $100 to the Trust Account pursuant to their Lender Registration and Account during the reporting month]

Full name, residential
Type of securities
Total purchase
Exemption
Date of distribution
address and telephone
purchased
price
relied on
number of purchaser
(Canadian $)
 
[Insert full name, residential
Investment
None
s.2.3 of National
[Insert date on which
address and telephone
Contract
Instrument 45-106
Lender/investor
number new Lender/investor]
transferred $100 to
the Trust Account
pursuant to his or
her Lender
Registration and
Account Agreement]

For Loan Agreements issued by Borrowers/issuers using CommunityLend's Website:

[Complete the following tables for each Loan Agreement for which electronic confirmations were sent to the Borrower/issuer and each Lender/investor during the reporting month]

Borrower/issuer:

Full name, residential address and telephone number of Borrower/issuer
Total Loan amount
 
[Insert name, residential address and telephone number of Borrower/issuer]
[Insert total Loan amount]

Lenders/investors:

Full name, residential
Type of
Total purchase
Exemption
Date of distribution
address and telephone
securities
price (Canadian
relied on
number of Lender/investor
purchased
$)
 
[Insert name, address and
Loan
[Insert amount
s.2.3 of National
[Insert date for
telephone number of each
Agreements
contributed to
Instrument 45-106
which electronic
Lender/investor for each
each Loan to a
confirmations of
Loan Agreement of a
Borrower/issuer]
Loan Agreement
Borrower/issuer]
were sent to the
Borrower/issuer
and each
Lender/investor ]

 

APPENDIX B

CONDITIONS

Accredited Investors

1. Only Accredited Investors will be allowed to participate in the System as Lenders/investors.

Applicable Jurisdictions

2. The Filer will not use section 4.7 of MI 11-102 to extend the Exemption Sought to other provinces or territories of Canada.

Structure

3. CommunityLend will not pay commissions, finders' fees or other compensation to any person in connection with the distribution of Investment Contracts or Loan Agreements to Lenders/investors.

4. CommunityLend will not pay commissions, bonuses or other forms of compensation to its registered individuals based predominately on transactional volumes on the System.

Protection of Lenders/investors

Disclosure

5. Each time before a Lender/investor submits a bid on a Loan Request, they will see a plain language warning that substantively states that:

(a) CommunityLend has not verified the information in the Loan Request;

(b) If the Borrower/issuer has made a misrepresentation in the Loan Request, the Lender/investor may have a right of action against the Borrower/issuer, but it may be impossible for the Lender/investor to prove a misrepresentation since they have no information on the identity of the Borrower/issuer;

(c) If the Loan goes into default, they will not be able to bring a claim against the Borrower/issuer to collect the debt and may not recover unpaid principal and interest through CommunityLend's debt collection process; and

(d) If CommunityLend discontinues its operations, Lenders/investors may not receive any unpaid principal or interest from the Borrower/issuer.

This warning will contain a hyperlink to a page on the Filer's website that provides the following additional detail:

(a) Lenders/investors must rely on CommunityLend's litigation policy in exercising any rights of action if the Borrower/issuer has made a misrepresentation in the Loan Request. The litigation policy provides for the disclosure of the Borrower/issuer's identity in very limited circumstances;

(b) It may be impossible for the Lender/investor to prove a misrepresentation;

(c) Lenders/investors must rely on CommunityLend's collection policy if the Loan goes into default, and will not be able to bring a claim directly against the Borrower/issuer to collect the delinquent Loan. Since this is an unsecured personal Loan, it may be impossible for the Lenders/investors to recover unpaid principal and interest; and

(d) Lenders/investors must rely on provisions in the Lender Registration and Account Agreement for the assumption by a back-up servicing company of CommunityLend's responsibilities as agent of the Lender/investor in the event that CommunityLend discontinues its operations. There is no certainty that these back-up arrangements will be effective in the case of bankruptcy or liquidation of CommunityLend Inc and Lenders/investors may not receive any unpaid principal or interest from the Borrower/issuer in these circumstances.

6. CommunityLend shall provide Lenders/investors with a Risk Disclosure Statement. The Risk Disclosure Statement shall disclose risk factors relating to CommunityLend, the System, the Loans and any other matter that would be likely to influence a Lender/investor's decision to invest in Loans. In particular, the Risk Disclosure Statement shall disclose that:

(a) A Lender/investor may lose some or all of their investment in a Loan because the Loans are highly risky and speculative and that only Lender/investors who can bear the loss of their entire investment should invest in Loans. Only Accredited Investors can be Lenders/investors on the System and the Loans are not suitable investments for retail investors.

(b) A Loan is an obligation of a Borrower/issuer only and is not secured by any collateral or guaranteed or insured by any third party.

(c) A Lender/investor must rely on CommunityLend and its designated third-party collection agencies to pursue collection against any Borrower/issuer.

(d) Credit information of a Borrower/issuer may be inaccurate or may not accurately reflect the Borrower/issuer's creditworthiness, which may cause a Lender/investor to lose part or all of their investment in a Loan. CommunityLend does not verify the information in a Loan Request. Subject to any selected verification that may be done during the final financial review, CommunityLend does not verify the income or employment of a Borrower/issuer.

(e) Information supplied by a Borrower/issuer in a Loan Request may be inaccurate or intentionally false.

(f) Default rates on Loans may be high.

(g) If payments on a Loan become more than 33 days overdue and the delinquent Loan is referred for collection, it may be impossible for the Lenders/investors to recover unpaid principal and interest.

(h) CommunityLend has a limited operating history. As an online company in the early stages of development, CommunityLend faces increased risks, uncertainties, expenses and difficulties. If CommunityLend becomes insolvent or bankrupt, a Lender/investor may find it difficult or impossible to service his or her Loans and may not recover his or her investment.

(i) Although securities regulatory authorities have granted exemptive relief to CommunityLend from certain requirements under securities legislation, no securities regulatory authority has approved or expressed an opinion about the securities offered on CommunityLend's website.

(j) A Lender/investor may lose his or her investment in a Loan that was fraudulently obtained as a result of identity theft or impersonation.

7. CommunityLend shall post and maintain the Loan performance data on its Public Pages as outlined in the written undertaking that it gave to securities regulatory authorities. CommunityLend shall start to post this data within 6 months after the System is launched. If the data is not statistically significant, CommunityLend shall post a disclaimer to this effect with the data.

Indemnities by CommunityLend

8. In each Lender Registration and Account Agreement, CommunityLend shall:

(a) agree to act as the Lender/investor's agent to fulfill any requirement imposed on the Lender/investor under applicable consumer and credit reporting legislation as a result of the CommunityLend Structure; and

(b) fully indemnify the Lender/investor for any claim made against, or losses suffered by, the Lender/investor as a direct result of CommunityLend's failure, in its capacity as agent of the Lender/investor, to fulfill any requirement imposed on the Lender/investor under applicable consumer and credit reporting legislation, except that such indemnity shall not extend to losses suffered by an Institutional Accredited Investor or a Non-Institutional Accredited Investor arising from the obligations of such a Lender/investor under any legislation other than under applicable consumer and credit reporting legislation.

Contractual rights of action granted by CommunityLend

9. In each Lender Registration and Account Agreement, CommunityLend will provide the Lender/investor with a contractual right of action if there is a misrepresentation in the CommunityLend Offering Memorandum or the Risk Disclosure Statement. This contractual right of action shall provide that:

(a) Where the CommunityLend Offering Memorandum or the Risk Disclosure Statement contains a misrepresentation (as defined in applicable securities legislation), a Lender/investor who invests in a Loan has, without regard to whether the Lender/investor relied on the misrepresentation when investing in the Loan, a right of action for damages against CommunityLend in respect of the Loan.

(b) CommunityLend shall not be liable under the contractual right of action if it proves that the Lender/investor invested in the Loan with knowledge of the misrepresentation.

(c) In an action for damages pursuant to the contractual right, CommunityLend is not liable for all or any portion of the damages that CommunityLend proves do not represent the loss of unpaid interest or principal on the Loan as a result of the misrepresentation relied upon.

(d) In no case shall the amount recoverable under the contractual right of action exceed the amount of unpaid interest and principal on the Loan.

For greater certainty, each Lender Registration and Account Agreement will provide that the contractual right of action will apply if:

(a) CommunityLend incorrectly reports a credit score of a Borrower/issuer on a Loan Request;

(b) CommunityLend incorrectly computes any rating that it prepares in respect of a Borrower/issuer on a Loan Request.

Enforcement of rights

10. Each Loan Agreement and Lender Registration and Account Agreement shall provide that:

(a) If a Lender/investor has a legal dispute with a Borrower/issuer in respect of a misrepresentation (as defined in applicable securities legislation) made by the Borrower/issuer in his or her Loan Request, the Loan Agreement provides that all legal disputes will be referred to a single arbitrator for binding arbitration at Lender/investor's option in accordance with the Litigation Policy.

(b) Should a Lender/investor opt to refer his or her dispute with the Borrower/issuer to arbitration, the Lender/investor will be required to have his or her dispute resolved in the manner set out in the Loan Agreement. CommunityLend will provide the Lender/investor with identifying information of the Borrower/issuers only for the purposes of enforcing the arbitrator's decision in court.

(c) Should a Lender/investor opt not to refer his or her dispute with the Borrower/issuer to arbitration, the Lender/investor will be required to pursue his or her claim by way of court action in which case the Lender/investor will be required to seek a court order compelling CommunityLend to provide the Lender/investor with the name and other relevant information that CommunityLend has on file for the Borrower/issuer. CommunityLend will put in place arrangements for ongoing loan servicing in the event of a discontinuance of its operations so that Lenders/investors will be able to obtain the name and other relevant information that CommunityLend has on file for the Borrower/issuer from a liquidator or other person authorized to administer CommunityLend's business pursuant to applicable insolvency legislation.

11. Should a Lender/investor opt, pursuant to CommunityLend's litigation policy and as set out in this decision, to sue a Borrower/issuer rather than seek a remedy through arbitration, CommunityLend will give such a Borrower/issuer, upon notice, access to all relevant documentation to enable such a Borrower/issuer to defend himself or herself in such a proceeding.

Protection of Borrowers/issuers

Disclosure

12. Each time a Borrower/issuer creates a Loan Request they will see a plain language warning that substantively states that:

(a) they may be considered to be offering a security under securities law and the Loan Request may be an offering memorandum under securities law;

(b) they are liable for any misrepresentation in the Loan Request;

(c) they can only offer the loan to accredited investors and they are relying on CommunityLend's determination of who is an accredited investor; and

(d) they are required to file reports of trade and the Loan Request with securities regulators and they are relying on CommunityLend to do so as their agent.

This warning will contain a hyperlink to a page on the Filer's website that provides the following additional detail:

(a) The Borrower/issuer may be considered to be offering a security under securities law and the Loan Request may be an offering memorandum under securities law;

(b) The Borrower/issuer is liable for any misrepresentations in the Loan Request and the Borrower/issuer must not post false information (which would include a false picture) in his or her Loan Request;

(c) The Borrower/issuer can only offer the Loan Agreements to Accredited Investors resident in one of the Applicable Jurisdictions and they are relying on CommunityLend's determination of who is an Accredited Investor;

(d) The Borrower/issuer is required to file reports of trade and the Loan Request with securities regulators and pay certain filing fees and they are relying on CommunityLend to do so as their agent;

(e) A description of statutory rights of action for damages and rights of rescission against Borrowers/issuers for misrepresentations in a Loan Request;

(f) A notice respecting the use of forward-looking information in an offering memorandum;

(g) A warning that Borrowers/issuers may be subject to penalties under applicable securities legislation should they fail to comply with applicable securities legislation.

Indemnities and contractual commitments by CommunityLend

13. The Borrower Registration Agreement shall provide that CommunityLend will fully indemnify the Borrower/issuer for any claim made:

(a) as a result of a Lender/investor not being an Accredited Investor; or

(b) in respect of information contained in a Loan Request that was presented exclusively by CommunityLend.

14. In each Borrower Registration Agreement, CommunityLend shall:

(a) agree to act as the Borrower/issuer's agent to fulfill any requirement imposed on the Borrower/issuer under applicable securities legislation to file properly-completed reports of trade in connection with the distribution of the Loan Agreements by the Borrower/issuer, to deliver the Borrower Offering Memorandum and to pay any filing fees as a result of the distribution of the Loan Agreements in the System; and

(b) fully indemnify the Borrower/issuer for any claim made as a result of CommunityLend failing to fulfill the requirement as the Borrower/issuer's agent.

15. Notwithstanding section 2(2)(a) of the Consumer Protection Act (Ontario)(the "CPA"), CommunityLend will contractually provide Borrowers/issuers with the substantially same protections as the CPA, as amended.

Restriction on indemnities by Lenders/investors and Borrowers/issuers

16. CommunityLend may only require an indemnity from a Lender/investor or a Borrower/issuer if the indemnity is in respect of losses suffered by CommunityLend as a result of an act or omission of a Lender/investor or of a Borrower/issuer. CommunityLend shall not require a Lender/investor or a Borrower/issuer to indemnify CommunityLend for any claim or loss resulting from CommunityLend's failure to comply with applicable legislation, including applicable securities legislation, or CommunityLend's contractual obligations.