Article VI, Section 12: Capital Exchange Regulatory Commission

Article VI, Section 12: Capital Exchange Regulatory Commission

Article VI, Section 12: Capital Exchange Regulatory Commission

Introduction: The Capital Exchange Regulatory Commission (CERC) is established to help and assist with the general operation and regulation of certain aspects of Capital Exchange. Individual CEO’s and Board of Directors operate companies listed on Capital Exchange. The Capital Exchange Regulatory Commission does not run or operate each listed company. Its mission is to provide regulation towards the shares listed at Capital Exchange, and to ensure certain financial and company information is made available to shareholders and investors.

The CEO of Capital Exchange will determine the specific duties and tasks of the Capital Exchange Regulatory Commission Members. However, there are some general concepts that all Members should embody:

- All Members should work together for the general good of the Capital Exchange shareholder community

- All Members should strive to help Capital Exchange grow and prosper

- All Members should assist Capital Exchange shareholders when possible, and help recruit new traders at the exchange

- All Members should be examples of honesty, integrity and transparency in all aspects of the exchange, and their individual company if a CEO

1. Membership

The CEO of Capital Exchange shall serve as Chair of the Capital Exchange Regulatory Commission, and be considered a voting member. The CEO of Capital Exchange shall appoint all other voting Members of the Capital Exchange Regulatory Commission, and shall determine the length of the term for each Member. There shall always be an odd number of Members.

2. Voting Rights & Authority

Capital Exchange Regulatory Commission members shall vote on all issues deemed necessary by the CEO of Capital Exchange. All Members shall be given 1 vote. A Member may at any time request a vote on any subject to the CEO of Capital Exchange. If deemed applicable, the CEO of Capital Exchange shall schedule a vote to be taken. Terms of the voting shall be set by the CEO of Capital Exchange.
There are four main areas of responsibility of the Capital Exchange Regulatory Commission:

A. Review and Approval of IPO/SPO Applications
B. Establish minimum standards for financial reporting
C. Handle disciplinary issues and items that are considered rules violations
D. Vote on any other item that the CEO of Capital Exchange deems necessary.

The Capital Exchange Regulatory Commission will review all IPO and SPO Applications to ensure they meet at least the minimum requirements set forth in all the rules of Capital Exchange. DISCLAIMER: It should be clearly noted that IPO and SPO Applications approved for listing by the Capital Exchange Regulatory Commission are NOT endorsements of the company by CERC Members. Individual CERC Members approval simply means they believe that the company meets the minimum listing requirements set forth by our rules. To be clear, IPO/SPO approval does NOT mean the CERC feels it is a good investment. Each individual investor must come to their own conclusions if they feel a listed company is a good investment or not.

The following things are considered by CERC Members when reviewing and voting on new IPO and SPO Applications:

- The CEO and listed company will follow all the rules and regulations set forth by Capital Exchange, including but not limited to filing financial disclosure statements on time, maintaining good business ethics, communicating often to shareholders about company matters, and keeping listed company share trading active.

- The value of Owner Shares created are less than or equal to the stated tangible assets at the time of application. Examples of tangible assets are (but not limited to) Lindens, virtual land (within Second Life, the value will be the current purchase price – other grids land value will be determined by the Valuation Committee), physical equipment or items owned in “real life” by the company, stock owned on Capital Exchange (value should be calculated at last price - other exchanges stock value will be determined by the Valuation Committee), websites and software, resalable objects and other in-world virtual items owned, and other items considered to be “physical” items either within Second Life, or the “real world.” Intangible assets may also be considered as part of the valuation process and approval process, but this is subjective and not guaranteed. Profitability and overall resale value of the company are two examples of intangible assets.

- There is a general belief that the company will stay listed at Capital Exchange and fulfill their responsibilities set forth in the rules, and if the CEO of the applying company ever intends to leave Second Life there will be a succession plan in place to maintain the company listed at Capital Exchange.

- The CEO of the applying company has a proven track record of being responsible, has good references of being a good person within the community, and will do a good job ensuring the company follows all the rules, guidelines and principles at Capital Exchange.

- Capital Exchange Regulatory Commission Members may suggest changes to make the application more appealing to investors, but ultimately it’s up to each investors to determine if a listed company is a good investment or not.

- Capital Exchange Regulatory Commission Members should abstain from voting when they own a large portion of shares (more than 5%) or control a significant amount of assets of the company being voted upon, or feel they have some other direct conflict of interest such as business partnerships. Owning a small amount of shares is not a reason to abstain, and all Members should cast a yes or no vote on all IPO/SPO Applications. It’s important that Capital Exchange Regulatory Commission Members be objective at all times when voting. It’s OK for a CERC member to vote yes on an IPO/SPO Application they may not think is a good investment opportunity, but meets the minimum rule and listing requirements at Capital Exchange.

3. Standing Committees and Duties

A. IPO/SPO Review Committee – The CEO of Capital Exchange shall appoint a Chair and Members to this Committee (this committee is also know as the “Valuation Committee”). The Committee will be responsible to review IPO/SPO Applications for proper valuation. Capital Exchange feels that valuation of all IPO’s and SPO’s is very important, and reserves the right to approve, modify or deny all applications based on valuation (or any other reason). The procedure shall be as follows:

i. The CEO of Capital Exchange shall receive the IPO/SPO Application, and review the details with the applying CEO. The CEO of Capital Exchange shall determine if the IPO/SPO Application should move forward.

ii. If authorization is given to move forward, the IPO/SPO Application is given to the other Members of the Committee. They will review it and make suggestions and/or corrections if deemed necessary. An IPO Application should include from the applying CEO a list of all assets, a value of each asset, and a brief explanation of how the value of the listed assets were determined. An SPO Application should explain the reasons why the SPO is being conducted, and where the Lindens raised will be invested/spent, and list any additional assets being included. Additional information may be requested as deemed necessary.

iii. Committee Voting – Members shall vote on whether or not to advance the IPO/SPO Application to the full Capital Exchange Regulatory Commission. A majority of votes are necessary for the application to advance. 3 Yes votes, and the application advances to the full CERC for a final majority rules vote. 2 Yes votes, 1 No vote, and the application also advances to the full CERC for approval. The No voter will give the reasons or reasons why he/she voted No before the full CERC votes. For 2 or 3 No votes, the application is rejected and goes back to the applying CEO for modification. NOTE: For SPO Applications, if all 3 Members vote Yes, the SPO Application is considered approved and does not need to be forwarded to the full CERC. If after 7 days not all IPO/SPO Review Committee members have cast a vote or commented, and there are not 2 “no” votes to reject the valuation, the CEO of Capital Exchange may choose to move the IPO Application to a final vote for approval.

B. Financial Review Committee – The CEO of Capital Exchange shall appoint a Chair and Members to this Committee. The Committee will be responsible to develop a standard financial reporting form to be used for Quarterly Financial Reports, as well as provide oversight and verification of reported company financial information, if deemed necessary. Capital Exchange believes in providing proper historical information for investors to make educated choices, as well as informing shareholders of company performance. The duties shall be:

i. Properly develop and maintain a standard Quarterly Financial Report, which should contain information regarding revenue, expenses, and other financial information pertaining to a company’s operation that is deemed necessary.

ii. Audit Quarterly Financial Reports for accuracy as deemed necessary, and respond to complaints about possible misreporting of financial data by listed companies.

C. Rules Committee – The CEO of Capital Exchange shall serve as Chair and appoint Members to this Committee. The Committee will be responsible to review and develop rules for the benefit of Capital Exchange and its shareholders. Capital Exchange believes in providing rules that will ensure a balance of fairness to CEO’s, listed companies, and shareholders. The CEO of Capital Exchange shall determine the procedure for rules changes and adoption.

4. CEO of Capital Exchange

The CEO of Capital Exchange reserves the right to veto or override any decision made by the Capital Exchange Regulatory Commission or appointed Committee.