Dan Drake, Keith Marcelius, and Jack Stuppin met on March 15 with Robert Tufts, who will be the attorney for the corporation, to review our plans for setting up the corporation. Nothing was fundamentally wrong, but there are some serious regulatory problems that have forced some changes in the plans. Here is the new organization plan:
The initial offering of stock will be to the 13 founders who are legal residents of California. These people will buy the units of one share and one warrant, as described in the last letter, in return for cash, equipment, or accounts receivable (in the case of Marinchip Systems Ltd). The company will then hire employees (us) and offer up to 3,000 shares of stock apiece in return for 10% notes (by law, only employees can buy stock for notes).
After all this is done, the company will hire more employees, namely the people who aren't residents of California. As an incentive to join the company these people will get stock options which will put them on essentially the same basis as the original employees.
There won't be any special issue of warrants beyond the one-for-one deal with shares of stock, because that could raise tax problems. However, we expect to offer a large option to the president of the company, John Walker, to give him an incentive to commit his time and capital.