Note 9 – Stock Options and Warrants

Stock Options and Compensation-Based Warrants

The Company has three incentive stock option plans wherein 44,000,000 shares of the Company’s common stock are reserved for issuance there under. The Company granted stock options during the year ended December 31, 2010 to acquire 12,000,000 shares of the Company’s common stock to the Company’s Chief Executive Officer.  During the year ended December 31, 2010, the Company also issued compensation-based warrants to purchase 250,000 shares of common stock to a law firm.   Effective April 1, 2010, the Company appointed Martin Wenzel to its board of directors.  Mr. Wenzel was granted an option to purchase 500,000 shares of the Company’s common stock at an exercise price of $0.01 per share.  The option vests over ten equal monthly installments commencing May 1, 2010 and expires on April 1, 2015.

On July 19, 2010, the stockholders approved the 2010 Stock Incentive Plan. The granting of options and other stock awards is an important incentive tool for the Company’s employees, officers and directors. The 2010 Plan provides a means by which employees, directors and consultants of the Company may be given an opportunity to benefit from increases in the value of our common stock, and to attract and retain the services of such persons.  All of our employees, directors and consultants are eligible to participate in the 2010 Plan. The total number of shares of common stock which may be offered, or issued as restricted stock or on the exercise of options or Stock Appreciation Rights (SARs) under the Plan shall not exceed twenty million (20,000,000) shares of common stock.  The shares subject to an option or SAR granted under the Plan that expire, terminate or are cancelled unexercised shall become available again for grants under this Plan.  If shares of restricted stock awarded under the Plan are forfeited to the Company or repurchased by the Company, the number of shares forfeited or repurchased shall again be available under the Plan.  Where the exercise price of an option is paid by means of the optionee’s surrender of previously owned shares of common stock or the Company’s withholding of shares otherwise issuable upon exercise of the option as may be permitted herein, only the net number of shares issued and which remain outstanding in connection with such exercise shall be deemed “issued” and no longer available for issuance under this Plan.  No eligible person shall be granted options or other awards during any twelve-month period covering more than Five Hundred Thousand (500,000) shares of common stock.

On July 1, 2010, the Company granted stock options to acquire 1,000,000 shares of the Company’s common stock to non-employee directors. These options are exercisable at $0.04 per share, vest monthly over ten months starting August 1, 2010, and expire June 30, 2015.

On August 17, 2010, the Board of Directors approved the adoption of the 2010 Stock Incentive Plan, and directed management to issue 900,000 share options to certain consultants in the United States and certain employees in Mexico. These options shall vest over the next 12 to 24 months and have an exercise price of $0.04 per share.

No income tax benefit has been recognized for share-based compensation arrangements. The Company has recognized plantation development costs totaling $124,565 related to a liability that was satisfied by the issuance of warrants in 2008. Otherwise, no share-based compensation cost has been capitalized in the consolidated balance sheet.

A summary of the status of options and compensation-based warrants at December 31, 2011 and 2010, and changes during the years then ended is presented in the following table:

At December 31, 2011, options to acquire 80,000 shares of common stock have no stated contractual life.  The fair value of other stock option grants and compensation-based warrants is estimated on the date of grant or issuance using the Black-Scholes option pricing model.  7,350,000 options were issued in the year ended December 31, 2011 and 14,650,000 options and 1,890,000 warrants  were issued in the twelve-month period ended December 31, 2010.  The weighted-average assumptions used for the stock options granted and compensation-based warrants issued during the year ended December 31, 2011 were risk-free interest rate of 2.0%, volatility of 154%, expected life of 5.0 years, and dividend yield of zero.  The assumptions employed in the Black-Scholes option pricing model include the following; the expected life of stock options represents the period of time that the stock options granted are expected to be outstanding prior to exercise; the expected volatility is based on the historical price volatility of the Company’s common stock; the risk-free interest rate represents the U.S. Treasury constant maturities rate for the expected life of the related stock options; the dividend yield represents anticipated cash dividends to be paid over the expected life of the stock options;  the intrinsic values are based on a December 31, 2011 closing price of $0.022 per share.

Share-based compensation from all sources recorded during the year ended December 31, 2011 and 2010 was $137,271 and $115,268, respectively, and is reported as general and administrative expense in the accompanying consolidated statements of operations.  As of December 31, 2011, there is approximately $191,841 of unrecognized compensation cost related to stock-based payments that will be recognized over a weighted average period of approximately 1.23 years.

Stock Warrants

A summary of the status of the warrants outstanding at December 31, 2011 and 2010, and changes during the years then ended is presented in the following table:

Because the Company has net operating loss carryforwards available for income tax purposes, there were no excess tax benefits charged to additional paid-in capital as a result of warrants exercised during the years ended December 31, 2011 and 2010.

EMPLOYMENT AGREEMENTS

Palmer Employment Agreement

Effective September 1, 2007, the Company entered into an employment agreement with Richard Palmer pursuant to which the Company hired Mr. Palmer to serve as its President and Chief Operating Officer. Mr. Palmer was also appointed to serve as a director on the Company’s Board of Directors to serve until the next election of directors by the Company’s shareholders. Upon the resignation of the former Chief Executive Officer on December 21, 2007, Mr. Palmer also became the Company’s Chief Executive Officer. The Company hired Mr. Palmer to take advantage of his experience and expertise in the feedstock/bio-diesel industry, and in particular, in the Jatropha bio-diesel and feedstock business. The term of employment currently expires on September 30, 2012.

Mr. Palmer’s compensation package includes an annual base salary of $250,000, subject to annual increases based on changes in the Consumer Price Index, and a bonus payment based on Mr. Palmer’s satisfaction of certain performance criteria established by the compensation committee of the Company’s Board of Directors. The bonus amount in any fiscal year will not exceed 100% of Mr. Palmer’s base salary.

Cardenas Employment Agreement

On November 16, 2011the Company entered into an employment agreement with Gregory Cardenas pursuant to which the Company hired Mr. Cardenas to serve as its Chief Financial Officer. The initial term of employment expired on November 16, 2014, but, according to its terms, automatically renews for successive one-year periods unless otherwise terminated in accordance with the employment agreement.

Mr. Cardenas’s compensation package includes a base salary of $175,000, subject to annual increases based on the Consumer Price Index for the immediately preceding 12-month period, and a bonus payment based on Mr. Cardenas’s satisfaction of certain performance criteria established by the compensation committee of the Company’s Board of Directors. The bonus amount in any fiscal year will not exceed 100% of Mr.Cardenas’s base salary. Mr. Cardenas is eligible to participate in the Company’s employee stock option plan and other benefit plans.

The Company granted Mr. Cardenas an option (the Initial Option) to acquire up to 2,000,000 shares of the Company’s common stock at an exercise price of $0.037.  The Initial Option had  500,000 shares vest immediately.  The remaining 1,500,000 vests in 30 equal successive monthly installments beginning on May 31, 2012.  The Initial Option expires after 10 years. The Company also granted Mr. Cardenas an option (the Performance Option) to acquire up to 3,000,000 shares of the Company’s common stock at an exercise price of $0.037, subject to the Company’s achievement of certain market capitalization goals. The Performance Option expires after three years.

The Company has accounted for the options under Mr. Cardenas’s employment agreement as share-based compensation. The Company valued these options at $185,000 using the Black-Scholes pricing model. The weighted average fair value of the stock options was $0.037 per share. The weighted-average assumptions used for the calculation of fair value were risk-free rate of 1.90%, volatility of 158%, expected life of 6 years, and dividend yield of zero. The Company amortized this compensation over the vesting period for the Initial Option and over the period of time in which the satisfaction of market capitalization milestones for the Performance Option was expected to be fulfilled that would result in the vesting of these stock options.