Employee Stock Incentive Program

The stock incentive program is a venerable tradition in Micro-Cap land, where employees settle for less than a normal or (sometimes even regular) paycheck, in trade for a portion of the company's future. A future they are helping to build. Usually under financed and short on cash, getting paid in stocks at a Micro-cap with a rising stock price can be a great fit for the company and the employee.

Like any possible good, there can be many drawbacks for both the company and the employee.

Dilution; under compensation during low stock price; lack of liquidity; group rather than individual performance incentives; subjective performance thresholds; non diversification of portfolios; these are just some of the possible problems.

In any case lets take a look at Employee Stock Incentive Program at GERS.

We can start with the top executives since their share is listed by name. We can then see what is allotted to employees other than top executives.

Executive Officer Employment Agreements

Effective March 20, 2008, the Company entered into amended and restated employment agreements with David Winsness, the Company's Chief Technology Officer, Greg Barlage, the Company's Chief Operating Officer, and Ed Carroll, the Company's Chief Financial Officer. These agreements call for a salary of $150,000 per year for each employee and reduce and restrict the shares and other compensation due to each employee as compared to earlier agreements between each employee and the Company. Each agreement also included the above described EBITDA performance restriction on conversion and provides for 400,000, 300,000 and 240,000 shares of Series B Shares to be issued to Mr. Winsness, Mr. Barlage and Mr. Carroll, respectively. These shares are convertible into a total of 10,000,000, 7,500,000 and 6,000,000 shares, respectively, in line with the satisfaction of the $50,000,000 EBITDA targets noted above. In Mr. Carroll's case, 40,000 of his Series B Shares, corresponding to 1,000,000 common shares, are subject to an additional restriction that requires the completion by the Company of certain financing.

(Annual Report p. 93)

Adding the details above and comparing them to the chart below we see that of the 69,133,333 shares allotted to employee incentives at 50M EBITDA, 23.5M are set aside for the three top Executives above. That leaves over 45M shares, or over 65% for other employees. This ratio, since I see no contrary examples, should continue down to lesser EBITDAs. If for example, we declared an EBITDA of 10M at the end of the year. (Not saying they did - its just an example!) That would mean that over 16.5M shares would have been converted under the employee option. Over 10.7M shares would have been placed in the hands of more "junior" employees, who might be more likely to be in a position to require a quick sell.

An Interesting SkunK note: Although I said (and stick by) my guess that we have had dilution, and that dilution in December and January has been to cover 2 YAGI payments, my mind is open to other options. (Wild concept in GERS land!) If you add up the shares converted with ( B, D and E preferred shares, [see chart]) upon meeting 10M EBITDA, you see it is about 37M common shares! This could account for the increased January and February volume as well! This would be theory II with a much lower possibility level. I do not expect to see 10M EBITDA declared in 2008. However we might have had a lesser EBITDA amount declared which freed up some junior employee commons at the start of the year and accounted for a portion of the increased volume.

You can see this in full size and also more references here:
http://docs.google.com/Doc?id=dgzzx2hv_43hnvcmbdk

One last note: If you study the variation between the annual report employee compensation chart (p94 annual report) and the First quarter Report (p.30) after the BIG deal, you will note variances. The most important is almost 9m Employee pool shares are already worked or added into the OS after the Big Deal. The 154,000 shares Mr Kreisler direct purchased are also included in the OS here. I think this could mean that we had an individual performance award (tied to the Big Close?) and the Employee pool was expanded to include at least a portion of the estimated 20-25 NextDiesel employees.

Best of Luck to All Investors

SkunK

ps. If you feel you must constantly lift your tail and spray things, you have been reading too much SkunK. I have devised an anti-dope in the form of even more in depth disclaimers at the bottom of the blog.