Stock Options and Warrants

On November 12, 2009, Kien Huat has, with the Company’s consent, assigned its Option Matching Rights to a director with respect to an existing option to purchase 83,333 shares of Empire’s common stock at an exercise price of $3.42 per share. The Option Matching rights expire on April 26, 2014 and were valued at approximately $673,000 using the Black-Scholes valuation model. As of December 31, 2013, all 83,333 Option Matching Rights granted to the director were outstanding.

On November 9, 2010, the Compensation Committee of the Board approved the grant of the following options to the Company’s directors and certain executive officers in consideration of their continued service to the Company: (i) an option granted to each of the Company’s six non-employee directors to purchase 13,333 shares of Empire’s common stock at an exercise price of $2.79 per share, which vest in equal portions annually over a three year period from the grant date or upon the grantee’s involuntary dismissal from the Board, if earlier; (ii) an option granted to the Company’s Chief Executive Officer to purchase 160,000 shares of Empire’s common stock at an exercise price of $2.79 per share, which vest in equal portions annually over a three year period from the grant date; (iii) an option granted to the Chairman of the Board to purchase 466,667 shares of Empire’s common stock at an exercise price of $2.79 per share, which vest in equal portions annually over a three year period from the grant date; and (iv) an option granted to the Company’s Senior Vice President, Chief Counsel and Chief Compliance Officer (formerly VP of Legal Affairs) to purchase 26,667 shares of Empire’s common stock at an exercise price of $2.79 per share, which vest in equal portions annually over a three year period from the grant date.

On May 11, 2010, as part of a legal settlement with the Company’s former CEO, it paid its former CEO consideration of $1.5 million, inclusive of legal fees, and issued warrants to purchase an aggregate of 1.1 million shares of Empire’s common stock at $6.00 per share, as follows: (i) 83,333 shares with an expiration date of May 10, 2015; (ii) 333,333 shares with an expiration date of May 10, 2015; and (iii) 666,667 shares with an expiration date of May 10, 2020, which may be exercised on a cashless basis and cannot be exercised until the warrants to purchase 416,666 shares described in clauses (i) and (ii) above have been exercised in full. The warrants were recorded as legal settlement expense and valued at approximately $5.6 million.

As of December 31, 2013, the Company has 3.5 million shares reserved for issuance in connection with its Second Amended and Restated 2005 Equity Incentive Plan and there are approximately 1,368,000 securities remaining available for future issuance under this plan.

Stock-based compensation expense is approximately $385,000 and $647,000 for the years ended December 31, 2013 and 2012, respectively. As of December 31, 2013, there was approximately $610,000 of total unrecognized compensation cost related to non-vested share-based compensation awards granted under the Company’s plan. That cost is expected to be recognized over the remaining vesting period of three years. This expected cost does not include the impact of any future stock-based compensation awards.

In 2013 the Company received approximately $1.0 million in proceeds from shares of Common stock issued as a result of the exercise of stock options. The Company did not receive any proceeds from shares of Common stock issued as a result of the exercise of stock options in 2012.

The following table sets forth the weighted average assumptions used in applying the Black Sholes option pricing model to the option grants in 2013 and 2012.



	2013			2012
Weighted average fair value of options granted	$	3.78		$	1.24
Expected dividend yield	—%			—%
Expected volatility	103.8		%	109.4		%
Risk—free interest rate	1.47		%	0.67		%
Expected life of options	5 years			5 years

The following table reflects stock option activity in 2013 and 2012.



	Approximate number of shares		Range of exercise prices per share	Weighted average exercise price per share		Weighted average remaining contractual life (years)
Options outstanding at January 1, 2012	2,676,000			$	6.93	1.77
Granted in 2012	50,000		1.59	$	1.59	4.85
Canceled in 2012	(522,000	)	$ 4.71 - $26.22	$	12.84
Options outstanding at December 31, 2012	2,204,000			$	8.45	2.26
Granted in 2013	50,000		$4.95	$	4.95	4.87
Options exercised in 2013	(314,000	)	$2.79 - $4.71	$	3.23
Canceled in 2013	(50,000	)	$4.71 - $42.75	$	12.84
Options outstanding at December 31, 2013	1,890,000			$	6.63	1.46
Options exercisable at December 31, 2013	1,891,000			$	5.70	1.39