Note I. Stock Options and Warrants

Options that were granted to a director, who resigned in December 2010, would have otherwise expired on the date of resignation or in thirty days based on the equity incentive plan under which the options were issued, but were extended to the original expiration dates set forth for the respective options, as permitted under the respective plans. The modifications resulted in additional stock-based compensation expense of approximately $83,000 in the year ended December 31, 2010.

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 and Chief Financial 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.

During 2009, as a condition to the closing of a certain loan agreement with The Park Avenue Bank of New York ("PAB"), the Company issued warrants to purchase an aggregate of 92,593 shares of Empire's common stock, at an exercise price of $0.03 per share, to PAB and a designee of a participant in the loan. The warrants were to expire on July 26, 2014. The warrants were valued at approximately $564,000, using the Black-Scholes valuation model. In October and November 2009, PAB exercised their portion of the warrants and were granted 55,367 shares of Empire's common stock. In March 2010, the designee of a participant in the loan exercised its portion of the Warrants and was granted 36,822 shares of Empire's common stock.

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, 2011, all 83,333 Option Matching Rights granted to the director were outstanding.

As of December 31, 2011, 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 795,000 securities remaining available for future issuance under this plan.

Stock-based compensation expense is approximately $1.2 million and $2.6 million for the years ended December 31, 2011 and 2010, respectively. As of December 31, 2011, there was approximately $759,000 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 two years. This expected cost does not include the impact of any future stock-based compensation awards.

During the years ended December 31, 2011 and 2010, the Company received approximately $0 and $35,000, respectively, of proceeds from shares of common stock issued as a result of the exercise of stock options. The Company issued approximately 8,333 shares of Empire's common stock as a result of these exercises during the year ended December 31, 2010.

The following table sets forth the weighted average assumptions used in applying the Black Sholes option pricing model to the option grants in 2011 and 2010.


	2011	2010
Weighted average fair value of options granted	$1.74	$2.25
Expected dividend yield	0 %	0 %
Expected volatility	108.3%	103.0%
Risk—free interest rate	1.15%	1.4%
Expected life of options	5 years	5 years

The following table reflects stock option activity in 2011 and 2010.


	Approximate number of shares			Range of exercise prices per share	Weighted average exercise price per share		Weighted average contractual life
Options outstanding at January 1, 2010		2,693,000			$	9.00		4.8 years
Granted in 2010		826,000		$ 2.79 - $ 6.90	$	2.97
Exercised in 2010		(8,000	)	$4.20	$	7.68
Cancelled in 2010		(904,000	)	$ 2.79 - $35.91	$	4.20

Options outstanding at December 31, 2010		2,607,000			$	7.56		3.6 years

Options exercisable at December 31, 2010		1,697,000			$	9.87		2.0 years

Options outstanding at January 1, 2011		2,607,000			$	7.56		3.6 years
Granted in 2011		67,000		$ 1.98 - $ 2.97	$	2.23
Exercised in 2011		0		$0		0
Cancelled in 2011		(78,000	)	$ 4.71 - $42.75	$	19.88

Options outstanding at December 31, 2011		2,596,000			$	7.05		2.7 years

Options exercisable at December 31, 2011		2,018,000			$	8.19		2.3 years