10. Share-Based Payment Arrangements

Our share-based compensation to employees includes non-qualified stock options, restricted stock and shares issued under our Purchase Plans, which are compensatory under ASC 718 Compensation – Stock Compensation. During the second quarter of 2011, we accelerated the vesting of outstanding awards to non-management employees in connection with a change in program eligibility and termination of the Company's employee stock purchase plans. We account for share-based compensation to non-employees, including non-qualified stock options and restricted stock, in accordance with ASC 505 Equity.

Compensation cost for share-based awards will be recognized in our financial statements over the related requisite service periods; usually the vesting periods for awards with a service condition. We have made an accounting policy decision to use the straight-line method of attribution of compensation expense, under which the grant date fair value of share-based awards will be recognized on a straight-line basis over the total requisite service period for the total award.

We have adopted two stock incentive plans, the 1996 Amended Stock Incentive Plan (terminated in 2006) and the 2005 Stock Incentive Plan. Under these Plans as amended, up to 5,000 and 8,450 shares of common stock, respectively, have been reserved for the issuance of awards to employees, consultants, directors and other individuals who render services to Progenics (collectively, Awardees). The Plans contain anti-dilution provisions in the event of a stock split, stock dividend or other capital adjustment as defined. Each Plan provides for the Board or Committee to grant to Awardees stock options, stock appreciation rights, restricted stock, performance awards or phantom stock, as defined (collectively, Awards). The Committee is also authorized to determine the term and vesting of each Award and the Committee may in its discretion accelerate the vesting of an Award at any time. Stock options granted under the Plans generally vest pro rata over three to five years and have terms of ten years. Restricted stock issued under either Plan usually vests annually over three to five years, unless specified otherwise by the Committee. The exercise price of outstanding non-qualified stock options is usually equal to the fair value of our common stock on the date of grant. The exercise price of non-qualified stock options granted from the 2005 Plan and incentive stock options (ISO) granted from the Plans may not be lower than the fair value of our common stock on the dates of grant. At December 31, 2012, 2011 and 2010, all outstanding stock options were non-qualified options. The 2005 Plan will terminate in April 2015; options granted before termination of the Plans will continue under the respective Plans until exercised, cancelled or expired.

We apply a forfeiture rate to the number of unvested awards in each reporting period in order to estimate the number of awards that are expected to vest. Estimated forfeiture rates are based upon historical data on vesting behavior of employees. We adjust the total amount of compensation cost recognized for each award, in the period in which each award vests, to reflect the actual forfeitures related to that award. Changes in our estimated forfeiture rate will result in changes in the rate at which compensation cost for an award is recognized over its vesting period.

Under ASC 718 Compensation – Stock Compensation, the fair value of each non-qualified stock option award is estimated on the date of grant using the Black-Scholes option pricing model, which requires input assumptions noted in the following table. Ranges of assumptions for inputs are disclosed where the value of such assumptions varied during the related period. Historical volatilities are based upon daily quoted market prices of our common stock on The NASDAQ Stock Market LLC over a period equal to the expected term of the related equity instruments. We rely only on historical volatility since it provides the most reliable indication of future volatility. Future volatility is expected to be consistent with historical; historical volatility is calculated using a simple average calculation; historical data is available for the length of the option's expected term and a sufficient number of price observations are used consistently. Since our stock options are not traded on a public market, we do not use implied volatility. For 2012, 2011 and 2010 our expected term was calculated based upon historical data related to exercise and post-termination cancellation activity. Accordingly, for grants issued to employees and directors and officers (excluding our former CEO in 2011 and 2010), we are using expected terms of 5.4 and 7.4 years, 5.3 and 7.4 years, and 5.3 and 7.3 years, respectively. The expected term of stock options granted to our former CEO in 2011 and 2010 was calculated separately from stock options granted to employees and directors and officers, and was 8 years for 2011 and 2010. The expected term for options granted to non-employees was also calculated separately from stock options granted to employees and directors and officers and was ten years, which is the contractual term of those options. We have never paid dividends and do not expect to pay dividends in the future. Therefore, our dividend rate is zero. The risk-free rate for periods within the expected term of the options is based on the U.S. Treasury yield curve in effect at the time of grant. The following table presents assumptions used in computing the fair value of option grants during 2012, 2011 and 2010:

	2012	2011	2010

Expected volatility	70% – 85%	68% – 78%	68% – 87%
Expected dividends	Zero	zero	zero
Expected term (years)	5.3 – 10	5.3 – 10	5.3 – 10
Weighted average expected term (years)	6.11	6.17	6.92
Risk-free rate	0.57% – 1.71%	0.77% – 2.97%	1.21% – 3.09%

A summary of option activity under the Plans as of December 31, 2012 and changes during the year then ended is presented below:

Options	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Yr.)		Aggregate Intrinsic Value

Outstanding at January 1, 2012		5,597		$	12.60
Granted		814			9.54
Exercised		(38	)		5.28
Forfeited or expired		(1,007	)		12.16
Outstanding at December 31, 2012		5,366		$	12.27		5.61	$	1
Exercisable at December 31, 2012		3,970		$	13.72		4.77	$	1

The weighted average grant-date fair value of options granted under the Plans during 2012, 2011 and 2010 was $6.38, $5.51 and $3.10, respectively. The total intrinsic value of options exercised during 2012, 2011 and 2010 was $174, $345 and $0, respectively.

The options granted under the Plans, described above, include 33, 113, 38, 75, 145 and 113 non-qualified stock options granted to our former CEO on July 1, 2002, 2003, 2004 and 2005, on July 3, 2006 and on July 2, 2007, respectively, which cliff vest after nine years and 11 months from the respective grant date. All but the 2006 awards are fully vested. Vesting of a defined portion of each award will occur earlier if a defined performance condition is achieved; more than one condition may be achieved in any period. In accordance with ASC 718 Compensation – Stock Compensation, at the end of each reporting period, we will estimate the probability of achievement of each performance condition and will use those probabilities to determine the requisite service period of each award. For the 2006 award, the requisite service period is the shortest of the explicit or implied service periods and the explicit service period for this award is nine years and 11 months from the grant date. The implied service periods related to the performance conditions were the estimated times for each performance condition to be achieved. Thus, compensation expense was recognized over the shortest estimated time for the achievement of performance conditions for that award (assuming that the performance conditions were to be achieved before the cliff vesting occurred). On July 1, 2008, 2009 and 2010, we granted awards to our former CEO (consisting of options in 2010 and 2009 and options and restricted stock in 2008) and on July 1, 2010 to our CEO (consisting of options) which vest on the basis of the achievement of specified performance or market-based milestones. In connection with our former CEO's retirement in 2012 the 2004, 2007, 2008, 2009 and 2010 performance or market-based awards have been fully vested as a result of accelerated vesting during 2012. The options have an exercise price equal to the closing price of our common stock on the date of grant. The awards are valued using a Monte Carlo simulation model. On July 1, 2011 and March 1, 2012, we granted option awards to our CEO which vests on the basis of the achievement of specified performance-based milestones. The options have exercise prices equal to the closing price of our common stock on the dates of grant. The awards are valued using the Black-Scholes option pricing model. The expense related to the grants with performance and market-based milestones will be recognized over the shortest estimated time for the achievement of the performance or market conditions. The awards will not vest unless one of the milestones is achieved or the market condition is met. Changes in the estimate of probability of achievement of any performance or market condition will be reflected in compensation expense of the period of change and future periods affected by the change.

At December 31, 2012, the estimated requisite service periods for the 2006, 2010, 2011 and 2012 awards, described above, were 3.5, 1.0, 2.0 and 2.0 years, respectively. For 2012, 2011 and 2010, the total compensation expense recognized for the performance-based options was $2.0 million, $0.4 million and $1.1 million, respectively.

A summary of the status of our outstanding restricted stock awarded under the Plans which has not yet vested as of December 31, 2012 and changes during the year then ended is presented below:

Restricted Stock Awards	Shares			Weighted Average Grant-Date Fair Value

Nonvested at January 1, 2012		98		$	7.40
Granted		-			-
Vested		(64	)		8.50
Forfeited		(6	)		5.35
Nonvested at December 31, 2012		28		$	5.35

Two employee stock purchase plans (the Purchase Plans), the 1998 Employee Stock Purchase Plan (the Qualified Plan) and the 1998 Non-Qualified Employee Purchase Plan (the Non-Qualified Plan), as amended, provided for the issuance of up to 4,400 and 1,100 shares of common stock, respectively. Issuances of common stock under the Purchase Plans, terminated by the Company during the second quarter of 2011, provided for the grant to all employees of options to use an amount equal to 25% of their quarterly compensation, as such percentage was determined by the Board of Directors prior to the date of grant, to purchase shares of our common stock at a price per share equal to the lesser of the fair market value of the common stock on the date of grant or 85% of the fair market value on the date of exercise. Options were granted automatically on the first day of each fiscal quarter and expired six months after the date of grant. The Qualified Plan was not available to employees owning more than five percent of the common stock and imposed certain other quarterly limitations on option grants. Options under the Non-Qualified Plan were granted to the extent that option grants were restricted under the Qualified Plan.

The fair value of shares purchased under the Purchase Plans was estimated on the date of grant in accordance with ASC 718 Compensation – Stock Compensation, via the same option valuation model used for options granted under the Plans, but with the following assumptions during 2011 and 2010:

	2011	2010

Expected volatility	43% – 51%	45% – 72%
Expected dividends	zero	zero
Expected term	6 months	6 months
Risk-free rate	0.06% – 0.22%	0.11% – 0.18%

Purchases of common stock under the Purchase Plans during 2011 and 2010 are summarized as follows:

	Qualified Plan						Non-Qualified Plan
	Shares Purchased		Price Range		Weighted Average Grant-Date Fair Value		Shares Purchased		Price Range		Weighted Average Grant-Date Fair Value

2011		428	$	4.62 – $5.65	$	0.88		162	$	4.62 – $5.65	$	0.84
2010		802	$	3.50 – $4.56	$	0.94		208	$	3.75 – $4.56	$	0.96

The total compensation expense of shares, granted to both employees and non-employees, under all of our share-based payment arrangements that was recognized in operations during 2012, 2011 and 2010 was:

	2012		2011		2010
Recognized as:
Research and Development	$	4,568	$	4,499	$	5,091
General and Administrative		1,968		1,863		4,424
Total	$	6,536	$	6,362	$	9,515

No tax benefit was recognized related to such compensation cost because of the Company's net operating losses and the related deferred tax assets were fully offset by valuation allowance. Accordingly, no amounts related to windfall tax benefits have been reported in cash flows from operations or cash flows from financing activities for the periods presented.

As of December 31, 2012, there was $5.1 million and $0.1 million of total unrecognized compensation cost related to non-vested stock options under the 1996 and 2005 Plans and non-vested restricted shares, respectively. Those costs are expected to be recognized over weighted average periods of 1.8 years and 0.5 years, respectively. Cash received from exercises under all share-based payment arrangements for 2012 was $0.3 million. We issue new shares of our common stock upon share option exercise and share purchase.

In applying the treasury stock method for the calculation of diluted EPS, amounts of unrecognized compensation expense and windfall tax benefits are required to be included in the assumed proceeds in the denominator of the diluted EPS calculation unless they are anti-dilutive. We incurred net losses for 2012 and 2010 and, therefore, such amounts have not been included in the calculations for those periods since they would be anti-dilutive. As a result, basic and diluted EPS are the same for the 2012 and 2010 periods. We reported net income for 2011 and included the dilutive effect of unrecognized compensation expense in the assumed proceeds in the denominator of the diluted EPS calculation. We have made an accounting policy decision to calculate windfall tax benefits/shortfalls, for purposes of diluted EPS calculation, excluding the impact of deferred tax assets. This policy decision will apply when we have net income and windfall tax benefits/shortfalls are realizable.