INCENTIVE STOCK PLANS

On December 7, 2006, the Company adopted the 2006 Incentive Plan, which provides for the grant of incentive stock options, nonqualified stock options, whole shares, restricted stock awards, restricted stock units, stock appreciation rights, performance shares, performance units, cash-based awards, dividend equivalents and performance-based awards. Upon adoption of the 2006 Incentive Plan, all remaining shares eligible for award under a previous plan were added to the 2006 Incentive Plan. It has been the Company’s practice to issue new shares of common stock upon stock option exercise and other equity grants. As of May 31, 2012, there were 20,312 shares of common stock available for grant pursuant to the Company’s 2006 Incentive Plan.

On December 9, 2010, the Company’s stockholders approved the adoption of the A. Schulman, Inc. 2010 Value Creation Rewards Plan (“2010 Rewards Plan”) which provides for the grant of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock awards, restricted stock units, whole shares and performance-based awards. A total of 1,375,000 shares of common stock may be issued under the 2010 Rewards Plan. There have been no grants made from the 2010 Rewards Plan.

A summary of stock option activity for the nine months ended May 31, 2012 is as follows:



	Outstanding Shares Under Option		Weighted-Average Exercise Price
Outstanding at August 31, 2011	138,141		$	18.34
Granted	—		$	—
Exercised	(40,686	)	$	18.01
Forfeited and expired	—		$	—
Outstanding at May 31, 2012	97,455		$	18.48
Exercisable at May 31, 2012	97,455		$	18.48

The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option. The total intrinsic value for stock options outstanding and exercisable as of May 31, 2012 was approximately $0.3 million with a remaining term for options outstanding and exercisable of approximately 1.7 years. The total intrinsic value of stock options exercised as of May 31, 2012 was approximately $0.3 million. All outstanding and exercisable stock options are fully vested as of May 31, 2012. The Company did not grant stock options during the nine months ended May 31, 2012 and 2011.

Restricted stock awards under the 2006 Incentive Plan can vest over various periods, and restricted stock awards earn dividends throughout the vesting period which are subject to the same vesting terms as the underlying stock award. The restricted stock awards outstanding under the 2006 Incentive Plan have service vesting periods of three years following the date of grant. Also, the Company grants awards with market and performance vesting conditions. The following table summarizes the activity of time-based and performance-based restricted stock awards for the nine months ended May 31, 2012:



	Awards Outstanding				Weighted-Average Fair Market Value (per share)
	Time- Based		Performance- Based		Time- Based		Performance- Based
Outstanding at August 31, 2011	117,891		800,193		$	20.98	$	14.44
Granted	64,458		483,204		$	22.64	$	17.71
Vested	(55,949	)	—		$	20.39	$	—
Forfeited	(4,783	)	(265,433	)	$	21.72	$	10.93
Outstanding at May 31, 2012	121,617		1,017,964		$	22.10	$	16.90

Restrictions on the time-based restricted stock awards lapse at the end of a three-year period, and the awards were valued at the fair market value on the date of grant. Time-based awards earn dividends throughout the vesting period which are subject to the same vesting terms as the underlying restricted stock award.

Performance shares are awards for which the vesting will occur based on market or performance conditions and do not have voting rights. Included in the outstanding performance-based awards as of May 31, 2012 are 508,993 performance shares, which earn dividends throughout the vesting period, and 508,971 performance shares which do not earn dividends. Earned dividends are subject to the same vesting terms as the underlying performance share awards. Performance shares granted during fiscal 2009, which would have vested during the second quarter of fiscal 2012, did not meet the performance vesting conditions and were forfeited.

The performance-based awards in the table above include 562,835 shares which are valued based upon a Monte Carlo simulation model, which is a valuation model that represents the characteristics of these grants. Vesting of the ultimate number of shares underlying such performance-based awards, if any, will be dependent upon the Company’s total stockholder return in relation to the total stockholder return of a select group of peer companies over a three-year period. The probability of meeting the market criteria was considered when calculating the estimated fair market value on the date of the grant using a Monte Carlo simulation model. These awards were accounted for as awards with market conditions, which are recognized over the service period, regardless of whether the market conditions are achieved and the awards ultimately vest. The fair value of the remaining 455,129 performance shares in the table above is based on the closing price of the Company’s common stock on the date of the grant.

The fair value of the performance shares granted during the nine months ended May 31, 2012 were estimated using a Monte Carlo simulation model with the following weighted-average assumptions:



Weighted-Average Assumptions
Dividend yield	3.00	%
Expected volatility	43.00	%
Risk-free interest rate	0.42	%
Correlation	61.00	%

Total unrecognized compensation cost, including a provision for forfeitures, related to nonvested stock-based compensation arrangements as of May 31, 2012 was approximately $8.3 million. This cost is expected to be recognized over a weighted-average period of approximately 1.9 years.

During the third quarter of fiscal 2012, restrictions lapsed on 20,000 stock-settled restricted stock units. There were no service requirements for the vesting of this grant. These restricted stock units settled in shares of the Company’s common stock, on a one-to-one basis, on the third anniversary of the award grant date. These awards earned dividends during the restriction period; however, they did not have voting rights until the restriction was released. There were no grants of these stock-settled restricted stock units during the nine months ended May 31, 2012 or May 31, 2011.

The Company had approximately $1.5 million and $3.6 million of cash-based awards, which are treated as liability awards, outstanding as of May 31, 2012 and August 31, 2011, respectively. These awards were granted to foreign employees. Such awards include approximately $0.1 million which have service vesting periods of three years following the date of grant and the remaining $1.4 million is performance-based. The performance-based awards are based on the same conditions utilized for the performance shares. The Company records a liability for these cash-based awards equal to the amount of the award vested to date and adjusts the performance-based awards based on expected payout. There were no grants of these cash-based awards during the nine months ended May 31, 2012 and 2011.

In fiscal 2010, the Company’s board of directors and stockholders approved adoption of an Employee Stock Purchase Plan (“ESPP”) whereby employees may purchase Company stock through a payroll deduction plan. Purchases are made from the plan and credited to each participant’s account at the end of each calendar quarter (the “Investment Date”). The purchase price of the stock is 85% of the fair market value on the Investment Date. The plan is compensatory and the 15% discount is expensed ratably over the three month offering period. All employees, including officers, are eligible to participate in this plan. An employee whose stock ownership of the Company exceeds five percent of the outstanding common stock is not eligible to participate in this plan. The Company recorded minimal expense related to the ESPP during the nine months ended May 31, 2012 and 2011. It is the Company’s current practice to use treasury shares for the share settlement on the Investment Date.

In January 2012, the Company granted non-employee directors 37,300 shares of unrestricted common stock. The Company recorded compensation expense for this grant of approximately $0.8 million in the second quarter of fiscal 2012.

The following table summarizes the impact to the Company’s consolidated statements of operations from stock-based compensation for the three and nine months ended May 31, 2012 and 2011, which is primarily included in selling, general and administrative expenses in the accompanying consolidated statements of operations:



	Three months ended May 31,					Nine months ended May 31,
	2012			2011		2012		2011
	(In thousands)
Time-based and performance-based restricted stock awards	$	1,106		$	1,169	$	3,562	$	3,604
Cash-settled restricted stock units	—			152		—		817
Cash-based awards	(54		)	130		53		278
Total stock-based compensation	$	1,052		$	1,451	$	3,615	$	4,699