Incentive Stock Plans

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements

Stock Plans

NOTE 15 – STOCK PLANS

The Company’s 1999 Omnibus Stock Plan that covered 500,000 shares of the Company’s common stock (subject to adjustment in the case of stock splits, reverse stock splits, stock dividends, etc.) was approved by shareholders on June 4, 1999. This plan terminated in accordance with its terms in March 2009. As of December 31, 2011, options to purchase up to 25,396 shares of common stock were outstanding and exercisable under the 1999 Plan.

The Unico American Corporation 2011 Incentive Stock Plan covers 200,000 shares of the Company’s common stock (subject to adjustment in the case of stock splits, reverse stock splits, stock dividends, etc.) and was approved by shareholders on May 26, 2011. During the year ended December 31, 2011, options to purchase 91,240 shares of common stock were granted under the 2011 plan to one non-executive employee and 9,124 of these shares are currently vested and exercisable.

No options were granted during the year ended December 31, 2010. The Company granted no options to non-employees during the years ended December 31, 2011 and 2010.

As of December 31, 2011, options to purchase an aggregate of 116,636 shares of common stock were outstanding under the 1999 and 2011 Plans, of which 34,520 were vested and exercisable.

The exercise price, term and other conditions applicable to each stock option granted under the 2011 Plan are determined by the Company’s compensation committee of the Board of Directors. The exercise price of the stock options is set on the grant date and may not be less than the fair market value per share of the Company’s stock on that date (at market close). Options granted under the 2011 Plan in 2011 become exercisable over a ten year period and expire ten years after the date of the grant. The options granted in 2011 vest 10% as of the grant date and 10% annually thereafter on the anniversary date.

The Company recognized stock-based compensation expense in the amount of $30,676 and $0 for all awards issued under the Company’s 2011 Stock Option plan in the salaries and employee benefits line item in the consolidated statements of operations in the year ended December 31, 2011 and 2010, respectively. As of December 31, 2011, there was $200,356 of total unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested stock-based payments which are expected to be recognized over a weighted average remaining period of 8.67 years.

The fair value of each option award is estimated on the date of the grant using the Black-Scholes Option-Pricing Model using a number of complex and subjective variables. These variables include expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, a risk-free interest rate and expected dividends. The weighted average fair value per option granted in the year ended December 31, 2011, was $2.53.

Expected dividend yield is based on the historical dividend behavior as well as the expected dividend behavior of the Company. Expected volatility is based on the historical volatility of the Company’s stock. The risk-free rate for periods within the contractual life of the option is based on the U.S. treasury yield curve for a ten-year treasury in effect at the time of grant. The expected term represents an estimate of time the options are expected to remain outstanding. In accordance with ASC Topic 718, “Compensation – Stock Compensation”, the Company estimates forfeitures at the time of the grant and revises those estimates in subsequent periods if the actual forfeitures differ from those estimates.

The average assumptions used to value each option award in the year ended December 31, 2011 are as follows.

	Year Ended
	December 31, 2011
Weighted-average grant date fair value	$2.53
Expected dividend yield	3.12%
Expected volatility	28.74%
Risk-free interest rate	2.02%
Expected term (years)	10.00
Expected forfeiture	0.00%

The following table summarizes stock option activity for year ended December 31, 2011:

	Number of Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Terms	Aggregate Intrinsic Value
Outstanding at December 31, 2010	36,773	$3.11	1.96	$221,741
Granted	91,240	$10.96	-	-
Forfeited	-	-	-	-
Exercised	11,377	$3.11	-	-
Outstanding at December 31, 2011	116,636	$9.25	7.78	$326,492
Exercisable at December 31, 2011	34,520	$5.18	3.27	$236,985

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price and the exercise price, multiplied by the number of in the money options) that would have been received by the option holders had all options been exercised on December 31, 2011. The aggregate intrinsic value of options exercised during the years ended December 31, 2011, 2010 and 2009 was $87,441, $165,096 and $0, respectively. During the years ended December 31, 2011, 2010 and 2009, the amount of cash received from the exercise of stock options was $23,641, $77,599 and $0, respectively. There were no options exercised in 2009.

The following table summarizes information regarding the stock options outstanding at December 31, 2011:

Exercise Price	Number of Options Outstanding	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price of Outstanding Options	Number of Options Exercisable	Weighted Average Exercise Price of Exercisable Options
$10.96	91,240	9.67	$10.96	9,124	$10.96
$3.11	25,396	.97	$3.11	25,396	$3.11