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Incentive Stock Plans

12 Months Ended

Dec. 31, 2012

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. During the year ended December 31, 2012, options to purchase 25,396 shares of common stock were exercised under the 1999 Plan. As of December 31, 2012, there were no existing options to purchase shares of common stock outstanding or exercisable under the 1999 Plan, as all existing options were exercised during the year ended December 31, 2012.

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. Options to purchase 8,760 and 91,240 shares of common stock were granted under the 2011 Plan to one non-executive employee during the years ended December 31, 2012 and 2011, respectively. As of December 31, 2012, 18,248 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, 2012 and 2011.

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. Options granted under the 2011 Plan in 2012 become exercisable on March 1, 2021 and expire ten years after the date of the grant. The options granted under the 2011 Plan in 2011 vest 10% as of the grant date and 10% annually thereafter on the anniversary date. The options granted under the 2011 Plan in 2012 vest 100% on March 1, 2021.

The Company recognized stock-based compensation expense in the amount of $23,104, $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, 2012, 2011 and 2010, respectively. As of December 31, 2012, there was $205,330 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 7.72 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.

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 granted during the years ended December 31, 2012 and 2011 are as follows.

	Years ended December 31
	2012			2011

Weighted-average grant date fair value	$	3.21		$	2.53
Expected dividend yield		1.91	%		3.12	%
Expected volatility		28.01	%		28.74	%
Risk-free interest rate		1.94	%		2.02	%
Expected term (years)		10.00			10.00
Expected forfeiture		0.00	%		0.00	%

The following table summarizes stock option activity for year ended December 31, 2012:

	Number of Shares		Weighted Average Exercise Price	Weighted Average Remaining Contractual Terms		Aggregate Intrinsic Value
Outstanding at December 31, 2011	116,636	$	9.25	7.78	$	326,492
Granted	8,760	$	11.31	—		—
Forfeited or expired	—		—	—		—
Exercised	25,396	$	3.11	—		—
Outstanding at December 31, 2012	100,000	$	10.99	8.72	$	165,934
Exercisable at December 31, 2012	18,248	$	10.96	8.67	$	30,839

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, 2012. The aggregate intrinsic value of options exercised during the years ended December 31, 2012, 2011 and 2010 was $225,854, $87,441 and $165,096, respectively. During the years ended December 31, 2012, 2011 and 2010, the amount of cash received from the exercise of stock options was $46,360, $23,641 and $77,599, respectively.