STOCK-BASED COMPENSATION

Non-Qualified Employee Stock Award Plan

The United Fire Group, Inc. 2008 Stock Plan (the "2008 Stock Plan") authorized the issuance of restricted and unrestricted stock awards, stock appreciation rights, incentive stock options, and non-qualified stock options for up to 1,900,000 shares of United Fire common stock to employees. In May 2014, the Registrant's shareholders approved an additional 1,500,000 shares of United Fire common stock issuable at any time and from time to time pursuant to the Stock Plan, United Fire Group, Inc. Stock Plan, which amended and restated the 2008 Stock Plan (as amended, the "Stock Plan"). At December 31, 2014, there are 1,646,947 authorized shares remaining available for future issuance. The Stock Plan is administered by the Board of Directors, which determines those employees who will receive awards, when awards will be granted, and the terms and conditions of the awards. The Board of Directors may also take any action it deems necessary and appropriate for the administration of the Stock Plan. Pursuant to the Stock Plan, the Board of Directors may, at its sole discretion, grant awards to our employees who are in positions of substantial responsibility with United Fire.

Options granted pursuant to the Stock Plan are granted to buy shares of United Fire's common stock at the market value of the stock on the date of grant. All outstanding option awards vest and are exercisable in installments of 20.0 percent of the number of shares covered by the option award each year from the grant date, unless the Board of Directors authorizes the acceleration of vesting. To the extent not exercised, vested option awards accumulate and are exercisable by the awardee, in whole or in part, in any subsequent year included in the option period, but not later than 10 years from the grant date. Restricted and unrestricted stock awards granted pursuant to the Stock Plan are granted at the market value of our common stock on the date of the grant. Restricted stock awards fully vest after 5 years from the date of issuance, unless accelerated upon the approval of the Board of Directors, at which time United Fire common stock will be issued to the awardee. All awards are generally granted free of charge to the eligible employees of United Fire as designated by the Board of Directors.

The activity in the Stock Plan is displayed in the following table:



Authorized Shares Available for Future Award Grants	Year Ended December 31, 2014		From Inception to December 31, 2014
Beginning balance	353,649		1,900,000
Additional shares authorized	1,500,000		1,500,000
Number of awards granted	(314,013	)	(1,996,509	)
Number of awards forfeited or expired	107,311		243,456
Ending balance	1,646,947		1,646,947
Number of option awards exercised	85,795		467,563
Number of unrestricted stock awards granted	725		5,280
Number of restricted stock awards vested	—		18,576

Non-Qualified Non-Employee Director Stock Option and Restricted Stock Plan

The United Fire Group, Inc. 2005 Non-Qualified Non-Employee Director Stock Option and Restricted Stock Plan (the "Director Plan") authorizes the issuance of restricted stock awards and non-qualified stock options to purchase shares of United Fire's common stock to non-employee directors. At December 31, 2014, we had 87,194 authorized shares available for future issuance.

The Board of Directors has the authority to determine which non-employee directors receive awards, when options and restricted stock shall be granted, the option price, the option expiration date, the date of grant, the vesting schedule of options or whether the options shall be immediately vested, the terms and conditions of options and restricted stock (other than those terms and conditions set forth in the plan) and the number of shares of common stock to be issued pursuant to an option agreement or restricted stock agreement (subject to limits set forth in the plan). The Board of Directors may also take any action it deems necessary and appropriate for the administration of the Director Plan.

The activity in the Director Plan is displayed in the following table:



Authorized Shares Available for Future Award Grants	Year Ended December 31, 2014		From Inception to December 31, 2014
Beginning balance	103,912		300,000
Number of awards granted	(16,718	)	(218,809	)
Number of awards forfeited or expired	—		6,003
Ending balance	87,194		87,194
Number of option awards exercised	1,519		4,675
Number of restricted stock awards vested	5,040		11,442

Stock-Based Compensation Expense

In 2014, 2013, and 2012, we recognized stock-based compensation expense of $1,944, $1,777 and $1,764, respectively. Stock-based compensation expense is recognized over the vesting period of the stock options.

As of December 31, 2014, we had $5,371 in stock-based compensation expense that has yet to be recognized through our results of operations. We expect this compensation to be recognized in subsequent years according to the following table, except with respect to awards that are accelerated by the Board of Directors, in which case we will recognize any remaining compensation expense in the period in which the awards are accelerated.



2015	$	1,864
2016	1,439
2017	1,200
2018	778
2019	90
Total	$	5,371

Analysis of Award Activity

The analysis below details the award activity for 2014 and the awards outstanding at December 31, 2014, for both of our plans and ad hoc options, which were granted prior to the adoption of the other plans:



Options	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Life (in years)	Aggregate Intrinsic Value
Outstanding at January 1, 2014	1,287,310		$	28.13
Granted	270,502		29.61
Exercised	(102,914	)	21.74
Forfeited or expired	(96,609	)	30.98
Outstanding at December 31, 2014	1,358,289		$	28.70	5.23	$	4,287
Exercisable at December 31, 2014	788,287		$	30.88	4.57	$	1,985

Intrinsic value is the difference between our share price on the last day of trading (i.e., December 31, 2014) and the price of the options when granted and represents the value that would have been received by option holders had they exercised their options on that date. These values change based on the fair market value of our shares. The intrinsic value of options exercised totaled $790, $1,383 and $229 in 2014, 2013 and 2012, respectively.

The analysis below details the award activity for the restricted stock awards outstanding at December 31, 2014:



Restricted stock awards	Shares		Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2014	59,849		$	22.70
Granted	16,718		27.21
Vested	(5,040	)	29.52
Non-vested at December 31, 2014	71,527		$	23.32

In 2014, 2013 and 2012 we recognized $588, $407 and $329, respectively, in compensation expense related to the restricted stock awards. At December 31, 2014, we had $1,861 in compensation expense that has yet to be recognized through our results of operations related to the restricted stock awards. The intrinsic value of the non-vested restricted stock awards outstanding totaled $459, $358 and $1,187 at December 31, 2014, 2013 and 2012, respectively.

Assumptions

The weighted-average grant-date fair value of the options granted under our plans has been estimated using the Black-Scholes option pricing model with the following weighted-average assumptions:



December 31,	2014			2013			2012
Risk-free interest rate	2.19		%	1.37		%	1.37		%
Expected volatility	36.58		%	34.32		%	37.06		%
Expected option life (in years)	7			7			7
Expected dividends (in dollars)	$	0.78		$	0.69		$	0.60
Weighted-average grant-date fair value of options granted during the year (in dollars)	$	9.15		$	6.64		$	5.90

The following table summarizes information regarding the stock options outstanding and exercisable at December 31, 2014:



				Options Outstanding				Options Exercisable
Range of Exercise Prices				Number Outstanding (in shares)	Weighted-Average Remaining Contractual Life (in years)	Weighted-Average Exercise Price		Number Exercisable (in shares)	Weighted-Average Exercise Price
$	15.01	-	21.00	268,101	6.09	$	19.97	140,111	$	19.60
21.01		-	28.00	254,578	7.49	23.39		80,818	22.89
28.01		-	35.00	564,610	5.49	31.33		296,358	32.93
35.01		-	41.00	271,000	1.71	36.86		271,000	36.86
$	15.01	-	41.00	1,358,289	5.23	$	28.70	788,287	$	30.88