NOTE 8 – STOCKHOLDERS’ EQUITY (SEE PRO-FORMA INFORMATION BELOW)

Cumulative Convertible Preferred Stock

As of December 31, 2014 and 2013, the Company had shares outstanding of Series A Preferred Stock and Series M Preferred Stock. Each share of Series A Preferred Stock and Series M Preferred Stock is convertible by the Company into shares of Common Stock.

The following table provides certain information for each series of convertible preferred stock as of the dates presented (in thousands, except conversion factor):

	As of December 31, 2014						As of December 31, 2013
	Series A		Series M		Total		Series A		Series M		Total
Shares issued and outstanding		10		2		12		20		10		30
Conversion factor		2.50		5.00	NM			2.50		5.00	NM
Common shares resulting if converted		25		10		35		50		50		100

NM – Not meaningful.

The Series A Preferred Stock pays a cumulative dividend of $0.25 per share per quarter. The Company declared and paid aggregate dividends to holders of record of the Company’s Series A Preferred Stock of $13 thousand and $20 thousand for the years ended December 31, 2014 and 2013, respectively.

During the year ended December 31, 2014, 9,975 shares of Series A Preferred Stock were converted into an aggregate of 24,938 shares of UIH’s common stock. There were no conversions of Series A Preferred Stock during the year ended December 31, 2013.

The Series M Preferred Stock pays a cumulative dividend of $0.20 per share per year. The Company declared and paid aggregate dividends to holders of record of the Company’s Series M Preferred Stock of $0.4 thousand and $9 thousand for the years ended December 31, 2014 and 2013, respectively.

During the year ended December 31, 2014, 8,000 shares of Series M Preferred Stock were converted into an aggregate of 40,000 shares of UIH’s common stock. During the year ended December 31, 2013, 77,740 shares of Series M Preferred Stock were converted into an aggregate of 388,700 shares of UIH’s common stock.

Common Stock and Contingently Redeemable Common Stock

The following table summarizes the activity relating to shares of the Company’s Common Stock and Contingently Redeemable Common Stock during the periods presented (in thousands):

	Issued			Treasury			Outstanding
	Shares			Shares			Shares
Balance, as of December 31, 2011		41,100			(1,018	)		40,082
Options exercised		285			—			285
Restricted stock grant		650			—			650
Shares acquired through cashless exercise (1)		—			(146	)		(146	)
Shares cancelled		(146	)		146			—
Balance, as of December 31, 2012		41,889			(1,018	)		40,871
Conversion of preferred stock		389			—			389
Shares repurchased		—			(7,257	)		(7,257	)
Options exercised		2,330			—			2,330
Restricted stock grant		1,000			—			1,000
Shares acquired through cashless exercise (1)		—			(1,967	)		(1,967	)
Shares cancelled		(1,967	)		1,967			—
Balance, as of December 31, 2013		43,641			(8,275	)		35,366
Conversion of preferred stock		65			—			65
Shares repurchased		—			(2,392	)		(2,392	)
Treasury shares reissued and classified as contingently redeemable common stock (2)					1,000			1,000
Options exercised		1,900			—			1,900
Restricted stock grant		950			—			950
Shares acquired through cashless exercise (1)		—			(1,787	)		(1,787	)
Shares cancelled		(1,787	)		1,787			—
Balance, as of December 31, 2014		44,769			(9,667	)		35,102

(1)	All shares acquired represent shares tendered to cover the strike price for options and tax withholdings on the intrinsic value of options exercised or Restricted Stock (as defined in “NOTE 9 – SHARE-BASED COMPENSATION “) vested. These shares have been cancelled by the Company.

(2)	Subsequent to December 31, 2014 contingently redeemable common stock was reclassified to common stock.

During the year ended December 31, 2013, UIH entered into various repurchase agreements with Bradley I. Meier, the Company’s former Chairman, President and Chief Executive Officer, to repurchase shares of UIH’s common stock owned by Mr. Meier. UIH repurchased an aggregate of 7,016,000 shares from Mr. Meier at a total cost of $30.5 million.

During the year ended December 31, 2013, UIH entered into a repurchase agreement with Norman M. Meier, a former director and the former UIH Secretary, to repurchase shares of UIH’s common stock owned by Mr. Meier. UIH repurchased an aggregate of 241,933 shares from Mr. Meier at a total cost of $1.8 million.

During the year ended December 31, 2014, UIH entered into various repurchase agreements with Bradley I. Meier to repurchase shares of UIH’s common stock owned by Mr. Meier. UIH repurchased an aggregate of 1,225,000 shares from Mr. Meier at a total cost of $14.7 million. Mr. Meier represented he owned approximately 3% of UIH’s outstanding common stock as of December 31, 2014. See “NOTE 11 – RELATED PARTY TRANSACTIONS” for details of the right of first refusal to repurchase shares from Mr. Meier.

During the year ended December 31, 2014, UIH repurchased an aggregate of 1,166,208 shares of its common stock in the open market in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended, at a total cost of $15.0 million.

Dividends Declared

The Company declared dividends on its outstanding shares of common stock to its shareholders of record as follows for the periods presented (in thousands, except per share amounts):

	For the year ended December 31,
	2014				2013				2012
	Per Share		Aggregate		Per Share		Aggregate		Per Share		Aggregate
	Amount		Amount		Amount		Amount		Amount		Amount
First Quarter	$	0.10	$	3,464	$	0.08	$	3,259	$	0.10	$	4,012
Second Quarter	$	0.10	$	3,502	$	0.08	$	2,821	$	0.08	$	3,214
Third Quarter	$	0.10	$	3,429	$	0.10	$	3,511	$	0.08	$	3,270
Fourth Quarter	$	0.25	$	8,845	$	0.23	$	8,134	$	0.20	$	8,174

Applicable provisions of the Delaware General Corporation Law may affect the ability of the Company to declare and pay dividends on its Common Stock. In particular, pursuant to the Delaware General Corporation Law, a company may pay dividends out of its surplus, as defined, or out of its net profits, for the fiscal year in which the dividend is declared and/or the preceding year. Surplus is defined in the Delaware General Corporation Law to be the excess of net assets of the company over capital. Capital is defined to be the aggregate par value of shares issued. Moreover, the ability of the Company to pay dividends, if and when declared by its Board of Directors, may be restricted by regulatory limits on the amount of dividends, which the Insurance Entities are permitted to pay the Company.

Restrictions limiting the payment of dividends by UIH

UIH pays dividends to shareholders, which are funded by earnings on investments and distributions from the earnings of its consolidated subsidiaries. Generally, other than as disclosed above and in “NOTE 7 – LONG-TERM DEBT,” there are no restrictions for UIH limiting the payment of dividends. However, UIH’s ability to pay dividends to shareholders may be affected by restrictions on the ability of the Insurance Entities to pay dividends to UIH through UIHCF. See “NOTE 5 – INSURANCE OPERATIONS,” for a discussion of these restrictions. There are no such restrictions for UIH’s non-insurance consolidated subsidiaries. Notwithstanding the restriction on the net assets of the Insurance Entities, UIH received distributions from the earnings of its non-insurance consolidated subsidiaries of $55.8 million, $26.9 million and $40.2 million during the years ended December 31, 2014, 2013 and 2012, respectively and made capital contributions to the Insurance Entities of $28.6 million during the year ended December 31, 2012. UIH did not make any capital contributions to the Insurance Entities during the years ended December 31, 2014 and 2013. The Company prepares and files a consolidated federal tax return for UIH and its consolidated subsidiaries with all U.S. GAAP tax related entries recorded on the books of UIH. Since the U.S. GAAP tax related entries are not recorded at the subsidiary level, the Company does not have the ability to produce the amount of net assets for each of its subsidiaries in accordance with U.S. GAAP.

Contingently Redeemable Common Stock (SEE PRO-FORMA INFORMATION BELOW)

On December 2, 2014, UIH sold 1,000,000 registered shares of its common stock at a price of $19.00 per share, in a privately negotiated transaction, to Ananke Catastrophe Investments Ltd. (“Ananke”), an affiliate of Nephila Capital Ltd., which is subject to certain holding period restrictions. Ananke is required to hold the shares of common stock for a minimum of six months and then may: 1) sell up to one-third during the next three-month period, 2) sell another one-third during the next three-month period and 3) sell the remaining purchased thereafter.

UIH purchases insurance coverage through a covered loss index swap transaction which protects its own assets against diminution in value due to certain catastrophe events impacting UPCIC. In the event any covered loss index swap in place is triggered for payment, UIH shall, at the option of Ananke, repurchase all or any part of the common stock then owned by Ananke at a price of $19.00 per share. The proceeds from the covered loss index swap would be used to fund the repurchase. Circumstances under which the covered loss index swap would be triggered are considered by the Company to be remote. The Company must exhaust a specific layer within UPCIC’s Florida catastrophe reinsurance coverage before triggering payment on the covered loss index swap. The specific layer that triggers payment has a remote probability of occurrence according to the leading insurance industry catastrophe models licensed by the Company that simulate expected loss outcomes on UPCIC’s portfolio of risks. Subsequent adjustments to the carrying amount will not be made since the contingently redeemable common stock is not currently redeemable and it is not probable it will become redeemable in the future. The capital resulting from this transaction is not restricted.

PRO-FORMA INFORMATION CONCERNING STOCKHOLDERS’ EQUITY

On February 19, 2015, the company entered into an amended agreement with Ananke to delete, in its entirety effective December 2, 2014, the provision giving rise to the redemption feature described above. This modification results in classification of the common shares in permanent equity on the date of the amendment. No consideration was exchanged with the amendment since both parties agreed that, given the remote possibility of the redemption to occur, the value of the redemption feature was de-minimis. The following table has been provided to show the pro-forma effects to equity on the consolidated balance sheet as of December 31, 2014.

The following table shows the effect of unaudited pro-forma adjustments to the consolidated balance sheet as of December 31, 2014 (in thousands, except per share amounts):

	December 31, 2014
	As Reported			PRO-FORMA Adjustment Unaudited			PRO-FORMA Unaudited
Total assets	$	911,774			—		$	911,774

Total liabilities		692,858			—			692,858

Contingently redeemable common stock		19,000			(19,000	)		—
STOCKHOLDERS' EQUITY:
Cumulative convertible preferred stock, $.01 par value		—			—			—
Common stock, $.01 par value		448			—			448
Treasury shares, at cost		(62,153	)		—			(62,153	)
Additional paid-in capital		40,987			19,000			59,987
Accumulated other comprehensive income (loss), net of taxes		(1,835	)		—			(1,835	)
Retained earnings		222,469			—			222,469
Total stockholders' equity		199,916			19,000			218,916
Total liabilities, contingently redeemable common stock and stockholders' equity	$	911,774			—		$	911,774