Other Operating Expenses: Other operating expenses increased $1.6 million to $9.4 million for the year ended December 31, 2004 from $7.8 million for the same period of 2003. The increase in the level of expenses is primarily due to the growth of the business, offset in part by reduced commission paid on brokered personal lines business (see Other Income).
Investments in fixed maturities are adjusted for amortization of premiums and accretion of discounts to maturity date, except for asset backed, mortgage pass-through and collateralized mortgage obligation securities which are adjusted for amortization of premiums and accretion of discounts over their estimated lives. Certain asset backed, mortgage pass-through and collateralized mortgage obligation security repayment patterns will change based on interest rate movements and, accordingly, could impact future investment income if the reinvestment of the repayment amounts are at lower interest rates than the underlying securities. Asset backed, mortgage pass-through and collateralized mortgage obligation securities amounted to
At December 31, 2004, costs incurred for Property and Equipment not yet placed in service was $3.6 million. Amortization of information systems technology costs was $1.9 million, $1.1 million and $1.0 million for the years ended December 31, 2004, 2003 and 2002, respectively. Depreciation expense, excluding amortization of information systems technology costs, was $1.5 million, $1.6 million and $1.5 million, for the years ended December 31, 2004, 2003, and 2002, respectively.
The following table presents certain information regarding the Company’s stock option plan.
Employee Stock Purchase Plan (the “Stock Purchase Plan”): The aggregate maximum number of shares that may be issued pursuant to the Stock Purchase Plan as amended is 1,000,000. Shares may be purchased under the Stock Purchase Plan by eligible employees during designated one-month offering periods established by the Compensation Committee of the Board of Directors at a purchase price of the lesser of 85% of the fair market value of the shares on the first business day of the offering period or the date the shares are purchased. The purchase price of shares may be paid by the employee over six years pursuant to the execution of a promissory note. The promissory note(s) are collateralized by such shares purchased under the Stock Purchase Plan and are interest free. Under the Stock Purchase Plan, the Company issued 46,666 and 36,265 shares in 2004 and 2003, respectively. The weighted-average fair value of those purchase rights granted in 2004 and 2003 was $8.37 and $6.00, respectively.
The Company currently leases office space to serve as its headquarters location and 36 field offices for its production underwriters. In addition, the Company leases certain computer equipment. Rental expense for these operating leases was $4.0 million, $3.5 million and $3.1 million for the years ended December 31, 2004, 2003, and 2002, respectively.
Under the terms of an employment agreement with James J. Maguire, Philadelphia Insurance’s Chairman, the Company is required to pay a bonus of two million dollars ($2,000,000) in the event that the closing price on any five consecutive trading days prior to May 1, 2009 of Philadelphia Insurance’s common stock is equal to or greater than $80 per share (such price shall be appropriately adjusted in the event of any stock split, stock dividend or stock combinations affecting the shares of Philadelphia Insurance’s common stock generally) and at such time the employee is still an employee of MIA or any affiliate thereof. Notwithstanding the foregoing, if such employment is terminated subsequent to a Hostile Change Of Control, as that term is defined in the employment agreement, then the employee need not be employed by Philadelphia Insurance or an affiliate when the closing price reaches such amount. The employee would also receive such bonus if prior to May 1, 2009 there has been a Hostile Change of Control and subsequent thereto Philadelphia Insurance’s common stock is no longer publicly traded.