UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
(Mark one)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2002
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to ____________
Commission File Number: 1-9293
--------------------------------------------------------------
PRE-PAID LEGAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 73-1016728
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
321 East Main
Ada, Oklahoma 74820
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (580) 436-1234
Securities registered pursuant to Section 12(b) of the Exchange Act:
Name of each exchange on
Title of each class which registered
------------------- ----------------
Common Stock, $0.01 Par Value New York Stock Exchange
Securities registered under Section 12 (g) of the Exchange Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K ( ).
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within the past 60 days prior to the date of
the filing: As of March 7, 2003 - $203,210,000.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act) Yes |X| No [ ]
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked prices of such common equity,
as of the last business day of the registrant's most recently completed second
fiscal quarter: As of June 30, 2002 - $285,577,000
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: As of March 7, 2003
there were 17,866,510 shares of Common Stock, par value $.01 per share,
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the Company's definitive proxy statement for its 2003 annual
meeting of shareholders are incorporated into Part III of this Form 10-K by
reference.
The undersigned registrant hereby amends the following items:
Part IV, Item 15 - "Exhibits, Financial Statement Schedules, and Reports on
Form 8-K" is amended (i) to include as Exhibit 99.3 the attached financial
information relating to The Employee Stock Option Ownership and Thrift Plan and
Trust ("Plan"), as required by Form 11-K, for the fiscal year of the Plan ended
December 31, 2002, which is filed as an exhibit pursuant to Rule 15d-21 under
the Securities Exchange Act of 1934, and (ii) to include as Exhibit 23.2 the
consent of Grant Thornton LLP, respectively relating to the use of their reports
which are included as part of Exhibit 99.3.
The full text of Item 15 and the Exhibit Index, as amended, referred to
therein are as set forth below.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements: See Index to Consolidated Financial Statements
and Consolidated Financial Statement Schedule set forth on page 39 of
this report.
(2) Exhibits: For a list of the documents filed as exhibits to this
report, see the Exhibit Index following the signatures to this report.
(b) Reports on Form 8-K: None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PRE-PAID LEGAL SERVICES, INC.
Date: June 30, 2003 By: /s/ Randy Harp
--------------------------------------
Randy Harp
Chief Operating Officer
CERTIFICATIONS
I, Harland C. Stonecipher, Chief Executive Officer, certify that:
(1) I have reviewed this amendment to the annual report on Form 10-K of
Pre-Paid Legal Services, Inc.;
(2) Based on my knowledge, this amendment to the annual report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by the annual report;
(3) Based on my knowledge, the financial statements, and other financial
information included in the annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
(4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this amendment to
the annual report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) Presented in this amendment to the annual report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
(5) The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
(6) The registrant's other certifying officer and I have indicated in this
amendment to the annual report whether or not there were significant
changes in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: June 30, 2003 /s/ Harland C. Stonecipher
---------------------------------------------
Harland C. Stonecipher
Chairman, Chief Executive Officer and
President
CERTIFICATIONS, continued
I, Steve Williamson, Chief Financial Officer, certify that:
(1) I have reviewed this amendment to the annual report on Form 10-K of
Pre-Paid Legal Services, Inc.;
(2) Based on my knowledge, this amendment to the annual report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by the annual report;
(3) Based on my knowledge, the financial statements, and other financial
information included in the annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
(4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this amendment to
the annual report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) Presented in this amendment to the annual report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
(5) The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
(6) The registrant's other certifying officer and I have indicated in this
amendment to the annual report whether or not there were significant
changes in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: June 30, 2003 /s/ Steve Williamson
---------------------------------------------
Steve Williamson
Chief Financial Officer
INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------
3.1 Amended and Restated Certificate of Incorporation of the Company, as
amended (Incorporated by reference to Exhibit 4.1 of the Company's Report
on Form 8-K dated January 10, 1997)
3.2 Amended and Restated Bylaws of the Company (Incorporated by reference to
Exhibit 3.1 of the Company's Report on Form 10-Q for the period ended
September 30, 1996)
*10.1Employment Agreement effective January 1, 1993 between the Company and
Harland C. Stonecipher (Incorporated by reference to Exhibit 10.1 of the
Company's Annual Report on Form 10-KSB for the year ended December 31,
1992)
*10.2Agreements between Shirley Stonecipher, New York Life Insurance Company and
the Company regarding life insurance policy covering Harland C. Stonecipher
(Incorporated by reference to Exhibit 10.21 of the Company's Annual Report
on Form 10-K for the year ended December 31, 1985)
*10.3Amendment dated January 1, 1993 to Split Dollar Agreement between Shirley
Stonecipher and the Company regarding life insurance policy covering
Harland C. Stonecipher (Incorporated by reference to Exhibit 10.3 of the
Company's Annual Report on Form 10-KSB for the year ended December 31,
1992)
*10.4Form of New Business Generation Agreement Between the Company and Harland
C. Stonecipher (Incorporated by reference to Exhibit 10.22 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1986)
*10.5Amendment to New Business Generation Agreement between the Company and
Harland C. Stonecipher effective January, 1990 (Incorporated by reference
to Exhibit 10.12 of the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1992)
*10.6Amendment No. 1 to Stock Option Plan, as amended effective May 2000
(Incorporated by reference to Exhibit 10.6 of the Company's Annual Report
on Form 10-K for the year ended December 31, 2000)
*10.7Letter Agreements dated July 8, 1993 and March 7, 1994 between the Company
and Wilburn L. Smith (Incorporated by reference to Exhibit 10.17 of the
Company's Form 10-KSB filed for the year ending December 31, 1993)
10.8 Demand Note of Randy Harp dated December 22, 2000 in favor of the Company
(Incorporated by reference to Exhibit 10.17 of the Company's Annual Report
on Form 10-K for the year ended December 31, 2000)
10.9 Loan agreement dated June 11, 2002 between Bank of Oklahoma, N.A. and the
Company (Incorporated by reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-Q for the six-months ended June 30, 2002)
10.10Security agreement dated June 11, 2002 between Bank of Oklahoma, N.A. and
the Company (Incorporated by reference to Exhibit 10.2 of the Company's
Quarterly Report on Form 10-Q for the six months ended June 30, 2002)
10.11Form of Mortgage dated July 23, 2002 between Bank of Oklahoma, N.A. and the
Company (Incorporated by reference to Exhibit 10.3 of the Company's
Quarterly Report on Form 10-Q for the six months ended June 30, 2002)
10.12 Demand Note of Randy Harp dated April 14, 2002 in favor of the Company
10.13Amendment No. 2 to New Business Generation Agreement between the Company
and Harland C. Stonecipher effective January, 1990
*10.14 Deferred compensation plan effective November 6, 2002
21.1 List of Subsidiaries of the Company
23.1 Consent of Grant Thornton LLP
23.2 Consent of Grant Thornton LLP relating to report concerning plan financial
information included as part of Exhibit 99.3
99.1 Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.3 Financial information relating to the Pre-Paid Legal Services, Inc.
Employee Stock Ownership and Thrift Plan and Trust, as required by Form
11-K for the fiscal year of the plan ended December 31, 2002
--------------------
* Constitutes a management contract or compensatory plan or arrangement required
to be filed as an exhibit to this report.
Exhibit 23.2 - Consent of Grant Thornton LLP
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
We have issued our report dated June 27, 2003, accompanying the financial
statements and schedules of the Pre-Paid Legal Services, Inc. Employee Stock
Ownership and Thrift Plan and Trust for the year ended December 31, 2002,
included in this Amendment No. 1 on Form 10-K/A of Pre-Paid Legal Services, Inc.
for the year ended December 31, 2002. We hereby consent to the incorporation by
reference of said report in the Registration Statement of Pre-Paid Legal
Services, Inc. on Form S-8 (File No. 33-82144, effective July 28, 1994).
GRANT THORNTON LLP
Oklahoma City, Oklahoma
June 27, 2003
Exhibit 99.1
CERTIFICATION
Pursuant to 18 U.S.C. ss. 1350, the undersigned officer of Pre-Paid Legal
Services, Inc. (the "Company"), hereby certifies that the Company's amendment to
the Annual Report on Form 10-K for the year ended December 31, 2002 (the
"Report") fully complies with the requirements of Section 13(a) or 15(d), as
applicable, of the Securities Exchange Act of 1934 and that the information
contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Pre-Paid Legal Services, Inc.
Employee Stock Ownership and Thrift Plan and Trust.
Date: June 30, 2003 /s/ Harland C. Stonecipher
---------------------------------------------
Harland C. Stonecipher
Chairman, Chief Executive Officer and
President
The foregoing certification is being furnished solely pursuant to 18
U.S.C.ss.1350.
Exhibit 99.2
CERTIFICATION
Pursuant to 18 U.S.C. ss. 1350, the undersigned officer of Pre-Paid Legal
Services, Inc. (the "Company"), hereby certifies that the Company's amendment to
the Annual Report on Form 10-K for the year ended December 31, 2002 (the
"Report") fully complies with the requirements of Section 13(a) or 15(d), as
applicable, of the Securities Exchange Act of 1934 and that the information
contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Pre-Paid Legal Services, Inc.
Employee Stock Ownership and Thrift Plan and Trust.
Date: June 30, 2003 /s/ Steve Williamson
---------------------------------------------
Steve Williamson
Chief Financial Officer
The foregoing certification is being furnished solely pursuant to 18
U.S.C.ss.1350.
Exhibit 99.3 - Financial Statements and Report of independent certified public
accounts for the Pre-Paid Legal Services, Inc. Employee Stock Ownership and
Thrift Plan Trust for the fiscal year of the plan ended December 31, 2002
Financial statements and report of independent certified public accountants
Pre-Paid Legal Services, Inc. Employee Stock Ownership and Thrift Plan and Trust
December 31, 2002 and 2001
C O N T E N T S
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
FINANCIAL STATEMENTS
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
NOTES TO FINANCIAL STATEMENTS
SUPPLEMENTAL SCHEDULES
SCHEDULE H, LINE 4i--ASSETS HELD FOR INVESTMENT PURPOSES
SCHEDULE H, LINE 4j--REPORTABLE TRANSACTIONS
Report of Independent Certified Public Accountants
Trustee and Participants
Pre-Paid Legal Services, Inc. Employee Stock Ownership and Thrift Plan and Trust
We have audited the accompanying statements of net assets available for benefits
of Pre-Paid Legal Services, Inc. Employee Stock Ownership and Thrift Plan and
Trust as of December 31, 2002 and 2001, and the related statements of changes in
net assets available for benefits for the years then ended. These financial
statements are the responsibility of the Plan's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of Pre-Paid Legal
Services, Inc. Employee Stock Ownership and Thrift Plan and Trust as of December
31, 2002 and 2001, and the changes in net assets available for benefits for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets held
for investment purposes and reportable transactions are presented for the
purpose of additional analysis and are not a required part of the basic
financial statements but are supplemental information required by the Department
of Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. These supplemental schedules are the
responsibility of the Plan's management. Such supplemental schedules have been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
GRANT THORNTON LLP
Oklahoma City, Oklahoma
June 27, 2003
Pre-Paid Legal Services, Inc. Employee Stock Ownership
and Thrift Plan and Trust
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
December 31,
2002 2001
------------ ------------
ASSETS
Cash and cash equivalents $ 377,905 $ 296,455
Investments, at fair value
Pre-Paid Legal Services, Inc. common stock 5,177,696 4,108,747
Participant-directed mutual funds 872,183 842,959
Participant notes 48,119 50,502
Receivables
Employer contributions 220,853 210,671
Participants' elective deferrals 7,788 8,831
------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS $6,704,544 $5,518,165
------------ ------------
The accompanying notes are an integral part of these statements.
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
Year ended December 31,
2002 2001
------------ ------------
Additions
Employer contributions (Pre-Paid Legal Services, Inc. common stock) $ 220,853 $ 210,671
Participant contributions 420,912 375,299
Interest and dividend income 19,369 36,537
Net appreciation in fair value of investments 821,148 -
------------ ------------
Total additions 1,482,282 622,507
Deductions
Benefits paid to participants 295,903 155,530
Net depreciation in fair value of investments - 635,938
------------ ------------
Total deductions 295,903 791,468
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS 1,186,379 (168,961)
Net assets available for benefits at beginning of year 5,518,165 5,687,126
------------ ------------
Net assets available for benefits at end of year $6,704,544 $5,518,165
------------ ------------
The accompanying notes are an integral part of these statements.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
NOTE A - DESCRIPTION OF PLAN
The Pre-Paid Legal Services, Inc. Employee Stock Ownership and Thrift Plan and
Trust (the "Plan") was established on January 1, 1988 for the benefit of the
employees of Pre-Paid Legal Services, Inc. and its subsidiaries (the "Company").
The Plan is administered by a committee (the "Committee")of two employees
appointed by the Company. The Committee also serves as the Plan's Trustee and
Investment Manager.
The following brief description of the provisions of the Plan is provided for
general information purposes only. Participants should refer to the Plan
agreement for more complete information.
Under the terms of the Plan, the Committee may acquire, hold and dispose of all
cash and investments, including common and preferred stock of the Company,
through a trust fund. Participants who have attained the age of 55 have the
right to make an election to direct the Committee as to the investment of their
accounts. Such participants may elect to diversify up to 100% of their deferred
compensation account and the vested portion of their Company Contribution
Account in one or more "no load" mutual funds of any regulated investment
company as defined by section 851 of the Internal Revenue Code.
Each participant or beneficiary shall have the sole right to vote shares of
Company common stock allocated to such participant's account. The right to vote
such shares shall be exercised by directing the Committee as to the manner in
which the shares shall be voted.
The Plan is a defined contribution plan covering certain employees of the
Company and employees of affiliated companies which are included in the
Company's consolidated tax return. The Plan year end is December 31. All
employees at least 21 years of age are eligible to enroll in the Plan on January
1 or July 1 following the date the employee completes one year of service (1,000
hours) within 12 consecu-tive months of his/her employment date.
The Company may make discretionary contributions to the Plan for each Plan year.
The contributions may vary from year to year and are determined by written
action of the Board of Directors of the Company. Contributions may be made only
out of the Company's consolidated net profits before federal and state income
taxes from the current or a preceding year. The Company's contribution may be
paid to the Trustee either in cash, qualified employer securities or in other
property. In 2002 and 2001, all Company contributions were made in qualified
employer securities.
The Discretionary Matching Company Contribution is an amount determined, in the
sole discretion of the Company and added to amounts forfeited by other
participants, to match the following percentages of participants' deferred
compensation contributions (up to a maximum of 6%) for the Plan year. The
Discretionary Matching Company Contribution is allocated at the end of each Plan
year to each participant's Company Contribution Account based on the following
percentages:
NOTE A - DESCRIPTION OF PLAN - CONTINUED
Years of service
on first day of Matching
Plan year percentages
----------------- -----------
0 - 5 50%
6 - 10 75%
11 or more 100%
A participant may elect to defer a portion of his compensation in the form of a
contribution to his deferred compensation account under the Plan. Participants
contribute to the Plan on a pre-tax basis only. Subject to the limitations
contained in the Plan, a participant may elect to defer any portion of his
compensation. However, a participant may never defer more than the lesser of the
Internal Revenue Service limitation ($11,000 and $10,500 in 2002 and 2001,
respectively) in any Plan year or a percentage of compensation greater than the
maximum percentage of compensation determined annually by the Committee.
Separate accounts are maintained for each participant in the Plan. When an
election is made by the participant to defer part of his compensation, an
Employee Deferred Compensation Account is established. Each participant will
also have a Company Contribution Account consisting of discretionary matching
contributions made by the Company and a proportionate share of forfeitures.
All amounts in the participant's accounts are placed in a trust fund and
invested by the Trustee. The Trustee must invest the trust fund solely in the
interest of and for the exclusive purpose of providing benefits to the
participants and their beneficiaries while minimizing the expenses of
administering the Plan. Under the terms of the Plan, all Company contributions
and up to 75% of the participant's contributions may be invested in common stock
of the Company or in preferred stock convertible into common stock of the
Company at a conversion price which, as of the date of acquisition by the Plan,
is reasonable. Such securities are termed qualified employer securities.
A participant will be entitled to the full amount credited to his Company
Contribution Account at the normal retirement date or upon permanent disability
or death. If a participant terminates employment for any reason after he has
completed at least one year of service, he will be entitled to receive a portion
or all of his account, depending on his years of service. The percentage of the
Company Contribution Account to which a participant is entitled and the
percentage forfeited if a participant leaves the Company for reasons other than
retirement, permanent disability or death prior to becoming fully vested is
computed according to the following formula:
Vested Forfeited
Years of service percentage percentage
----------------- ---------- ----------
Less than 1 0% 100%
1 but less than 2 20% 80%
2 but less than 3 40% 60%
3 but less than 4 60% 40%
4 but less than 5 80% 20%
5 or more 100% 0%
A participant will always be fully vested in his Employee Deferred Compensation
Account, regardless of his years of service.
The Company may amend the Plan at any time to conform to the Internal Revenue
Code, Treasury Regulations and Rulings thereunder. The Company has the right to
terminate the Plan at any time upon prior written notice to the Trustee and may
direct the Trustee to liquidate the shares of participants in the trust fund.
Upon termination or permanent suspension of contributions, the accounts of all
participants affected thereby shall become nonforfeitable and shall be
distributed.
NOTE B - SUMMARY OF ACCOUNTING POLICIES
The following is a summary of the Plan's significant accounting policies.
1. Basis of Accounting
The Plan's financial statements are prepared on the accrual basis of accounting
in conformity with accounting principles generally accepted in the United States
of America.
2. Cash and Cash Equivalents
Cash and cash equivalents consist of the Plan's linked cash and money fund
accounts at a national brokerage firm which may not be federally insured. The
Plan has not experienced any losses in such accounts and believes it is not
exposed to any significant credit risks on cash and cash equivalents. Money fund
amounts have a unit value of $1 and balances are immediately accessible by the
Plan.
3. Investments
Investments are presented at fair value as measured by market prices in active
markets, including national securities exchanges. The cost of Company common
stock sold is determined on the basis of average cost. Actual cost is used as a
basis for sales of all other investments. Investment transactions are recorded
on a trade-date basis. The Plan presents in the statements of changes in net
assets available for benefits, the net appreciation (depreciation) in the fair
value of its investments, which consists of the realized gains or losses and the
unrealized appreciation (depreciation) on those investments.
4. Participant Notes
Effective July 1, 2001, the Plan began to permit participant notes. Participant
notes are approved by the Committee and cannot be made for an amount less than
$1,000 or exceed the lesser of $50,000 reduced by the excess of the highest
outstanding balance of loans during the one-year period ending on the day before
the loan is made or one-half of the participant's vested balance. The notes are
secured by the participants' vested interest in the Plan, bear interest and are
repayable based upon rates and terms set forth in the Plan. Participant notes
are valued at cost which approximates fair value.
5. Noncash Contributions
Contributions of Company common stock are recorded at fair value as determined
by using the average closing price of Company common stock as quoted on the New
York Stock Exchange for each day when the stock is traded during the 20-day
period immediately preceding the date of contribution.
6. Expenses
The Company elected to pay all of the Plan's administration expenses in 2002 and
2001 although it is not obligated to do so. Any expenses not paid by the Company
would be paid by the Plan.
7. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of net assets available for benefits and disclosure
of contingent assets and liabilities at the date of the financial statements and
the reported amounts of changes in net assets available for benefits during the
reporting period. Actual results could differ from those estimates. Investment
securities, in general, are exposed to various risks, such as interest rate,
credit and overall market volatility. Due to the level of risk associated with
certain investment securities, it is reasonably possible that changes in the
values of investment securities will occur in the near term and that such
changes could materially affect the amounts reported in the statements of net
assets available for benefits.
NOTE C - INVESTMENTS
At December 31, 2002 and 2001, the Plan held 197,622 and 187,614 shares,
respectively, of the Company's common stock with a cost of $1,940,190 and
$1,544,034, respectively. Other than the Company's common stock (which is a
nonparticipant-directed investment), investments of the Plan which represented
5% or more of the Plan's net assets available for benefits at December 31, 2002
and 2001 were participant-directed investments of $450,634 and $372,802,
respectively, held in the Federated Investors Automated Cash Management Trust
SS. In addition, the Plan's nonparticipant-directed Merrill Lynch CMA Government
Securities Fund balance of $377,905 and $296,455 represented 5.64% and 5.37% of
net assets available for benefits at December 31, 2002 and 2001, respectively.
The following table presents the net appreciation (depreciation) (including
gains and losses on investments bought and sold, as well as held during the
year) by type of investment for the years ended December 31:
2002 2001
---------- -----------
Mutual funds $ (53,554) $ (24,436)
Corporate common stock - Pre-Paid Legal Services, Inc. 874,702 (611,502)
---------- -----------
$ 821,148 $ (635,938)
---------- -----------
NOTE D - NONPARTICIPANT-DIRECTED INVESTMENTS
Information regarding the Plan's nonparticipant-directed investment in the
Company's common stock at December 31, 2002 and 2001 is included in Note C
above. Significant components of the changes in net assets relating to
nonparticipant-directed investments (including activity in the Plan's cash and
cash equivalents) is as follows for the years ended December 31:
2002 2001
---------- ----------
Net investment gain (loss) $ 879,933 $(601,372)
Contributions
Employer 220,853 210,671
Employee 420,912 375,299
Benefits paid to participants (294,850) (60,074)
Transfers from (to) participant-directed investments, net 4,826 (48,919)
------------ ----------
$1,231,674 $(124,395)
------------ -----------
NOTE E - TAX STATUS
A favorable determination letter dated June 24, 2002 was received from the
Internal Revenue Service indicating that the Plan, as amended through July 1,
2001, qualifies under section 401(a) of the Internal Revenue Code and is exempt
from federal income taxes under section 501(a) of the Code. The Plan has been
further amended since receiving the determination letter. However, the Company
and the Committee believe that the Plan is currently designed and operated in
compliance with the applicable requirements of the Internal Revenue Code.
Therefore, the Company and the Committee believe that the Plan continues to be
qualified and no provision for income taxes has been included in the Plan's
financial statements.
NOTE F - DISTRIBUTIONS
Former participants may request distribution of their accounts in the form of
Company common stock or cash. The ability of the Plan to make distributions in
cash depends, in part, on the cash available within the Plan to purchase the
former participants' vested shares of the Company's common stock. Former
participants who have elected to diversify all or a portion of their Plan
accounts into qualified "no load" mutual fund investments will receive a
distribution of mutual fund shares or cash. Distribu-tions made in 2002
consisted of 10,209 shares of the Company's common stock and cash of $54,313.
Distributions made in 2001 consisted of 1,089 shares of the Company's common
stock and cash of $134,717.
Former participants who terminated employment during 2002 and had not yet
received distribution of their account at December 31, 2002 will receive
distribution in 2003. The balance due former participants at December 31, 2002
included 88 shares of the Company's common stock and cash of $640. The balance
due former participants at December 31, 2001 included 270 shares of the
Company's common stock and cash of $2,000.
SUPPLEMENTAL SCHEDULES
SCHEDULE H, LINE 4i--ASSETS HELD FOR INVESTMENT PURPOSES
December 31, 2002
---------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Identity of issuer, borrower, lessor
Current
or similar party; description of investment Units Cost value
Corporate common stock
*Pre-Paid Legal Services, Inc. 197,622 shares $1,940,190 $5,177,696
Short-term funds
Federated Investors
Automated Cash Management Trust SS 450,634 units 450,634 450,634
Merrill Lynch - Money Funds
CMA Government Securities Fund 377,905 units 377,905 377,905
American Funds
U.S. Treasury Money Fund of America 230,266 units 230,266 230,266
Morgan Stanley Dean Witter
Limited Duration US Treasury Ex B 12,483 units 123,761 124,582
Liquid Asset Fund 1 unit 1 1
Vanguard Group
Health Care Fund 662 units 66,427 63,628
500 Index Fund 38 units 4,785 3,072
----------- -----------
1,253,779 1,250,088
Participant notes, interest from 6.75% to 7%,
maturing at various dates through 2016 48,119 48,119
----------- -----------
$3,242,088 $6,475,903
----------- -----------
* Party-in-interest
SCHEDULE H, LINE 4j--REPORTABLE TRANSACTIONS
Year ended December 31, 2002
------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Expense Current value
Purchase Selling Lease incurred with Cost of of asset on Net gain
Identity of party involved Description of asset price price rental transaction asset transaction date (loss)
-------------------------- ------------------------- -------- ----- ------ ------------- -------- ---------------- --------
*Pre-Paid Legal Services, Common stock, 8 purchases $513,447 $ - $ - $ - $513,447 $513,447 $ -
Inc.
* Party in interest