SCHEDULE 14A INFORMATION STATEMENT
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
PRE-PAID LEGAL SERVICES, INC.
(Name of Registrant as Specified in its Charter)
NOT APPLICABLE
(Name of Person(s) Filing Proxy Statement if Other Than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i) (4) and 0-11.
(1) Title of each class of securities to which transaction applies:
______________________.
(2) Aggregate number of securities to which transaction applies:
______________________.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: ___________________.
(4) Proposed maximum aggregate value of transaction: _________________.
(5) Total fee paid: ___________________.
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: __________________.
(2) Form, Schedule or Registration Statement No.: _________________.
(3) Filing Party: __________________________.
(4) Date Filed: ___________________________.
PRE-PAID LEGAL SERVICES, INC.
One Pre-Paid Way
Ada, Oklahoma 74820
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE HOLDERS OF SHARES OF COMMON STOCK:
The Annual Meeting of Shareholders of PRE-PAID LEGAL SERVICES, INC. (the
"Company") will be held in the Liberty Auditorium at the Company's corporate
offices located at One Pre-Paid Way in Ada, Oklahoma, on Friday, May 28, 2004,
at 1:00 p.m., local time, for the following purposes:
(1) To elect a member to the Company's Board of Directors.
(2) To transact such other business as may properly be brought before the
Annual Meeting or any adjournment thereof.
The Annual Meeting may be recessed from time to time and, at any reconvened
meeting, action with respect to the matters specified in this notice may be
taken without further notice to shareholders unless required by the bylaws.
Shareholders of record of Common Stock at the close of business on April 2,
2004 are entitled to notice of, and to vote on all matters at, the Annual
Meeting. A list of all shareholders will be available for inspection at the
Annual Meeting and, during normal business hours the ten days prior thereto, at
the offices of the Company, One Pre-Paid Way, Ada, Oklahoma.
BY ORDER OF THE BOARD OF DIRECTORS
Kathy Pinson, Secretary
Ada, Oklahoma
April 26, 2004
Please vote by telephone or by using the Internet as instructed on the enclosed
Proxy Card or complete, sign and date the enclosed Proxy Card and return it
promptly in the envelope enclosed for that purpose. You may nevertheless vote in
person if you do attend the meeting.
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PROXY STATEMENT
PRE-PAID LEGAL SERVICES, INC.
One Pre-Paid Way
Ada, Oklahoma 74820
2004 ANNUAL MEETING OF SHAREHOLDERS
The following information is furnished in connection with the 2004 Annual
Meeting of Shareholders ("Annual Meeting") of PRE-PAID LEGAL SERVICES, INC. (the
"Company") to be held in the Liberty Auditorium at the Company's corporate
offices located at One Pre-Paid Way in Ada, Oklahoma, on Friday, May 28, 2004,
at 1:00 p.m., local time. This Proxy Statement and accompanying materials will
be mailed on or about April 26, 2004 to holders of record of Common Stock as of
the record date.
The record date for determining shareholders entitled to notice of the
Annual Meeting and to vote has been established as the close of business on
April 2, 2004. On that date, the Company had 16,464,982 shares of Common Stock,
par value $.01 per share, outstanding and eligible to vote, exclusive of
treasury stock. Holders of record of the Company's Common Stock on the record
date will be entitled to one vote for each share held on all matters properly
brought before the Annual Meeting.
The Board of Directors of the Company is soliciting the enclosed proxy. All
costs of soliciting proxies for the Annual Meeting will be borne by the Company.
In addition to use of the mails, proxies may be solicited by telephone, telecopy
or personal interview by directors, officers or other regular employees of the
Company. No additional compensation will be paid to directors, officers or other
regular employees for such services. Copies of solicitation materials will be
furnished to banks, brokerage houses, fiduciaries and custodians holding in
their names shares of Common Stock beneficially owned by others to forward to
such beneficial owners. The Company will, upon request, reimburse such persons
for their reasonable expenses in forwarding proxy materials to beneficial
owners.
Any shareholder returning the accompanying proxy or voting by telephone or
the Internet may revoke such proxy at any time prior to its exercise by (a)
giving written notice to the Company of such revocation, (b) voting in person at
the Annual Meeting, (c) voting by telephone or using the Internet as instructed
below (your latest telephone or Internet proxy is counted) or (d) executing and
delivering to the Company a later dated proxy. Written revocations and later
dated proxies should be sent to PRE-PAID LEGAL SERVICES, INC., One Pre-Paid Way,
Ada, Oklahoma 74820, Attention: Kathy Pinson, Secretary.
ELECTION OF DIRECTOR
The Board of Directors of the Company currently consists of six members and
is divided into three classes equal in size, with the term of office of one
class expiring each year. Randy Harp, whose term as a director expires as of the
Annual Meeting is not standing for re-election as part of a corporate governance
initiative required by the rules of the New York Stock Exchange ("NYSE") to have
independent, outside directors comprise the majority of the Board. Effective at
the Annual Meeting, the number of members of the Board of Directors will be
reduced to five. The Board of Directors has nominated and proposes that Peter K.
Grunebaum, whose term as a director also expires as of the Annual Meeting, be
re-elected for a three-year term as a director.
The election of a director requires the affirmative vote of a plurality of
the shares of Common Stock voting in person or by proxy at the Annual Meeting.
All proxies received by the Board of Directors of the Company will be voted, in
the absence of instructions to the contrary, FOR the re-election of Peter K.
Grunebaum to the Board of Directors.
Should Mr. Grunebaum be unable to serve for any reason, the Board of
Directors may, unless the Board by resolution provides for a lesser number of
directors, designate substitute nominees in which event all proxies received
without instructions will be voted for the election of such substitute nominees.
However, to the best knowledge of the Board of Directors of the Company, Mr.
Grunebaum will serve if elected.
The following is certain information about each director of the Company:
Existing
Name Age Director Since Term Expires
---------------------- --- -------------- ------------
Peter K. Grunebaum 70 1980 2004
Harland C. Stonecipher 65 1976 2005
Martin H. Belsky 59 1998 2005
John W. Hail 73 1998 2006
Steven R. Hague 59 2003 2006
Peter K. Grunebaum
Mr. Grunebaum, currently an independent investment banker and corporate
consultant, was the Managing Director of Fortrend International, an investment
firm headquartered in New York, New York, a position he held from 1989 until the
end of 2003.
Harland C. Stonecipher
Mr. Stonecipher has been the Chairman of the Board of Directors of the
Company since its organization in 1976 and served as Chief Executive Officer
until March 1996 and since February 1997. Mr. Stonecipher also served as
President of the Company at various times through January 1995 and since
December 2002. Mr. Stonecipher also serves as an executive officer of various
subsidiaries of the Company and as a director of Advantage Marketing Systems,
Inc.
Martin H. Belsky
Mr. Belsky, currently Dean and Professor of Law at the University of Tulsa
College of Law, teaches courses in constitutional law, ethics, international
law, and oceans policy. Previously, Mr. Belsky was Dean and Professor of Law at
Albany Law School from 1986 to 1995.
John W. Hail
John W. Hail is the founder of Advantage Marketing Systems, Inc. ("AMS")
and has served as Chief Executive Officer and Chairman of the Board of Directors
of AMS since its inception in June 1988. AMS sells more than 75 natural
nutritional supplements, weight management products, and natural skincare and
cosmetics. From July 1986 through May 1988, Mr. Hail served as Executive Vice
President, Director and Agency Director of the Company and also served as
Chairman of the Board of Directors of TVC Marketing, Inc., which was the
exclusive marketing agent of the Company from April 1984 through September 1985.
Mr. Hail also serves as a director of Duraswitch Industries, Inc.
Steven R. Hague
Steven R. Hague has been a partner at One Source Advisors since 1999. One
Source Advisors is a management and actuarial consulting firm that provides
services related to product development; merger, acquisition and venture
development; bank insurance development and analysis; operational performance
analysis and financial reporting and forecasting. Previously Mr. Hague was Chief
Executive Officer of American Southwest Holding Company, an insurance holding
company created for merger and acquisition activities, from 1998 to 1999 and
President and CEO of Bankers Protective Life Insurance Company from 1993 to
1997. Mr. Hague serves as a director of Advantage Marketing Systems, Inc.
Board Meetings and Committees
The Board of Directors held four meetings during the year ended December
31, 2003 and acted by unanimous consent six times. During such year all
directors listed above attended at least 75% of the meetings of the full Board
and the committees on which they served.
The Board of Directors has established an Executive Committee currently
consisting of Messrs. Stonecipher, Harp and Grunebaum and an Audit Committee
currently consisting of Messrs. Grunebaum, Belsky and Hague. The Executive
Committee may exercise all of the powers of the Board of Directors, except to
the extent limited by law. The Audit Committee makes recommendations to the
Board of Directors concerning the selection of and oversees the Company's
relationship with its independent auditors and reviews with the independent
auditors the scope and results of the annual audit. The Audit Committee also
reviews financial statements and reports including proxy statements, Forms 10-K
and Forms 10-Q, reviews all significant financial reporting issues and practices
and monitors internal control policies. The Audit Committee also establishes
procedures for receipt, retention and treatment of complaints received by the
Company regarding accounting, internal accounting control or auditing matters,
recommends and reviews the Company's code of ethics and oversees the Company's
internal audit function. The Board of Directors has determined that each of the
members of the Audit Committee meets the independence standards of the New York
Stock Exchange of corporate governance rules and applicable SEC rules. The Audit
Committee held ten meetings during 2003. The Board of Directors has determined
that none of the members of the Audit Committee qualify as a "financial expert"
as defined by the rules of the SEC, because none of the members meet the
requisite qualifications for such designation. All of the members were appointed
prior to the adoption of the SEC rules relating to financial experts.
Additionally, the Board of Directors has established a nominating committee
and a compensation committee. The nominating committee consists of Messrs.
Belsky and Hague and is designed to assist the full Board of Directors in
selecting individuals for service on the Board of Directors and evaluating their
performance. The compensation committee consists of Messrs. Hague and Belsky and
was designed to evaluate and recommend the compensation of the executive
officers of the Company to assure they are compensated effectively in a manner
consistent with the overall objectives of the Company and to communicate the
Company's compensation policies and the reasoning behind such policies to
shareholders. The Board of Directors has determined that the members of both of
these committees meet the independence requirements of corporate governance
policies of the NYSE. Members of these committees are elected by the Board of
Directors annually for one-year terms, or until their successors shall be duly
elected and qualified. During 2003, the nominating committee met one time and
the compensation committee met one time.
Corporate Governance Guidelines and Communications with the Board
The Company adopted Corporate Governance Guidelines and a Code of Business
Conduct and Ethics in accordance with the rules of the NYSE in January 2004. The
Code of Business Conduct and Ethics is applicable to all employees and
directors, including the Company's principal executive, financial and accounting
officers. In addition, each of the committees of the board has a charter which
has been approved by the board. Copies of the Corporate Governance Guidelines,
Code of Business Conduct and Ethics and committee charters are available at the
Company's website, www.prepaidlegal.com. In addition, copies of these documents
are available to any shareholder who requests them from the Secretary of the
Company. The Company intends to disclose amendments to, or waivers from, its
Code of Business Conduct and Ethics by posting to its website. In addition, a
copy of the Audit Committee charter as amended in 2003 to comply with new SEC
and NYSE rules is attached as an appendix.
The Company's Corporate Governance Guidelines requires that the
non-management directors meet in executive session immediately following each
meeting of the Board. The Guidelines provide that the Chairman of the Nominating
Committee, currently Mr. Belsky, will preside over these meetings.
The Board has adopted the independence criteria of the NYSE corporate
governance rules to determine the independence of its directors. In January
2003, the Board determined that Messrs. Belsky, Grunebaum and Hague were
independent under these criteria. As noted earlier, Mr. Harp, the Chief
Operating Officer of the Company is not standing for re-election, and, after the
annual meeting, the Company will be in compliance with the NYSE rules that a
majority of the Board be independent.
The Company's Corporate Governance Guidelines provide that any person,
including any shareholder, desiring to communicate with, or make any concerns
known to the Company, directors generally, non-management directors or an
individual director only, may do so by submitting them in writing to the
Company's Quality Assurance Supervisor, One Pre-Paid Way, Ada, Oklahoma 74820,
with information to identify the person submitting the communication or concern,
including the name, address, telephone number and an e-mail address (if
applicable), together with information indicating the relationship of such
person to the Company. The Company's Quality Assurance Supervisor is responsible
for maintaining a record of any such communications or concerns and submitting
them to the appropriate addressee(s) for potential action or response. The
Company will establish the authenticity of any communication or concern before
forwarding. Under the Corporate Governance Guidelines, the Company is not
obligated to investigate or forward any anonymous submissions from persons who
are not employees of the Company.
The Company does not have a specific policy regarding board member's
attendance at annual meetings of shareholders, although, as a general rule, all
directors usually attend such meeting. At the 2003 annual meeting of
shareholders, all directors attended the meeting except John Hail.
In accordance with the rules of the NYSE, within 30 days after the date of
the annual meeting, the Company's Chief Executive Officer expects to certify to
the NYSE that he is not aware of any violation by the Company of the NYSE
corporate governance listing standards. The Company's Chief Executive Officer
and Chief Financial Officer have executed all certifications required by Section
302 of the Sarbanes-Oxley Act relating to the disclosures in the periodic
reports filed with the Securities and Exchange Commission.
Compensation of Directors
Directors who are also employees of the Company or its subsidiaries receive
no additional compensation for their services as directors. Non-employee
directors of the Company receive $500 per board and committee meeting attended.
Under the Company's Stock Option Plan, each non-employee director also receives
on March 1 of each year options to purchase 10,000 shares of Common Stock. These
options are immediately exercisable as of the date of grant as to one-fourth of
the shares covered by the options and vest in additional one-fourth increments
on the following June 1st, September 1st and December 1st in the year of grant,
subject to continued service by the non-employee director during such periods.
Options granted to non-employee directors under the Stock Option Plan have an
exercise price equal to the closing price of the Common Stock on the date of
grant as reported by the New York Stock Exchange and expire five years from the
date of grant. Additionally, Martin H. Belsky receives an additional director
fee, not to exceed $6,000 annually, for his additional services as secretary of
the Audit Committee and for other services.
The Board of Directors recommends that the shareholders vote "FOR" the
re-election of Peter K. Grunebaum to the Board of Directors.
Audit and Other Fees
The firm of Grant Thornton LLP was originally engaged in September 2001 to
serve as the Company's independent auditor and subsequently retained for the
annual audits for the subsequent fiscal years. The aggregate fees billed,
including expenses, by Grant Thornton LLP for 2003 and 2002 for various services
are set forth below:
2003 2002
---- ----
Audit Fees....................................... $ 313,531 $ 220,786
Audit Related Fees............................... $ 10,102 $ 10,665
Tax Fees......................................... $ 23,712 $ 850
All Other Fees........ ........................ $ - $ -
Fees for audit services include fees associated with the annual audit of
the Company and its subsidiaries, the review of the Company's quarterly reports
on Form 10-Q and required statutory audits. Audit-related fees principally
include audits in connection with the Company's employee benefit plans. Tax fees
include tax compliance, tax advice and tax planning related to Federal, state
and international tax matters. Prior year numbers have been conformed to current
year presentation.
The Audit Committee has considered whether the provision of non-audit
services by Grant Thornton LLP is compatible with maintaining auditor
independence and adopted in 2003 a policy that requires pre-approval of all
audit and non-audit services. Such policy requires the Committee to approve
services and fees in advance and requires documentation regarding the specific
services to be performed. All 2003 audit and non-audit services fees were
approved in advance in accordance with the Committee's policies.
AUDIT COMMITTEE REPORT
In accordance with its written charter adopted by the Board of Directors
("Board"), the Audit Committee of the Board ("Committee") assists the Board in
fulfilling its responsibility for oversight of the quality and integrity of the
accounting, auditing and financial reporting practices of the Company. During
fiscal 2003, the Committee met ten times, and the Committee chair, as
representative of the Committee, discussed the interim financial information
contained in each quarterly earnings announcement with the CFO and independent
auditors prior to public release.
In discharging its oversight responsibility as to the audit process, the Audit
Committee obtained from the independent auditors a formal written statement
describing all relationships between the auditors and the Company that might
bear on the auditors' independence consistent with Independence Standards Board
Standard No. 1, "Independence Discussions with Audit Committees," discussed with
the auditors any relationships that may impact their objectivity and
independence and satisfied itself as to the auditors' independence. The
Committee also discussed with management and the independent auditors the
quality and adequacy of the Company's internal controls. The Committee reviewed
with the independent auditors their audit plans, audit scope, and identification
of audit risks.
The Committee discussed and reviewed with the independent auditors all
communications required by generally accepted auditing standards, including
those described in Statement on Auditing Standards No. 61, as amended,
"Communication with Audit Committees" and, with and without management present,
discussed and reviewed the results of the independent auditors' examination of
the financial statements.
The Committee reviewed the audited financial statements of the Company as of and
for the fiscal year ended December 31, 2003, with management and the independent
auditors. Management has the responsibility for the preparation of the Company's
financial statements and the independent auditors have the responsibility for
the examination of those statements.
Based on the above-mentioned review and discussions with management and the
independent auditors, the Committee recommended to the Board that the Company's
audited financial statements be included in its Annual Report on Form 10-K for
the fiscal year ended December 31, 2003, for filing with the Securities and
Exchange Commission. The Committee intends to approve reappointment of the
independent auditors for 2004.
Peter K. Grunebaum Martin H. Belsky Steven R. Hague
Committee Chairman Committee Member Committee Member
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Executive Officers
The current executive officers of the Company are named below:
Name Age Position
---------------------- --- -----------------------------------------------------------
Harland C. Stonecipher 65 Chairman of the Board of Directors, Chief Executive Officer
and President
Randy Harp 48 Chief Operating Officer
Kathleen S. Pinson 51 Vice President of Regulatory Compliance and Secretary
Steve Williamson 43 Chief Financial Officer
For description of the business background and other information concerning
Mr. Stonecipher, see "Election of Directors" above. All executive officers serve
at the discretion of the Board, subject to, in the case of Mr. Stonecipher, the
terms of his employment agreement described below.
Randy Harp
Mr. Harp was named Chief Financial Officer in March 1990 and served in that
capacity until May 2000 and has served as Chief Operating Officer since March
1996. Mr. Harp is a Certified Public Accountant.
Kathleen S. Pinson
Ms. Pinson was named Controller of the Company in May 1989 and has been a
Vice President of the Company since June 1982. Ms. Pinson served on the Board of
Directors from April 1990 until August 2002 when she resigned from the Board of
Directors together with three other directors as part of a corporate governance
initiative to have outside directors comprise the majority of the Board. Ms.
Pinson has been employed by the Company since 1979 and currently serves as Vice
President of Regulatory Compliance and Secretary. Ms. Pinson is a Certified
Public Accountant.
Steve Williamson
Mr. Williamson was named Chief Financial Officer of the Company in May
2000. From April 1997 until his employment with the Company in March 2000, Mr.
Williamson served as the Chief Financial Officer of Peripheral Enhancements,
Inc., an electronic memory assembly company. Prior to April 1997, Mr. Williamson
served as Director in Charge of Banking Practice for Horne & Company, a public
accounting firm. Mr. Williamson is a Certified Public Accountant.
Significant Employee - Wilburn L. Smith
Wilburn Smith has been active in the marketing division of the Company
since 1980. He served as a director of the Company from March, 1993 to October,
1995 and from April, 1997 to December 31, 2001, during which time he also served
as President of the Company. Mr. Smith currently serves as National Marketing
Director for the Company.
Executive Compensation
The following table sets forth the compensation paid by the Company and its
subsidiaries for services rendered during the years ended December 31, 2003,
2002 and 2001 to the chief executive officer and to each other person serving as
an executive officer of the Company as of December 31, 2003 whose compensation
exceeded $100,000 during 2003. Such individuals are referred to herein as the
"named executive officers."
Summary Compensation Table
Long Term
Annual Compensation(1) Compensation
Securities
Underlying All Other
Name and Principal Position Year Salary Bonus (2) Options Compensation (3)
------------------------------- ---- -------- ---------- ------------ ----------------
Harland C. Stonecipher......... 2003 $157,755 $1,984,918 - $12,490
Chairman of the Board, Chief 2002 160,789 2,011,785 100,000 11,404
Executive Officer and 2001 157,755 1,473,556 100,000 11,740
President
Randy Harp..................... 2003 229,327 11,835 - 5,200
Chief Operating Officer 2002 233,654 - 50,000 8,800
2001 167,019 32,500 80,000 5,282
Kathleen S. Pinson............. 2003 139,422 6,575 - 5,200
VP of Regulatory Compliance 2002 130,095 - 5,000 5,300
and Secretary 2001 110,613 12,500 5,000 5,282
Steve Williamson............... 2003 126,923 6,312 - 3,640
Chief Financial Officer 2002 120,384 5,414 5,000 3,774
2001 99,365 7,500 15,000 1,740
----------------
(1) Annual compensation amounts include amounts deferred at the election of the
named individuals pursuant to a non-qualified deferred compensation plan
adopted by the Company in 2002.
(2) Bonus to Mr. Stonecipher consists of override commissions earned by Mr.
Stonecipher pursuant to an override commission agreement with the Company
of $240,000 during each of 2003, 2002 and 2001, and override commissions
earned by Mr. Stonecipher with respect to commissions earned by PPL Agency,
Inc., a Company affiliated insurance agency, of $57,422, $57,932 and
$56,576 during 2003, 2002 and 2001, respectively. The bonus amount also
includes $1,176,980 during 2001 representing a payment of $10 for each
marketing associate who participated in the Company's "Fast Start to
Success" training program that commenced in January 1997. Effective August
2002 through December 31, 2002, and in lieu of the $10 fee, Mr. Stonecipher
began receiving one-half of one percent of collected membership fees.
Effective January 1, 2003, this compensation arrangement was modified to
require certain levels of membership fees to be achieved. The 2002 bonus
amount includes $1,033,340 of Fast Start bonuses and $680,513 of membership
fee bonuses. The 2003 bonus amount includes $1,687,496 of membership fee
bonus. See "Executive Compensation and Other Information-Employment
Contracts and Termination of Employment and Change-in-Control Arrangements"
and "Certain Relationships and Related Transactions."
Bonuses to Messrs. Harp and Williamson and Ms. Pinson during 2003 consisted
of bonus based upon growth in the Company's membership base. Bonus to Mr.
Williamson during 2002 pertained to the completion of a transaction related
to the sale of a subsidiary and bonuses to Messrs. Harp and Williamson and
Ms. Pinson during 2001 consisted of performance bonuses based upon the
achievement by the Company of certain earnings per share goals.
(3) All Other Compensation of Mr. Stonecipher includes $3,130, $4,972 and
$5,331 for the years 2003, 2002 and 2001, respectively, relating to the
time value of premiums paid pursuant to a certain split dollar life
insurance agreement that provides for such premiums to be refunded to the
Company upon Mr. Stonecipher's death, and also includes $9,360, $6,432 and
$6,409 for the years 2003, 2002 and 2001, respectively, representing vested
contributions by the Company to the Employee Stock Ownership and Thrift
Plan and Trust (the "ESOP").
All Other Compensation of Messrs. Harp and Williamson and Ms. Pinson
consists of vested contributions by the Company to the ESOP.
There were no grants of stock options during the year ended December 31,
2003 under the Company's Stock Option Plan to any of the named executive
officers.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
Number of Securities Value of
Underlying Unexercised Unexercised In-the-Money
Shares Options at Options at
Acquired Value December 31, 2003 December 31, 2003 (1)
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---------------------- ----------- -------- ----------- ------------- ----------- -------------
Harland C. Stonecipher - - 400,000 - $1,158,000 $ -
Randy Harp - - 212,000 18,000 662,040 124,560
Kathleen S. Pinson - - 17,500 2,500 53,100 4,800
Steve Williamson - - 26,500 8,500 80,780 46,320
----------------------------
(1) Value of unexercised in-the-money options at December 31, 2003 is
calculated based on the market price per share of Common Stock of $26.12
per share on December 31, 2003 less the option exercise price.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
The Company has an employment agreement with Mr. Stonecipher that commenced
in January 1993 and was scheduled to expire on June 30, 2003 but it has been
automatically extended to June 30, 2004 and will be automatically extended for
successive one-year periods unless either party elects to terminate at least 30
days prior to the expiration date. Under the terms of the employment agreement,
Mr. Stonecipher is to receive compensation as determined by the Board of
Directors but not less than $157,755 per year. In addition to his annual salary,
Mr. Stonecipher also is entitled to receive a supplemental retirement benefit in
the amount of $26,000 per year payable on the first day of the month following
his termination of employment and annually thereafter until the earlier of his
death or the date upon which ten such payments have been made. Mr. Stonecipher
must meet certain minimal conditions subsequent to the termination of his
employment in order to receive such payments. The Company's obligation for
supplemental retirement benefits pursuant to the employment agreement is subject
to the continuation of a certain split dollar life insurance agreement between
the Company and Shirley A. Stonecipher, Mr. Stonecipher's wife, described below.
If the Company terminates the employment agreement for any reason (other than
Mr. Stonecipher's death) or Mr. Stonecipher terminates the agreement for certain
specified events including a change of control of the Company (as defined in the
agreement), the Company is required to pay Mr. Stonecipher a lump sum payment
equal to the present value (using a 3% discount rate) of the remaining salary
and retirement benefits throughout the term of the agreement.
Pursuant to a separate agreement with the Company, Mr. Stonecipher is also
entitled to an override commission, payable monthly, in an amount equal to $.025
per active membership as compensation for his efforts in assisting in the growth
and development of new production for the Company and its subsidiaries. The
agreement provides that the amount of the commissions shall in no event exceed
$20,000 per month. The payment of such commissions to Mr. Stonecipher continues
during his lifetime and after his death to his designated beneficiaries and
their successors. The agreement requires that Mr. Stonecipher devote reasonable
efforts to the generation of new membership sales for the Company. The amounts
paid to Mr. Stonecipher under this agreement during the fiscal year ended
December 31, 2003 are reflected in the summary compensation table set forth
above. Mr. Stonecipher has deferred payments under this agreement of $30,199 at
December 31, 2003. Mr. Stonecipher also receives a portion of the annualized
commission revenue of PPL Agency, Inc., which is owned by Mr. Stonecipher as a
nominee for the Company. See "Certain Relationships and Related Transactions."
Such amounts paid to Mr. Stonecipher are also reflected in the summary
compensation table set forth above.
Commencing in January 1997, the Company implemented its "Fast Start to
Success" program pursuant to which electing marketing associates may participate
in Company-sponsored sales training programs, including use of a video and other
training aides developed by the Company. The cost to each marketing associate
for participation in the program is typically $249, except for special
promotions the Company implements from time to time. At the time, the Board of
Directors approved a payment to Mr. Stonecipher of $10 for each marketing
associate who participated in the program until August 2002 at which time this
form of compensation ceased and was replaced by one-half of one percent (.5%) of
Membership premiums collected. Such amounts paid to Mr. Stonecipher are
reflected in the summary compensation table set forth above. Mr. Stonecipher has
deferred payments under this agreement of $258,249 during 2002 and $656,703
during 2003.
In July 1984, the Company entered into a life insurance arrangement with
Shirley A. Stonecipher, Mr. Stonecipher's wife, whereby the Company agreed to
pay premiums on a life insurance policy covering Mr. Stonecipher. The face
amount of the policy is $600,000 and Mrs. Stonecipher is the owner and
beneficiary. Mrs. Stonecipher has an agreement with the Company whereby upon Mr.
Stonecipher's death, the proceeds of the policy will be paid to the Company in
an amount sufficient to reimburse premiums paid to date by the Company and any
supplemental retirement payments made pursuant to his employment contract. This
agreement is secured by a collateral assignment of the policy proceeds.
In November 2002, the Company adopted a deferred compensation plan, which
permits executive officers and key employees to defer receipt of a portion of
their compensation. Deferred amounts accrue hypothetical returns based upon
investment options selected by the participant. Deferred amounts are paid in
cash based on the value of the investment option and are generally payable
following termination of employment in a lump sum or in installments as elected
by the participant, but the plan permits on demand distributions, which are
subject to a 10% penalty, and provides for financial hardship distributions,
distributions in the event of total disability or death and distributions upon a
change in control. The plan also provides for a death benefit of $500,000 for
each participant. Although the plan is unfunded and represents an unsecured
liability of the Company to the participants, during 2003, the Company purchased
company-owned variable life insurance policies to insure the lives of the group
of participants and to finance its obligations under the plan. As of December
31, 2003, the Company had deferred compensation liability of $949,462, $40,173,
$14,879 and $14,284 for Mr. Stonecipher, Mr. Harp, Ms. Pinson and Mr.
Williamson, respectively, included in its total deferred compensation liability
of $1.4 million. At December 31, 2003, the cash value of the underlying
company-owned insurance policies was $1.3 million.
Board of Director Interlocks and Insider Participation in Executive Compensation
Decisions
Until November 2003, the Board of Directors of the Company was responsible
for establishing compensation of Harland C. Stonecipher, Chairman, Chief
Executive Officer and President of the Company. The Board of Directors formed a
compensation committee during 2002 as described above and the committee
recommended that Mr. Stonecipher accept one-half of one percent (.5%) of
Membership premiums collected in lieu of the $10 payment for each associate that
participated in the Fast Start to Success training program. Mr. Stonecipher's
cash compensation for 2003 was determined pursuant to his employment agreement
and other arrangements with the Company approved by the Board of Directors in
January 2003, as amended by the Compensation Committee's recommendation
described above. Effective in November 2003, pursuant to the governance rules of
the NYSE, the Compensation Committee became responsible for approving Mr.
Stonecipher's annual compensation arrangements.
Report On Executive Compensation
As previously indicated, until November 2003, the Board of Directors of the
Company (the "Board") was responsible for establishing compensation of Harland
C. Stonecipher, the Chairman, Chief Executive Officer and President. The Board
formed a compensation committee during 2002. The compensation committee was
designed to evaluate and recommend the compensation of the executive officers of
the Company to assure they are compensated effectively in a manner consistent
with the overall objectives of the Company and to communicate the Company's
compensation policies and the reasoning behind such policies to shareholders.
The compensation committee met one time during 2003 and recommended a change in
the compensation structure of Mr. Stonecipher but did not recommend any changes
to the compensation of any other executive officer.
The base salary of Mr. Stonecipher for 2003 was as provided in his
employment agreement with the Company entered into in 1993. The principal terms
of his employment agreement are described elsewhere herein. See "Executive
Compensation and Other Information - Employment Contracts and Termination of
Employment and Change-in-Control Arrangements." The level of base salary for Mr.
Stonecipher in the employment agreement was determined through negotiations with
Mr. Stonecipher at the time the employment agreement was entered into, and the
base salaries of the other executive officers of the Company for 2003 were
determined by Mr. Stonecipher based upon his assessment of the respective
executive officer's performance and potential contribution to the Company's
financial and operational objectives.
Pursuant to a separate agreement, Mr. Stonecipher receives a monthly
override commission of $.025 per active membership, subject to certain
limitations, and a portion of the annualized commission revenue of PPL Agency,
Inc., which is owned by Mr. Stonecipher as a nominee of the Company. During
2003, Mr. Stonecipher earned $297,422 pursuant to these commission-based
incentive compensation arrangements. These arrangements foster the goals of the
Company's compensation policy by linking a significant portion of the chief
executive officer's annual compensation to the level of revenues derived from
active memberships, thereby creating strong financial incentives to the chief
executive officer for the continued growth of the Company's membership base.
During 2003, although new membership sales decreased 6% to 671,857 compared to
773,767 during 2002, the Company's active memberships in force increased 3% to
1,418,997 at December 31, 2003 compared to 1,382,306 memberships in force at
December 31, 2002. Over the last five years, the compounded growth rate of the
Company's active membership base has exceeded 18% per year and earnings per
share have grown from $.55 per share to $2.27 per share for 2003.
During 1997, the Company implemented its "Fast Start to Success" program.
The "Fast Start to Success" program is a Company-sponsored field training
program for the Company's marketing associates that utilizes audio, video and
other training aides developed by the Company and is designed to increase new
memberships sold and new sales associates recruited per participating associate.
Participating associates are required to pay the Company a one-time training fee
to offset the Company's direct and indirect costs incurred in developing and
maintaining the program. Mr. Stonecipher received a payment from the Company of
$10 for each marketing associate who participated in the "Fast Start to Success"
program through July 2002 and such payments totaled $1,033,340 during 2002. Mr.
Stonecipher was instrumental in the conception and development of the program,
which the Board believes has enhanced the Company's marketing efforts and
contributed to the growth of the membership base. Beginning in August 2002 and
in lieu of the $10 for each Fast Start participant, Mr. Stonecipher began
receiving one-half of one percent (.5%) of Membership premiums collected. This
change in Mr. Stonecipher's compensation was designed to more closely link his
compensation with realized membership revenues. Another change in this
arrangement was made for 2003 as described above to tie the compensation based
on percentage of premiums to the achievement of specified thresholds of total
membership premiums in 2003 compared to membership premiums in 2002.
The Company maintains a Stock Option Plan (the "Plan") pursuant to which
the Board may grant options to purchase Common Stock to directors and employees
of the Company, including the executive officers. The exercise price of options
granted under the Plan may not be less than the fair market value per share of
Common Stock on the date of grant. In authorizing option awards under the Plan
to executive officers, the Board considers various factors including the
recommendation of the Chairman, the relative responsibilities of the optionee,
the Board's subjective evaluation of the optionee's performance, and the
optionee's relative equity interest in the Company in the form of stock and
options. The Board did not grant any options during 2003 to the Company's
executive officers.
In 2002, the Company adopted a deferred compensation plan for its executive
officers as described under "Executive Contracts and Termination of Employment
and Change-in-Control Arrangements." This plan is intended to supplement the
Company's existing tax-qualified retirement plans to provide the participants
with improved long-term retirement security.
Section 162(m) of the Internal Revenue Code provides that the Company may
be limited in deducting annual compensation in excess of $1 million paid to
certain executive officers. The Board of Directors has considered the effect of
Section 162(m) on the Company's compensation program. The deferred compensation
plan was adopted in 2002 in part to be responsive to the limitations of Section
162, to permit the deferral of compensation that would not otherwise be
deductible under Section 162. In certain circumstances it may be in the best
interests of the Company and its shareholders to retain the flexibility to pay
compensation that may not be deductible under Section 162.
The preceding report is presented by each of the current members of the
Board of Directors.
Martin H. Belsky Peter K. Grunebaum Steven R. Hague
John W. Hail Randy Harp Harland C. Stonecipher
Shareholder Return Performance Graph
The following graph compares the cumulative total shareholder returns of
the Company's Common Stock during the five years ended December 31, 2003 with
the cumulative total shareholder returns of the Russell 2000 Index and the Media
General Personal Services industry index. The comparison assumes an investment
of $100 on January 1, 1999 in each of the Company's Common Stock, the Russell
2000 Index and Media General's Personal Services industry index and that any
dividends were reinvested.
Comparison of Cumulative Total Return of Company,
Russell 2000 Index and Industry Index
{GRAPH APPEARS HERE}
1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----
PRE-PAID LEGAL SERVICES 100 72.73 77.27 66.36 79.39 79.15
MG GROUP INDEX 100 45.49 42.41 69.15 66.98 83.96
RUSSELL 2000 INDEX 100 119.59 114.43 115.6 90.65 131.78
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of shares of Common Stock of the Company by each person
(other than directors and executive officers of the Company) known by the
Company to be the beneficial owner of more than five percent of the issued and
outstanding Common Stock. The information is based on Schedules 13D or 13G filed
by the applicable beneficial owner with the Securities and Exchange Commission
or other information provided to the Company by the beneficial owner.
Security Ownership of Certain Beneficial Owners
Beneficial Ownership
--------------------------
Number Percent
of of
Name and Address of Beneficial Owner Shares Class
------------------------------------ ----------- -----------
Thomas W. Smith
323 Railroad Avenue
Greenwich, CT 06830......................................... 4,038,951 (1) 24.53
Thomas N. Tryforos
323 Railroad Avenue
Greenwich, CT 06830......................................... 2,852,388 (1) 17.32
Scott Vassalluzzo
323 Railroad Avenue
Greenwich, CT 06830......................................... 2,800,700 (1) 17.01
---------------------
(1) Included in the shares of Common Stock indicated as beneficially owned by
Thomas W. Smith ("Smith"), Thomas N. Tryforos ("Tryforos") and Scott
Vassalluzzo ("Vassalluzzo") are 2,780,600 shares as to which they have
shared voting and shared dispositive power. In addition, Smith beneficially
owns 1,258,351 shares of Common Stock as to which he has sole voting and
dispositive power, Tryforos beneficially owns 71,788 shares of Common Stock
as to which he has sole voting and dispositive power and Vassalluzzo
beneficially owns 20,100 shares of Common Stock as to which he has sole
voting and dispositive power. Of the shares indicated as beneficially owned
by Smith, Tryforos and Vassalluzzo, 3,138,951, 2,791,988 and 2,791,600
shares in the aggregate, respectively, are beneficially owned in their
capacities as investment managers for certain managed accounts.
Under the provisions of the Oklahoma General Corporation Act relating to
acquisitions of shares exceeding 20% of the outstanding voting shares of an
Oklahoma public company, 6,150 shares beneficially owned by Mr. Smith may
not be voted until and unless the disinterested shareholders of the Company
approve voting rights for these shares. Mr. Smith has not requested that
such issue be submitted to a vote of the shareholders as required by these
provisions, and, accordingly, these 6,150 shares will not be eligible to be
voted at the annual meeting. Although Mr. Smith's percentage ownership
exceeds 20% by more than this number of shares, his increase in ownership
occurred by reason of the Company's share repurchase program which does not
result in a loss of voting rights.
The following table sets forth certain information concerning the
beneficial ownership of shares of Common Stock of the Company as of April 2,
2004 by (a) each director or nominee for director of the Company, (b) each of
the named executive officers, and (c) all of the directors, nominee and named
executive officers of the Company as a group.
Security Ownership of Directorsand Named Executive Officers
Beneficial Ownership (1)
------------------------------
Number of Percent of
Name of Director or Named Executive Officer Shares Class
------------------------------------------- --------------- ----------
Harland C. Stonecipher
One Pre-Paid Way, Ada, Oklahoma 74820.............................. 1,567,042 (2) 9.28
Randy Harp............................................................. 261,877 (3) 1.57
Kathleen S. Pinson..................................................... 84,824 (4) *
Steve Williamson....................................................... 32,519 (5) *
Peter K. Grunebaum..................................................... 34,000 (6) *
John W. Hail........................................................... 45,579 (7) *
Martin H. Belsky....................................................... 30,900 (8) *
Steven R. Hague........................................................ 12,500 (9) *
All directors and executive officers as a group (8 persons)............ (10) 11.97
--------------------
* Less than 1%.
(1) Unless otherwise indicated in the footnotes to the table and subject to
community property laws where applicable, each of the shareholders named in
this table has sole voting and investment power with respect to the shares
indicated as beneficially owned. The percentage of ownership for each
person is calculated in accordance with rules of the Securities and
Exchange Commission without regard to shares of Common Stock issuable upon
exercise of outstanding stock options, except that any shares a person is
deemed to own by having a right to acquire by exercise of an option are
considered outstanding solely for purposes of calculating such person's
percentage ownership.
(2) Included in the shares of Common Stock indicated as beneficially owned by
Mr. Stonecipher are (i) 1,117,085 shares as to which he has shared voting
and shared dispositive power with his wife; (ii) 30,000 shares issuable
upon exercise of outstanding options held by his wife earned during the
time she was a member of the Board of Directors; (iii) 19,957 shares owned
under the ESOP as to which Mr. Stonecipher has sole voting power, but
shared dispositive power; and, (iv) 400,000 shares issuable to Mr.
Stonecipher upon exercise of outstanding options.
(3) Includes 17,827 shares owned under the ESOP as to which Mr. Harp has sole
voting power, but shared dispositive power, and 218,000 shares issuable
upon exercise of outstanding options.
(4) Includes 19,657 shares owned under the ESOP as to which Ms. Pinson has sole
voting power, but shared dispositive power, and 20,000 shares issuable upon
the exercise of outstanding options. Also, includes 3,560 shares owned
under the ESOP by Ms. Pinson's husband, also an employee of the Company, as
to which he has sole voting power, but shared dispositive power. Ms. Pinson
disclaims beneficial ownership of shares that are owned by her husband.
(5) Includes 1,129 shares owned under the ESOP as to which Mr. Williamson has
sole voting power, but shared dispositive power, 372 shares held in an
individual retirement account and 31,000 shares issuable upon exercise of
outstanding options.
(6) Includes 34,000 shares issuable upon exercise of outstanding options.
(7) Includes 500 shares owned by a corporation that Mr. Hail controls and
45,000 shares issuable upon exercise of outstanding options.
(8) Includes 30,500 shares issuable upon exercise of outstanding options.
(9) Includes 12,500 shares issuable upon exercise of outstanding options
(10) Includes 821,000 shares issuable upon exercise of outstanding options and
62,130 shares owned under the ESOP as to which the respective executive
officers and directors have sole voting power, but shared dispositive
power.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's Chairman, Harland C. Stonecipher, is the owner of PPL Agency,
Inc. ("Agency"). The Company has agreed to indemnify and hold harmless the
Chairman for any personal losses incurred as a result of his ownership of this
corporation and any income earned by Agency accrues to the Company. The Company
provides management and administrative services for Agency, for which it
receives specified management fees and expense reimbursements.
Agency's financial position and results of operations are included in the
Company's financial statements on a combined basis. Agency earned commissions,
net of amounts paid directly to its agents by the underwriter, during 2003 of
$119,000 through its sales of insurance products of an unaffiliated company.
Agency had net income of $20,000 for the year ended December 31, 2003 after
incurring commissions earned by the Chairman of $57,000 and annual management
fees paid to the Company of $36,000 for 2003.
Mr. Stonecipher and his wife, Shirley A. Stonecipher, own Stonecipher
Aviation LLC ("SA") and Mr. and Mrs. Stonecipher together with Wilburn L. Smith,
National Marketing Director, own S & S Aviation LLC ("S&SA"). The Company has
agreed to reimburse SA and S&SA for certain expenses pertaining to trips made by
Company personnel for Company business purposes using aircraft owned by SA and
S&SA. Such reimbursement represents the pro rata portion of direct operating
expenses, such as fuel, maintenance, pilot fees and landing fees, incurred in
connection with such aircraft based on the relative number of flights taken for
Company business purposes versus the number of other flights during the
applicable period. No reimbursement is made for depreciation, capital
expenditures or improvements relating to such aircraft. During 2003, the Company
paid $307,000 to SA and $592,000 to S&SA as reimbursement for such
transportation expenses.
John W. Hail, a director of the Company, served as Executive Vice
President, Director and Agency Director of the Company from July 1986 through
May 1988 and also served as Chairman of the Board of Directors of TVC Marketing,
Inc., which was the exclusive marketing agent of the Company from April 1984
through September 1985. Pursuant to agreements between Mr. Hail and the Company
entered into during the period in which Mr. Hail was an executive officer of the
Company, Mr. Hail receives override commissions from renewals of certain
Memberships initially sold by the Company during such period. During 2003 such
override commissions on renewals totaled $81,000. Mr. Hail also owns interests
ranging from 12% to 100% in corporations not currently affiliated with the
Company, including TVC Marketing, Inc., but which were engaged in the marketing
of the Company's legal service Memberships and which earn renewal commissions
from Memberships previously sold. These entities earned renewal commissions of
$552,000 during 2003 of which $300,000 was passed through as commissions to
their sales agents.
The Company's new office building contains two apartments, one for use by
Company visitors and one for use by the Company's Chairman and Chief Executive
Officer, Harland C. Stonecipher and his wife, for his convenience as well as to
entertain visitors using the visitor apartment. The full Board of Directors,
with Mr. Stonecipher abstaining, has approved the arrangements for the use of
this apartment which require Mr. Stonecipher to pay rent to the Company at a
rate of $1,000 per month, which exceeds the estimated fair market rental value
based on an outside appraisal.
COMPLIANCE WITH SECTION 16 REPORTING REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934 requires directors and
executive officers of the Company and persons who beneficially own more than 10%
of the Company's Common Stock to file reports of ownership and changes in
ownership of the Company's Common Stock with the Securities and Exchange
Commission. The Company is required to disclose delinquent filings of reports by
such persons during 2003. Based on a review of the copies of such reports and
amendments thereto received by the Company, or written representations that no
filings were required, the Company believes that during 2003 all Section 16(a)
filing requirements applicable to its executive officers, directors and 10%
shareholders were met except as described below.
A Form 4 for January 2004 for Mr. Grunebaum, a director of the Company,
relating to two transactions was inadvertently filed three days late due to an
administrative error by Mr. Grunebaum. Additionally, a Form 4 for newly elected
Board member Steven R. Hague pertaining to his initial stock option grant
approved by shareholders on May 29, 2003 was not filed until August 15, 2003
while Mr. Hague was waiting on receipt of his EDGAR access number issued by the
Securities and Exchange Commission.
VOTING
Directors will be elected by a plurality of the votes of the shares present
in person or represented by proxy at the Annual Meeting. All other matters
properly brought before the Annual Meeting will be decided by a majority of the
votes cast on the matter, unless otherwise required by law
Shares represented by proxies which are marked "withhold authority" with
respect to the election of any one or more nominees for election as directors
will be counted for the purpose of determining the number of shares represented
by proxy at the meeting. Because directors are elected by a plurality rather
than a majority of the shares present in person or represented by proxy at the
Annual Meeting, proxies marked "withhold authority" with respect to any one or
more nominee will not affect the outcome of the nominee's election unless the
nominee receives no affirmative votes or unless other candidates are nominated
for election as directors.
Shares represented by limited proxies will be treated as represented at the
meeting only as to such matter or matters for which authority is granted in the
limited proxy. Shares represented by proxies returned by brokers where the
brokers' discretionary authority is limited by stock exchange rules will be
treated as represented at the Annual Meeting only as to such matter or matters
voted on in the proxies.
INDEPENDENT PUBLIC ACCOUNTANTS
Grant Thornton LLP served as the Company's independent accountants for the
year ended December 31, 2003. Representatives of Grant Thornton LLP are expected
to be present at the Annual Meeting, with the opportunity to make a statement if
they desire to do so, and will be available to respond to appropriate questions.
ANNUAL REPORT TO SHAREHOLDERS
The Company's Annual Report to Shareholders for the year ended December 31,
2003, including audited financial statements, accompanies this Proxy Statement.
The Annual Report is not incorporated by reference into this Proxy Statement or
deemed to be a part of the materials for the solicitation of proxies.
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
A copy of the Company's Annual Report on Form 10-K for the year ended
December 31, 2003 filed with the Securities and Exchange Commission is available
without charge to any shareholder of the Company who requests a copy in writing
from the Company, Attn.: Janice Stinson, Investor Relations, One Pre-Paid Way,
Ada, Oklahoma 74820.
PROPOSALS OF SHAREHOLDERS AND NOMINATIONS
The Board of Directors will consider properly presented proposals of
shareholders intended to be presented for action at the Annual Meeting of
Shareholders. Such proposals must comply with the applicable requirements of the
Securities and Exchange Commission and the Company's bylaws. Under the Company's
bylaws, a notice of intent of a shareholder to bring any matter before a meeting
shall be made in writing and received by the Secretary of the Company not more
than 150 days and not less than 90 days in advance of the annual meeting or, in
the event of a special meeting of shareholders, such notice shall be received by
the Secretary of the Company not later than the close of the fifteenth day
following the day on which notice of the meeting is first mailed to
shareholders. Every such notice by a shareholder shall set forth: (a) the name
and address of the shareholder who intends to bring up any matter; (b) a
representation that the shareholder is a registered holder of the Company's
voting stock and intends to appear in person or by proxy at the meeting to bring
up the matter specified in the notice; (c) with respect to notice of an intent
to make a nomination, a description of all understandings among the shareholder
and each nominee and any other person (naming such person or persons) pursuant
to which the nomination or nominations are to be made by the shareholder and
such other information regarding each nominee proposed by the shareholder as
would have been required to be included in a proxy statement filed pursuant to
the proxy rules of the Securities and Exchange Commission had each nominee been
nominated by the Board of Directors of the Company; and (d) with respect to
notice of an intent to bring up any other matter, a description of the matter,
and any material interest of the shareholder in the matter. Notice of intent to
make a nomination shall be accompanied by the written consent of each nominee to
serve as a director of the Company, if elected. All shareholder proposals should
be sent to the Secretary of the Company at One Pre-Paid Way, Ada, Oklahoma
74820.
A shareholder proposal submitted pursuant to Rule 14a-8 under the
Securities Exchange Act of 1934 and intended to be included in the Company's
proxy statement relating to the 2005 Annual Meeting must be received no later
than January 28, 2005. To be considered for presentation at the 2005 Annual
Meeting, although not included in the Proxy Statement for such meeting, a
proposal must be received within the time period set forth in the Company's
bylaws as described above. In addition, the proxy solicited by the Board of
Directors for the 2005 Annual Meeting will confer discretionary authority to
vote on any such shareholder proposal presented at the 2005 Annual Meeting
unless the Company is provided with notice of such proposal no later than ninety
days prior to the date of the 2005 annual meeting.
The nominating committee has a charter which is posted on the Company's
website at www.prepaidlegal.com. The nominating committee has not adopted a
separate policy relating to nomination of directors by shareholders because the
procedure for nomination is governed by the Company's bylaws described above.
The criteria for nomination of directors are set forth in the nominating
committee charter and the charter does not address specific minimum
qualifications or skills that a nominee or board member must have. The process
used by the nominating committee for identifying and evaluating nominees for the
Company's board consists of reviewing qualifications of candidates suggested by
management, other board members or shareholders, including personal interviews
of the candidate. The specific requirements for nominees from shareholders
provided by the Company's bylaws described above are required to be followed.
The Company has not previously received nominees from shareholders and,
accordingly, is unable to determine whether the process for evaluation of
shareholder nominees differs from the process for evaluation of other nominees.
OTHER MATTERS
The Board of Directors of the Company does not know of any other matters to
be presented for action at the Annual Meeting other than those listed in the
Notice of Meeting and referred to herein. If any other matters properly come
before the Annual Meeting or any adjournment thereof, it is intended that the
proxy solicited hereby be voted as to any such matter in accordance with the
recommendations of the Board of Directors of the Company.
APPENDIX TO PROXY STATEMENT OF PRE-PAID LEGAL SERVICES, INC.
AUDIT COMMITTEE CHARTER
PRE-PAID LEGAL SERVICES, INC.
AUDIT COMMITTEE CHARTER
(As approved by the Board on November 7, 2003)
Purpose
The Audit Committee is appointed by the Board to assist the Board in monitoring
(1) the integrity of the financial statements of the Company, (2) the
independent auditor's qualifications and independence, (3) the performance of
the Company's internal audit function and independent auditors, and (4) the
compliance by the Company with legal and regulatory requirements.
The Audit Committee shall prepare the report required by the rules of the
Securities and Exchange Commission (the "Commission") to be included in the
Company's annual proxy statement.
Committee Membership
The Audit Committee shall consist of no fewer than three members. The members of
the Audit Committee shall meet the independence and experience requirements of
the New York Stock Exchange, Section 10A(m)(3) of the Securities Exchange Act of
1934 (the "Exchange Act") and the rules and regulations of the Commission. The
Board shall use its best efforts to assure that at least one member of the Audit
Committee shall be an "audit committee financial expert" as defined by the
Commission. Audit Committee members shall not simultaneously serve on the audit
committees of more than two other public companies. The members of the Audit
Committee shall be appointed by the Board. Audit Committee members may be
replaced by the Board.
Meetings
The Audit Committee shall meet as often as it determines, but no less frequently
than quarterly. The Audit Committee shall meet periodically with management, the
internal auditors and the independent auditor in separate executive sessions.
The Audit Committee may request any officer or employee of the Company or the
Company's outside counsel or independent auditor to attend a meeting of the
Committee or to meet with any members of, or consultants to, the Committee.
Committee Authority and Responsibilities
The Audit Committee shall have the sole authority to appoint or replace the
independent auditor. The Audit Committee shall be directly responsible for the
compensation and oversight of the work of the independent auditor (including
resolution of disagreements between management and the independent auditor
regarding financial reporting) for the purpose of preparing or issuing an audit
report or related work. The independent auditor shall report directly to the
Audit Committee.
The Audit Committee shall preapprove all auditing services and permitted
non-audit services (including the fees and terms thereof) to be performed for
the Company by its independent auditor, subject to the de minimis exceptions for
non-audit services described in Section 10(A)(i)(1)(B) of the Exchange Act which
are approved by the Audit Committee prior to the completion of the audit. The
Audit Committee may form and delegate authority to subcommittees consisting of
one or more members when appropriate, including the authority to grant
preapprovals of audit an permitted non-audit services, provided that decisions
of such subcommittee to grant preapprovals shall be presented to the full Audit
Committee at its next scheduled meeting.
The Audit Committee shall have the authority, to the extent it deems necessary
or appropriate, to retain outside legal, accounting or other advisors. The
Company shall provide for appropriate funding, as determined by the Audit
Committee, for payment of compensation to the independent auditor for payment of
compensation to the outside legal, accounting or other advisors employed by the
Audit Committee.
The Audit Committee shall make regular reports to the Board. The Audit Committee
shall review and reassess the adequacy of this Charter annually and recommend
any proposed changes to the Board for approval. The Audit Committee shall
annually review the Audit Committee's own performance.
The Audit Committee shall:
Financial Statement and Disclosure Matters
1. Review and discuss with management and the independent auditor the annual
audited financial statements, including disclosures made in management's
discussion and analysis, and recommend to the Board whether the audited
financial statements should be included in the Company's Form 10-K.
2. Review and discuss with management and the independent auditor the
Company's quarterly financial statements, including disclosures made in
managements discussion and analysis, prior to the filing of its Form 10-Q,
including the results of the independent auditor's review of the quarterly
financial statements.
3. Discuss with management and the independent auditor significant financial
reporting issues and judgments made in connection with the preparation of
the Company's financial statements, including any significant changes in
the Company's selection or application of accounting principles, any major
issues as to the adequacy of the Company's internal controls and any
special steps adopted in light of material control deficiencies.
4. Review and discuss at least annually prior to filing of the audit report
with the Commission, reports from the independent auditors on:
(a) All critical accounting policies and practices to be used.
(b) All alternative treatments of financial information within generally
accepted accounting principles that have been discussed with
management, ramifications of the use of such alternative disclosures
and treatments, and the treatment preferred by the independent
auditor.
(c) Other material written communications between the independent auditor
and management, such as any management letter or schedule of
unadjusted differences.
5. Discuss with management the Company's earnings press releases, including
the use of "pro forma" or "adjusted" non-GAAP information, as well as
financial information and earnings guidance provided to analysts and rating
agencies. Such discussion may be done generally (consisting of discussing
the types of information to be disclosed and the types of presentations to
be made).
6. Discuss with management and the independent auditor the effect of
regulatory and accounting initiative as well as off-balance sheet
structures on the Company's financial statements.
7. Discuss with management the Company's major financial risk exposures and
the steps management has taken to monitor and control such exposures,
including the Company's risk assessment and risk management policies.
8. Discuss with the independent auditor the matters required to be discussed
by Statement on Auditing Standards No. 61 relating to the conduct of the
audit, including any difficulties encountered in the course of the audit
work, any restrictions on the scope of activities or access to requested
information, and any significant disagreements with management.
9. Review disclosures made to the Audit Committee by the Company's CEO and CFO
during their certification process for the Form 10-K and Form 10-Q about
any significant deficiencies in the design or operation of internal
controls or material weaknesses therein and any fraud involving management
or other employees who have a significant role in the Company's internal
controls.
Oversight of the Company's Relationship with the Independent Auditor
10. Review and evaluate the lead partner of the independent auditor team.
11. Obtain and review a report from the independent auditor at least annually
regarding (a) the independent auditor's internal quality-control
procedures, (b) any material issues raised by the most recent internal
quality-control review, or peer review, of the firm, or by any inquiry or
investigation by governmental or professional authorities within the
preceding five years respecting one or more independent audits carried out
by the firm, (c) any steps taken to deal with any such issues, and (d) all
relationships between the independent auditor and the Company as required
by Independence Standards Board Standard No. 1. Evaluate the
qualifications, performance and independence of the independent auditor,
including considering whether the auditor's quality controls are adequate
and the provision of permitted non-audit services is compatible with
maintaining the auditor's independence, taking into account the opinions of
management and internal auditors. The Audit Committee shall present its
conclusions with respect to the independent auditor to the Board.
12. Ensure the rotation of the audit partners as required by law. Consider
whether, in order to assure continuing auditor independence, it is
appropriate to adopt a policy of rotating the independent auditing firm on
a regular basis.
13. Set the Board policies for the Company's hiring of employees or former
employees of the independent auditor who participated in any capacity in
the audit of the Company.
14. Meet with the independent auditor prior to the audit to discuss the
planning and staffing of the audit.
15. Obtain from the independent auditor assurances that Section 10B of the
Exchange Act has not been implicated.
Oversight of the Company's Internal Audit Function
16. Review the appointment of and replacement of one or more individuals
responsible for the internal audit function.
17. Review the significant reports to management prepared by the internal
auditing department and management's responses.
18. Discuss with the independent auditor and management the internal audit
department responsibilities, budget and staffing and any recommended
changes in the planned scope of the internal audit.
Compliance Oversight Responsibilities
19. Establish procedures for the receipt, retention and treatment of complaints
received by the Company regarding accounting, internal accounting controls
or auditing matters, and the confidential, anonymous submission by
employees of concerns regarding questionable accounting or auditing
matters.
20. Discuss with management and the independent auditor any correspondence with
regulators or governmental agencies and any published reports which raise
material issues regarding the Company's financial statements or accounting
policies.
21. Discuss with the Company's legal counsel any matters that may have a
material impact on the financial statements or the Company's compliance
policies.
22. Review and approve all related party transactions.
23. Recommend and periodically review the Company's Code of Ethics.
Limitation of Audit Committee's Role
While the Audit Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Audit Committee to plan or conduct audits or
to determine that the Company's financial statements and disclosures are
complete and accurate and are in accordance with generally accepted accounting
principles and applicable rules and regulations. These are the responsibilities
of management and the independent auditor.
YOUR VOTE IS IMPORTANT!
You can vote one of three ways:
1. Vote by Telephone.
2. Vote by Internet.
3. Vote by Mail.
VOTE BY TELEPHONE
Your Telephone vote is quick, easy and immediate. Just follow these easy steps:
1. Read the accompanying Proxy Statement.
2. Using a Touch-Tone Telephone, call Toll Free 1-800-758-6973 and follow
the instructions.
3. When instructed, enter the Control Number, which is printed on the
bottom of the back-side of your proxy card.
4. Follow the simple recorded instructions.
Please note that all votes cast by Telephone must be made prior to 5:00 p.m.
Central Time, May 26, 2004.
Your telephone vote authorizes the named proxies to vote your shares to the same
extent as if you marked, signed, dated, and returned the proxy card.
If you vote by telephone, please do not return your proxy by mail.
VOTE BY INTERNET
Your Internet vote is quick, convenient and your vote is immediately submitted.
Just follow these easy steps:
1. Read the accompanying Proxy Statement.
2. Visit our Internet voting site at http://www.eproxyvote.com/ppd and
follow the instructions on the screen.
Please note that all votes cast by Internet must be submitted prior to 5:00 p.m.
Central Time, May 26, 2004.
Your Internet vote authorizes the named proxies to vote your shares to the same
extent as if you marked, signed, dated and returned the proxy card.
If you vote by Internet, please do not return your proxy card by mail.
VOTE BY MAIL
To vote by mail, read the accompanying Proxy Statement then complete, sign and
date the proxy card below. Detach the card and return it in the envelope
provided herein.
IF YOU ARE NOT VOTING BY TELEPHONE OR INTERNET, DETACH PROXY CARD AND RETURN.
PROXY
PRE-PAID LEGAL SERVICES, INC.
Proxy Solicited on Behalf of the Board of Directors
Annual Meeting of the Shareholders to be held on Friday, May 28, 2004
The undersigned shareholder of Pre-Paid Legal Services, Inc., an Oklahoma
corporation (the "Company"), hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and Proxy Statement, each dated April 16, 2004, and
hereby appoints Randy Harp and Kathleen S. Pinson, or either of them, as proxies
and attorneys-in-fact, with full power to each of substitution, on behalf and in
the name of the undersigned, to represent the undersigned at the 2004 Annual
Meeting of Shareholders of the Company, to be held in the Liberty Auditorium at
the Company's corporate offices located at One Pre-Paid Way in Ada, Oklahoma, on
Friday, May 28, 2004, at 1:00 p.m., local time, and at any adjournment thereof,
and to vote all shares of Common Stock of the Company which the undersigned
would be entitled to vote if then and there personally present, on the matters
set forth below.
(1) Election of directors:
____ FOR Peter K. Grunebaum
____ WITHHOLD AUTHORITY to vote for Peter K. Grunebaum
(2) In their discretion, upon such matters as may properly come before the
meeting or any adjournment or adjournments thereof.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED "FOR" THE NOMINEE LISTED IN ITEM 1. IF ANY OTHER MATTERS ARE
BROUGHT BEFORE THE MEETING OR IF THE NOMINEE FOR ELECTION AS A DIRECTOR NAMED IN
THE PROXY STATEMENT FOR ELECTION AS A DIRECTOR IS UNABLE TO SERVE OR FOR GOOD
CAUSE WILL NOT SERVE, THE PROXY WILL BE VOTED IN ACCORDANCE WITH THE
RECOMMENDATIONS OF THE BOARD ON SUCH MATTERS OR FOR SUCH SUBSTITUTE NOMINEES AS
THE BOARD MAY RECOMMEND.
DATED: , 2004
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Printed Name(s) of Shareholder(s)
Signature(s)
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(Please sign exactly as name appears on the proxy card. If shares
are held jointly, only one holder is required to sign. When
signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation,
please sign in full corporate name by President or other
authorized officer. If a partnership, limited liability company
or other entity, please sign in the name of the entity by an
authorized person.)
APPENDIX TO PROXY STATEMENT OF PRE-PAID LEGAL SERVICES, INC.
CONTAINING SUPPLEMENTAL INFORMATION REQUIRED TO BE
PROVIDED TO THE SECURITIES AND EXCHANGE COMMISSION
The following is information required to be provided to the Securities and
Exchange Commission in connection with the Definitive Proxy Materials of
Pre-Paid Legal Services, Inc. (the "Company") in connection with the 2004 Annual
Meeting of Shareholders of the Company. This information is not deemed to be a
part of the Proxy Statement and will not be provided to shareholders in
connection with the Proxy Statement.
1. The Company anticipates that the definitive Proxy Materials will be mailed
to the shareholders on or about April 26, 2004.