UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  SCHEDULE 14A
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:

|X| Preliminary Proxy Statement
[ ] Confidential,  for Use of the  Commission  Only  (as  permitted  by Rule
        14a-6(e) (2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 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.

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     (3)  Per unit  price  or other  underlying  value of  transaction  computed
          pursuant to Exchange Act Rule  0-11(set  forth the amount on which the
          filing fee is calculated and state how it was determined):___________.
           

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[ ] 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: __________________.

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     (3)  Filing Party: __________________________.

     (4)  Date Filed: ___________________________.





                                                      PRELIMINARY PROXY MATERIAL

                          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:

     Our Annual Meeting of Shareholders  will be held in the Liberty  Auditorium
at our  corporate  offices  located at One  Pre-Paid  Way in Ada,  Oklahoma,  on
Monday, May 23, 2005, at 1:00 p.m., local time, for the following purposes:

          (1)  To elect two members to our Board of Directors;

          (2)  To ratify the selection of Grant Thornton LLP as our  independent
               registered public accounting firm;

          (3)  To  approve  the  amendment  of  our  Restated   Certificate   of
               Incorporation  to  effect  a  reverse  stock  split   immediately
               followed by a forward  stock split of all of our shares of Common
               Stock. Shares that are held of record by any shareholder who owns
               of record less than 100 shares of Common Stock would be converted
               into the right to receive cash payment for such shares calculated
               by  averaging  the closing  price per share on the New York Stock
               Exchange for the ten days prior to the reverse/forward split;

          (4)  To approve  voting  rights for  control  shares  owned,  or to be
               acquired,  directly or indirectly, by Thomas W. Smith and certain
               of his associates;

          (5)  To approve the amendment of the Certificate of  Incorporation  to
               eliminate  certain  anti-takeover  provisions  by  repealing  the
               current Article EIGHTH which requires the affirmative vote of 80%
               of the voting power of the  outstanding  voting stock for,  among
               other  things,  a merger or  consolidation  with us,  the sale of
               assets  to, or the  issuance  or  delivery  of our  shares to any
               person or  entity  who,  together  with our  affiliates,  owns or
               controls 5% or more of the voting power of our outstanding voting
               stock; and

          (6)  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 1,
2005 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
our offices, One Pre-Paid Way, Ada, Oklahoma.

                             BY ORDER OF THE BOARD OF DIRECTORS

                             Kathy Pinson, Secretary

Ada, Oklahoma
April 11, 2005

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.





                          PRE-PAID LEGAL SERVICES, INC.

                                 PROXY STATEMENT

                       2005 Annual Meeting of Shareholders


                                TABLE OF CONTENTS

Description                                                                    
-----------                                                                    
General Information

Proposal One - Election of Directors

Proposal Two - Ratification of Selection of Independent Registered Public
  Accounting Firm

Proposal Three - Amendments of Our Restated Certificate of Incorporation
    to Effect a Reverse/Forward Stock Split

Proposal Four - Approval of Voting Rights for Control Shares Owned, or to be
  Acquired, Directly or Indirectly, by Thomas W. Smith and Certain of his
  Associates

Proposal Five - Amendment of Our Restated Certificate of Incorporation to Repeal
  Article Eighth

Audit Committee Report

Executive Compensation and Other Information

Security Ownership of Certain Beneficial Owners and Management

Certain Relationships and Related Transactions

Compliance with Section 16 Reporting Requirements

Voting

Independent Registered Public Accounting Firm

Annual Report to Shareholders

Availability of Annual Report on Form 10-K

Proposals of Shareholders and Nominations

Other Matters

Annex One - Proposed Forms of Certificates of Amendment of Restated
  Certificate of Incorporation to Effect the Reverse/Forward Split

Annex Two - Thomas W. Smith Acquiring Person Statement Pursuant to
  Section 1150 of the Oklahoma General Corporation Act







                                       
                                 PROXY STATEMENT
                          PRE-PAID LEGAL SERVICES, INC.
                                One Pre-Paid Way
                               Ada, Oklahoma 74820

                       2005 ANNUAL MEETING OF SHAREHOLDERS

                               GENERAL INFORMATION

     The following  information is furnished in connection  with our 2005 Annual
Meeting of Shareholders  ("Annual Meeting") to be held in the Liberty Auditorium
at our  corporate  offices  located at One  Pre-Paid  Way in Ada,  Oklahoma,  on
Monday,  May 23,  2005,  at 1:00 p.m.,  local  time.  This Proxy  Statement  and
accompanying  materials  will be mailed on or about April 11, 2005 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 1, 2005. On that date, we had 15,xxx,xxx shares of Common Stock, par value
$.01 per share,  outstanding and eligible to vote,  exclusive of treasury stock.
Holders of record of our 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.

     Our Board of Directors is soliciting the enclosed  proxy.  We will bear all
costs of soliciting  proxies for the Annual  Meeting.  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  ours.  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.
We 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 us written notice 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 us 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.



                                  PROPOSAL ONE

                              ELECTION OF DIRECTORS

     Our Board of  Directors  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.  The Board of Directors  has  nominated  and proposes that Harland C.
Stonecipher  and Martin H.  Belsky,  whose terms as  directors  expire as of the
Annual Meeting of Shareholders  for 2005, be re-elected for three-year  terms as
directors.

     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 our Board of Directors will be voted, in the absence of
instructions to the contrary,  FOR the re-election of Harland C. Stonecipher and
Martin H. Belsky to the Board of Directors.

     Should the  nominees  for  election to the Board of  Directors 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 our
Board of Directors, the named nominees will serve if elected.







         The following is certain information about each of our directors:
                                                                                     Existing
                Name                          Age            Director Since        Term Expires
----------------------                      ------           --------------        ------------
                                                                               
Harland C. Stonecipher                        66                  1976                 2005
Martin H. Belsky                              60                  1998                 2005
John W. Hail                                  74                  1998                 2006
Thomas W. Smith                               76                  2004                 2006
Peter K. Grunebaum                            70                  1980                 2007
Orland G. Aldridge                            66                  2004                 2007


Harland C. Stonecipher
     Mr.  Stonecipher  has been the Chairman of our Board of Directors since its
organization in 1976 and served as Chief Executive  Officer until March 1996 and
since  February 1997.  Mr.  Stonecipher  also served as our President at various
times through January 1995 and since December 2002. Mr.  Stonecipher also serves
as an executive  officer of several of our subsidiaries and as a director of AMS
Health Sciences, Inc.

Martin H. Belsky
     Mr. Belsky,  currently  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 and Dean of the  University of Tulsa College of Law
from 1995 to 2004.

John W. Hail
     John  W.  Hail  is the  founder  of AMS  Health  Sciences,  Inc.  (formerly
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 60  natural  nutritional  supplements,  weight
management products,  and natural skincare products.  From July 1986 through May
1988,  Mr. Hail served as our  Executive  Vice  President,  Director  and Agency
Director and also served as Chairman of the Board of Directors of TVC Marketing,
Inc., which was our exclusive  marketing agent from April 1984 through September
1985. Mr. Hail also serves as a director of Duraswitch Industries, Inc. (NASDAQ:
DSWT).

Thomas W. Smith
     Mr.  Smith is the  largest  outside  shareholder  of the Company and is the
managing  partner  of  Prescott  Investors,  Inc, a private  investment  firm he
founded in 1973. He currently  serves as a director of SEI  Investments  Company
(NASDAQ-NMS: SEIC).

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.  Mr.  Grunebaum  also serves as a director of StoneMor  GP, LLC the
general partner of StoneMor Partners LP (NASDAQ: STON).

Orland G. Aldridge
     Mr.  Aldridge  retired  as a  professor  from  Northeastern  Oklahoma A & M
College in Miami,  Oklahoma in 2002 where he had been an  instructor  since 1999
and has been and  remains an  independent  insurance  agent.  He has served as a
director of our  wholly-owned  subsidiary,  Pre-Paid Legal Casualty,  Inc. since
1991.

Board Meetings and Committees

     The  Board of  Directors  held  eight  meetings  during  2004 and  acted by
unanimous  consent  thirteen 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 Audit  Committee  currently
consisting of Messrs. Aldridge,  Belsky and Grunebaum.  During 2004, Steve Hague
served on the Audit  Committee  until his resignation on September 30, 2004. Mr.
Aldridge  replaced  Mr.  Hague on November 5, 2004.  The Audit  Committee  makes
recommendations  to the  Board of  Directors  concerning  the  selection  of and
oversees our relationship with our independent registered public accounting firm
and reviews with the independent registered public accounting firm 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  us  regarding
accounting,  internal  accounting  control or auditing  matters,  recommends and
reviews our code of ethics and oversees our 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 five
meetings  during 2004.  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.

     Additionally, the Board of Directors has established a nominating committee
and a compensation  committee.  The nominating  committee  currently consists of
Messrs.  Belsky and Smith and is  responsible  for  assisting  the full Board of
Directors in  selecting  individuals  for service on the Board of Directors  and
evaluating their performance.  The compensation  committee currently consists of
Messrs. Belsky and Smith and is responsible for establishing the compensation of
our chief  executive  officer  and  assisting  in  evaluation  our  compensation
policies to assure our  executive  officers  are  compensated  effectively  in a
manner  consistent with our overall  objectives.  The compensation  committee is
also responsible for communicating  our compensation  policies and the reasoning
behind such policies to  shareholders.  Mr. Steve Hague served on the nominating
and  compensation  committees  until his resignation from the Board on September
30, 2004 and was replaced on these  committees  by Mr. Smith on October 4, 2004.
The  Board  of  Directors  has  determined  that  the  members  of both of these
committees meet the independence  requirements of the corporate governance rules
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  2004,  the  nominating  committee  met  three  times and the
compensation committee met twice and acted by unanimous consent once.

Corporate Governance Guidelines and Communications with the Board

     We 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  our  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 our website,
www.prepaidlegal.com.  In addition,  copies of these  documents are available to
any  shareholder  who requests  them from our  Secretary.  We intend to disclose
amendments  to, or waivers  from,  our Code of  Business  Conduct  and Ethics by
posting to our website.

     Our  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.  The Board
determined that Messrs. Aldridge,  Belsky, Grunebaum and Smith, who constitute a
majority of the Board, are independent under these criteria.

     Our Corporate Governance Guidelines provide that any person,  including any
shareholder,  desiring to  communicate  with, or make any concerns  known to us,
directors  generally,  non-management  directors or an individual director only,
may do so by submitting them in writing to our 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 us.  Our  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.  We will establish the authenticity of any  communication or
concern before forwarding. Under the Corporate Governance Guidelines, we are not
obligated to investigate or forward any anonymous  submissions  from persons who
are not our employees.

     We do 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 2004 annual meeting of  shareholders,  all
directors attended the meeting except John Hail.



Compensation of Directors

     Directors who are also our employees receive no additional compensation for
their services as directors.  During 2004, non-employee directors of the Company
received  $500 per board and  committee  meeting  attended.  Under the Company's
Stock Option Plan,  each  non-employee  director  also received on March 1, 2004
options  to  purchase  10,000  shares  of  Common  Stock.   These  options  were
immediately  exercisable  as of the date of grant as to one-fourth of the shares
covered by the options and vested in  additional  one-fourth  increments  on the
following June 1st, September 1st and December 1st of 2004, 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  received  an  additional   director  fee  of
approximately $6,000 during 2004 for his additional services as secretary of the
Audit Committee and for other board services.  Orland  Aldridge,  who joined the
Board  effective  November 5, 2004, was paid $4,333 during 2005 for his services
rendered to the Board during 2004 rather than receiving any stock options.

     Effective   January  1,  2005,   we  changed  our   director   compensation
arrangements so that our non-employee  directors  receive $6,500 per quarter and
$500 per board and committee  meeting  attended.  The chairs of the compensation
and nominating  committees  receive an additional $500 per meeting and the chair
of the audit committee receives an additional $1,000 per meeting.  There will be
no further stock option grants to our directors.

     The Board of  Directors  recommends  that the  shareholders  vote "FOR" the
re-election  of Harland  C.  Stonecipher  and  Martin H.  Belsky to the Board of
Directors.



                                  PROPOSAL TWO

   RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     The  Audit  Committee  has  directed  us to  submit  the  selection  of our
independent   registered   public   accounting  firm  for  ratification  by  the
shareholders  at the Annual  Meeting.  Neither  our  bylaws nor other  governing
documents  or law require  shareholder  ratification  of the  selection of Grant
Thornton LLP ("Grant Thornton") as our independent  registered public accounting
firm. However, the Audit Committee is submitting the selection of Grant Thornton
to the shareholders for ratification as a matter of good corporate practice.  If
the  shareholders  fail to  ratify  the  selection,  the  Audit  Committee  will
reconsider  whether  or not to  retain  that  firm.  Even  if the  selection  is
ratified,  the Audit Committee may in its discretion direct the appointment of a
different  independent  registered public accounting firm at any time during the
year if it determines  that such a change would be in our best interest and that
of our shareholders.

     The Board of  Directors  recommends  that the  shareholders  vote "FOR" the
ratification of Grant Thornton as our independent  registered  public accounting
firm for the year ending December 31, 2005.



                                 PROPOSAL THREE

       AMENDMENTS OF OUR RESTATED CERTIFICATE OF INCORPORATION TO EFFECT A
                           REVERSE/FORWARD STOCK SPLIT

Summary

     The Board has  authorized,  and  recommends  for your  approval a 1-for-100
reverse  stock  split  of  our  Common  Stock  (the  "Reverse  Split")  followed
immediately by a 100-for-1 forward stock split of our Common Stock (the "Forward
Split").  We refer to the Reverse Split, the Forward Split and any cash payments
due for fractional shares, collectively, as the "Reverse/Forward Split".

     Under the Reverse Split, 100 shares of Common Stock (the "Minimum  Number")
registered  in the name of a shareholder  at the  effective  time of the Reverse
Split will be converted into one share of Common Stock,  followed immediately by
the Forward Split pursuant to which each share of Common Stock  outstanding upon
consummation  of the Reverse  Split will be converted  into 100 shares of Common
Stock. If a registered shareholder holds fewer than the Minimum Number of shares
of Common  Stock in his or her  account  at the  effective  time of the  Reverse
Split,  any fractional  shares  resulting from the Reverse Split will instead be
converted into the right to receive a cash payment as described below.

     If a  registered  shareholder  holds the  Minimum  Number or more shares of
Common Stock in his or her account at the effective  time of the Reverse  Split,
any fractional  share in the holder's  account  resulting from the Reverse Split
will not be cashed out. The Reverse  Split will be followed  immediately  by the
Forward  Split and the total number of shares held by the holder will not change
as a result of the Reverse/Forward Split.

     We are submitting a proposal to approve (and the Board  recommends that the
shareholders approve) the Reverse/Forward Split, and the Board in its discretion
may  determine  if and when to  effect  the  Reverse/Forward  Split  after it is
approved  by the  shareholders.  The Board  reserves  the right to  abandon  the
Reverse/Forward  Split even if approved by the shareholders (see "Reservation of
Rights").  We expect that, if the Board elects to implement the  Reverse/Forward
Split,  the  Reverse/Forward  Split would be consummated  within one year of the
date of the Annual  Meeting.  If the Board  does not effect the  Reverse/Forward
Split prior to the 2006 annual  meeting of  shareholders,  the Board may put the
proposal in the 2006 proxy for consideration by the  shareholders.  If the Board
determines to implement the Reverse/Forward Split, we will publicly announce the
Board's  decision in a press  release,  file the press  release with the SEC and
post  the  information  on  our  website  at  www.prepaidlegal.com   immediately
following the Board's decision and prior to the Effective Date (as defined later
in this Summary).

     We have a large number of shareholders  that own relatively few shares.  We
believe that the  Reverse/Forward  Split will  significantly  reduce shareholder
record keeping and mailing expenses.  Additionally,  the  Reverse/Forward  Split
will  provide  holders  of fewer  than the  Minimum  Number  of  shares  with an
efficient way to cash-out their investments without incurring transaction costs.
In many cases,  holders of less than the Minimum  Number  would incur  brokerage
commissions or other  transaction costs in amount equal to a large percentage of
the proceeds of the sale of their shares. In the  Reverse/Forward  Split,  these
holders will receive cash for their shares  without  incurring  any  transaction
costs.

     In determining  whether to implement the  Reverse/Forward  Split, the Board
will consider factors such as:

o    the prevailing trading price and trading volume for the Common Stock at the
     time the decision is made;

o    the anticipated impact of the  Reverse/Forward  Split on the trading market
     for the Common Stock;

o    the  availability  and cost of funds  required to make the cash payments to
     shareholders  with fewer than the Minimum Number of shares whose shares are
     to  be  converted   into  the  right  to  receive  cash   pursuant  to  the
     Reverse/Forward  Split, and the terms of any arrangements that we may enter
     into to raise those funds;

o    other transactions that we might be considering; and

o    prevailing general market and economic conditions.

     If  approved  by   shareholders   and   implemented   by  the  Board,   the
Reverse/Forward  Split will become  effective on a date to be  determined by the
Board upon the filing of the necessary amendments to our Restated Certificate of
Incorporation  with  the  Secretary  of  State of the  State  of  Oklahoma  (the
"Effective Date"). The forms of proposed amendments to our Restated  Certificate
of Incorporation  necessary to effect the Reverse/Forward  Split are attached to
this proxy statement as Annex One.

Effect on Shareholders

     If approved by  shareholders  at the Annual Meeting and  implemented by the
Board, the Reverse/Forward Split will affect our shareholders as follows:


                         

------------------------------------------------------------ ---------------------------------------------------------
               Shareholder Before Completion                               Net Effect After Completion
               of the Reverse/Forward Split                                of the Reverse/Forward Split
------------------------------------------------------------ ---------------------------------------------------------
Registered shareholders holding the Minimum Number or more   None.
shares of Common Stock in an account.
------------------------------------------------------------ ---------------------------------------------------------
Registered shareholders holding fewer than the Minimum       Shares will be converted into the right to receive cash
Number of shares of Common Stock in an                       (see "Determination of Cash-Out Price" below).
account. 
------------------------------------------------------------ ---------------------------------------------------------
Shareholders holding Common Stock in "street name" through   We intend for the Reverse/Forward Split to treat 
a nominee (such as a bank or broker).                        shareholders holding Common Stock in "street name"
                                                             through a nominee (such as a bank or broker) in the same
                                                             manner as shareholders of record. Nominees will be 
                                                             instructed to effect the Reverse/Forward Split for their
                                                             beneficial holders. However, nominees may have different
                                                             procedures and shareholders holding shares in "street
                                                             name" should contact their nominees.
------------------------------------------------------------ ---------------------------------------------------------


     If  shareholders  holding  fewer than the Minimum  Number do not want to be
cashed  out  in the  Reverse/Forward  Split,  they  may  do so by  purchasing  a
sufficient number of shares before the Effective Date on the open market, or, if
applicable,  by  consolidating  their accounts into an account with at least the
Minimum  Number.  Consolidation  of accounts could take a substantial  amount of
time,  particularly  if accounts are held at different  financial  institutions.
Even  if a  shareholder  initiates  the  consolidation  of his  or her  accounts
substantially  in advance of the Effective Date,  there is no assurance that the
accounts  will be  consolidated  by the  Effective  Date  or,  even if they  are
consolidated,  that the financial  institution holding the consolidated  account
will provide notice to the transfer agent by the Effective Date. If the transfer
agent does not receive  notice of the  consolidation  of accounts  holding fewer
than the Minimum Number by the Effective  Date,  whether or not the accounts are
consolidated  by the Effective  Date, a shareholder  will receive a cash payment
with  respect to the  shares in any  account  that held  fewer than the  Minimum
Number before the consolidation.

Structure of the Reverse/Forward Split

     If the Reverse/Forward Split is approved by shareholders and implemented by
the Board, the Reverse Split is expected to occur at 5:00 p.m. (central time) on
the  Effective  Date and the  Forward  Split is  expected  to occur at 5:01 p.m.
(central time) on the Effective Date.

     Upon consummation of the Reverse Split, each registered  shareholder on the
Effective Date will receive one share of Common Stock for each Minimum Number of
shares of Common Stock held in his or her account at that time.  If a registered
shareholder  holds  the  Minimum  Number or more  shares of Common  Stock on the
Effective  Date, any fractional  share resulting from the Reverse Split will not
be cashed out after the Reverse Split. After the Forward Split, the total number
of shares held by such holder will not change as a result of the Reverse/Forward
Split.  Each  registered  shareholder who holds fewer than the Minimum Number of
shares of Common  Stock in his or her account at the time of the  Reverse  Split
(also  referred to as a  "Cashed-Out  Shareholder")  will receive a cash payment
instead of a  fractional  share,  as permitted  under  Oklahoma  law.  This cash
payment will be determined and paid as described below under  "Determination  of
Cash-Out Price" below. Immediately following the Reverse Split, all shareholders
who are not Cashed-Out  Shareholders will receive 100 shares of Common Stock for
every one share of Common Stock they held following the Reverse Split.

     We  intend  for the  Reverse/Forward  Split to treat  shareholders  holding
Common Stock in "street  name"  through a nominee  (such as a bank or broker) in
the same manner as holders of record.  Nominees will be instructed to effect the
Reverse/Forward Split for their beneficial holders.  Accordingly,  we also refer
to those  beneficial or "street name" holders who receive a cash payment instead
of fractional shares as "Cashed-Out  Shareholders."  However,  nominees may have
different  procedures,  and shareholders  holding shares in "street name" should
contact their nominees.

     The  following   examples   illustrate   the   Reverse/Forward   Split  for
hypothetical shareholders,  assuming a hypothetical cash-out price of $37.00 per
share:


                         

---------------------------------------------------------- ------------------------------------------------------------
                  Hypothetical Scenario                                              Result
---------------------------------------------------------- ------------------------------------------------------------
Mr. Taylor is a registered holder of 50 shares of Common   Mr. Taylor holds fewer than the Minimum Number of shares.
Stock in one account immediately pror to the               Instead of receiving a fractional share of Common Stock
Reverse/Forward Split.                                     immediately after the Reverse Split, Mr. Taylor's shares
                                                           will be converted into the right to receive $1,850 in cash
                                                           (50  shares x $37.00).  
                                                           
                                                           If Mr. Taylor wants to continue his investment in us, he can,
                                                           prior to the Effective Date, buy at least 50 more shares of
                                                           Common Stock so that he will have the Minimum Number of
                                                           shares. Mr. Taylor would have to act far enough in advance
                                                           of the Reverse/Forward Split so that the purchase is 
                                                           completed and the additional shares are credited in his
                                                           account prior to 5:00 p.m. (central time)on  the Effective
                                                           Date.
---------------------------------------------------------- ------------------------------------------------------------
Ms. Eastwood has two separate record accounts.             Each account will be treated individually. Because 
Immediately prior to the Reverse/Forward Split, she        neither account holds the Minimum Number of shares, Ms.
holds 50 shares of Common Stock in one account and 75      Eastwood will receive cash payments equal to the cash-out 
shares of Common Stock in the other. All of her            price of her Common Stock in each record account instead
shares are registered in her name only.                    receiving fractional shares. Ms. Eastwood would
                                                           receive two checks totaling $4,625 (50 shares x $37.00 plus
                                                           75 shares x $37.00). 

                                                           If Ms. Eastwood wants to continue her investment in us, 
                                                           she can consolidate or transfer her two record accounts      
                                                           prior to the Effective Date into one account with at least
                                                           the Minimum Number of shares of Common Stock. Alternatively,
                                                           she can buy at  least  50 more  shares  for the  first 
                                                           account  and 25 more  shares for the  second  account so 
                                                           that she will have the Minimum  Number of shares in each
                                                           account.  She would have to act far  enough in advance  of
                                                           the  Reverse/Forward  Split so that the consolidation or 
                                                           the purchase is completed prior to 5:00 p.m. (central time)
                                                           on the  Effective  Date.  Even if she does  consolidate  
                                                           these accounts, there is no assurance that the accounts 
                                                           will be consolidated by the  Effective Date or,  even if 
                                                           they are  consolidated,  that the financial  institution
                                                           holding the consolidated account will provide timely 
                                                           notice to the transfer  agent.  If the transfer  agent
                                                           does not receive timely notice,  Ms.Eastwood will receive
                                                           the cash payment and will not retain her shares.
---------------------------------------------------------- -----------------------------------------------------------
Ms. Baker holds 200 shares of Common Stock in one           After the Reverse/Forward Split, Ms. Baker will continue
account immediately prior to the Reverse/Forward Split.     to hold all 200 shares of Common Stock.
---------------------------------------------------------- -----------------------------------------------------------
Mr. Phillips holds 75 shares of Common Stock in a           We intend for the Reverse/Forward Split to treat 
brokerage account immediately prior to the                  shareholders holding Common Stock in "street name" 
Reverse/Forward Split.                                      through a nominee (such as a bank or broker) in the same
                                                            manner as shareholders whose shares are registered
                                                            in their names.  Nominees will be instructed to effect
                                                            the Reverse/Forward Split for their beneficial holders.
                                                            However, nominees may have different procedures and
                                                            shareholders holding Common Stock in "street name" should
                                                            contact their nominees.
---------------------------------------------------------- ------------------------------------------------------------


Background and Purpose of the Reverse/Forward Split

     As of January 28, 2005, we had approximately 14,576 shareholders, including
5,416 holders of record and 9,160  beneficial  owners  holding shares in "street
name".  As of January 28, 2005,  approximately  4,053  record  holders of Common
Stock owned fewer than the Minimum Number, representing approximately 75% of the
total number of record holders of Common Stock, but only approximately 1% of the
total number of outstanding  shares of Common Stock. In addition,  as of January
28, 2005,  approximately 3,636 beneficial  shareholders  holding Common Stock in
"street  name"   through  a  nominee  owned  fewer  than  the  Minimum   Number,
representing   approximately   40%  of  the  total   number  of  "street   name"
shareholders,  but only  approximately  1% of the total  number  of  outstanding
shares of Common Stock.

     We expect to benefit from cost  savings as a result of the  Reverse/Forward
Split. The cost of administering each account,  whether registered or in "street
name", is the same  regardless of the number of shares held in that account.  We
expect that these costs will increase over time. Therefore, our cost to maintain
such small  accounts  are  disproportionately  high when  compared  to the total
number of shares involved.  We estimate that if we complete the  Reverse/Forward
Split, we will reduce the total cost of  administering  shareholder  accounts by
approximately $115,000 per year.

     The  Reverse/Forward  Split will provide  shareholders  with fewer than the
Minimum Number of shares of Common Stock with a  cost-effective  way to cash out
their  investments,  because we will pay all transaction costs such as brokerage
or  service  fees in  connection  with  the  Reverse/Forward  Split.  Otherwise,
shareholders  with small  holdings  would likely incur  brokerage fees which are
disproportionately  high  relative to the market  value of their  shares if they
wanted to sell their  stock.  The  Reverse/Forward  Split will  eliminate  these
problems for most shareholders with small holdings.

     In light of these disproportionate  costs, the Board believes that it is in
our best  interests  and the best  interests of our  shareholders  as a whole to
eliminate  the  administrative  burden  and costs  associated  with  such  small
accounts.

     In  determining  whether  the  Reverse/Forward  Split  will  be fair to our
shareholders  being cashed out, the Board considered the fact that  shareholders
who will  receive  cash will have no control over the timing or the price of the
sale of their shares.  However,  the Board  determined that the  Reverse/Forward
Split will be fair to our shareholders for the following reasons:

o    the  Reverse/Forward   Split  provides  liquidity  that  is  generally  not
     available  to the  holders  of fewer than the  Minimum  Number of shares by
     providing them an efficient way to cash out their odd-lot  holdings without
     incurring  any  brokerage  fees or other  transaction  costs  (which  would
     otherwise  represent a large  percentage  of the proceeds  from the sale of
     their shares);

o    the cash-out  price will be  calculated  by averaging the closing price per
     share on the NYSE for the previous ten consecutive NYSE trading days;

o    the  shareholders  holding  fewer  than the  Minimum  Number  each have the
     ability to remain  shareholders  and avoid being cashed-out by purchasing a
     sufficient  number of shares,  or, if applicable,  by  consolidating  their
     accounts  into an account  with at least the  Minimum  Number  prior to the
     Reverse/Forward Split;

o    the cashed-out shareholders will have the ability to purchase shares on the
     open market after the Reverse/Forward Split;

o    the shareholders have the right to vote against the Reverse/Forward  Split,
     and the  transaction  cannot go forward  without the necessary  affirmative
     vote of the shareholders;

o    the directors  must exercise their  fiduciary  duty in deciding  whether to
     effectuate  the  Reverse/Forward  Split  and when  (and at what  price)  to
     effectuate the Reverse/Forward Split;

o    the Board  considered other  alternative  methods to reduce our shareholder
     base (e.g.,  odd-lot  tender  offers and  programs to  facilitate  sales by
     shareholders of odd-lot  holdings) and determined that the  Reverse/Forward
     Split  would be the most cost  effective  method to reduce the  shareholder
     base at the present time; and

o    we and the remaining  shareholders  will receive the financial  benefits of
     reducing the  administrative  burden and costs  associated with these small
     accounts.

     We have in the past and may in the  future  pursue  alternative  methods of
reducing  our  shareholder  base,  whether or not the  Reverse/Forward  Split is
approved  and  implemented,  including  odd-lot  tender  offers and  programs to
facilitate sales by shareholders of odd-lot holdings.  However,  there can be no
assurance that we will decide to pursue any such transaction.

     For  a   discussion   of  the  special   considerations   relating  to  the
Reverse/Forward  Split,  see "Special  Considerations"  on page 14 of this proxy
statement.

Effect of the Reverse/Forward Split on Our Shareholders

     Registered  Shareholders  with Fewer Than the  Minimum  Number of Shares of
Common Stock. If we complete the Reverse/Forward Split and you are a shareholder
holding  fewer than the  Minimum  Number of shares of Common  Stock  immediately
prior to the Reverse Split:

o    You will not receive a fractional share of stock as a result of the Reverse
     Split in respect of your shares being cashed out.

o    Instead of  receiving a fractional  share,  you will receive a cash payment
     for your shares. See "Determination of Cash-Out Price" below.

o    After the  Reverse  Split,  you will have no  further  interest  in us with
     respect to your cashed-out shares.  These shares will no longer entitle you
     to the right to vote as a shareholder or share in our assets,  earnings, or
     profits or in any dividends paid after the Reverse  Split.  In other words,
     you will no longer hold your  cashed-out  shares and you will have only the
     right to  receive  cash for  these  shares.  In  addition,  you will not be
     entitled to receive interest with respect to the period of time between the
     Effective  Date and the date you receive  your  payment for the  cashed-out
     shares.

o    You will not have to pay any service  charges or brokerage  commissions  in
     connection with the Reverse/Forward Split.

o    As soon as practicable after the time we effect the Reverse/Forward  Split,
     you will receive a payment for the cashed-out  shares you held  immediately
     prior to the Reverse  Split in  accordance  with the  procedures  described
     below.

          You will receive a transmittal letter as soon as practicable after the
          Effective Date. The letter of transmittal will contain instructions on
          how to surrender  your  certificate(s)  to our transfer agent for your
          cash  payment.  You will not  receive  your  cash  payment  until  you
          surrender  your  outstanding  certificate(s)  to the  transfer  agent,
          together  with  a  completed  and  executed  copy  of  the  letter  of
          transmittal.  Please do not send your  certificates  until you receive
          your  letter of  transmittal.  For  further  information,  see  "Stock
          Certificates" below.

o    All amounts owed to you will be subject to  applicable  federal  income tax
     and state abandoned property laws.

     If you want to  continue to hold  Common  Stock  after the  Reverse/Forward
Split,  you may do so by  taking  one of the  following  actions  far  enough in
advance so that it is completed by the Effective Date:

o    purchase a  sufficient  number of shares of Common Stock on the open market
     so that you hold at least the Minimum  Number of shares of Common  Stock in
     your account prior to the Effective Date; or

o    if  applicable,  consolidate  your  accounts  so that you hold at least the
     Minimum  Number  of  shares of  Common  Stock in one  account  prior to the
     Effective Date.

     If you attempt to consolidate your accounts by the Effective Date, there is
no assurance that the consolidation  will be completed by the Effective Date or,
even if it is completed, that the financial institution holding the consolidated
account will provide  notice of the  consolidation  to the transfer agent by the
Effective Date. If the transfer agent does not receive notice that your accounts
have been  consolidated by the Effective Date,  whether or not your accounts are
consolidated by the Effective Date, you will receive a cash payment and will not
retain your shares.

     Registered  Shareholders  With The Minimum  Number or More Shares of Common
Stock.  If you are a  registered  shareholder  with the  Minimum  Number or more
shares of Common  Stock in your  account as of 5:00 p.m.  (central  time) on the
Effective Date, we will first reclassify your shares into 1/100 of the number of
shares you held  immediately  prior to the Reverse  Split.  One minute after the
Reverse Split,  at 5:01 p.m.  (central  time), we will reclassify your shares in
the Forward Split into 100 times the number of shares you held after the Reverse
Split,  which  will  result in the same  number of shares  you held  before  the
Reverse Split. The Reverse/Forward Split therefore will not affect the number of
shares  that you own if you hold the  Minimum  Number  or more  shares of Common
Stock in your account immediately prior to the Reverse Split. To illustrate,  if
you held 200 shares of Common  Stock in your  account  immediately  prior to the
Reverse Split, your shares would be converted into 2 shares in the Reverse Split
and then back to 200 shares in the Forward Split.

     Street  Name  Holders of Common  Stock.  We intend for the  Reverse/Forward
Split to treat  shareholders  holding  Common Stock in "street  name"  through a
nominee  (such as a bank or broker)  in the same  manner as  shareholders  whose
shares are registered in their names.  Nominees will be instructed to effect the
Reverse/Forward Split for their beneficial holders.  However,  nominees may have
different  procedures  and  shareholders  holding  Common Stock in "street name"
should contact their nominees.

     Current and Former Employees and Directors.  If you are a current or former
employee or a director  of ours,  you may hold  options to  purchase  the Common
Stock  through our stock plans.  If you hold options to purchase  fewer than the
Minimum  Number,  you will not  receive a cash  payment for these  options.  The
Reverse/Forward  Split will not affect  the number of shares  issuable  upon the
exercise of these options.

Determination of Cash-Out Price; Payment of Cash-Out Price and Source of Funds

     In order to avoid the  expense  and  inconvenience  of  issuing  fractional
shares to  shareholders  who hold less than one share of Common  Stock after the
Reverse  Split,  and as permitted  under  Oklahoma law, we will pay cash for the
fair value of the  fractional  shares.  The cash-out price will be calculated by
averaging  the closing  price per share of Common  Stock on the NYSE for the ten
consecutive  NYSE trading days ending on the day before the Effective  Date (the
"Average  Trading  Value").  No interest will be payable to  shareholders on the
cash-out price.

     We  may  use  our  available  cash  to  pay  the  Cashed-Out  Shareholders.
Alternatively, we may seek to obtain the funds for the cash-out payments through
a public or private  offering of debt or through another  financing  transaction
and,  in  such  event,  the  completion  of the  Reverse/Forward  Split  will be
contingent  upon  obtaining  financing on terms  acceptable  to the Board in its
discretion.  We cannot assure you that any financings will be available to us on
acceptable  terms or at all.  If we are  unable  to  obtain  financing  on terms
acceptable to the Board, the Board may determine to abandon the  Reverse/Forward
Split.

     If the Board  determines  to abandon  the  Reverse/Forward  Split,  it will
publicly  announce its decision in a press  release  which we will file with the
SEC and post on our website at  www.prepaidlegal.com  immediately  following the
Board's decision.

Effect of the Reverse/Forward Split on Us

     We  do  not  intend  the   Reverse/Forward   Split  to  affect  the  public
registration of the Common Stock with the SEC under the Securities  Exchange Act
of 1934, as amended.  Similarly, we do not expect that the Reverse/Forward Split
will affect the continued listing of the Common Stock on the NYSE. The par value
of the Common  Stock will  remain at $0.01 per share  after the  Reverse/Forward
Split.

     Assuming that the Reverse/Forward  Split were consummated as of January 28,
2005 and that all shareholders holding fewer than the Minimum Number were cashed
out, we would have had 1,363 record holders and 5,524 beneficial holders holding
in "street name" continuing to own our stock.  Under the rules of the Securities
Exchange Act of 1934, as amended, a company may deregister its common stock from
the Exchange Act and no longer be subject to the reporting  requirements  of the
Exchange  Act if the number of record  holders of the common  stock  drops below
300. It is not our  intention for the proposed  Reverse/Forward  Split to be the
first step in such a "going private" transaction.  However, we cannot assure you
that over time the number of record  holders of our common  stock will remain at
or above 300.

     The number of authorized shares of Common Stock will not change as a result
of the Reverse/Forward  Split. On April 1, 2005, there were 15,xxx,xxx shares of
Common Stock issued and outstanding.  The total number of outstanding  shares of
Common  Stock after the  Reverse/Forward  Split will be reduced by the number of
shares  held by the  Cashed-Out  Shareholders  immediately  prior to the Reverse
Split.

     The total number of shares that will be cashed-out and the total cash to be
paid by us are  unknown  at this  point in time.  Also,  we do not know what the
Average   Trading  Value  will  be.   However,   by  way  of  example,   if  the
Reverse/Forward  Split had been  completed  as of  January  28,  2005,  when the
average  daily  closing  price per share of the Common Stock on the NYSE for the
ten consecutive NYSE trading days then ended was $36.98,  then the cash payments
that  would  have  been  issued  to  Cashed-Out  Shareholders,   including  both
registered  and  "street  name"  holders,  would  have been  approximately  $7.8
million. The actual amounts will depend on the number of Cashed-Out Shareholders
on the Effective Date,  which will vary from the number of such  shareholders on
January 28, 2005.

Stock Certificates

     The  Reverse/Forward  Split will not affect any  certificates  representing
shares of Common Stock held by registered shareholders owning the Minimum Number
or more shares of Common  Stock in an account  immediately  prior to the Reverse
Split.  Existing certificates held by any of these shareholders will continue to
evidence  ownership  of the same number of shares as is set forth on the face of
the certificate.

     Any Cashed-Out Shareholder with share certificates will receive a letter of
transmittal after the  Reverse/Forward  Split is completed.  These  shareholders
must complete and sign the letter of transmittal  and return it with their stock
certificate(s)  to our  transfer  agent before they can receive cash payment for
those shares.

Potential Anti-Takeover Effect

     The  Reverse/Forward  Split is not being  proposed in response to any third
party effort to accumulate  shares of the Common Stock or obtain  control of us,
nor  is it  part  of a  plan  by  management  to  recommend  to  the  Board  and
shareholders a series of amendments to our Restated Certificate of Incorporation
that could be construed  to affect the ability of third  parties to take over or
gain control of us.


Regulatory Requirements

     We do not believe that the Reverse/Forward  Split will require the approval
of any  governmental  agency.  It is not our intention  for the  Reverse/Forward
Split to be the first step in a "going-private" transaction.

Certain Federal Income Tax Consequences

     General  Information.  We have summarized  below certain federal income tax
consequences  to us and our  shareholders  resulting  from  the  Reverse/Forward
Split.  This summary is based on U.S.  federal income tax law existing as of the
date of this proxy  statement,  and such tax laws may change,  potentially  with
retroactive  effect. This summary does not discuss all aspects of federal income
taxation that may be important to you in light of your individual circumstances.
Many  shareholders  (such  as  financial   institutions,   insurance  companies,
broker-dealers, tax-exempt organizations, and foreign persons) may be subject to
special tax rules.  Other shareholders may also be subject to special tax rules,
including  (but not limited  to):  shareholders  who  received  Common  Stock as
compensation for services (such as restricted stock) or pursuant to the exercise
of an employee stock option,  or shareholders who have held, or will hold, stock
as part of a straddle, hedging, or conversion transaction for federal income tax
purposes. In addition,  this summary does not discuss any state, local, foreign,
or other tax  considerations.  This summary  assumes that you are an  individual
U.S.  citizen and have held, and will hold,  your shares as capital assets under
the  Internal  Revenue  Code.  You  should  consult  your tax  advisor as to the
particular  federal,  state, local,  foreign,  and other tax consequences of the
Reverse/Forward Split to you, in light of your specific circumstances.

     Consequences  to Us.  The  Reverse/Forward  Split  will  not  be a  taxable
transaction to us. Accordingly, the Reverse/Forward Split will not result in any
material federal income tax consequences to us.

     Consequences to Shareholders Who are Not Cashed Out. If you (1) continue to
hold Common Stock immediately after the Reverse/Forward Split and (2) receive no
cash as a result of the  Reverse/Forward  Split, you will not recognize any gain
or loss in the  Reverse/Forward  Split,  and you will have the same adjusted tax
basis  and  holding  period  in your  Common  Stock  as you  had in  such  stock
immediately prior to the Reverse/Forward Split.

     Consequences to Cashed-Out Shareholders. If you receive cash as a result of
the  Reverse/Forward  Split,  your tax consequences  will depend on whether,  in
addition to receiving  cash,  you or a person or entity related to you continues
to hold Common Stock immediately after the  Reverse/Forward  Split, as explained
below.

a.   Shareholders  Who  Exchange  All of Their  Common Stock for Cash and Do Not
     Actually or Constructively Own Common Stock After the Reverse/Forward Split

     If you (1)  receive  cash in  exchange  for your  shares as a result of the
     Reverse/Forward  Split and (2) do not continue to own,  either  actually or
     constructively  under Section 318 of the Internal  Revenue Code, any Common
     Stock  immediately  after the  Reverse/Forward  Split,  you generally  will
     recognize capital gain or loss in an amount equal to the difference between
     the cash you receive for your cashed-out stock and your aggregate  adjusted
     tax basis in such stock.

b.   Shareholders  Who  Both  Receive  Cash and  Continue  to Own,  Actually  or
     Constructively, Common Stock After the Reverse/Forward Split

     If you both  receive  cash as a result  of the  Reverse/Forward  Split  and
     continue to own, either actually or constructively under Section 318 of the
     Internal Revenue Code, Common Stock  immediately after the  Reverse/Forward
     Split, you generally will recognize capital gain or loss in the same manner
     as set forth in the previous paragraph,  provided that your receipt of cash
     either  (1) is "not  essentially  equivalent  to a  dividend,"  or (2) is a
     "substantially disproportionate redemption of stock," as described below.

     o    "Not Essentially  Equivalent to a Dividend." You will satisfy the "not
          essentially  equivalent  to a dividend"  test if the reduction in your
          proportionate  stock  ownership  interest  in us  resulting  from  the
          Reverse/Forward   Split,   including  both  actual  and   constructive
          ownership,   is  considered  a  "meaningful   reduction"   given  your
          particular facts and  circumstances.  The Internal Revenue Service has
          ruled that a small reduction by a minority  shareholder whose relative
          stock  interest  is minimal  and who  exercises  no  control  over the
          affairs of the corporation will meet this test.

     o    "Substantially  Disproportionate  Redemption of Stock." The receipt of
          cash  in  the   Reverse/Forward   Split   will  be  a   "substantially
          disproportionate redemption of stock" for you if the percentage of the
          outstanding shares of Common Stock actually or constructively owned by
          you immediately  after the  Reverse/Forward  Split is less than 80% of
          the  percentage of shares of Common Stock  actually or  constructively
          owned by you immediately before the Reverse/Forward Split.

     In applying these tests,  you will be treated as owning shares  actually or
constructively  owned by certain  individuals  and  entities  related to you, as
determined under Section 318 of the Internal Revenue Code. In addition,  you may
possibly be allowed or  required to take into  account  sales and  purchases  of
shares of Common Stock by you and by related  parties  that occur  substantially
contemporaneously  with the Reverse/Forward  Split. If the taxable amount is not
treated as capital  gain  under any of the  tests,  it will be treated  first as
ordinary   dividend   income  to  the  extent  of  your  ratable  share  of  our
undistributed  earnings and profits, then as a tax-free return of capital to the
extent of your  aggregate  adjusted tax basis in your shares,  and any remaining
gain will be treated as capital  gain.  See "Capital Gain and Loss" and "Special
Rate for Certain Dividends" below.

     Capital Gain and Loss. For  individuals,  net capital gain  recognized upon
the sale or  exchange  of capital  assets  that have been held for more than one
year  generally  will be subject to tax at a rate not to exceed 15%. Net capital
gain recognized from the sale of capital assets that have been held for one year
or less will continue to be subject to tax at ordinary  income tax rates.  There
are limitations on the deductibility of capital losses.

     Special  Rate for Certain  Dividends.  In general,  dividends  are taxed at
ordinary  income tax rates.  However,  you may qualify for a 15% rate of federal
income tax on any cash received in the Reverse/Forward  Split that is treated as
a  dividend  as  described  above,  if  (i)  you  are  an  individual  or  other
non-corporate shareholder, (ii) you have held the share of stock with respect to
which the dividend was received for more than 60 days during the 120-day  period
beginning 60 days before the ex-dividend  date, as determined under the Internal
Revenue Code, and (iii) you were not obligated during such period (pursuant to a
short sale or otherwise)  to make related  payments with respect to positions in
substantially  similar or related  property.  You are urged to consult with your
tax advisor concerning the federal income tax rate applicable to amounts treated
as dividends.

     Backup  Withholding.  Shareholders  who receive cash in connection with the
Reverse/Forward  Split may be required to provide their social security or other
taxpayer identification numbers (or, in some instances,  additional information)
to the exchange  agent in  connection  with the  Reverse/Forward  Split to avoid
backup  withholding on cash proceeds.  Failure to provide such  information when
requested may result in backup withholding on cash payments to you.

     OUR   UNDERSTANDING   OF  THE  FEDERAL  INCOME  TAX   CONSEQUENCES  OF  THE
REVERSE/FORWARD  SPLIT IS NOT  BINDING ON THE  INTERNAL  REVENUE  SERVICE OR ANY
COURT. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR FEDERAL,  STATE,
LOCAL,  FOREIGN AND OTHER TAX CONSEQUENCES OF THE REVERSE/FORWARD  SPLIT TO YOU,
IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES.


Appraisal Rights

     Shareholders do not have appraisal rights under Oklahoma state law or under
the Restated  Certificate  of  Incorporation  or Bylaws in  connection  with the
Reverse/Forward Split.

Reservation of Rights

     We reserve the right to abandon the  Reverse/Forward  Split without further
action by our  shareholders  at any time  before  the  filing  of the  necessary
amendments  to our  Restated  Certificate  of  Incorporation  with the  Oklahoma
Secretary of State, even if the Reverse/Forward Split has been authorized by our
shareholders at the Annual Meeting. By voting for the Reverse/Forward  Split you
are  expressly  also  authorizing  us to  determine  not  to  proceed  with  the
Reverse/Forward Split if we should so decide.

     The  completion of the  Reverse/Forward  Split may be  contingent  upon our
ability to obtain  financing on terms  acceptable to us to complete the purchase
of the fractional shares as described under "Determination of Cash-Out Price."

Special Considerations

     If you are a shareholder holding fewer than the Minimum Number of shares of
Common Stock and do not elect to purchase a sufficient  number of shares to hold
at least the Minimum Number,  or (if applicable) do not consolidate your account
into an account  containing  at least the Minimum  Number of shares prior to the
Effective Date of the Reverse/Forward  Split, your shares will be converted into
the right to receive a cash payment. The Board will determine the Effective Date
of the Reverse/Forward Split at its sole discretion and Cashed-Out  Shareholders
will have no control  over the timing or price of the sale of their  shares.  If
the Average  Trading Value of the Common Stock is depressed  during the ten days
before the  Reverse/Forward  Split,  the amount paid to Cashed-Out  Shareholders
will reflect that  depressed  Average  Trading Value.  Shareholders  who are not
cashed out will be able to hold their  shares  over a longer  period of time and
may be able to sell their  shares at a higher  price than if they are cashed out
in the Reverse/Forward Split.

Vote Required

     The affirmative vote of the holders of a majority of the outstanding shares
of Common  Stock is  required  under the terms of the  Restated  Certificate  of
Incorporation to approve the Reverse/Forward Split.

     The Board of Directors recommends that you vote "for" the proposal to amend
our Restated  Certificate of Incorporation  to effect,  at the discretion of the
Board, the reverse/forward split.



                                  PROPOSAL FOUR

               APPROVAL OF VOTING RIGHTS FOR CONTROL SHARES OWNED,
                   OR TO BE ACQUIRED, DIRECTLY OR INDIRECTLY,
                BY THOMAS W. SMITH AND CERTAIN OF HIS ASSOCIATES

General

     The Oklahoma General Corporation Act has anti-takeover  provisions referred
to as the "Control Share  Provisions"  which are applicable to public  companies
that have  specified  contacts  with  Oklahoma  and are  applicable  to us as an
Oklahoma  based  company.  The Control  Share  Provisions  are  triggered by the
acquisition of shares of the target company (or the  acquisition of the power to
direct the voting of such  shares)  that,  when added to all other shares of the
target company which are owned,  directly or indirectly,  by an acquiring person
or group or over which the acquiring person or group has the ability to exercise
voting  power,  would  entitle  the  acquiring  person,  immediately  after  the
acquisition  of the shares,  to  exercise  or direct the  exercise of the voting
power of the  target  company in the  election  of  directors  within any of the
following ranges of voting power:

o    one-fifth (1/5) or more, but less than one-third (1/3) of all voting power;

o    one-third (1/3) or more, but less than a majority of all voting power; or

o    a majority of all voting power.

     Shares in excess of the  specified  threshold  are  referred to as "control
shares". The voting power of control shares representing in excess of one-fifth,
one-third  or  majority  of all voting  power as  applicable  is reduced to zero
unless a majority of the shareholders (excluding the "interested  shareholders")
of the target approve voting rights for such control  shares.  This  shareholder
vote is  required  following  delivery by the person who has made or proposes to
make a control  share  acquisition  of a notice to the  target  company  setting
forth,  among other  things,  a form of  resolution  approving the control share
voting  rights to be  considered by the target  shareholders,  and  requesting a
target  shareholders'  meeting  for  purposes  of voting on the  resolution.  If
shareholder  approval is not  obtained,  the  purchaser  may continue to own the
shares or may complete a proposed  acquisition  of the shares,  but the acquired
control  shares are stripped of their voting  rights  generally  for up to three
years from the date of the shareholder  vote. The acquiring person may present a
new resolution for a vote of the shareholders six months after any disapproval.

The  voting rights of control shares are restored:

o    if the  voting  power  of the  control  shares  is  reduced  by  reason  of
     subsequent  issuance  of  shares or sales to a  percentage  range of voting
     power for which approval has been granted or is not required;

o    upon transfer to a person other than an acquiring person; or

o    as noted  above,  the  expiration  of three years after the date of vote of
     shareholders failing to approve voting rights for those control shares.

     There are several circumstances under which the Control Share Provisions do
not apply.  A control  share  acquisition  does not include the  acquisition  of
shares or voting rights by a shareholder in various instances  including,  among
others,  increases in voting power  resulting  from actions  taken by the target
company,  such as share  repurchases,  provided the person whose voting power is
thereby  affected  is not an  affiliate  of the target  company as  specifically
defined in the Control Share Provisions.

     We have  determined  that  Thomas W. Smith has  engaged in a control  share
acquisition  by reason of  acquisition  of shares of our  common  stock in 2002.
These  acquisitions have been made by Mr. Smith as well as certain other persons
who have filed or may jointly file Schedules 13D with Mr. Smith, including Scott
Vassalluzzo, Prescott Associates or partnerships for which they serve as general
partner or manager or other accounts for which they serve as investment  manager
(collectively,  the "Smith Group").  For a description of the security ownership
of Mr. Smith and the Smith Group, see "Security  Ownership of Certain Beneficial
Owners and Management"  below.  We have previously  disclosed that Mr. Smith has
6,150 shares which constitute control shares and may not be voted.  Although Mr.
Smith and members of the Smith  Group have  disclaimed  "group"  status in their
Schedule 13D filed with the Securities and Exchange  Commission,  it is possible
that they could  ultimately  be  determined  to be a group,  in which  event the
number of control shares owned by the Smith Group would be 26,250.  In addition,
because of our treasury  stock  repurchase  program and the  exception  from the
Control Share Provisions  described above for such  transactions,  there is some
uncertainty  under the Control Share  Provisions as to the number of shares that
would  be  considered  control  shares  owned  by the  Smith  Group.  If it were
determined  that Mr. Smith was an  "affiliate"  as defined in the Control  Share
Provisions when we were engaged in a open market stock  repurchase  program that
resulted in the Smith Group's ownership  increasing above the 20% threshold,  it
is  possible  that the  number of  control  shares  could be as many as  xxx,xxx
shares,  representing  the number of shares owned by the Smith Group equal to or
greater than 20% of our outstanding  shares as of the record date for the annual
meeting.

     In order to resolve these various uncertainties,  Mr. Smith has provided us
with a statement as required by the Control Share  Provisions  and is requesting
that we submit to the  shareholders  a proposal that both he and the Smith Group
be approved for voting rights for any control  shares that he or the Smith Group
have  acquired  or may  acquire in the future  within the range of voting  power
equal to one-fifth or more,  but less than the majority of all voting  power.  A
copy of this  statement  and  proposed  resolution  is  attached  at Annex  Two.
Pursuant  to the  Control  Share  Provisions,  we are  required to submit such a
request to the shareholders.

     The Board of Directors has recommended approval of the proposal.  The Smith
Group  has been a  supporter  of ours for a number  of years  and  recently,  on
October 4, 2004, Mr. Smith was elected as one of our directors.  The Smith Group
has a  number  of  other  investments  in  other  companies  and its  historical
investment  objective is  long-term  capital  appreciation.  The Smith Group has
consistently  acted in a manner which we believe is in the best  interest of all
shareholders.  In addition,  Mr. Smith and the other  members of the Smith Group
have  stated in their most recent  Schedule  13D filed with the  Securities  and
Exchange  Commission  on February 3, 2005 that it that it has no present plan or
proposal  which relates to or would result in any of the  following  events (the
"Specified Events"):

o    the acquisition by them of additional  securities of ours or disposition of
     securities of ours;

o    an extraordinary corporate transaction, such as a merger, reorganization or
     liquidation involving us or any of our subsidiaries;

o    sale or transfer of a material amount of our assets or any subsidiary;

o    any change in our present board of directors or management;

o    any material change in our present capitalization or dividend policy;

o    any other material change in our business or corporate structure;

o    changes in our charter, bylaws or instruments corresponding thereto;

o    any  actions  which may  impede  the  acquisition  of  control of us by any
     person:

o    causing a class of our  securities be delisted  from a national  securities
     exchange;

o    causing a class of our equity securities to become eligible for termination
     of registration under the Securities Exchange Act of 1934; or

o    any actions similar to any of the foregoing.

     However,  Tom  Smith has  stated  he may be  involved  in the  planning  or
implementation of any of the Specified Events as a result of his position as one
of our directors.

Effect of Disapproval

     If the proposal is not approved,  the shares owned by the Smith Group which
are  treated  as  control  shares  may not be voted  for a period  ending on the
earlier of three years after the date of vote of shareholders  disapproving  the
voting  rights or such  earlier  date as voting may be  approved  by  subsequent
request for  approval by the Smith Group,  which  request may be no earlier than
six  months  after  the date of the vote at the 2005  Annual  Meeting.  As noted
above,  we have taken the position  that the number of control  shares is 6,150,
but,  because of certain  uncertainties  about how the Control Share  Provisions
should  be  interpreted,  this  number  could be  higher,  and may  include  any
increases in percentage  ownership of the Smith Group  resulting from any future
share repurchases or other  transactions by us which reduce the number of shares
outstanding.

     The loss of voting  rights for any control  shares owned by the Smith Group
will make it more  difficult  for Tom Smith  and/or  the Smith  Group to achieve
control of us should they propose to do so. In addition,  if the control  shares
owned by the Smith Group do not have  voting  rights,  those  shares will not be
voted in favor or against  transactions  which might otherwise be proposed for a
vote of shareholders that would be beneficial to all shareholders  collectively.
To the extent any of these  proposals  might  require the approval of at least a
majority of the outstanding shares or a greater percentage if required by law or
our Restated  Certificate of Incorporation,  it might make it more difficult for
us to achieve the required approval from other  shareholders,  especially if the
percentage  ownership  of the  control  shares  owned  by  the  Smith  Group  is
increased.

     The Smith Group has not indicated to us what actions, if any, it might take
if the voting  rights for its control  shares are not approved.  However,  it is
possible that the Smith Group may consider reducing the number of shares it owns
by selling  any  control  shares so all of the shares  owned by the group may be
voted. In addition, the Smith Group might consider alternative investments which
have the support of shareholders and are not subject to laws or other provisions
that restrict the Smith Group's flexibility in acquiring additional shares.

Effect of Approval

     If the proposal is approved, any control shares previously acquired or that
may be acquired  in the future by the Smith Group may be voted  unless and until
the total  number of shares  owned by the Smith  Group  equals a majority of the
outstanding  shares.  An additional  vote of  shareholders  would be required to
approve the voting of any additional  control shares  acquired that would result
in the Smith Group owning a majority or more of the shares outstanding. Approval
of the  voting  rights  may make it  easier  for the  Smith  Group to  engage in
transactions  favorable to it that require approval of shareholders by reason of
the significant voting power that their collective shares represent. It may also
make it easier for the Smith Group to influence the election of directors due to
the significant percentage of the outstanding shares owned by them.

     As noted above,  there are no present plans or proposals pending between us
and the Smith  Group that  relate to the  Specified  Events  other than those in
which Mr. Smith may be involved in his capacity as one of our directors.

No Repeal of Control Share Provisions

     Regardless of the vote at the meeting,  the Control Share  Provisions  will
continue to apply to us and any other persons who may acquire 20% or more of the
outstanding voting power.

Appraisal Rights

     Shareholders do not have appraisal rights under Oklahoma state law or under
the Restated  Certificate  of  Incorporation  or Bylaws in  connection  with the
proposal to approve voting rights for the Smith Group.

Vote Required

     For the proposal to be approved, it must receive the approval of holders of
a majority of all of the outstanding common stock excluding "interested shares".
Interested  shares include those owned by the Smith Group and shares held by our
officers or employee  directors.  We have  determined  based on the  information
provided to us by the Smith Group and our  officers  that a total of 5.2 million
shares are interested shares and not entitled to vote. Accordingly,  approval of
the proposed  resolution  requires the approval of holders of 5.2 million shares
outstanding  representing  a majority of the shares  outstanding  (excluding the
interested shares) of 10.4 million.



                                  PROPOSAL FIVE

             AMENDMENT OF OUR RESTATED CERTIFICATE OF INCORPORATION
                            TO REPEAL ARTICLE EIGHTH

General

     The Board has  authorized,  and recommends  for your  approval,  a proposed
amendment  to  our  Restated   Certificate   of   Incorporation   to  repeal  an
anti-takeover   provision   contained  in  Article  Eighth  which  requires  the
affirmative vote of holders of 80% of the voting power of the outstanding voting
stock for certain  transactions with any person or entity who, together with its
affiliates, owns or controls 5% or more of the voting power of our voting stock.
We refer to Article Eighth as the "80% Super-Majority Provision."

     The  80%   Super-Majority   Provision  was  added  to  our  Certificate  of
Incorporation  in 1984.  At such  time,  we were  experiencing  rapid  growth in
premiums and Memberships and our stock price was appreciating  rapidly.  In such
environment,  the Board of Directors was concerned that we would become a target
of an unfriendly  take-over  attempt,  a frequent event during the 1980's.  As a
result,  the Board of Directors felt that the  implementation  of  anti-takeover
provisions  of the type  provided for in the 80%  Super-Majority  Provision  was
appropriate.  By making it more  difficult for us to engage in certain  business
combinations  with  a  significant  shareholder  or  its  affiliates  or  for  a
significant  shareholder  to  rapidly  change  the  composition  of our Board of
Directors,  restrictions of the type imposed by the 80% Super-Majority Provision
have  been  viewed as  effective  mechanisms  to  prevent  unfriendly  take-over
attempts.

     Since 1986, however,  we have grown significantly and unfriendly  takeovers
have  become less  frequent.  The Board of  Directors  has  determined  that the
continued  inclusion of the 80%  Super-Majority  Provision  has the potential to
discourage a possible  strategic  partner or investor that may be desirable and,
accordingly,  the  Board of  Directors  recommends  that the 80%  Super-Majority
Provision be eliminated.

     The 80% Super-Majority  Provision provides that the affirmative vote of 80%
of the voting  power of the  outstanding  voting  stock  shall be  required  for
certain "Business Combination" transactions which include, among other things, a
merger or  consolidation  of us with,  the sale of assets to, or the issuance or
delivery  of shares  of ours to any  person or  entity  who,  together  with its
affiliates,  owns or controls 5% or more of the voting power of our voting stock
("Related  Person").  This  provision  does not apply to  Business  Combinations
approved  by a majority of our Board of  Directors  prior to the time such other
person or entity became a Related Person.

     Approval  of the  proposed  amendment  to  repeal  the  80%  Super-Majority
Provision  would allow an investor  that acquires 5% or more of the voting power
of us to engage in transactions of the type restricted by the 80% Super-Majority
Provision  with the  approval  of the  Board  of  Directors  unless  shareholder
approval is otherwise  required.  If  shareholder  approval is required,  such a
transaction could be approved by a majority of outstanding  voting stock of ours
as permitted  under  Oklahoma law,  rather than the 80%  requirement  of the 80%
Super-Majority Provision.

     While we have not become a party to any agreement which would require us to
engage in a Business Combination restricted by the 80% Super-Majority Provision,
the Board of Directors deems it in the best interests of our  shareholders  that
we retain greater flexibility in the future with respect to such transactions in
order to  facilitate  a  potential  transaction  with a  strategic  investor  or
partner.

Effect on Certain Shareholders

     We currently have  shareholders  who are Related  Persons as defined in the
80%  Super-Majority  Provisions.  Thomas W.  Smith,  one of our  directors,  and
certain of his affiliates  ("Smith Group")  beneficially own shares ranging from
7.7%  to  25.3%  of our  outstanding  common  stock.  In  addition,  Harland  C.
Stonecipher, our Chairman and Chief Executive Officer, and his wife beneficially
own 9.2% of our common  stock.  See  "Security  Ownership of Certain  Beneficial
Owners and Management."

     With the 80% Super-Majority  Provision in effect, if the Smith Group or the
Stoneciphers  were a party to a Business  Combination  transaction,  approval of
holders of 80% of the  outstanding  stock  would be  required.  If the  proposed
elimination of the 80% Super-Majority  Provision is approved, such a transaction
could be approved  either by the Board or if  shareholder  approval is otherwise
acquired,  by approval of holders of a majority of the outstanding  stock,  thus
making  it  easier  to  approve.   Accordingly,   the  elimination  of  the  80%
Super-Majority  Provision  may benefit the Smith Group and the  Stoneciphers  if
they propose, or are parties to, a Business  Combination  transaction.  However,
there are no current plans for any such transactions.

     We do not believe  that our  shareholders  need the  protection  of the 80%
Super-Majority Provision for any transaction involving either the Smith Group or
the Stoneciphers.  We think adequate  protections exist under existing standards
of fiduciary  duties of directors to assure that any transaction  between us and
these Related Persons will be on fair terms.

Other Anti-Takeover Provisions

     There are other  provisions  of the Oklahoma  General  Corporation  Act and
provisions in our Restated Certificate of Incorporation that could work to delay
or frustrate the assumption of control of us by a holder of a large block of our
capital stock or the removal of incumbent directors even if such action would be
beneficial to shareholders as a whole and could  discourage or prevent a merger,
tender offer proxy contest even if such event would be favorable to the interest
of the  shareholders.  These  provisions  will  remain in effect even if the 80%
Super-Majority Provision is repealed.

     The following is a description of these provisions:

     Classified  Board of Directors.  Our Restated  Certificate of Incorporation
provides that our directors  shall be divided into three classes as nearly equal
in number as possible.  The term of each director is three years,  and each year
the  terms of the  directors  in one  class  expire.  Vacancies  on the board of
directors  resulting from the increase in the authorized  number of directors or
the  resignation  or retirement of existing  directors may only be filled by the
affirmative  vote of 80% of the  directors  then  in  office.  Directors  may be
removed only by affirmative vote of the holders of 80% of the shares entitled to
vote  in an  election  of  directors  or by the  affirmative  vote  of at  least
two-thirds of the directors then in office. A staggered board of directors makes
it more difficult for  shareholders to change the majority of the members of the
board of directors and instead promotes continuity of existing management.

     Control Share  Provisions.  As discussed  elsewhere in Proposal Four we are
also subject to the Control Share Provisions of the Oklahoma General Corporation
Act which will  continue to apply to us. As described  above,  the Control Share
Provisions  basically  require a purchaser  who  acquires in excess of a certain
specified percentage of our outstanding shares,  referred to as "control shares"
to obtain  approval  of our other  shareholders  of the  purchaser's  ability to
exercise voting rights with respect to the control shares.

     Business  Combination  with Interested  Shareholder.  Section 1090.3 of the
Oklahoma  General  Corporation  Act,  which  is also  applicable  to us,  places
restrictions on a corporation's ability to enter into business combinations with
"interested  shareholders"  for a period of three years from the time the person
became an interested shareholder unless one of the following conditions are met:

o    Prior to the time such person became an interested  shareholder,  the Board
     of Directors of the corporation approved either the business combination or
     the  transaction  which  resulted  in the  person  becoming  an  interested
     shareholder;

o    Upon  consummation of the transaction which resulted in the person becoming
     an interested  shareholder,  the interested  shareholder owned of record or
     beneficially  at  least  85%  of  the  outstanding   voting  stock  of  the
     corporation at the time the transaction commenced; or

o    At or  subsequent  to  the  time  when  the  person  became  an  interested
     shareholder, the business combination is approved by the Board of Directors
     and authorized at a meeting of shareholders by the affirmative  vote of the
     holders of at least two-thirds of the outstanding voting stock which is not
     attributable to the shares owned by the interested shareholder.

     For purposes of this provision, an interested shareholder is defined as any
person or entity that owns 15% or more of the  outstanding  voting  stock of the
corporation,  or  any  entity  or  person  affiliated  with  or  controlling  or
controlled by such entity or person.

     These provisions are similar to the 80% Super-Majority  Provision discussed
above. The provisions of Section 1090.3 are patterned from similar provisions in
the Delaware  General  Corporation  Law addressing  the same subject.  Thomas W.
Smith and the Smith Group  became an  "interested  shareholder"  in 2000 and the
three-year   restriction   period  contained  in  Section  1090.3  has  expired.
Accordingly,  this  provision  would  not  apply  to  any  business  combination
transaction with or involving Thomas W. Smith or the Smith Group.

     Blank Check  Preferred  Stock.  Our Board of Directors  has the  authority,
without  further  action  by  shareholders,  to  issue  shares  of  undesignated
preferred  stock from time to time in one or more  series and to fix the related
number of shares and the designations,  voting powers, preferences, optional and
other  special  rights and  restrictions  or  qualifications  of that  series of
preferred  stock.  The  rights,  preferences,  privileges  and  restrictions  or
qualifications of different series of preferred stock may differ with respect to
dividend  rates,  amounts  payable on  liquidation,  voting  rights,  conversion
rights,  redemption  provisions,  sinking fund provisions and other matters. The
issuance  of  preferred  stock  could  adversely  affect the rights and  powers,
including  voting  rights  of  holders  of common  stock and have the  effect of
delaying, deferring or preventing a change in control.

     Advance  Notice of  Shareholder  Proposals.  Under our bylaws,  an advanced
notice of an  intent  of a  shareholder  to bring a matter  before a meeting  of
shareholders  must  be  provided  to us.  See  "PROPOSALS  OF  SHAREHOLDERS  AND
NOMINATIONS" below.

     General Effect of Anti-Takeover Matters. By discouraging takeover attempts,
these  provisions  may have the  incidental  effect of inhibiting  the temporary
fluctuation  of the market price of our common stock or other  securities  which
may  result  from  actual or  rumored  takeover  attempts.  In  addition,  these
provisions  could limit or reduce the price that  investors  might be willing to
pay for our shares  and may limit the  ability  of our  shareholders  to receive
premium prices for their shares which an acquiring party might be willing to pay
in connection with the acquisition of control of us.

Appraisal Rights

     Shareholders do not have appraisal rights under Oklahoma state law or under
the Restated  Certificate  of  Incorporation  or Bylaws in  connection  with the
proposal to approve voting rights for the Smith Group.

Vote Required

     The  affirmative  vote of the holders of 80% of the  outstanding  shares of
Common  Stock is  required  under  the  terms  of the  Restated  Certificate  of
Incorporation to repeal Article Eighth.

     The Board of  Directors  recommends  that the  shareholders  vote "FOR" the
repeal of Article Eighth.



                             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 our
accounting,  auditing and financial reporting practices. During fiscal 2004, the
Committee met five 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 Grant Thornton prior to public
release.

In discharging its oversight  responsibility as to the audit process,  the Audit
Committee obtained from Grant Thornton a formal written statement describing all
relationships  between Grant Thornton and us that might bear on Grant Thornton's
independence  consistent  with  Independence  Standards  Board  Standard  No. 1,
"Independence  Discussions with Audit Committees," discussed with Grant Thornton
any  relationships  that may  impact  their  objectivity  and  independence  and
satisfied  itself  as to  Grant  Thornton's  independence.  The  Committee  also
discussed  with  management  and Grant  Thornton the quality and adequacy of our
internal controls. The Committee reviewed with Grant Thornton their audit plans,
audit scope, and identification of audit risks.

The  Committee  discussed and reviewed  with Grant  Thornton 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 Grant Thornton's examination of the financial statements.

The Committee reviewed our audited financial statements as of and for the fiscal
year ended December 31, 2004, with management and Grant Thornton. Management has
the  responsibility  for the  preparation of our financial  statements and Grant
Thornton has the responsibility for the examination of those statements.

Based on the  above-mentioned  review and discussions  with management and Grant
Thornton,  the  Committee  recommended  to the Board that our audited  financial
statements  be  included  in its Annual  Report on Form 10-K for the fiscal year
ended December 31, 2004, for filing with the Securities and Exchange Commission.
The Committee intends to approve reappointment of Grant Thornton for 2005.


                         

       /s/ Peter K. Grunebaum               /s/ Martin H. Belsky              /s/ Orland G. Aldridge
------------------------------------   ------------------------------    -----------------------------
         Peter K. Grunebaum                   Martin H. Belsky                  Orland G. Aldridge
         Committee Chairman                   Committee Member                   Committee Member




Audit and Other Fees

     Grant Thornton served as our independent  registered public accounting firm
during 2004 and 2003. The aggregate fees billed,  including  expenses,  by Grant
Thornton for 2004 and 2003 for various services are set forth below:

                                                           2004          2003
                                                        ----------    ----------
Audit Fees.........................................     $  445,131    $  313,531
Audit Related Fees.................................         28,077        10,102
Tax Fees...........................................          3,300        23,712
All Other Fees.....................................              -             -

     Fees for audit services include fees associated with the annual audit of us
and our  subsidiaries  (including  audit  fees  related  to  Section  404 of the
Sarbanes-Oxley  Act),  the  review  of our  quarterly  reports  on Form 10-Q and
required  statutory  audits.  Audit-related  fees principally  include audits in
connection  with our  employee  benefit  plans,  due  diligence  and  accounting
consultations.  Tax fees  include tax  compliance,  tax advice and tax  planning
related to Federal, state and international tax matters.

     The Audit  Committee  has  considered  whether the  provision  of non-audit
services by Grant Thornton 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 2004 audit and non-audit  services fees were approved in advance
in accordance with the Committee's policies.


                  EXECUTIVE COMPENSATION AND OTHER INFORMATION


                         

Executive Officers
         Our current executive officers are named below:

                     Name                   Age                                Position
        ------------------------           -----     -----------------------------------------------------------
        Harland C. Stonecipher              66       Chairman of the Board of Directors, Chief Executive Officer
                                                         and President
        Randy Harp                          49       Chief Operating Officer
        Kathleen S. Pinson                  52       Vice President of Regulatory Compliance and Secretary
        Steve Williamson                    44       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  our  Controller  in May  1989  and has been a Vice
President of ours 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 us 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 our Chief  Financial  Officer in May 2000.  From
April 1997 until his employment with us 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 our marketing division since 1980. He
served as one of our directors from March 1993 to October 1995 and from April
1997 to December 2001, during which time he also served as our President. Mr.
Smith currently serves as our National Marketing Director.


Executive Compensation

     The  following  table sets forth the  compensation  paid by us for services
rendered  during the years ended  December 31, 2004,  2003 and 2002 to the chief
executive  officer  and to each other  person  serving  as one of our  executive
officers as of December 31, 2004 whose  compensation  exceeded  $100,000  during
2004. 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.........    2004     $160,789     $2,057,049              -            $11,747
   Chairman of the Board, Chief    2003      157,755      1,984,918              -             12,490
   Executive Officer and           2002      160,789      2,011,785        100,000             11,404
   President

Randy Harp.....................    2004      225,000         45,356              -              5,233
   Chief Operating Officer         2003      229,327         11,835              -              5,200
                                   2002      233,654              -         50,000              8,800

Kathleen S. Pinson.............    2004      131,010         27,704              -              5,281
   VP of Regulatory Compliance     2003      139,422          6,575              -              5,200
   and Secretary                   2002      130,095              -          5,000              5,300

Steve Williamson...............    2004      124,615         24,237              -              5,746
   Chief Financial Officer         2003      126,923          6,312              -              3,640
                                   2002      120,384          5,414          5,000              3,774
----------------



(1)  Annual compensation amounts include amounts deferred at the election of the
     named individuals  pursuant to a non-qualified  deferred  compensation plan
     which we adopted in 2002.

(2)  Bonus to Mr.  Stonecipher  consists of override  commissions  earned by Mr.
     Stonecipher  pursuant  to  an  override  commission  agreement  with  us of
     $240,000  during  each of 2004,  2003 and 2002,  and  override  commissions
     earned by Mr. Stonecipher with respect to commissions earned by PPL Agency,
     Inc.,  an  affiliated  insurance  agency,  of $55,479,  $57,422 and $57,932
     during 2004,  2003 and 2002,  respectively.  Effective  August 2002 through
     December 31, 2002, and in lieu of other compensation, 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 2004 and 2003 bonus amounts include $1,761,570 and $1,687,496,
     respectively,  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 and 2004
     consisted of bonus based upon growth in our Membership  base.  Bonus to Mr.
     Williamson during 2002 pertained to the completion of a transaction related
     to the sale of a subsidiary.

(3)  All Other  Compensation  of Mr.  Stonecipher  includes  $2,804,  $3,130 and
     $4,972 for the years  2004,  2003 and 2002,  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 us
     upon Mr. Stonecipher's  death, and also includes $8,943,  $9,360 and $6,432
     for the  years  2004,  2003 and  2002,  respectively,  representing  vested
     contributions  by us 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 us to the ESOP.

Stock Options

     There were no grants of stock  options  during the year ended  December 31,
2004 under our Stock  Option Plan to any of the named  executive  officers.  The
following table shows  information  about options  exercised during the year and
outstanding at the end of the year.








                 Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

                                                            Number of Securities                 Value of
                                                           Underlying Unexercised        Unexercised In-the-Money
                                                                 Options at                     Options at
                                                             December 31, 2004            December 31, 2004 (1)

                              Shares
                             Acquired
                            on Exercise
                                             Value
                                           Realized
           Name                                         Exercisable   Unexercisable    Exercisable   Unexercisable
---------------------------- ----------    --------     -----------   -------------    -----------   -------------
                                                                                                     
Harland C. Stonecipher            -             -          300,000              -      $ 3,917,750     $        -
Randy Harp                        -             -          180,000         12,000        2,289,175        220,200
Kathleen S. Pinson                -             -           15,000              -          195,888              -
Steve Williamson                  -             -           31,000          4,000          291,350         73,400
----------------------------



(1)  Value  of  unexercised   in-the-money  options  at  December  31,  2004  is
     calculated  based on the market  price per share of Common  Stock of $37.55
     per share on December 31, 2004 less the option exercise price.

Employment  Contracts  and  Termination  of  Employment  and   Change-in-Control
Arrangements

     We have an employment  agreement  with Mr.  Stonecipher  that  commenced in
January 1993 which was  scheduled  to expire on June 30,  2003,  but it has been
automatically  extended to June 30, 2005 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.  Our  obligation for  supplemental
retirement  benefits  pursuant  to the  employment  agreement  is subject to the
continuation of a certain split dollar life insurance  agreement  between us and
Shirley A. Stonecipher, Mr. Stonecipher's wife, described below. If we terminate
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 us (as defined in the agreement),  we are 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 us, 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 our growth and
development  of new  production.  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 us.  The  amounts  paid  to Mr.  Stonecipher  under  this
agreement  during the fiscal year ended  December 31, 2004 are  reflected in the
summary  compensation  table set forth above.  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 us. 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,  we  implemented  our "Fast Start to Success"
program pursuant to which electing marketing associates may participate in sales
training  programs that we sponsor,  including use of a video and other training
aides developed by us. The cost to each marketing associate for participation in
the program is typically $249,  except for special  promotions we implement 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 fees collected. For 2003
and 2004,  payment of this 0.5% bonus was  conditioned  on our  meeting  certain
Membership revenue thresholds.  During these periods, Mr. Stonecipher received a
monthly bonus equal to 0.25% of monthly  Membership  fees so long as the month's
Membership  fees were at least 85% of the Membership  fees for the same month of
the prior year and a quarterly bonus equal to 0.25% of the quarter's  Membership
fees, so long as the quarter's  Membership fees were greater than the Membership
fees for the  comparable  quarter of the prior year.  Such amounts earned by Mr.
Stonecipher are reflected in the summary  compensation table set forth above. In
2005,  these Membership fee bonuses will be reduced by $500,000 based in part on
the fact that we now own two aircraft previously owned by Mr.  Stonecipher.  See
"Certain Relationships and Related Party Transactions."

     In July 1984, we entered into a life insurance  arrangement with Shirley A.
Stonecipher, Mr. Stonecipher's wife, whereby we 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 us whereby upon Mr.  Stonecipher's  death, the proceeds of the
policy will be paid to us in an amount sufficient to reimburse  premiums paid to
date  by us 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, we 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 ours to the participants,  during 2003, we purchased  variable life insurance
policies  owned by us to insure  the lives of the group of  participants  and to
finance our obligations under the plan. As of December 31, 2004, we had deferred
compensation  liability of $1.9  million,  $76,603,  $28,372 and $19,826 for Mr.
Stonecipher, Mr. Harp, Ms. Pinson and Mr. Williamson,  respectively, included in
our aggregate deferred  compensation  liability of $2.8 million. At December 31,
2004, the cash value of the underlying company-owned insurance policies was $2.4
million.  Effective January 1, 2005 we amended the deferred compensation plan in
order to comply with the new provisions of Section 409A of the Internal  Revenue
Code as amended by the American Jobs Creation Act of 2004,  which  establish new
rules for deferred  compensation  plans in general.  The amended plan authorizes
participation  by additional key employees,  but does not materially  change the
benefits available under the existing plan to executive officers of the Company.
As a part of the amended  plan,  the Company also will  purchase  new  insurance
policies  on the lives of  certain  participants  and  change  the  third  party
administrator of the plan.


Board of Director Interlocks and Insider Participation in Executive Compensation
Decisions

     During  2004,  we  had  a  compensation   committee  composed  entirely  of
independent  directors as required by the governance  rules of the NYSE.  During
2004 these were Messrs.  Belsky,  Hague (until his resignation from the Board on
September  30,  2004) and Smith  (beginning  October  4,  2004).  Members of our
compensation  committee  have never been  officers or  employees  of ours or any
subsidiary.  None of our executive officers serves on the compensation committee
of any entity that has one or more of such entity's  executive  officers serving
on our Board.

Report On Executive Compensation

     The compensation committee is responsible for establishing  compensation of
Harland C. Stonecipher,  our Chairman, Chief Executive Officer and President and
for overseeing  the  compensation  of our executive  officers to assure they are
compensated  effectively in a manner consistent with our overall  objectives and
to communicate our compensation  policies and the reasoning behind such policies
to  shareholders.  The  compensation  committee met twice and acted by unanimous
consent once during 2004.

     The  base  salary  of Mr.  Stonecipher  for  2004  was as  provided  in his
employment  agreement with us 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 our  other  executive  officers  for 2004  were  determined  by Mr.
Stonecipher  based upon his  assessment of the  respective  executive  officer's
performance  and  potential   contribution  to  our  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 ours.  During 2004, Mr.
Stonecipher  earned  $295,479  pursuant  to  these  commission-based   incentive
compensation   arrangements.   These  arrangements   foster  the  goals  of  our
compensation  policies 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 our Membership base.  During 2004,  although
new Membership  sales  decreased 7% to 624,525  compared to 671,857 during 2003,
our active  Memberships in force  increased 2% to 1,451,700 at December 31, 2004
compared to 1,418,997  Memberships in force at December 31, 2003.  Additionally,
active "add-on" Identity Theft Shield Memberships  increased 228% from 86,602 at
December  31,  2003 to 283,889  at  December  31,  2004 and the  average  annual
Membership  fee  increased  more than 4% to $274.02 at  December  31,  2004 from
$262.36 at December 31, 2003. Further, total Membership fees in 2004 were $355.5
million,  up 7.6%  compared to 2003.  Over the last five years,  our  compounded
growth  rate of active  Membership  base has  exceeded  15% per year and diluted
earnings per share have grown from $.90 per share to $2.48 per share for 2004.

     During 1997, we implemented our "Fast Start to Success" program.  The "Fast
Start to Success"  program is a field  training  program that we sponsor for our
marketing  associates  that  utilizes  audio,  video  and other  training  aides
developed by us and is designed to increase new  Memberships  sold and new sales
associates recruited per participating  associate.  Participating associates are
required  to pay us a one-time  training  fee to offset our direct and  indirect
costs  incurred in  developing  and  maintaining  the program.  Mr.  Stonecipher
received a payment from us 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
our 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 and 2004 as described above to tie
the  compensation  based on percentage of Membership  fees to the achievement of
specified  thresholds  of total  Membership  fees in 2003 and 2004  compared  to
Membership fees in the prior year. In 2005, these Membership fee bonuses will be
reduced  by  $500,000  based  in part on the fact  that we now own two  aircraft
previously  owned by Mr.  Stonecipher.  See "Certain  Relationships  and Related
Party Transactions."

     We maintain a Stock  Option Plan (the  "Plan")  pursuant to which the Board
may grant  options to purchase  Common  Stock to our  directors  and  employees,
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.  The Board did not grant any  options  during 2003 or 2004 to
our executive  officers and does not currently  expect to grant further  options
under the Plan.

     In 2002, we adopted a deferred compensation plan for our executive officers
as described  under  "Executive  Contracts and  Termination  of  Employment  and
Change-in-Control  Arrangements." This plan, which was amended effective January
1, 2005 as described above, is intended to supplement our 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 we 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 our 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 our best  interests and its
shareholders  to retain  the  flexibility  to pay  compensation  that may not be
deductible under Section 162.

     The  preceding  report is  presented  by the  members  of the  compensation
committee.

     /s/ Martin H. Belsky                /s/ Thomas W. Smith
    ----------------------              ----------------------
       Martin H. Belsky                    Thomas W. Smith
      Committee Chairman                  Committee Member




Shareholder Return Performance Graph

     The following graph compares the cumulative  total  shareholder  returns of
our  Common  Stock  during  the five  years  ended  December  31,  2004 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, 2000 in each of our 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 Our Stock,
                      Russell 2000 Index and Industry Index

                              (GRAPH APPEARS HERE)




                                           1999      2000      2001      2002      2003      2004
                                          ------    ------    ------    ------    ------    ------
                                                                             
Pre-Paid Legal Services, Inc.             100.00    106.25     91.25    109.17    108.83    158.59
Personal Services Index                   100.00     93.23    152.01    147.25    184.57    194.95
Russell 2000 Index                        100.00     95.68     96.66     75.80    110.19    129.47

                               

                 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                                 AND MANAGEMENT

     The  following  table  sets  forth  certain   information   concerning  the
beneficial  ownership of our shares of Common  Stock by each person  (other than
our directors and executive  officers) known by us 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 us 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..................................................       3,928,288  (1)      25.3
Scott Vassalluzzo................................................       2,707,537  (1)      17.4
Idoya Partners...................................................       1,321,456  (1)       8.5
Prescott Associates..............................................       1,194,675  (1)       7.7
---------------------


(1)  Included in the shares of Common Stock indicated as  beneficially  owned by
     Thomas  W.  Smith  ("Smith")  and  Scott  Vassalluzzo  ("Vassalluzzo")  are
     2,687,437 shares as to which they have shared voting and shared dispositive
     power.  In addition,  Smith  beneficially  owns 1,240,851  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 and Vassalluzzo,  3,020,788 and 2,698,437 shares in the aggregate,
     respectively,  are  beneficially  owned in their  capacities  as investment
     managers for certain managed  accounts,  which include the shares indicated
     as  beneficially  owned by Idoya  Partners  and  Prescott  Associates.  The
     address of Smith,  Vassalluzzo,  Idoya and Prescott is 323 Railroad Avenue,
     Greenwich CT 06830.

     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 our disinterested shareholders approve voting
     rights for these  shares as  described  in Proposal  Four above.  Since the
     voting  rights  pertaining  to these  shares have not been  approved by our
     disinterested  shareholders as required by these  provisions,  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 our 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 our shares of Common  Stock as of April 1, 2005 by (a)
each of our directors (b) each of the named executive  officers,  and (c) all of
our directors and named executive officers as a group.



          Security Ownership of Directors and 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..........      1,454,973   (2)         9.2
Randy Harp.............................................................        212,160   (3)         1.4
Kathleen S. Pinson.....................................................         79,874   (4)          *
Steve Williamson.......................................................         27,757   (5)          *
Peter K. Grunebaum.....................................................         36,000   (6)          *
John W. Hail...........................................................         40,579   (7)          *
Martin H. Belsky.......................................................         20,350   (8)          *
Thomas W. Smith........................................................      3,928,288   (9)        25.3
Orland G. Aldridge.....................................................              -               -
All directors and executive officers as a group (9 persons)............      5,799,981   (10)       35.9
--------------------


* 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) 1,114,616  shares as to which he has shared voting
     and shared  dispositive power with his wife; (ii) 20,357 shares owned under
     the ESOP as to which Mr.  Stonecipher  has sole  voting  power,  but shared
     dispositive  power;  (iii) 300,000 shares issuable to Mr.  Stonecipher upon
     exercise of  outstanding  options;  and, (iv) 20,000  shares  issuable upon
     exercise of outstanding options held by his wife earned during the time she
     was a member of the Board of Directors.

(3)  Includes  18,110  shares owned under the ESOP as to which Mr. Harp has sole
     voting power,  but shared  dispositive  power,  and 168,000 shares issuable
     upon exercise of outstanding options.

(4)  Includes 19,477 shares owned under the ESOP as to which Ms. Pinson has sole
     voting power, but shared dispositive power, and 15,000 shares issuable upon
     the exercise of  outstanding  options.  Also,  includes  3,735 shares owned
     under the ESOP by Ms. Pinson's  husband,  also one of our employees,  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  1,367 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 26,000 shares issuable upon exercise of
     outstanding options.

(6)  Includes 26,000 shares issuable upon exercise of outstanding options.

(7)  Includes  500 shares  owned by a  corporation  that Mr. Hail  controls  and
     40,000 shares issuable upon exercise of outstanding options.

(8)  Includes 20,000 shares issuable upon exercise of outstanding options.

(9)  See "Security Ownership of Certain Beneficial Owners" above.

(10) Includes  615,000 shares issuable upon exercise of outstanding  options and
     63,046  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 PARTY TRANSACTIONS

     Our  Chairman,  Harland C.  Stonecipher,  is the owner of PPL Agency,  Inc.
("Agency").  We have 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  us.  We  provide   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 our
financial  statements on a combined  basis.  Agency earned  commissions,  net of
amounts paid directly to its agents by the underwriter,  during 2004 of $220,000
through its sales of insurance products of an unaffiliated  company.  Agency had
net income of $127,000  for the year ended  December  31,  2004 after  incurring
commissions earned by the Chairman of $55,000 and annual management fees paid to
us of $36,000 for 2004.

     Mr.  Stonecipher  and his wife,  Shirley A.  Stonecipher,  own  Stonecipher
Aviation LLC ("SA") and Mr. and Mrs. Stonecipher together with Wilburn L. Smith,
our National Marketing Director,  own S & S Aviation LLC ("S&SA").  We agreed to
reimburse  SA and S&SA for  certain  expenses  pertaining  to trips  made by our
personnel   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  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 2004, we paid $329,000 to SA and $561,000 to
S&SA as reimbursement for such transportation expenses.

     On December 9, 2004, we entered into and  consummated  an agreement with SA
to  purchase  a 1980  Beech  King  Air 200  airplane  for a  purchase  price  of
$1,083,355.  On the same date, we entered into and  consummated  an agreement to
purchase  a 1983  Mitsubishi  MU-300 jet  airplane  owned by S&SA for a purchase
price of  $1,230,200.  In  connection  with the purchase of this plane,  we also
agreed  to  pay  the  expenses  associated  with  a  pending  avionics  upgrade,
inspection and maintenance of approximately  $450,000. On the same date, we also
purchased  the  leasehold  interest  in a  hangar  building  located  at the Ada
Municipal  airport  which is used as the hangar  facility for the two  purchased
planes for a purchase price of $465,000 and also purchased certain equipment and
furniture  used at the facility for a purchase  price of $9,272.  The hangar and
related  equipment  was  purchased  from SA,  which  constructed  the hangar and
acquired the  equipment at its expense.  Under the terms of the lease,  which we
assumed, which expires in 2027, we are obligated to pay annual rental of $10 per
year.  The purchase  prices were paid in cash from our existing cash  resources.
The Audit  Committee  of the Board of  Directors  and the full  Board,  with Mr.
Stonecipher abstaining, approved all of the transactions. The prices for each of
the planes and hangar were determined by independent  appraisals and the related
equipment and furniture was purchased for book value,  which  approximates  fair
market value.  The Board  determined  that it was  appropriate for us to acquire
ownership of the  airplanes  and hangar in light of the fact that the planes are
used almost exclusively in furtherance of our business.

     John W. Hail, one of our directors, served as our Executive Vice President,
Director and Agency  Director from July 1986 through May 1988 and also served as
Chairman  of the  Board of  Directors  of TVC  Marketing,  Inc.,  which  was our
exclusive  marketing agent from April 1984 through  September 1985.  Pursuant to
agreements  between Mr. Hail and us entered  into during the period in which Mr.
Hail was one of our executive officers,  Mr. Hail receives override  commissions
from renewals of certain  Memberships  initially  sold by us during such period.
During  2004,  2003 and 2002,  such  override  commissions  on renewals  totaled
$79,000, $81,000 and $87,000, respectively. Mr. Hail also owns interests ranging
from 12% to 100% in corporations not currently affiliated with us, including TVC
Marketing,  Inc.,  but which were engaged in the  marketing of our legal service
Memberships and which earn renewal commissions from Memberships previously sold.
These  entities  earned renewal  commissions of $557,000,  $552,000 and $526,000
during  2004,  2003 and 2002,  respectively,  of which  $322,000,  $300,000  and
$266,000, respectively, was passed through as commissions to their sales agents.

     Our new office building contains two apartments,  one for use by certain of
our  visitors  and one for use by our  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 us 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 our directors
and  executive  officers and persons who  beneficially  own more than 10% of our
Common Stock to file reports of ownership and changes in ownership of our Common
Stock with the Securities and Exchange  Commission.  We are required to disclose
delinquent  filings of reports by such persons during 2004. Based on a review of
the copies of such  reports and  amendments  thereto  received by us, or written
representations  that no filings were required,  we believe that during 2004 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  February  2004 for Ms.  Pinson,  one of our  named  executive
officers relating to one transaction  pertaining to 55 shares of stock issued to
her husband by an independent association was inadvertently filed late due to an
administrative error by Ms. Pinson.

                                     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.  Except  for the
proposals  described  in this  Proxy  Statement  for  which a  specific  vote is
required,  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.  If proxies returned by brokers are not voted as to any
of Proposals  Three,  Four or Five,  they will be  equivalent  to a vote against
those  proposals  because they require a specified  percentage  of the shares of
Common Stock outstanding for approval.


                  INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     Grant  Thornton  served  as our  Company's  independent  registered  public
accounting firm for the year ended December 31, 2004.  Representatives  of Grant
Thornton 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

     Our Annual  Report to  Shareholders  for the year ended  December 31, 2004,
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 our Annual  Report on Form 10-K for the year ended  December  31,
2004 filed with the  Securities  and Exchange  Commission  is available  without
charge to any of our  shareholders who request a copy in writing from us, 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 our bylaws. Under our bylaws, a notice of
intent of a  shareholder  to bring any matter  before a meeting shall be made in
writing and received by our  Secretary  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 our Secretary 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 our
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 our Board of Directors; 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 one of
our  directors,  if elected.  All  shareholder  proposals  should be sent to our
Secretary 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 our  proxy
statement  relating  to the 2006 Annual  Meeting  must be received no later than
January 23, 2006. To be considered for  presentation at the 2006 Annual Meeting,
although not included in the Proxy  Statement for such meeting,  a proposal must
be received  within the time period set forth in our bylaws as described  above.
In addition,  the proxy  solicited by the Board of Directors for the 2006 Annual
Meeting  will confer  discretionary  authority  to vote on any such  shareholder
proposal presented at the 2006 Annual Meeting unless we are provided with notice
of such  proposal no later than ninety days prior to the date of the 2006 annual
meeting.

     The  nominating  committee  has a charter which is posted on our 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  our  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 our 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 our bylaws  described
above are required to be followed. We have not previously received nominees from
shareholders and,  accordingly,  are unable to determine whether the process for
evaluation of  shareholder  nominees  differs from the process for evaluation of
other nominees.


                                  OTHER MATTERS

     Our Board of Directors  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 our Board of Directors.





                                    ANNEX ONE

                    PROPOSED FORM OF CERTIFICATE OF AMENDMENT
                    OF RESTATED CERTIFICATE OF INCORPORATION
                           TO EFFECT THE REVERSE SPLIT

                            CERTIFICATE OF AMENDMENT
                                       OF
                      RESTATED CERTIFICATE OF INCORPORATION
                                       OF
                          PRE-PAID LEGAL SERVICES, INC.

Pre-Paid Legal  Services,  Inc., a corporation  organized and existing under the
Oklahoma  General  Corporation Act (the  "Corporation"),  does hereby certify as
follows:

1.   The  amendment  set forth  below to the  Corporation's  Amended &  Restated
     Certificate  of  Incorporation  (the  "Certificate"),  was duly  adopted in
     accordance  with the  provisions  of Section 1077 of the  Oklahoma  General
     Corporation Act.

2.   The following  amendment (the "Reverse Split  Amendment") shall take effect
     at 5:00 P.M.,  Central Time, on the date of the filing of this  Certificate
     of Amendment:

The following new subsection (a) is added to Division C of Article FOURTH of the
Certificate:

(a) Reverse Stock Split of Common Stock.

Immediately  upon the  effectiveness  of this amendment to the Certificate  (the
"Reverse  Split  Effective  Time"),  each one hundred (100) shares of the Common
Stock of the Corporation  that are issued and outstanding  immediately  prior to
the Reverse Split Effective Time shall automatically,  without further action on
the part of the Corporation or any holder of Common Stock and without  requiring
the surrender of certificates representing Common Stock, be combined, converted,
reclassified  and  changed  into (the  "Reverse  Split")  one (1) fully paid and
nonassessable  share of Common  Stock,  except that  holders of Common Stock who
otherwise  would be entitled to receive only a fractional  interest in less than
one share of Common Stock (an "Unattached  Fractional  Interest") as a result of
the Reverse  Split shall be  entitled  to  receive,  in lieu of such  Unattached
Fractional Interest, a cash payment in an amount equal to the product calculated
by multiplying  one hundred (100) times the fair value ("Fair Value") of one (1)
share of Common Stock  immediately  prior to the Reverse Split Effective Time by
the decimal equivalent of such Unattached Fractional Interest. As of the Reverse
Split  Effective  Time, no such  Unattached  Fractional  Interest held by such a
holder  shall be issued or  outstanding.  The Fair  Value  shall be equal to the
average of the last sale  prices of the  Corporation's  Common  Stock on the New
York Stock Exchange ("NYSE") for the ten (10) consecutive trading days ending on
the day before the Effective Time.

ATTEST:                            PRE-PAID LEGAL SERVICES, INC.,
                                   an Oklahoma Corporation:



---------------------------        ---------------------------------------------
Kathy Pinson, Secretary            By:  Harland C. Stonecipher, Chairman & Chief
                                   Executive Officer







                              ANNEX ONE, continued

                    PROPOSED FORM OF CERTIFICATE OF AMENDMENT
                    OF RESTATED CERTIFICATE OF INCORPORATION
                           TO EFFECT THE FORWARD SPLIT

                            CERTIFICATE OF AMENDMENT
                                       OF
                      RESTATED CERTIFICATE OF INCORPORATION
                                       OF
                          PRE-PAID LEGAL SERVICES, INC.

Pre-Paid Legal  Services,  Inc., a corporation  organized and existing under the
General Corporation Act (the Corporation"), does hereby certify as follows:

1.   The amendment set forth below to the Corporation's  Restated Certificate of
     Incorporation (the "Certificate"),  was duly adopted in accordance with the
     provisions of Section 1007 of the Oklahoma General Corporation Act.

2.   The following  amendment (the "Forward Split  Amendment") shall take effect
     at 5:01 P.M.,  Central Time, on the date of the filing of this  Certificate
     of Amendment:

The following new subsection (b) is added to Division C of Article FOURTH of the
Certificate immediately following subsection (a) thereof entitled "Reverse Stock
Split of Common Stock"  (which  subsection  (a) provided for the "Reverse  Split
Amendment" to the Certificate):

     (b)  Forward Stock Split of Common Stock.

Immediately  upon the  effectiveness  of this amendment to the Certificate  (the
"Forward  Split  Effective  Time"),  each  share  of  the  Common  Stock  of the
Corporation  that is issued and  outstanding  immediately  prior to the  Forward
Split  Effective Time (which shall not include any  fractional  interest in less
than one share of Common Stock (an "Unattached  Fractional  Interest") held by a
holder of Common Stock who is entitled to receive a cash payment in lieu of such
Unattached  Fractional  Interest  pursuant  to the  terms of the  Reverse  Split
Amendment)  shall  automatically,  without  further  action  on the  part of the
Corporation or any holder of Common Stock and without requiring the surrender of
certificates  representing  Common Stock, be subdivided into (the "Forward Stock
Split") one hundred (100) fully paid and nonassessable shares of Common Stock.

ATTEST:                            PRE-PAID LEGAL SERVICES, INC.,
                                   an Oklahoma Corporation:



---------------------------        ---------------------------------------------
Kathy Pinson, Secretary            By:  Harland C. Stonecipher, Chairman & Chief
                                   Executive OfficerATTEST:






                                    ANNEX TWO

                                 THOMAS W. SMITH
                               323 RAILROAD AVENUE
                          GREENWICH, CONNECTICUT 06830


                                  February 25, 2005

Pre-Paid Legal Services, Inc.
One Pre-Paid Way
P. O. Box 145 Ada, Oklahoma 74820

         Re:      Acquiring Persons Statement Pursuant to Section 1150 of the
                  Oklahoma General Corporation Act

Gentlemen:

         This letter shall be the acquiring person's statement required by
Section 1150 of the Oklahoma General Corporation Act ("OGCA"). Pursuant to such
Section you are hereby advised as follows:

1.   The  identity  of the  acquiring  person  is Thomas  W.  Smith  ("Acquiring
     Person").

2.   This statement is given pursuant to Sections 1145 through 1155 of the OGCA,
     hereinafter referred to as "Control Share Provisions".

3.   As of December 31,  2004,  the number of shares of common stock of Pre-Paid
     Legal  Services,   Inc.   ("Company")   beneficially  owned,   directly  or
     indirectly,  by the  Acquiring  Person was  3,928,288.  These  shares  were
     acquired by the Acquiring Person at various times and at various prices all
     of  which  have  been  previously  disclosed  in  Schedules  13G or 13D and
     Amendments  thereto as previously  filed with the United States  Securities
     and Exchange Commission and provided to the Company.

4.   Because of various uncertainties  associated with the interpretation of the
     Control Share Provisions,  the number of shares of common stock the Company
     which would have voting power except for the  provisions of Section 1149 of
     the Control Share  Provisions  (the "Control  Shares") range from 6,150 (if
     only the  Acquiring  Person's  shares are  included)  to 26,250  shares (if
     Acquiring  Person's  shares  are  combined  with  shares  owned  by  person
     affiliated  or  associated  with  Acquiring  Person who have jointly  filed
     Schedules  13G or 13D  with  Acquiring  Person  (collectively,  the  "Smith
     Group")).  If the Acquiring  Person is considered an "affiliate" as defined
     under the Control Share  Provisions,  the number of Control Shares could be
     825,789  shares  which  represent  the number of shares  owned by the Smith
     Group in excess of 20% of the  outstanding  common stock as of December 31,
     2004.  The Acquiring  Person does not concede or admit that the Smith Group
     is a group or that he is an  affiliate  for  purposes of the Control  Share
     Provisions.

5.   The Acquiring  Person requests that the Company propose a resolution at the
     2005 annual  meeting for the  shareholders  to approve voting rights to the
     Control  Shares  owned by both the  Acquiring  Person  and the Smith  Group
     within a range of one-fifth or more up to, but less than, a majority of all
     voting power. A form of resolution to be considered by the  shareholders is
     attached as Exhibit A.

6.   As noted above,  certain  acquisitions  of Control Shares have already been
     made by the Acquiring  Person and the Smith Group. The Acquiring Person and
     the Smith Group may make  additional  acquisitions of Control Shares either
     by  acquisitions  of additional  shares of Company common stock in the open
     market or by reason of future  increases  in voting  power  resulting  from
     stock repurchases or other actions taken by the Company.  To the extent any
     future  acquisitions  are made by the Acquiring  Person or the Smith Group,
     Acquiring  Person  represents  that he or they  will at the  time  any such
     acquisition  is made  have the  financial  capacity  to do so.  Any  future
     actions by the Company  that result in an increase in voting  power will be
     based on the Company's financial capacity at the time. The Acquiring Person
     represents  that  any  proposed  future  Control  Share  acquisitions,   if
     consummated, will not be contrary to law.


                                          Very truly yours,


                                          /s/ Thomas W. Smith
                                          -----------------------------------
                                          Thomas W. Smith, individually
                                          and on behalf of the Smith Group


TWS:law





                               PROPOSED RESOLUTION
                              FOR THE SHAREHOLDERS
                                       OF
                          PRE-PAID LEGAL SERVICES, INC.
                     RELATING TO SMITH GROUP CONTROL SHARES

     WHEREAS,  Thomas W.  Smith,  either  individually  or  together  with other
persons  affiliated  or  associated  with him who  currently  file or may in the
future file joint  Schedules 13G or 13D  (collectively,  the "Smith Group") have
acquired or may in the future acquire "control shares" as defined in the control
share  provisions  of  Sections  1145  through  1155  of  the  Oklahoma  General
Corporation Act ("Control Share Provisions"); and

     WHEREAS,  the Smith  Group has  provided a  statement  as  required  by the
Control Share  Provisions and has requested  that its control share  acquisition
and possible  future  acquisitions  be  presented to the next annual  meeting of
shareholders  which includes a proposal for shareholders to approve voting power
for the Control Shares of the Smith Group within one-fifth or more but less than
a majority of all voting power; and

     WHEREAS, under the Control Share Provisions such proposal is required to be
submitted to the  shareholders  and the Board of Directors has recommended  that
the shareholders approve such proposal.

     RESOLVED,  that any control  shares now owned or in the future  acquired by
the Smith Group  within the range of  one-fifth or more but less than a majority
of all "voting power" (as defined in the Control Share Provisions) is approved.






                           PRELIMINARY PROXY MATERIAL
                             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 19, 2005.

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 19, 2005.

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 Monday, May 23, 2005

     The undersigned  shareholder of Pre-Paid Legal Services,  Inc., an Oklahoma
corporation,  hereby  acknowledges  receipt of the  Notice of Annual  Meeting of
Shareholders and Proxy Statement, each dated April 11, 2005, 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 our 2005 Annual Meeting
of Shareholders,  to be held in the Liberty  Auditorium at our corporate offices
located at One Pre-Paid Way in Ada,  Oklahoma,  on Monday, May 23, 2005, at 1:00
p.m., local time, and at any adjournment  thereof, and to vote all shares of our
Common Stock 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 all nominees listed below (except as indicated).
          ____ WITHHOLD AUTHORITY to vote for all nominees listed below.

     If you  wish to  withhold  authority  to vote for any  individual  nominee,
     strike a line through that nominee's name in the list below.

               Martin H. Belsky          Harland C. Stonecipher

     (2)  Ratify  the  selection  of  Grant  Thornton  LLP  as  our  independent
          registered public accounting firm.

               FOR______                 AGAINST______
                  
     (3)  The proposed amendment of our Restated Certificate of Incorporation to
          effect a reverse stock split  immediately  followed by a forward stock
          split of all of our shares of Common Stock.

               FOR______                 AGAINST______
         
     (4)  Approve  voting rights for control  shares  owned,  or to be acquired,
          directly  or  indirectly,  by  Thomas  W.  Smith  and  certain  of his
          associates.

               FOR______                 AGAINST______
                
     (5)  The proposed amendment of our Restated Certificate of Incorporation to
          eliminate  certain  anti-takeover  provisions by repealing the current
          Article  EIGHTH  which  requires  the  affirmative  vote of 80% of the
          voting power of the outstanding voting stock for certain transactions.

               FOR______                 AGAINST______
            

     (6)  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  NOMINEES  LISTED IN ITEM 1 AND "FOR" THE  PROPOSALS  IN
ITEMS 2 THROUGH 5. IF ANY OTHER MATTERS ARE BROUGHT BEFORE THE MEETING OR IF THE
NOMINEES FOR ELECTION AS DIRECTORS  NAMED IN THE PROXY STATEMENT FOR ELECTION AS
DIRECTORS  ARE 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:_______________________________________________, 2005

                     ___________________________________________________________
                     Printed Name(s) of Shareholder(s)

                     Signature(s)_______________________________________________

                     ___________________________________________________________

                    (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 our  Preliminary  Proxy  Materials in
connection with our 2005 Annual Meeting of Shareholders. 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. We plan to mail the definitive Proxy Materials to our shareholders on or
about April 11, 2005.