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:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e) (2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-12
PRE-PAID LEGAL SERVICES, INC.
(Name of Registrant as Specified in its Charter)
NOT APPLICABLE
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
_____________________.
(2) Aggregate number of securities to which transaction applies:
______________________.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11(set forth the amount on which the
filing fee is calculated and state how it was determined):
___________________.
(4) Proposed maximum aggregate value of transaction: _________________.
(5) Total fee paid: ___________________.
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: __________________.
(2) Form, Schedule or Registration Statement No.: _________________.
(3) Filing Party: __________________________.
(4) Date Filed: ___________________________.
PRE-PAID LEGAL SERVICES, INC.
One Pre-Paid Way
Ada, Oklahoma 74820
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE HOLDERS OF SHARES OF COMMON STOCK:
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
Wednesday, May 17, 2006, 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 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 March
24, 2006 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 7, 2006
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
2006 Annual Meeting of Shareholders
TABLE OF CONTENTS
Description Page
Questions And Answers About This Proxy Material And Voting
When and where is the Annual Meeting?
Why am I receiving these materials?
Who can vote at the Annual Meeting?
What am I voting on?
How do I vote?
How many votes do I have?
What if I return a proxy card but do not make specific choices?
Who is paying for this proxy solicitation?
What does it mean if I receive more than one proxy card?
Can I change my vote after submitting my proxy?
How are votes counted?
How many votes are needed to approve each proposal?
What is the quorum requirement?
How can I find out the results of the voting at the Annual Meeting?
Proposal One - Election of Directors
Proposal Two - Ratification of Selection of Independent Registered Public
Accounting Firm
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
Independent Registered Public Accounting Firm
Annual Report to Shareholders
Availability of Annual Report on Form 10-K
Proposals of Shareholders and Nominations
Other Matters
PROXY STATEMENT
PRE-PAID LEGAL SERVICES, INC.
One Pre-Paid Way
Ada, Oklahoma 74820
2006 ANNUAL MEETING OF SHAREHOLDERS
QUESTIONS AND ANSWERS ABOUT THIS PROXY MATERIAL AND VOTING
When and where is the Annual Meeting?
Our 2006 Annual Meeting of Shareholders ("Annual Meeting") will be held in the
Liberty Auditorium at our corporate offices located at One Pre-Paid Way in Ada,
Oklahoma, on Wednesday, May 17, 2006, at 1:00 p.m., local time.
Why am I receiving these materials?
We sent you this proxy statement and the enclosed proxy card because our Board
of Directors is soliciting your proxy to vote at the Annual Meeting. You are
invited to attend the Annual Meeting to vote on the proposals described in this
proxy statement. However, you do not need to attend the meeting to vote your
shares. Instead, you may simply complete, sign and return the enclosed proxy
card, or follow the instructions below to submit your proxy over the telephone
or on the Internet.
We intend to mail this proxy statement and accompanying proxy card on or about
April 7, 2006 to all shareholders of record entitled to vote at the Annual
Meeting.
Who can vote at the Annual Meeting?
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 March 24,
2006. On that date, we had 15,047,228 shares of Common Stock, par value $.01 per
share, outstanding and eligible to vote, exclusive of treasury stock.
Shareholder of Record: Shares Registered in Your Name
If on March 24, 2006 your shares were registered directly in your name with our
transfer agent, UMB Bank, N.A., then you are a shareholder of record. As a
shareholder of record, you may vote in person at the meeting or vote by proxy.
Whether or not you plan to attend the meeting, we urge you to fill out and
return the enclosed proxy card or vote by proxy over the telephone or on the
Internet as instructed below to ensure your vote is counted.
Beneficial Owner: Shares Registered in the Name of a Broker or Bank
If on March 24, 2006 your shares were held, not in your name, but rather in an
account at a brokerage firm, bank, dealer, or other similar organization, then
you are the beneficial owner of shares held in "street name" and these proxy
materials are being forwarded to you by that organization. The organization
holding your account is considered to be the shareholder of record for purposes
of voting at the Annual Meeting. As a beneficial owner, you have the right to
direct your broker or other agent on how to vote the shares in your account. You
are also invited to attend the Annual Meeting. However, since you are not the
shareholder of record, you may not vote your shares in person at the meeting
unless you request and obtain a valid proxy from your broker or other agent.
What am I voting on?
There are two matters scheduled for a vote:
* Election of two (2) directors;
* Ratification of Grant Thornton LLP as our independent registered
public accounting firm
How do I vote?
You may either vote "For" all the nominees to the Board of Directors or you may
"Withhold" your vote for any nominee you specify. For each of the other matters
to be voted on, you may vote "For" or "Against" or abstain from voting. The
procedures for voting are as follows:
Shareholder of Record: Shares Registered in Your Name
If you are a shareholder of record, you may vote in person at the Annual
Meeting, vote by proxy using the enclosed proxy card, vote by proxy over the
telephone, or vote by proxy on the Internet. Whether or not you plan to attend
the meeting, we urge you to vote by proxy to ensure your vote is counted. You
may still attend the meeting and vote in person if you have already voted by
proxy.
* To vote in person, come to the Annual Meeting and we will give you a
ballot when you arrive.
* To vote using the proxy card, simply complete, sign and date the
enclosed proxy card and return it promptly in the envelope provided.
If you return your signed proxy card to us before the Annual Meeting,
we will vote your shares as you direct.
* To vote over the telephone, dial toll-free 1-888-693-8683 using a
touch-tone phone and follow the recorded instructions. You will be
asked to provide the company number and control number from the
enclosed proxy card. Your vote must be received by 5:00 p.m. on May
16, 2006 to be counted.
* To vote on the Internet, go to http://www.cesvote.com to complete an
electronic proxy card. You will be asked to provide the company number
and control number from the enclosed proxy card. Your vote must be
received by 5:00 p.m. on May 16, 2006 to be counted.
Beneficial Owner: Shares Registered in the Name of Broker or Bank
If you are a beneficial owner of shares registered in the name of your broker,
bank, or other agent, you should have received a proxy card and voting
instructions with these proxy materials from that organization rather than from
us. Simply complete and mail the proxy card to ensure that your vote is counted.
Alternatively, you may vote by telephone or over the Internet as instructed by
your broker or bank. To vote in person at the Annual Meeting, you must obtain a
valid proxy from your broker, bank, or other agent. Follow the instructions from
your broker or bank included with these proxy materials, or contact your broker
or bank to request a proxy form.
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|We provide Internet proxy voting to allow you to vote your shares on-line,|
|with procedures designed to ensure the authenticity and correctness of|
|your proxy vote instructions. However, please be aware that you must bear|
|any costs associated with your Internet access, such as usage charges from|
|Internet access providers and telephone companies. |
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How many votes do I have?
On each matter to be voted upon, you have one vote for each share of common
stock you own as of March 24, 2006.
What if I return a proxy card but do not make specific choices?
If you return a signed and dated proxy card without marking any voting
selections, your shares will be voted "For" the election of both nominees for
director, and "For" the ratification of Grant Thornton LLP as our independent
registered public accounting firm. If any other matter is properly presented at
the meeting, your proxy (one of the individuals named on your proxy card) will
vote your shares using his or her best judgment.
Who is paying for this proxy solicitation?
We will pay for the entire cost of soliciting proxies. In addition to these
mailed proxy materials, our directors and employees may also solicit proxies in
person, by telephone, or by other means of communication. Directors and
employees will not be paid any additional compensation for soliciting proxies.
We may also reimburse brokerage firms, banks and other agents for the cost of
forwarding proxy materials to beneficial owners.
What does it mean if I receive more than one proxy card?
If you receive more than one proxy card, your shares are registered in more than
one name or are registered in different accounts. Please complete, sign and
return each proxy card to ensure that all of your shares are voted.
Can I change my vote after submitting my proxy?
Yes. You can revoke your proxy at any time before the final vote at the meeting.
If you are the record holder of your shares, you may revoke your proxy in any
one of three ways:
* You may submit another properly completed proxy card with a later
date;
* You may send a written notice that you are revoking your proxy to
PRE-PAID LEGAL SERVICES, INC., One Pre-Paid Way, Ada, Oklahoma 74820,
Attention: Kathy Pinson, Secretary.
* You may attend the Annual Meeting and vote in person. Simply attending
the meeting will not, by itself, revoke your proxy.
If your shares are held by your broker or bank as a nominee or agent, you should
follow the instructions provided by your broker or bank.
How are votes counted?
Votes will be counted by the inspector of election appointed for the meeting,
who will separately count "For" and "Withhold" for election of directors and,
with respect to proposals other than the election of directors, "Against" votes,
abstentions and broker non-votes. Abstentions will be counted towards the vote
total for each proposal, and will have the same effect as "Against" votes.
Broker non-votes have no effect and will not be counted towards the vote total
for any proposal.
If your shares are held by your broker as your nominee (that is, in "street
name"), you will need to obtain a proxy form from the institution that holds
your shares and follow the instructions included on that form regarding how to
instruct your broker to vote your shares. If you do not give instructions to
your broker, your broker can vote your shares with respect to "discretionary"
items, but not with respect to "non-discretionary" items. Discretionary items
are proposals considered routine under the rules of the New York Stock Exchange
("NYSE") on which your broker may vote shares held in street name in the absence
of your voting instructions. On non-discretionary items for which you do not
give your broker instructions, the shares will be treated as broker non-votes.
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.
How many votes are needed to approve each proposal?
Directors will be elected by a plurality of the votes of the shares present in
person or represented by proxy at the Annual Meeting.
For the ratification of Grant Thornton LLP as our independent registered public
accounting firm, Proposal No. 2 must receive a "For" vote from the majority of
shares present and entitled to vote either in person or by proxy. If you
"Abstain" from voting, it will have the same effect as an "Against" vote. Broker
non-votes will have no effect.
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.
What is the quorum requirement?
A quorum of shareholders is necessary to hold a valid meeting. A quorum will be
present if at least a majority of the outstanding shares are represented by
shareholders present at the meeting or by proxy. On the record date, there were
15,047,228 outstanding and entitled to vote. Therefore, 7,523,615 must be
represented by shareholders present at the meeting or by proxy to have a quorum.
Your shares will be counted towards the quorum only if you submit a valid proxy
(or one is submitted on your behalf by your broker, bank or other nominee) or if
you vote in person at the meeting. Abstentions and broker non-votes will be
counted towards the quorum requirement. If there is no quorum, a majority of the
votes present at the meeting may adjourn the meeting to another date.
How can I find out the results of the voting at the Annual Meeting?
Preliminary voting results will be announced at the Annual Meeting. Final voting
results will be published in our quarterly report on Form 10-Q for the second
quarter of 2006.
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. Based on the recommendation of the Nominating Committee, the Board of
Directors has nominated and proposes that John W. Hail and Thomas W. Smith,
whose terms as directors expire as of the Annual Meeting of Shareholders for
2006, 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 John W. Hail and Thomas W.
Smith 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
----------------------------- -------- -------------- ------------
John W. Hail 75 1998 2006
Thomas W. Smith 77 2004 2006
Peter K. Grunebaum 71 1980 2007
Orland G. Aldridge 67 2004 2007
Harland C. Stonecipher 67 1976 2008
Martin H. Belsky 61 1998 2008
John W. Hail
John W. Hail is the founder of AMS Health Sciences, Inc. (formerly
Advantage Marketing Systems, Inc.) ("AMS") and served as Chief Executive Officer
and Chairman of the Board of Directors of AMS since its inception in June 1988
until February 12, 2006. 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 InPlay Technologies, Inc.
(NASDAQ: NPLA) (formerly Duraswitch Industries, Inc.)
Thomas W. Smith
Mr. Smith is our largest outside shareholder 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.
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 served as a director
of AMS Health Sciences, Inc. until December 5, 2005.
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.
Board Meetings and Committees
The Board of Directors held four meetings during 2005 and acted by
unanimous consent ten 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. The Audit Committee
selects, 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 NYSE corporate
governance rules and applicable Securities and Exchange Commission ("SEC")
rules. The Audit Committee held eight meetings during 2005. 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 of 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. 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 2005, the nominating
committee met once and the compensation committee met twice and acted by
unanimous consent four times.
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 2005 annual meeting of shareholders, all
directors attended the meeting except John W. Hail.
Compensation of Directors
Directors who are also our employees receive no additional compensation for
their services as directors. Effective January 1, 2005, non-employee directors
receive $7,500 per quarter and $1,000 per board and committee meeting attended.
The chairs of the compensation and nominating committees receive an additional
$1,500 per meeting and the chair of the audit committee receives an additional
$2,500 per meeting. Thomas W. Smith has waived the receipt of any director
compensation in exchange for reimbursement of travel expenses.
The Board of Directors recommends that the shareholders vote "FOR" the
re-election of John W. Hail and Thomas W. Smith 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, 2006.
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 2005, the
Committee met eight times, and the Committee chair, as representative of the
Committee, discussed the interim financial information contained in each
quarterly earnings announcement with the CFO and independent auditors prior to
public release.
In discharging its oversight responsibility as to the audit process, the Audit
Committee obtained from the independent auditors a formal written statement
describing all relationships between the auditors and us that might bear on the
auditors' independence consistent with Independence Standards Board Standard No.
1, "Independence Discussions with Audit Committees," discussed with the auditors
any relationships that may impact their objectivity and independence and
satisfied itself as to the auditors' independence. The Committee also discussed
with management and the independent auditors the quality and adequacy of our
internal controls. The Committee reviewed with the independent auditors their
audit plans, audit scope, and identification of audit risks.
The Committee discussed and reviewed with the independent auditors all
communications required by generally accepted auditing standards, including
those described in Statement on Auditing Standards No. 61, as amended,
"Communication with Audit Committees" and, with and without management present,
discussed and reviewed the results of the independent auditors' examination of
the financial statements.
The Committee reviewed and discussed our audited financial statements as of and
for the fiscal year ended December 31, 2005, with management and the independent
auditors. Management has the responsibility for the preparation of our financial
statements and the independent auditors have the responsibility for the
examination of those statements.
Based on the above-mentioned review and discussions with management and the
independent auditors, the Committee recommended to the Board that our audited
financial statements be included in its Annual Report on Form 10-K for the
fiscal year ended December 31, 2005, for filing with the Securities and Exchange
Commission. The Committee intends to approve reappointment of the independent
auditors for 2006.
/s/ Peter K. Grunebaum /s/ Martin H. Belsky /s/ Orland G. Aldridge
------------------------------------ -------------------------------------- -------------------------------------
Peter K. Grunebaum Martin H. Belsky Orland G. Aldridge
Committee Member Committee Member Committee Chairman
Audit and Other Fees
Grant Thornton served as our independent registered public accounting firm
during 2005 and 2004. The aggregate fees billed by Grant Thornton for 2005 and
2004 for various services are set forth below:
2005 2004
---- ----
Audit Fees.................................................. $ 528,584 $ 406,200
Audit Related Fees.......................................... 18,500 26,750
Tax Fees.................................................... - 3,300
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 2005 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 67 Chairman of the Board of Directors, Chief Executive Officer
and President
Randy Harp 50 Chief Operating Officer
Kathleen S. Pinson 53 Vice President of Regulatory Compliance and Secretary
Steve Williamson 45 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 served on the Board of Directors from March 1990 until May 2004
when he resigned from the Board of Directors as part of a corporate governance
initiative required by the rules of the NYSE to have independent, outside
directors comprise the majority of the Board. 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, 2005, 2004 and 2003 to the chief
executive officer and to each other person serving as one of our executive
officers as of December 31, 2005 whose compensation exceeded $100,000 during
2005. 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......... 2005 $157,755 $1,905,046 - $11,664
Chairman of the Board, 2004 160,789 2,057,049 - 11,747
Chief Executive Officer 2003 157,755 1,984,918 - 12,490
and President
Randy Harp.................. 2005 229,474 89,337 - 5,417
Chief Operating Officer 2004 225,000 45,356 - 5,233
2003 229,327 11,835 - 5,200
Kathleen S. Pinson............. 2005 132,838 49,350 - 5,467
VP of Regulatory Compliance 2004 131,010 27,704 - 5,281
and Secretary 2003 139,422 6,575 - 5,200
Steve Williamson............... 2005 129,515 47,376 - 5,948
Chief Financial Officer 2004 124,615 24,237 - 5,746
2003 126,923 6,312 - 3,640
----------------
(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 2005, 2004 and 2003, and override commissions
earned by Mr. Stonecipher with respect to commissions earned by PPL Agency,
Inc., an affiliated insurance agency, of $56,939, $55,479 and $57,422
during 2005, 2004 and 2003, respectively. Mr. Stonecipher also has received
one-half of one percent of collected Membership fees subject to (in 2004
and 2005) certain levels of Membership fees being achieved. The 2005, 2004
and 2003 bonus amounts include $1,608,107, $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 consisted of bonuses
based upon growth in our Membership base.
(3) All Other Compensation of Mr. Stonecipher includes $2,406, $2,804 and
$3,130 for the years 2005, 2004 and 2003, 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 $9,258, $8,943 and $9,360
for the years 2005, 2004 and 2003 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 have been no grants of stock options under our Stock Option Plan to
any of the named executive officers since May 2002. 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
Shares December 31, 2005 December 31, 2005 (1)
Acquired Value ---------------------------- ----------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
--------------------------- ----------- ---------- ---------------------------- ----------------------------
Harland C. Stonecipher 100,000 $ 299,750 200,000 - $ 3,576,000 $ -
Randy Harp 50,000 149,875 130,000 - 2,358,300 -
Kathleen S. Pinson 5,000 14,988 10,000 - 178,800 -
Steve Williamson 10,000 66,422 20,000 - 368,900 -
----------------------------
(1) Value of unexercised in-the-money options at December 31, 2005 is
calculated based on the market price per share of Common Stock of $38.21
per share on December 31, 2005 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, 2006 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, 2005 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 was
owned by Mr. Stonecipher as a nominee for us prior to January 1, 2006. See
"Certain Relationships and Related Transactions." Such amounts paid to Mr.
Stonecipher are also reflected in the summary compensation table set forth
above.
Since August 2002, Mr. Stonecipher has received a bonus equal to one-half
of one percent (.5%) of Membership fees collected. For 2004 and 2005, 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. Beginning in 2005,
these Membership fee bonuses were reduced by $500,000 based in part on the fact
that we now own an aircraft previously owned by Mr. Stonecipher.
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. We have amended the deferred compensation
plan, effective January 1, 2005, to comply with new provisions of Section 409A
of the Internal Revenue Code. 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 provides for 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 that is a named executive officer
or significant employee described above or an amount equal to the participant's
annual salary for all other participants. Although the plan is unfunded and
represents an unsecured liability of ours to the participants, we have 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,
2005 and 2004, we had an aggregate deferred compensation liability of $3.9
million and $2.8 million, respectively, which is included in other non-current
liabilities. As of December 31, 2005, we had deferred compensation liability of
$2.7 million, $128,436, $42,886 and $28,384 for Mr. Stonecipher, Mr. Harp, Ms.
Pinson and Mr. Williamson, respectively, included in our aggregate deferred
compensation liability of $3.9 million. At December 31, 2005, the cash value of
the underlying insurance policies owned by us was $3.7 million and was included
in other assets.
Board of Director Interlocks and Insider Participation in Executive Compensation
Decisions
During 2005, we had a compensation committee composed entirely of
independent directors as required by the governance rules of the NYSE. During
2005 these were Messrs. Belsky and Smith. 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 four times during 2005.
The base salary of Mr. Stonecipher for 2005 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 2005 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 and remained unchanged from the previous year.
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 was owned by Mr. Stonecipher as a nominee of ours until January 1,
2006, at which time we acquired ownership of PPL Agency, Inc. No consideration
for the sale of PPL Agency, Inc. was paid to Mr. Stonecipher. During 2005, Mr.
Stonecipher earned $296,939 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 2005, new
Membership sales increased 12% to 700,727 compared to 624,525 during 2004, our
active Memberships in force increased 6% to 1,542,789 at December 31, 2005
compared to 1,451,700 Memberships in force at December 31, 2004. Additionally,
active "add-on" Identity Theft Shield Memberships increased 62% from 283,889 at
December 31, 2004 to 461,094 at December 31, 2005 and the average annual
Membership fee increased more than 4% to $286.60 at December 31, 2005 from
$274.02 at December 31, 2004. Further, total Membership fees in 2005 were $389.3
million, up 9.5% compared to 2004. Over the last five years, our compounded
growth rate of active Membership fees has exceeded 12.9% per year and diluted
earnings per share have grown from $1.26 per share to $2.29 per share for 2005.
Beginning in August 2002, Mr. Stonecipher began receiving a bonus equal to
one-half of one percent (.5%) of Membership premiums collected, which links his
compensation with our realized Membership revenues. A change in this arrangement
was made for 2005 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 2005 and 2004 compared to Membership fees in the prior
year. In 2005, these Membership fee bonuses were reduced by $500,000 based in
part on the fact that we now own an aircraft previously owned by Mr.
Stonecipher.
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, 2004 or 2005
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 shareholders' best
interests 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, 2005 with the
cumulative total shareholder returns of the Russell 2000 Index and the Hemscott,
Inc. (formerly Media General) Personal Services industry index. The comparison
assumes an investment of $100 on January 1, 2001 in each of our Common Stock,
the Russell 2000 Index and Media Hemscott'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
COMPARISON OF CUMULATIVE TOTAL RETURN OF ONE OR MORE
COMPANIES, PEER GROUPS, INDUSTRY INDEXES AND/OR BROAD MARKETS
------------------------ FISCAL YEAR ENDING ---------------------
COMPANY/INDEX/MARKET 12/29/2000 12/31/2001 12/31/2002 12/31/2003 12/31/2004 12/30/2005
PrePaid Legal Services, Inc. 100.00 85.88 102.75 102.43 149.26 154.40
Personal Services 100.00 163.05 157.94 197.97 209.10 217.73
Russell 2000 Index 100.00 101.02 79.22 115.16 135.31 139.81
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. Unless
otherwise noted, the information is based on Schedules 13D or 13G filed by the
applicable beneficial owner with the SEC or other information provided to us by
the beneficial owner as of December 31, 2005, which is the date such beneficial
owners were required to report their ownership to the SEC.
Security Ownership of Certain Beneficial Owners
Beneficial Ownership
---------------------------
Number Percent
of of
Name and Address of Beneficial Owner Shares Class
------------------------------------ -------------- ---------
Thomas W. Smith.................................................. 3,913,288 (1) 25.4 (1)
Scott Vassalluzzo................................................ 2,707,537 (1) 17.6 (1)
Idoya Partners................................................... 1,321,456 (1) 8.6 (1)
Prescott Associates.............................................. 1,194,675 (1) 7.8 (1)
Goldman Sachs Asset Management, L.P.............................. 1,086,794 (2) 7.0 (2)
Robert S. Pitts, Jr.............................................. 779,989 (3) 5.0 (3)
---------------------
(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 1,225,851 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, 3,005,788 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. Information is as of March 8, 2006.
(2) Included in the shares of Common Stock indicated as beneficially owned by
Goldman Sachs Asset Management, L.P. ("Goldman") in their capacity as
investment advisors are 671,831 shares as to which they have sole voting
and dispositive power. The address of Goldman is 32 Old Slip, New York, NY
10005. Information is as of December 31, 2005.
(3) Included in the shares of Common Stock indicated as beneficially owned by
Robert S. Pitts, Jr. ("Pitts") are 642,269 shares beneficially owned by
Steadfast Capital Management LLC, a Delaware limited liability company (the
"Investment Manager"), 137,720 shares beneficially owned by Steadfast
Advisors LLC, a Delaware limited liability company (the "Managing General
Partner"), 137,720 shares beneficially owned by Steadfast Capital, L.P., a
Delaware limited partnership ("Steadfast Capital"), 273,264 shares
beneficially owned by American Steadfast, L.P., a Delaware limited
partnership ("American Steadfast") and 369,005 shares beneficially owned by
Steadfast International Ltd., a Cayman Island exempted company (the
"Offshore Fund"). The Investment Manager and Mr. Pitts have shared voting
and shared dispositive power for 642,269 shares of Common Stock. Steadfast
Capital has shared voting and shared dispositive power with the Managing
General Partner and Mr. Pitts for 137,720 shares of Common Stock held by
the Steadfast Capital. American Steadfast has shared voting and shared
dispositive power with the Investment Manager and Mr. Pitts for 273,264
shares of Common Stock held by American Steadfast. The Offshore Fund has
shared voting and shared dispositive power with the Investment Manager and
Mr. Pitts of 369,005 shares of Common Stock held by the Offshore Fund. The
address of each of Pitts, the Investment Manger, the Managing General
Partner, Steadfast Capital and American Steadfast is 767 Fifth Avenue, 6th
Floor, New York, NY 10153. The address of the Offshore Fund is c/o Appleby
Corporate Services (Cayman) Limited, P. O. Box 1350 GT, George Town, Grand
Cayman, Cayman Islands. Information is as of December 31, 2005.
The following table sets forth certain information concerning the
beneficial ownership of our shares of Common Stock as of March 24, 2006 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.......... 1,241,876 (2) 8.1
Randy Harp............................................................. 177,423 (3) 1.2
Kathleen S. Pinson..................................................... 56,033 (4) *
Steve Williamson....................................................... 13,144 (5) *
Peter K. Grunebaum..................................................... 36,000 (6) *
John W. Hail........................................................... 31,412 (7) *
Martin H. Belsky....................................................... 10,350 (8) *
Thomas W. Smith........................................................ 3,913,288 (9) 26.0
Orland G. Aldridge..................................................... - -
All directors and executive officers as a group (9 persons)............ 5,479,526 (10) 35.4
-----------------
* 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 SEC 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) 1,011,044 shares as to which he has shared voting
and shared dispositive power with his wife; (ii) 20,832 shares owned under
the ESOP as to which Mr. Stonecipher has sole voting power, but shared
dispositive power; (iii) 200,000 shares issuable to Mr. Stonecipher upon
exercise of outstanding options; and, (iv) 10,000 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 18,528 shares owned under the ESOP as to which Mr. Harp has sole
voting power, but shared dispositive power, and 130,000 shares issuable
upon exercise of outstanding options.
(4) Includes 20,148 shares owned under the ESOP as to which Ms. Pinson has sole
voting power, but shared dispositive power, and 10,000 shares issuable upon
the exercise of outstanding options. Also, includes 3,936 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 1,629 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 10,000 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
30,000 shares issuable upon exercise of outstanding options.
(8) Includes 10,000 shares issuable upon exercise of outstanding options.
(9) See "Security Ownership of Certain Beneficial Owners" above.
(10) Includes 426,000 shares issuable upon exercise of outstanding options and
65,073 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
Through December 31, 2005, our Chairman, Harland C. Stonecipher, was the
owner of PPL Agency, Inc. ("Agency"). Effective January 1, 2006 we acquired
Agency from Mr. Stonecipher for no consideration, but prior to the acquisition
we had agreed to indemnify and hold him harmless for any personal losses
incurred as a result of his ownership of this corporation and any income earned
by Agency accrued to us. We provide management and administrative services for
Agency, for which we received specified management fees and expense
reimbursements.
Agency's financial position and results of operations are included in our
financial statements on a combined basis after elimination of intercompany
transactions. Agency earned commissions, net of amounts paid directly to its
agents by the underwriter, during 2005 of $114,000 through its sales of
insurance products of an unaffiliated company. Agency had net income of $16,000
for the year ended December 31, 2005 after incurring commissions earned by the
Chairman of $56,939 and annual management fees paid to us of $36,000 for 2005.
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 2005, 2004 and 2003, such override commissions on renewals totaled
$75,000, $79,000 and $81,000, 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 $551,000, $557,000 and $552,000
during 2005, 2004 and 2003, respectively, of which $314,000, $322,000 and
$300,000, 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 SEC. We are required to disclose delinquent filings of reports by
such persons during 2005. 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 2005 all Section 16(a) filing requirements
applicable to its executive officers, directors and 10% shareholders were met.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Grant Thornton served as our independent registered public accounting firm
for the year ended December 31, 2005 and has been selected by our Audit
Committee to continue in 2006. 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, 2005,
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,
2005 filed with the SEC 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
SEC 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 SEC 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 2007 Annual Meeting must be received no later than
December 12, 2006. To be considered for presentation at the 2007 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 2007 Annual
Meeting will confer discretionary authority to vote on any such shareholder
proposal presented at the 2007 Annual Meeting unless we are provided with notice
of such proposal no later than ninety days prior to the date of the 2007 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.
Pre-Paid Legal Services, Inc. ---------------------------------------------
c/o UMB Bank, n.a. VOTE BY TELEPHONE
P.O. Box 419064 ---------------------------------------------
Kansas City, MO 64141-6064 Have your proxy card available when you call
------------------------------- our Toll-Free number 1-888-693-8683 using a
touch-tone telephone and follow the simple
instructions to record your vote.
---------------------------------------------
VOTE BY INTERNET
---------------------------------------------
Have your proxy card available when you
access the website www.cesvote.com and follow
the simple instructions to record your vote.
---------------------------------------------
VOTE BY MAIL
---------------------------------------------
Please mark, sign and date your proxy card
and return it in the postage-paid envelope
provided or return it to: Proxy Tabulator,
P.O. Box 535450, Pittsburg, PA 15253.
------------------------------------- ---------------------------------- -----------------------------------
| Vote by Telephone | | Vote by Internet | | Vote by Mail |
| Call Toll-Free using a | | Access the Website and | | Return your proxy |
| touch-tone telephone: | | cast your vote: | | in the postage-paid |
| 1-888-693-8683 | | www.cesvote.com | | envelope provided |
------------------------------------- ---------------------------------- -----------------------------------
Vote 24 hours a day, 7 days a week.
If you vote by telephone or Internet, it is not necessary to return this proxy card.
-------------------------------------
| |
|-> |
-------------------------------------
Proxy card must be signed and dated below.
~/ Please fold and detach card at perforation before mailing. ~/
----------------------------------------------------------------------------------------------------------------------
PRE-PAID LEGAL SERVICES, INC.
Proxy Solicited on Behalf of the Board of Directors
Annual Meeting of the Shareholders to be held on Wednesday, May 17, 2006
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 7, 2006, 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 2006 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 Wednesday, May 17, 2006, 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.
DATED: ,2006
----------------------------------------------------
------------------------------------------------------------------
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.)
YOUR VOTE IS IMPORTANT
If you do not vote by telephone or Internet, please sign and
date this proxy card and return it promptly in the enclosed
postage-paid envelope, or otherwise to Proxy Tabulator, P.O. Box
535450, Pittsburg, PA 15253, so that your shares may be
represented at the Annual Meeting. If you vote by telephone or
Internet, it is not necessary to return this proxy card.
~/ Please fold and detach card at perforationbefore mailing. ~/
-----------------------------------------------------------------------------------------------------------------------------------
PRE-PAID LEGAL SERVICES, INC. PROXY
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 PROPOSAL IN ITEM
2. 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.
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.
(01) John W. Hail (02) Thomas W. Smith
2. Ratify the selection of Grant Thornton LLP as our independent registered
public accounting firm.
|_| FOR |_| AGAINST |_| ABSTAIN
In their discretion, upon such matters as may properly come before the meetingr any adjournment or adjournments thereof.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
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 Definitive Proxy Materials in
connection with our 2006 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 7, 2006.