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

                                    FORM 10-K
(Mark one)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the fiscal year ended December 31, 2002

(  ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the transition period from _____________ to ____________

Commission File Number: 1-9293
         --------------------------------------------------------------

                          PRE-PAID LEGAL SERVICES, INC.
             (Exact name of registrant as specified in its charter)

          Oklahoma                                              73-1016728
(State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                             Identification No.)

        321 East Main
        Ada, Oklahoma                                             74820
(Address of principal executive offices)                       (Zip Code)

Registrant's telephone number including area code:  (580) 436-1234

Securities registered pursuant to Section 12(b) of the Exchange Act:
                                                     Name of each exchange on
    Title of each class                                   which registered
    -------------------                                   ----------------
Common Stock, $0.01 Par Value                          New York Stock Exchange

Securities registered under Section 12 (g) of the Exchange Act: None

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No [ ]

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K ( ).

     State the aggregate market value of the voting stock held by non-affiliates
of the registrant.  The aggregate market value shall be computed by reference to
the price at which the stock was sold,  or the average  bid and asked  prices of
such stock,  as of a specified date within the past 60 days prior to the date of
the filing: As of March 7, 2003 - $203,210,000.

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Act) Yes |X| No [ ]

     State the aggregate market value of the voting and non-voting common equity
held by  non-affiliates  computed by  reference to the price at which the common
equity was last sold, or the average bid and asked prices of such common equity,
as of the last business day of the registrant's  most recently  completed second
fiscal quarter. As of June 30, 2002---$285,577,000

     Indicate  the  number of  shares  outstanding  of each of the  registrant's
classes of common stock, as of the latest  practicable date: As of March 7, 2003
there  were  17,866,510  shares  of Common  Stock,  par  value  $.01 per  share,
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE.
     Portions of the Company's  definitive  proxy  statement for its 2003 annual
meeting  of  shareholders  are  incorporated  into Part III of this Form 10-K by
reference.



                          PRE-PAID LEGAL SERVICES, INC.
                                    FORM 10-K

                      For the year ended December 31, 2002

                                TABLE OF CONTENTS

PART I.

ITEM 1.       DESCRIPTION OF BUSINESS
              General
              Industry Overview
              Description of Memberships
              Specialty Legal Service Plans
              Provider Law Firms
              Marketing
              Operations
              Quality Control
              Competition
              Regulation
              Employees
              Foreign Operations
              Availability of Information

ITEM 2.       DESCRIPTION OF PROPERTY

ITEM 3.       LEGAL PROCEEDINGS

ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF
              SECURITY HOLDERS

PART II.

ITEM 5.       MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
              STOCKHOLDER MATTERS
              Market Price of and Dividends on the Common Stock
              Recent Sales of Unregistered Securities
              Equity Compensation Plans

ITEM 6.       SELECTED FINANCIAL DATA

ITEM 7.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS
              General
              Measures of Member retention
              Results of Operations:
                  Comparison of 2002 to 2001
                  Comparison of 2001 to 2000
              Liquidity and Capital Resources
              Forward-Looking Statements
              Risk Factors

ITEM 7A.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

ITEM 9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
              ACCOUNTING AND FINANCIAL DISCLOSURE

PART III.     **
-----------

PART IV.

ITEM 14.      CONTROLS AND PROCEDURES

ITEM 15.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES
              AND REPORTS ON FORM 8-K

SIGNATURES

**  Information required by Part III is incorporated by reference from the
    Company's definitive proxy statement for its 2003 annual meeting of
    shareholders.






                          PRE-PAID LEGAL SERVICES, INC.
                                    FORM 10-K

                      FOR THE YEAR ENDED DECEMBER 31, 2002


PART I.

ITEM 1.       DESCRIPTION OF BUSINESS


General

     Pre-Paid  Legal  Services,  Inc.  (the  "Company")  was  one of  the  first
companies in the United States organized solely to design, underwrite and market
legal expense plans. The Company's  predecessor  commenced  business in 1972 and
began  offering legal expense  reimbursement  services as a "motor service club"
under Oklahoma law. In 1976, the Company was formed and acquired its predecessor
in a stock exchange.  The Company began offering Memberships  independent of the
motor service club product by adding a legal  consultation  and advice  service,
and in 1979 the Company  implemented a legal  expense  benefit that provided for
partial  payment of legal fees in  connection  with the defense of certain civil
and  criminal  actions.  The  Company's  legal  expense  plans  (referred  to as
"Memberships")  currently  provide  for a variety of legal  services in a manner
similar to medical plans.  In most states and provinces,  standard plan benefits
include preventive legal services,  motor vehicle legal defense services,  trial
defense  services,  IRS audit services and a 25% discount off legal services not
specifically  covered by the Membership for an average monthly Membership fee of
approximately  $21.  Additionally,  in approximately 39 states, the Legal Shield
rider  can be added to the  standard  plan for only $1 per  month  and  provides
members with 24-hour access to a toll-free number for attorney assistance if the
member is arrested or detained.

     Plan  benefits  are  generally  provided  through a network of  independent
provider  law firms,  typically  one firm per state or  province.  Members  have
direct,  toll-free  access to their provider law firm rather than having to call
for a referral.  At December 31, 2002, the Company had 1,382,306  Memberships in
force with  members in all 50 states,  the District of Columbia and the Canadian
provinces of Ontario, British Columbia, Alberta and Manitoba.  Approximately 90%
of such Memberships were in 29 states.

Industry Overview

     Legal service  plans,  while used in Europe for more than one hundred years
and representing more than a $4 billion European industry,  were first developed
in the  United  States  in the late  1960s.  Since  that  time,  there  has been
substantial  growth in the number of Americans entitled to receive various forms
of legal services through legal service plans. According to the latest estimates
developed  by the  National  Resource  Center for  Consumers  of Legal  Services
("NRC")  for 2002,  there were 164 million  Americans  without any type of legal
service plan.  The NRC  estimates  that 122 million  Americans  were entitled to
service  through at least one legal service plan in 2002 although more than half
are  "free"  plans that  generally  provide  limited  benefits  on an  automatic
enrollment without any direct cost to the individual.  The 122 million Americans
compares to 4 million in 1981,  58 million in 1990 and 115 million in 2000.  The
legal service plan industry  continues to evolve and market  acceptance of legal
service  plans,  as  indicated  by  the  continuing  growth  in  the  number  of
individuals covered by plans, is increasing.

     Legal service plans are offered through various organizations and marketing
methods  and  contain a wide  variety  of  benefits.  Free plans  include  those
sponsored by labor unions,  elder hotlines,  the American Association of Retired
Persons and the National Education Association  according to NRC estimates,  and
accounted for  approximately  56% of covered  persons in 2002. The NRC estimates
that an additional  27% are covered by employee  assistance  plans that are also
automatic  enrollment  plans  without  direct cost to  participants  designed to
provide limited  telephonic  access to attorneys for members of employee groups.
Free plans and employee assistance plans therefore comprise approximately 83% of
covered   persons  in  2002.   Employer  paid  plans   pursuant  to  which  more
comprehensive  benefits are offered by the employer as a fringe  benefit and the
Armed Forces are each  estimated by the NRC to account for  approximately  5% of
covered persons in 2002.

     According to the NRC, the remaining covered persons in 2002 were covered by
individual  enrollment plans, other employment based plans,  including voluntary
payroll deduction plans, and miscellaneous  plans. These plans were estimated by
the NRC to account for  approximately 8% of the market in 2002 and represent the
market segment in which the Company  primarily  competes.  According to the NRC,
these plans  typically have more  comprehensive  benefits,  higher  utilization,
involve  higher  costs  to  participants,  and  are  offered  on  an  individual
enrollment or voluntary basis.

     Of the current  work force  covered by legal  service  plans,  only 7% were
estimated  by the NRC to be covered by plans having full  coverage.  The Company
believes  these  plans  include  benefits  comparable  to those  provided by the
Company's  Memberships.  Accordingly,  the  Company  believes  that  significant
opportunities  exist for  successful  marketing of the Company's  Memberships to
employee groups and other individual consumers.

     According  to the  latest  estimates  of the  census  bureaus of the United
States and  Canada,  currently  the two  geographic  areas in which the  Company
operates,  the number of  households  in the combined  area exceeds 127 million.
Since the Company has always  disclosed its members in terms of Memberships  and
individuals  covered by the Membership  include the individual who purchases the
Membership  together with his or her spouse and never married children living at
home  up to  age  21 or up to  age 23 if the  children  are  full  time  college
students,  the  Company  believes  that its market  share  should be viewed as a
percentage of households.  Historically,  the Company's primary market focus has
been the "middle"  eighty percent of such  households  rather than the upper and
lower ten  percent  segments  based on the  Company's  belief that the upper ten
percent may  already  have a  relationship  with an attorney or law firm and the
lower ten percent may not be able to afford the cost of a legal service plan. As
a  percentage  of this  defined  "middle"  market of  approximately  100 million
households, the Company currently has an approximate 1.4% share of the estimated
market based on its existing 1.4 million active  memberships  and, over the last
30 years,  an additional  3% of households  have  previously  purchased,  but no
longer own, memberships. The Company routinely remarkets to previous members and
reinstated  approximately  57,000 and 54,000  Memberships  during 2002 and 2001,
respectively.


Description of Memberships

     The Memberships sold by the Company generally allow members to access legal
services through a network of independent law firms ("provider law firms") under
contract with the Company.  Provider law firms are paid a monthly fixed fee on a
capitated basis to render services to plan members  residing within the state or
province in which the  provider  law firm  attorneys  are  licensed to practice.
Because the fixed fee  payments by the Company to provider law firms do not vary
based on the type and amount of benefits utilized by the member,  this capitated
arrangement  provides  significant  advantages to the Company in managing claims
risk. At December 31, 2002,  Memberships  subject to the capitated  provider law
firm   arrangement   comprised   approximately   99%  of  the  Company's  active
Memberships.  The remaining  Memberships,  approximately 1%, were primarily sold
prior to 1987 and allow  members to locate  their own lawyer  ("open  panel") to
provide legal services  available  under the Membership with the member's lawyer
being reimbursed for services rendered based on usual,  reasonable and customary
fees,  or are in states  where  there is no  provider  law firm in place and the
Company's referral attorney network is utilized.

     Family Legal Plan
     The Family  Legal Plan  currently  marketed  in most  jurisdictions  by the
Company  consists of five basic benefit groups that provide coverage for a broad
range of preventive and litigation-related legal expenses. The Family Legal Plan
accounted  for  more  than  91% of the  Company's  Membership  fees in 2002  and
approximately  90% of the  outstanding  Memberships  at December  31,  2002.  In
addition to the Family Legal Plan, the Company markets other  specialized  legal
services  products  specifically  related to employment  in certain  professions
described below.

     In 12 states,  the Company's  plans are available in the Spanish  language.
For the Spanish language plans, the provider law firms have both bilingual staff
and lawyers and the Company has bilingual  staff for both  customer  service and
marketing  service  functions.  The Company will continue to evaluate making its
plans  available  in  additional  languages  in markets  where demand for such a
product is expected to be sufficient to justify this additional cost.

     In exchange for a fixed monthly, semi-annual or annual payment, members are
entitled  to  specified  legal  services.   Those  individuals  covered  by  the
Membership include the individual who purchases the Membership along with his or
her spouse and never married  children  living at home up to age 21 or up to age
23 if the children are full time college students. Also included are children up
to age 18 for whom  the  member  is  legal  guardian  and any  dependent  child,
regardless  of age, who is mentally or  physically  disabled.  Each  Membership,
other than the Business  Owners' Legal Solutions Plan, is guaranteed  renewable,
except in the case of fraud or nonpayment of Membership fees. Historically,  the
Company  has not  raised  rates to  existing  members.  If new  benefits  become
available,  existing members may choose the newer, more  comprehensive plan at a
higher rate or keep their existing  Memberships.  Memberships are  automatically
renewed at the end of each Membership  period unless the member cancels prior to
the renewal date or fails to make payment on a timely basis.

     The basic legal service plan Membership is sold as a package  consisting of
five separate  benefit groups.  Memberships  range in cost from $14.95 to $26.00
per month  depending in part on the  schedule of  benefits,  which may vary from
state or province in  compliance  with  regulatory  requirements.  Benefits  for
domestic matters, bankruptcy and drug and alcohol related matters are limited in
most Memberships.

     Preventive  Legal  Services.   These  benefits  generally  offer  unlimited
toll-free access to a member's  provider law firm for advice and consultation on
any legal matter.  These  benefits  also include  letters and phone calls on the
member's behalf, review of personal contracts and documents, each up to 10 pages
in length,  last will and testament  preparation  for the member and annual will
reviews at no  additional  cost.  Additional  wills for spouse and other covered
members may be prepared at a cost of $20.

     Automobile  Legal  Protection.  These benefits  offer legal  assistance for
matters  resulting from the operation of a licensed motor vehicle.  Members have
assistance available to them at no additional cost for: (a) defense in the court
of original  jurisdiction of moving traffic violations deemed  meritorious,  (b)
defense in the court of  original  jurisdiction  of any charge of  manslaughter,
involuntary manslaughter, vehicular homicide or negligent homicide as the result
of a licensed  motor vehicle  accident,  (c) up to 2.5 hours of  assistance  per
incident for  collection of minor property  damages (up to $2,000)  sustained by
the  member's  licensed  motor  vehicle in an  accident,  (d) up to 2.5 hours of
assistance per incident for collection of personal injury damages (up to $2,000)
sustained by the member or covered family member while driving,  riding or being
struck as a pedestrian by a motor vehicle, and (e) up to 2.5 hours of assistance
per  incident  in  connection  with an  action,  including  an  appeal,  for the
maintenance  or  reinstatement  of a member's  driver's  license  which has been
canceled,  suspended,  or revoked.  No coverage  under this benefit of the basic
legal service plan is offered to members for  pre-existing  conditions,  drug or
alcohol related matters,  or for commercial vehicles over two axles or operation
without a valid license.

     Trial  Defense.  These  benefits  offer  assistance  to the  member and the
member's  spouse through an increasing  schedule of benefits based on Membership
year.  Up to 60 hours are  available  for the  defense  of civil or  job-related
criminal  charges by the provider  law firm in the first  Membership  year.  The
criminal  action  must be  within  the scope and  responsibility  of  employment
activities of the member or spouse.  Up to 2.5 hours of assistance are available
prior to trial,  and the balance is  available  for actual trial  services.  The
schedule  of  benefits  under  this  benefit  area  increases  by 60 hours  each
Membership  year to: 120 hours in the second  Membership  year, 3 hours of which
are available for pre-trial  services;  180 hours in the third  Membership year,
3.5 hours of which are available for pre-trial services; 240 hours in the fourth
Membership year, 4 hours of which are available for pre-trial  services,  to the
maximum limit of 300 hours in the fifth  Membership year, 4.5 hours of which are
available  for  pre-trial  services.  This benefit  excludes  domestic  matters,
bankruptcy,  deliberate criminal acts, alcohol or drug-related matters, business
matters, and pre-existing conditions.

     In addition  to the  pre-trial  benefits of the basic legal plan  described
above,  there are additional  pre-trial hours available as an option, or add-on,
to the basic plan. These optional benefits cost $9.00 per month and add 15 hours
of  pre-trial  services  during the first year of the  Membership  increasing  5
additional  hours each  Membership  year to the maximum limit of 35 hours in the
fifth  Membership  year and  increases  total  pre-trial and trial defense hours
available  pursuant  to the  expanded  Membership  to 75 hours  during the first
Membership year to 335 hours in the fifth Membership year. These pre-trial hours
are in addition to those  hours  already  provided by the basic plan so that the
member,  in the  first  year of the  Membership,  has a  combined  total of 17.5
pre-trial hours available escalating to a combined total of 39.5 pre-trial hours
in the fifth  Membership  year. The Company has  experienced  increased sales of
this option during the last three years.

     IRS Audit Protection Services.  This benefit offers up to 50 hours of legal
assistance  per year in the  event the  member,  spouse  or  dependent  children
receive written notification of an Internal Revenue Service ("IRS") audit or are
summoned in writing to appear  before the IRS  concerning  a tax return.  The 50
hours of assistance  are available in the following  circumstances:  (a) up to 1
hour  for  initial  consultation,  (b) up to 2.5  hours  for  representation  in
connection  with the audit if settlement  with the IRS is not reached  within 30
days, and (c) the remaining 46.5 hours of actual trial time if settlement is not
achieved prior to litigation. Coverage is limited to audit notification received
regarding  the tax return for years during which the  Membership  is  effective.
Representation  for  charges  of fraud  or  income  tax  evasion,  business  and
corporate tax returns and certain other matters are excluded from this benefit.

     With  pre-trial  benefits  limited  to 2.5 hours to 4.5 hours  based on the
Membership year for trial defense (without the pre-trial  option  described) and
3.5 hours for the IRS audit  benefit,  these  benefits  do not  ensure  complete
pre-trial coverage.  In order to receive additional pre-trial IRS audit or trial
defense  benefits,  a matter  must  actually  proceed  to  trial.  The  costs of
pre-trial  preparation  that exceed the benefits  under the  Membership  are the
responsibility  of the  member.  Provider  law  firms  under  the  closed  panel
Membership have agreed to provide to members any additional  pre-trial  services
beyond those  stipulated  in the  Membership at a 25% discount from the provider
law firm's  customary and usual hourly rate.  Retainer fees for these additional
services may be required.

     Preferred  Member  Discount.  Provider  law firms have agreed to provide to
members any legal  services  beyond those  stipulated in the Membership at a fee
discounted  25% from the  provider law firm's  customary  and usual hourly rate.
This  "customary  and usual hourly rate" is a fixed single  hourly rate for each
provider  firm that is generally an average of the firm's  various  hourly rates
for its attorneys which typically vary based on experience and expertise.

     Legal Shield Benefit
     In  approximately  39  states,  the Legal  Shield  plan can be added to the
standard or expanded  Family  Legal Plan for $1 per month and  provides  members
with 24-hour  access to a toll-free  number for provider law firm  assistance if
the member is arrested or detained.  The Legal Shield member,  if detained,  can
present their Legal Shield card to the officer that has detained them to make it
clear that they have access to legal representation and that they are requesting
to contact a lawyer  immediately.  The  benefits  of the Legal  Shield  plan are
subject to conditions  imposed by the detaining  authority,  which may not allow
for the provider law firm to communicate  with the member on an immediate basis.
There were  approximately  613,000 Legal Shield subscribers at December 31, 2002
compared to approximately 591,000 at December 31, 2001.

     Canadian Family Plan
     The Family  Legal Plan is currently  marketed in the Canadian  provinces of
Ontario, British Columbia, Alberta and Manitoba. The Company began operations in
Ontario and British Columbia during 1999,  Alberta in February 2001 and Manitoba
in August  2001.  Benefits of the  Canadian  plan  include  expanded  preventive
benefits  including  assistance  with  Canadian  Government  agencies,  warranty
assistance  and small claims court  assistance as well as the  preferred  member
discount. Canadian Membership fees collected during 2002 were approximately $3.7
million in U.S.  dollars  compared to $4.3  million  collected  in 2001 and $3.8
million  collected  in 2000.  The Company  plans to expand  operations  in other
provinces and territories of Canada.


Specialty Legal Service Plans

     In addition to the Family  Legal Plan  described  above,  the Company  also
offers other  specialty or niche legal  service  plans.  These  specialty  plans
usually contain many of the Family Legal Plan benefits  adjusted as necessary to
meet specific industry or prospective member requirements.  In addition to those
specialty  plans  described  below,  the Company  will  continue to evaluate and
develop other such plans as the need and market allow.

     Business Owners' Legal Solutions Plan
     The Business  Owners' Legal  Solutions  plan was developed  during 1995 and
provides  business  oriented legal service benefits for small businesses with 99
or fewer  employees.  This plan was  developed  and test  marketed  in  selected
geographical  areas and more widely marketed beginning in 1996 at a monthly rate
of $69.00.  This plan provides  small  businesses  with legal  consultation  and
correspondence   benefits,   contract  and  document  reviews,  debt  collection
assistance  and  reduced  rates for any  non-covered  areas.  During  1997,  the
coverage  offered  pursuant to this plan was expanded to include  trial  defense
benefits and Membership in  GoSmallBiz.com,  an unrelated Internet based service
provider.  Through  GoSmallBiz.com,   members  may  receive  unlimited  business
consultations from business consultants and have access to timely small business
articles,  educational software,  Internet tools and more. This expanded plan is
currently  marketed at a monthly rate ranging from $75 to $125  depending on the
number of employees and provides  business  oriented legal service  benefits for
any for-profit business with 99 or fewer employees. This plan is available in 40
states  and  represented  approximately  4.0%,  3.8% and  5.5% of the  Company's
Membership fees during 2002, 2001 and 2000, respectively.

     Law Officers Legal Plan
     The Law  Officers  Legal  Plan,  developed  in  1991  and  marketed  to law
enforcement officers, provides 24-hour job-related emergency toll-free access to
a provider law firm and provides legal services  associated with  administrative
hearings.  This plan was  designed to meet the legal needs of persons in the law
enforcement  profession and is currently  marketed at the monthly rate of $16.00
or at a group rate of $14.95.  The  Company has  members  covered  under the Law
Officers  Legal Plan in 27 states.  The Law Officers Legal Plan offers the basic
family legal plan benefits  described  above  without the motor vehicle  related
benefits.  These motor vehicle  benefits are available in the Law Officers Legal
Plan only for defense of criminal  charges  resulting  from the  operation  of a
licensed  motor  vehicle.  Additionally,  at no charge to the member,  a 24-hour
emergency  hotline is  available to access the services of the provider law firm
in situations of  job-related  urgency.  The Law Officers Legal Plan also offers
representation  at no  additional  charge  for up to ten hours  (five  hours per
occurrence)  for two  administrative  hearings  or  inquiries  per  year and one
pre-termination hearing per Membership year before a review board or arbitrator.
Preparation and/or counsel for  post-termination  hearings are also available to
members as a schedule of benefits,  which increases with each  Membership  year.
The schedule of benefits is similar to that offered  under the Family Legal Plan
Trial  Defense,  including  the  availability  of the optional  pre-trial  hours
described  above for an  additional  $9.00 per  month.  During  the years  ended
December 31, 2002,  2001 and 2000,  the Law Officers  Legal Plan  accounted  for
approximately  1.4%, 1.5% and 4.8%,  respectively,  of the Company's  Membership
fees.

     Commercial Driver Legal Plan
     The  Commercial   Driver  Legal  Plan,   developed  in  1986,  is  designed
specifically  for  the  professional  truck  driver  and  offers  a  variety  of
driving-related   benefits,   including   coverage  for  moving  and  non-moving
violations. This plan provides coverage on a closed panel plan basis for persons
who drive a commercial vehicle.  This legal service plan is currently offered in
45 states.  In certain states,  the Commercial Driver Legal Plan is underwritten
by the Road America  Motor Club, an unrelated  motor  service  club.  During the
years  ended  December  31,  2002,  2001  and  2000,  this  plan  accounted  for
approximately  1.3%, .9% and 2.5%,  respectively,  of Membership  fees. The Plan
underwritten  by the Road America Motor Club is available at the monthly rate of
$35.95 or at a group rate of  $32.95.  Plans  underwritten  by the  Company  are
available at the monthly  rate of $32.95 or at a group rate of $29.95.  Benefits
include  the  motor  vehicle  related  benefits  described  above,   defense  of
Department of Transportation violations and the 25% discounted rate for services
beyond plan scope,  such as defense of non-moving  violations.  The Road America
Motor Club  underwritten  plan  includes  bail and arrest bonds and services for
family vehicles.

     Home-Based Business Rider
     The Home-Based  Business plan was designed to provide small business owners
access to commonly needed legal services. It can be added to the Expanded Family
Legal Plan in approved states.  To qualify,  the business and residence  address
must be the same with three or fewer employees and be a for-profit business that
is not publicly  traded.  Benefits  under this plan include  unlimited  business
telephone  consultation,  review of three  business  contracts per month,  three
business and debt  collection  letters per month and  discounted  trial  defense
rates.  This plan  also  includes  Membership  in  GoSmallBiz.com.  This plan is
available in 35 states and represented  approximately  1.7%, 1.5% and .6% of the
Company's Membership fees during 2002, 2001 and 2000, respectively.

     Comprehensive Group Legal Services Plan
     The Company introduced in late 1999 the Comprehensive  Group plan, designed
for the large group employee benefit market. This plan provides all the benefits
of the Family Legal Plan as well as mortgage  document  preparation,  assistance
with uncontested legal situations such as adoptions,  name changes,  separations
and divorces.  Additional  benefits include the preparation of health care power
of attorney and living wills or directives to  physicians.  Although the Company
has not experienced any significant sales of this plan, the Company expects this
plan to improve its competitive position in the large group market.

     Other than additional  benefits such as the Legal Shield benefit  described
above,  the basic  structure  and  design  of the  Membership  benefits  has not
significantly  changed  over the last several  years.  The  consistency  in plan
design and delivery  provides the Company  consistent,  accurate data about plan
utilization  which  enables the Company to mange its benefit  costs  through the
capitated payment structure to provider firms.


Provider Law Firms

     The Company's  Memberships generally allow members to access legal services
through a network of  independent  provider  law firms under  contract  with the
Company  generally  referred to as "provider law firms."  Provider law firms are
paid a fixed  fee on a per  capita  basis to  render  services  to plan  members
residing  within the state or province as provided by the contract.  Because the
fixed fee payments by the Company to provider law firms in  connection  with the
Memberships do not vary based on the type and amount of benefits utilized by the
member,  this  arrangement  provides  significant  advantages  to the Company in
managing its cost of benefits.  Pursuant to these provider law firm arrangements
and due to the volume of revenue  directed to these  firms,  the Company has the
ability to more  effectively  monitor the customer  service aspects of the legal
services provided and the financial  leverage to help ensure a customer friendly
emphasis by the provider law firms. Generally, due to the volume of revenue that
may be  directed to  particular  provider  law firms,  the Company has access to
larger,  more  diversified  law firms.  The  Company,  through its  members,  is
typically the largest client base of its provider law firms.

     Provider  law  firms are  selected  to serve  members  based on a number of
factors,  including recommendations from provider law firms and other lawyers in
the area in which the candidate  provider law firm is located and in neighboring
states,  investigation  by the Company of bar  association  standing  and client
references,  evaluation of the  education,  experience  and areas of practice of
lawyers  within  the  firm,  on-site  evaluations  by  Company  management,  and
interviews  with  lawyers  in the firm who would be  responsible  for  providing
services.  Most  importantly,  these  candidate  law firms are  evaluated on the
firm's customer service philosophy.

     The  majority  of  provider  law firms are  connected  to the  Company  via
high-speed  digital  links  to the  Company's  management  information  systems,
thereby providing real-time monitoring capability. This online connection offers
the  provider law firm access to specially  designed  software  developed by the
Company for  administration of legal services by the firm. These systems provide
statistical  reports  of each law  firm's  activity  and  performance  and allow
approximately  98% of members to be monitored on a near real-time basis. The few
provider law firms that are not online with the Company  typically  have a small
Membership base and must provide various weekly reports to the Company to assist
in  monitoring  the  firm's  service  level.   The  combination  of  the  online
statistical  reporting and weekly service reports for smaller provider law firms
allows  quality  control   monitoring  of  over  15  separate  service  delivery
benchmarks. In addition, the Company regularly conducts extensive random surveys
of members who have used the legal  services of a provider law firm. The Company
surveys  members  in each  state  every 60 days,  compiles  the  results of such
surveys and  provides  the provider law firms with copies of each survey and the
overall  summary of the results.  If a member  indicates on a survey the service
did not meet their expectation,  the member is contacted  immediately to resolve
the issue.

     Each month, provider law firms are presented with a comprehensive report of
ratings related to the Company's online monitoring,  member  complaints,  member
survey  evaluations,  telephone  reports  and  other  information  developed  in
connection with member service monitoring.  If a problem is detected,  immediate
remedial  actions are  recommended  by the Company to the  provider law firms to
eliminate service deficiencies.  In the event the deficiencies of a provider law
firm are not eliminated  through  discussions  and additional  training with the
Company,  such  deficiencies  may result in the  termination of the provider law
firm. The Company is in constant  communication  with its provider law firms and
meets with them  frequently  for  additional  training,  to encourage  increased
communications with the Company and to share suggestions  relating to the timely
and effective delivery of services to the Company's members.

     Each attorney member of the provider law firm rendering  services must have
at least two years of  experience  as a lawyer,  unless the Company  waives this
requirement  due to  special  circumstances  such as  instances  when the lawyer
demonstrates  significant legal experience acquired in an academic,  judicial or
similar capacity other than as a lawyer.  The Company provides  customer service
training to the  provider  law firms and their  support  staff  through  on-site
training that allows the Company to observe the  individual  lawyers of provider
law firms as they directly assist the members.

     Agreements with provider law firms: (a) generally permit termination of the
agreement  by either  party upon 60 days prior  written  notice,  (b) permit the
Company to terminate the Agreement for cause  immediately  upon written  notice,
(c) require the firm to maintain a minimum  amount of  malpractice  insurance on
each of its  attorneys,  in an amount not less than  $100,000,  (d) preclude the
Company from interference with the lawyer-client  relationship,  (e) provide for
periodic  review  of  services  provided,  (f)  provide  for  protection  of the
Company's  proprietary  information  and (g) require the firm to  indemnify  the
Company against liabilities  resulting from legal services rendered by the firm.
The Company is precluded  from  contracting  with other law firms to provide the
same  service  in the same  geographic  area,  except  in  situations  where the
designated law firm has a conflict of interest,  the Company  enrolls a group of
500 or more  members,  or when the  agreement  is  terminated  by either  party.
Provider law firms are  precluded  from  contracting  with other  prepaid  legal
service companies  without Company approval.  Provider law firms receive a fixed
monthly  payment for each member who are  residents  in the service area and are
responsible   for  providing  the   Membership   benefits   without   additional
remuneration.  If a provider law firm delivers  legal  services to an open panel
member,  the law firm is reimbursed for services rendered  according to the open
panel  Membership.  As  of  December  31,  2002,  provider  law  firms  averaged
approximately  60 employees each and on average are evenly split between support
staff and lawyers.

     The Company has had  occasional  disputes with provider law firms,  some of
which have resulted in litigation.  The toll-free  telephone  lines utilized and
paid for by the provider law firms are owned by the Company so that in the event
of a termination, the members' calls can be rerouted very quickly.  Nonetheless,
the Company  believes that its  relations  with provider law firms are generally
very good.  At the end of 2002 and 2001,  the  Company  had  provider  law firms
representing  45  states  and three  provinces  compared  to 43  states  and two
provinces  at the end of  2000.  During  the  last  three  calendar  years,  the
Company's  relationships with a total of five provider law firms were terminated
by the Company or the  provider law firm.  As of December 31, 2002,  14 provider
law firms have been under  contract  with the  Company for more than eight years
with the average  tenure of all  provider  law firms being  approximately  6 1/2
years.

     The Company has an extensive database of referral lawyers who have provided
services to its members for use by members when a  designated  provider law firm
is not available.  Lawyers with whom members have  experienced  verified service
problems,  or are otherwise  inappropriate for the referral system,  are removed
from the Company's list of referral lawyers.


Marketing

     Multi-Level Marketing
     The Company markets  Memberships  through a multi-level  marketing  program
that  encourages  individuals  to sell  Memberships  and allows  individuals  to
recruit and develop  their own sales  organizations.  Commissions  are paid only
when  a  Membership  is  sold  and no  commissions  are  paid  based  solely  on
recruitment.  When a Membership is sold,  commissions  are paid to the associate
making the sale, and to other associates (on average,  17 others at December 31,
2002  compared  to 16  others  at  December  31,  2001)  who are in the  line of
associates  who directly or  indirectly  recruited  the selling  associate.  The
Company  provides  training  materials,  organizes  area-training  meetings  and
designates  personnel at the home office  specially  trained to answer questions
and inquiries from associates.  The Company offers various communication avenues
to its sales  associates to keep such associates  informed of any changes in the
marketing of its Memberships. The primary communication vehicles utilized by the
Company to keep its sales associates informed include extensive use of email, an
interactive  voice-mail  service,  The Connection  monthly magazine,  the weekly
Communication  Show that may be heard via the Company's  Internet  webcasts,  an
interactive  voice response  system,  a monthly DVD (digital video disc) program
and the Company's website, prepaidlegal.com.

     Multi-level  marketing is primarily  used for  marketing  based on personal
sales  since it  encourages  individual  or  group  face-to-face  meetings  with
prospective  members and has the potential of attracting a large number of sales
personnel within a short period of time. The Company's marketing efforts towards
individuals  typically target the middle income family or individual and seek to
educate  potential  members  concerning  the  benefits of having ready access to
legal  counsel  for a variety  of  everyday  legal  problems.  Memberships  with
individuals or families sold by the multi-level  sales force  constituted 73% of
the Company's  Memberships in force at December 31, 2002 compared to 74% and 73%
at December 31, 2001 and 2000, respectively. Although other means of payment are
available,  approximately 73% of fees on Memberships purchased by individuals or
families are paid on a monthly basis by means of automatic  bank draft or credit
card.

     The Company's  marketing efforts towards employee groups,  principally on a
payroll  deduction payment basis, are designed to permit its sales associates to
reach  more  potential  members  with  each  sales  presentation  and  strive to
capitalize  on, among other things,  what the Company  perceives to be a growing
interest among  employers in the value of providing legal service plans to their
employees.  Memberships sold through employee groups  constituted  approximately
27% of total  Memberships  in force at December 31, 2002 compared to 26% and 27%
at December  31, 2001 and 2000,  respectively.  The  majority of employee  group
Memberships are sold to school systems, governmental entities and businesses. No
group  accounted  for more than 1% of the Company's  consolidated  revenues from
Memberships  during 2002, 2001 or 2000.  Substantially all group Memberships are
paid on a monthly basis.  The Company has recently begun a legislative  lobbying
effort to enhance the ability of the Company to market to public employee groups
and to encourage  Congress to reenact  legislation to permit legal service plans
to qualify for pre-tax payments under tax qualified employee cafeteria plans.

     Sales associates are generally  engaged as independent  contractors and are
provided with training materials and are given the opportunity to participate in
Company training programs. Sales associates are required to complete a specified
training  program  prior to  marketing  the  Company's  Memberships  to employee
groups. All advertising and solicitation materials used by sales associates must
be approved by the Company  prior to use. At December 31, 2002,  the Company had
341,116 "vested" sales associates compared to 286,488 and 242,085 "vested" sales
associates  at December 31, 2001 and 2000,  respectively.  A sales  associate is
considered  to be "vested" if he or she has  personally  sold at least three new
Memberships per quarter or if he or she retains a personal Membership.  A vested
associate  is entitled to continue to receive  commissions  on prior sales after
all previous  commission  advances have been recovered.  However,  a substantial
number of vested  associates do not continue to market the  Membership,  as they
are not required to do so in order to continue to be vested.  During  2002,  the
Company  had  103,112  sales   associates  who  personally  sold  at  least  one
Membership,  of which 65,383  (63%) made first time sales.  During 2000 and 1999
the  Company  had 81,613  and 73,826  sales  associates  producing  at least one
Membership  sale,  respectively,   of  which  46,687  (57%)  and  43,169  (58%),
respectively,  made first time sales.  During 2002, the Company had 12,738 sales
associates who personally sold more than ten Memberships  compared to 13,749 and
11,055 in 2001 and 2000,  respectively.  A  substantial  number of the Company's
sales associates market the Company's Memberships on a part-time basis only.

     The Company derives  revenues from its  multi-level  marketing sales force,
principally from a one-time  enrollment fee of $65 from each new sales associate
for which  the  Company  provides  initial  marketing  supplies  and  enrollment
services  to the  associate.  In January  1997,  the Company  implemented  a new
combination  classroom and field training program,  titled Fast Start to Success
("Fast  Start"),  aimed at  increasing  the  level of new  Membership  sales per
associate.  The Fast Start  program  provides  a direct  economic  incentive  to
existing  associates to help train new  recruits.  Associates  who  successfully
complete the program by writing three new Memberships  and recruiting  three new
sales associates or by personally selling five new Memberships within 60 days of
the associate's  start date advance through the various  commission  levels at a
faster  rate and  qualify for  advance  commissions.  Associates  in states that
require the  associate to become  licensed will have 60 days from the issue date
on their  license to  complete  the same  requirements.  The  program  typically
requires a fee ranging from $34 to $184 per new associate,  depending on special
promotions  the  Company  implements  from  time to time,  that is earned by the
Company upon completion of the training program.  Upon successful  completion of
the program  (including  the  required  sales of  memberships),  the  sponsoring
associates may be paid certain training  bonuses.  Amounts  collected from sales
associates  are intended  primarily to offset the  Company's  costs  incurred in
recruiting and training and providing  materials to sales associates and are not
intended to generate  profits from such  activities.  Other  revenues from sales
associates represent the sale of marketing supplies and promotional materials.

     The Company's  compensation  plan for the  multi-level  marketing  force is
under  continuous  review by the Company to assure  that the  various  financial
incentives in the plan encourage the Company's desired goals. The Company offers
various incentive  programs from time to time and frequently adjusts the program
to maintain  appropriate  incentives  and to improve  membership  production and
retention.

     Regional Vice Presidents
     The Company has a group of employees that serve as Regional Vice Presidents
("RVPs")  responsible for associate  activity in a given  geographic  region and
with the ability to appoint independent  contractors as Area Coordinators within
the  RVP's  region.  The RVPs  have  weekly  reporting  requirements  as well as
quarterly  sales and  recruiting  goals.  The RVP and Area  Coordinator  program
provides a basis to effectively monitor current sales activity,  further educate
and motivate the sales force and otherwise enhance the relationships between the
associates  and the Company.  New products and  initiatives  will continue to be
channeled  through the RVPs and Area  Coordinators.  At December 31,  2002,  the
Company had 63 RVPs in place.

     Pre-Paid Legal Benefits Association
     The Pre-Paid Legal Benefits Association was founded in 1999 with the intent
of providing  sales  associates  the  opportunity  to have access,  at their own
expense,  to health  insurance and life  insurance  benefits.  Membership in the
Association  allows a sales  associate to become  eligible to enroll in numerous
benefit programs,  as well as take advantage of attractive affinity  agreements.
Membership in this  association is open to sales associates that reach a certain
level  within the  Company's  marketing  programs  who also  maintain  an active
personal  legal  services  Membership.  The Benefits  Association  is a separate
association  not owned or  controlled  by the  Company  and is  governed by a 16
member  Board  of  Directors,  including  four  officer  positions.  None of the
officers or  directors of the Benefits  Association  serve in any such  capacity
with the  Company.  The  Benefits  Association  employs a Director of  Associate
Benefits as well as a third-party benefits  administration company, both paid by
the  Association.  Affinity  programs  available  to  members  of  the  Benefits
Association include credit cards, long-distance plans including paging, wireless
services and Internet service provider offerings,  real estate planning programs
and a travel club. As determined by its Board of Directors,  some of the revenue
generated by the Benefits  Association  through  commissions from vendors of the
benefit and affinity programs or contributed to the Benefits  Association by the
Company may be used to make open-market purchases of the Company's stock for use
in awards to Benefit  Association  members based on criteria  established by the
Benefits   Association.   Since   inception  and  through   December  31,  2002,
approximately  21,000 shares had been purchased by the Benefits  Association for
future awards to its members. In 2002, the Benefits association decided to offer
cash  in  lieu  of  stock  awards  and  the  shares  purchased  by the  Benefits
Association  were sold to the Company on January 2, 2003 at the stock's  closing
price to fund such awards.

     Cooperative Marketing
     The  Company  has in the past,  and may in the  future,  develop  marketing
strategies  pursuant to which the Company seeks  arrangements with insurance and
service companies that have established sales forces.  Under such  arrangements,
the  agents or sales  force of the  cooperative  marketing  partner  market  the
Company's  Memberships along with the products already marketed by the partner's
agents or sales force. Such arrangements allow the cooperative marketing partner
to enhance its existing  customer  relationships  and  distribution  channels by
adding  the  Company's  product to the  marketing  partner's  existing  range of
products  and  services,  while the Company is able to gain  broader  Membership
distribution and access to established customer bases.

     The  Company  has a  cooperative  marketing  agreement  with  Atlanta-based
Primerica Financial Services ("PFS"), a subsidiary of Citigroup, Inc. PFS is one
of the largest financial services marketing  organizations in North America with
more than 100,000 personal  financial  analysts across the U.S. and Canada.  The
PFS cooperative  marketing agreement resulted in approximately 15,000 and 13,000
Memberships during 2002 and 2001, respectively.

     The Company has had limited success with cooperative marketing arrangements
in the past and is unable to predict with certainty what success it
will achieve, if any, under its existing or future cooperative marketing
arrangements.


Operations

     The  Company's   corporate   operations  involve   Membership   application
processing,  member-related customer service, various associate-related services
including  commission  payments,  receipt of Membership  fees,  related  general
ledger   accounting,   and  managing  and   monitoring  the  provider  law  firm
relationships.

     The Company utilizes a management  information system to control operations
costs and  monitor  benefit  utilization.  Among  other  functions,  the  system
evaluates  benefit  claims,  monitors  member  use  of  benefits,  and  monitors
marketing/sales data and financial reporting records.  Dominant company concerns
in the  architecture  of private  networks  and web  systems  include  security,
capacity to accommodate peak traffic,  disaster recovery,  and scalability.  The
Company believes its management  information system has substantial  capacity to
accommodate  increases  in business  data before  substantial  upgrades  will be
required. The Company believes this excess capacity will enable it to experience
a  significant  increase  in the  number of  members  serviced  with less than a
commensurate increase of administrative costs.

     The Company has built a strong Internet presence to strengthen the services
provided  to both  members and  associates.  The  Company's  Internet  site,  at
www.prepaidlegal.com,  welcomes the  multifaceted  needs of our  members,  sales
force,  investors,  and  prospects.  It has also reduced costs  associated  with
communicating critical information to the associate sales force.

     The Company's operations also include departments  specifically responsible
for marketing support and regulatory and licensing  compliance.  The Company has
an internal  production  staff that is  responsible  for the  development of new
audio and video sales materials.


Quality Control

     In addition to the Company's quality control efforts for provider law firms
described  above,  the Company also closely monitors the performance of its home
office  personnel,  especially those who have telephone  contact with members or
sales associates.  The Company records home office employee telephone calls with
its  members and sales  associates  to assure that  Company  policies  are being
followed and to gather data about recurring problems that may be avoided through
modifications  in  policies.  The  Company  also  uses such  recorded  calls for
training and recognition purposes.


Competition

     The Company  competes in a variety of market  segments in the prepaid legal
services  industry,   including,  among  others,  individual  enrollment  plans,
employee  benefit  plans  and  certain  specialty  segments.  According  to 2002
estimates by NRC, an estimated 35% of the total estimated market in the segments
in which the  Company  competes is served by a large  number of small  companies
with regional areas of emphasis or union-based  automatic  enrollment plans. The
remaining 65% of such market are served  primarily by the Company and five other
principal  competitors:  Hyatt  Legal  Plans (a  MetLife  company),  ARAG  Group
(formerly Midwest Legal Services),  LawPhone/ACS,  National Legal Plan and Legal
Services Plan of America (a GE Financial Assurance  Partnership  Marketing Group
company,  formerly the Signature Group). For  employment-based  plans other than
employer paid,  union-based  automatic  enrollment plans and employee assistance
plans and for individual enrollment plans, the Company represents  approximately
51% of the market share garnered by this group according to the NRC.

     If a greater  number of companies  seek to enter the prepaid legal services
market,  the Company will experience  increased  competition in the marketing of
its  Memberships.  However,  the Company  believes its  competitive  position is
enhanced by its actuarial  database,  its existing network of provider  attorney
law  firms  and its  ability  to  tailor  products  to  suit  various  types  of
distribution  channels or target  markets.  The Company  believes  that no other
competitor  has the  ability  to  monitor  the  customer  service  aspect of the
delivery  of legal  services  to the  same  extent  the  Company  does.  Serious
competition is most likely from companies with significant  financial  resources
and advanced marketing techniques.


Regulation

     The Company is regulated by or required to file with or obtain  approval of
State Insurance  Departments,  Secretaries of State,  State Bar Associations and
State  Attorney  General  offices  depending  on  individual  state  opinions of
regulatory  responsibility for legal expense plans. The Company is also required
to file with  similar  government  agencies  in  Canada.  While  some  states or
provinces regulate legal expense plans as insurance or specialized legal expense
products, others regulate them as services.

     As of  December  31,  2002,  the  Company  or one of its  subsidiaries  was
marketing  new  Memberships  in 35 states or  provinces  that require no special
licensing  or  regulatory  compliance.   The  Company's  subsidiaries  serve  as
operating  companies  in 16 states that  regulate  Memberships  as  insurance or
specialized legal expense  products.  The most significant of these wholly owned
subsidiaries  are Pre-Paid  Legal  Casualty,  Inc.  ("PPLCI") and Pre-Paid Legal
Services,  Inc. of Florida  ("PPLSIF").  Of the Company's  total  Memberships in
force as of December 31, 2002,  34% were written in  jurisdictions  that subject
the Company or one of its subsidiaries to insurance or specialized legal expense
plan regulation.

     The Company began selling  Memberships in the Canadian provinces of Ontario
and British  Columbia  during 1999,  Alberta  during  February 2001 and Manitoba
during August 2001. The  Memberships  currently  marketed by the Company in such
provinces do not  constitute an insurance  product and therefore are exempt from
insurance regulation.

     In states with no special licensing or regulatory requirements, the Company
commences  operations only when advised by the appropriate  regulatory authority
that proposed operations do not constitute conduct of the business of insurance.
There is no assurance that Memberships will be exempt from insurance  regulation
even in states or provinces with no specific  regulations.  In these situations,
the  Company  or one of its  subsidiaries  would be  required  to  qualify as an
insurance company in order to conduct business.

     PPLCI serves as the operating  company in most states where Memberships are
determined  to be  an  insurance  product.  PPLCI  is  organized  as a  casualty
insurance  company under  Oklahoma law and as such is subject to regulation  and
oversight by various state insurance agencies where it conducts business.  These
agencies  regulate  the  Company's  forms,  rates,  trade  practices,  allowable
investments  and licensing of agents and sales  associates.  These agencies also
prescribe   various   reports,   require   regular   evaluations  by  regulatory
authorities,  and  set  forth-minimum  capital  and  reserve  requirements.  The
Company's  insurance  subsidiaries  are  routinely  evaluated  and  examined  by
representatives from the various regulatory  authorities in the normal course of
business.  Such  examinations  have not and are not expected to adversely impact
the Company's operations or financial condition in any material way. The Company
believes  that all of its  subsidiaries  meet any  required  capital and reserve
requirements.  Dividends  paid by PPLCI are  restricted  under  Oklahoma  law to
available surplus funds derived from realized net profits.

     The  Company is required to register  and file  reports  with the  Oklahoma
Insurance  Commissioner  as a member  of a  holding  company  system  under  the
Oklahoma Insurance Holding Company System Regulatory Act.  Transactions  between
PPLCI  and the  Company  or any other  subsidiary  must be at  arms-length  with
consideration for the adequacy of PPLCI's surplus,  and must have prior approval
of the Oklahoma Insurance Commissioner. Payment of any extraordinary dividend by
PPLCI to the Company requires approval of the Oklahoma  Insurance  Commissioner.
During 2001,  PPLCI declared a $5 million  dividend payable to the Company which
was paid in 2002.  During 2002,  PPLCI declared a $6 million  dividend which was
paid in  December  of 2002.  Any change in control  of the  Company,  defined as
acquisition by any method of more than 10% of the Company's  outstanding  voting
stock,  including rights to acquire such stock by conversion of preferred stock,
exercise of warrants or otherwise,  requires approval of the Oklahoma  Insurance
Commissioner.  Holding company laws in some states in which PPLCI operates, such
as Texas, provide for comparable registration and regulation of the Company.

     Certain states have enacted  special  licensing or regulatory  requirements
designed to apply only to  companies  offering  legal  service  products.  These
states  most  often  follow  regulations  similar to those  regulating  casualty
insurance providers.  Thus, the operating company may be expected to comply with
specific  minimum  capitalization  and  unimpaired  surplus  requirements;  seek
approval  of forms,  Memberships  and  marketing  materials;  adhere to required
levels  of  claims  reserves,  and seek  approval  of  premium  rates  and agent
licensing.  These laws may also  restrict  the amount of  dividends  paid to the
Company by such  subsidiaries.  PPLSIF is subject to  restrictions  of this type
under the laws of the State of Florida,  including  restrictions with respect to
payment of dividends to the Company.

     As the legal plan industry matures,  additional  legislation may be enacted
that would affect the Company and its  subsidiaries.  The Company cannot predict
with any accuracy if such legislation would be adopted or its ultimate effect on
operations,  but expects to continue to work closely with regulatory authorities
to minimize any undesirable impact.

     The  Company's   operations  are  further  impacted  by  the  American  Bar
Association Model Rules of Professional Conduct ("Model Rules") and the American
Bar Association Code of Professional  Responsibility  ("ABA Code") as adopted by
various  states.  Arrangements  for payments to a lawyer by an entity  providing
legal services to its members are permissible under both the Model Rules and the
ABA Code, so long as the  arrangement  prohibits  the entity from  regulating or
influencing the lawyer's  professional  judgment.  The ABA Code prohibits lawyer
participation in closed panel legal service  programs in certain  circumstances.
The  Company's  agreements  with  provider  law firms comply with both the Model
Rules  and the ABA  Code.  The  Company  relies on the  lawyers  serving  as the
designated provider law firms for the closed panel benefits to determine whether
their participation would violate any ethical guidelines applicable to them. The
Company  and its  subsidiaries  comply  with  filing  requirements  of state bar
associations or other applicable regulatory authorities.

     The Company also is required to comply with state,  provincial  and federal
laws  governing  the  Company's  multi-level  marketing  approach.   These  laws
generally  relate to unfair or deceptive trade  practices,  lotteries,  business
opportunities  and securities.  The Company has experienced no material problems
with  marketing  compliance.  In  jurisdictions  that require  associates  to be
licensed, the Company receives all applications for licenses from the associates
and forwards them to the appropriate regulatory authority. The Company maintains
records of all associates licensed,  including effective and expiration dates of
licenses and all states in which an associate is licensed.  The Company does not
accept new Membership sale  applications  from any unlicensed  associate in such
jurisdictions.


Employees

     At  December  31,  2002,  the  Company and its  subsidiaries  employed  660
individuals  on a full-time  basis,  exclusive of  independent  agents and sales
associates  who  are  not  employees.   None  of  the  Company's  employees  are
represented by a union. Management considers its employee relations to be good.


Foreign Operations

     The Company  began  operations  in the  Canadian  provinces  of Ontario and
British  Columbia  during 1999,  Alberta in February 2001 and Manitoba in August
2001 and derived aggregate revenues, including Membership fees and revenues from
associate  services,  from Canada of $4.0  million in U.S.  dollars  during 2002
compared to $4.4 million and $4.9 million in 2001 and 2000, respectively. Due to
the relative  stability of the United States and Canadian foreign  relations and
currency  exchange  rates,  the  Company  believes  that  any  risk  of  foreign
operations  or  currency  valuations  is  minimal  and would not have a material
effect on the Company's financial condition, liquidity or results of operations.


Availability of Information

     The Company files periodic reports and proxy statements with the Securities
and Exchange Commission.  The public may read and copy any materials the Company
files with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The public may obtain information about the operation of
the Public  Reference  Room by calling  the SEC at  1-800-SEC-0330.  The Company
files its reports  with the SEC  electronically.  The SEC  maintains an Internet
site  that  contains  reports,  proxy  and  information  statements,  and  other
information regarding issuers that file electronically with the SEC. The address
of this site is http://www.sec.gov.

     The Company's Internet address is  www.prepaidlegal.com.  The Company makes
available  on its  website  free of charge  copies of its annual  report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments
to those  reports  filed or furnished  pursuant to Section 13(a) of the Exchange
Act as soon as reasonably possible after the Company  electronically  files such
material with, or furnishes it to, the SEC.


ITEM 2.       DESCRIPTION OF PROPERTY

     The   executive  and   administrative   offices  of  the  Company  and  its
subsidiaries are located at 321 East Main Street, Ada, Oklahoma.  These offices,
containing  approximately  40,000 square feet of office space,  are owned by the
Company.  Additionally, the Company completed construction during 1999, of a new
facility containing approximately 17,000 square feet of office and warehouse and
shipping  space.  The Company now has three  buildings on its  property  located
approximately  five  miles  from  the  Company's  executive  and  administrative
offices.  The Company  previously  completed  construction  of its Customer Care
facility  during 1998 that contains  approximately  10,000 square feet of office
and call center  space.  The Customer  Care facility is adjacent to the material
distribution center constructed during 1997 containing 8,600 square feet that is
now used for general office space.  The Company  currently  fully utilizes these
three  existing  facilities  with  combined  square  footage of more than 35,000
square  feet and has begun  construction  of a new home  office  complex  in Ada
located approximately five miles from its current location.  The new home office
is being constructed on approximately 87 acres contributed to the Company by the
City of Ada in 2001 as part of an economic  development  incentive package.  The
Company began  construction  in November  2001 and  scheduled  completion of the
estimated $30 million complex, which will include a sales associate Hall of Fame
and six-story tower, is September 2003. Costs incurred through December 31, 2002
of  approximately  $12.6 million,  including  $120,000 in  capitalized  interest
costs,  have been paid from existing  resources and $8.3 million  outstanding on
its $20 million line of credit for its new office construction.  The Company has
entered  into  construction  contracts  in the amount of $28.4  million with the
general contractor  pertaining to the new office complex.  Total remaining costs
of  construction  from  January 1, 2003 are  estimated  at  approximately  $17.4
million.

     In addition to the property  described  above that is owned by the Company,
the Company  opened an additional  Customer  Care facility in Antlers,  Oklahoma
during March 2000, in building  space provided by the City of Antlers at no cost
to the  Company.  In  conjunction  with a  rural  economic  development  program
coordinated  by the City of Antlers,  a new facility was built at no cost to the
Company that can accommodate approximately 100 customer service representatives.
The Company  leased the facilities  from the City of Antlers upon  completion of
the construction in November 2002.


ITEM 3.       LEGAL PROCEEDINGS

     The  Company  and  various  of its  executive  officers  have been named as
defendants in a putative  securities class action originally filed in the United
States District Court for the Western District of Oklahoma in early 2001 seeking
unspecified  damages on the basis of  allegations  that the Company issued false
and  misleading  financial  information,  primarily  related  to the  method the
Company  used  to  account  for  commission   advance   receivables  from  sales
associates.  On March 5, 2002, the Court granted the Company's motion to dismiss
the  complaint,  with  prejudice,  and  entered  a  judgment  in  favor  of  the
defendants.  Plaintiffs thereafter filed a motion requesting  reconsideration of
the dismissal  which was denied.  The plaintiffs  have appealed the judgment and
the order denying  their motion to reconsider  the judgment to the Tenth Circuit
Court of Appeals,  and as of February  28,  2003,  the case was in the  briefing
stage.  The  Company is unable to predict  when a decision  will be made on this
appeal. In August 2002, the lead institutional plaintiff withdrew from the case,
leaving two individual  plaintiffs as lead  plaintiffs on behalf of the putative
class. The ultimate outcome of this case is not determinable.

     On June 7, 2001 and August 3, 2001,  shareholder  derivative  actions  were
filed by alleged company shareholders,  Bruce A. Hansen and Donna L. Hansen, and
Roger  Strykowski,  respectively,  against all of the  directors  of the Company
seeking  unspecified  actual and punitive damages on behalf of the Company based
on allegations of breach of fiduciary duty, corporate waste and mismanagement by
the  defendant  directors.  On March 1, 2002,  plaintiffs  filed a  consolidated
amended derivative  complaint.  The amended complaint alleges that the defendant
directors caused the Company to violate generally accepted accounting principles
and federal  securities  laws by improperly  capitalizing  commission  expenses,
caused the Company to allegedly  pay  increased  salaries and bonuses based upon
financial  performance which was allegedly improperly  inflated,  and caused the
Company to expend  significant  dollars in  connection  with the  defense of its
accounting policy, including cost incurred in connection with the defense of the
securities  class action  described above, and in connection with the repurchase
of its own shares on the open market at allegedly  artificially inflated prices.
This  derivative  action is  related to the  putative  securities  class  action
described  above,  which has been dismissed with  prejudice.  After the Pre-Paid
defendants moved to dismiss the consolidated amended derivative  complaint,  the
plaintiffs  filed a  voluntary  dismissal  of the case in  August  2002  without
prejudice.  The Pre-Paid defendants objected to the voluntary dismissal, but the
court  approved  the  dismissal  subject  to  plaintiffs'  publishing  notice to
shareholders  and allowing a 30-day  objection  period  regarding their proposed
dismissal  without  prejudice.  Plaintiffs'  notice was published on January 28,
2003 and the deadline for  objections  was February 28, 2003.  On March 13, 2003
the case was dismissed without prejudice.

     Beginning  in the second  quarter of 2001 and through  December  31,  2002,
multiple lawsuits were filed against the Company,  certain officers,  employees,
sales associates and other  defendants in various Alabama and Mississippi  state
courts by current or former  members  seeking  actual and  punitive  damages for
alleged  breach of contract,  fraud and various other claims in connection  with
the sale of  memberships.  As of December 31, 2002,  the Company was aware of 28
separate lawsuits involving approximately 298 plaintiffs that have been filed in
multiple counties in Alabama.  One suit involving two plaintiffs which was filed
as a class action has been dismissed with prejudice as to the class  allegations
and without prejudice as to the individual  claims. As of December 31, 2002, the
Company was aware of 14 separate lawsuits involving approximately 428 plaintiffs
in multiple  counties in Mississippi.  Certain of the Mississippi  lawsuits also
name the Company's provider attorney in Mississippi as a defendant.  Proceedings
in the eleven cases which name the  Company's  provider  attorney as a defendant
have been  stayed for at least 90 days as to the  provider  attorney  due to the
rehabilitation  proceeding  involving the provider law firm's insurer.  At least
two  complaints  have  been  filed  on  behalf  of  certain  of the  Mississippi
plaintiffs and others with the Attorney General of Mississippi in March 2002 and
December 2002. The Company has responded to the Attorney  General's requests for
information  with respect to both  complaints,  and as of February 28, 2003, the
Company  was not  aware of any  further  actions  being  taken  by the  Attorney
General.  In  Mississippi,  the Company has filed  lawsuits in the United States
District  Court for the Southern and Northern  Districts of Mississippi in which
the Company seeks to compel arbitration of the various  Mississippi claims under
the  Federal  Arbitration  Act  and  the  terms  of  the  Company's   membership
agreements,  and has appealed the state court rulings in favor of certain of the
plaintiffs on the  arbitration  issue to the  Mississippi  Supreme Court.  These
cases  are  all in  various  stages  of  litigation,  including  trial  settings
beginning  in  Alabama  in May,  2003,  and seek  varying  amounts of actual and
punitive damages.  While the amount of membership fees paid by the plaintiffs in
the Mississippi cases is $500,000 or less,  certain of the cases seek damages of
$90 million.  Additional  suits of a similar  nature have been  threatened.  The
ultimate outcome of any particular case is not determinable.

     On April 19, 2002, counsel in certain of the above-referenced Alabama suits
also filed a similar suit against the Company and certain of its officers in the
District  Court of Creek  County,  Oklahoma  on behalf  of Jeff and Jana  Weller
individually  and doing  business  as Hi-Tech  Auto making  similar  allegations
relating to the Company's  memberships and seeking unspecified damages on behalf
of a "nationwide"  class.  The Company's  preliminary  motions in this case have
been denied, and, as of February 28, 2003, the Company's appeal of the denial of
its motion to compel  arbitration is pending before the Oklahoma  Supreme Court.
The ultimate outcome of this case is not determinable.

     On June 29, 2001,  an action was filed  against the Company in the District
Court of Canadian  County,  Oklahoma.  In 2002,  the petition was amended to add
five additional named plaintiffs and to add and drop certain claims. This action
is a putative class action brought by Gina Kotwitz,  George Kotwitz, Rick Coker,
Richard  Starke,  Jeff  Turnipseed  and  Aaron  Bouren  on  behalf  of all sales
associates of the Company. The amended petition seeks injunctive and declaratory
relief,  with such other  damages as the court  deems  appropriate,  for alleged
violations of the Oklahoma  Uniform  Consumer Credit Code in connection with the
Company's  commission  advances,  and seeks  injunctive and  declaratory  relief
regarding the enforcement of certain contract  provisions with sales associates.
The  impact  of the  claims  alleged  under  the  Consumer  Credit  Code and the
assertion  of  entitlement  to  injunctive  relief  could exceed $315 million if
plaintiffs are successful both in their request for class  certification  and on
the merits. The plaintiffs'  request for class  certification is set for hearing
on July 22, 2003. The ultimate outcome of this case is not determinable.

     On March 1, 2002, an action was filed in the United States  District  Court
for the Western District of Oklahoma by Caroline Sandler, Robert Schweikert, Sal
Corrente,  Richard Jarvis and Vincent  Jefferson against the Company and certain
executive  officers.  This action is a putative class action seeking unspecified
damages filed on behalf of all sales  associates of the Company and alleges that
the  marketing  plan  offered by the Company  constitutes  a security  under the
Securities  Act of 1933 and seeks remedies for failure to register the marketing
plan as a  security  and for  violations  of the  anti-fraud  provisions  of the
Securities  Act of 1933 and the  Securities  Exchange Act of 1934 in  connection
with representations  alleged to have been made in connection with the marketing
plan. The complaint also alleges violations of the Oklahoma  Securities Act, the
Oklahoma Business Opportunities Sales Act, breach of contract, breach of duty of
good faith and fair dealing and unjust  enrichment and violation of the Oklahoma
Consumer Protection Act and negligent  supervision.  This case is subject to the
Private  Litigation  Securities  Reform Act.  Pursuant to the Act, the Court has
approved the named plaintiffs and counsel and an amended  complaint was filed in
August 2002.  The Company  filed  motions to dismiss the complaint and to strike
the class action  allegations on September 19, 2002. All discovery in the action
is stayed  pending a ruling on the motion to dismiss.  As of February  28, 2003,
all briefs had been filed by the parties on the motion to dismiss and a decision
on the motion will be made by the Court. The Company is unable to predict when a
decision will be made. The ultimate outcome of this case is not determinable.

     In  December  2002,  the West  Virginia  Supreme  Court  reversed a summary
judgment which had been granted by the Circuit Court of Monangalia County,  West
Virginia  in favor of the  Company  in  connection  with the  claims of a former
member,  Georgia  Poling and her  daughters  against  the Company and a referral
lawyer with  respect to a 1995  referral.  That action was  originally  filed in
March 2000,  and alleges  breach of  contract  and fraud  against the Company in
connection  with the  referral.  The case is now  scheduled  for trial in August
2003, and plaintiffs  seek actual and punitive  damages in unspecified  amounts.
The ultimate outcome of this case is not determinable.

     On January 30, 2003, the Company  announced that it had received a subpoena
from the office of the United States  Attorney for the Southern  District of New
York  requesting  information  relating to trading  activities  in the Company's
stock in advance of the January 2003  announcement  of recruiting and membership
production  results for the fourth  quarter of 2002.  The Company also  received
notice from the  Securities  and Exchange  Commission  that it is  conducting an
informal  inquiry into the same  subject.  The Company is  cooperating  fully in
responding  to these  requests.  The  ultimate  outcome of these  matters is not
determinable.

     The Company is a defendant  in various  other  legal  proceedings  that are
routine and incidental to its business.  The Company will vigorously  defend its
interests in all  proceedings  in which it is named as a defendant.  The Company
also receives periodic complaints or requests for information from various state
and federal agencies relating to its business or the activities of its marketing
force.  The Company  promptly  responds to any such  matters  and  provides  any
information requested.

     While the ultimate outcome of these  proceedings is not  determinable,  the
Company does not currently  anticipate that these  contingencies  will result in
any material adverse effect to its financial  condition or results of operation,
unless  an  unexpected  result  occurs  in one of the  cases.  The  Company  has
established  an  accrued  liability  it  believes  will be  sufficient  to cover
estimated  damages in connection with various cases,  which at December 31, 2002
was $3.3 million.  If an  unexpected  result were to occur in one or more of the
pending cases,  the amount of damages  awarded could differ  significantly  from
management's estimates.  The Company believes it has meritorious defenses in all
pending cases and will vigorously defend against the plaintiffs' claims.



ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
         None.



                                     PART II

ITEM 5.       MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
              MATTERS

Market Price of and Dividends on the Common Stock
     At March 7, 2003, there were 5,529 holders of record  (including  brokerage
firms and other nominees) of the Company's common stock,  which is listed on the
New York Stock Exchange under the symbol "PPD." The following  table sets forth,
for the periods indicated, the range of high and low sales prices for the common
stock, as reported by the New York Stock Exchange.

                                                               High       Low
2003:
  1st Quarter (through March 7).. .....................     $ 26.80    $ 15.87

2002:
  4th Quarter .........................................     $ 30.49    $ 17.04
  3rd Quarter..........................................       24.29      16.68
  2nd Quarter......................  ..................       30.45      18.50
  1st Quarter..........................................       31.75      18.76

2001:
  4th Quarter..........................................     $ 22.25    $ 15.05
  3rd Quarter........................ .................       22.48      15.80
  2nd Quarter..........................................       24.75      10.04
  1st Quarter..........................................       28.63      10.05

     The Company has never declared a cash dividend on its common stock. For the
foreseeable   future,  it  is  anticipated  that  earnings  generated  from  the
operations  of the Company will be used to finance the  Company's  growth and to
purchase shares of its stock and that cash dividends will not be paid to holders
of the common stock. Additionally,  the Company has lines of credit with Bank of
Oklahoma, N.A. as described in "Management's Discussion and Analysis - Liquidity
and Capital  Resources,"  which prohibit payment of cash dividends on its common
stock.  Any  decision  by the  Board of  Directors  of the  Company  to pay cash
dividends in the future will depend upon,  among other  factors,  the  Company's
earnings,  financial  condition,  capital  requirements  and  approval  from its
lender. In addition, the Company's ability to pay dividends is dependent in part
on its  ability  to derive  dividends  from its  subsidiaries.  The  payment  of
dividends by PPLCI is restricted under the Oklahoma  Insurance Code to available
surplus funds derived from realized net profits and requires the approval of the
Oklahoma Insurance  Commissioner for any dividend  representing more than 10% of
such  accumulated  available  surplus  or an amount  representing  more than the
previous years' net profits.  During 2002 and 2001,  PPLCI declared a $6 million
and a $5  million  dividend  payable  to the  Company.  Both  the  2001 and 2002
dividends were paid during 2002. Additionally, during 2001, the Company received
a $2.8  million  dividend  from UFL after  receiving  all  necessary  regulatory
approvals.  PPLSIF is similarly  restricted  pursuant to the  insurance  laws of
Florida.  At December 31, 2002,  PPLSIF did not have funds available for payment
of   substantial   dividends   without  the  prior  approval  of  the  insurance
commissioner  while  PPLCI had  approximately  $3.5  million  in  surplus  funds
available for payment of an ordinary  dividend in December 2003. At December 31,
2002 the amount of restricted net assets of consolidated  subsidiaries was $11.2
million.


Recent Sales of Unregistered Securities
         None.




Equity Compensation Plans

     The  following  table  provides  information  with respect to the Company's
equity compensation plans as of December 31, 2002, (other than its tax qualified
Employee Stock Ownership Plan designed to provide retirement benefits).



                                                                                            Number of securities
                                                                                           remaining available for
                                          Number of securities                              future issuance under
                                            to be issued upon        Weighted average        equity compensation
                                               exercise of          exercise price of         plans (excluding
                                          outstanding options,     outstanding options,    securities reflected in
                                           warrants and rights     warrants and rights           column (a))
             Plan Category               -----------------------   --------------------    -------------------------
                                                   (a)                      (b)                      (c)
                                                                                 
Equity compensation plans approved by
  security holders (1).................           1,192,752                 $26.69                 15,250 (1)
Equity compensation plans not approved
  by security holders (2)..............             305,640                  23.72                      - (2)
                                         -----------------------   --------------------    -------------------------
Total..................................           1,498,392                 $26.09                 15,250
                                         -----------------------   --------------------    -------------------------

-----------
(1)  These stock options have been issued pursuant to the Company's Stock Option
     Plan which has been approved by security  holders.  At the  Company's  next
     Annual Meeting of  Shareholders on May 29, 2003, the Company expects to ask
     security  holders to approve the  amendment of the  Company's  Stock Option
     Plan to increase the maximum number of shares of Common Stock in respect of
     which  options may be granted  under the Stock  Option Plan from  2,000,000
     shares to 3,000,000 shares.

(2)  These  stock  options  have been  issued  to the  Company's  Regional  Vice
     Presidents ("RVPs") (described above) in order to encourage stock ownership
     by its RVPs and to increase the proprietary interest of such persons in its
     growth and financial success.  These options have been granted periodically
     to RVPs since 1996. Options are granted at fair market value at the date of
     the grant and are generally  immediately  exercisable for a period of three
     years or within 90 days of termination,  whichever occurs first. There were
     244,679,  131,288  and 90,892  total  options  granted to RVPs in the years
     ended December 31, 2002, 2001 and 2000,  respectively.  The Company has not
     adopted any limit for the number of options that may be granted to RVPs.


ITEM 6.       SELECTED FINANCIAL DATA

     The following table sets forth selected  financial and statistical data for
the  Company as of the dates and for the periods  indicated.  As a result of the
1998 fourth quarter acquisition of TPN, Inc. ("TPN") that was accounted for as a
pooling of interests, the 1998 period has been restated to include the operating
results of TPN. This information is not necessarily  indicative of the Company's
future performance. The following information should be read in conjunction with
the  Company's   Consolidated   Financial   Statements  and  Notes  thereto  and
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operation included elsewhere herein.




                                                                              Year Ended December 31,
                                                            ------------------------------------------------------------
                                                               2002        2001        2000         1999         1998
                                                            ----------   ----------  ----------  ----------   ----------
Income Statement Data:                                     (In thousands, except ratio, per share and Membership amounts)

  Revenues:
                                                                                               
    Membership fees......................................   $ 308,401    $ 263,514   $ 211,763   $ 153,918    $ 107,393
    Associate services...................................      37,418       36,485      30,372      22,816       17,255
    Product sales (2)....................................           -           60       1,016       5,888       27,779
    Other................................................       4,804        3,602       3,232       3,809        2,901
                                                            ----------   ----------  ----------  ----------   ----------
      Total revenues.....................................     350,623      303,661     246,383     186,431      155,328
                                                            ----------   ----------  ----------  ----------   ----------
  Costs and expenses:
    Membership benefits..................................     103,761       87,429      69,513      51,089       35,465
    Commissions..........................................     119,371      111,060      96,614      74,333       50,652
    Associate services and direct marketing..............      32,566       29,879      23,251      15,815       14,738
    General and administrative expenses..................      33,256       28,243      21,524      19,280       21,902
    Product costs (2)....................................           -           33         675       4,174       17,967
    Other, net...........................................       6,685        5,884       4,403       3,226        2,152
                                                            ----------   ----------  ----------  ----------   ----------
      Total costs and expenses...........................     295,639      262,528     215,980     167,917      142,876
                                                            ----------   ----------  ----------  ----------   ----------

Income from continuing operations before income taxes and
  cumulative effect of change in accounting principle....      54,984       41,133      30,403      18,514       12,452
  Provision for income taxes.............................      18,970       13,519       9,550       6,480        1,013
                                                            ----------   ----------  ----------  ----------   ----------
Income from continuing operations before cumulative
    effect of change in accounting principle.............      36,014       27,614      20,853      12,034       11,439
Income (loss) from operations of discontinued UFL segment
    (net of applicable income tax benefit (expense) of
    $0, $387 and ($444) for years 2001, 2000 and 1999,
    respectively)........................................           -         (504)        649         826            -
                                                            ----------   ----------  ----------  ----------   ----------
Income before cumulative effect of change in accounting
    principle............................................      36,014       27,110      21,502      12,860       11,439
  Cumulative effect of adoption of SAB 101 (net of
    applicable income tax benefit of $546)...............           -            -      (1,013)          -            -
                                                            ----------   ----------  ----------  ----------   ----------
Net income...............................................      36,014       27,110      20,489      12,860       11,439
  Less dividends on preferred shares.....................           -            -           4          10           10
                                                            ----------   ----------  ----------  ----------   ----------
Net income applicable to common stockholders.............   $  36,014    $  27,110   $  20,485   $  12,850    $  11,429
                                                            ----------   ----------  ----------  ----------   ----------

Basic earnings per common share from continuing operations
  before cumulative effect of accounting change .........      $ 1.83       $ 1.28      $  .93      $  .52       $  .49
Basic earnings per common share from discontinued operations        -         (.02)        .03         .04            -
                                                            ----------   ----------  ----------  ----------   ----------
Basic earnings per common share before cumulative effect of
    change in accounting principle.......................        1.83         1.26         .96         .56          .49
Cumulative effect of adoption of SAB 101.................           -            -        (.05)          -            -
                                                            ----------   ----------  ----------  ----------   ----------
Basic earnings per common share..........................      $ 1.83       $ 1.26      $  .91      $  .56       $  .49
                                                            ----------   ----------  ----------  ----------   ----------

Diluted earnings per common share from continuing
  operations before cumulative effect of accounting change     $ 1.82       $ 1.28      $  .92      $  .51       $  .48
Diluted earnings per common share from discontinued
    operations...........................................        -            (.02)        .03         .04         -
                                                            ----------   ----------  ----------  ----------   ----------
Diluted earnings per common share before cumulative
    effect of accounting change..........................        1.82         1.26         .95         .55          .48
Cumulative effect of adoption of SAB 101.................           -            -        (.05)          -            -
                                                            ----------   ----------  ----------  ----------   ----------
Diluted earnings per common share........................      $ 1.82       $ 1.26      $  .90      $  .55       $  .48
                                                            ----------   ----------  ----------  ----------   ----------

Pro forma amounts assuming adoption of SAB 101 is retroactively applied:
 Net income......................................................................    $  21,502   $  12,786    $  11,155
 Basic earnings per common share.................................................       $  .96      $  .55       $  .48
 Diluted earnings per common share...............................................       $  .95      $  .55       $  .47
Weighted average number of common shares
    outstanding - basic..................................      19,674       21,504      22,504      23,099       23,456
Weighted average number of common shares
    outstanding - diluted................................      19,764       21,544      22,679      23,374       23,906

Membership Benefit Cost and Statistical Data:
  Membership benefits ratio (1)..........................      33.6%        33.2%       32.8%       33.2%        33.0%
  Commissions ratio (1)..................................      38.7%        42.1%       45.6%       48.3%        47.2%
  General & administrative expense ratio (1).............      10.8%        10.7%       10.2%       12.5%        20.4%
  Product cost ratio (1).................................       -           55.0%       66.4%       70.9%        64.7%
  Commission cost per new Membership sold................    $   154      $   152     $   144     $   141      $   129
  New Memberships sold...................................     773,767      728,295     670,118     525,352      391,827
  Period end Memberships in force........................   1,382,306    1,242,908   1,064,805     827,979      603,017

Cash Flow Data:
Net cash provided by continuing operating activities.....   $  52,073    $  37,801   $  23,201   $  17,031    $  11,295
Net cash (used in) provided by continuing investing
   activities............................................     (11,074)      (6,963)     (7,965)     12,070      (33,531)

Net cash (used in) provided by continuing financing
   activities............................................     (34,431)     (27,414)    (13,714)    (26,687)       1,444

Balance Sheet Data:
  Total assets...........................................   $  96,836    $  85,720   $  77,766   $  58,156    $  68,789
  Total liabilities......................................      61,864       43,496      35,999      25,518       23,218
  Stockholders' equity ..................................      34,972       42,224      41,767      32,638       45,571


-----------
(1)  The Membership  benefits ratio,  the commissions  ratio and the general and
     administrative  expense  ratio  represent  those costs as a  percentage  of
     Membership  fees.  The product  cost ratio  represents  product  costs as a
     percentage  of  product  sales for those  years in which the  Company  sold
     products.  These ratios do not measure total profitability  because they do
     not take into  account all  revenues  and  expenses.
(2)  During the fourth quarter of 1998, the Company completed the acquisition of
     TPN. Since its inception in late 1994,  TPN had marketed  personal and home
     care products,  personal  development  products and services  together with
     PRIMESTAR(R)  satellite  subscription  television  service  to its  members
     through a network  marketing  sales force.  Product sales declined and were
     eventually   eliminated   following   the  TPN   acquisition   due  to  the
     concentration  on  Membership  sales as  opposed  to the sale of goods  and
     services.


ITEM 7.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
              RESULTS OF OPERATIONS

General
     Critical Accounting Policies
     The Company's  financial  statements and accompanying notes are prepared in
accordance with accounting principles generally accepted in the United States of
America.  Preparing  financial  statements requires management to make estimates
and  assumptions  that  affect the  reported  amounts  of  assets,  liabilities,
revenues  and  expenses.   These  estimates  and  assumptions  are  affected  by
management's   application  of  accounting  policies.   If  these  estimates  or
assumptions  are  incorrect,  there could be a material  change in the Company's
financial  condition or operating  results.  Many of these "critical  accounting
policies" are common in the insurance and financial services industries;  others
are specific to the Company's businesses and operations.  The Company's critical
accounting  policies  include  revenue  recognition  related to  membership  and
associate fees,  deferral of membership and associate related costs,  accrual of
membership  benefits  liability,  expense  recognition related to commissions to
associates and accounting for legal contingencies.

     Revenue recognition - Membership and Associate Fees
     The Company's  principal revenues are derived from Membership fees, most of
which are collected on a monthly  basis.  Memberships  are generally  guaranteed
renewable and non-cancelable except for fraud, non-payment of Membership fees or
upon written request.  Membership fees are recognized in income ratably over the
related  service period in accordance  with  Membership  terms,  which generally
require the holder of the Membership to remit fees on an annual,  semi-annual or
monthly basis.  Approximately  95% of members remit their  Membership  fees on a
monthly basis, of which  approximately  71% are paid in advance and,  therefore,
are deferred and recognized over the following month.

     The  Company  also  charges  new  members,  who are not part of an employee
group, a $10 enrollment fee. This enrollment fee and related  incremental direct
and  origination  costs are deferred and recognized in income over the estimated
life of a Membership in accordance with SEC Staff  Accounting  Bulletin No. 101,
"Revenue Recognition in Financial Statements," ("SAB 101"). The Company computes
the expected  Membership life using over 20 years of actuarial data as explained
in more  detail in the  Measures of  Membership  Retention  section of MD&A.  At
December  31, 2002,  management  computed  the  expected  Membership  life to be
approximately  3  years.  If  the  expected   membership  life  were  to  change
significantly,  which management does not expect in the short term, the deferred
Membership enrollment fee and related costs would be recognized over a longer or
shorter period.

     The Company derives revenues from services  provided to its marketing sales
force from a one-time  non-refundable  enrollment fee of $65 from each new sales
associate for which the Company  provides  initial sales and marketing  supplies
and  enrollment  services  to the  associate.  Revenue  from,  and costs of, the
initial sales and marketing supplies (approximately $11) are recognized when the
materials  are  delivered to the  associates.  The remaining $54 of revenues and
related  incremental  direct and  origination  costs are deferred and recognized
over the estimated average active service period of associates which at December
31, 2002 is estimated to be approximately six months.  Management  estimates the
active service period of an associate  periodically  based on the average number
of months an associate produces new Memberships  including those associates that
fail to write any  Memberships.  If the  active  service  period  of  associates
changes significantly, the deferred revenue and related costs will be recognized
over the new estimated active service period.

     The Company also  encourages  participation  in a training  program  ("Fast
Start")  that allows an  associate  who  successfully  completes  the program to
advance  through  the various  commission  levels at a faster  rate.  Associates
participating in this training  program  typically pay a fee ranging from $34 to
$184,  depending on special promotions the Company implements from time to time.
The fee  covers the  additional  training  and  materials  used in the  training
program, and is recognized in income upon completion of the training.  Associate
services also includes revenue  recognized on the sale of marketing supplies and
promotional  material to  associates  and includes fees related to the Company's
eService  program for  associates.  The eService  program  provides  subscribers
Internet based back office support such as reports, on-line documents,  tools, a
personal email account and up to three personalized web sites with "flash" movie
presentations.

     Member and Associate Costs
     Deferred costs represent the incremental  direct and origination  costs the
Company  incurs in  enrolling  new  Members  and new  associates  related to the
deferred revenue  discussed above, and that portion of payments made to provider
law firms and associates related to deferred Membership revenue.  Deferred costs
for enrolling new members  include the cost of the Membership kit and salary and
benefit costs for employees who process Membership  enrollments.  Deferred costs
for  enrolling  new  associates  include  training  and success  bonuses paid to
individuals involved in recruiting the associate and salary and benefit costs of
employees  who process  associate  enrollments.  Such costs are  deferred to the
extent of the lesser of actual  costs  incurred or the amount of the related fee
charged for such services. Deferred costs are amortized to expense over the same
period as the related deferred  revenue as discussed above.  Deferred costs that
will be recognized  within one year of the balance sheet date are  classified as
current and all remaining  deferred costs are considered  noncurrent.  Associate
related costs are reflected as associate services and direct marketing,  and are
expensed as incurred if not related to the  deferred  revenue  discussed  above.
These costs include providing  materials and services to associates,  Fast Start
bonuses,  associate  introduction kits, the associate  incentive program,  group
marketing and marketing services departments (including costs of related travel,
marketing events, leadership summits and international sales convention).

     Membership Benefits Liability
     Approximately 99% of active  Memberships at December 31, 2002 have benefits
delivered by a  designated  provider law firm with whom the Company has arranged
for the services to be provided in a  particular  geographic  area,  typically a
state or province.  Provider law firms receive a fixed monthly  payment for each
member in their service area and are  responsible  for providing the  Membership
benefits  without  additional  remuneration.  The  fixed  cost  aspect  of  this
arrangement  provides  significant  advantages  to the Company in  managing  its
claims  risk.  Amounts  due the  provider  law firms at period  end under  these
"capitated" agreements are included in the Membership benefits liability.

     Membership benefit costs relating to non-provider Memberships ("open panel"
Memberships  primarily  sold  prior to 1987 or  Memberships  in  states  where a
provider  law  firm is not in  place),  which  constituted  approximately  1% of
Memberships  in force at December 31, 2002,  are based on the usual,  reasonable
and customary fee for providing the required services.  Such costs are generally
paid on a current  basis,  as most costs are certain in amount and require  only
limited  investigation.  The Company maintains a reserve for estimated  incurred
but not reported open panel Membership  benefit costs as well as costs which are
in the payment  process.  These  reserves,  which are recorded in the Membership
benefits liability, are reviewed annually by an independent actuary as necessary
in conjunction with the preparation and filing of financial statements and other
reports with various state insurance regulatory authorities.  Underwriting risks
associated  with  the open  panel  Memberships  are  managed  primarily  through
contractual benefit limitations and, as a result, underwriting decisions are not
necessarily based on individual Membership purchases.

     Commissions to Associates
     Beginning  with new  Memberships  written after March 1, 1995,  the Company
implemented a level commission schedule (approximately 27% per annum at December
31, 2001) with up to a three-year advance commission payment.  Prior to March 1,
1995, the Company's  commission program provided for advance commission payments
to  associates of  approximately  70% of first year  Membership  premiums on new
Membership  sales and  commissions  were  earned by the  associate  at a rate of
approximately 16% in all subsequent years. Effective March 1, 2002, and in order
to offer  additional  incentives for increased  Membership  retention rates, the
Company  returned  to  a  differential   commission   structure  with  rates  of
approximately 80% of first year Membership  premiums on new Memberships  written
and variable  renewal  commission rates ranging from five to 25% per annum based
on the first 12 month  Membership  retention  rate of the  associate's  personal
sales and those of his  organization.  Prior to March 1, 2002, the Company had a
level Membership  commission  schedule of approximately  27% of Membership fees,
with up to a three-year advance commission payment on new Membership sales.

     Prior to January 1997 the Company advanced  commissions at the time of sale
of all new  Memberships.  In January  1997,  the  Company  implemented  a policy
whereby the associate  receives only earned commissions on the first three sales
unless the associate has successfully completed the Fast Start training program.
For all sales  beginning  with the  fourth  Membership  or all sales  made by an
associate  successfully  completing the Fast Start training program, the Company
currently advances  commission payments at the time of sale of a new Membership.
The amount of cash potentially advanced upon the sale of a new Membership, prior
to the recoupment of any charge-backs  (described  below),  represents an amount
equal to up to one-year  commission  earnings.  Although  the average  number of
marketing associates receiving an advance commission payment on a new Membership
is 18, the overall  initial  advance  may be paid to more than thirty  different
individuals,  each at a different level within the overall commission structure.
The commission  advance  immediately  increases an associate's  unearned advance
commission balance to the Company.

     Although the Company, prior to March 1, 2002, advanced its sales associates
up to three years  commission  when a membership is sold and subsequent to March
1, 2002, up to one years commission,  the average commission advance paid to its
sales  associates as a group is actually less than the maximum  amount  possible
because  some  associates  choose to receive  less than a full  advance  and the
Company  pays less than a full  advance on some of its  specialty  products.  In
addition, the Company may from time to time place associates on a less than full
advance  basis if there are  problems  with the  quality of the  business  being
submitted or other  performance  problems with an associate.  Also, any residual
commissions due an associate (defined as commission on an individual  membership
after the advance has been earned) are retained to reduce any remaining unearned
commission  advance  balances prior to being paid to that sales  associate.  The
commission  cost per new  Membership  sold has  increased  over each of the last
three years by 1%, 6% and 2% for 2002, 2001 and 2000,  respectively,  and varies
depending  on the  compensation  structure  that is in  place  at the time a new
membership is sold and the amount of any  charge-backs  (recoupment  of previous
commission advances) that are deducted from amounts that would otherwise be paid
to the various sales  associates that are  compensated for the membership  sale.
Should the Company add additional commissions to its compensation plan or reduce
the amount of chargebacks collected from its associates, the commission cost per
new Membership will increase accordingly. The average commission advance in 2002
for the  period  subsequent  to March 1, 2002 was 0.77  years and for the period
prior to March 1, 2002 was 2.06 years  compared to the 2001 and 2000 averages of
approximately 2.18 years and 2.31 years, respectively.

     The Company  expenses advance  commissions  ratably over the first month of
the related  membership.  As a result of this accounting  policy,  the Company's
commission  expenses are all recognized over the first month of a Membership and
there is no commission  expense  recognized for the same  Membership  during the
remainder  of the  advance  period.  The  Company  tracks its  unearned  advance
commission  balances  outstanding in order to ensure the advance commissions are
recovered before any renewal  commissions are paid and for internal  purposes of
analyzing  its  commission  advance  program.  While not  recorded  as an asset,
unearned  advance  commission  balances from  associates for the following years
ended December 31 were:



                                                                        2002            2001            2000
                                                                        ----            ----            ----
                               (Amounts in 000's)
                                                                                           
Beginning unearned advance commission balances (1)...............   $  211,609      $  167,193      $  125,257
Advance commissions, net.........................................      118,917         110,211          97,500
Earned commissions applied.......................................     (101,030)        (63,870)        (48,255)
Advance commission write-offs (2)................................       (2,412)         (1,925)         (7,309)
                                                                    -----------     -----------     -----------
Ending unearned advance commission balances before estimated
  unrecoverable balances (1).....................................      227,084         211,609         167,193
Estimated unrecoverable advance commission balances (1)(3).......      (25,156)        (15,868)        (11,055)
                                                                    -----------     -----------     -----------
Ending unearned advance commission balances, net (1).............  $   201,928     $   195,741     $   156,138
                                                                    -----------     -----------     -----------


(1)  These  amounts  do not  represent  fair  value,  as they do not  take  into
     consideration timing of estimated recoveries.
(2)  In 2000,  the  Company  began  writing  off  unearned  advanced  commission
     balances  rather than increasing the estimated  unrecoverable  balance when
     the associate had no remaining active memberships since the associate would
     no longer have any future commission earnings.
(3)  Estimated  unrecoverable  advances  increased  as a  percentage  of  ending
     advances  from 7% at December  31, 2001 to 11% at December  31, 2002 due to
     the change in the  compensation  structure  described above from a 36-month
     possible  advance to a 12-month  possible  advance.  This change allows the
     advances  to be earned more  quickly by the  associate  so the  increase in
     advances before estimated  unrecoverable balances increased 7% from 2001 to
     2002 compared to an increase of 27% from 2000 to 2001.

     The ending unearned advance  commission  balances,  net, above includes net
unearned advance commission balances of non-vested  associates of $26.0 million,
$20.0  million  and  $14.2  million  at  December  31,  2002,   2001  and  2000,
respectively.  As such,  at December  31, 2002  future  commissions  and related
expense  will be reduced  as  unearned  advance  commission  balances  of $175.9
million are  recovered.  Commissions  are earned by the  associate as Membership
premiums  are earned by the  Company,  usually on a monthly  basis.  The Company
reduces unearned advance commission  balances or remits payment to an associate,
as appropriate,  when  commissions are earned.  Should a Membership lapse before
the  advances  have  been  recovered  for each  commission  level,  the  Company
generates  an  immediate  "charge-back"  to the  applicable  sales  associate to
recapture  up to 50% of any unearned  advance on  Memberships  written  prior to
March 1, 2002, and 100% on any Memberships written thereafter.  This charge-back
is deducted  from any future  advances  that would  otherwise  be payable to the
associate  for  additional  new  Memberships.  In order to encourage  additional
Membership sales, the Company waived chargebacks for associates that met certain
criteria  in December  2002 and March  2003,  which  effectively  increases  the
Company's  commission expense. Any remaining unearned advance commission balance
may be recovered by withholding  future  residual  earned  commissions due to an
active associate on active Memberships.  Additionally,  even though a commission
advance may have been fully recovered on a particular Membership,  no additional
commission  earnings  from any  Membership  are paid to an  associate  until all
previous  advances  on all  Memberships,  both  active  and  lapsed,  have  been
recovered. The Company also has reduced chargebacks from 100% to 50% for certain
senior  marketing  associates  who have  demonstrated  the  ability to  maintain
certain  levels  of  sales  over  specified  periods.  The  Company  may  adjust
chargebacks  from  time to time in the  future  in  order to  encourage  certain
production incentives.

     Prior to March 1, 2002,  the Company  charged  associates a fee on unearned
advance commission  balances relating to lapsed  Memberships  ("Membership lapse
fee"). The fee that was recorded on the associates  unearned  commission balance
was  determined  by applying the prime  interest  rate to the  unearned  advance
commission  balance pertaining to lapsed  Memberships.  The Company realized and
recognized  this fee only when the amount of the calculated fee was collected by
withholding from cash commission payments due the associate.  The fees collected
reduced  commission  expense.  The  Company's  ability to recover these fees was
primarily dependant on the associate selling new Memberships,  which qualify for
commission  advances.  The  Company  eliminated  the  Membership  lapse  fee for
Memberships  sold  after  March 1, 2002 in  conjunction  with the  change in the
commission structure described above.

     The  Company  has the  contractual  right to  require  associates  to repay
unearned advance commission  balances from sources other than earned commissions
including  cash (a) from  all  associates  either  (i) upon  termination  of the
associate  relationship,  which includes but is not limited to when an associate
becomes  non-vested or (ii) when it is ascertained  that earned  commissions are
insufficient  to repay the  unearned  advance  commission  payments and (b) upon
demand, from agencies or associates who are parties to the associate  agreements
signed  between  October  1989  and  July  1992 or July  1992  to  August  1998,
respectively.  The sources, other than earned commissions, that may be available
to recover  associate  unearned  advance  commission  balances  are  potentially
subject to  limitation  based on  applicable  state laws  relating to creditors'
rights generally.  Historically,  the Company has not demanded repayments of the
unearned  advance  commission  balances from  associates,  including  terminated
associates,  because collection efforts would likely increase costs and have the
potential to disrupt the Company's relationships with its sales associates. This
business decision by the Company has a significant  effect on the Company's cash
flow by electing to defer collection of advance payments of which  approximately
$25.2  million  were not  expected to be collected  from future  commissions  at
December 31, 2002.  However,  the Company regularly reviews the unearned advance
commission  balance  status of associates and will exercise its right to require
associates  to repay  advances  when  management  believes  that such  action is
appropriate.

     Non-vested  associates are those that are no longer  "vested"  because they
fail to meet the Company's  established vesting requirements by selling at least
three new Memberships per quarter or retaining a personal Membership. Non-vested
associates  lose their right to any further  commissions  earned on  Memberships
previously sold at the time they become non-vested.  As a result the Company has
no continuing  obligation to individually account to these associates as it does
to active  associates  and is entitled to retain all  commission  earnings  that
would be  otherwise  payable to these  terminated  associates.  The Company does
continue to reduce the unearned  advance  commission  balances  for  commissions
earned on active Memberships previously sold by those associates.  Substantially
all individual  non-vested  associate unearned advance commission  balances were
less than $1,000 and the average balance was $441 at December 31, 2002.

     Although the advance  commissions are expensed ratably over the first month
of the related Membership,  the Company assesses, at the end of each quarter, on
an associate-by-associate basis, the recoverability of each associate's unearned
advanced  commission balance by estimating the associate's future commissions to
be earned on active  Memberships.  Each active Membership is assumed to lapse in
accordance with the Company's estimated future lapse rate, which is based on the
Company's actual historical  Membership  retention experience as applied to each
active  Membership's  year of origin.  The lapse rate is based on the  Company's
more than  20-year  history  of  Membership  retention  rates,  which is updated
quarterly to reflect actual experience. The Company also closely reviews current
data for any trends that would affect the historical  lapse rate. The sum of all
expected future  commissions to be earned for each associate is then compared to
that associate's  unearned advance  commission  balance.  The Company  estimates
unrecoverable advance commission balances when expected future commissions to be
earned on active Memberships (aggregated on an associate-by-associate basis) are
less than the unearned  advance  commission  balance.  If an  associate  with an
outstanding  unearned advance commission balance has no active Memberships,  the
unearned  advance  commission  balance  is  written  off  but  has no  financial
statement  impact as advance  commissions  are  expensed  ratably over the first
month of the  related  memberships.  Refer to  "Measures  of Member  Retention -
Expected Membership Life, Expected Remaining  Membership Life" for a description
of the method used by the Company to estimate future commission earnings.

     Further,  the Company's  analysis of the recoverability of unearned advance
commission  balances is also based on the assumption that the associate does not
write any new Memberships. The Company believes that this assessment methodology
is highly  conservative  since its actual  experience is that many associates do
continue to sell new Memberships and the Company, through its chargeback rights,
gains an additional source to recover unearned advance commission balances.

     Legal Contingencies
     The  Company is  subject  to various  legal  proceedings  and  claims,  the
outcomes of which are subject to  significant  uncertainty.  Given the  inherent
unpredictability  of  litigation,  it is  difficult  to  estimate  the impact of
litigation on the Company's financial condition or results of operation. SFAS 5,
Accounting  for  Contingencies,  requires  that an  estimated  loss  from a loss
contingency  should be accrued by a charge to income if it is  probable  that an
asset has been  impaired or a liability  has been incurred and the amount of the
loss can be reasonably  estimated.  Disclosure  of a contingency  is required if
there is at least a reasonable  possibility  that a loss has been incurred.  The
Company  evaluates,  among  other  factors,  the  degree  of  probability  of an
unfavorable  outcome and the ability to make a reasonable estimate of the amount
of loss. The Company has  established  an accrued  liability it believes will be
sufficient to cover estimated damages in connection with various cases, which at
December 31, 2002 was $3.3 million.  This process requires  subjective  judgment
about the likely  outcomes  of  litigation.  Liabilities  related to most of the
Company's lawsuits are especially difficult to estimate due to the nature of the
claims,  limitation of available  data and  uncertainty  concerning the numerous
variables used to determine likely outcomes or the amounts recorded.  Litigation
expenses  are  recorded as incurred  and the Company  does not accrue for future
legal fees. It is possible that an adverse outcome in certain cases or increased
litigation  costs  could have an adverse  effect  upon the  Company's  financial
condition,  operating  results or cash flows in  particular  quarterly or annual
periods. See "Legal Proceedings."

     Operating Ratios
     Three principal  operating measures monitored by the Company in addition to
measures of Membership  retention are the Membership  benefit ratio,  commission
ratio and the general and administrative  expense ratio. The Membership benefits
ratio, the Commissions  ratio and the general and  administrative  expense ratio
represent those costs as a percentage of Membership fees. The Company strives to
maintain  these  ratios  as low as  possible  while at the same  time  providing
adequate incentive  compensation to its sales associates and provider law firms.
These ratios do not measure  total  profitability  because they do not take into
account all revenues and expenses.

     Cash Flow Considerations Relating to Sales of Memberships
     The  Company  generally  advances  significant  commissions  at the  time a
Membership is sold. Since  approximately 95% of Membership fees are collected on
a monthly  basis,  a  significant  cash flow  deficit  is  created at the time a
Membership  is sold.  This  deficit is reduced  as monthly  Membership  fees are
remitted and no  additional  commissions  are paid on the  Membership  until all
previous unearned advance commission  balances have been fully recovered.  Since
the cash advanced at the time of sale of a new  Membership may be recovered over
a  multi-year  period,  cash  flow from  operations  may be  adversely  affected
depending on the number of new  Memberships  written in relation to the existing
active  base  of  Memberships  and  the  composition  of new or  existing  sales
associates producing such Memberships.

     Income Tax Matters-Net Operating Losses
     The Company has a net operating loss carryforward  ("NOL") in the amount of
$888,000 as of December 31, 2002  representing  the  remaining  NOLs of TPN. The
ability of the Company to utilize  NOLs and tax credit  carryforwards  to reduce
future federal income taxes is subject to various limitations under the Internal
Revenue Code of 1986, as amended,  but the Company  expects to fully utilize the
remaining TPN NOL in the income tax return for 2003.

     Investment Policy
     The  Company's  investment  policy is to some degree  controlled by certain
insurance   regulations,   which,   coupled  with  management's  own  investment
philosophy,  results in a  conservative  investment  portfolio  that is not risk
oriented.  The Company's investments consist of common stocks,  investment grade
(rated Baa or higher)  preferred  stocks and  investment  grade bonds  primarily
issued by corporations,  the United States Treasury, federal agencies, federally
sponsored agencies and enterprises,  as well as  mortgage-backed  securities and
state  and  municipal  tax-exempt  bonds.  The  Company  is  required  to pledge
investments to various state  insurance  departments as a condition to obtaining
authority to do business in certain states.

     Disclosures About Market Risk
     The  Company's  consolidated  balance  sheets  include a certain  amount of
assets and liabilities  whose fair values are subject to market risk. Due to the
Company's significant  investment in fixed-maturity  investments,  interest rate
risk  represents  the  largest  market  risk  factor   affecting  the  Company's
consolidated financial position.  Increases and decreases in prevailing interest
rates  generally  translate into decreases and increases in fair values of those
instruments.  Additionally,  fair values of interest rate sensitive  instruments
may be  affected by the  creditworthiness  of the  issuer,  prepayment  options,
relative  values of  alternative  investments,  liquidity of the  instrument and
other general market conditions.

     As of December 31, 2002,  substantially  all of the  Company's  investments
were in investment  grade (rated Baa or higher)  fixed-maturity  investments and
interest-bearing  money market accounts including  certificates of deposit.  The
Company does not hold any  investments  classified as trading  account assets or
derivative financial instruments.

     The table below summarizes the estimated effects of hypothetical  increases
and  decreases  in interest  rates on the  Company's  fixed-maturity  investment
portfolio. It is assumed that the changes occur immediately and uniformly,  with
no effect  given to any steps  that  management  might take to  counteract  that
change.

     The  hypothetical  changes in market  interest  rates reflect what could be
deemed best and worst case  scenarios.  The fair values  shown in the  following
table are based on  contractual  maturities.  Significant  variations  in market
interest  rates  could  produce  changes  in the  timing  of  repayments  due to
prepayment  options  available.  The  fair  value of such  instruments  could be
affected and, therefore, actual results might differ from those reflected in the
following table:



                                                                          Hypothetical change    Estimated fair value
                                                                            in interest rate      after hypothetical
                                                            Fair value    (bp = basis points)   change in interest rate
                                                            ----------    -------------------   -----------------------
                                                                         (Dollars in thousands)
                                                                                            
Fixed-maturity investments at December 31, 2002 (1)....      $  16,111      100 bp increase           $  14,740
                                                                            200 bp increase              13,806
                                                                             50 bp decrease              16,310
                                                                            100 bp decrease              16,794

Fixed-maturity investments at December 31, 2001 (1)....      $  18,983      100 bp increase           $  17,635
                                                                            200 bp increase              16,437
                                                                             50 bp decrease              19,575
                                                                            100 bp decrease              20,167


--------------------
(1)  Excluding short-term investments with a fair value of $2.7 million and $3.3
     million at December 31, 2002 and 2001, respectively.

     The table above illustrates, for example, that an instantaneous  200  basis
     point increase in market interest rates at December 31, 2002  would  reduce
     the estimated fair value of the  Company's  fixed-maturity  investments  by
     approximately $2.3 million at that date. At December 31, 2001, and based on
     the  fair  value  of  fixed-maturity   investments  of  $19.0  million,  an
     instantaneous  200 basis point increase in market interest rates would have
     reduced  the  estimated   fair  value  of  the   Company's   fixed-maturity
     investments  by  approximately  $2.5  million at that date.  The  Company's
     decreased  sensitivity to rising  interest rates is due to the $2.9 million
     decrease  in  fixed-maturity  investments  at  December  31,  2002 of $16.1
     million from $19.0 million at December 31, 2001. The  definitive  extent of
     the  interest  rate  risk is not  quantifiable  or  predictable  due to the
     variability of future interest rates, but the Company does not believe such
     risk is material.

     The  Company  primarily  manages  its  exposure  to  interest  rate risk by
purchasing  investments that can be readily  liquidated should the interest rate
environment begin to significantly change.

     Accounting Standards to be Adopted
     In July 2001,  the Financial  Accounting  Standards  Board issued SFAS 143,
"Accounting for Asset  Retirement  Obligations."  SFAS 143 requires  entities to
record the fair value of a liability for an asset  retirement  obligation in the
period in which it is incurred  and a  corresponding  increase  in the  carrying
amount of the related  long-lived  asset. SFAS 143 is effective for fiscal years
beginning  after  June  15,  2002.  The  Company  does  not  expect  SFAS 143 to
materially impact its reported results.

     In April 2002, the FASB issued SFAS No. 145,  Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical  Corrections,
that, among other things,  rescinded SFAS No. 4, Reporting Gains and Losses from
Extinguishment   of  Debt.  With  the  rescission  of  SFAS  No.  4,  the  early
extinguishment   of  debt   generally   will  no  longer  be  classified  as  an
extraordinary item for financial statement  presentation purposes. The provision
is effective for fiscal years beginning after May 15, 2002. The Company does not
anticipate  that the adoption of SFAS No. 145 will have a material effect on its
financial position or results of operations.

     In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal  Activities,  which  replaces  Emerging  Issues Task Force
Issue No. 94-3, Liability  Recognition for Certain Employee Termination Benefits
and Other  Costs to Exit an  Activity  (including  Certain  Costs  Incurred in a
Restructuring).   The  new  standard  required   companies  to  recognize  costs
associated  with exit or disposal  activities when they are incurred rather than
at the date of a commitment to an exit or disposal  plan. The statement is to be
applied  prospectively to exit or disposal  activities  initiated after December
31, 2002. The Company does not anticipate that the adoption of SFAS No. 146 will
have a material effect on its financial position or results of operations.

     In December 2002, the FASB issued SFAS No. 148,  Accounting for Stock-Based
Compensation - Transition and Disclosure, which amended SFAS No. 123, Accounting
for Stock-Based  Compensation.  The new standard provides alternative methods of
transition  for a voluntary  change to the fair value based method of accounting
for stock-based employee  compensation.  Additionally,  the statement amends the
disclosure  requirements of SFAS No. 123 to require prominent disclosures in the
annual and  interim  financial  statements  about the method of  accounting  for
stock-based employee  compensation and the effect of the method used in reported
results.  This statement is effective for financial  statements for fiscal years
ending after December 15, 2002. In compliance with SFAS No. 148, the Company has
elected to continue to follow the intrinsic  value method in accounting  for its
stock-based employee compensation arrangement as defined by APB No. 25.

     In  November  2002,  the  FASB  issued  Interpretation  No.  45  (FIN  45),
Guarantor's  Accounting and Disclosure  Requirement  for  Guarantees,  Including
Indirect  Guarantees of Indebtedness of Others.  For a guarantee subject to FASB
Interpretation No. 45, a guarantor is required to measure and recognize the fair
value of the guarantee liability at inception.  For many guarantees,  fair value
will likely be determined  using the expected  present value method described in
FASB  Concepts  Statement 7, Using Cash Flow  Information  and Present  Value in
Accounting   Measurements.   In  addition,   FIN  45  provides  new   disclosure
requirements.  The  disclosure  requirements  of FIN 45 were  effective  for the
Company as of December 31,  2002.  The  measurement  and  liability  recognition
provisions  are applied  prospectively  to  guarantees  or  modifications  after
December 31, 2002. The Company  anticipates that FIN 45 will not have a material
impact on the financial statements.

     In January 2003, the FASB issued  Interpretation  No. 46,  Consolidation of
Variable  Interest Entities (FIN 46). Subject to certain criteria defined in the
Interpretation,  FIN 46 will require  consolidation  by business  enterprises of
variable  interest  entities if the enterprise has a variable interest that will
absorb the majority of the entity's expected losses,  receives a majority of its
expected  returns,  or both. The provisions of FIN 46 are effective  immediately
for interests acquired in variable interest entities after January 31, 2003, and
at the beginning of the first interim or annual period  beginning after June 15,
2003, for interests  acquired in variable  interest  entities before February 1,
2003 (for the  Company  in the third  quarter  of 2003).  The  Company is in the
process of  determining  what impact,  if any, the adoption of the provisions of
FIN 46 will have upon its financial condition or results of operations.  Certain
transitional  disclosures  required  by  FIN  46  in  all  financial  statements
initially  issued after January 31, 2003, have been included in the accompanying
financial statements.

Measures of Member Retention

     One of the major factors  affecting the  Company's  profitability  and cash
flow is the  ability  of the  Company  to  retain a  Membership,  and  therefore
continue  to receive  fees,  once it has been sold.  The  Company  monitors  its
overall Membership persistency rate, as well as the retention rates with respect
to Memberships sold by individual associates and agents and retention rates with
respect  to  Memberships  by  year  of  issue,  geographic  region,  utilization
characteristics and payment method, and other sub groupings.

     Terminology
     The  following  terms  are  used in  describing  the  various  measures  of
retention:

o    Membership life is a period that commences on the day of initial enrollment
     of a member and  continues  until the  individual's  Membership  eventually
     terminates   or  lapses  (the  terms   terminate   or  lapse  may  be  used
     interchangeably here).

o    Membership age means the time since the Membership has been in effect.

o    Lapse rate means the  percentage  of  Memberships  of a specified  group of
     Memberships that lapse in a specified time period.

o    Retention  rate is the complement of a lapse rate, and means the percentage
     of  Memberships  of a specified  group that remain in force at the end of a
     specified time period.

o    Persistency  and  retention  are  used in a  general  context  to mean  the
     tendency  for  Memberships  to continue to remain in force,  while the term
     persistency rate is a specific measure that is defined below.

o    Lapse rates,  retention rates,  persistency rates, and expected  Membership
     life may be referred to as measures of Membership retention.

o    Expected Membership life means the average number of years a new Membership
     is expected to remain in force.

o    Blended  rate when used in  reference  to any  measure of member  retention
     means a rate computed  across a mix of  Memberships  of various  Membership
     ages.

o    Expected  remaining  Membership  life means the number of additional  years
     that an  existing  member is  expected to continue to renew from a specific
     point in time based on the Membership life.


     Variations in Membership Retention by Sub-Groups, Impact on Aggregate
     Numbers
     Company wide  measures of  Membership  retention  include data  relating to
members who can potentially be further sorted by identifiable sub-groupings. For
example,  Memberships  may be subdivided  into those owned by members who are or
are not sales  associates,  to those who are or are not members of group  plans,
etc.

     Measures of  Membership  retention of different  sub-groups  may vary.  For
example,  the Company's  experience  indicates that first year retention rate of
Memberships  owned by members who also are sales associates is approximately 10%
better than retention of Memberships owned by non-associate  members. While this
correlation can be identified,  the cause and effect relationship here cannot be
isolated. These sales associate members may have a financial incentive to retain
the  Membership  in order to continue to receive  commissions.  They also likely
have a better  understanding and appreciation of the benefits of the Membership,
which may have  contributed  in fact to their  decision  to also  become a sales
associate.  Additionally, members who have accessed the services of the provider
law firms historically have higher retention rates than those who have not.

     All  aggregate  measures of  Membership  retention or expected  life may be
impacted by shifts in the  underlying  enrollment  mix of  sub-groups  that have
different  retention rates. For example  Memberships  owned by non-associate new
members have comprised an increasing percentage of new Memberships enrolled each
year over the past five years.  Since  non-associate  members have a known lower
first  year  retention  rate,  a shift in mix alone will  cause a  reduction  in
reported  aggregate  retention  measures and expected  member life,  even if the
retention  rates within each  sub-group  do not change.  It is important to note
that all blended rates  discussed  here may reflect the impact of such shifts in
enrollment  mixes.  At  December  31,  2002,  289,011  of the  active  1,382,306
Memberships were also vested associates which represents 21% of the total active
Memberships.  The following table shows total new  Memberships  sold during each
year and the number  and  percentage  of  Memberships  sold to  persons  who are
associates.

                Total New        Associate
       Year     Memberships     Memberships     Ratio
       ----     -----------     -----------     -----
       1998      391,827           69,890       17.8%
       1999      525,352           85,219       16.2%
       2000      670,118           90,684       13.5%
       2001      728,295          103,515       14.2%
       2002      773,767          119,326       15.4%


     Variations in Retention over Life of a Membership, Impact on Aggregate
     Measures
     Measures of member retention also vary significantly by the Membership age.
Historically, the Company has observed that Memberships in their first year have
a significantly  higher lapse rate than Memberships in their second year, and so
on.  The  following  chart  shows  the  historical   observed  lapse  rates  and
corresponding  yearly  retention  rates as a function  of  Membership  age.  For
example, 48.2% of all new Memberships lapse during the first year, leaving 51.8%
still in force at the end of the  first  year.  More  tenured  Memberships  have
significantly  lower lapse  rates.  For  example,  by year seven lapse rates are
under 10% and annual  retention  exceeds  90%. The  following  table shows as of
December 31, 2002 the Company's  blended retention rate and lapse rates based on
its historical experience for the last 21 years. The blended retention and lapse
rates as of the end of 2002 did not  differ  materially  from  those  previously
reported at the end of 2001.

          Membership Retention versus Membership Age
-----------------------------------------------------------
  Membership     Yearly Lapse     Yearly        End of Year
     Year            Rate        Retention      Memberships
------------     ------------    ---------      -----------
       0                                          100.0
       1             48.2%         51.8%           51.8
       2             30.2%         69.8%           36.2
       3             21.1%         78.9%           28.6
       4             17.0%         83.0%           23.7
       5             15.2%         84.8%           20.1
       6             11.8%         88.2%           17.7
       7              9.4%         90.6%           16.1


     Membership Persistency
     The Company's  Membership  persistency rate is a specific  computation that
measures the number of Memberships in force at the end of a year as a percentage
of the total of (i)  Memberships  in force at the  beginning of such year,  plus
(ii) new  Memberships  sold during such year.  From 1981  through the year ended
December 31, 2002, the Company's annual Membership  persistency rates, using the
foregoing method, have averaged approximately 72.4%.



                Beginning     New Memberships                       Ending
   Year        Memberships                          Total         Memberships     Persistency
  ------      -------------  -----------------    ----------     -------------   -------------
                                                                       
   1998           425,381           391,827          817,208         603,017          73.8%
   1999           603,017           525,352        1,128,369         827,979          73.4%
   2000           827,979           670,118        1,498,097       1,064,805          71.1%
   2001         1,064,805           728,295        1,793,100       1,242,908          69.3%
   2002         1,242,908           773,767        2,016,675       1,382,306          68.5%



     The Company's  overall  Membership  persistency rate varies based on, among
other factors, the relative age of total Memberships in force, and shifts in the
mix of members enrolled. The Company's overall Membership persistency rate could
become lower when the Memberships in force include a higher  proportion of newer
Memberships,  as will happen  following  periods of rapid growth.  The Company's
overall  Membership  persistency  rate  could  also  become  lower  when the new
enrollments  include a higher proportion of non-associate  members, a trend that
has been observed over the past five years.

     Unless offset by other factors,  these factors could result in a decline in
the Company's overall  Membership  persistency rate as determined by the formula
described  above,  but does not  necessarily  indicate that the new  Memberships
written are less persistent.

     Expected  Membership  Life,   Expected  Remaining   Membership  Life
     Using  historical  data  through 2002 for all past  Members  enrolled,  the
expected  Membership life can be computed to be approximately  three years. This
number  represents  the average number of years a new Membership can be expected
to remain in force.  Although about half of all new Memberships may lapse in the
first year, the expected  Membership life is much longer due to the contribution
of higher annual retention rates in subsequent years.

     Since  the  Company's  experience  is that  the  retention  rate of a given
generation  of new  Memberships  improves  with  Membership  age,  the  expected
remaining  Membership  life of a Membership  also increases with Membership age.
For example,  while a new  Membership  may have an expected  Membership  life of
three years, the expected remaining Membership life of a Membership that reaches
its first year anniversary is approximately five years.

     Since  the  actual  population  of  Memberships  in  force at any time is a
distribution  of ages from zero to more than 20 years,  the  expected  remaining
Membership  life of the entire  population at large greatly  exceeds three years
per Membership.  As of December 31, 2002, based on the historical data described
above, the current expected  remaining  Membership life of the actual population
is over six  years  per  Membership.  This  measure  is used by the  Company  to
estimate the future revenues expected from Memberships currently in place.

     Expected  Membership  life  measures  are  based  on more  than 20 years of
historical  Membership  retention data,  unlike the Membership  persistency rate
described  above  which is computed  from,  and  determined  by, the most recent
one-year  period  only.  Both  or  these  measures  however  include  data  from
Memberships  of all  Membership  ages and hence  are  referred  to as  "blended"
measures.

     Actions that May Impact Retention in the Future
     The potential  impact on the Company's future  profitability  and cash flow
due to future changes in Membership retention can be significant.  While blended
retention  rates have not changed  significantly  over the past five years,  the
Company  has  recently  taken  actions  that may impact  retention  rates in the
future.  The Company has implemented  several new initiatives aimed at improving
the  retention  rate of both  new and  existing  Memberships.  Such  initiatives
include a revised  compensation  structure,  effective March 1, 2002,  featuring
variable  renewal  commission  rates ranging from five to 25% per annum based on
the 12 month  Membership  retention rate of the  associate's  personal sales and
those of his organization; implementation of a "non-taken" administrative fee to
sales associates of $35 for any Membership  application that is processed by the
Company after March 1, 2002, but for which a payment is never received;  and, an
increase in the amount of the  commission  "charge-back"  (described  above) for
Memberships  written  after  March 1, 2002 from 50% of the  unearned  Membership
commission advance balance to 100% of the unearned Membership commission advance
balance  except  during  the  months of  December  2002 and March  2003 when the
Company waived chargebacks for associates that met certain criteria. The Company
has  designed and  implemented  an enhanced  member  "life cycle"  communication
process aimed at both  increasing the overall amount of  communication  from the
Company to the  members as well as more  specific  target  messaging  to members
based on the length of their Membership as well as utilization  characteristics.
The Company  believes that such efforts may increase the  utilization by members
and therefore lead to higher retention rates. The Company's 2002 retention rates
did not differ  materially  from 2001 and the  Company  intends to  continue  to
develop programs and initiatives designed to improve retention.


Results of Operations

     Comparison of 2002 to 2001
     The  Company  reported  net  income  applicable  to common  shares of $36.0
million, or $1.82 per diluted common share, for 2002. The net income per diluted
share was up 44% from net income  applicable to common shares of $27.1  million,
or $1.26 per diluted  common  share,  for 2001.  The  increase in the net income
applicable  to common  shares for 2002 is  primarily  the result of increases in
Membership  fees  for  2002 as  compared  to 2001 as well as a  decrease  in the
weighted average number of shares outstanding of 8%.

     Membership  fees  totaled  $308.4  million  during 2002  compared to $263.5
million for 2001, an increase of 17%.  Membership fees and their impact on total
revenues  in any  period  are  determined  directly  by  the  number  of  active
Memberships in force during any such period. The active Memberships in force are
determined  by both the number of new  Memberships  sold in any period  together
with the renewal rate of existing Memberships. New Membership sales increased 6%
during 2002 to 773,767 from 728,295  during  2001.  At December 31, 2002,  there
were 1,382,306 active Memberships in force compared to 1,242,908 at December 31,
2001, an increase of 11%.  Additionally,  the average  annual fee per Membership
has  increased  from $251 for all  Memberships  in force at December 31, 2001 to
$256 for all  Memberships  in force at December 31,  2002,  a 2% increase,  as a
result of a higher  portion  of active  Memberships  containing  the  additional
pre-trial hours benefit at an additional cost to the member,  a larger number of
Legal Shield  subscribers and increased sales of the Company's business oriented
memberships.

     Associate  services  revenue  increased  3% from $36.5  million for 2001 to
$37.4 million during 2002 primarily as a result of more new associates enrolling
in the eService program offered by the Company.  The eService fees totaled $11.2
million  during 2002 compared to $7.3 million for 2001, an increase of 53%. This
increase was offset by the reduced fees for the Fast Start program for 2002. The
Company  received  training  fees of  approximately  $13.1  million  during 2002
compared to $17.5 million during 2001, primarily as a result of special training
promotions  during 2002 that reduced the net amount of training fees received by
the Company.  The  field-training  program,  titled Fast Start to Success ("Fast
Start") is aimed at increasing the level of new Membership  sales per associate.
In addition to the $65 associate fee,  associates  participating in this program
typically  pay a fee ranging from $34 to $184,  depending on special  promotions
the Company  implements from time to time and upon successful  completion of the
program  provides for the payment of certain  training  bonuses.  In order to be
deemed  successful for Fast Start  purposes,  the new associate must write three
new Memberships  and recruit three new sales  associates or personally sell five
Memberships within 60 days of becoming an associate. The $13.1 million and $17.5
million for 2002 and 2001,  respectively,  in training fees was  collected  from
approximately  150,247 new sales  associates  who elected to participate in Fast
Start in 2002  compared  to 117,698  during  2001.  New  associates  electing to
participate in Fast Start  increased to 97% of new  associates  during 2002 from
96% for 2001. Total new associates enrolled during 2002 were 155,663 compared to
122,192 for 2000, an increase of 27%.  Future  revenues from associate  services
will depend  primarily on the number of new  associates  enrolled and the number
who choose to participate  in the Company's  training  program,  but the Company
expects that such revenues will continue to be largely  offset by the direct and
indirect  cost to the Company of training  (including  training  bonuses  paid),
providing associate services and other direct marketing expenses.

     Other revenue  increased  31%, from $3.7 million to $4.8 million  primarily
due to the increase in Membership enrollment fees.

     Primarily as a result of the increase in Membership  fees,  total  revenues
increased  to $350.6  million  for 2002 from  $303.7  million  during  2001,  an
increase of 15%.

     Membership  benefits,  which  represents  payments to  provider  law firms,
totaled  $103.8  million  for 2002  compared  to $87.4  million  for  2001,  and
represented  34% and 33%,  respectively  of  Membership  fees.  This  Membership
benefit ratio  (Membership  benefits as a percentage of Membership  fees) should
remain near current levels as substantially all active Memberships provide for a
capitated  benefit in the absence of any changes in the capitated benefit level,
which has not changed significantly since 1993.

     Commissions to associates  increased 8% to $119.4 million for 2002 compared
to $111.1 million for 2001, and  represented  39% and 42% of Membership fees for
such  years.   These   amounts  were  reduced  by  $705,000  and  $2.2  million,
respectively,  representing Membership lapse fees. These fees were determined by
applying the prime  interest  rate to the unearned  advance  commission  balance
pertaining to lapsed  Memberships.  The Company realizes and recognizes this fee
only when the amount of the calculated fee is collected by withholding from cash
commissions due the associate,  because the Company's ability to recover fees in
excess of current payments is primarily  dependent on the associate  selling new
Memberships  which  qualify for  advance  commission  payments.  These fees were
eliminated for Memberships  sold after March 1, 2002.  Commissions to associates
are primarily  dependent on the number of new memberships  sold during a period.
New memberships sold during 2002 totaled 773,767, a 6% increase from the 728,295
sold during 2001.

     Associate services and direct marketing expenses increased to $32.6 million
for 2002 from $29.9 million for 2001 primarily due to a $1.8 million increase in
the associate  incentive  program from $3.0 million to $4.8 million.  Additional
costs of supplies due to increased  enrollment of new  associates,  purchases by
associates  and higher  staffing  requirements  for  associate  related  service
departments  also  contributed to the increase.  These expenses also include the
costs of providing  associate services and marketing expenses as discussed under
Member and Associate Costs.

     General and administrative expenses during 2002 and 2001 were $33.3 million
and $28.2 million, respectively, and represented 11% of Membership fees for both
years.  Management expects general and administrative expenses when expressed as
a percentage of Membership  fees to remain  relatively  consistent over the near
term. The Company should  experience  cost  efficiencies  as a result of certain
economies  of scale in some areas but  expects  such cost  savings in 2003 to be
largely  offset by higher levels of expenses  related to legal fees and expenses
related to moving its corporate headquarters to its new facilities.

     Other expenses,  which includes  depreciation and amortization,  litigation
accruals and premium  taxes  reduced by interest  income,  increased 14% to $6.7
million  for 2002 from $5.9  million  for 2001.  Depreciation  and  amortization
increased  to $5.3  million  for 2002 from  $4.1  million  for 2001.  Due to the
increased amount of litigation during 2002, the Company increased the accrual by
$1.3 million to $3.3 million at December 31, 2002.  Premium taxes decreased from
$2.5  million  for 2001 to $2.2  million  for  2002  due to a change  in the tax
structure of one of the states in which the Company pays premium taxes. Interest
income  increased  to $2.1  million  for 2002 from  $1.9  million  for 2001.  At
December  31, 2002 the  Company  reported  $41  million in cash and  investments
(after  utilizing $50.2 million to purchase  approximately  2.3 million treasury
shares of its common stock during 2002)  compared to $38 million at December 31,
2001.

     The  provision  for income  taxes  increased  during 2002 to $19.0  million
compared to $13.5 million for 2001,  representing 34.5% and 32.9% of income from
continuing operations before income taxes for 2002 and 2001, respectively.

     The results of  operations  of the UFL  segment  have been  segregated  and
reported as discontinued  operations in the  Consolidated  Statements of Income.
Income (loss) from  discontinued  operations,  net of income tax, is $(504,000),
net of tax of $0 for the year ended December 31, 2001.

     Comparison of 2001 to 2000
     The  Company  reported  net  income  applicable  to common  shares of $27.1
million, or $1.26 per diluted common share, for 2001. The net income per diluted
share was up 40% from net income  applicable to common shares of $20.5  million,
or $.90 per  diluted  common  share,  for 2000.  The  increase in the net income
applicable  to common  shares for 2001 is  primarily  the result of increases in
Membership  fees  for  2001 as  compared  to 2000 as well as a  decrease  in the
weighted average number of shares outstanding of 5%.

     Membership  fees  totaled  $263.5  million  during 2001  compared to $211.8
million for 2000, an increase of 24%.  Membership fees and their impact on total
revenues  in any  period  are  determined  directly  by  the  number  of  active
Memberships in force during any such period. The active Memberships in force are
determined  by both the number of new  Memberships  sold in any period  together
with the renewal rate of existing Memberships. New Membership sales increased 9%
during 2001 to 728,295 from 670,118  during  2000.  At December 31, 2001,  there
were 1,242,908 active Memberships in force compared to 1,064,805 at December 31,
2000, an increase of 17%.  Additionally,  the average  annual fee per Membership
has  increased  from $244 for all  Memberships  in force at December 31, 2000 to
$251 for all  Memberships  in force at December 31,  2001,  a 3% increase,  as a
result of a higher  portion  of active  Memberships  containing  the  additional
pre-trial hours benefit at an additional cost to the member.

     Associate  services  revenue  increased  20% from $30.4 million for 2000 to
$36.5 million during 2001 as a result of more new associates  recruited and as a
result of Fast Start which  resulted in the Company  receiving  training fees of
approximately  $17.5 million  during 2001 compared to $16.8 million during 2000.
The field-training program, titled Fast Start to Success ("Fast Start") is aimed
at  increasing  the level of new  Membership  sales per  associate.  Fast  Start
typically requires a training fee of $184 per new associate,  except for special
promotions  the  Company  implements  from  time to time,  and  upon  successful
completion of the program provides for the payment of certain training  bonuses.
In order to be deemed successful for Fast Start purposes, the new associate must
write three new Memberships and recruit three new sales associates or personally
sell five Memberships within 60 days of becoming an associate. The $17.5 million
and  $16.8  million  for 2001  and  2000,  respectively,  in  training  fees was
collected  from  approximately  117,698  new sales  associates  who  elected  to
participate in Fast Start in 2001 compared to 91,432 during 2000. New associates
electing to participate in Fast Start increased to 96% of new associates  during
2001 from 94% for 2000.  Total new associates  enrolled during 2001 were 122,192
compared to 97,617 for 2000, an increase of 25%.

     Product sales declined 94% during 2001 to $60,000 from $1.0 million in 2000
primarily due to the concentration on Membership sales as opposed to the sale of
goods and services following the TPN acquisition.  Product sales are expected to
cease in future periods as the Company no longer allows product sales.

     Other revenue  increased  11%, from $3.2 million to $3.6 million  primarily
due to the increase in Membership enrollment fees.

     Primarily as a result of the increase in Membership  fees,  total  revenues
increased  to $303.7  million  for 2001 from  $246.4  million  during  2000,  an
increase of 23%.

     Membership  benefits  totaled  $87.4  million  for 2001  compared  to $69.5
million for 2000, and represented  33% of Membership  fees for both years.  This
Membership  benefit  ratio  (Membership  benefits as a percentage  of Membership
fees) should remain near current levels as substantially all active  Memberships
provide for a capitated benefit.

     Commissions to associates increased 15% to $111.1 million for 2001 compared
to $96.6 million for 2000, and  represented  42% and 46% of Membership  fees for
such  years.  These  amounts  were  reduced by $2.2  million  and $1.8  million,
respectively,  representing  Membership lapse fees. These fees are determined by
applying the prime  interest  rate to the unearned  advance  commission  balance
pertaining to lapsed  Memberships.  The Company realizes and recognizes this fee
only when the amount of the calculated fee is collected by withholding from cash
commissions due the associate,  because the Company's ability to recover fees in
excess of current payments is primarily  dependent on the associate  selling new
Memberships which qualify for advance  commission  payments.  These fees were no
longer  applicable after March 1, 2002.  Commissions to associates are primarily
dependent on the number of new memberships sold during a period. New memberships
sold during 2001  totaled  728,295,  a 9% increase  from the 670,118 sold during
2000.

     Associate services and direct marketing expenses increased to $29.9 million
for 2001  from  $23.3  million  for 2000  primarily  as a result  of Fast  Start
training bonuses paid of approximately $9.0 million during 2001 compared to $8.9
million in 2000. Additional costs of supplies due to increased enrollment of new
associates,  purchases  by  associates  and  higher  staffing  requirements  for
associate  related service  departments also contributed to the increase.  These
expenses  also include the costs of providing  associate  services and marketing
expenses as discussed under Member and Associate Costs.

     General and administrative expenses during 2001 and 2000 were $28.2 million
and $21.5 million,  respectively, and represented 11% and 10% of Membership fees
for  such  years.   Management   expects   gradual   decreases  in  general  and
administrative  expenses when expressed as a percentage of Membership  fees as a
result of certain economies of scale.

     Product costs declined more than $642,000,  or 95%,  during 2001 to $33,000
from  $675,000 for 2000 in  conjunction  with the 94% decline in product  sales.
Product costs as a percentage of product sales were 55% for 2001 compared to 66%
during  2000.  Product  costs are  expected  to cease in future  periods  as the
Company no longer allows product sales.

     Other expenses,  which includes  depreciation and amortization,  litigation
accruals and premium  taxes  reduced by interest  income,  increased 34% to $5.9
million  for 2001 from $4.4  million  for 2000.  Depreciation  and  amortization
increased  to $4.1 million for 2001 from $2.8  million for 2000.  The  Company's
litigation  accrual has increased from $1.7 million at December 31, 2000 to $2.0
million at December 31, 2001  reflecting an  additional  accrual of $1.7 million
and a settlement  payment of $1.4 million during 2001.  Premium taxes  increased
from $1.7 million for 2000 to $2.5 million for 2001.  Interest income  increased
to $1.9  million for 2001 from $1.8  million for 2000.  At December 31, 2001 the
Company  reported $38 million in cash and  investments  (after  utilizing  $27.9
million to  purchase  approximately  1.5 million  treasury  shares of its common
stock during 2001) compared to $32 million at December 31, 2000.

     The  provision  for income  taxes  increased  during 2001 to $13.5  million
compared to $9.6 million for 2000,  representing  32.9% and 31.4% of income from
continuing operations before income taxes for 2001 and 2000, respectively.

     Dividends paid on  outstanding  preferred  stock  decreased from $4,000 for
2000 to zero during 2001 due to all shares of  preferred  stock being  converted
into shares of common stock or redeemed by the Company during the second quarter
of 2000.

     The results of  operations  of the UFL  segment  have been  segregated  and
reported as discontinued  operations in the  Consolidated  Statements of Income.
Income (loss) from  discontinued  operations,  net of income tax, is $(504,000),
net of tax of $0 and $649,000 net of tax benefit of $387,000 for the years ended
December 31, 2001 and 2000, respectively.

Liquidity and Capital Resources

     General
     Consolidated  net cash  provided  by  operating  activities  of  continuing
operations was $52.1 million, $37.8 million and $23.2 million for 2002, 2001 and
2000,  respectively.  Cash  provided by  operating  activities  increased  $14.3
million during 2002 compared to 2001 primarily due to the $8.9 million  increase
in net income,  a $3.5  million  decrease  in the change in deferred  member and
associate  service costs, a $2.6 million  decrease in the change in other assets
offset by a $2.0 million decrease in the change in deferred revenues.

     Net cash used in investing  activities of continuing  operations  was $11.1
million,  $7.0 million and $8.0 million for 2002,  2001 and 2000,  respectively.
During 2001 and 2000 the Company  received  dividends  of $2.8  million and $5.0
million, respectively from UFL. Additionally,  the Company received $1.2 million
in  proceeds  from  the  sale  of  UFL  during  2001.  In  addition  to  capital
expenditures  of $15.2 million,  $8.3 million and $5.6 million during 2002, 2001
and  2000,   respectively,   the  Company's   purchases  of   available-for-sale
investments  exceeded  the  maturities  and  sales of such  investments  by $2.6
million and $7.4  million in 2001 and 2000,  respectively,  but  maturities  and
sales exceeded purchases by $4.1 million during 2002.

     Net cash used in financing  activities of continuing  operations  was $34.4
million, $27.4 million and $13.7 million for 2002, 2001 and 2000,  respectively.
This $7.0  million  change  during  2002 was  primarily  comprised  of the $21.9
million  increase in purchases of treasury stock offset by $4.1 million increase
in  proceeds  from sale of  common  stock on  exercise  of  options  and a $12.3
increase in proceeds from issuance of debt.

     The Company had a consolidated  working  capital surplus of $2.7 million at
December 31, 2002, a decrease of $2.4 million compared to a consolidated working
capital surplus of $5.1 million at December 31, 2001, primarily due to the large
amount of treasury stock purchases in 2002 of approximately  $50.2 million.  The
$2.7  million  working  capital  surplus at December 31, 2002 would have been an
$11.6 million working capital surplus  excluding the current portion of deferred
revenue  and fees in  excess of the  current  portion  of  deferred  member  and
associate service costs. These amounts will be eliminated by the passage of time
without the  utilization of other current assets or the Company  incurring other
current liabilities.  Additionally, at the current rate of cash flow provided by
continuing  operations  ($52.1  million during 2002),  the Company's  ability to
control  the  timing  of its  discretionary  treasury  stock  purchases  and the
availability  pursuant to its lines of credit,  the Company  does not expect any
difficulty  in meeting its financial  obligations  in the short term or the long
term.

     The Company generally advances significant commissions to associates at the
time a Membership is sold. The Company  expenses these advances ratably over the
first month of the related  Membership.  During  2002,  the Company paid advance
commissions to associates of $118.9 million on new Membership  sales compared to
$110.2  million  for  2001.  Since  approximately  95% of  Membership  fees  are
collected on a monthly  basis,  a significant  cash flow deficit is created on a
per  Membership  basis at the time a  Membership  is sold.  Since  there  are no
further  commissions paid on a Membership during the advance period, the Company
typically  derives  significant  positive cash flow from the Membership over its
remaining life. See Commissions to Associates  above for additional  information
on advance commissions.

     The Company  announced on April 6, 1999, a treasury stock purchase  program
authorizing  management to acquire up to 500,000 shares of the Company's  common
stock.  The Board of Directors has  increased  such  authorization  from 500,000
shares to 7,000,000  shares during  subsequent  board meetings.  At December 31,
2002,  the  Company  had  purchased  5.5  million  treasury  shares  under these
authorizations for a total  consideration of $125.1 million, an average price of
$22.76 per  share.  Treasury  stock  purchases  will be made at prices  that are
considered  attractive by management and at such times that management  believes
will not unduly impact the Company's  liquidity.  No time limit has been set for
completion of the treasury stock purchase  program.  Given the current  interest
rate environment,  the nature of other  investments  available and the Company's
expected  cash  flows,  management  believes  that  purchasing  treasury  shares
enhances  shareholder  value. The Company expects to continue its treasury stock
program and may seek alternative  sources of financing to continue or accelerate
the program.

     The Company  believes that it has significant  ability to finance  expected
future growth in Membership  sales based on its existing amount of cash and cash
equivalents and unpledged investments at December 31, 2002 of $36.4 million. The
Company expects to maintain cash and cash equivalents and investment balances on
an on-going basis of  approximately  $20 million to $30 million in order to meet
expected working capital needs and regulatory capital requirements.  Balances in
excess of this amount would be used for discretionary  purposes such as treasury
stock purchases.

     As more fully discussed in Item-2 - Description of Property, the Company is
constructing a new corporate office complex with an estimated  completion during
the third  quarter of 2003 at an estimated  cost of  approximately  $30 million.
Costs  incurred  through  December  31,  2002 of  approximately  $12.6  million,
including  approximately  $120,000 of capitalized interest costs, have been paid
from existing  resources and the real estate line of credit. The Company expects
to incur additional  indebtedness in order to finance the remaining costs of its
new  corporate  headquarters  in order to allow  cash  flow from  operations  to
continue to be used to purchase  treasury  stock.  The Company has entered  into
construction  contracts  in  the  amount  of  $28.2  million  with  the  general
contractor  pertaining  to the new  office  complex.  Total  remaining  costs of
construction from January 1, 2003 are estimated at approximately $17.4 million.

     On June 11, 2002,  the Company  entered into two line of credit  agreements
totaling $30 million with a commercial  lender  providing  for a treasury  stock
purchase  line and a real estate line for funding of the Company's new corporate
office complex.  The treasury stock line of credit provides for funding of up to
$10 million to finance  treasury  stock  purchases  through  March 31, 2003 with
scheduled monthly  repayments  beginning after the initial advance and ending no
later  than  March 31,  2004  with  interest  at the 30 day LIBOR  Rate plus two
percent,  adjusted  monthly.  The real  estate  line of up to $20 million may be
funded over the period  ending  December  31,  2003 with  interest at the 30 day
LIBOR Rate plus 2.25%,  adjusted monthly,  and will be repayable beginning after
the advance period in monthly principal  payments equal to the principal balance
outstanding  at December  31, 2003 divided by 105 plus  interest  with a balloon
payment on September 30, 2008.

     As of December  31,  2002,  the Company had  accessed $4 million of the $10
million treasury stock purchase line and made repayments of $1.7 million and had
accessed $8.3 million of the $20 million real estate line. The interest rates as
of  December  31, 2002 are 3.44% and 3.69% for the  treasury  stock loan and the
real estate  loan,  respectively.  The $2.3  million  used to purchase  treasury
stock,  net of repayments  of $1.7 million,  is scheduled to be paid off by July
30, 2003 and therefore  has been  classified  as short term.  Monthly  principal
payments on the treasury  stock line are  $333,333.  The Company is scheduled to
begin  payments on the real estate line on December 31, 2003. As of December 31,
2002, interest capitalized pursuant to the real estate line was $120,000

     Parent Company Funding and Dividends
     Although the Company is the  operating  entity in many  jurisdictions,  the
Company's  subsidiaries  serve as  operating  companies  in various  states that
regulate  Memberships as insurance or specialized  legal expense  products.  The
most significant of these wholly owned  subsidiaries  are PPLCI and PPLSIF.  The
ability  of PPLCI and  PPLSIF to  provide  funds to the  Company is subject to a
number of  restrictions  under various  insurance laws in the  jurisdictions  in
which PPLCI and PPLSIF conduct business,  including limitations on the amount of
dividends  and  management  fees that may be paid and  requirements  to maintain
specified levels of capital and reserves.  In addition PPLCI will be required to
maintain its stockholders'  equity at levels sufficient to satisfy various state
or  provincial  regulatory  requirements,  the  most  restrictive  of  which  is
currently $3 million. Additional capital requirements of PPLCI or PPLSIF will be
funded  by  the  Company  in  the  form  of  capital  contributions  or  surplus
debentures.  At  December  31,  2002,  PPLSIF did not have funds  available  for
payment of  substantial  dividends  without the prior  approval of the insurance
commissioner.  PPLCI had  approximately  $3.5 million in surplus funds available
for payment of an ordinary  dividend  during December 2003. At December 31, 2002
the amount of  restricted  net  assets of  consolidated  subsidiaries  was $11.2
million.

     Commitments
     The following  table  reflects  certain of the Company's  commitments as of
December 31, 2002.



                                                                   Payments Due by Period (In Thousands)
                                                        -----------------------------------------------------------

                                                                     Less than                            More than
               Contractual Obligations                    Total       1 year     1-3 years    3-5 years    5 years
---------------------------------------------------     ----------   ----------  ----------   ----------  ----------
                                                                                           
Long-term debt.....................................     $  10,633    $   2,358   $     596    $     596   $   7,083
Capital leases.....................................         1,857           42         142          142       1,531
Operating leases...................................           115           72          32           11           -
Contractual obligations related to construction in
  progress.........................................        18,982       18,982           -            -           -
                                                        ----------   ----------  ----------   ----------  ----------
Total                                                   $  31,587    $  21,454   $     770    $     749   $   8,614
                                                        ----------   ----------  ----------   ----------  ----------



     The foregoing table does not include  contractual  commitments  pursuant to
executory contracts for products and services such as telephone,  data, computer
maintenance,  attorney  provider payments and other regular payments pursuant to
contracts  that are expected to remain in existence  for several years but as to
which the Company's  obligations  are  contingent  upon the Company's  continued
receipt of the contracted products and services.

Forward-Looking Statements

     All statements in this report concerning Pre-Paid Legal Services, Inc. (the
"Company") other than purely historical  information,  including but not limited
to,   statements   relating  to  the  Company's  future  plans  and  objectives,
discussions  with the  staff of the SEC,  expected  operating  results,  and the
assumptions  on which such  forward-looking  statements  are  based,  constitute
"Forward-Looking Statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are based
on the  Company's  historical  operating  trends and  financial  condition as of
December 31, 2002 and other information  currently available to management.  The
Company  cautions  that the  Forward-Looking  Statements  are subject to all the
risks and uncertainties  incident to its business,  including but not limited to
risks  described  below.   Moreover,   the  Company  may  make  acquisitions  or
dispositions of assets or businesses,  enter into new marketing  arrangements or
enter into financing transactions. None of these can be predicted with certainty
and, accordingly, are not taken into consideration in any of the Forward-Looking
Statements  made herein.  For all of the foregoing  reasons,  actual results may
vary  materially  from the  Forward-Looking  Statements.  The Company assumes no
obligation  to  update  the  Forward-Looking  Statements  to  reflect  events or
circumstances occurring after the date of the statement.


Risk Factors

     There  are a number  of risk  factors  which  could  affect  our  financial
condition or results of operations.

     Our future results may be adversely  affected if membership  persistency or
renewal rates are lower than our historical experience.
     The Company has over 20 years of actual  historical  experience  to measure
the expected retention of new members.  These retention rates could be adversely
affected  by the  quality of  services  delivered  by  provider  law firms,  the
existence of competitive products or services,  the Company's ability to provide
administrative services to members or other factors. If the Company's membership
persistency  or  renewal  rates  are less  than  the  Company  has  historically
experienced,  the  Company's  cash  flow,  earnings  and growth  rates  could be
adversely affected.

     The Company may not be able to grow  memberships  and  earnings at the same
rate as it has historically experienced.
     The Company's year end active  memberships  have increased 11%, 17% and 29%
in the years ended December 31, 2002,  2001 and 2000,  respectively.  Net income
applicable to common  stockholders  for the same three years has increased  33%,
32% and 59%,  respectively.  However, in the fourth quarter of 2002, the Company
experienced its first decline in new memberships  sold and associates  recruited
compared to the comparable  quarter of the prior year. The Company's  ability to
grow  memberships  and earnings is  substantially  dependent upon its ability to
expand or enhance the productivity of its sales force,  develop additional legal
expense   products,    develop   alternative   marketing   methods   or   expand
geographically.  There is no assurance  that the Company will be able to achieve
increases in membership and earnings growth  comparable to its historical growth
rates.

     The Company is dependent  upon the continued  active  participation  of its
principal executive officer.
     The success of the Company depends  substantially  on the continued  active
participation  of its  principal  executive  officer,  Harland  C.  Stonecipher.
Although the Company's  management  includes other  individuals with significant
experience  in the  business  of the  Company,  the loss of the  services of Mr.
Stonecipher  could have a material  adverse  effect on the  Company's  financial
condition and results of operations.

     There is litigation  pending that may have a material adverse effect on the
Company if adversely determined.
     See "Item 3. Legal Proceedings".

     The  Company  is in a  regulated  industry  and  regulations  could have an
adverse effect on the Company's ability to conduct its business.
     The Company is regulated by or required to file with or obtain  approval of
State Insurance Departments, State Bar Associations and State Attorney General's
Offices,   depending  on  individual   state  positions   regarding   regulatory
responsibility  for prepaid  legal  expense  plans.  Regulation of the Company's
activities is  inconsistent  among the various  states in which the Company does
business  with some  states  regulating  legal  expense  plans as  insurance  or
specialized legal expense products and others regulating such plans as services.
Such disparate  regulation requires the Company to structure its memberships and
operations  differently in certain states in accordance with the applicable laws
and regulations. The Company's multi-level marketing strategy is also subject to
U.S. federal,  Canadian provincial and U.S. state regulation under laws relating
to consumer  protection,  pyramid  sales,  business  opportunity,  lotteries and
multi-level  marketing.  Changes in the regulatory environment for the Company's
business  could  increase the  compliance  costs the Company  incurs in order to
conduct its business or limit the  jurisdictions in which the Company is able to
conduct business.

     The business in which the Company operates is competitive.
     There are a number of  existing  and  potential  competitors  that have the
ability to offer competing  products that could  adversely  affect the Company's
ability to grow. In addition,  the Company may face  competition  from a growing
number of  Internet  based  legal  sites with the  potential  to offer legal and
related  services at  competitive  prices.  Increased  competition  could have a
material  adverse  effect on the  Company's  financial  condition and results of
operations. See "Description of Business - Competition".

     The Company is dependent upon the success of its marketing force.
     The  Company's   principal  method  of  product   distribution  is  through
multi-level  marketing.  The success of a multi-level  marketing force is highly
dependent upon the Company's  ability to offer a commission  and  organizational
structure and sales training and incentive  program that enable sales associates
to recruit and develop other sales associates to create an  organization.  There
are a number of other products and services that use multi-level  marketing as a
distribution  method and the Company must compete  with these  organizations  to
recruit,  maintain and grow its multi-level  marketing force. In order to do so,
the Company may be required to increase its marketing costs through increases in
commissions,  sales  incentives or other features,  all of which could adversely
affect the Company's  future earnings.  In addition,  the level of confidence of
the sales associates in the Company's  ability to perform is an important factor
in maintaining  and growing a multi-level  marketing  force.  Adverse  financial
developments  concerning  the Company,  including  negative  publicity or common
stock  price  declines,  could  adversely  affect the  ability of the Company to
maintain the confidence of its sales force.

     The Company's stock price may be affected by the significant level of short
sellers of the Company's stock.
     As of  February  11,  2003,  the New  York  Stock  Exchange  reported  that
approximately  10.3 million shares of the Company's stock were sold short, which
constitutes approximately 58% of the Company's outstanding shares and 82% of its
public float,  representing one of the largest short interest percentages of any
New York Stock Exchange listed company. Short sellers expect to make a profit if
the  Company's  shares  decline in value.  The Company has been the subject of a
negative  publicity  campaign  from several  known  sources of  information  who
support  short  sellers.  The  existence  of this short  interest  position  may
contribute to volatility in the Company's  stock price and may adversely  affect
the ability of the  Company's  stock price to rise if market  conditions  or the
Company's performance would otherwise justify a price increase.


ITEM 7A.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
         Included in Item 7 on page 21.



ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                 PRE-PAID LEGAL SERVICES, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Certified Public Accountants

Consolidated Financial Statements
Consolidated Balance Sheets - December 31, 2002 and 2001
Consolidated Statements of Income - For the years ended December 31, 2002, 2001
    and 2000
Consolidated Statements of Cash Flows - For the years ended December 31, 2002,
    2001 and 2000
Consolidated Statements of Changes In Stockholders' Equity - For the years ended
  December 31, 2002, 2001 and 2000
Notes to Consolidated Financial Statements

Financial Statement Schedules
Schedule I - Condensed Financial Information of the Registrant

  (All other schedules have been omitted since the required information is
      not applicable or because the information is included in the
      consolidated financial statements or the notes thereon.)



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors and Stockholders
Pre-Paid Legal Services, Inc.

We have audited the accompanying  consolidated  balance sheets of Pre-Paid Legal
Services,  Inc. and  subsidiaries  (the  "Company")  as of December 31, 2002 and
2001, and the related consolidated  statements of income, cash flows and changes
in stockholders' equity for each of the three years in the period ended December
31, 2002.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of Pre-Paid  Legal
Services,  Inc.  and  subsidiaries  as of December  31,  2002 and 2001,  and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31, 2002, in conformity  with  accounting  principles
generally accepted in the United States of America.

We have also audited Schedule I of Pre-Paid Legal Services,  Inc. as of December
31, 2002 and 2001 and for each of the three years in the period  ended  December
31, 2002.  In our opinion,  this  schedule,  when  considered in relation to the
basic financial  statements taken as a whole,  presents fairly,  in all material
respects, the information set forth therein.

As discussed in Note 1, during 2000 the Company  changed  certain of its revenue
recognition  policies as a result of the adoption of Staff  Accounting  Bulletin
No. 101 "Revenue Recognition in Financial Statements."


GRANT THORNTON LLP

Oklahoma City, Oklahoma
February 18, 2003


                         PRE-PAID LEGAL SERVICES, INC.
                           CONSOLIDATED BALANCE SHEETS
                (Amounts and shares in 000's, except par values)

                                     ASSETS


                                                                                               December 31,
                                                                                          -----------------------
                                                                                             2002        2001
                                                                                          ----------   ----------
Current assets:
                                                                                                 
  Cash and cash equivalents............................................................   $  20,858    $  14,290
  Available-for-sale investments, at fair value........................................       3,970        6,070
  Membership income receivable.........................................................       5,247        5,472
  Inventories..........................................................................       1,212          922
  Refundable income taxes..............................................................         275            -
  Deferred member and associate service costs..........................................      13,639       14,228
  Deferred income taxes................................................................       4,603        3,413
                                                                                          ----------   ----------
      Total current assets.............................................................      49,804       44,395
Available-for-sale investments, at fair value..........................................      11,560       13,386
Investments pledged....................................................................       4,160        4,315
Property and equipment, net............................................................      25,593       14,755
Deferred member and associate service costs............................................       2,991        2,907
Other assets...........................................................................       2,728        5,962
                                                                                          ----------   ----------
        Total assets...................................................................   $  96,836    $  85,720
                                                                                          ----------   ----------


                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Membership benefits..................................................................   $   8,610    $   7,664
  Deferred revenue and fees............................................................      22,612       20,893
  Current portion of capital leases payable............................................          14            -
  Current portion of notes payable.....................................................       2,412            -
  Income taxes payable.................................................................           -        1,087
  Accounts payable and accrued expenses................................................      13,498        9,678
                                                                                          ----------   ----------
    Total current liabilities..........................................................      47,146       39,322
  Capital leases payable...............................................................         912            -
  Notes payable........................................................................       8,221            -
  Deferred revenue and fees............................................................       4,266        4,158
  Deferred income taxes ...............................................................       1,319           16
                                                                                          ----------   ----------
      Total liabilities................................................................      61,864       43,496
                                                                                          ----------   ----------
Stockholders' equity:
  Common stock, $.01 par value; 100,000 shares authorized; 23,688 and
    24,806 issued at December 31, 2002 and 2001, respectively..........................         237          248
  Capital in excess of par value.......................................................      43,219       66,223
  Retained earnings....................................................................      90,254       54,240
  Accumulated other comprehensive income...............................................         290          186
  Treasury stock, at cost; 4,852 and 3,989 shares held at
    December 31, 2002 and 2001, respectively...........................................     (99,028)     (78,673)
                                                                                          ----------   ----------
      Total stockholders' equity.......................................................      34,972       42,224
                                                                                          ----------   ----------
        Total liabilities and stockholders' equity.....................................   $  96,836    $  85,720
                                                                                          ----------   ----------
   The accompanying notes are an integral part of these financial statements.




                          PRE-PAID LEGAL SERVICES, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                  (Amounts in 000's, except per share amounts)


                                                                                  Year Ended December 31,
                                                                         ------------------------------------------
                                                                              2002          2001          2000
                                                                         -------------  ------------- -------------
Revenues:
                                                                                             
  Membership fees......................................................  $    308,401   $    263,514  $    211,763
  Associate services...................................................        37,418         36,485        30,372
  Other................................................................         4,804          3,662         4,248
                                                                         -------------  ------------- -------------
                                                                              350,623        303,661       246,383
                                                                         -------------  ------------- -------------
Costs and expenses:
  Membership benefits..................................................       103,761         87,429        69,513
  Commissions..........................................................       119,371        111,060        96,614
  Associate services and direct marketing..............................        32,566         29,879        23,251
  General and administrative...........................................        33,256         28,243        21,524
  Other, net...........................................................         6,685          5,917         5,078
                                                                         -------------  ------------- -------------
                                                                              295,639        262,528       215,980
                                                                         -------------  ------------- -------------
Income from continuing operations before income taxes and
  cumulative effect of change in accounting principle..................        54,984         41,133        30,403
Provision for income taxes.............................................        18,970         13,519         9,550
                                                                         -------------  ------------- -------------
Income from continuing operations before cumulative effect
  of change in accounting principle....................................        36,014         27,614        20,853
Income (loss) from operations of discontinued UFL segment
  (net of applicable income tax benefit of $0 and $387 for years
  2001 and 2000, respectively).........................................             -           (504)          649
                                                                         -------------  ------------- -------------
Income before cumulative effect of change in accounting principle......        36,014         27,110        21,502
Cumulative effect of adoption of SAB 101 (net of applicable
  income tax benefit of $546)..........................................             -              -        (1,013)
                                                                         -------------  ------------- -------------
Net income.............................................................        36,014         27,110        20,489
Less dividends on preferred shares.....................................             -              -             4
                                                                         -------------  ------------- -------------
Net income applicable to common stockholders...........................  $     36,014   $     27,110  $     20,485
                                                                         -------------  ------------- -------------

Basic earnings per common share from continuing operations
  before cumulative effect of accounting change........................  $      1.83    $      1.28   $       .93
Basic earnings per common share from discontinued operations...........            -           (.02)          .03
                                                                         -------------  ------------- -------------
Basic earnings per common share before cumulative effect of accounting
  change...............................................................         1.83           1.26           .96
Cumulative effect of adoption of SAB 101...............................            -              -          (.05)
                                                                         -------------  ------------- -------------
Basic earnings per common share........................................  $      1.83    $      1.26   $       .91
                                                                         -------------  ------------- -------------

Diluted earnings per common share from continuing operations
  before cumulative effect of accounting change........................  $      1.82    $      1.28   $       .92
Diluted earnings per common share from discontinued operations.........            -           (.02)          .03
                                                                         -------------  ------------- -------------
Diluted earnings per common share before cumulative effect of
  accounting change....................................................         1.82           1.26           .95
Cumulative effect of adoption of SAB 101...............................            -              -          (.05)
                                                                         -------------  ------------- -------------
Diluted earnings per common share......................................  $      1.82    $      1.26   $       .90
                                                                         -------------  ------------- -------------

Pro forma amounts assuming adoption of SAB 101 is retroactively applied:
  Net Income.......................................................................................   $     21,502
                                                                                                      -------------
  Basic earnings per common share..................................................................   $        .96
                                                                                                      -------------
  Diluted earnings per common share................................................................   $        .95
                                                                                                      -------------

   The accompanying notes are an integral part of these financial statements.



                          PRE-PAID LEGAL SERVICES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (Amounts in 000's)

                                                                                  Year Ended December 31,
                                                                          -----------------------------------------
                                                                              2002          2001          2000
                                                                          ------------   ------------  ------------
Cash flows from operating activities:
                                                                                              
Net income................................................................$    36,014    $    27,110   $    20,489
Cumulative change in accounting principle.................................          -              -         1,013
Adjustments to reconcile net income to net cash
  provided by operating activities:
  Loss (income) from UFL's discontinued operations........................          -            504          (649)
  Provision (benefit) for deferred income taxes...........................        102         (1,314)         (550)
  Depreciation and amortization...........................................      5,272          4,135         2,770
  Tax benefit on exercise of stock options................................      1,104             82         1,044
  Compensation expense relating to contribution of stock to ESOP..........        207            162           130
  Decrease (increase) in accrued Membership income........................        225           (909)       (1,409)
  (Increase) decrease in inventories......................................       (290)           620          (100)
  (Increase) in refundable income taxes...................................       (275)             -             -
  Decrease in prepaid product commissions.................................          -              -           125
  Decrease (increase) in deferred member and associate service costs......        505         (3,016)       (8,521)
  Decrease (increase) in other assets.....................................      3,234            614        (1,059)
  Increase in accrued Membership benefits.................................        946            833         1,579
  Increase in deferred revenue and fees...................................      1,827          3,838        10,370
  (Decrease) increase in income taxes payable.............................     (1,087)           327        (1,053)
  Increase (decrease) in accounts payable and
    accrued expenses and other............................................      4,289          4,815          (978)
                                                                          ------------   ------------  ------------
    Net cash provided by operating activities of continuing operations....     52,073         37,801        23,201
                                                                          ------------   ------------  ------------
Cash flows from investing activities:
  Proceeds from sale of UFL...............................................          -          1,200             -
  Dividends received from UFL.............................................          -          2,800         5,000
  Additions to property and equipment.....................................    (15,184)        (8,326)       (5,577)
  Purchases of investments - available for sale...........................    (12,280)       (12,642)       (8,501)
  Maturities and sales of investments - available for sale................     16,390         10,005         1,113
                                                                          ------------   ------------  ------------
    Net cash used in investing activities
      of continuing operations............................................    (11,074)        (6,963)       (7,965)
                                                                          ------------   ------------  ------------
Cash flows from financing activities:
  Proceeds from sale of common stock on exercise of options...............      5,088          1,022         4,110
  Decrease in capital lease obligations...................................          -           (223)         (330)
  Purchases of treasury stock.............................................    (50,152)       (28,213)      (17,323)
  Proceeds from issuance of debt..........................................     12,300              -             -
  Repayments of debt......................................................     (1,667)             -             -
  Redemption of preferred stock...........................................          -              -          (167)
  Dividends paid on preferred stock.......................................          -              -            (4)
                                                                          ------------   ------------  ------------
    Net cash used in financing activities of continuing operations........    (34,431)       (27,414)      (13,714)
                                                                          ------------   ------------  ------------
Net increase in cash and cash equivalents.................................      6,568          3,424         1,522
Cash and cash equivalents at beginning of year............................     14,290         10,866         9,344
                                                                          ------------   ------------  ------------
Cash and cash equivalents at end of year..................................$    20,858    $    14,290   $    10,866
                                                                          ------------   ------------  ------------
Supplemental disclosure of cash flow information:
  Net cash used in discontinued operations................................$         -    $      (704)  $      (143)
                                                                          ------------   ------------  ------------
  Cash paid for interest..................................................$       119    $         2   $        10
                                                                          ------------   ------------  ------------
  Income taxes paid.......................................................$    19,116    $    12,700   $     9,102
                                                                          ------------   ------------  ------------
  Non-cash activities - capital lease obligations incurred................$       926    $         -   $         -
                                                                          ------------   ------------  ------------



  The accompanying notes are an integral part of these financial statements.





                          PRE-PAID LEGAL SERVICES, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
       (Amounts and shares in 000's, except dividend rates and par values)



                                                                                              Special Preferred
                                                                         $3 Preferred Stock         Stock
                                                                         --------  --------   --------  --------
                                                                         Shares     Amount    Shares     Amount
                                                                         --------  --------   --------  --------
                                                                                         
January 1, 2000                                                                3   $     3         18   $    18
  Redemption or conversion of Preferred Stock........................         (3)       (3)       (18)      (18)
  Contributed to Company's ESOP plan.................................          -         -          -         -
  Exercise of stock options and other................................          -         -          -         -
  Income tax benefit related to exercise of stock options............          -         -          -         -
  Net income.........................................................          -         -          -         -
  Cash dividends on preferred shares.................................          -         -          -         -
  Other comprehensive income.........................................          -         -          -         -
  Treasury shares purchased..........................................          -         -          -         -
                                                                         --------  --------   --------  --------
December 31, 2000                                                              -         -          -         -
  Contributed to Company's ESOP plan.................................          -         -          -         -
  Exercise of stock options and other................................          -         -          -         -
  Income tax benefit related to exercise of stock options............          -         -          -         -
  Net income.........................................................          -         -          -         -
  Other comprehensive income.........................................          -         -          -         -
  Treasury shares purchased..........................................          -         -          -         -
                                                                         --------  --------   --------  --------
December 31, 2001                                                              -         -          -         -
  Contributed to Company's ESOP plan.................................          -         -          -         -
  Exercise of stock options and other................................          -         -          -         -
  Income tax benefit related to exercise of stock options............          -         -          -         -
  Subscriptions receivable retired (net of additional advances
    of $489 and interest recognized of $85)..........................          -         -          -         -
  Net income.........................................................          -         -          -         -
  Other comprehensive income.........................................          -         -          -         -
  Treasury shares purchased..........................................          -         -          -         -
  Treasury shares retired............................................          -         -          -         -
                                                                         --------  --------   --------  --------
December 31, 2002....................................................          -   $     -          -   $     -
                                                                         --------  --------   --------  --------






                        (1) Other Comprehensive Income                         Year Ended December 31,
                                                                           -------------------------------
                                                                              2002      2001       2000
                                                                           ---------- --------- ----------
                                                                                       
    Net income...........................................................  $  36,014  $  27,110 $  20,489
                                                                           ---------- --------- ----------

    Other comprehensive income (loss), net of tax:
      Foreign currency translation adjustment............................         85         (7)      (12)
                                                                           ---------- --------- ----------
      Unrealized gains on investments:
        Unrealized holding gains arising during period,..................         75        299       893
          Less: reclassification adjustment for (gains) losses included
          in net income..................................................        (56)         2       (31)
                                                                           ---------- --------- ----------
                                                                                  19        301       862
                                                                           ---------- --------- ----------
    Comprehensive income, net of income taxes of $11, $162 and $464 in
      2002, 2001 and 2000, respectively..................................        104        294       850
                                                                           ---------- --------- ----------
    Comprehensive income.................................................  $  36,118  $  27,404 $  21,339
                                                                           ---------- --------- ----------



   The accompanying notes are an integral part of these financial statements.





                          PRE-PAID LEGAL SERVICES, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                (continued) (Amounts and shares in 000's, except
                         dividend rates and par values)


                                                           Accumulated
                         Capital in                           Other
     Common Stock         Excess of       Retained        Comprehensive        Treasury Stock
                          Par Value       Earnings       Income (Loss) 1
   Shares      Amount                                                       Shares      Amount        Total
                                                                               
----------    --------   -----------   -------------     ---------------   ---------  ------------  ---------
   24,507     $   245    $   59,822    $      6,645      $       (958)        1,960   $   (33,137)  $ 32,638
       30           -          (146)              -                 -             -             -       (167)
        6           -           130               -                 -             -             -        130
      197           2         4,108               -                 -             -             -      4,110
        -           -         1,044               -                 -             -             -      1,044
        -           -             -          20,489                 -             -             -     20,489
        -           -             -              (4)                -             -             -         (4)
        -           -             -               -               850             -             -        850
        -           -             -               -                 -           520       (17,323)   (17,323)
----------    --------   -----------   -------------     ---------------   ---------  ------------  ---------
   24,740         247        64,958          27,130              (108)        2,480       (50,460)    41,767
        6           -           162               -                 -             -             -        162
       60           1         1,021               -                 -             -             -      1,022
        -           -            82               -                 -             -             -         82
        -           -             -          27,110                 -             -             -     27,110
        -           -             -               -               294             -             -        294
        -           -             -               -                 -         1,509       (28,213)   (28,213)
----------    --------   -----------   -------------     ---------------   ---------  ------------  ---------
   24,806         248        66,223          54,240               186         3,989       (78,673)    42,224
       10           -           207               -                 -             -             -        207
      314           3         5,085               -                 -             -             -      5,088
        -           -         1,104               -                 -             -             -      1,104

        -           -           383               -                 -             -             -        383
        -           -             -          36,014                 -             -             -     36,014
        -           -             -               -               104             -             -        104
        -           -             -               -                 -         2,305       (50,152)   (50,152)
   (1,442)        (14)      (29,783)              -                 -        (1,442)       29,797          -
----------    --------   -----------   -------------     ---------------   ---------  ------------  ---------
   23,688     $   237    $   43,219    $     90,254      $        290         4,852   $   (99,028)  $ 34,972
----------    --------   -----------   -------------     ---------------   ---------  ------------  ---------


   The accompanying notes are an integral part of these financial statements.


                          PRE-PAID LEGAL SERVICES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           (Except for per share amounts, dollar amounts in tables are
                    in thousands unless otherwise indicated)


Note 1 - Nature of Operations and Summary of Significant Accounting Policies

     Nature of Operations
     Pre-Paid   Legal   Services,   Inc.   (the   "Parent")   and   subsidiaries
(collectively, the "Company") develops and markets legal service plans (referred
to as  "Memberships").  The  Memberships  sold by the Company  allow  members to
access legal services  through a network of independent law firms ("provider law
firms") under contract with the Company. Provider law firms are paid a fixed fee
on a capitated  basis to render  services to plan  members  residing  within the
state or  province  in which the  provider  law firm is  licensed  to  practice.
Because the fixed fee  payments by the Company to provider law firms do not vary
based on the type and amount of benefits utilized by the member,  this capitated
arrangement  provides  significant  advantages to the Company in managing claims
risk.  At  December  31,  2002,  Memberships  subject to the  provider  law firm
arrangement comprised approximately 99% of the Company's active Memberships. The
remaining  Memberships,  approximately 1%, were primarily sold prior to 1987 and
allow  members to locate their own lawyer to provide  legal  services  available
under the  Membership  with the member's  lawyer being  reimbursed  for services
rendered  based  on  usual,  reasonable  and  customary  fees.  Memberships  are
generally guaranteed renewable and Membership fees are principally  collected on
a monthly basis, although  approximately 5% of Members have elected to pay their
fees in advance on an annual or  semi-annual  basis.  At December 31, 2002,  the
Company had 1,382,306  Memberships  in force with members in all 50 states,  the
District of Columbia and the Canadian  provinces of Ontario,  British  Columbia,
Alberta and Manitoba.  Approximately  90% of the Memberships  were in 29 states.
The  Memberships  are  marketed by an  independent  sales  force  referred to as
"associates".

     Basis of Presentation
     The consolidated financial statements have been prepared in accordance with
accounting  principles  generally  accepted  in the  United  States  of  America
("generally  accepted  accounting  principles") which vary in some respects from
statutory   accounting   principles  used  when  reporting  to  state  insurance
regulatory authorities.

     Principles of Consolidation
     The consolidated  financial  statements include the accounts of the Company
and its wholly owned  subsidiaries,  as well as those of PPL Agency,  Inc.  (See
Note 10 for  additional  information  regarding PPL Agency,  Inc.).  The primary
subsidiaries of the Company include Pre-Paid Legal Casualty,  Inc. ("PPLCI") and
Pre-Paid  Legal   Services,   Inc.  of  Florida   ("PPLSIF").   All  significant
intercompany accounts and transactions have been eliminated.

     Notes  6 and  12  and  the  first  two  paragraphs  of  Note  10  to  these
consolidated financial statements relate to the Parent.

     Foreign Currency Translation
     The financial results of the Company's Canadian  operations are measured in
its local  currency and then  translated  into U.S.  dollars.  All balance sheet
accounts have been translated  using the current rate of exchange at the balance
sheet date.  Results of operations have been translated  using the average rates
prevailing throughout the year.

     Estimates
     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

     Fair Value of Financial Instruments
     The Company's financial instruments consist primarily of cash, certificates
of deposit, short-term investments, debt and equity securities,  receivables and
trade payables.  Fair value estimates have been determined by the Company, using
available  market  information  and  appropriate  valuation  methodologies.  The
carrying value of cash,  certificates of deposit,  short-term  investments,  net
receivables  and trade  payables are  considered to be  representative  of their
respective fair value, due to the short term nature of these instruments.

     Cash and Cash Equivalents
     The  Company  considers  all  highly  liquid  unpledged   investments  with
maturities  of  three  months  or  less  at  time  of  acquisition  to  be  cash
equivalents.

     Investments
     The Company  classifies  its  investments  held as  available  for sale and
accounts for them at fair value with unrealized gains and losses,  net of taxes,
excluded from earnings and reported as other  comprehensive  income. The Company
classifies  available-for-sale  securities as current if the Company  expects to
sell the  securities  within one year, or if the Company  intends to utilize the
securities for current operations.  All other available-for-sale  securities are
classified as non-current.

     All  investment  securities are adjusted for  amortization  of premiums and
accretion of discounts.  Amortization of premiums and accretion of discounts are
recorded  to income  over the  contractual  maturity  or  estimated  life of the
individual  investment  on the  level  yield  method.  Gain  or  loss on sale of
investments is based upon the specific  identification  method. Income earned on
the  Company's  investments  in certain  state and  political  subdivision  debt
instruments is not generally taxable for federal income tax purposes.

     Membership income receivable
     The Company's  Membership  income  receivable  consists of amounts due from
members for services provided pursuant to their Membership contract.  Membership
fees are principally collected on a monthly basis.  Membership income receivable
is a result  of a  portion  of  members,  mostly  group  members,  who pay their
Membership  fees in arrears  and are  recorded at amounts due under the terms of
the Membership agreement. An allowance for doubtful accounts is not necessary as
the recorded amount is adjusted to net realizable  value at period-end  based on
the  Company's  historical  experience  and  the  short  period  of  time  after
period-end in which the accounts will be collected.

     Inventories
     Inventories  include the cost of materials  and packaging and are stated at
the lower of cost or market.

     Property and Equipment
     Property and equipment is stated at cost less accumulated  depreciation and
amortization.  Depreciation  of property  and  equipment  is computed  using the
straight-line  method over the estimated  useful lives of the assets.  Leasehold
improvements are amortized over the estimated useful lives of the related assets
or the period of the lease,  whichever is shorter.  Maintenance  and repairs are
expensed as incurred and renewals and betterments are capitalized. Interest cost
incurred during the construction period of major facilities is capitalized.  The
capitalized  interest is recognized as part of the asset to which it relates and
is amortized over the asset's estimated useful life.

     Revenue recognition - Membership and Associate Fees
     The Company's  principal revenues are derived from Membership fees, most of
which are collected on a monthly  basis.  Memberships  are generally  guaranteed
renewable and non-cancelable except for fraud, non-payment of Membership fees or
upon written request.  Membership fees are recognized in income ratably over the
related  service period in accordance  with  Membership  terms,  which generally
require the holder of the Membership to remit fees on an annual,  semi-annual or
monthly basis.  Approximately  95% of members remit their  Membership  fees on a
monthly basis, of which  approximately  71% are paid in advance and,  therefore,
are deferred and recognized over the following month.

     The  Company  also  charges  new  members,  who are not part of an employee
group, a $10 enrollment fee. This enrollment fee and related  incremental direct
and  origination  costs are deferred and recognized in income over the estimated
life of a Membership in accordance with SEC Staff  Accounting  Bulletin No. 101,
"Revenue Recognition in Financial Statements," ("SAB 101"). The Company computes
the expected  Membership life using over 20 years of actuarial data. At December
31, 2002, management computed the expected Membership life to be approximately 3
years.  If the  expected  membership  life were to change  significantly,  which
management does not expect in the short term, the deferred Membership enrollment
fee and related costs would be recognized over a longer or shorter period.

     The Company derives revenues from services  provided to its marketing sales
force from a one-time  non-refundable  enrollment fee of $65 from each new sales
associate for which the Company  provides  initial sales and marketing  supplies
and  enrollment  services  to the  associate.  Revenue  from,  and costs of, the
initial sales and marketing supplies (approximately $11) are recognized when the
materials  are  delivered to the  associates.  The remaining $54 of revenues and
related  incremental  direct and  origination  costs are deferred and recognized
over the estimated average active service period of associates which at December
31, 2002 is estimated to be approximately six months.  Management  estimates the
active service period of an associate  periodically  based on the average number
of months an associate produces new Memberships  including those associates that
fail to write any  Memberships.  If the  active  service  period  of  associates
changes significantly, the deferred revenue and related costs will be recognized
over the new estimated active service period.

     The Company also  encourages  participation  in a training  program  ("Fast
Start")  that allows an  associate  who  successfully  completes  the program to
advance  through  the various  commission  levels at a faster  rate.  Associates
participating in this training  program  typically pay a fee ranging from $34 to
$184,  depending on special promotions the Company implements from time to time.
The fee  covers the  additional  training  and  materials  used in the  training
program, and is recognized in income upon completion of the training.  Associate
services also includes revenue  recognized on the sale of marketing supplies and
promotional  material to  associates  and includes fees related to the Company's
eService  program for  associates.  The eService  program  provides  subscribers
Internet based back office support such as reports, on-line documents,  tools, a
personal email account and up to three personalized web sites with "flash" movie
presentations.

     Member and Associate Costs
     Deferred costs represent the incremental  direct and origination  costs the
Company  incurs in  enrolling  new  Members  and new  associates  related to the
deferred revenue  discussed above, and that portion of payments made to provider
law firms and associates related to deferred Membership revenue.  Deferred costs
for enrolling new members  include the cost of the Membership kit and salary and
benefit costs for employees who process Membership  enrollments.  Deferred costs
for  enrolling  new  associates  include  training  and success  bonuses paid to
individuals involved in recruiting the associate and salary and benefit costs of
employees  who process  associate  enrollments.  Such costs are  deferred to the
extent of the lesser of actual  costs  incurred or the amount of the related fee
charged for such services. Deferred costs are amortized to expense over the same
period as the related deferred  revenue.  Deferred costs that will be recognized
within one year of the  balance  sheet date are  classified  as current  and all
remaining deferred costs are considered noncurrent.  Associate related costs are
reflected  as  associate  services  and direct  marketing,  and are  expensed as
incurred if not related to the deferred  revenue  discussed  above.  These costs
include  providing  materials and services to  associates,  Fast Start  bonuses,
associate  introduction kits, the associate  incentive program,  group marketing
and marketing services departments (including costs of related travel, marketing
events, leadership summits and international sales convention).

     Membership Benefits Liability
     The  Membership  benefits  liability  represents  per  capita  amounts  due
provider law firms on  approximately  99% of the Memberships and claims reported
but not paid and actuarially  estimated  claims incurred but not reported on the
remaining non-provider Memberships which represent approximately 1%. The Company
calculates  the  benefit  liability  on the  non-provider  Memberships  based on
completion factors that consider historical claims experience based on the dates
that  claims are  incurred,  reported  to the  Company  and  subsequently  paid.
Processing  costs  related to these  claims are accrued  based on an estimate of
expenses to process such claims.

     Income Taxes
     The  Company  accounts  for  income  taxes  using the  asset and  liability
approach that requires the  recognition  of deferred tax assets and  liabilities
for the  expected  future tax  consequences  of events  that are  recognized  in
different  periods in the Company's  financial  statements  and tax returns.  In
estimating future tax consequences,  the Company generally  considers all future
events  other  than  future  changes  in the tax law or rates that have not been
enacted.

     Deferred  income taxes are determined  based on the difference  between the
financial  statement and tax bases of assets and  liabilities  using enacted tax
rates in effect in the years in which the  differences  are expected to reverse.
The Company records deferred tax assets related to the recognition of future tax
benefits  of  temporary  differences  and net  operating  loss  and  tax  credit
carryforwards. To the extent that realization of such benefits is not considered
more likely than not, the Company  establishes  a valuation  allowance to reduce
such assets to the estimated realizable amount.

     Commissions to Associates
     Prior to March 1,  2002,  the  Company  had a level  Membership  commission
schedule of approximately  27% of Membership fees and advanced the equivalent of
up to three years of commissions on new Membership  sales.  In January 1997, the
Company  implemented  a new policy  whereby  associates  do not receive  advance
commissions  on the first  three  Memberships  submitted  unless  the  associate
successfully  completes a Company training  program,  produces three Memberships
and recruits three associates within 60 days from becoming an associate.

     Effective  March 1, 2002, and in order to offer  additional  incentives for
increased  Membership  retention  rates,  the Company returned to a differential
commission  structure with rates of  approximately  80% of first year Membership
premiums  on new  Memberships  written and  variable  renewal  commission  rates
ranging  from five to 25% per annum based on the 12 month  Membership  retention
rate of the associate's sales organization.

     The Company  expenses advance  commissions  ratably over the first month of
the related  Membership.  As a result of this accounting  policy,  the Company's
commission expenses are recorded in the first month of a Membership and there is
no commission expense recognized for the same Membership during the remainder of
the advance period.

     Long-Lived Assets
     The Company  reviews  long-lived  assets to be held and used in  operations
when  events or  changes in  circumstances  indicate  that the  assets  might be
impaired.  The carrying value of long-lived  assets is considered  impaired when
the  identifiable  undiscounted  cash flows  estimated  to be generated by those
assets are less than their carrying amounts. In that event, a loss is recognized
based on the amount by which the  carrying  value  exceeds the fair value of the
long-lived asset. Fair value is determined  primarily using the anticipated cash
flows  discounted  at a rate  commensurate  with the risk  involved.  Losses  on
long-lived  assets to be disposed of are determined in a similar manner,  except
that fair values are reduced by disposal costs.

      Stock-Based Compensation
     At December 31, 2002, the company had a stock-based  employee  compensation
plan,  which is described  more fully in Note 13. The company  accounts for this
plan under the  recognition  and  measurement  principles of APB Opinion No. 25,
Accounting  for Stock  Issued to  Employees,  and  related  Interpretations.  No
stock-based  employee  compensation  cost is  reflected  in net  income,  as all
options  granted  under those  plans had an  exercise  price equal to the market
value of the underlying  common stock on the date of grant.  The following table
illustrates  the effect on net income and  earnings per share if the company had
applied  the fair  value  recognition  provisions  of FASB  Statement  No.  123,
Accounting for Stock-Based Compensation, to stock-based employee compensation.



                                                                                 2002        2001         2000
                                                                               ---------   ---------    ---------
                                                                                               
Net income, as reported...................................................     $ 36,014    $ 27,110     $ 20,485
Deduct:  Total stock-based employee compensation expense determined under
fair value based method for all awards, net of related tax effects........       (3,201)     (2,471)      (4,017)
                                                                               ---------   ---------    ---------
Pro forma net income......................................................     $ 32,813    $ 24,639     $ 16,468
                                                                               ---------   ---------    ---------
Earnings per share:
    Basic - as reported...................................................     $   1.83    $   1.26     $    .91
    Basic - pro forma.....................................................     $   1.67    $   1.15     $    .73
    Diluted - as reported.................................................     $   1.82    $   1.26     $    .90
    Diluted - pro forma...................................................     $   1.66    $   1.14     $    .73


     The estimated  fair value of options  granted to employees was estimated on
the  date of  grant  using  the  Black-Scholes  option  pricing  model  with the
following  weighted-average  assumptions  used:  no  dividend  yield;  risk-free
interest  rate of 3.06%  for 2002,  4.09% for 2001 and 5.15% for 2000;  expected
life of 3-5 years;  and expected  volatility  for the years ending  December 31,
2002,  2001 and 2000 were  59.3%,  63.1% and 63.4%,  respectively.  Using  these
assumptions,  the  weighted  average  fair  values at date of grant for  options
granted during 2002, 2001 and 2000 were $9.86, $8.58 and $17.36, respectively.

     The exercise of certain  stock  options  which have been granted  under the
Company's  various  stock  option  plans  give  rise to  compensation  which  is
includable  in the taxable  income of the option  grantee and  deductible by the
Company for federal and state income tax  purposes.  Such  compensation  results
from increases in the fair market value of the Company's common stock subsequent
to the  date  of  grant  of  the  applicable  exercised  stock  options,  and in
accordance with Accounting Principles Board Opinion No. 25, such compensation is
not recognized as an expense for financial  accounting  purposes and the related
tax benefits are recorded in capital in excess of par value.

     Legal Contingencies
     The Company  accounts for legal  contingencies  in accordance  with SFAS 5,
Accounting for Contingencies,  which requires that an estimated loss from a loss
contingency  should be accrued by a charge to income if it is  probable  that an
asset has been  impaired or a liability  has been incurred and the amount of the
loss can be reasonably  estimated.  Disclosure  of a contingency  is required if
there is at least a reasonable  possibility  that a loss has been incurred.  The
Company  evaluates,  among  other  factors,  the  degree  of  probability  of an
unfavorable  outcome and the ability to make a reasonable estimate of the amount
of loss. This process requires  subjective judgment about the likely outcomes of
litigation. Liabilities related to most of the Company's lawsuits are especially
difficult to estimate due to the nature of the claims,  limitation  of available
data and uncertainty  concerning the numerous variables used to determine likely
outcomes or the amounts recorded.  Litigation  expenses are recorded as incurred
and the Company  does not accrue for future legal fees.  It is possible  that an
adverse  outcome in certain  cases or increased  litigation  costs could have an
adverse effect upon the Company's financial condition, operating results or cash
flows in particular quarterly or annual periods.

     Segment Information
     Operating  segments are defined as components  of an  enterprise  for which
separate financial  information is available that is evaluated  regularly by the
chief operating  decision maker(s) in deciding how to allocate  resources and in
assessing performance. Disclosures about products and services, geographic areas
and major customers are presented in Note 16.

     New Accounting Standards Issued
     In July 2001,  the Financial  Accounting  Standards  Board issued SFAS 143,
"Accounting for Asset  Retirement  Obligations."  SFAS 143 requires  entities to
record the fair value of a liability for an asset  retirement  obligation in the
period in which it is incurred  and a  corresponding  increase  in the  carrying
amount of the related  long-lived  asset. SFAS 143 is effective for fiscal years
beginning  after  June  15,  2002.  The  Company  does  not  expect  SFAS 143 to
materially impact its reported results.

     In April 2002, the FASB issued SFAS No. 145,  Rescission of FASB Statements
No. 4, 44 and 64,  Amendment of FASB Statement No. 13 and Technical  Corrections
that, among other things,  rescinded SFAS No. 4, Reporting Gains and Losses from
Extinguishment   of  Debt.  With  the  rescission  of  SFAS  No.  4,  the  early
extinguishment   of  debt   generally   will  no  longer  be  classified  as  an
extraordinary item for financial statement  presentation purposes. The provision
is effective for fiscal years beginning after May 15, 2002. The Company does not
anticipate  that the adoption of SFAS No. 145 will have a material effect on its
financial position or results of operations.

     In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal  Activities,  which  replaces  Emerging  Issues Task Force
Issue No. 94-3, Liability  Recognition for Certain Employee Termination Benefits
and Other  Costs to Exit an  Activity  (including  Certain  Costs  Incurred in a
Restructuring).   The  new  standard  required   companies  to  recognize  costs
associated  with exit or disposal  activities when they are incurred rather than
at the date of a commitment to an exit or disposal  plan. The statement is to be
applied  prospectively to exit or disposal  activities  initiated after December
31, 2002. The Company does not anticipate that the adoption of SFAS No. 146 will
have a material effect on its financial position or results of operations.

     In December 2002, the FASB issued SFAS No. 148,  Accounting for Stock-Based
Compensation - Transition and Disclosure, which amended SFAS No. 123, Accounting
for Stock-Based  Compensation.  The new standard provides alternative methods of
transition  for a voluntary  change to the fair value based method of accounting
for stock-based employee  compensation.  Additionally,  the statement amends the
disclosure  requirements of SFAS No. 123 to require prominent disclosures in the
annual and  interim  financial  statements  about the method of  accounting  for
stock-based employee  compensation and the effect of the method used in reported
results.  This statement is effective for financial  statements for fiscal years
ending after December 15, 2002. In compliance with SFAS No. 148, the Company has
elected to continue to follow the intrinsic  value method in accounting  for its
stock-based employee compensation arrangement as defined by APB No. 25.

     In  November  2002,  the  FASB  issued  Interpretation  No.  45  (FIN  45),
Guarantor's  Accounting and Disclosure  Requirement  for  Guarantees,  Including
Indirect  Guarantees of Indebtedness of Others.  For a guarantee subject to FASB
Interpretation No. 45, a guarantor is required to measure and recognize the fair
value of the guarantee liability at inception.  For many guarantees,  fair value
will likely be determined  using the expected  present value method described in
FASB  Concepts  Statement 7, Using Cash Flow  Information  and Present  Value in
Accounting   Measurements.   In  addition,   FIN  45  provides  new   disclosure
requirements.  The  disclosure  requirements  of FIN 45 were  effective  for the
Company as of December 31,  2002.  The  measurement  and  liability  recognition
provisions  are applied  prospectively  to  guarantees  or  modifications  after
December 31, 2002. The Company  anticipates that FIN 45 will not have a material
impact on the financial statements.

     In January 2003, the FASB issued  Interpretation  No. 46,  Consolidation of
Variable  Interest Entities (FIN 46). Subject to certain criteria defined in the
Interpretation,  FIN 46 will require  consolidation  by business  enterprises of
variable  interest  entities if the enterprise has a variable interest that will
absorb the majority of the entity's expected losses,  receives a majority of its
expected  returns,  or both. The provisions of FIN 46 are effective  immediately
for interests acquired in variable interest entities after January 31, 2003, and
at the beginning of the first interim or annual period  beginning after June 15,
2003, for interests  acquired in variable  interest  entities before February 1,
2003 (for the  Company  in the third  quarter  of 2003).  The  Company is in the
process of  determining  what impact,  if any, the adoption of the provisions of
FIN 46 will have upon its financial condition or results of operations.  Certain
transitional  disclosures  required  by  FIN  46  in  all  financial  statements
initially  issued after January 31, 2003, have been included in the accompanying
financial statements.

     Accounting Change
     SAB 101 was issued in December 1999. This Staff Bulletin summarizes certain
of the staff's views in applying  generally  accepted  accounting  principles to
revenue recognition in financial statements. SAB 101 was effective no later than
the fourth fiscal  quarter of fiscal years,  beginning  after December 15, 1999.
The Company  implemented  SAB 101 in the fourth  quarter of 2000,  but effective
January 1, 2000, and deferred the non-refundable Membership and a portion of the
associate  enrollment  fees and the related  incremental  direct and origination
costs  associated  with services  provided  members and associates in return for
such fees. These deferred revenues and related costs will be amortized to income
over the  estimated  life of the  Membership  or the  estimated  average  active
service  period of  associates.  The  implementation  of SAB 101  resulted  in a
cumulative  effect type adjustment of $1.0 million,  net of tax, which decreased
net income for the year ended December 31, 2000.

Note 2 - Discontinued Operations

     On December  31, 2001 the Company  completed  the sale of its wholly  owned
subsidiary,  Universal  Fidelity Life  Insurance  Company  ("UFL").  The Company
received a $2.8  million  dividend and $1.2 million from the sale of 100% of UFL
stock resulting in no gain or loss on the sale. The results of operations of the
UFL segment have been segregated and reported as discontinued  operations in the
Consolidated   Statements  of  Income.   Details  of  income  from  discontinued
operations, net of income tax, are as follows:






                                                                               Year Ended December 31,
                                                                                2001            2000
                                                                             ----------      ----------
                                                                                       
Revenues...............................................................      $   1,703       $   2,590
                                                                             ----------      ----------
Income (loss) from discontinued operations, net of tax benefit of $0 and
  $387 for years 2001 and 2000, respectively...........................      $    (504)      $     649
                                                                             ----------      ----------



Note 3 - Investments

     A summary  of the  amortized  cost,  unrealized  gains and  losses and fair
values of the Company's investments at December 31, 2002 and 2001 follows:



                                                                         December 31, 2002
                                                        --------------------------------------------------
                                                        Amortized       Gross Unrealized           Fair
Available-for-Sale                                         Cost         Gains       Losses        Value
------------------                                      -----------    --------     --------    ----------
                                                                                    
U.S. Government obligations........................      $   5,915     $   276      $     -     $   6,191
Corporate obligations..............................          5,540          88          (83)        5,545
Equity securities..................................            917           5          (56)          866
Obligations of state and political subdivisions....          4,260         120           (5)        4,375
Certificates of deposit............................          2,713           -            -         2,713
                                                        -----------    --------     --------    ----------
Total..............................................      $  19,345     $   489      $  (144)    $  19,690
                                                        -----------    --------     --------    ----------









                                                                         December 31, 2001
                                                       ---------------------------------------------------
                                                        Amortized       Gross Unrealized           Fair
Available-for-Sale                                         Cost         Gains       Losses        Value
-------------------                                     -----------    --------     --------    ----------
                                                                                    
U.S. Government obligations........................      $   7,773     $   246      $     -     $   8,019
Corporate obligations..............................          7,172          73         (104)        7,141
Equity securities..................................          1,418          63                      1,481
Obligations of state and political subdivisions....          3,785          52          (14)        3,823
Certificates of deposit............................          3,307           -            -         3,307
                                                        -----------    --------     --------    ----------
Total..............................................      $  23,455     $   434      $  (118)    $  23,771
                                                        -----------    --------     --------    ----------



     The contractual maturities of the Company's available-for-sale  investments
in debt securities and  certificates of deposit at December 31, 2002 by maturity
date follows:



                                                                        Amortized
                                                                           Cost        Fair Value
                                                                       ------------    ----------
                                                                                 
                 One year or less...................................     $   3,374     $   3,391
                 Two years through five years.......................         2,826         2,951
                 Six years through ten years........................         2,627         2,620
                 More than ten years................................         9,601         9,862
                 Total..............................................   ------------    ----------
                                                                         $  18,428     $  18,824
                                                                       ------------    ----------



     The  Company's  investment  securities  are  included  in the  accompanying
consolidated balance sheets at December 31, 2002 and 2001 as follows.



                                                                              December 31,
                                                                         ------------------------
                                                                             2002          2001
                                                                         ----------    ----------
                                                                                 
                 Available-for-sale investments (current)...........     $   3,970     $   6,070
                 Available-for-sale investments (non-current).......        11,560        13,386
                 Investments pledged................................         4,160         4,315
                                                                         ----------    ----------
                 Total..............................................     $  19,690     $  23,771
                                                                         ----------    ----------



     The Company is required to pledge  investments  to various state  insurance
departments  as a condition  to  obtaining  authority  to do business in certain
states. The fair value of investments pledged to state regulatory agencies is as
follows:




                                                                              December 31,
                                                                         ------------------------
                                                                           2002          2001
                                                                         ----------    ----------
                                                                                 
                 Certificates of deposit............................     $   2,243     $   2,407
                 Obligation of state and political subdivisions.....           139           138
                 U. S. Government obligations.......................         1,778         1,770
                                                                         ----------    ----------
                 Total                                                   $   4,160     $   4,315
                                                                         ----------    ----------


     Proceeds  from  sales of  investments  during  2002 were $7.6  million  and
resulted in gross realized gains of $95,000 and gross realized losses of $9,000.
Sales of investments during 2001 and 2000 were not significant.

Note 4 - Property and Equipment

         Property and equipment is comprised of the following:



                                                                Estimated         December 31,
                                                               Useful Life     2002         2001
                                                               ------------  ----------  ----------
                                                                                
                 Equipment, furniture and fixtures..........     3-10 years  $  17,696   $  12,910
                 Computer software..........................        3 years      6,585       6,478
                 Building and improvements..................       20 years      3,185       2,942
                 Automotive.................................        3 years        171         171
                 Construction in progress...................            N/A     12,649       1,675
                 Land.......................................            N/A        170         170
                                                               ------------  ----------  ----------
                                                                                40,456      24,346
                 Accumulated depreciation...................                   (14,863)     (9,591)
                                                                             ----------  ----------
                 Property and equipment, net................                 $  25,593   $  14,755
                                                                             ----------  ----------



     Construction  in  progress  includes  all  construction  costs,   including
capitalized interest on funds borrowed of $120,000 during 2002,  associated with
the design and  construction  of the Company's new  corporate  headquarters.  No
interest was capitalized in 2001 or 2000.

Note 5 - Accounts Payable and Accrued Expenses

         Accounts payable and accrued expenses are comprised of the following:



                                                                              December 31,
                                                                        ------------------------
                                                                           2002          2001
                                                                        ----------    ----------
                                                                                
                 Accounts payable...................................    $   3,340     $   1,518
                 Marketing bonuses payable..........................        1,201           577
                 Incentive awards payable...........................        3,345         3,000
                 Litigation accrual.................................        3,290         2,000
                 Other..............................................        2,322         2,583
                                                                        ----------    ----------
                 Total..............................................    $  13,498     $   9,678
                                                                        ----------    ----------



     The Company's  litigation  accrual  increased from $1.7 million at December
31, 2000 to $2.0 million at December 31, 2001  reflecting an additional  accrual
of $1.7 million and a settlement  payment of $1.4  million  during 2001.  Due to
increased  litigation  during  2002 (See Note 12),  the  Company  increased  the
accrual by $1.3  million to $3.3 million at December  31,  2002.  The  incentive
awards payable began in 2001 when the Company introduced its associate incentive
program  consisting  of monthly  car  bonuses  and  annual  trips for those that
qualify and represents the estimated costs at December 31, 2002.

Note 6 - Notes Payable

     On June 11, 2002,  the Company  entered into two line of credit  agreements
totaling $30 million with a commercial  lender  providing  for a treasury  stock
purchase  line and a real estate line for funding of the Company's new corporate
office complex.  The treasury stock line of credit provides for funding of up to
$10 million to finance  treasury  stock  purchases  through  March 31, 2003 with
scheduled monthly  repayments  beginning after the initial advance and ending no
later  than  March 31,  2004  with  interest  at the 30 day LIBOR  Rate plus two
percent,  adjusted  monthly.  The real  estate  line of up to $20 million may be
funded over the period  ending  December  31,  2003 with  interest at the 30 day
LIBOR Rate plus 2.25%,  adjusted monthly,  and will be repayable beginning after
the advance period in monthly principal  payments equal to the principal balance
outstanding  at December  31, 2003 divided by 105 plus  interest  with a balloon
payment on September 30, 2008. Additionally, interest on the outstanding balance
of the real estate line is payable monthly through November 30, 2003.

     As of  December 31 2002,  the  Company  had  accessed $4 million of the $10
million treasury stock purchase line and made repayments of $1.7 million and had
accessed $8.3 million of the $20 million real estate line. The interest rates as
of  December  31, 2002 are 3.44% and 3.69% for the  treasury  stock loan and the
real estate  loan,  respectively.  The $2.3  million  used to purchase  treasury
stock,  net of repayments  of $1.7 million,  is scheduled to be paid off by July
30, 2003 and therefore  has been  classified  as short term.  Monthly  principal
payments on the treasury  stock line are  $333,333.  The Company is scheduled to
begin  principal  payments on the real estate line on December 31,  2003.  As of
December 31, 2002, interest  capitalized related to construction in progress was
$120,000.

     These lending agreements contain the following financial covenants: (a) the
Company's  quarterly  Debt Coverage  Ratio shall not be less than 125%;  (b) the
Company shall not permit the ratio of its Total  Liabilities to its Tangible Net
Worth to exceed 2.50 to 1.00, measured at the end of each calendar quarter;  (c)
the Company's cancellation rate on contracts less than or equal to twelve months
old shall not  exceed  50% for  fiscal  year 2002 and 45% for each  fiscal  year
thereafter,  on a  trailing  twelve  months  basis,  and (d) the  Company  shall
maintain a rolling twelve month average  retention rate of membership  contracts
in place for greater than eighteen months of not less than 70%,  calculated on a
calendar  quarter basis. At December 31, 2002 the Company was in compliance with
each of these financial covenants.

     A schedule of outstanding balances and future maturities as of December 31,
2002 follows:

Real estate line of credit.................    $       8,300
Stock purchase line of credit..............            2,333
Total notes payable........................           10,633
Less: Current portion of notes payable.....           (2,412)
Long term portion..........................   ----------------
                                               $       8,221
                                              ----------------
Repayment Schedule commencing January 2003:
Year 1.....................................    $       2,412
Year 2.....................................              949
Year 3.....................................              949
Year 4.....................................              949
Year 5.....................................              949
Thereafter.................................            4,425
Total notes payable........................   ----------------
                                               $      10,633
                                              ----------------


Note 7 - Income Taxes

     The provision (benefit) for income taxes consists of the following:



                                                                    Year Ended December 31,
                                                                ----------------------------------
                                                                  2002         2001        2000
                                                                ---------   ---------    ---------
                                                                                  
                 Current....................................      18,868      14,833       10,100
                 Deferred...................................         102      (1,314)        (550)
                                                                ---------   ---------    ---------
                   Total provision for income taxes.........    $ 18,970    $ 13,519     $  9,550
                                                                ---------   ---------    ---------



     A reconciliation  of the statutory Federal income tax rate to the effective
income tax rate is as follows:



                                                                    Year Ended December 31,
                                                                 -------------------------------
                                                                  2002        2001         2000
                                                                 ------      ------       ------
                                                                                  
                 Statutory Federal income tax rate..........      35.0%       35.0%        35.0%
                 Change in valuation allowance..............       -           (.8)        (3.4)
                 Tax exempt interest........................       (.1)        (.1)         (.2)
                 Other......................................       (.4)       (1.2)         -
                                                                 ------      ------       ------
                 Effective income tax rate..................      34.5%       32.9%        31.4%
                                                                 ------      ------       ------




     Deferred  tax  liabilities  and assets at  December  31,  2002 and 2001 are
comprised of the following:



                                                                       December 31,
                                                                  -----------------------
                                                                     2002        2001
                                                                  ----------- -----------
                 Deferred tax liabilities:
                                                                        
                   Unrealized investment gains (net)............  $      121  $      110
                   Deferred member and associate service costs..       5,821       5,997
                   Depreciation.................................       1,735         655
                                                                  ----------- -----------
                      Total deferred tax liabilities............       7,677       6,762
                                                                  ----------- -----------
                 Deferred tax assets:
                   Expenses not yet deducted for tax purposes...       1,152         746
                   Deferred revenue and fees....................       9,407       8,768
                   Net operating loss carryforward..............         402         645
                                                                  ----------- -----------
                      Total deferred tax assets.................      10,961      10,159
                                                                  ----------- -----------
                   Net deferred tax asset.......................  $    3,284  $    3,397
                                                                  ----------- -----------



     The  Company's  deferred  tax assets and  liabilities  are  included in the
accompanying  consolidated  balance  sheets  at  December  31,  2002 and 2001 as
follows.



                                                                December 31,
                                                        ------------------------
                                                            2002          2001
                                                        ----------    ----------
                                                                
Deferred tax asset (current).......................     $   4,603     $   3,413
Deferred tax liability (non-current)...............        (1,319)          (16)
                                                        ----------    ----------
Net deferred tax asset.............................     $   3,284     $   3,397
                                                        ----------    ----------


     At December  31, 2002,  the Company has net  operating  loss  carryforwards
(NOLs) in the amount of $888,000  that expire in 2015 through 2018  representing
remaining NOLs of TPN generated prior to the merger date.


Note 8 - Stockholders' Equity

     The Company  announced on April 6, 1999, a treasury stock purchase  program
authorizing  management to acquire up to 500,000 shares of the Company's  common
stock.  The Board of Directors has  increased  such  authorization  from 500,000
shares to 7,000,000  shares during  subsequent  board meetings.  At December 31,
2002,  the  Company  had  purchased  5.5  million  treasury  shares  under these
authorizations for a total  consideration of $125.1 million, an average price of
$22.76 per share.

     The Company has lines of credit (see Note 6) which prohibit payment of cash
dividends  on its common  stock.  Any  decision by the Board of Directors of the
Company to pay cash  dividends  in the future  will  depend  upon,  among  other
factors, the Company's earnings,  financial condition,  capital requirements and
approval from its lender. In addition, the Company's ability to pay dividends is
dependent in part on its ability to derive dividends from its subsidiaries.  The
payment of dividends by PPLCI is restricted under the Oklahoma Insurance Code to
available  surplus  funds  derived  from  realized  net profits and requires the
approval of the Oklahoma  Insurance  Commissioner for any dividend  representing
more than 10% of such accumulated  available  surplus or an amount  representing
more than the previous years' net profits.  During 2002 and 2001, PPLCI declared
a $6 million and a $5 million dividend payable to the Company. Both the 2001 and
2002  dividends  were paid during 2002.  Additionally,  during 2001, the Company
received  a $2.8  million  dividend  from  UFL  after  receiving  all  necessary
regulatory  approvals.  PPLSIF is similarly restricted pursuant to the insurance
laws of Florida.  At December 31, 2002,  PPLSIF did not have funds available for
payment of  substantial  dividends  without the prior  approval of the insurance
commissioner  while  PPLCI had  approximately  $3.5  million  in  surplus  funds
available for payment of an ordinary  dividend in December 2003. At December 31,
2002 the amount of restricted net assets of consolidated  subsidiaries was $11.2
million.


Note 9 - Comprehensive Income

     Comprehensive  income is  comprised  of two  subsets - net income and other
comprehensive income. Included in other comprehensive income for the Company are
foreign  currency  translation  adjustments and unrealized gains on investments.
These items are  accumulated  within the Statements of Changes in  Stockholders'
Equity  under  the  caption  "Accumulated  Other  Comprehensive  Income".  As of
December  31,  accumulated  other  comprehensive  income,  as  reflected  in the
Consolidated Statements of Changes in Stockholders' Equity, was comprised of the
following:



                                                                                 2002        2001
                                                                               --------    --------
                                                                                     
Foreign currency translation adjustments..................................     $    66     $   (19)
Unrealized gains on investments, net of income taxes of $121 and $110.....         224         205
                                                                               --------    --------
  Accumulated Other Comprehensive income..................................     $   290     $   186
                                                                               --------    --------


Note 10 - Related Party Transactions

     The Company's Chairman, Harland C. Stonecipher, is the owner of PPL Agency,
Inc.  ("Agency").  The Company has agreed to  indemnify  and hold  harmless  the
Chairman for any personal  losses  incurred as a result of his ownership of this
corporation and any income earned by Agency accrues to the Company.  The Company
provides  management  and  administrative  services  for  Agency,  for  which it
receives specified management fees and expense reimbursements.

     Agency's  financial  position and results of operations are included in the
Company's  financial  statements on a combined basis. Agency earned commissions,
net of amounts paid directly to its agents by the underwriter, during 2002, 2001
and 2000 of $138,000, $121,000 and $122,000, respectively,  through its sales of
insurance products of an unaffiliated company. Agency had net income of $33,000,
$16,000  and  $12,000  for the years ended  December  31,  2002,  2001 and 2000,
respectively  after  incurring  commissions  earned by the  Chairman of $58,000,
$57,000  and  $50,000,  respectively,  and  annual  management  fees paid to the
Company of $36,000 for 2002, 2001 and 2000.

     Mr.  Stonecipher and Shirley A.  Stonecipher  own Stonecipher  Aviation LLC
("SA") and Mr. and Mrs.  Stonecipher  together  with Wilburn L. Smith,  National
Marketing Director and formerly President and a director of the Company, own S &
S Aviation  LLC  ("S&SA").  The Company has agreed to  reimburse SA and S&SA for
certain  expenses  pertaining  to trips made by Company  personnel  for  Company
business  purposes  using  aircraft  owned by SA and  S&SA.  Such  reimbursement
represents  the pro rata  portion of direct  operating  expenses,  such as fuel,
maintenance,  pilot fees and  landing  fees,  incurred in  connection  with such
aircraft  based on the  relative  number of flights  taken for Company  business
purposes  versus the number of other flights  during the applicable  period.  No
reimbursement  is made for  depreciation,  capital  expenditures or improvements
relating  to such  aircraft.  During  2002,  2001 and  2000,  the  Company  paid
$397,000, $214,000 and $264,000,  respectively,  to SA as reimbursement for such
transportation  expenses.  S&SA was organized  during 2000, and the Company paid
$436,000,   $355,000  and   $372,000  to  S&SA  during  2002,   2001  and  2000,
respectively, as reimbursement for such transportation expenses.

     The  Company  indemnified  Mr.  Stonecipher  for  litigation  expenses  and
settlement  costs in connection  with a lawsuit filed by Frank Jaques,  a former
director of the Company,  in 1999 against Mr.  Stonecipher in the District Court
of  Pontotoc  County,  Oklahoma.  Mr.  Jaques  claimed  damages  relating  to an
agreement  between  Mr.  Jaques  and  Mr.   Stonecipher   relating  to  a  stock
subscription  agreement  with the Company that Mr.  Stonecipher  entered into in
order to obtain the  approval  of the  Oklahoma  Securities  Department  for the
Company's  original  intrastate public offering in 1977. The stock  subscription
agreement was executed by Mr.  Stonecipher for the benefit of the Company in his
capacity as the Chairman and founder. The Board of Directors determined that the
requirements for  indemnification  under the Company's Bylaws had been satisfied
and that Mr.  Stonecipher  was entitled to such  indemnification.  In 2000,  the
Company  reimbursed Mr.  Stonecipher  $130,000 for litigation  expenses,  and in
2001, the Company reimbursed him for $1,000 in litigation  expenses and $275,000
for settlement of the case which was accrued as of December 31, 2000.

     Mr. Smith had loans from the Company made in December  1992,  December 1996
and October  1998.  The largest  aggregate  balance of the loans during the year
ended December 31, 2002 was $521,000.  These loans were fully repaid during 2002
including interest of $24,100.  Mr. Smith also owns corporations or partnerships
not  affiliated  with the Company but engaged in the  marketing of the Company's
legal service  memberships and which earn commissions from sales of memberships.
These entities earned  commissions of $15,000,  $18,000 and $20,000 during 2002,
2001 and 2000, respectively, of which $9,000, $10,000 and $13,000, respectively,
was net of amounts passed through as commissions to their sales agents.

     Randy Harp,  Chief  Operating  Officer and a director of the  Company,  had
loans from the Company  made in 2000 and 2002,  including an advance of $489,000
during 2002.  The largest  aggregate  balance of the loans during the year ended
December 31, 2002 was $1.0  million.  These loans were fully repaid  during 2002
including interest of $105,200.

     John  W.  Hail,  a  director  of the  Company,  served  as  Executive  Vice
President,  Director  and Agency  Director of the Company from July 1986 through
May 1988 and also served as Chairman of the Board of Directors of TVC Marketing,
Inc.,  which was the  exclusive  marketing  agent of the Company from April 1984
through September 1985.  Pursuant to agreements between Mr. Hail and the Company
entered into during the period in which Mr. Hail was an executive officer of the
Company,  Mr.  Hail  receives  override  commissions  from  renewals  of certain
memberships  initially sold by the Company during such period. During 2002, 2001
and 2000, such override  commissions on renewals  totaled  $87,000,  $92,000 and
$90,000,  respectively. Mr. Hail also owns interests ranging from 12% to 100% in
corporations not currently affiliated with the Company, including TVC Marketing,
Inc.,  but which were engaged in the  marketing of the  Company's  legal service
memberships and which earn renewal commissions from memberships previously sold.
These  entities  earned renewal  commissions of $526,000,  $543,000 and $571,000
during  2002,  2001 and 2000,  respectively,  of which  $266,000,  $294,000  and
$313,000,  respectively,  was net of amounts  passed  through as  commissions to
their sales agents.

     David A. Savula,  a former director of the Company,  is actively engaged as
an  independent  contractor  in the  marketing of the  Company's  legal  service
memberships.  During 2002,  2001 and 2000, Mr. Savula  received from the Company
$1.8  million,  $1.1 million and $936,000  respectively,  pursuant to a previous
agreement  with the Company  providing for the payment to Mr. Savula of override
commissions and other fees with respect to commissions  earned by, and new sales
associate  sponsorships  within, the Company's multilevel marketing sales force,
as well as amounts received pursuant to his individual associate agreement.

     The Company also has notes  receivable from certain  marketing  consultants
who provide significant  marketing-related  services to the Company.  Such notes
aggregated  approximately $1.4 million and $2.7 million at December 31, 2002 and
2001,  respectively,  and bear  interest  at the  rate of 10% or prime  plus 3%.
Payments  were  received  during  2002 of $1.8  million,  including  interest of
$313,700.

Note 11 - Leases

     At  December  31,  2002,  the  Company was  committed  under  noncancelable
operating and capital leases, principally for buildings and equipment. Aggregate
rental expense under all operating leases was $174,000,  $142,000 and $50,000 in
2002, 2001 and 2000, respectively.

     Future  commitments   commencing  January  2003  related  to  noncancelable
operating leases are as follows:

Year Ended December 31,
2003...............................................     $      72
2004...............................................            16
2005...............................................            16
2006...............................................            10
2007...............................................             1
Thereafter.........................................             -
Total operating lease commitments..................    ------------
                                                        $     115
                                                       ------------


     Future minimum lease payments commencing in January 2003 related to capital
leases are as follows:

Year Ended December 31,
2003...............................................     $      42
2004...............................................            71
2005...............................................            71
2006...............................................            71
2007...............................................            71
Thereafter.........................................         1,531
                                                        ----------
Total minimum lease payments.......................         1,857
Less: Imputed interest.............................          (931)
                                                        ----------
Present value of net minimum lease payments........           926
Less: Current portion..............................           (14)
                                                        ----------
Non current portion of capital leases payable......     $     912
                                                        ----------

     The Company entered into two capital leases near the end of 2002 to acquire
equipment and  buildings.  These capital  leases expire at various dates through
2032. The capital lease assets are included in Property and Equipment as follows
at December 31, 2002.

           Equipment, furniture and fixtures..................     $     612
           Buildings and improvements.........................           314
                                                                   ----------
                                                                         926
           Less: accumulated amortization.....................             -
                                                                   ----------
           Net capital lease assets...........................     $     926
                                                                   ----------


Note 12 - Commitments and Contingencies

     The  Company  and  various  of its  executive  officers  have been named as
defendants in a putative  securities class action originally filed in the United
States District Court for the Western District of Oklahoma in early 2001 seeking
unspecified  damages on the basis of  allegations  that the Company issued false
and  misleading  financial  information,  primarily  related  to the  method the
Company  used  to  account  for  commission   advance   receivables  from  sales
associates.  On March 5, 2002, the Court granted the Company's motion to dismiss
the  complaint,  with  prejudice,  and  entered  a  judgment  in  favor  of  the
defendants.  Plaintiffs thereafter filed a motion requesting  reconsideration of
the dismissal  which was denied.  The plaintiffs  have appealed the judgment and
the order denying  their motion to reconsider  the judgment to the Tenth Circuit
Court of Appeals,  and as of February  28,  2003,  the case was in the  briefing
stage.  The  Company is unable to predict  when a decision  will be made on this
appeal. In August 2002, the lead institutional plaintiff withdrew from the case,
leaving two individual  plaintiffs as lead  plaintiffs on behalf of the putative
class. The ultimate outcome of this case is not determinable.

     On June 7, 2001 and August 3, 2001,  shareholder  derivative  actions  were
filed by alleged company shareholders,  Bruce A. Hansen and Donna L. Hansen, and
Roger  Strykowski,  respectively,  against all of the  directors  of the Company
seeking  unspecified  actual and punitive damages on behalf of the Company based
on allegations of breach of fiduciary duty, corporate waste and mismanagement by
the  defendant  directors.  On March 1, 2002,  plaintiffs  filed a  consolidated
amended derivative  complaint.  The amended complaint alleges that the defendant
directors caused the Company to violate generally accepted accounting principles
and federal  securities  laws by improperly  capitalizing  commission  expenses,
caused the Company to allegedly  pay  increased  salaries and bonuses based upon
financial  performance which was allegedly improperly  inflated,  and caused the
Company to expend  significant  dollars in  connection  with the  defense of its
accounting policy, including cost incurred in connection with the defense of the
securities  class action  described above, and in connection with the repurchase
of its own shares on the open market at allegedly  artificially inflated prices.
This  derivative  action is  related to the  putative  securities  class  action
described  above,  which has been dismissed with  prejudice.  After the Pre-Paid
defendants moved to dismiss the consolidated amended derivative  complaint,  the
plaintiffs  filed a  voluntary  dismissal  of the case in  August  2002  without
prejudice.  The Pre-Paid defendants objected to the voluntary dismissal, but the
court  approved  the  dismissal  subject  to  plaintiffs'  publishing  notice to
shareholders  and allowing a 30-day  objection  period  regarding their proposed
dismissal  without  prejudice.  Plaintiffs'  notice was published on January 28,
2003 and the deadline for  objections  was February 28, 2003.  On March 13, 2003
the case was dismissed without prejudice.

     Beginning  in the second  quarter of 2001 and through  December  31,  2002,
multiple lawsuits were filed against the Company,  certain officers,  employees,
sales associates and other  defendants in various Alabama and Mississippi  state
courts by current or former  members  seeking  actual and  punitive  damages for
alleged  breach of contract,  fraud and various other claims in connection  with
the sale of  memberships.  As of December 31, 2002,  the Company was aware of 28
separate lawsuits involving approximately 298 plaintiffs that have been filed in
multiple counties in Alabama. One suit involving 2 plaintiffs which was filed as
a class action has been dismissed with prejudice as to the class allegations and
without  prejudice as to the  individual  claims.  As of December 31, 2002,  the
Company was aware of 14 separate lawsuits involving approximately 428 plaintiffs
in multiple  counties in Mississippi.  Certain of the Mississippi  lawsuits also
name the Company's provider attorney in Mississippi as a defendant.  Proceedings
in the eleven cases which name the  Company's  provider  attorney as a defendant
have been  stayed for at least 90 days as to the  provider  attorney  due to the
rehabilitation  proceeding  involving the provider law firm's insurer.  At least
two  complaints  have  been  filed  on  behalf  of  certain  of the  Mississippi
plaintiffs and others with the Attorney General of Mississippi in March 2002 and
December 2002. The Company has responded to the Attorney  General's requests for
information  with respect to both  complaints,  and as of February 28, 2003, the
Company  was not  aware of any  further  actions  being  taken  by the  Attorney
General.  In  Mississippi,  the Company has filed  lawsuits in the United States
District  Court for the Southern and Northern  Districts of Mississippi in which
the Company seeks to compel arbitration of the various  Mississippi claims under
the  Federal  Arbitration  Act  and  the  terms  of  the  Company's   membership
agreements,  and has appealed the state court rulings in favor of certain of the
plaintiffs on the  arbitration  issue to the  Mississippi  Supreme Court.  These
cases  are  all in  various  stages  of  litigation,  including  trial  settings
beginning  in  Alabama  in May,  2003,  and seek  varying  amounts of actual and
punitive damages.  While the amount of membership fees paid by the plaintiffs in
the Mississippi cases is $500,000 or less,  certain of the cases seek damages of
$90 million.  Additional  suits of a similar  nature have been  threatened.  The
ultimate outcome of any particular case is not determinable.

     On April 19, 2002, counsel in certain of the above-referenced Alabama suits
also filed a similar suit against the Company and certain of its officers in the
District  Court of Creek  County,  Oklahoma  on behalf  of Jeff and Jana  Weller
individually  and doing  business  as Hi-Tech  Auto making  similar  allegations
relating to the Company's  memberships and seeking unspecified damages on behalf
of a "nationwide"  class.  The Company's  preliminary  motions in this case have
been denied, and, as of February 28, 2003, the Company's appeal of the denial of
its motion to compel  arbitration is pending before the Oklahoma  Supreme Court.
The ultimate outcome of this case is not determinable.

     On June 29, 2001,  an action was filed  against the Company in the District
Court of Canadian  County,  Oklahoma.  In 2002,  the petition was amended to add
five additional named plaintiffs and to add and drop certain claims. This action
is a putative class action brought by Gina Kotwitz,  George Kotwitz, Rick Coker,
Richard  Starke,  Jeff  Turnipseed  and  Aaron  Bouren  on  behalf  of all sales
associates of the Company. The amended petition seeks injunctive and declaratory
relief,  with such other  damages as the court  deems  appropriate,  for alleged
violations of the Oklahoma  Uniform  Consumer Credit Code in connection with the
Company's  commission  advances,  and seeks  injunctive and  declaratory  relief
regarding the enforcement of certain contract  provisions with sales associates.
The  impact  of the  claims  alleged  under  the  Consumer  Credit  Code and the
assertion  of  entitlement  to  injunctive  relief  could exceed $315 million if
plaintiffs are successful both in their request for class  certification  and on
the merits. The plaintiffs'  request for class  certification is set for hearing
on July 22, 2003. The ultimate outcome of this case is not determinable.

     On March 1, 2002, an action was filed in the United States  District  Court
for the Western District of Oklahoma by Caroline Sandler, Robert Schweikert, Sal
Corrente,  Richard Jarvis and Vincent  Jefferson against the Company and certain
executive  officers.  This action is a putative class action seeking unspecified
damages filed on behalf of all sales  associates of the Company and alleges that
the  marketing  plan  offered by the Company  constitutes  a security  under the
Securities  Act of 1933 and seeks remedies for failure to register the marketing
plan as a  security  and for  violations  of the  anti-fraud  provisions  of the
Securities  Act of 1933 and the  Securities  Exchange Act of 1934 in  connection
with representations  alleged to have been made in connection with the marketing
plan. The complaint also alleges violations of the Oklahoma  Securities Act, the
Oklahoma Business Opportunities Sales Act, breach of contract, breach of duty of
good faith and fair dealing and unjust  enrichment and violation of the Oklahoma
Consumer Protection Act and negligent  supervision.  This case is subject to the
Private  Litigation  Securities  Reform Act.  Pursuant to the Act, the Court has
approved the named plaintiffs and counsel and an amended  complaint was filed in
August 2002.  The Company  filed  motions to dismiss the complaint and to strike
the class action  allegations on September 19, 2002. All discovery in the action
is stayed  pending a ruling on the motion to dismiss.  As of February  28, 2003,
all briefs had been filed by the parties on the motion to dismiss and a decision
on the motion will be made by the Court. The Company is unable to predict when a
decision will be made. The ultimate outcome of this case is not determinable.

     In  December  2002,  the West  Virginia  Supreme  Court  reversed a summary
judgment which had been granted by the Circuit Court of Monangalia County,  West
Virginia  in favor of the  Company  in  connection  with the  claims of a former
member,  Georgia  Poling and her  daughters  against  the Company and a referral
lawyer with  respect to a 1995  referral.  That action was  originally  filed in
March 2000,  and alleges  breach of  contract  and fraud  against the Company in
connection  with the  referral.  The case is now  scheduled  for trial in August
2003, and plaintiffs  seek actual and punitive  damages in unspecified  amounts.
The ultimate outcome of this case is not determinable.

     On January 30, 2003, the Company  announced that it had received a subpoena
from the office of the United States  Attorney for the Southern  District of New
York  requesting  information  relating to trading  activities  in the Company's
stock in advance of the January 2003  announcement  of recruiting and membership
production  results for the fourth  quarter of 2002.  The Company also  received
notice from the  Securities  and Exchange  Commission  that it is  conducting an
informal  inquiry into the same  subject.  The Company is  cooperating  fully in
responding  to these  requests.  The  ultimate  outcome of these  matters is not
determinable.

     The Company is a defendant  in various  other  legal  proceedings  that are
routine and incidental to its business.  The Company will vigorously  defend its
interests in all  proceedings  in which it is named as a defendant.  The Company
also receives periodic complaints or requests for information from various state
and federal agencies relating to its business or the activities of its marketing
force.  The Company  promptly  responds to any such  matters  and  provides  any
information requested.

     While the ultimate outcome of these  proceedings is not  determinable,  the
Company does not currently  anticipate that these  contingencies  will result in
any material adverse effect to its financial  condition or results of operation,
unless  an  unexpected  result  occurs  in one of the  cases.  The  Company  has
established  an  accrued  liability  it  believes  will be  sufficient  to cover
estimated  damages in connection with various cases,  which at December 31, 2002
was $3.3 million.  If an  unexpected  result were to occur in one or more of the
pending cases,  the amount of damages  awarded could differ  significantly  from
management's estimates.  The Company believes it has meritorious defenses in all
pending cases and will vigorously defend against the plaintiffs' claims.

     Certain of the Company's  officers and directors are named as defendants in
some of the  pending  litigation  against  the  Company,  including  the matters
described above.  Pursuant to the terms of the Oklahoma General  Corporation Act
and the  Company's  bylaws and Board of  Director  authorizations,  the  Company
advances litigation costs and indemnifies its officers and directors, subject to
a finding that they have acted with the requisite  standard of care.  Other than
described  in  Note  10  above,  the  amount  of such  expense  advancement  and
indemnification  in 2002,  2001 and 2000 was not  material  as in  almost  every
instance there were no incremental costs of defending the officers and directors
over the costs incurred to defend the Company.

     The  Company  is  constructing  a new  corporate  office  complex  with  an
estimated  completion  during the third quarter of 2003 at an estimated  cost of
approximately  $30  million.   Costs  incurred  through  December  31,  2002  of
approximately  $12.6 million,  including  approximately  $120,000 of capitalized
interest costs, have been paid from existing  resources and the real estate line
of credit.  The Company  expects to incur  additional  indebtedness  in order to
finance the remaining costs of its new corporate  headquarters in order to allow
cash flow from operations to continue to be used to purchase treasury stock. The
Company has entered into  construction  contracts in the amount of $28.4 million
with  the  general  contractor  pertaining  to the  new  office  complex.  Total
remaining  costs  of  construction   from  January  1,  2003  are  estimated  at
approximately $17.5 million.

     Near the end of 2002,  the Company  committed  to acquire  significant  new
computer hardware to supplement its current information  technology platform and
provide  redundancy for its critical business systems.  The commitment calls for
the Company to expend approximately $1.6 million in 2003 and $800,000 in each of
2004 and 2005.  The Company will receive a $1 million  vendor rebate during 2003
as a result of this commitment.

Note 13 - Stock Options and Purchase Plan

     The Company has a stock option plan (the  "Plan")  under which the Board of
Directors  (the "Board") or its Stock Option  Committee  (the  "Committee")  may
grant options to purchase shares of the Company's common stock. The Plan permits
the granting of options to  directors,  officers and employees of the Company to
purchase the Company's  common stock at not less than the fair value at the time
the options are granted.  The Plan  provides for option  grants to acquire up to
2,000,000  shares and permits the granting of incentive stock options as defined
under  Section 422 of the Internal  Revenue  Code at an exercise  price for each
option  equal to the market price of the  Company's  common stock on the date of
the grant and a maximum term of 10 years.  Options not  qualifying  as incentive
stock  options  under  the Plan have a  maximum  term of 15 years.  The Board or
Committee  determines  vesting of options granted under the Plan. No options may
be granted under the Plan after December 12, 2005.

     The Plan provides for automatic grants of options to non-employee directors
of the Company. Under the Plan, each incumbent non-employee director and any new
non-employee director receives options to purchase 10,000 shares of common stock
on  March  1 of each  year.  The  options  granted  each  year  are  immediately
exercisable as to 2,500 shares and vest in additional increments of 2,500 shares
on the following June 1st, September 1st, and December 1st in the year of grant,
subject to continued  service by the non-employee  director during such periods.
Options granted to non-employee  directors under the Plan have an exercise price
equal to the closing price of the common stock on the date of grant.

     Also  included  below  are  stock  options  that  have  been  issued to the
Company's  Regional  Vice  Presidents  ("RVPs")  in  order  to  encourage  stock
ownership by its RVPs and to increase the  proprietary  interest of such persons
in  its  growth  and  financial   success.   These  options  have  been  granted
periodically to RVPs since 1996. Options are granted at fair market value at the
date of the  grant and are  generally  immediately  exercisable  for a period of
three years or within 90 days of termination, whichever occurs first. There were
244,679,  131,288 and 90,892  total  options  granted to RVPs in the years ended
December 31, 2002, 2001 and 2000, respectively.  The Company has not adopted any
limit for the number of options that may be granted to RVPs.

     A summary of the status of the Company's  total stock option activity as of
December 31, 2002, 2001 and 2000 for the years ended on those dates is presented
below:



                                                    2002                       2001                      2000
                                           ----------  ---------      ----------  ---------     ----------  ---------
                                                        Weighted                  Weighted                   Weighted
                                                        Average                   Average                   Average
                                                        Exercise                  Exercise                  Exercise
                                             Shares       Price        Shares       Price        Shares       Price
                                           ----------  ---------      ----------  ---------     ----------  ---------
                                                                                          
Outstanding at beginning of year.....      1,336,636   $  25.09       1,199,086   $  29.06      1,083,019   $  26.38
Granted..............................        499,679      22.54         443,288      17.64        355,892      32.06
Exercised............................       (329,229)     16.73         (43,175)     20.77       (226,937)     21.09
Terminated...........................         (8,694)     23.31        (262,563)     32.51        (12,888)     28.17
                                           ----------  ---------      ----------  ---------     ----------  ---------
Outstanding at end of year...........      1,498,392   $  26.09       1,336,636   $  25.09      1,199,086   $  29.06
                                           ----------  ---------      ----------  ---------     ----------  ---------
Options exercisable at year end......      1,378,392   $  26.54       1,199,644   $  25.56      1,117,086   $  28.96
                                           ----------  ---------      ----------  ---------     ----------  ---------





     The following table summarizes  information about stock options outstanding
at December 31, 2002:



                                                            Weighted Average
                                                                Remaining              Weighted Average
 Range of Exercise Prices       Number Outstanding          Contractual Life            Exercise Price
--------------------------      ------------------          ----------------           ----------------
                                                                             
      $15.65 - $22.00                   478,622                      3.3                    $  18.25
      $24.20 - $29.63                   518,266                      3.0                       25.50
      $30.00 - $42.13                   501,504                      1.2                       34.17
                                ------------------          ----------------           ----------------
                                      1,498,392                      2.5                    $  26.09
                                ------------------          ----------------           ----------------




     The following table summarizes  information about stock options exercisable
at December 31, 2002:



                                                            Weighted Average
                                                                Remaining              Weighted Average
 Range of Exercise Prices       Number Outstanding          Contractual Life            Exercise Price
--------------------------      ------------------          ----------------           ----------------
                                                                             
      $15.65 - $22.00                   413,622                      2.9                    $  18.27
      $24.20 - $29.63                   463,266                      2.8                       25.65
      $30.00 - $42.13                   501,504                      1.2                       34.17
                                ------------------          ----------------           ----------------
                                      1,378,392                      2.2                    $  26.54
                                ------------------          ----------------           ----------------




     During 1988, the Company adopted an employee stock  ownership  plan.  Under
the plan, employees may elect to defer a portion of their compensation by making
contributions to the plan. Up to seventy-five  percent of the contributions made
by employees may be used to purchase Company common stock.  The Company,  at its
option, may make matching contributions to the plan, and recorded expense during
2002,  2001  and 2000 of  $207,000,  $162,000  and  $130,000,  based  on  annual
contributions of Company stock of 10,000 shares,  6,100 shares and 5,500 shares,
respectively.

Note 14 - Earnings Per Share

     Basic  earnings  per  common  share are  computed  by  dividing  net income
applicable to common  stockholders  by the weighted  average number of shares of
common stock outstanding during the year.

     Diluted  earnings  per common  share are  computed by  dividing  net income
applicable to common  stockholders  by the weighted  average number of shares of
common stock and dilutive  potential common shares  outstanding during the year.
The $3.00 Cumulative Convertible Preferred stock and the Special Preferred stock
are considered to be dilutive  potential  common shares for all periods  through
the  conversion/redemption  date and the number of shares issuable on conversion
of the $3.00 Cumulative  Convertible  Preferred stock and the Special  Preferred
Stock were added to the weighted  average number of common  shares.  At December
31, 2000 all such shares had been  converted or redeemed.  The weighted  average
number of common  shares is also  increased by the number of shares  issuable on
the  exercise of options less the number of common  shares  assumed to have been
purchased  with the proceeds  from the  exercise of the options  pursuant to the
treasury  stock  method;  those  purchases  are assumed to have been made at the
average price of the common stock during the respective period.



                                                                                  Year Ended December 31,
                                                                               ------------------------------
Basic Earnings Per Share:                                                        2002       2001      2000
                                                                               --------- ---------  ---------
Earnings:
                                                                                           
Income from continuing operations before cumulative effect of change in
  accounting principle........................................................ $  36,014 $  27,614  $  20,853
Less dividends on preferred shares............................................         -         -          4
                                                                               --------- ---------  ---------
Income from continuing operations before cumulative effect of change in
  accounting principle applicable to common stockholders...................... $  36,014 $  27,614  $  20,849
                                                                               --------- ---------  ---------
Shares:
Weighted average shares outstanding...........................................    19,674    21,504     22,504
                                                                               --------- ---------  ---------

Diluted Earnings Per Share:


Earnings:
Income from continuing operations before cumulative effect of change in
  accounting principle available to common stockholders after assumed
  conversions................................................................. $  36,014 $  27,614  $  20,853
                                                                               --------- ---------  ---------
Shares:
Weighted average shares outstanding...........................................    19,674    21,504     22,504
Assumed conversion of preferred stock.........................................         -         -         35
Assumed exercise of options...................................................        90        40        140
                                                                               --------- ---------  ---------
Weighted average number of shares, as adjusted................................    19,764    21,544     22,679
                                                                               --------- ---------  ---------


     Options  to  purchase   shares  of  common  stock  are  excluded  from  the
calculation  of diluted  earnings per share when their  inclusion  would have an
anti-dilutive  effect on the  calculation.  Options to purchase  921,000 shares,
903,000  shares and  547,000  shares with an average  exercise  price of $29.76,
$29.57 and $35.99,  were excluded from the  calculation of diluted  earnings per
share for the years ended December 31, 2002, 2001 and 2000, respectively.





Note 15 - Selected Quarterly Financial Data (Unaudited)

     Following is a summary of the unaudited  interim  results of operations for
the years ended December 31, 2002 and 2001.



                                    Selected Quarterly Financial Data
                                 (In thousands, except per share amounts)
                        2002                          1st Quarter  2nd Quarter   3rd Quarter  4th Quarter
                        ----                          -----------  -----------   -----------  -----------
                                                                                   
Revenues...........................................    $  82,031    $  87,944     $  90,159    $  90,489
Net income.........................................        8,870        8,527         8,957        9,660

Basic income per common share (1):
  Net Income.......................................    $     .44    $     .42     $     .46    $     .51

Diluted income per common share (1):
  Net Income.......................................    $     .43    $     .42     $     .46    $     .51

                        2001
Revenues...........................................    $  70,325    $  76,808     $  76,215    $  80,313
Income from continuing operations..................        7,518        4,823         7,520        7,753
Income (loss) from discontinued operations,
    net of tax.....................................          158         (102)         (562)           2
Net income.........................................        7,676        4,721         6,958        7,755

Basic income per common share (1):
  Income from continuing operations................    $     .34    $     .22     $     .35    $     .36
  Income (loss) from discontinued operations.......          .01            -          (.03)           -
  Net Income.......................................          .35          .22           .32          .36

Diluted income per common share (1):
  Income from continuing operations................    $     .34    $     .22     $     .35    $     .36
  Income (loss) from discontinued operations.......          .01            -          (.03)           -
  Net Income.......................................          .35          .22           .32          .36


(1)  The sum of EPS for the four  quarters may differ from the annual EPS due to
     rounding and the required  method of computing  weighted  average number of
     shares in the respective periods.


Note 16 - Segment Information

     The Company previously  reported UFL as a segment. On December 31, 2001 the
Company  completed  the  sale of UFL and as a result  has  made the  disclosures
required  by  discontinued  operations  accounting,  see Note 2 to  Consolidated
Financial Statements.

     Substantially all of the Company's  business is currently  conducted in the
United States.  Revenues from the Company's  Canadian  operations for 2002, 2001
and 2000 were $4.0  million,  $4.4 million and $4.9 million,  respectively.  The
Company has no significant long-lived assets located in Canada.



ITEM 9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
              AND FINANCIAL DISCLOSURE

         Not applicable.


                                    PART III

     In accordance with the provisions of General Instruction G (3), information
required  by Items 10,  11, 12 and 13 of Form  10-K are  incorporated  herein by
reference  to  the  Company's   Proxy   Statement  for  the  Annual  Meeting  of
Shareholders to be filed prior to April 30, 2003.



                                     PART IV

ITEM 14. CONTROLS AND PROCEDURES

(a)  Evaluation of disclosure  controls and procedures.  The Company's Principal
     Executive  Officer  and  Principal  Financial  Officer  have  reviewed  and
     evaluated  the  effectiveness  of the  Company's  disclosure  controls  and
     procedures  (as defined in Exchange  Act Rule  240.13a-14(c))  as of a date
     within ninety days before the filing date of this annual  report.  Based on
     that  evaluation,   the  Principal  Executive  Officer  and  the  Principal
     Financial  Officer have  concluded  that the Company's  current  disclosure
     controls  and  procedures  are  effective,  providing  them  with  material
     information  relating to the Company as  required  to be  disclosed  in the
     reports the Company  files or submits  under the  Exchange  Act on a timely
     basis.

(b)  Changes in  internal  controls.  There were no  significant  changes in the
     Company's  internal  controls or in other factors that could  significantly
     affect those controls subsequent to the date of their evaluation.


ITEM 15.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  The following documents are filed as part of this report:

     (1)  Financial Statements:  See Index to Consolidated  Financial Statements
          and Consolidated  Financial Statement Schedule set forth on page 39 of
          this  report.
     (2)  Exhibits:  For a list  of the  documents  filed  as  exhibits  to this
          report, see the Exhibit Index following the signatures to this report.

(b)  Reports on Form 8-K: None.



                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                     PRE-PAID LEGAL SERVICES, INC.
March 17, 2003                  By:  /s/ Randy Harp
                                     -------------------------------------------
                                     Randy Harp
                                     Chief Operating Officer

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.



                       Name                                         Position                         Date
                       ----                                         --------                         ----
                                                                                          
            /s/ Harland C. Stonecipher                 Chairman of the Board of Directors       March 17, 2003
----------------------------------------------------
              Harland C. Stonecipher                     (Principal Executive Officer)


                  /s/ Randy Harp                          Chief Operating Officer and           March 17, 2003
----------------------------------------------------                Director
                    Randy Harp


               /s/ Steve Williamson                         Chief Financial Officer             March 17, 2003
----------------------------------------------------        (Principal Financial and
                 Steve Williamson                               Accounting Officer)

              /s/ Peter K. Grunebaum                                Director                    March 17, 2003
----------------------------------------------------
                Peter K. Grunebaum

                  /s/ John W. Hail                                  Director                    March 17, 2003
----------------------------------------------------
                   John W. Hail

               /s/ Martin H. Belsky                                 Director                    March 17, 2003
----------------------------------------------------
                 Martin H. Belsky






                                 CERTIFICATIONS

I, Harland C. Stonecipher, Chief Executive Officer, certify that:

(1)  I have reviewed this annual report on Form 10-K of Pre-Paid Legal Services,
     Inc.;

(2)  Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

(3)  Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

(4)  The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     (a)  Designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     (b)  Evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     (c)  Presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

(5)  The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     (a)  All  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     (b)  Any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

(6)  The  registrant's  other  certifying  officer and I have  indicated in this
     annual  report  whether or not there were  significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


Date: March 17, 2003               /s/ Harland C. Stonecipher
                                   ---------------------------------------------
                                   Harland C. Stonecipher
                                   Chairman,   Chief  Executive  Officer  and
                                   President




                            CERTIFICATIONS, continued

I, Steve Williamson, Chief Financial Officer, certify that:

(1)  I have reviewed this annual report on Form 10-K of Pre-Paid Legal Services,
     Inc.;

(2)  Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

(3)  Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

(4)  The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     (a)  Designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     (b)  Evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     (c)  Presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

(5)  The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     (a)  All  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     (b)  Any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

(6)  The  registrant's  other  certifying  officer and I have  indicated in this
     annual  report  whether or not there were  significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


Date: March 17, 2003               /s/ Steve Williamson
                                   ---------------------------------------------
                                   Steve Williamson
                                   Chief Financial Officer




PRE-PAID LEGAL SERVICES, INC AND SUBSIDIARIES
Schedule I - Condensed Financial Information of the Registrant





                 PRE-PAID LEGAL SERVICES, INC. (Parent Company)
                CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
                                 BALANCE SHEETS
                               (Amounts in 000's)

                                     ASSETS

                                                                                               December 31,
                                                                                          -----------------------
                                                                                               2002        2001
                                                                                          ----------   ----------
Current assets:
                                                                                                 
  Cash and cash equivalents............................................................   $  18,828    $  12,999
  Membership income receivable.........................................................       3,201        3,424
  Dividends receivable.................................................................           -        5,000
  Inventories..........................................................................       1,212          922
  Deferred member and associate service costs..........................................      11,873       12,560
  Deferred income taxes................................................................       3,187        2,217
                                                                                          ----------   ----------
      Total current assets.............................................................      38,301       37,122
Available-for-sale investments, at fair value..........................................         450          613
Investments pledged....................................................................         274          274
Property and equipment, net............................................................      25,124       14,202
Investments in and amounts due to/from subsidiaries, net...............................      21,561       19,604
Deferred member and associate service costs............................................       2,991        2,907
Other assets...........................................................................       2,415        5,439
                                                                                          ----------   ----------
        Total assets...................................................................   $  91,116    $  80,161
                                                                                          ----------   ----------

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Membership benefits..................................................................   $   8,329    $   7,383
  Deferred revenue and fees............................................................      16,796       15,806
  Current portion of capital leases payable............................................          14            -
  Current portion of notes payable.....................................................       2,412            -
  Income taxes payable.................................................................       1,234        1,892
  Accounts payable and accrued expenses................................................      12,550        8,682
                                                                                          ----------   ----------
    Total current liabilities..........................................................      41,335       33,763
  Capital leases payable...............................................................         912            -
  Notes payable........................................................................       8,221            -
  Deferred revenue and fees............................................................       4,266        4,158
  Deferred income taxes ...............................................................       1,410           16
                                                                                          ----------   ----------
      Total liabilities................................................................      56,144       37,937
                                                                                          ----------   ----------
Stockholders' equity:
  Common stock.........................................................................         237          248
  Capital in excess of par value.......................................................      43,219       66,223
  Retained earnings....................................................................      90,254       54,240
  Accumulated other comprehensive income...............................................         290          186
  Treasury stock, at cost..............................................................     (99,028)     (78,673)
                                                                                          ----------   ----------
      Total stockholders' equity.......................................................      34,972       42,224
                                                                                          ----------   ----------
        Total liabilities and stockholders' equity.....................................   $  91,116    $  80,161
                                                                                          ----------   ----------


           See accompanying notes to condensed financial statements.





                 PRE-PAID LEGAL SERVICES, INC. (Parent Company)
               CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
                              STATEMENTS OF INCOME
                               (Amounts in 000's)

                                                                                  Year Ended December 31,
                                                                         ------------------------------------------
                                                                              2002          2001          2000
                                                                         -------------  ------------- -------------
Revenues:
                                                                                             
  Membership fees......................................................  $    199,849   $    169,036  $    137,139
  Associate services...................................................        37,195         36,019        29,437
  Other................................................................         3,004          2,065         2,434
                                                                        -------------  ------------- -------------
                                                                              240,048        207,120       169,010
                                                                        -------------  ------------- -------------
Costs and expenses:
  Membership benefits..................................................        63,515         52,017        43,491
  Commissions..........................................................        83,097         88,040        77,249
  Associate services and direct marketing..............................        32,516         29,829        22,621
  General and administrative...........................................        13,773         12,307         8,991
  Other, net...........................................................         5,829          4,553         3,068
                                                                        -------------  ------------- -------------
                                                                              198,730        186,746       155,420
                                                                        -------------  ------------- -------------
Income from continuing operations before income taxes, equity in net income of
  subsidiaries and cumulative effect of
  change in accounting principle.......................................        41,318         20,374        13,590
Provision for income taxes.............................................        14,271          6,593         2,395
                                                                        -------------  ------------- -------------
Income from continuing operations before equity in net income
  of subsidiaries and cumulative effect of change in accounting
  principle............................................................        27,047         13,781        11,195
Equity in net income of subsidiaries...................................         8,967         13,833         9,658
Income from continuing operations before cumulative effect of
                                                                        -------------  ------------- -------------
  change in accounting principle.......................................        36,014         27,614        20,853
                                                                        -------------  ------------- -------------

Income (loss) from operations of discontinued UFL segment (net of applicable
  income tax benefit of $0 and $387 for years
  2001 and 2000, respectively).........................................             -           (504)          649
Income before cumulative effect of change in accounting principle......        36,014         27,110        21,502
                                                                        -------------  ------------- -------------
Cumulative effect of adoption of SAB 101 (net of applicable
  income tax benefit of $546)..........................................             -              -        (1,013)
                                                                        -------------  ------------- -------------
Net income.............................................................   $    36,014    $    27,110   $    20,489
                                                                        -------------  ------------- -------------


           See accompanying notes to condensed financial statements.




                 PRE-PAID LEGAL SERVICES, INC. (Parent Company)
               CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
                            STATEMENTS OF CASH FLOWS
                               (Amounts in 000's)

                                                                                  Year Ended December 31,
                                                                          -----------------------------------------
                                                                               2002          2001          2000
                                                                          ------------   ------------  ------------
                                                                                              
Net cash provided by operating activities of continuing operations........$    55,380    $    39,673   $    19,870
                                                                          ------------   ------------  ------------

Cash flows from investing activities:
  Proceeds from sale of UFL...............................................          -          1,200             -
  Additions to property and equipment.....................................    (15,184)        (8,326)       (5,516)
  Maturities and sales of investments - available for sale................         64              -           113
                                                                          ------------   ------------  ------------
    Net cash used in investing activities
      of continuing operations............................................    (15,120)        (7,126)       (5,403)
                                                                          ------------   ------------  ------------
Cash flows from financing activities:
  Proceeds from sale of common stock on exercise of options..............       5,088          1,022         4,110
  Decrease in capital lease obligations..................................           -           (223)         (330)
  Purchases of treasury stock............................................     (50,152)       (28,213)      (17,323)
  Proceeds from issuance of debt.........................................      12,300              -             -
  Repayments of debt.....................................................      (1,667)             -             -
  Redemption of preferred stock..........................................           -              -          (167)
  Dividends paid on preferred stock......................................           -              -            (4)
                                                                          ------------   ------------  ------------
    Net cash used in financing activities of continuing operations........    (34,431)       (27,414)      (13,714)
                                                                          ------------   ------------  ------------
Net increase in cash and cash equivalents.................................      5,829          5,133           753
Cash and cash equivalents at beginning of year............................     12,999          7,866         7,113
                                                                          ------------   ------------  ------------
Cash and cash equivalents at end of year..................................$    18,828    $    12,999   $     7,866
                                                                          ------------   ------------  ------------



           See accompanying notes to condensed financial statements.



                 PRE-PAID LEGAL SERVICES, INC. (Parent Company)
                CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
                     Notes to Condensed Financial Statements

Basis of Presentation
In the parent-company-only financial statements, Pre-Paid Legal Services, Inc.'s
("Parent  Company")  investment in subsidiaries is stated at cost plus equity in
undistributed  earnings  of  subsidiaries  since  the date of  acquisition.  The
parent-company-only  financial statements should be read in conjunction with the
Parent Company's consolidated financial statements.

Notes 6 and 12 and  the  first  two  paragraphs  of Note 10 to the  consolidated
financial  statements  of Pre-Paid  Legal  Services,  Inc.  relate to the Parent
Company  and  therefore  have not been  repeated  in  these  notes to  condensed
financial statements.

Expense Advances and Reimbursements
Pursuant to management  agreements  with certain  subsidiaries,  which have been
approved by insurance  regulators,  commission advances are paid and expensed by
the Parent  Company  and the Parent  Company is  compensated  for a portion  its
general  and   administrative   expenses   determined  in  accordance  with  the
agreements.

Dividends from Subsidiaries
Dividends paid to the Parent Company from its subsidiaries  accounted for by the
equity method are summarized as follows:



                                                                                  Year Ended December 31,
                                                                         ------------------------------------------
                                                                              2002           2001           2000
                                                                         -------------   -----------   ------------

                                                                                              
Pre-Paid Legal Casualty, Inc...........................................  $     11,000    $     3,500   $     1,500
Universal Fidelity Life Insurance Company..............................             -          2,800         5,000
                                                                         -------------   -----------   ------------
                                                                         $     11,000    $     6,300   $     6,500
                                                                         -------------   -----------   ------------




                                INDEX TO EXHIBITS


  Exhibit No.                  Description
  -----------                  -----------

3.1  Amended and  Restated  Certificate  of  Incorporation  of the  Company,  as
     amended  (Incorporated  by reference to Exhibit 4.1 of the Company's Report
     on Form 8-K dated January 10, 1997)

3.2  Amended and Restated  Bylaws of the Company  (Incorporated  by reference to
     Exhibit  3.1 of the  Company's  Report  on Form 10-Q for the  period  ended
     September 30, 1996)

*10.1Employment  Agreement  effective  January 1, 1993  between  the Company and
     Harland C.  Stonecipher  (Incorporated  by reference to Exhibit 10.1 of the
     Company's  Annual  Report on Form  10-KSB for the year ended  December  31,
     1992)

*10.2Agreements  between Shirley  Stonecipher,  New York Life Insurance  Company
     and the  Company  regarding  life  insurance  policy  covering  Harland  C.
     Stonecipher  (Incorporated  by reference to Exhibit  10.21 of the Company's
     Annual Report on Form 10-K for the year ended December 31, 1985)

*10.3Amendment dated January 1, 1993 to Split Dollar  Agreement  between Shirley
     Stonecipher  and the  Company  regarding  life  insurance  policy  covering
     Harland C.  Stonecipher  (Incorporated  by reference to Exhibit 10.3 of the
     Company's  Annual  Report on Form  10-KSB for the year ended  December  31,
     1992)

*10.4Form of New Business  Generation  Agreement Between the Company and Harland
     C. Stonecipher (Incorporated by reference to Exhibit 10.22 of the Company's
     Annual Report on Form 10-K for the year ended December 31, 1986)

*10.5Amendment  to New  Business  Generation  Agreement  between the Company and
     Harland C. Stonecipher  effective January,  1990 (Incorporated by reference
     to Exhibit 10.12 of the Company's Annual Report on Form 10-KSB for the year
     ended December 31, 1992)

*10.6Amendment  No.  1 to Stock  Option  Plan,  as  amended  effective  May 2000
     (Incorporated  by reference to Exhibit 10.6 of the Company's  Annual Report
     on Form 10-K for the year ended December 31, 2000)

*10.7Letter  Agreements dated July 8, 1993 and March 7, 1994 between the Company
     and Wilburn L. Smith  (Incorporated  by reference  to Exhibit  10.17 of the
     Company's Form 10-KSB filed for the year ending December 31, 1993)

10.8 Demand Note of Randy Harp dated  December  22, 2000 in favor of the Company
     (Incorporated  by reference to Exhibit 10.17 of the Company's Annual Report
     on Form 10-K for the year ended December 31, 2000)

10.9 Loan agreement  dated June 11, 2002 between Bank of Oklahoma,  N.A. and the
     Company  (Incorporated  by  reference  to  Exhibit  10.1  of the  Company's
     Quarterly Report on Form 10-Q for the six-months ended June 30, 2002)

10.10Security  agreement dated June 11, 2002 between Bank of Oklahoma,  N.A. and
     the Company  (Incorporated  by reference  to Exhibit 10.2 of the  Company's
     Quarterly Report on Form 10-Q for the six months ended June 30, 2002)

10.11Form of Mortgage  dated July 23, 2002 between  Bank of  Oklahoma,  N.A. and
     the Company  (Incorporated  by reference  to Exhibit 10.3 of the  Company's
     Quarterly Report on Form 10-Q for the six months ended June 30, 2002)

10.12 Demand Note of Randy Harp dated April 14, 2002 in favor of the Company

10.13Amendment No. 2 to New Business  Generation  Agreement  between the Company
     and Harland C. Stonecipher effective January, 1990

*10.14 Deferred compensation plan effective November 6, 2002

21.1 List of Subsidiaries of the Company

23.1 Consent of Grant Thornton LLP

99.1 Certification  of Chief  Executive  Officer  pursuant to Section 906 of the
     Sarbanes-Oxley Act of 2002

99.2 Certification  of Chief  Financial  Officer  pursuant to Section 906 of the
     Sarbanes-Oxley Act of 2002
--------------------
* Constitutes a management contract or compensatory plan or arrangement required
to be filed as an exhibit to this report.


                                  EXHIBIT 10.12

     Demand Note of Randy Harp dated April 14, 2002 in favor of the Company

                                 PROMISSORY NOTE


April 14, 2002                                                     $489,259.50


     FOR VALUE RECEIVED,  the undersigned hereby promises to pay to the order of
Pre-Paid  Legal  Services,  Inc.,  an  Oklahoma  corporation  ("Company"),   the
principal  sum of Four Hundred  Eighty Nine  Thousand Two Hundred Fifty Nine and
50/100 dollars ($489,259.50),  together with interest thereon at the rate of ten
percent (10%) per annum from the Effective Date.  Payments pursuant to this Note
shall be made at the offices of the Company, 321 East Main Street, Ada, Oklahoma
74820 or such other  place as the holder may  designate  in  writing,  in lawful
currency of the United States of America.

     The undersigned  agrees to pledge all of his current and future commissions
derived  from all  existing  and future  memberships  from all of his  associate
accounts with Company or its subsidiaries and options to purchase Company common
stock that undersigned now has or acquires during the term of this Note or until
its final payment. The Company is not required to rely on the above security for
the  payment  of this  Note in the case of  default,  but may  proceed  directly
against the Promisor.

     The undersigned agrees that if, and as often as, this Note is placed in the
hands of an attorney for  collection or to defend or enforce any of the holder's
rights  hereunder,  the  undersigned  will  pay  to  the  holder  such  holder's
reasonable  attorneys' fees, together with all court costs and other expenses of
collection, defense or enforcement incurred by such holder.

     The undersigned and all endorsers,  sureties,  guarantors and other persons
who may be  liable  for  all or any  part of  this  obligation  severally  waive
presentment for payment, protest, demand and notice of nonpayment.  Such parties
consent to any  extension of time  (whether one or more) of payment  hereof,  or
release  of any  party  liable  for the  payment  of this  obligation.  Any such
extension  or release may be made  without  notice to any such party and without
discharging such party's liability hereunder.

     The  Promisor  reserves the right to prepay this Note (in whole or in part)
prior to the Due Date with no prepayment penalty.

     No renewal or extension of this Note,  delay in enforcing  any right of the
Company  under this Note, or assignment by Company of this Note shall affect the
liability  of the  Promisor.  All  rights  of the  Company  under  this Note are
cumulative and may be exercised  concurrently or  consecutively at the Company's
option.

     This Note shall be  construed in  accordance  with the laws of the State of
Oklahoma.

     If any one or more of the  provisions  of  this  Note is  determined  to be
unenforceable,  in whole or in part,  for any reason,  the remaining  provisions
shall remain fully operative.

     All  payments of  principal  and interest on this Note shall be paid in the
legal currency of the United States.

     IN WITNESS HEREOF, this Note has been executed and delivered effective this
14th of April 2002 (the "Effective Date").

                         /s/ Randy Harp
                         -----------------------------------------------------
                         Randy Harp                               ("Promisor")



                                  EXHIBIT 10.13

     Amendment No. 2 to New Business  Generation  Agreement  between the Company
and Harland C. Stonecipher effective January, 1990

                                SECOND AMENDMENT

                                       TO

                        NEW BUSINESS GENERATION AGREEMENT

     This  Second  Amendment  to  New  Business  Generation  Agreement  ("Second
Amendment")  is entered into  effective as of the date hereof  between  Pre-Paid
Legal  Services,  Inc.,  an  Oklahoma  corporation  ("Pre-Paid")  and Harland C.
Stonecipher  ("Stonecipher") in order to confirm and document the actions of the
Board of Directors of Pre-Paid  taken on February 26, 2001 with reference to the
following circumstances:

          A. Pre-Paid and  Stonecipher  have entered into a certain New Business
     Generation  Agreement  dated as of January 6, 1986, as amended by the First
     Amendment dated January 1, 1990 ("Agreement"),  the existence, validity and
     continued effectiveness of which the parties hereby confirm,  providing for
     the payment by  Pre-Paid to  Stonecipher  of an  override  commission  with
     respect to certain membership fee income.

          B. Pre-Paid and  Stonecipher  desire to document a modification to the
     Agreement  to  confirm  the  original  intent  of such  Agreement  that the
     override  commission  provided  for in the  Agreement  extends  beyond  the
     lifetime of Stonecipher.

     In  consideration  of the premises and the mutual terms,  the covenants and
conditions  contained  herein  and  in  the  Agreement,  Section  3 and 4 of the
Agreement shall be amended to read in their entirety as follows:

          "3.  Continuation of Commissions.  The commissions payable pursuant to
     Section 2 shall  continue to be paid to  Stonecipher  or his  successors or
     assigns for so long as Pre-Paid or any successor  continues in the business
     of offering legal expense plans. In the event of Stonecipher's  death, such
     commissions   shall  be  paid  to  such  beneficiary  or  beneficiaries  as
     Stonecipher  shall have  designated  in writing to Pre-Paid,  or if no such
     designation  has been made, in accordance  with his last will and testament
     or the laws of descent and  distribution,  whichever are  applicable.  Such
     beneficiaries  shall  have  the  right  to  similarly  designate  successor
     beneficiaries.

          4.  Business  Promotion.  For so long as  Stonecipher  is  employed by
     Pre-Paid,  he shall  devote  reasonable  efforts to the  generation  of new
     membership sales for Pre-Paid and its affiliates.  In addition,  and not in
     limitation  of the  foregoing,  Stonecipher  shall  provide  such  specific
     services with respect to generation of new  memberships as may be requested
     from time to time by Pre-Paid,  including assistance in arranging financing
     to fund acquisition costs of new memberships."

         Executed as of the 30th day of December 2002.

                           PRE-PAID LEGAL SERVICES, INC.

                           By:      /s/ Randy Harp
                           --------------------------------------------
                           Randy Harp, Chief Operating Officer


                           /s/ Harland C. Stonecipher
                           --------------------------------------------
                           Harland C. Stonecipher




                                  EXHIBIT 10.14

                          PRE-PAID LEGAL SERVICES, INC.
                           DEFERRED COMPENSATION PLAN


                                    Article I
                              Establishment of Plan

1.1 Purpose.  The Pre-Paid Legal Services,  Inc.  Deferred  Compensation Plan is
hereby  established by the Board of Directors of Pre-Paid Legal Services,  Inc.,
an Oklahoma  Corporation,  to provide deferred compensation benefits to selected
executives  of the  Corporation  as more fully  provided  herein.  The  benefits
provided  under  the Plan  are  intended  to be in  addition  to other  employee
benefits  programs  offered by the  Corporation,  including  but not  limited to
tax-qualified employee benefit plans.

1.2 Effective Date and Term. Pre-Paid Legal Services,  Inc. adopts this unfunded
deferred  compensation plan effective as of November 6, 2002, to be known as the
Pre-Paid Legal Services,  Inc. Deferred Compensation Plan,  hereinafter referred
to as the "Plan."

1.3  Applicability of ERISA.  This Plan is intended to be a "top-hat" plan. This
Plan is an unfunded  plan  maintained  primarily  for the  purpose of  providing
deferred  compensation  to a select group of  executives  or highly  compensated
employees within the meaning of ERISA.


                                   Article II
                                   Definitions

         As used within this document, the following words and phrases have the
meanings described in this Article II unless a different meaning is required by
the context. Some of the words and phrases used in the Plan are not defined in
this Article II, but for convenience, are defined as they are introduced into
the text. Words in the masculine gender shall be deemed to include the feminine
gender. Any headings used are included for ease of reference only and are not to
be construed so as to alter any of the terms of the Plan.

2.1  Annual  Deferral.  The  amount  of Base  Salary  and/or  Bonuses  which the
Participant  elects to defer in each Deferral  Period pursuant to Article 4.1 of
the Plan.

2.2 Base Salary. A Participant's basic annual salary (or other amounts paid as a
percentage of  membership  fees or of some other  performance  criteria) for the
applicable Plan Year.

2.3  Beneficiary.  An  individual  or  entity  designated  by a  Participant  in
accordance with Section 13.6.


2.4 Board or Board of Directors. The Board of Directors of the Corporation.


2.5 Bonus.  Earnings  awarded to a Participant at the option of the  Corporation
which may or may not occur during each Plan Year.

2.6 Change in Control.  A "Change in Control" of the Corporation  shall mean the
occurrence after the effective date of the Plan of:

     (i) An acquisition (other than directly from the Corporation) of any voting
securities of the Corporation (the "Voting  Securities") by any "Person" (as the
term  person is used for  purposes of Section  13(d) or 14(d) of the  Securities
Exchange Act of 1934 ("Exchange  Act"))  immediately after which such Person has
"Beneficial  Ownership"  (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of fifty percent (50%) or more of the combined voting power of the
Company's then outstanding Voting Securities; provided, however, this subsection
(i)  shall  not  apply to  acquisitions  of  Voting  Securities  by  Harland  C.
Stonecipher or his affiliates.

     (ii) The  individuals  who,  as of the date of  adoption of the Plan by the
Board, are members of the Board (the "Incumbent Board"), cease for any reason to
constitute at least two-thirds of the members of the Board;  provided,  however,
that if the election,  or nomination  for election by the  Corporation's  common
stockholders,  of any new director was approved by a vote of at least two-thirds
of the Incumbent  Board,  such new director shall, for purposes of this Plan, be
considered as a member of the Incumbent Board;  provided further,  however, that
no  individual  shall be  considered  a member  of the  Incumbent  Board if such
individual  initially  assumed  office  as a  result  of  either  an  actual  or
threatened 'election contest' (as described in Rule 14A-11 promulgated under the
Exchange Act) or other actual or threatened  solicitation of proxies or consents
by or on behalf of a Person other than the Board (a "Proxy  Contest")  including
by reason of any agreement  intended to avoid or settle any Election  Contest or
Proxy Contest; or

     (iii) The consummation of:

          (A)  A  merger,   consolidation   or   reorganization   involving  the
     Corporation, unless

                    (1) the stockholders of the Corporation,  immediately before
               such merger,  consolidation or  reorganization,  own, directly or
               indirectly  immediately  following such merger,  consolidation or
               reorganization,  at least  sixty  percent  (60%) of the  combined
               voting  power  of  the  outstanding   voting  securities  of  the
               corporation  resulting  from  such  merger  or  consolidation  or
               reorganization (the "Surviving Corporation") in substantially the
               same  proportion  as their  ownership  of the  Voting  Securities
               immediately before such merger, consolidation or reorganization,

                    (2) the  individuals who were members of the Incumbent Board
               immediately prior to the execution of the agreement providing for
               such merger,  consolidation or reorganization constitute at least
               two-thirds  of the  members  of the  board  of  directors  of the
               Surviving Corporation, and

                    (3) no Person,  other than the Corporation,  any Subsidiary,
               any employee  benefit plan (or any trust  forming a part thereof)
               maintained by the Corporation,  the Surviving Corporation, or any
               Subsidiary or any Person who,  immediately  prior to such merger,
               consolidation or reorganization had Beneficial Ownership of fifty
               percent (50%) or more of the then outstanding  Voting Securities,
               has  Beneficial  Ownership of fifty  percent (50%) or more of the
               combined  voting  power  of  the  Surviving   Corporation's  then
               outstanding voting securities;

          (B) A complete liquidation or dissolution of the Corporation; or

          (C)  An  agreement  for  the  sale  or  other  disposition  of  all or
     substantially  all of the assets of the  Corporation  to any Person  (other
     than a transfer to a Subsidiary).

     Notwithstanding  the foregoing,  a Change in Control shall not be deemed to
occur  solely  because any Person (the  "Subject  Person")  acquired  Beneficial
Ownership of more than the permitted amount of the outstanding Voting Securities
as a result of the acquisition of Voting  Securities by the Corporation that, by
reducing the number of Voting Securities outstanding, increases the proportional
number of shares  Beneficially  Owned by the Subject Person,  provided that if a
Change in Control  would occur (but for the  operation  of this  sentence)  as a
result of the  acquisition of Voting  Securities by the  Corporation,  and after
such share  acquisition  by the  Corporation,  the  Subject  Person  becomes the
Beneficial  Owner  of any  additional  Voting  Securities  which  increases  the
percentage of the then outstanding  Voting Securities  Beneficially Owned by the
Subject Person, then a Change in Control shall occur.

2.7 Code. The Internal Revenue Code of 1986.  Reference to a section of the Code
shall include that section and any comparable  section or sections of any future
legislation that amends, supplements or supersedes such section.

2.8 Corporation. Pre-Paid Legal Services, Inc.

2.9 Deferral  Account.  The account  established  for a Participant  pursuant to
Section 5.1 of the Plan.


2.10 Deferral Election. The election made by the Participant pursuant to Section
4.1 of the Plan.

2.11 Deferral Period. The Plan Year, or in the case of a newly hired or promoted
employee  who becomes an Eligible  Employee  during a Plan Year,  the  remaining
portion of the Plan  Year.  In the case of the first  Plan  Year,  the  Deferral
Period commences on November 6, 2002 and ends on December 31, 2002.

2.12  Disability.  In the case of a Participant  who is covered by a Corporation
sponsored  disability  insurance  policy,  total  disability  as defined in such
policy without regard to any waiting  period.  For  Participants  not covered by
such a policy,  disability means the Participant suffering a sickness,  accident
or injury which, in the judgment of a physician satisfactory to the Corporation,
prevents the Participant from performing  substantially all of his or her normal
duties for the Corporation.  As a condition to receiving benefits under the Plan
for  Disability,  the  Corporation may require the Participant to submit to such
physical  or  mental   evaluations   and  tests  as  the  Corporation  may  deem
appropriate.

2.13 Effective Date. November 6, 2002.

2.14  Eligible  Employee.  An  employee  of  the  Corporation  or of  any of its
subsidiaries  who is  designated  by the Board of Directors of the  Corporation.
Provided,  however,  an eligible  employee must be a member of a select group of
management  or highly  compensated  employee  within  the  meanings  of  Section
2.01(2), 3.01(a)(3) and 4.01(a)(1) of ERISA.

2.15 ERISA. The Employee Retirement Income Security Act of 1974, as amended.

2.16 IRS. The Internal Revenue Service.

2.17 Normal Retirement Age. Sixty-five (65) years, except that Normal Retirement
Age for Harland  Stonecipher and Wilburn Smith will be their respective ages ten
years from commencement of the Plan.

2.18 Normal Retirement Date. The first day of the first month coincident with or
next following the date on which a (i) Participant reaches Normal Retirement Age
or (ii) for each of Harland  Stonecipher  and Wilburn Smith only, the earlier of
(x) ten (10) years from the inception date of the Plan or (y) his actual date of
retirement from the Corporation.

2.19 Participant. Any individual who becomes eligible to participate in the Plan
pursuant to Article III of the Plan.

2.20 Participant Agreement. The written agreement to defer Salary and/or Bonuses
made by the Participant.  Such written agreement shall be in a format designated
by the Corporation.

2.21 Plan. The Pre-Paid Legal Services, Inc. Deferred Compensation Plan.

2.22 Plan  Administrator.  The  Corporation  unless the  Corporation  designates
another individual or entity to hold the position of the Plan Administrator.

2.23 Plan Year.  For the initial  Plan Year,  the period  beginning  November 6,
2002,  and ending on  December  31,  2002.  Thereafter,  "Plan  Year"  means the
12-month  period  beginning each January 1 and ending on the following  December
31.

2.24 Rabbi Trust. The Rabbi Trust, which the Corporation may, in its discretion,
establish for the Plan, as amended from time to time.

2.25 Valuation Date. Each business day of the Plan Year.

2.26 Years of Service.  Each consecutive twelve (12) month period during which a
Participant is continuously employed by the Corporation.



                                   Article III
                          Eligibility and Participation

3.1 Participation - Eligibility and Initial Period. Participation in the Plan is
open only to Eligible  Employees of the Corporation.  Each Eligible  Employee of
the  Corporation,  as of the Effective  Date,  may become a Participant  for the
Deferral Period if he submits a properly completed  Participant Agreement to the
Corporation prior to November 6, 2002 and prior to January 1 for each subsequent
year. Any employee becoming an Eligible Employee after the Effective Date, e.g.,
new hires or  promoted  employees,  may become a  Participant  for the  Deferral
Period  commencing  on or after he becomes an Eligible  Employee if he submits a
properly  completed  Participant  Agreement  within  thirty days after  becoming
eligible for participation.

3.2  Participation - Subsequent  Entry into Plan. An Eligible  Employee who does
not elect to  participate  at the time of  initial  eligibility  as set forth in
Section 3.1 shall remain  eligible to become a Participant  in  subsequent  Plan
Years as long as he continues his status as an Eligible Employee. In such event,
the Eligible Employee may become a Participant by submitting a properly executed
Participant  Agreement  prior  to  January  1 of the Plan  Year for  which it is
effective.


                                   Article IV
                                  Contributions

4.1 Deferral Election. Before the first day of each Plan Year, a Participant may
file with the  Corporation,  a Deferral  Election Form  indicating the amount of
Salary and/or Bonus  Deferrals  for that Plan Year. A  Participant  shall not be
obligated  to make a  Deferral  Election  in each Plan  Year.  After a Plan Year
commences,  such Deferral  Election  shall continue for the entire Plan Year and
subsequent  years  except  that  it  shall  terminate  upon  the  execution  and
submission  of a  newly  completed  Deferral  Election  Form or  termination  of
employment.

4.2 Maximum  Deferral  Election.  A Participant  may elect to defer up to 50% of
Base Salary and/or up to 50% of Bonuses  earned during the first Plan Year dated
November 6, 2002 to December 31, 2002.  Thereafter,  a Participant  may elect to
defer up to 50% of Base  Salary  and/or up to 50% of Bonuses  earned  during the
corresponding  Deferral Period, or such greater  percentages the Corporation may
permit.  A Deferral  Election may be  automatically  reduced if the  Corporation
determines  that  such  action  is  necessary  to  meet  Federal  or  State  tax
withholding obligations.

4.3 Employer Contributions.  The Corporation may, in its sole discretion, make a
contribution to the Participants' Deferral Accounts.


                                    Article V
                                    Accounts

5.1  Deferral   Accounts.   Solely  for  record  keeping   purposes,   the  Plan
Administrator  shall  establish  a  Deferral  Account  for each  Participant.  A
Participant's  Deferral Account shall be credited with the contributions made by
him or on his behalf by the  Corporation  and shall be credited (or charged,  as
the case may be) with the hypothetical or deemed investment  earnings and losses
determined  pursuant to Section 5.3, and charged with  distributions  made to or
with respect to him.

5.2 Crediting of Deferral Accounts. Salary and Bonus Deferrals under Section 4.1
shall be credited to a  Participant's  Deferral  Account as of the date on which
such   contributions   were   withheld   from  a   Participant's   compensation.
Contributions under Section 4.3 shall be credited to the Participant's  Deferral
Account on the date made by the Corporation.  Any distribution with respect to a
Deferral Account shall be charged to that Account as of the date such payment is
made by the Corporation.

5.3 Earning Credits or Losses.  Amounts  credited to a Deferral Account shall be
credited  with  deemed  net  income,  gain and loss,  including  the  deemed net
unrealized gain and loss based on hypothetical investment directions made by the
Participant  with respect to his Deferral  Account on a form  designated  by the
Corporation, in accordance with investment options and procedures adopted by the
Corporation in its sole discretion, from time to time. Each Participant shall be
permitted  to change  his  investment  directions  from time to time but no more
frequently than quarterly.

5.4 Hypothetical Nature of Accounts.  The Plan constitutes a mere promise by the
Corporation  to make the benefit  payments in the future.  Any Deferral  Account
established  for a  Participant  under this Article V shall be  hypothetical  in
nature and shall be maintained for the  Corporation's  record  keeping  purposes
only, so that any  contributions  can be credited and so that deemed  investment
earnings and losses on such amounts can be credited (or charged, as the case may
be).  Neither the Plan nor any of the Accounts (or sub accounts)  shall hold any
actual funds or assets.  The right of any individual or entity to receive one or
more  payments  under the Plan shall be an unsecured  claim  against the general
assets of the Corporation.  Any liability of the Corporation to any Participant,
former  Participant,  or Beneficiary with respect to a right to payment shall be
based solely upon contractual  obligations created by the Plan. The Corporation,
the Board of Directors or any employee, agent, individual or entity shall not be
deemed to be a  trustee  of any  amounts  to be paid  under  the  Plan.  Nothing
contained in the Plan,  and no action taken  pursuant to its  provisions,  shall
create  or  be  construed  to  create  a  trust  of  any  kind,  or a  fiduciary
relationship,  between the  Corporation and a Participant,  former  Participant,
Beneficiary, or any other individual or entity. The Corporation may, in its sole
discretion,  establish  a Rabbi  Trust as a vehicle in which to place funds with
respect  to  this  Plan.  The  Corporation  does  not in any way  guarantee  any
Participant's  Deferral Account against loss or depreciation,  whether caused by
poor investment  performance,  insolvency of a deemed investment or by any other
event or  occurrence.  In no event shall any  employee,  officer,  director,  or
stockholder of the  Corporation be liable to any individual or entity on account
of any claim  arising  by reason of the Plan  provisions  or any  instrument  or
instruments implementing its provisions,  or for the failure of any Participant,
Beneficiary  or other  individual or entity to be entitled to any particular tax
consequences with respect to the Plan or any credit or payment thereunder.

5.5 Statement of Deferral Accounts. The Plan Administrator shall provide to each
Participant quarterly statements setting forth the value of the Deferral Account
maintained for such Participant.


                                   Article VI
                                     Vesting

Vesting. The Corporation's  contributions  credited to a Participant's  Deferral
Account under Section 4.3 and any deemed  investment  earnings  attributable  to
these contributions shall be one hundred percent (100%) vested or nonforfeitable
unless  the  Corporation  at the  time of  making  any  contribution  elects  to
establish a vesting schedule for any Eligible Employees.


                                   Article VII
                                    Benefits

7.1  Retirement.  Unless  benefits  have already  commenced  pursuant to another
section in this Article VII, a Participant shall be entitled to begin receipt of
the vested  amount  credited to his Deferral  Account as of the  Valuation  Date
coinciding  with his Normal  Retirement  Date.  Payment of any amount under this
Section shall commence within thirty (30) days of the  Participant's  retirement
and be in accordance  with the payment method elected by the  Participant on his
Participant Agreement.

7.2 Disability.  If a Participant  suffers a Disability  while employed with the
Corporation  and before he is entitled to benefits under this Article,  he shall
receive the amount  credited to his Deferral  Account as of the  Valuation  Date
coinciding with the Date on which the Participant is determined to have suffered
a  Disability.  Payment of any amount under this Section shall  commence  within
thirty  (30)  days of when  the  Corporation  determines  the  existence  of the
Participant's Disability and be in accordance with the payment method elected by
the Participant on his Participant Agreement.

7.3 Pre-Retirement  Survivor.  If a Participant dies before becoming entitled to
benefits under this Article,  the Beneficiary or Beneficiaries  designated under
Section 13.6 shall  receive a lump sum payment  equal to $500,000 in addition to
the vested  amount  credited to his Deferral  Account as of the  Valuation  Date
coinciding  with the date of death.  Payment  of any amount  under this  Section
shall  commence  within  thirty (30) days of the  Participant's  death and be in
accordance with the payment method elected by the Participant on his Participant
Agreement.

7.4 Post-Retirement  Survivor Benefit. If a Participant dies after benefits have
commenced,  but prior to  receiving  complete  payment  of  benefits  under this
Article,  the Beneficiary or Beneficiaries  designated under Section 12.6, shall
receive in a single lump sum the vested  amount  credited  to the  Participant's
Deferral  Account  as of the  Valuation  Date  coinciding  with  the date of the
Participant's  death.  Payment of any amount  under this  Section  shall be made
within thirty (30) days of the Participant's  death, or if later, within 30 days
of when the  Corporation  receives  notification  of or  otherwise  confirms the
Participant's  death.  If the Beneficiary  elects,  they can continue to receive
benefits over the same period which the Participant had previously elected.

7.5 Termination.  If a Participant's  employment terminates with the Corporation
before he becomes  entitled  to receive  benefits  by reason of any of the above
Sections, he shall receive the vested amount credited to his Deferral Account as
of the  Valuation  Date  coinciding  with the date on  which  the  Participant's
employment  terminates.  Payment of any amount under this Section  shall be made
within thirty (30) days of when the  Participant  terminates his employment with
the  Corporation  and be in  accordance  with the payout  method  elected by the
Participant on his/her Participant Agreement.  Irrespective of the Participant's
election, the Corporation may, at its discretion,  pay the Participant in a lump
sum.

7.6  Change in  Control.  If a Change in  Control  occurs  before a  Participant
becomes  entitled to receive  benefits by reason of any of the above Sections or
before the Participant has received  complete payment of his benefits under this
Article, the Participant shall receive the vested amount credited to his Account
as of the Valuation Date  immediately  preceding the date on which the Change in
Control  occurs.  Payment of any amount under this Section  shall be made within
thirty (30) days of the date of the Change in Control and be in accordance  with
the payout method elected by the Participant on his/her Participant Agreement.

7.7  Payment  Methods.   Unless  otherwise  provided  in  this  Article  VII,  a
Participant  may elect to receive payment of the amount credited to his Deferral
Account in a single  lump sum or in five (5),  ten (10) or fifteen  (15)  annual
installments.  This  election  must  be made on the  Participant  Agreement  and
Election Form for the corresponding Plan Year. Any installment payments shall be
paid monthly on the first  practicable day after the distributions are scheduled
to commence.  The Deferral  Account shall  continue to be credited with earnings
and losses as  provided in Section 5.3 during any  installment  payment  period.
Each installment payment shall be determined by multiplying the Deferral Account
Balance at the time of the payment by a fraction,  the numerator of which is one
and the denominator of which is the number of remaining installment payments.

7.8 Emergency Distribution. A Participant receiving benefits in installments may
request an additional  distribution  or change in method of distribution to such
Participant as a result of an "unforeseeable  emergency",  which, if approved as
provided below, shall be made to the requesting  Participant.  Such distribution
may be approved if the Corporation  determines  after reviewing such information
as the  requesting  Participant  submits,  that an  unforeseeable  emergency has
occurred.  The  amount  of any  distribution  shall  be  limited  to the  amount
necessary to meet the unforeseeable emergency.  "Unforeseeable  emergency" means
any  unanticipated  emergency  caused  by  an  event  beyond  the  control  of a
Participant that results in severe financial hardship.

7.9  Unscheduled  In-Service   Distributions.   A  Participant  may  request  an
unscheduled  in-service  distribution  of  all or any  portion  of his  Deferral
Account  balance  before he would  otherwise  become  entitled  to  receive  the
benefits under the Plan. The Corporation, in its sole and unfettered discretion,
may approve such a request upon the imposition of a ten percent (10%) forfeiture
penalty  to the  Corporation  from the  amount  of the  in-service  distribution
requested by the Participant.

7.10 Acceleration of Distributions. The Corporation may, in its sole discretion,
accelerate the  distribution of, or alternate the method of payment of, benefits
payable to a Participant.  In addition, if a Participant's total vested Deferral
Account balance,  determined as of the date on which the Participant  terminates
employment  is $50,000 or less, or if an income tax  assessment  has been levied
against  Participant with respect to the Deferral  Account before  distribution,
the Participant's Deferral Account shall be distributed in a lump sum as soon as
administratively  practicable  following his or her termination of employment or
the receipt by the Corporation of evidence of such income tax assessment.


                                  Article VIII
                             Establishment of Trust

8.1  Establishment of Trust. The Corporation may establish a Rabbi Trust for the
Plan.  If  established,  all benefits  payable  under this Plan to a Participant
shall be paid directly by the  Corporation  from the Rabbi Trust.  To the extent
that such benefits are not paid from the Rabbi Trust, the benefits shall be paid
from the general assets of the Corporation. The Rabbi Trust is, if any, shall be
an  irrevocable  grantor trust which conforms to the terms of the model trust as
described in IRS Revenue  Procedure  92-64,  I.R.B.  1992-33.  The assets of the
Rabbi  Trust are  subject to the claims of the  Corporation's  creditors  in the
event of its insolvency. Except as provided under a Rabbi Trust, the Corporation
shall not be obligated to set aside, earmark or escrow any funds or other assets
to satisfy  its  obligations  under this Plan,  and the  Participant  and/or his
designated  Beneficiaries  shall not have any property  interest in any specific
assets of the  Corporation  other than the unsecured  right to receive  payments
from the Corporation, as provided in this Plan.


                                   Article IX
                               Plan Administration

9.1 Plan  Administration.  The Plan shall be administered by such persons as the
Corporation  shall  appoint.  The  Corporation  shall construe and interpret the
Plan,  including  disputed and doubtful  terms and  provisions  and, in its sole
discretion, decide all questions of eligibility and determine the amount, manner
and  time of  payment  of  benefits  under  the  Plan.  The  determinations  and
interpretations  of the Corporation  shall be consistently and uniformly applied
to  all   Participants   and   Beneficiaries,   including  but  not  limited  to
interpretations  and determinations of amounts due under this Plan, and shall be
final and binding on all parties. The Plan at all times shall be interpreted and
administered as an unfunded deferred  compensation plan, and no provision of the
Plan shall be interpreted so as to give any Participant or Beneficiary any right
in any asset of the  Corporation  which is a right  greater  than the right of a
general unsecured creditor of the Corporation.


                                    Article X
                            Nonalienation of Benefits

10.1  Nonalienation  of  Benefits.  The  interests  of  Participants  and  their
Beneficiaries  under this Plan are not subject to the claims of their  creditors
and  may not be  voluntarily  or  involuntarily  sold,  transferred,  alienated,
assigned,  pledged,  anticipated,  or  encumbered,  attached or  garnished.  Any
attempt by a Participant,  his Beneficiary, or any other individual or entity to
sell, transfer, alienate, assign, pledge, anticipate, encumber, attach, garnish,
charge or otherwise  dispose of any right to benefits payable shall be void. The
Corporation may cancel and refuse to pay any portion of a benefit which is sold,
transferred, alienated, assigned, pledged, anticipated,  encumbered, attached or
garnished.  The benefits which a Participant  may accrue under this Plan are not
subject to the terms of any Qualified  Domestic Relations Order (as that term is
defined in Section 414(p) of the Code) with respect to any Participant,  and the
Plan Administrator,  Board of Directors and Corporation shall not be required to
comply  with  the  terms  of such  order  in  connection  with  this  Plan.  The
withholding of taxes from Plan payments,  the recovery of Plan  overpayments  of
benefits  made to a  Participant  or  Beneficiary,  the transfer of Plan benefit
rights from the Plan to another plan, or the direct  deposit of Plan payments to
an account in a financial  institution (if not actually a part of an arrangement
constituting  an assignment or alienation)  shall not be construed as assignment
or alienation under this Article.


                                   Article XI
                            Amendment and Termination

11.1 Amendment and Termination.  The Corporation  reserves the right to amend or
alter,  retroactively  or  prospectively,  or discontinue this Plan at any time.
Such  action may be taken in writing by any officer of the  Corporation  who has
been duly authorized by the  Corporation to perform acts of such kind.  However,
no such amendment shall deprive any Participant or Beneficiary of any portion of
any benefit which would have been payable had the Participant's  employment with
the  Corporation   terminated  on  the  effective  date  of  such  amendment  or
termination. Notwithstanding the provisions of this Article to the contrary, the
Corporation  may amend the Plan at any time, in any manner,  if the  Corporation
determines   any  such  amendment  is  required  to  ensure  that  the  Plan  is
characterized  as  providing  deferred   compensation  for  a  select  group  of
management or highly  compensated  employees and as described in ERISA  Sections
201(2),  301(a)(3)  and  401(a)(1)  or to  otherwise  conform  the  Plan  to the
provisions of any applicable law including ERISA and the Code.


                                   Article XII
                               General Provisions

12.1 Good Faith  Payment.  Any  payment  made in good faith in  accordance  with
provisions  of the Plan shall be a complete  discharge of any  liability for the
making of such payment under the provisions of this Plan.

12.2 No Right to  Employment.  This  Plan  does not  constitute  a  contract  of
employment,  and  participation  in the Plan shall not give any  Participant the
right to be retained in the employment of the Corporation.

12.3  Binding  Effect.  The  provisions  of this Plan shall be binding  upon the
Corporation  and its successors and assigns and upon every  Participant  and his
heirs, Beneficiaries, estates and legal representatives.

12.4  Participant  or  Beneficiary  Change  of  Address.   Each  Participant  or
Beneficiary  entitled to  benefits  shall file with the Plan  Administrator,  in
writing,  any change of post office address.  Any check representing payment and
any  communication  addressed  to a  Participant  or  Beneficiary  or  a  former
Participant   or   Beneficiary   at  this  last  address  filed  with  the  Plan
Administrator, or if no such address has been filed, then at his last address as
indicated on the Corporation's  records, shall be binding on such Participant or
Beneficiary for all purposes of the Plan, and neither the Plan Administrator nor
the  Corporation  or other payer shall not be obliged to search for or ascertain
the location of any such Participant or Beneficiary.  If the Plan  Administrator
is in doubt as to the  address of any  Participant  or  Beneficiary  entitled to
benefits or as to whether  benefit  payments are being received by a Participant
or Beneficiary,  it shall,  by registered mail addressed to such  Participant or
Beneficiary  at his last known address,  notify such  Participant or Beneficiary
that:

     (i)  All  unmailed  and  future  Plan  payments  shall  be  withheld  until
     Participant or Beneficiary provides the Plan Administrator with evidence of
     such  Participant's  or  Beneficiary's  continued  life and proper  mailing
     address; and

     (ii) Participant's or Beneficiary's right to any Plan payment shall, at the
     option of the Corporation,  be canceled  forever,  if, at the expiration of
     five  (5)  years  from  the  date  of such  mailing,  such  Participant  or
     Beneficiary  shall not have provided the  Corporation  with evidence of his
     continued life and proper mailing address.

12.5  Notices.  Each  Participant  and  Beneficiary  shall  furnish  to the Plan
Administrator  any  information  the  Plan  Administrator  deems  necessary  for
purposes of administering  the Plan, and the payment  provisions of the Plan are
conditional upon the Participant and Beneficiary  furnishing  promptly such true
and complete information as the Plan Administrator may request. Each Participant
and  Beneficiary  shall  submit  proof  of his age  when  required  by the  Plan
Administrator.  The  Plan  Administrator  shall,  if  such  proof  of age is not
submitted as required,  use such  information as is deemed by it to be reliable,
regardless of the lack of proof,  or the  misstatement of the age of individuals
entitled to benefits. Any notice or information which, according to the terms of
the Plan or requirements of the Plan Administrator,  must be filed with the Plan
Administrator,  shall be deemed so filed if  addressed  and either  delivered in
person or  mailed  to and  received  by the Plan  Administrator,  in care of the
Corporation at:

              Pre-Paid Legal Services, Inc.
              321 East Main Street
              Ada, OK 74821
              Attn:  Chief Financial Officer

12.6 Designation of Beneficiary.  Each Participant shall designate,  by name, on
Beneficiary   designation  forms  provided  by  the  Plan   Administrator,   the
Beneficiary(ies)  who shall  receive any benefits  which might be payable  after
such  Participant's  death. A Beneficiary  designation may be changed or revoked
without  such  Beneficiary's  consent  at any  time or from  time to time in the
manner as provided by the Plan  Administrator,  and the Plan Administrator shall
have no duty to notify any  individual or entity  designated as a Beneficiary of
any change in such  designation  which might affect such  individual or entity's
present or future  rights.  If the designated  Beneficiary  does not survive the
Participant, all amounts which would have been paid to such deceased Beneficiary
shall be paid to any  remaining  Beneficiary  in that  class  of  beneficiaries,
unless  the  Participant  has  designated  that such  amounts  go to the  lineal
descendants  of the  deceased  Beneficiary.  If none of the  designated  primary
Beneficiaries  survive the  Participant,  and the  Participant did not designate
that payments would be payable to such Beneficiary's lineal descendants, amounts
otherwise  payable  to  such  Beneficiaries  shall  be  paid  to  any  successor
Beneficiaries  designated by the Participant,  or if none, to the  Participant's
spouse,  or,  if the  Participant  was not  married  at the time of  death,  the
Participant's estate.

No Participant  shall designate more than five (5)  simultaneous  beneficiaries,
and if more than one (1) beneficiary is named,  Participant  shall designate the
share to be received by each  Beneficiary.  Despite the  limitation  on five (5)
Beneficiaries,  a  Participant  may designate  more than five (5)  beneficiaries
provided  such  beneficiaries  are the  surviving  spouse  and  children  of the
Participant.  If a Participant designates alternative,  successor, or contingent
beneficiaries,  such Participant shall specify the shares,  terms and conditions
upon which amounts  shall be paid to such  multiple,  alternative,  successor or
contingent  beneficiaries.  Except as provided  otherwise in this  Section,  any
payment made under this Plan after the death of a Participant shall be made only
to the Beneficiary or Beneficiaries designated pursuant to this Section.

12.7 Claims.  Any claim for benefits  must  initially be submitted in writing to
the Plan  Administrator.  If such  claim is denied  (in  whole or in part),  the
claimant shall receive notice from the Plan Administrator,  in writing,  setting
forth the specific  reasons for denial,  with  specific  reference to applicable
provisions of this Plan.  Such notice shall be provided  within ninety (90) days
of the date the claim for benefits is received by the Plan Administrator, unless
special  circumstances require an extension of time for processing the claim, in
which event  notification  of the  extension  shall be provided to the  claimant
prior to the expiration of the initial 90 day period. The extension notification
shall indicate the special circumstances requiring the extension of time and the
date by which the Plan  Administrator  expects to render its decision.  Any such
extension shall not exceed 90 days. Any disagreements about such interpretations
and  construction  may be  appealed  in  writing  by the  claimant  to the Chief
Executive  Officer of the  Corporation  (or the Board of  Directors if the Chief
Executive  Officer is a  Participant)  within sixty (60) days.  After receipt of
such Appeal,  the Chief  Executive  Officer of the  Corporation (or the Board of
Directors if the Chief Executive Officer is a Participant) shall respond to such
appeal  within sixty (60) days,  with a notice in writing fully  disclosing  its
decision and its reasons. If special  circumstances require an extension of time
to process the appealed  claim,  notification of the extension shall be provided
to the claimant prior to the  commencement of the extension.  Any such extension
shall not exceed 60 days. No member of the Board of Directors,  or any committee
thereof,  or any employee or officer of the Corporation,  shall be liable to any
individual  or entity for any  action  taken  hereunder,  except  those  actions
undertaken with lack of good faith.

12.8 Action by Board of Directors.  Any action required to be taken by the Board
of Directors of the Corporation pursuant to the Plan provisions may be performed
by a committee of the Board,  to which the Board of Directors of the Corporation
delegates the authority to take actions of that kind.

12.9  Governing  Law.  To the  extent not  superseded  by the laws of the United
States,  the laws of the State of Oklahoma  shall be  controlling in all matters
relating to this Plan.

12.10  Severability.  In the event  any  provision  of this  Plan  shall be held
illegal or invalid for any  reason,  such  illegality  or  invalidity  shall not
affect the remaining  provisions of the Plan,  and the Plan shall be interpreted
and enforced as if such illegal and invalid provisions had never been set forth.

12.11  Withholding.  The  Corporation  may withhold from any payment of benefits
under the Plan such  amounts as the  Corporation  determines  or  required to be
withheld for payment of any taxes as required by applicable law.





                                  EXHIBIT 21.1

                          PRE-PAID LEGAL SERVICES, INC.
                           Subsidiaries of Registrant




                                                                State or         Percentage of
                                                                Province         Ownership by
                    Name of Subsidiary                       Incorporation         Registrant
                    ------------------                       -------------       --------------

                                                                                   
Pre-Paid Legal Casualty, Inc.                                   Oklahoma              100%

American Legal Services, Inc.                                   Oklahoma              100%

Pre-Paid Legal Services, Inc. of Florida                        Florida               100%

C & A Investments, Inc.                                         Oklahoma              100%

Pre-Paid Legal Administrators, Inc.                             Oklahoma              100%

Justice 900, Inc.                                               Oklahoma              100%

Legal Service Plans of Virginia, Inc.                           Virginia              100%

Ada Travel Service, Inc.                                        Oklahoma              100%

Pre-Paid Canadian Holdings, L.L.C.                              Oklahoma              100%

National Pre-Paid Legal Services of Mississippi, Inc.           Georgia          100% owned by
                                                                                 Pre-Paid Legal
                                                                               Services, Inc. of
                                                                                    Florida

Pre-Paid Legal Services of Tennessee, Inc.                     Tennessee         100% owned by
                                                                                 Pre-Paid Legal
                                                                                 Casualty, Inc.

PPL Legal Care of Canada Corporation                          Nova Scotia,       100% owned by
                                                                 Canada        Pre-Paid Canadian
                                                                                Holdings, L.L.C.



                                  EXHIBIT 23.1

               CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



We have issued our report dated February 18, 2003, accompanying the consolidated
financial  statements  included in the Annual Report of Pre-Paid Legal Services,
Inc. on Form 10-K for the year ended December 31, 2002. We hereby consent to the
incorporation  by reference  of said report in the  Registration  Statements  of
Pre-Paid Legal Services,  Inc. on Forms S-8 (File No.  33-82144,  effective July
28, 1994, File No. 33-62663,  effective  September 14, 1995, File No. 333-53183,
effective May 20, 1998 and File No. 333-38386, effective June 1, 2000).



GRANT THORNTON LLP

Oklahoma City, Oklahoma
February 18, 2003



                                  Exhibit 99.1

                                  CERTIFICATION


         Pursuant to 18 U.S.C. ss. 1350, the undersigned officer of Pre-Paid
Legal Services, Inc. (the "Company"), hereby certifies that the Company's Annual
Report on Form 10-K for the year ended December 31, 2002 (the "Report") fully
complies with the requirements of Section 13(a) or 15(d), as applicable, of the
Securities Exchange Act of 1934 and that the information contained in the Report
fairly presents, in all material respects, the financial condition and results
of operations of the Company.

Date: March 17, 2003               /s/ Harland C. Stonecipher
                                   Harland C. Stonecipher
                                   ------------------------------------------
                                   Chairman,   Chief  Executive  Officer  and
                                    President

         The foregoing certification is being furnished solely pursuant
                              to 18 U.S.C.ss.1350.



                                  Exhibit 99.2

                                  CERTIFICATION


     Pursuant to 18 U.S.C.  ss. 1350, the undersigned  officer of Pre-Paid Legal
Services,  Inc. (the  "Company"),  hereby  certifies  that the Company's  Annual
Report on Form 10-K for the year ended  December 31, 2002 (the  "Report")  fully
complies with the requirements of Section 13(a) or 15(d), as applicable,  of the
Securities Exchange Act of 1934 and that the information contained in the Report
fairly presents,  in all material respects,  the financial condition and results
of operations of the Company.

Date: March 17, 2003               /s/ Steve Williamson
                                   Steve Williamson
                                   ------------------------------------------
                                   Chief Financial Officer

         The foregoing certification is being furnished solely pursuant
                              to 18 U.S.C.ss.1350.