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                                  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, 2004

( ) 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
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                          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.)

            One Pre-Paid Way
             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 ( ).

     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, 2004 - $265,000,000

     Indicate  the  number of  shares  outstanding  of each of the  registrant's
classes of common stock, as of the latest  practicable  date: As of February 18,
2005 there were  15,642,299  shares of Common  Stock,  par value $.01 per share,
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE.
     Portions of our definitive  proxy  statement for its 2005 annual meeting of
shareholders are incorporated into Part III of this Form 10-K by reference.

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

                      For the Year Ended December 31, 2004

                                TABLE OF CONTENTS

PART I                                                                          
------                                                                      
ITEM 1.          BUSINESS
                     General
                     Industry Overview
                     Description of Memberships
                     Specialty Legal Service Plans
                     Provider Law Firms
                     Identity Theft Shield Provider
                     Marketing
                     Operations
                     Quality Control
                     Competition
                     Regulation
                     Employees
                     Foreign Operations
                     Availability of Information

ITEM 2.          PROPERTIES

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, RELATED STOCKHOLDER
                 MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
                     Market Price of and Dividends on the Common Stock
                     Recent Sales of Unregistered Securities
                     Equity Compensation Plans
                     Issuer Purchases of Equity Securities

ITEM 6.          SELECTED FINANCIAL DATA

ITEM 7.          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                 RESULTS OF OPERATIONS
                     Overview of our Financial Model
                     Measures of Member Retention
                     Results of Operations
                         Comparison of 2004 to 2003
                         Comparison of 2003 to 2002
                     Liquidity and Capital Resources
                     Forward Looking Statements
                     Risk Factors

ITEM 7A.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8.          FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

ITEM 9B.         OTHER INFORMATION

PART             III (Information required by Part III is incorporated by
                 reference from our definitive proxy statement for its 2005
                 annual meeting of shareholders.)
PART IV
ITEM 15.         EXHIBITS, FINANCIAL STATEMENT SCHEDULES

SIGNATURES





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

                      FOR THE YEAR ENDED DECEMBER 31, 2004


PART I.

ITEM 1.       BUSINESS.


General

     We were one of the first companies in the United States organized solely to
design,  underwrite and market legal expense plans.  Our  predecessor  commenced
business in 1972 and began  offering legal expense  reimbursement  services as a
"motor  service  club" under  Oklahoma law. In 1976, we were formed and acquired
our predecessor in a stock exchange.  We began offering Memberships  independent
of the motor  service  club  product by adding a legal  consultation  and advice
service,  and in 1979 we  implemented a legal expense  benefit that provided for
partial  payment of legal fees in  connection  with the defense of certain civil
and criminal  actions.  Our 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  40 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.  Also, during the third quarter of 2003, we began offering
our Identity Theft Shield ("IDT") to new and existing members at $9.95 per month
if added to a legal  service  Membership  ("add-on  IDT") or it may be purchased
separately for $12.95 per month ("stand-alone  IDT"). The identity theft related
benefits include a credit report and related instructional guide, a credit score
and related  instructional guide, credit report monitoring with daily online and
monthly  offline   notification  of  any  changes  in  credit   information  and
comprehensive identity theft restoration services.

     Legal plan benefits are generally provided through a network of independent
provider  law  firms,  typically  one firm per  state or  province  and IDT plan
benefits are provided by Kroll Background  America,  Inc., a subsidiary of Kroll
Inc. ("Kroll"). Members have direct, toll-free access to Kroll or their provider
law firm rather than having to call for a referral. At December 31, 2004, we had
1,451,700  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. The National  Resource Center for
Consumers of Legal Services ("NRC")  previously  provided market information for
different  types of legal  service  plans  and  estimates  of  number  of users.
However,  the NRC is no longer in  existence  and we are  unaware of any current
comparable  information  sources.  In the  last  NRC  report  in  2002,  the NRC
estimated  there were 164 million  Americans  without any type of legal  service
plan.  The NRC  estimated  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.  We believe 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 and 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.  There are also  employer  paid plans  pursuant  to which more
comprehensive benefits are offered by the employer as a fringe benefit. Finally,
there are individual  enrollment plans, other employment based plans,  including
voluntary  payroll  deduction  plans,  and  miscellaneous   plans.  These  plans
typically have more comprehensive benefits,  higher utilization,  involve higher
costs to participants,  and are offered on an individual enrollment or voluntary
basis. This is the market segment in which we compete.

     According  to the  latest  estimates  of the  census  bureaus of the United
States and Canada,  the two geographic areas in which we operate,  the number of
households  in the  combined  area  exceeds  127  million.  Since we have always
disclosed our 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,  we believe  that our
market share should be viewed as a percentage of households.  Historically,  our
primary  market focus has been the "middle"  eighty  percent of such  households
rather  than the upper and lower ten percent  segments  based on our 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,  we  currently  have an  approximate  1.5% share of the
estimated market based on our existing 1.5 million active  Memberships and, over
the last 30 years, an additional 4% of households have previously purchased, but
no longer own,  Memberships.  We  routinely  remarket  to  previous  members and
reinstated approximately 72,000, 66,000 and 57,000 Memberships during 2004, 2003
and 2002, respectively.

Description of Memberships

     The  Memberships we sell  generally  allow members to access legal services
through a network of independent law firms ("provider law firms") under contract
with us. 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 us 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 us in managing  claims risk.  At December  31, 2004,  Memberships
subject to the capitated provider law firm arrangement  comprised  approximately
99% of our 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 our referral attorney network described below is utilized.

     Family Legal Plan
     The Family Legal Plan we currently market in most jurisdictions 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 92% of our Membership fees in 2004 and approximately 95% of the outstanding
Memberships  at December  31,  2004.  In addition to the Family  Legal Plan,  we
market  other  specialized  legal  services  products  specifically  related  to
employment in certain professions described below.

     In 12 states,  certain of our plans are available in the Spanish  language.
For the Spanish language plans, the provider law firms have both bilingual staff
and lawyers and we have bilingual staff for both customer  service and marketing
service  functions.  We will continue to evaluate  making our 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,  we
have 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 $25.00
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.

     Motor Vehicle 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. There were  approximately  545,000  subscribers of
this benefit at December 31, 2004 compared to 598,000 at December 31, 2003.

     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 for All Other Services.  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  41  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.
The Legal  Shield  benefit  was  introduced  in 1999.  There were  approximately
932,000 Legal Shield  subscribers at December 31, 2004 compared to approximately
881,000 at December 31, 2003.

     Identity Theft Shield Benefit
     During the third quarter of 2003, we announced a joint marketing  agreement
with Kroll Background  America Inc., a subsidiary of Kroll Inc., that allows our
independent  sales  associates to market  Kroll's  identity theft benefits in 48
states.  By  adding  the new  Identity  Theft  Shield to their  existing  family
Membership,  members have toll free access to the identity theft  specialists at
Kroll.  This benefit can be added to a legal  service  Membership  for $9.95 per
month or purchased  separately for $12.95 per month.  The identity theft related
benefits include a credit report and related instructional guide, a credit score
and related  instructional guide, credit report monitoring with daily online and
monthly  offline   notification  of  any  changes  in  credit   information  and
comprehensive  identity theft  restoration  services.  There were  approximately
311,000  and 91,000  subscribers  at December  31, 2004 and 2003,  respectively,
comprised  of 284,000 and 87,000  subscribers  at $9.95 per month and 27,000 and
4,000 subscribers at $12.95 per month.

     Canadian Family Plan
     The Family  Legal Plan is currently  marketed in the Canadian  provinces of
Ontario, British Columbia,  Alberta and Manitoba. We 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 2004 were  approximately  $4.4 million in U.S.
dollars compared to $4.2 million collected in 2003 and $3.7 million collected in
2002.

Specialty Legal Service Plans

     In addition to the Family Legal Plan described  above,  we also offer 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, we 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 $69 to $150 ($175 in Canada)
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 42 states and provinces and represented approximately 4.3%,
3.7% and 4.0% of our Membership fees during 2004, 2003 and 2002, 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.  We have  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, 2004,  2003
and 2002, the Law Officers Legal Plan accounted for approximately  1.4%, .9% and
1.4%, respectively, of our 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 by a provider law firm 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, 2004,  2003 and 2002,  this plan accounted for  approximately
1.2%, .9% and 1.3%,  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 us 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 36 states and represented  approximately 1.4%, 1.6% and 1.7% of our
Membership fees during 2004, 2003 and 2002, respectively.

     Comprehensive Group Legal Services Plan
     In late 1999 we introduced the Comprehensive  Group plan,  designed for the
large group employee benefit market. This plan, available in 35 states, 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 we have experienced decreased sales of this plan during the
last year (4,482  Memberships,  8,795 Memberships and 7,051  Memberships  during
2004,  2003 and 2002,  respectively),  we still  believe this plan  improves our
competitive  position in the large group market.  We continue to emphasize group
marketing  to employee  groups of less than 50 rather than larger  groups  where
there is more competition, price negotiation and typically a longer sales cycle.

     Other than additional  benefits such as the Legal Shield and Identity Theft
Shield  benefits  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 us  consistent,  accurate
data about plan utilization which enables us to manage our benefit costs through
the capitated  payment  structure to provider firms. We frequently  evaluate and
consider  other plan benefits that may include other services  complimentary  to
the basic legal service plan.

Provider Law Firms

     Our Memberships  generally allow members to access legal services through a
network of  independent  provider  law firms under  contract  with us  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 us 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 us in managing our cost of benefits. Pursuant to these
provider  law firm  arrangements  and due to the volume of revenue  directed  to
these  firms,  we have 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, we have has access to larger,  more  diversified  law firms.  Through our
members, we are typically the largest client base of our 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,  our  investigation 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 our 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 us via  high-speed
digital links to our management information systems, thereby providing real-time
monitoring  capability.  This online  connection  offers the  provider  law firm
access to specially  designed  software  developed by us for  administration  of
legal services by the firm.  These systems provide  statistical  reports of each
law firm's  activity  and  performance  and allow  virtually  all of the members
served by provider law firms to be monitored on a near real-time  basis. The few
provider law firms that are not online with us typically have a small Membership
base and must provide  various  weekly reports to us 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,  we
regularly  conduct  extensive  random surveys of members who have used the legal
services of a provider law firm. We survey  members in each state every 60 days,
compile the results of such  surveys  and  provide 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 as soon as possible to resolve the issue.

     Each month, provider law firms are presented with a comprehensive report of
ratings  related to our online  monitoring,  member  complaints,  member  survey
evaluations,  telephone  reports and other  information  developed in connection
with member service monitoring. If a problem is detected, we recommend immediate
remedial actions 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 us, such deficiencies may result in the
termination of the provider law firm. We are in constant  communication with our
provider law firms and meet with them  frequently  for additional  training,  to
encourage increased  communications with us and to share suggestions relating to
the timely and effective delivery of services to our members.

     Each attorney member of the provider law firm rendering  services must have
at least two years of experience as a lawyer,  unless we waive 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.  We provide  customer  service  training to the
provider law firms and their support staff through on-site  training that allows
us 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 us 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  us  from
interference  with the  lawyer-client  relationship,  (e) provide  for  periodic
review of  services  provided,  (f) provide for  protection  of our  proprietary
information  and (g)  require  the  firm to  indemnify  us  against  liabilities
resulting  from legal  services  rendered  by the firm.  We are  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,  we enroll 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 our 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,  2004,
provider law firms averaged  approximately  59 employees each and on average are
evenly split between support staff and lawyers.

     We have 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 us so that in the event of a  termination,
the members'  calls can be rerouted very quickly.  Nonetheless,  we believe that
our relations  with  provider law firms are  generally  very good. At the end of
2004 and 2003,  we had  provider  law  firms  representing  46  states  and four
provinces  compared to 45 states and three provinces at the end of 2002.  During
the last three calendar years, our  relationships  with a total of four provider
law firms were  terminated  by us or the provider  law firm.  As of December 31,
2004, 26 provider law firms have been under contract with us for more than eight
years with the average tenure of all provider law firms being  approximately 7.6
years.

     We have an  extensive  database  of  referral  lawyers  who  have  provided
services to our 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 our list of referral lawyers.

Identity Theft Shield Benefits Provider

     Kroll, a wholly-owned  subsidiary of March & McLennan  Companies,  Inc., is
one of the world's  leading risk  consulting  companies.  Kroll provides a broad
range  of  investigative,  intelligence,  financial,  security,  and  technology
services to help  clients  reduce  risks,  solve  problems,  and  capitalize  on
opportunities.  Headquartered  in New York  with  more  than 60  offices  on six
continents, Kroll has a multidisciplinary corps of more than 2,200 employees and
serves a global clientele of law firms,  financial  institutions,  corporations,
nonprofit  institutions,  government  agencies,  and individuals.  Over the last
three years, Kroll has developed a unique solution for victims of identity theft
and this  service is now  available to our members  through the  Identity  Theft
Shield benefit.  Similar to the provider law firms, Kroll is paid a fixed fee on
a monthly per capita basis to render services to IDT members.

Marketing

     Multi-Level Marketing
     We  market  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 or an associate subscribes to our eService package (described
below).  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,  13 others at December 31, 2004 and December 31, 2003)
who are in the line of  associates  who  directly or  indirectly  recruited  the
selling  associate.  We  provide  training  materials,   organize  area-training
meetings and designate  personnel at the home office specially trained to answer
questions and inquiries from associates.  We offer various communication avenues
to our sales  associates to keep such associates  informed of any changes in the
marketing of our Memberships.  The primary communication  vehicles we utilize to
keep our sales associates informed include extensive use of conference calls and
e-mail, an interactive  voice-mail service, The Connection monthly magazine,  an
interactive  voice response  system,  a monthly DVD (digital video disc) program
and our 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.  Our  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 75% of
our  Memberships  in force  at  December  31,  2004  compared  to 75% and 73% at
December  31, 2003 and 2002.  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.

     Our marketing  efforts towards  employee  groups,  principally on a payroll
deduction  payment basis,  are designed to permit our sales  associates to reach
more potential members with each sales presentation and strive to capitalize on,
among other things, what we perceive 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  25% of total Memberships in
force at  December  31, 2004  compared  to 25% and 27% at December  31, 2003 and
2002. Adverse publicity about us is responsible, to some extent, for the decline
in group  memberships  on a percentage  basis.  The  majority of employee  group
Memberships are sold to school systems, governmental entities and businesses. We
emphasize  group marketing to employee groups of less than 50 rather than larger
groups where there is more competition, price negotiation and typically a longer
sales cycle.  No group accounted for more than 1% of our  consolidated  revenues
from Memberships during 2004, 2003 or 2002.  Substantially all group Memberships
are paid on a monthly basis.  We are active in legislative  lobbying  efforts to
enhance  our  ability  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
our training  programs.  Sales  associates  are required to complete a specified
training  program prior to marketing our  Memberships  to employee  groups.  All
advertising and solicitation materials used by sales associates must be approved
by us  prior to use.  At  December  31,  2004,  we had  343,696  "vested"  sales
associates compared to 329,600 and 341,116 "vested" sales associates at December
31, 2003 and 2002, 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 2004, we had 79,716 sales associates who
personally sold at least one  Membership,  of which 41,699 (52%) made first time
sales. During 2003 and 2002 we had 84,207 and 103,112 sales associates producing
at least one  Membership  sale,  respectively,  of which 45,920 (55%) and 65,383
(63%),  respectively,  made first time sales.  During  2004,  we had 9,895 sales
associates who personally sold more than ten Memberships  compared to 10,685 and
12,738  in 2003 and  2002,  respectively.  A  substantial  number  of our  sales
associates  market our Memberships on a part-time basis only. For the year 2004,
new sales associates  enrolled decreased 1% to 107,552 from the 108,557 enrolled
in 2003.

     We derive revenues from our multi-level marketing sales force,  principally
from a one-time enrollment fee of $65 from each new sales associate for which we
provide initial marketing supplies and enrollment services to the associate.  In
January 1997,  we  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.  Associates  successfully completed
the  program  by  writing  three  new  Memberships  and  recruiting  a new sales
associate or by personally  selling five new  Memberships  within 45 days of the
associate's  start date.  Associates  in states that  require the  associate  to
become  licensed  have 45 days from the issue date on their  license to complete
the same requirements. The program typically requires a fee ranging from zero to
$184 per new associate,  depending on special  promotions we implement from time
to time, that we earn upon completion of the training program. Amounts collected
from sales  associates  are intended  primarily to offset our 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
and includes fees related to our eService  program for associates.  The eService
program provides subscribers Internet based back office support such as reports,
on-line  documents,  tools, a personal e-mail account and multiple  personalized
web sites with "flash" movie presentations.

     We continually  review our compensation plan for the multi-level  marketing
force to assure that the various financial  incentives in the plan encourage our
desired  goals.  We  offer  various  incentive  programs  from  time to time and
frequently adjust the program to maintain appropriate  incentives and to improve
Membership production and retention.

     We hold our International  Convention once a year, typically in the spring,
and a Leadership  Summit,  typically in the fall,  and routinely  host more than
10,000 of our sales  associates  at these  events.  These events are intended to
provide additional training,  corporate updates,  new announcements,  motivation
and associate  recognition.  Additionally,  we offer the Player's Club incentive
program  providing  additional  incentives  to our  associates  as a reward  for
consistent,  quality business. Associates can earn the right to attend an annual
incentive  trip by meeting  monthly  qualification  requirements  for the entire
calendar  year  and  maintaining   certain  personal  retention  rates  for  the
Memberships sold during the calendar year. Associates can also earn the right to
receive  additional  monthly  bonuses  by  meeting  the  monthly   qualification
requirements  for twelve  consecutive  months and maintaining  certain  personal
retention rates for the Memberships sold during that twelve month period.

     Regional Vice Presidents
     We have 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 us. New products and  initiatives  will continue to be channeled
through the RVPs and Area Coordinators. At December 31, 2004, we had 102 RVPs in
place.

     Pre-Paid Legal Benefits Association
     The PPL Benefits Association (PPLBA) 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 our marketing  programs who also maintain an active  personal legal
services Membership. The PPLBA is a separate association not owned or controlled
by us and is governed by an 8 member Board of Directors,  including four officer
positions.  None of the  officers  or  directors  of the PPLBA serve in any such
capacity with us. The PPLBA employs a Director of Associate Benefits paid by the
Association.  Affinity programs available to members of the PPLBA include credit
cards,  long-distance,  wireless services,  safety trip plan,  mortgage and real
estate  assistance  and a travel club.  As determined by its Board of Directors,
some of the revenue  generated by the PPLBA through  commissions from vendors of
the benefits and affinity  programs or contributed to the  Association by us may
be used to make open-market purchases of our stock for use in stock bonus awards
to Association  members based on criteria  established  from time to time by the
Board of Directors of the PPLBA.  Since inception and through December 31, 2004,
approximately  36,000  shares  were  purchased  by the PPLBA  for  awards to its
members.  In  2002,  the  PPLBA  offered  cash  in  lieu  of  stock  awards  and
approximately  21,000  shares  purchased by the  Association  were sold to us on
January  2, 2003 at the  stock's  closing  price to fund the  awards.  The PPLBA
awarded  approximately  5,000 and 10,000 shares of stock to Association  members
representing the 2004 and 2003 stock bonus awards, respectively.

     Cooperative Marketing
     We have in the past, and may in the future,  develop  marketing  strategies
pursuant to which we seek 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 our 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 our product to the
marketing  partner's existing range of products and services,  while we are able
to gain  broader  Membership  distribution  and access to  established  customer
bases.

     We have 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 19,000 new Membership
sales during 2004 and 15,000 new Membership sales during each of 2003 and 2002.

     We have had limited success with cooperative marketing  arrangements in the
past and are unable to predict with certainty  what success we will achieve,  if
any, under our existing or future cooperative marketing arrangements.

Operations

     Our  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.

     We utilize 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.  Our  dominant  concerns in the  architecture  of
private  networks and web systems  include  security,  scalability,  capacity to
accommodate peak traffic and business continuity in the event of a disaster.  We
believe  our  management   information   system  has  substantial   capacity  to
accommodate  increases  in business  data before  substantial  upgrades  will be
required.  We believe  this  excess  capacity  will  enable us to  experience  a
significant  increase  in the  number  of  members  serviced  with  less  than a
commensurate increase of administrative costs.

     We have  built a  strong  Internet  presence  to  strengthen  the  services
provided   to   both   members   and   associates.   Our   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.

     Our  operations  also  include  departments  specifically  responsible  for
marketing support and regulatory and licensing  compliance.  We have an internal
production  staff that is responsible for the development of new audio and video
sales materials.

Quality Control

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

Competition

     We  compete  in a variety  of market  segments  in the legal  service  plan
industry, including, among others, individual enrollment plans, employee benefit
plans and certain specialty segments.  Our principal competitors are 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).  Most of these concentrate their marketing to larger employer groups and
offer open panel plans.

     If a greater  number of  companies  seek to enter  the legal  service  plan
market,  we  will  experience  increased  competition  in the  marketing  of our
Memberships.  However,  we believe our  competitive  position is enhanced by our
actuarial database,  our existing network of provider attorney law firms and our
ability to tailor  products to suit various  types of  distribution  channels or
target markets.  We believe that no other  competitor has the ability to monitor
the customer service aspect of the delivery of legal services to the same extent
we do. Finally, we have intentionally  concentrated our group marketing to small
employer  groups.  Serious  competition  is  most  likely  from  companies  with
significant financial resources and advanced marketing techniques.

Regulation

     We are  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.  We are 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, 2004, we or one of our  subsidiaries  were marketing new
Memberships  in 38 states or provinces  that require no special  licensing.  Our
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 our total Memberships in
force as of December 31, 2004, 32% were written in jurisdictions that subject us
or one of our  subsidiaries  to  insurance  or  specialized  legal  expense plan
regulation.  We are actively  working with  regulators in the various  states in
which our  subsidiaries  are regulated as insurance to explore other  regulatory
alternatives to eliminate some of the agent licensing or financial and marketing
regulation  that  is  prevalent  in  the  insurance  industry.   The  regulatory
environment  in Texas  was  modified,  effective  March 1,  2004,  to  eliminate
insurance regulation of our business.

     We 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  we  currently  market 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, we commence
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,
we or one of our  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 PPLCI'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.  Our 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 our  operations or financial  condition in any
material way. We believe that all of our 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.

     We are 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
us 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 us
requires  approval  of the  Oklahoma  Insurance  Commissioner.  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, respectively,  payable to us, both of which were paid
during 2002. No dividends were declared or paid during 2004 or 2003. At December
31,  2004 PPLCI had  approximately  $4.1  million  available  for  payment of an
ordinary  dividend.  Any change in our control,  defined as  acquisition  by any
method of more than 10% of our  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  provide  for  comparable
registration and regulation of us.

     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 us 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 us. At December 31, 2004,  PPLSIF did not have funds  available for
payment of  substantial  dividends  without the prior  approval of the insurance
commissioner.

     As the legal plan industry continues to mature,  additional legislation may
be enacted that would affect us and our subsidiaries. We cannot predict with any
accuracy  if such  legislation  would  be  adopted  or its  ultimate  effect  on
operations,  but expect to continue to work closely with regulatory  authorities
to minimize any  undesirable  impact and, as noted above,  to reduce  regulatory
cost and burden where possible.

     Our 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.  Our  agreements
with  provider law firms  comply with both the Model Rules and the ABA Code.  We
rely 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.  We and our  subsidiaries  comply with
filing  requirements of state bar  associations or other  applicable  regulatory
authorities.

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

Employees

     At December 31, 2004,  we employed 680  individuals  on a full-time  basis,
exclusive of independent agents and sales associates who are not employees,  and
excluding  RVPs  described  above.  None of our employees are  represented  by a
union. We consider our employee relations to be good.

Foreign Operations

     We 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 $4.7  million in U.S.  dollars  during 2004
compared to $4.5 million and $4.0 million in 2003 and 2002, respectively. Due to
the relative  stability of the United States and Canadian foreign  relations and
currency  exchange  rates,  we believe  that any risk of foreign  operations  or
currency  valuations  is  minimal  and would not have a  material  effect on our
financial condition, liquidity or results of operations.

Availability of Information

     We file  periodic  reports and proxy  statements  with the  Securities  and
Exchange Commission. The public may read and copy any materials we file 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.  We file our 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.

     Our  Internet  address is  www.prepaidlegal.com.  We make  available on our
website  free of charge  copies of our  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 we  electronically  file such  material  with, or
furnish it to, the SEC.


ITEM 2.       PROPERTIES.

     Our executive and  administrative  offices and our subsidiaries are located
at One Pre-Paid  Way,  Ada,  Oklahoma.  The office  complex,  completed in 2004,
contains  approximately  170,000  square feet of office space and is owned by us
and constructed on approximately  87 acres  contributed to us by the City of Ada
in 2001 as part of an economic  development  incentive  package.  Costs incurred
through December 31, 2004 of approximately $34.1 million,  including $706,000 in
capitalized  interest costs, have been paid from existing resources and proceeds
from a $20 million line of credit for the new office construction.

     Continued  growth over the past 12 years  required us to lease and purchase
several   ancillary  sites  to  accommodate  our  expanding   workforce   before
constructing our new headquarters.  The new headquarters  contains two long bars
of open office area  designed to serve as podiums,  which  stretch east from the
northern  and  southern  edges  of  the  tower.   Two  and  three  stories  high
respectively,  the podiums  house the call  centers and  Information  Technology
departments. Only 60 feet across, they are designed to ensure that employees are
never more that thirty feet from a source of daylight. Shared corporate services
--  including a 650-seat  auditorium,  dining  hall,  exercise  facility,  and a
connecting  corridor  containing a company history gallery -- are located at the
east end of the bars,  creating a central  courtyard.  The courtyard  features a
reflecting pool and a 12-foot bronze sculpture of our logo, the Lady of Justice,
a  universal  symbol of justice.  The  building's  main  entrance  welcomes  its
frequent  visitors,  celebrates  our  history,  and is  designed  to convey  the
tradition of civic judicial  buildings.  The building is designed to expand over
time without negatively impacting the site layout or the building concept and we
emphasized the use of modular  furnishings to provide enhanced  flexibility.  We
placed  importance on the goal of providing each employee with an excellent work
environment.

     Additionally,  we fully utilize another distribution facility located about
two miles from our new offices and containing  approximately  17,000 square feet
of office and  warehouse  and  shipping  space.  Our  previous  headquarters  of
approximately   40,000   square   feet  and  two  other   buildings   containing
approximately  18,600 combined square feet located  adjacent to the distribution
facility are now used as disaster recovery, or business continuity, sites.

     In  addition  to the  property  described  above that we own,  we 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 us. In conjunction
with a rural economic  development program coordinated by the City of Antlers, a
new facility was built at no cost to us that can accommodate  approximately  100
customer  service  representatives.  We leased the  facilities  from the City of
Antlers upon completion of the construction in November 2002. We are considering
similar  arrangements  with other cities within  Oklahoma to help  diversify our
access to  competent  labor  pools  and  expect to open a  facility  in  Duncan,
Oklahoma in 2005 which will ultimately employ approximately 100 customer service
representatives.


ITEM 3.       LEGAL PROCEEDINGS.

     We and various of our 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 we  issued  false  and  misleading
financial  information,  primarily  related to the method we used to account for
commission  advance  receivables  from sales  associates.  On March 5, 2002, the
Court granted our 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.  In  August  2002 the lead
institutional   plaintiff   withdrew  from  the  case,  leaving  two  individual
plaintiffs as lead  plaintiffs on behalf of the putative  class.  As of December
31,  2003,  the briefing in the appeal had been  completed.  On January 14, 2004
oral argument was held in the appeal and as of February 22, 2005, a decision was
pending.  We are unable to predict when a decision  will be made on this appeal,
and the ultimate outcome of the case is not determinable.

     Beginning  in the  second  quarter  of 2001  multiple  lawsuits  were filed
against us, 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.  During 2004,
there were at one time as many as 30 separate lawsuits  involving  approximately
285  plaintiffs in Alabama.  As of February 22, 2005, as a result of dismissals,
summary  judgments,  or  settlements  for  nominal  amounts,  we were  aware  of
approximately 15 separate  lawsuits  involving  approximately 56 plaintiffs that
have been filed in multiple  counties in Alabama.  As of February 22,  2005,  we
were aware of 16 separate  lawsuits  involving  approximately  426 plaintiffs in
multiple counties in Mississippi.  Certain of the Mississippi lawsuits also name
our former  provider  attorney in  Mississippi  as a defendant.  Proceedings  in
several of the eleven cases which name our provider  attorney as a defendant had
been stayed  pending the  Mississippi  Supreme  Court's  ruling on the  Pre-Paid
defendants'  appeal of a trial court's  granting of a partial  summary  judgment
that the action is not  required to be  submitted  to  arbitration.  On April 1,
2004, the  Mississippi  Supreme Court affirmed the trial court's partial summary
judgment  that  arbitration  should  not be had in one of the  cases on  appeal.
Pre-Paid  asked the  Mississippi  Supreme  Court to rehear  that  issue but that
motion was denied on June 3, 2004 and Pre-Paid  sought  certiorari on that issue
with the United States Supreme Court on September 1 and 8, 2004 which was denied
At  least  three  complaints  have  been  filed  by the  law  firm  representing
plaintiffs  in  eleven of the cases on  behalf  of  certain  of the  Mississippi
plaintiffs  and others with the Attorney  General of  Mississippi in March 2002,
December  2002 and August 2003.  We have  responded  to the  Attorney  General's
requests for information  with respect to these  complaints,  and as of February
22, 2005,  we were not aware of any further  actions being taken by the Attorney
General.  In Mississippi,  we filed lawsuits in the United States District Court
for the  Southern  and Northern  Districts  of  Mississippi  in which we seek to
compel  arbitration  of  the  various   Mississippi  claims  under  the  Federal
Arbitration Act and the terms of our Membership  agreements.  One of the federal
courts has ordered arbitration of a case involving 8 plaintiffs. These cases are
all in various  stages of  litigation,  including  trial  settings in Alabama in
April 2005, and in  Mississippi in May 2005, and seek varying  amounts of actual
and punitive damages.  The first trial in Mississippi on these cases resulted in
a unanimous jury verdict in our favor, including other named defendants,  on all
claims on October 19, 2004, while the second trial in Mississippi resulted in an
insubstantial  plaintiff's  verdict on February 15, 2005. Although 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 us and certain of our 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 our
Memberships and seeking  unspecified  damages on behalf of a "nationwide" class.
The Pre-Paid  defendants'  preliminary  motions in this case were denied, and on
June 17, 2003,  the Oklahoma  Court of Civil Appeals  reversed the trial court's
denial of the Pre-Paid  defendants' motion to compel  arbitration,  finding that
the trial court  erred when it denied  Pre-Paid's  motion to compel  arbitration
pursuant to the terms of the valid Membership  contracts,  and remanded the case
to the trial court for further  proceedings  consistent  with that  opinion.  On
December 3, 2004,  the District Court ordered the plaintiffs to proceed with the
arbitration. The ultimate outcome of this case is not determinable.

     On June 29, 2001, an action was filed  against us 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 was
originally a putative class action brought by Gina Kotwitz, later adding, George
Kotwitz, Rick Coker, Richard Starke, Jeff Turnipseed and Aaron Bouren, on behalf
of our sales  associates.  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 our
commission  advances,  and seeks injunctive and declaratory relief regarding the
enforcement of certain contract  provisions with sales  associates,  including a
request  stated in June 2003 for the  imposition of a  constructive  trust as to
earned  commissions  applied to the reduction of debit balances and disgorgement
of all earned renewal commissions applied to the reduction of debit balances. On
September  23,  2003 the court  entered  an order  dismissing  the class  action
allegations  upon the  motion of the  plaintiffs.  The order  provides  that the
action  will  proceed  only on an  individual  basis,  and that the  hearing  on
plaintiffs' motion for class certification  previously set for February 2004 was
cancelled.  Oral argument on our motion for summary judgment was held on July 2,
2004 and on December 17, 2004 the District  Court granted our motion for summary
judgment.  On January  27, 2005 three of the five  plaintiffs  filed a motion to
vacate  and/or for new trial.  This motion is set for hearing on April 22, 2005.
The claims of the remaining two plaintiffs  have been dismissed with  prejudice.
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 us and certain executive
officers.  This action is a putative  class action seeking  unspecified  damages
filed on behalf of our sales  associates  and alleges  that the  marketing  plan
offered by us  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  Pre-Paid
defendants filed motions to dismiss the complaint and to strike the class action
allegations  on  September  19,  2002,  and  discovery  in the action was stayed
pending a ruling on the motion to dismiss.  On July 24, 2003,  the Court granted
in part and  denied in part the  Pre-Paid  defendants'  motion to  dismiss.  The
claims  asserted  under the  Securities  Exchange  Act of 1934 and the  Oklahoma
Securities Act were dismissed without prejudice. The motion was denied as to the
remaining  claims.  On September 8, 2004, the Court denied plaintiffs motion for
class  certification.  Plaintiffs  petitioned the Tenth Circuit Court of Appeals
for permission to appeal the class  certification  ruling, and the Tenth Circuit
Court of Appeals  denied the petition  for  interlocutory  appeal.  The ultimate
outcome of this case is not determinable.

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

     While the ultimate outcome of these proceedings is not determinable,  we do
not currently  anticipate that these  contingencies  will result in any material
adverse  effect to our financial  condition or results of  operation,  unless an
unexpected  result occurs in one of the cases. The costs of the defense of these
various matters are reflected as a part of general and administrative expense in
the consolidated  statements of income. We have established an accrued liability
it believes  will be sufficient to cover  estimated  damages in connection  with
various  cases  (exclusive  of  ongoing  defense  costs  which are  expensed  as
incurred),  which at  December  31,  2004 was $3.0  million.  We believe we have
meritorious defenses in all pending cases and will vigorously defend against the
plaintiffs'  claims.  However, it is possible that an adverse outcome in certain
cases or  increased  litigation  costs  could  have an adverse  effect  upon our
financial condition,  operating results or cash flows in particular quarterly or
annual periods.


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


                                     PART II

ITEM 5.       MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
              AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Price of and Dividends on the Common Stock

     At  February  18,  2005,  there  were 5,400  holders  of record  (including
brokerage firms and other nominees) of our 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
                                                                                     ----       ---
2005:
                                                                                          
  1st Quarter (through February 23)............................................     $ 38.37    $ 30.69

2004:
  4th Quarter .................................................................     $ 40.39    $ 25.45
  3rd Quarter..................................................................       26.10      22.25
  2nd Quarter..................................................................       25.50      22.27
  1st Quarter..................................................................       26.33      21.57

2003:
  4th Quarter .................................................................     $ 28.30    $ 23.24
  3rd Quarter..................................................................       25.21      20.60
  2nd Quarter..................................................................       27.40      17.22
  1st Quarter..................................................................       26.80      15.80


     On December 6, 2004, we declared our first cash dividend of $0.50 per share
on our outstanding shares of common stock. The $7.8 million dividend was payable
on January  14,  2005 to  shareholders  of record as of the close of business on
December 20, 2004.

     It is anticipated that earnings  generated from our operations will be used
to finance our growth,  to continue to purchase  shares of our stock,  to retire
existing  debt and  possibly pay cash  dividends.  We have loans as described in
"Management's  Discussion and Analysis - Liquidity and Capital Resources," which
currently prohibit payment of cash dividends in excess of 50% of net income. Any
decision by our Board of  Directors  to pay  additional  cash  dividends  in the
future will depend upon, among other factors, our earnings, financial condition,
capital requirements and approval from our lender for any dividends in excess of
50% of net income.  In  addition,  our ability to pay  dividends is dependent in
part on our ability to derive  dividends from our  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 us, both of which were paid during 2002 but
no  dividends  were  declared or paid during 2004 or 2003.  PPLSIF is  similarly
restricted  pursuant to the  insurance  laws of Florida.  At December  31, 2004,
PPLSIF did not have funds available for payment of substantial dividends without
the prior approval of the insurance commissioner. At December 31, 2004 PPLCI had
approximately  $4.1 million  available for payment of an ordinary  dividend.  At
December  31,  2004  the  amount  of  restricted  net  assets  of   consolidated
subsidiaries was $21.3 million.

Recent Sales of Unregistered Securities

None.

Equity Compensation Plans

     The  following  table  provides  information  with  respect  to our  equity
compensation  plans as of  December  31,  2004,  (other  than our 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).................             734,500                 $24.22                 1,346,252
Equity compensation plans not approved
  by security holders (2)..............             127,990                  21.94                         -
                                         -----------------------   --------------------   -------------------------
Total..................................             862,490                 $23.88                 1,346,252
                                         =======================   ====================   =========================

-----------


(1)  These  stock  options  have been issued  pursuant to our Stock  Option Plan
     which has been approved by security holders.  We do not expect to grant any
     additional options under this plan.

(2)  These  stock  options  have been  issued to our  Regional  Vice  Presidents
     ("RVPs")  (described  above) in order to encourage  stock  ownership by our
     RVPs and to increase the proprietary interest of such persons in our 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
     36,751,  106,002 and  244,679  total  options  granted to RVPs in the years
     ended December 31, 2004, 2003 and 2002,  respectively.  We discontinued the
     RVP stock option  grants  immediately  after the 2003 fourth  quarter stock
     options were awarded in the first quarter of 2004.




Issuer Purchases of Equity Securities

The following table provides information about our purchases of stock in the
open market during the fourth quarter of 2004.




                                                                 
                                                                          Total Number of       Maximum Number of
                                                                        Shares Purchased as    Shares that May Yet
                                                                         Part of Publicly      Be Purchased Under
        Period              Total Number of      Average Price Paid     Announced Plans or        the Plans or
                           Shares Purchased             per Share            Programs             Programs (1)
                         ---------------------  ---------------------  ---------------------  --------------------
                                                                                           
October 2004...........           4,400               $  27.42                  4,400                 964,682
November 2004..........          42,500                  29.62                 42,500                 922,182
December 2004..........               -                     -                       -                 922,182
                         ---------------------  ---------------------  ---------------------
Total..................          46,900               $  31.63                 46,900
                         =====================  =====================  =====================
-----------


(1)  We  announced  on  April  6,  1999,  a  treasury  stock  purchase   program
     authorizing management to acquire up to 500,000 shares of our common stock.
     The Board of Directors has  subsequently  from time to time  increased such
     authorization  from 500,000  shares to 10,000,000  shares.  The most recent
     authorization was for 1,000,000  additional shares August 9, 2004 and there
     has been no time limit set for  completion of the  repurchase  program.  In
     addition,  we  purchased  980,518  shares  for $26.00 per share in a tender
     offer completed on September 28, 2004.





ITEM 6.       SELECTED FINANCIAL DATA.

     The following table sets forth selected  financial and statistical data for
us as of the  dates  and for the  periods  indicated.  This  information  is not
necessarily  indicative of our future  performance.  The  following  information
should be read in conjunction  with our  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,
                                                           -------------------------------------------------------------
                                                               2004        2003        2002         2001        2000
                                                           -----------   ----------- ----------- ------------ ----------
Income Statement Data:                                     (In thousands, except ratio, per share and Membership amounts)
  Revenues:
                                                                                                     
    Membership fees......................................  $  355,461    $ 330,322   $ 308,401   $ 263,514    $ 211,763
    Associate services...................................      24,901       25,704      37,418      36,485       30,372
    Other................................................       5,575        5,287       4,804       3,662        4,248
                                                           -----------   ----------- ----------- ------------ ----------
      Total revenues.....................................     385,937      361,313     350,623     303,661      246,383
                                                           -----------   ----------- ----------- ------------ ----------
  Costs and expenses:
    Membership benefits..................................     122,280      111,165     103,761      87,429       69,513
    Commissions..........................................     118,757      115,386     119,371     111,060       96,614
    Associate services and direct marketing..............      29,325       28,929      32,566      29,879       23,251
    General and administrative expenses..................      43,742       36,711      33,256      28,243       21,524
    Other, net...........................................       9,578        8,546       6,685       5,917        5,078
                                                           -----------   ----------- ----------- ------------ ----------
      Total costs and expenses...........................     323,682      300,737     295,639     262,528      215,980
                                                           -----------   ----------- ----------- ------------ ----------

Income from continuing operations before income taxes and
  cumulative effect of change in accounting principle....      62,255       60,576      54,984      41,133       30,403
  Provision for income taxes.............................      21,478       20,669      18,970      13,519        9,550
                                                           -----------   ----------- ----------- ------------ ----------
Income from continuing operations before cumulative
    effect                                                     40,777       39,907      36,014      27,614       20,853
    of change in accounting principle....................
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............................................      40,777       39,907      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...............................................      40,777       39,907      36,014      27,110       20,489
  Less dividends on preferred shares.....................           -            -           -           -            4
                                                           -----------   ----------- ----------- ------------ ----------
Net income applicable to common stockholders.............   $  40,777    $  39,907   $  36,014   $  27,110    $  20,485
                                                           ===========   ==========  ==========  ===========  ==========

Basic earnings per common share from continuing
  operations before cumulative effect of accounting change     $ 2.50       $ 2.28      $ 1.83      $ 1.28       $  .93
Basic earnings per common share from discontinued          
    operations...........................................          -            -           -         (.02)         .03
                                                           ===========   ==========  ==========  ===========  ========== 
Basic earnings per common share before cumulative effect
    of change in accounting principle....................        2.50         2.28        1.83        1.26          .96
Cumulative effect of adoption of SAB 101.................          -            -           -           -          (.05)
                                                           -----------   ----------- ----------- ------------ ----------
Basic earnings per common share..........................      $ 2.50       $ 2.28      $ 1.83      $ 1.26       $  .91
                                                           ===========   ==========  ==========  ===========  ==========  

                                                          
Diluted earnings per common share from continuing
  operations before cumulative effect of accounting change     $2.48        $ 2.27      $ 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..........................        2.48         2.27        1.82        1.26          .95
Cumulative effect of adoption of SAB 101.................          -            -           -           -          (.05)
                                                           -----------   ----------- ----------- ------------ ----------
Diluted earnings per common share........................      $ 2.48       $ 2.27      $ 1.82      $ 1.26       $  .90
                                                           ===========   ==========  ==========  ===========  ==========  







Selected Financial Data, continued




                                                                              Year Ended December 31,
                                                           -------------------------------------------------------------
                                                               2004        2003        2002         2001        2000
                                                           -----------   ----------- ----------- ------------ ----------
                                                           (In thousands, except ratio, per share and Membership amounts)


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
Weighted average number of common shares
    outstanding - basic..................................      16,313       17,530      19,674      21,504       22,504
Weighted average number of common shares
    outstanding - diluted................................      16,458       17,599      19,764      21,544       22,679

Membership Benefits Cost and Statistical Data:
  Membership benefits ratio (1)..........................      34.4%        33.7%       33.6%       33.2%        32.8%
  Commissions ratio (1)..................................      33.4%        34.9%       38.7%       42.1%        45.6%
  General & administrative expense ratio (1).............      12.3%        11.1%       10.8%       10.7%        10.2%
  Commission cost per new Membership sold................    $    190     $    172    $    154    $    152     $    144
  New Memberships and stand-alone IDT plans sold.........     624,525      671,857     773,767     728,295      670,118
  Period end Memberships and stand-alone IDT plans in       1,451,700    1,418,997   1,382,306   1,242,908    1,064,805
force
  New add-on IDT memberships sold........................     335,792       89,928           -           -            -
  Period end add-on IDT memberships in force.............     283,889       86,602           -           -            -
  Average annual Membership fee..........................    $    274     $    262    $    256    $    251     $    244

Cash Flow Data:
Net cash provided before changes in assets and liabilities  $  51,689    $  47,731   $  42,699   $  30,679    $  24,247
Net cash provided by operating activities................      47,263       51,693      52,073      37,801       23,201
Net cash used in investing activities....................     (11,322)     (36,901)    (11,074)     (6,963)      (7,965)
Net cash used in financing  activities...................     (31,428)     (14,191)    (34,431)    (27,414)     (13,714)

Balance Sheet Data:
  Total assets...........................................   $ 146,064    $ 131,012   $  96,836   $  85,720    $  77,766
  Total liabilities......................................     114,617      101,438      61,864      43,496       35,999
  Stockholders' equity ..................................      31,447       29,574      34,972      42,224       41,767
-----------


(1)  The Membership  benefits ratio,  the commissions  ratio and the general and
     administrative  expense  ratio  represent  those costs as a  percentage  of
     Membership  fees. These ratios do not measure total  profitability  because
     they do not take into account all revenues and expenses.





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

Overview of the Our Financial Model

     We are in one line of business - the  marketing of legal  expense and other
complimentary   plans  primarily  through  a  multi-level   marketing  force  to
individuals.  Our principal  revenues are derived from membership fees, and to a
much lesser extent,  revenues from marketing associates.  Our principal expenses
are commissions,  Membership benefits,  associates services and direct marketing
costs and general and administrative  expense.  The following table reflects the
changes in these categories of revenues and expenses in the last 3 years (dollar
amounts in 000's):



                                                 %                             %                             %
                                                 Change                        Change                        Change
                                        % of     from                 % of     from                 % of     from
                                        Total    Prior                Total    Prior                Total    Prior
                               2004     Revenue    Year      2003     Revenue    Year      2002     Revenue   Year
                             ---------  -------  ------   ---------   -------  ------   ---------   -------  ------
Revenues:
                                                                                    
  Membership fees..........  $ 355,461    92.1    7.6     $ 330,322    91.4      7.1    $ 308,401    88.0     17.0
  Associate services.......     24,901     6.5    (.03)      25,704     7.1    (31.3)      37,418    10.6      2.6
  Other....................      5,575     1.4    5.4         5,287     1.5     10.1        4,804     1.4     31.2
                             ---------  -------  ------   ---------   -------  ------   ---------   -------  ------
                               385,937   100.0    6.8       361,313   100.0      3.0      350,623   100.0     15.5
                             ---------  -------  ------   ---------   -------  ------   ---------   -------  ------
Costs and expenses:
  Commissions..............    118,757    30.8    2.9       115,386    31.9     (3.3)     119,371    34.0      7.5
  Membership benefits......    122,280    31.7   10.0       111,165    30.8      7.1      103,761    29.6     18.7
  Associate services and
    direct marketing.......     29,325     7.6    1.4        28,929     8.0    (11.2)      32,566     9.3      9.0
  General and admin........     43,742    11.3   19.2        36,711    10.2     10.4       33,256     9.5     17.7
  Other, net...............      9,578     2.5.  12.1         8,546     2.4     27.8        6,685     1.9     13.0
                             ---------  -------  ------   ---------   -------  ------   ---------   -------  ------
                               323,682    83.9    7.6       300,737    83.2      1.7      295,639    84.3     12.6
                             ---------  -------  ------   ---------   -------  ------   ---------   -------  ------      
Provision for income taxes      21,478     5.6    3.9        20,669     5.7      9.0       18,970     5.4     40.3
                             ---------  -------  ------   ---------   -------  ------   ---------   -------  ------  

Net Income ...............   $  40,777    10.6    2.2     $  39,907    11.0     10.8    $  36,014    10.3     32.8
                             =========  =======  ======   =========   =======  ======   =========   =======  ======-



The following table reflects  certain data  concerning our Membership  sales and
associate recruiting:



                                                                             % Change                % Change
                                                                            from Prior               from
                       New Memberships:                            2004        Year         2003     Prior Year     2002
------------------------------------------------------------    ----------  -----------  ----------  ----------  ----------
                                                                                                        
New legal service membership sales..........................      599,929      (10.1)      667,480      (13.7)     773,767
New "stand-alone" IDT membership sales......................       24,596      461.9         4,377     Note 1            -
         Total new membership sales.........................    ----------  -----------  ----------  ----------  ----------
                                                                  624,525       (7.0)      671,857      (13.2)     773,767
                                                                ==========  ===========  ==========  ==========  ==========
New "add-on" IDT membership sales...........................      335,792      273.4        89,928                       -
                     Active Memberships:
Active legal service memberships at end of period...........    1,424,707         .7     1,414,746        2.3    1,382,306
Active "stand-alone" IDT memberships at end of period.......       26,993      535.0         4,251     Note 1            -
         Total active memberships at end of period..........    ----------  -----------  ----------  ----------  ----------
                                                                1,451,700        2.3     1,418,997        2.7    1,382,306 
                                                                ==========  ===========  ==========  ==========  ========== 
Active "add-on" IDT memberships at end of period............      283,889      227.8        86,602     Note 1            -
New sales associates recruited..............................      107,552        (.9)      108,557      (30.3)     155,663
Average Membership fee in force.............................       $274.02       4.4        $262.36       2.4       $256.21


Note 1: During the third quarter of 2003, we began  offering our Identity  Theft
Shield  ("IDT")  to new and  existing  members  at $9.95 per month if added to a
legal service Membership or $12.95 per month if purchased separately.


     The number of active  Memberships in force and the average monthly fee will
directly determine Membership fees and their impact on total revenues during any
period.  The two  most  important  variables  impacting  the  number  of  active
Memberships during a period are the number of new Memberships written during the
period  combined  with the  retention  characteristics  of both new and existing
Memberships.  See "Measures of Member  Retention"  below for a discussion of our
Membership  retention.  Associate services revenues are a function of the number
of new sales associates  enrolled and the price of entry during the period,  the
number of  associates  subscribing  to our  eService  offering and the amount of
sales tools purchased by the sales force.

     Membership benefits expense is primarily determined by the number of active
Memberships and the per capita  contractual  rate that exists between us and our
benefits  providers  and during the last five years has been and is  expected to
continue  to  be  a  relatively  fixed  percentage  of  Membership  revenues  of
approximately 33%-34%. Commissions paid to associates are primarily dependent on
the number and price of new  Memberships  sold  during a period and any  special
incentives  that  may  be  in  place  during  the  period.  We  expense  advance
commissions ratably over the first month of the related Membership. The level of
commission  expense in relation to Membership  revenues varies  depending on the
level of new Memberships written and is expected to be higher when we experience
increases in new Membership  sales.  During the last five years this  percentage
has ranged  from  approximately  33% to 46% of  Membership  revenues.  Associate
services and direct  marketing  expenses are directly  impacted by the number of
new associates enrolled during a period due to the cost of materials provided to
such new  associates,  the  number of  associates  subscribing  to our  eService
offering,  the amount of sales tools purchased by the sales force as well as the
number of those  associates  who  successfully  meet the Fast  Start to  Success
training and incentive award program  qualifications.  Prior to 2003 these costs
were more than offset by associate services revenue,  however this did not occur
in 2004 or 2003 primarily due to the lower entry fees charged during most of the
periods.  General and administrative  expenses are expected to trend up in terms
of dollars,  but remain  relatively  constant as a percent of  Membership  fees.
During the past five years, general and administrative expenses have ranged from
10% to 12% of Membership fees.

     The primary  benchmarks  monitored  by us  throughout  the various  periods
include  the  number  of  active   Memberships   and  their  related   retention
characteristics,  the  number  of new  Memberships  written,  the  number of new
associates  enrolled and the percentage of new associates that successfully meet
the Fast Start to Success qualification requirements.

     We experienced  decreases in both the number of new Memberships written and
the number of new  associates  enrolled  during 2004 and 2003  compared to 2002.
During the 2002 fourth quarter, we eliminated the commission advances to certain
associates that had below average  retention and due to below average  retention
rates  of  Internet  submitted  Memberships,  we  placed  restrictions  on those
associates  who are able to submit  new  memberships  via the  Internet  and the
number they could  submit.  These  actions  naturally  reduced the number of new
memberships  written and new associates  enrolled during the 2002 fourth quarter
and during 2003 and 2004 but  demonstrate  our commitment to improve  Membership
retention.  We also attribute such decline,  in part, to negative publicity (see
Risk  Factors).  Such  adverse  publicity  may affect  our  ability to write new
Memberships  (especially in large employee  groups),  recruit new associates and
may have a detrimental  effect on the persistency of our  Memberships.  However,
depending  on the  average  monthly  Membership  fee and the entry price for new
associates, we may experience declines in both areas in terms of numbers but may
experience  increases in both Membership fees and associate services revenue and
vice versa.

     Although we have grown our active  Membership  base and related  Membership
fees in each of the  past  12  years,  the  rate  of  growth  has  slowed  to an
unacceptable rate. We believe however, that our current product design,  pricing
parameters and business model are generally  appropriate and it has no immediate
plans to change these fundamental  sectors.  Our focus during 2005 will continue
to be on improved training of our associates, enhancing the quality and quantity
of sales tools provided to new and existing associates, providing incentives for
associates  to write  consistent,  quality  business and  continued  emphasis on
improving the basic retention characteristics of our Memberships.

Critical Accounting Policies

     Our 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 our  financial  condition  or
operating results.  Many of these "critical  accounting  policies" are common in
the  insurance  and financial  services  industries;  others are specific to our
business and operations.  Our critical  accounting  policies  include  estimates
relating  to revenue  recognition  related to  Membership  and  associate  fees,
deferral of Membership and associate related costs,  expense recognition related
to commissions to associates, accrual of incentive awards payable and accounting
for legal contingencies.

     Revenue recognition - Membership and Associate Fees
     Our 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  73% are paid in  advance  and,  therefore,  are
deferred  and  recognized  over the  following  month.  At December 31, 2004 the
deferred revenue  associated with the Membership fees was $18.6 million which is
classified as a current liability.

     We also charge 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") as revised by SEC
Staff  Accounting  Bulletin No. 104. At December  31, 2004 the deferred  revenue
associated with the Membership  enrollment fees was $6.8 million,  of which $4.4
million  was  classified  as  a  current  liability.  We  compute  the  expected
Membership  life using more than 20 years of actuarial data as explained in more
detail in  "Measures  of  Membership  Retention"  below.  At December  31, 2004,
management  computed the expected  Membership life to be  approximately 3 years,
which is unchanged from year end 2003. 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.

     We derive revenues from services provided to our marketing sales force from
a one-time  non-refundable  enrollment fee of $65 from each new sales  associate
for  which we  provide  initial  sales and  marketing  supplies  and  enrollment
services to the  associate.  Revenue  from,  and costs of, the initial sales and
marketing  supplies  (approximately  $14) are recognized  when the materials are
delivered  to  the  associates.  The  remaining  $51  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, 2004
is estimated to be  approximately  six months,  unchanged from year end 2003. At
December  31,  2004,  the  deferred  revenue  associated  with  sales  associate
enrollment  fees was $1.6 million,  which is classified as a current  liability.
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,  which management does not
expect in the short  term,  the  deferred  revenue  and  related  costs would be
recognized over the new estimated active service period.

     Member and Associate Costs
     Deferred costs  represent the incremental  direct and origination  costs we
incur in  enrolling  new  Members  and new  associates  related to the  deferred
revenue discussed above, and that portion of payments made to provider law firms
($5.8  million  deferred at December 31, 2004 which is  classified  as a current
asset) 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,  and were $5.8
million at December 31, 2004,  of which $3.2  million is  classified  in current
assets. 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,  and were $800,000
at December 31,  2004,  and is  classified  as a current  asset.  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, associate incentive
programs, group marketing and marketing services departments (including costs of
related travel,  marketing events,  leadership  summits and international  sales
convention).

     Commissions to Associates
     Beginning with new Memberships  written after March 1, 1995, we 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, our
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,  we  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.
Beginning in August 2003, we allowed the  associate to choose  between the level
commission structure and up to three year commission advance or the differential
commission structure with a one year commission advance.

     Prior to January  1997 we advanced  commissions  at the time of sale of all
new Memberships.  In January 1997, we 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,  we currently advance
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 14,
the  overall  initial  advance  may  be  paid  to   approximately  30  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 us.

     Although we, prior to March 1, 2002,  advanced our sales  associates  up to
three years  commission  when a Membership  is sold and  subsequent  to March 1,
2002,  up to one year  commission,  the average  commission  advance paid to our
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 we pay
less than a full advance on some of our specialty products.  In addition, we 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.  Additionally,  we  do  not  advance
commissions  on certain  categories of group  business  which have  historically
demonstrated  below  average  retention  characteristics.   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.  For
those associates that have made at least 10 personal sales,  opened at least one
group and personally write 15% or more of their organizational  business, 15% of
their commissions are set aside in individual reserve balance accounts,  further
reducing the amount of advance commissions.  The average commission advance paid
as a  percentage  of the maximum  advance  possible  pursuant to our  commission
structures  was  approximately  78%,  80% and 76%  during  2004,  2003 and 2002,
respectively.  The commission  cost per new  Membership  sold has increased over
each of the  last  three  years by 10%,  12% and 1% for  2004,  2003  and  2002,
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 we add additional  products,  such as the Identity
Theft Shield  described above or add additional  commissions to our compensation
plan or reduce the amount of  chargebacks  collected  from our  associates,  the
commission cost per new Membership will increase accordingly.

     We expense advance  commissions ratably over the first month of the related
Membership. At December 31, 2004, advance commissions deferred were $5.6 million
and included as a current  asset.  As a result of this  accounting  policy,  our
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.  We track our  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
our commission advance program. While not recorded as an asset, unearned advance
commission  balances from  associates for the following  years ended December 31
were:





                                                                        2004            2003            2002
                                                                        ----            ----            ----
                                                                                  (Amounts in 000's)
                                                                                               
Beginning unearned advance commission balances (1)..................$  191,894      $  227,084      $  211,609
Advance commissions, net of chargebacks and other...................   115,942         113,030         118,917
Earned commissions applied..........................................  (122,393)       (145,371)       (101,030)
Advance commission write-offs.......................................    (2,383)         (2,849)         (2,412)
                                                                    -----------     -----------     -----------
Ending unearned advance commission balances before estimated
  unrecoverable balances (1)........................................   183,060         191,894         227,084
Estimated unrecoverable advance commission balances (1)(2)..........   (28,554)        (24,862)        (25,156)
                                                                    -----------     -----------     -----------               
Ending unearned advance commission balances, net (1)................$  154,506      $   167,032     $  201,928
                                                                    ===========     ===========     ===========



     (1)  These  amounts do not represent  fair value,  as they do not take into
          consideration timing of estimated recoveries.
     (2)  Estimated  unrecoverable  advances increased as a percentage of ending
          advances  from 11% at December  31,  2002 to 16% at December  31, 2004
          primarily due to the change in the  compensation  structure  described
          above from a 36-month  possible advance to a 12-month possible advance
          and fewer new Memberships written during 2003 and 2004. The commission
          structure  change allows the advances to be earned more quickly by the
          associate and the reduction in new  Memberships  written creates fewer
          new advances.

     The ending unearned advance  commission  balances,  net, above includes net
unearned advance  commission  balances of non-vested  associates of $27 million,
$30 million and $26 million at December 31, 2004,  2003 and 2002,  respectively.
As such,  at December 31, 2004 future  commissions  and related  expense will be
reduced as unearned advance  commission  balances of $128 million are recovered.
Commissions are earned by the associate as Membership premiums are earned by us,
usually on a monthly basis. We reduce 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,  we,  except  as  described  below,   generate  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.  Beginning  in August  2003,  we  allowed  the
associate to choose between the level commission  structure and up to three year
commission  advance and up to 50%  chargebacks  or the  differential  commission
structure with a one year commission  advance and up to 100%  chargebacks.  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,  we waived  chargebacks  for associates  that met
certain  criteria in December 2002 and March 2003, which  effectively  increases
our 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.  We also have 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 and maintain certain Membership retention
levels.  We may adjust  chargebacks  from time to time in the future in order to
encourage certain production incentives.

     Prior to March 1, 2002,  we 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.  We 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. Our ability to recover these fees was primarily dependant on
the associate selling new Memberships, which qualify for commission advances. We
eliminated the Membership  lapse fee for Memberships sold after March 1, 2002 in
conjunction with the change in the commission structure described above.

     We have 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, we have 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 our relationships  with our sales associates.  This business decision by
us has a significant  effect on our cash flow by electing to defer collection of
advance  payments of which  approximately  $28.6 million were not expected to be
collected from future  commissions at December 31, 2004.  However,  we regularly
review the unearned  advance  commission  balance  status of associates and will
exercise  our 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 our 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  we have no
continuing  obligation to individually  account to these  associates as we do to
active associates and are entitled to retain all commission  earnings that would
be otherwise  payable to these terminated  associates.  We do 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 $400 at December 31, 2004.

     Although the advance  commissions are expensed ratably over the first month
of the  related  Membership,  we  assess,  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 our estimated  future lapse rate,  which is based on our actual
historical   Membership   retention   experience   as  applied  to  each  active
Membership's  year of origin.  The lapse rate is based on our more than  20-year
history of Membership  retention  rates,  which is updated  quarterly to reflect
actual experience. We also closely review 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.  We  estimate   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 us
to estimate future commission earnings.

     Further,  our analysis of the recoverability of unearned advance commission
balances is also based on the  assumption  that the associate does not write any
new  Memberships.   We  believe  that  this  assessment  methodology  is  highly
conservative  since our actual experience is that many associates do continue to
sell new Memberships and we, through our chargeback  rights,  gain an additional
source to recover unearned advance commission balances.

     Changes  in our  estimates  with  respect  to  recoverability  of  unearned
commissions could occur if the underlying  Membership  persistency  changes from
historical  levels.  Should  Membership   persistency  decrease,   the  unearned
commissions would be recovered over a longer period and the amount not recovered
would most likely  increase,  although  any increase in  uncollectible  unearned
commissions  would not have any immediate  expense  impact since the  commission
advances  are  expensed in the month they  incurred.  Holding all other  factors
constant,  the decline in persistency  would also lead to lower Membership fees,
less  net  income  and  less  cash  flow  from  operations.  Conversely,  should
persistency increase,  the unearned commissions would be recovered more quickly,
the amount  unrecovered  would decrease and, holding all other factors constant,
we would enjoy higher  Membership  fees, more net income and more cash flow from
operations.

     Incentive awards payable
     Associates can earn the right to attend an annual incentive trip by meeting
monthly qualification  requirements for the entire calendar year and maintaining
certain  personal  retention rates for the Memberships  sold during the calendar
year.  Associates can also earn the right to receive  additional monthly bonuses
by meeting the monthly qualification  requirements for twelve consecutive months
and maintaining certain personal retention rates for the Memberships sold during
that twelve month period.  The incentive awards payable at any date is estimated
based on an  evaluation  of the  existing  associates  that have met the monthly
qualifications,  any  changes to the  monthly  qualification  requirements,  the
estimated cost for each incentive  earned and the number of associates that have
historically met the personal retention rates. At December 31, 2004, the accrued
amount  payable  was $2.6  million.  Changes to any of these  assumptions  would
directly  affect the amount accrued but we do not expect any of the  significant
trends impacting this account to change significantly in the near term.

     Legal Contingencies
     We are 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  our  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.  We
evaluate,  among other  factors,  the degree of  probability  of an  unfavorable
outcome and the ability to make a reasonable  estimate of the amount of loss. We
have  established  an accrued  liability it believes will be sufficient to cover
estimated  damages in connection with various cases,  which at December 31, 2004
was $3.0 million.  This process  requires  subjective  judgment about the likely
outcomes  of  litigation.  Liabilities  related  to  most  of our  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 we do 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 our financial  condition,  operating results or cash
flows in particular quarterly or annual periods. See "Legal Proceedings."

Other General Matters

     Operating Ratios
     Three principal  operating measures monitored by us in addition to measures
of Membership retention are the Membership benefits 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.  We strive to maintain  these
ratios as low as possible  while at the same time providing  adequate  incentive
compensation to our 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
     We generally  advance  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.

     Investment Policy
     Our  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.  Our
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.  We are  required  to pledge  investments  to  various  state
insurance  departments  as a condition to obtaining  authority to do business in
certain states.

     New Accounting Standards Issued
     In December 2004, the FASB issued SFAS 123R which requires the  measurement
of all employee share-based payments to employees,  including grants of employee
stock options, using a fair-value-based method and the recording of such expense
in our consolidated statements of income. The accounting provisions of SFAS 123R
are  effective  for  reporting  periods  beginning  after June 15, 2005.  We are
required to adopt SFAS 123R in the third  quarter of fiscal 2005.  The pro forma
disclosures previously permitted under SFAS 123 no longer will be an alternative
to financial statement recognition. See Note 1 - Stock-Based Compensation in our
consolidated  financial  statements  included  in Item 8 for the pro  forma  net
income and net income per share  amounts,  for 2002 through  2004,  as if we had
used a  fair-value-based  method similar to the methods required under SFAS 123R
to measure compensation expense for employee stock incentive awards. Although we
have not yet determined whether the adoption of SFAS 123R will result in amounts
that are  similar to the current  pro forma  disclosures  under SFAS 123, we are
evaluating  the  requirements  under SFAS 123R and do not expect the adoption to
have a significant  adverse impact on our consolidated  statements of income and
net income per share.

Measures of Member Retention

     One of the major factors  affecting our  profitability and cash flow is our
ability to retain a Membership,  and therefore continue to receive fees, once it
has been sold. We monitor our 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,  our 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,  2004,  303,131  of the  active  1,451,700
Memberships were also vested associates which represents 21% of the total active
Memberships  compared to 21% at December 31, 2003 and 2002. 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
   ----        -----------      -----------         -----
   2000          670,118            90,684          13.5%
   2001          728,295           103,515          14.2%
   2002          773,767           119,326          15.4%
   2003          671,857            86,406          12.9%
   2004          624,525            89,230          14.3%


     Variations in Retention over Life of a Membership, Impact on Aggregate 
     Measures
     Measures of member retention also vary significantly by the Membership age.
Historically,  we have  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, 49.1% of all new Memberships lapse during the first year, leaving 50.9%
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,  2004 our  blended  retention  rate and lapse  rates  based on our
historical  experience  for the last 23 years.  The blended  retention and lapse
rates as of the end of 2004 did not  differ  materially  from  those  previously
reported at the end of 2003.


          Membership Retention versus Membership Age
-----------------------------------------------------------
Membership      Yearly Lapse     Yearly        End of Year
   Year             Rate        Retention      Memberships
------------    ------------    ---------      ------------
       0                                          100.0
       1             49.1%         50.9%           50.9
       2             28.2%         71.8%           36.5
       3             21.1%         78.9%           28.8
       4             17.1%         82.9%           23.9
       5             15.3%         84.7%           20.2
       6             11.9%         88.1%           17.8
       7              9.5%         90.5%           16.1


      Membership Persistency
     Our 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,
2004, our annual Membership  persistency rates, using the foregoing method, have
averaged approximately 71.8%.



                Beginning             New           Ending
   Year        Memberships        Memberships        Total       Memberships     Persistency
  ------       -----------        -----------     -----------    -----------     -----------
                                                                         
   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%
   2003         1,382,306           671,857        2,054,163       1,418,997          69.1%
   2004         1,418,997           624,525        2,043,522       1,451,700          71.0%



     Our  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.  Our 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.  Our  overall  Membership
persistency  rate could also  become  lower when the new  enrollments  include a
higher proportion of non-associate members.

     Unless offset by other factors,  these factors could result in a decline in
our 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
     Using  historical  data  through 2004 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 our  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 4.5 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, 2004, 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 us 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 our  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, we have
implemented  several  initiatives  aimed at improving the retention rate of both
new and  existing  Memberships.  Such  initiatives  include an optional  revised
compensation  structure 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 and implementation of a
"non-taken"  administrative  fee to sales  associates of $35 for any  Membership
application that is processed but for which a payment is never received. We have
designed and implemented an enhanced member "life cycle"  communication  process
aimed at both  increasing  the overall  amount of  communication  from us to the
members as well as more specific target messaging to members based on the length
of their Membership as well as utilization characteristics. We believe that such
efforts may ultimately increase the utilization by members and therefore lead to
higher retention rates. Our 2004 retention rates did not differ  materially from
2003 and we intend to continue to develop  programs and initiatives  designed to
improve retention.

Results of Operations

     Comparison of 2004 to 2003
     Net income for 2004  increased 2 % to $40.8  million from $39.9 million for
2003.  Diluted earnings per share for 2004 increased 9 % to $2.48 per share from
$2.27 per share for the prior  year due to  increased  net  income of 2 % and an
approximate 9 % decrease in the weighted  average number of outstanding  shares.
Membership  revenues for 2004 were up 8 % to $355.5  million from $330.3 million
for the prior year marking the twelfth consecutive year of increased  membership
revenue.

     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  decreased  7% during 2004 to 624,525  from
671,857  during  2003.  At  December  31,  2004,  there  were  1,451,700  active
Memberships  in force compared to 1,418,997 at December 31, 2003, an increase of
2%. Additionally,  the average annual fee per Membership has increased from $262
for all Memberships in force at December 31, 2003 to $274 for all Memberships in
force at December 31, 2004,  a 5%  increase,  as a result of a larger  number of
Legal Shield subscribers,  increased sales of our business oriented Memberships,
and the  introduction  of the Identity Theft Shield  Membership  during the last
quarter of 2003.

     Associate  services  revenue  decreased  3% from $25.7  million for 2003 to
$24.9 million during 2004 primarily as a result of a decline in new  enrollments
of sales associates and fewer associates  enrolling in the eService program. The
eService  fees  totaled $7.6  million  during 2004  compared to $8.4 million for
2003,  a  decrease  of 9%. We had a slight  increase  in fees for the Fast Start
program for 2004. We received training fees of approximately $8.9 million during
2004 compared to $7.7 million during 2003. 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 usual $65  associate  fee,
associates  participating in this program  typically pay a fee ranging from zero
to $184,  depending on special  promotions  we implement  from time to time.  In
order to be deemed  successful for Fast Start  purposes,  the new associate must
write three new  Memberships  and recruit one new sales  associate or personally
sell five Memberships within 45 days of becoming an associate.  The $8.9 million
and $7.7 million for 2004 and 2003, respectively, in training fees was collected
from  approximately  105,247 new sales  associates who elected to participate in
Fast Start in 2004 compared to 107,490 during 2003.  New associates  electing to
participate in Fast Start  decreased to 98% of new  associates  during 2004 from
99% for 2003. Total new associates enrolled during 2004 were 107,552 compared to
108,557 for 2003, a decrease of 1%. Future revenues from associate services will
depend primarily on the number of new associates enrolled, the price charged for
the Fast Start program and the number who choose to  participate in our eService
program,  but we expect that such revenues will continue to be largely offset by
the direct and  indirect  cost to us of  training  (including  training  bonuses
paid), providing associate services and other direct marketing expenses.

     Other revenue increased 6%, from $5.3 million to $5.6 million primarily due
to the increase in revenue recognized from Membership enrollment fees.

     Primarily as a result of the increase in Membership  fees,  total  revenues
increased  to $385.9  million  for 2004 from  $361.3  million  during  2003,  an
increase of 7%.

     Membership  benefits,  which  represent  payments to provider law firms and
Kroll,  totaled $122.3 million for 2004 compared to $111.2 million for 2003, and
represented  34% of Membership  fees for both years.  This  Membership  benefits
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. However, since the benefit ratio
of the IDT  Memberships  is higher  than the legal  Memberships,  we expect  the
benefits  ratio  to  increase  above  34% if we  continue  to  increase  the IDT
Membership base and revenues.

     Commissions  to  associates  increased  3% from $115.4  million for 2003 to
$118.8 million for 2004, and represented 35% and 33% of Membership fees for such
years.  These  amounts  were  reduced by $196,000  and  $165,000,  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.  We realize and recognize  this fee only when the amount of
the  calculated fee is collected by withholding  from cash  commissions  due the
associate,  because our 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 and the average premium of those
Memberships.  New Memberships  sold during 2004 totaled  624,525,  a 7% decrease
from the 671,857 sold during 2003,  but the  "add-on"  IDT  Memberships  are not
included in these totals and have  increased from 86,602 at December 31, 2003 to
283,889 at December  31,  2004 which  caused our total  commissions  to increase
during 2004.

     Associate services and direct marketing expenses increased to $29.3 million
for 2004 from $28.9 million for 2003. Fast Start training  bonuses incurred were
approximately  $3.1 million  during 2004 compared to $2.9 million in 2003.  This
$200,000  increase  in  bonuses,  a $233,000  increase  in the  amortization  of
deferred  associate  costs and a $1.0 million  increase in the cost of marketing
supplies were primarily  offset by a $1.1 million  decrease in direct  marketing
costs and marketing team overrides. The Fast Start training bonuses are affected
by the number of new sales associates that  successfully  meet the qualification
criteria  established  by us, i.e.  more  training  bonuses  will be paid when a
higher number of new sales  associates  meet such criteria.  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 2004 and 2003 were $43.7 million
and $36.7 million,  respectively,  and represented 12% and 11%, respectively, of
Membership fees for such years.  Management  expects general and  administrative
expenses,  when  expressed  as  a  percentage  of  Membership  fees,  to  remain
relatively  constant in the near term. We should experience cost efficiencies as
a  result  of  certain  economies  of scale in some  areas  over the long  term.
Increases  in the 2004  period  were  attributable  primarily  to  increases  in
printing and fulfillment  costs  associated with our new Membership kit which we
fully  introduced in 2004,  increases in other taxes (other than Federal  income
tax), higher employee costs, legal fees and Sarbanes Oxley compliance costs.

     Other  expenses,   net,  which  includes   depreciation  and  amortization,
litigation accruals and premium taxes reduced by interest income,  increased 12%
to  $9.6  million  for  2004  from  $8.5  million  for  2003.  Depreciation  and
amortization  increased  to $7.7  million  for 2004 from $7.1  million for 2003.
Premium taxes  decreased from $2.7 million for 2003 to $1.7 million for 2004 due
to  decreased  revenues  in the states in which we pay premium  taxes.  Interest
income  increased to $1.7 million for 2004 from $1.4 million for 2003.  Interest
expense  increased to $2.0  million for 2004  compared to $123,000 for the prior
year.  At December 31, 2004 we reported  $56.6  million in cash and  investments
(after  utilizing $37.4 million to purchase  approximately  1.5 million treasury
shares of our common stock during  2004)  compared to $51.6  million at December
31, 2003.

     The  provision  for income  taxes  increased  during 2004 to $21.5  million
compared  to $20.7  million  for  2003,  representing  34.5% and 34.1% of income
before income taxes for 2004 and 2003, respectively.

     Comparison of 2003 to 2002
     Net income for 2003  increased  11% to $39.9 million from $36.0 million for
2002. Diluted earnings per share for 2003 increased 25 % to $2.27 per share from
$1.82 per share for the prior  year due to  increased  net income of 11 % and an
approximate 11 % decrease in the weighted average number of outstanding  shares.
Membership  revenues for 2003 were up 7 % to $330.3  million from $308.4 million
for the prior year marking the eleventh consecutive year of increased membership
revenue.

     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  decreased  13% during 2003 to 671,857 from
773,767  during  2002.  At  December  31,  2003,  there  were  1,418,997  active
Memberships  in force compared to 1,382,306 at December 31, 2002, an increase of
3%. Additionally,  the average annual fee per Membership has increased from $256
for all Memberships in force at December 31, 2002 to $262 for all Memberships in
force at December 31, 2003,  a 2%  increase,  as a result of a larger  number of
Legal Shield subscribers,  increased sales of our business oriented Memberships,
and the  introduction  of the Identity Theft Shield  Membership  during the last
quarter of 2003.

     Associate  services  revenue  decreased  31% from $37.4 million for 2002 to
$25.7 million during 2003 primarily as a result of a decline in new  enrollments
of sales associates and fewer associates  enrolling in the eService program. The
eService  fees totaled $8.4 million  during 2003  compared to $11.2  million for
2002,  a  decrease  of 25%.  We also had a  decline  in fees for the Fast  Start
program for 2003. We received training fees of approximately $7.7 million during
2003  compared to $13.1  million  during 2002,  primarily as a result of special
training  promotions  during 2003 that  reduced the net amount of training  fees
received by us. 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 we
implement  from time to time.  In order to be deemed  successful  for Fast Start
purposes, the new associate must write three new Memberships and recruit one new
sales associate or personally sell five  Memberships  within 60 days of becoming
an   associate.   The  $7.7  million  and  $13.1  million  for  2003  and  2002,
respectively,  in training fees was  collected  from  approximately  107,490 new
sales  associates  who elected to  participate in Fast Start in 2003 compared to
150,247  during  2002.  New  associates  electing to  participate  in Fast Start
increased  to 99% of new  associates  during  2003 from 97% for 2002.  Total new
associates  enrolled  during 2003 were  108,557  compared to 155,663 for 2002, a
decrease of 30%.

     Other revenue  increased  10%, from $4.8 million to $5.3 million  primarily
due to the increase in revenue recognized from Membership enrollment fees.

     Primarily as a result of the increase in Membership  fees,  total  revenues
increased  to $361.3  million  for 2003 from  $350.6  million  during  2002,  an
increase of 3%.

     Membership  benefits,  which  represent  payments  to  provider  law firms,
totaled  $111.2  million  for 2003  compared  to $103.8  million  for 2002,  and
represented  34% of Membership  fees for both years.  This  Membership  benefits
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  decreased  3% from  $119.4  million  for  2002
compared to $115.4 million for 2003, and  represented  39% and 35% of Membership
fees for such  years.  These  amounts  were  reduced by $705,000  and  $196,000,
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.  We realize and recognize  this fee only when
the  amount  of the  calculated  fee  is  collected  by  withholding  from  cash
commissions due the associate,  because our 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 2003 totaled  671,857,  a 13% decrease  from the 773,767 sold during
2002.

     Associate services and direct marketing expenses decreased to $28.9 million
for 2003 from $32.6 million for 2002. Fast Start training  bonuses incurred were
approximately  $2.9 million  during 2003 compared to $6.8 million in 2002.  This
$3.9  million  decline in  bonuses,  a $521,000  decrease  in cost of  marketing
materials  sent  to  new  associates,   and  a  $1.6  million  decrease  in  the
amortization of deferred  associate costs were offset by a $1.3 million increase
in Fast Start  attendance  bonuses  incurred and a $1.4 million  increase in the
cost of associate  incentive  program costs. The Fast Start training bonuses are
affected  by the  number  of new sales  associates  that  successfully  meet the
qualification  criteria  established  by us, i.e. more training  bonuses will be
paid when a higher  number of new sales  associates  meet such  criteria.  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 2003 and 2002 were $36.7 million
and $33.3 million, respectively, and represented 11% of Membership fees for both
years.

     Other expenses,  which includes  depreciation and amortization,  litigation
accruals and premium  taxes  reduced by interest  income,  increased 28% to $8.5
million  for 2003 from $6.7  million  for 2002.  Depreciation  and  amortization
increased  to $7.1 million for 2003 from $5.3  million for 2002.  Premium  taxes
increased  from $2.2  million for 2002 to $2.7 million for 2003 due to increased
revenues in the states in which we pay premium taxes.  Interest income decreased
to $1.4  million for 2003 from $2.1  million for 2002.  At December  31, 2003 we
reported $51.6 million in cash and investments (after utilizing $48.3 million to
purchase  approximately  2.1 million  treasury shares of our common stock during
2003) compared to $41 million at December 31, 2002.

     The  provision  for income  taxes  increased  during 2003 to $20.7  million
compared to $19.0 million for 2002,  representing 34.1% and 34.5% of income from
continuing operations before income taxes for 2003 and 2002, respectively.

Liquidity and Capital Resources

     The number of active  Memberships in force and the average monthly fee will
directly determine Membership fees collected and their contribution to cash flow
from  operations  during any period.  Cash receipts from associate  services are
directly  impacted by the number of new sales associates  enrolled and the price
of entry during the period, the number of associates subscribing to our eService
offering and the amount of sales tools purchased by the sales force.

     The cash outlay related to Membership  benefits is directly impacted by the
number of active Memberships and the contractual rate that exists between us and
our benefits  providers.  Commissions paid to associates are primarily dependent
on the number and price of new Memberships  sold during a period and any special
incentives that may be in place during the period. Cash requirements  related to
associate services and direct marketing  activities are directly impacted by the
number of new associates  enrolled  during a period due to the cost of materials
provided to such new  associates,  the number of associates  subscribing  to our
eService  offering,  the amount of sales tools  purchased  by the sales force as
well as the number of those associates who  successfully  meet the Fast Start to
Success training and incentive award program qualifications.

     Membership  revenues are more than sufficient to fund the cash requirements
for  membership  benefits (at  approximately  33%-34% of  Membership  revenues),
commissions  (ranging  from 33% to 46% of  Membership  revenues) and general and
administrative  expense (at approximately 12% of Membership  revenues).  We have
generated  significant  cash flow from  operations  before changes in assets and
liabilities of approximately  $52 million,  $48 million and $43 million in 2004,
2003 and 2002,  respectively.  As discussed  below,  we have used a  significant
portion of our cash flow to  repurchase  shares of our stock in the open market.
Cash flow from operations could be reduced if we experienced  significant growth
in new  members  because  of  the  negative  cash  flow  characteristics  of our
commission advance policies discussed above.

     As a result of our ability to generate cash flow from operations, including
in periods of Membership growth, we have not historically been dependent on, and
do not expect to need in the future, external sources of financing from the sale
of securities or from bank  borrowings  to fund our basic  business  operations.
However,  as described below,  during the last three years, we incurred debt for
limited  and  specific  purposes  to  permit  us to  construct  a new  corporate
headquarters and to accelerate our treasury stock purchase program.

     General
     Consolidated  net cash provided by operating  activities  before changes in
assets and  liabilities  was $51.7 million,  $47.8 million and $42.7 million for
2004, 2003 and 2002,  respectively.  Consolidated net cash provided by operating
activities was $47.3 million, $51.7 million and $52.1 million for 2004, 2003 and
2002, respectively. Cash provided by operating activities decreased $4.4 million
during 2004 compared to 2003  primarily due to the $3.8 million  decrease in the
change in accounts  payable and accrued  expenses,  the $1.5 million increase in
the change in deferred  member and  associate  service  costs,  the $1.1 million
increase  in the  change  in  accrued  Membership  income  and the $1.1  million
increase  in the  change in  inventories  partially  offset by the $1.9  million
increase in the  provision of deferred  income taxes and a $627,000  increase in
depreciation and amortization.

     Net cash used in investing activities was $11.3 million,  $36.9 million and
$11.1  million  for 2004,  2003 and 2002,  respectively.  In addition to capital
expenditures of $10.9 million, $27.0 million and $15.2 million during 2004, 2003
and 2002, respectively, our purchases of available-for-sale investments exceeded
the  maturities  and sales of such  investments  by $443,000 and $9.9 million in
2004 and 2003, respectively, but maturities and sales exceeded purchases by $4.1
million during 2002.

     Net cash used in financing activities was $31.4 million,  $14.2 million and
$34.4 million for 2004, 2003 and 2002,  respectively.  This $17.2 million change
during 2004 was primarily comprised of a $23.7 million decrease in proceeds from
issuance of debt and a $7.4  million  increase in  repayment of debt and capital
lease  obligations  partially offset by a $10.8 million decrease in purchases of
treasury stock and a $3.2 million increase in proceeds from sale of common stock
on exercise of options.

     We had a consolidated  working capital deficit of $21.7 million at December
31, 2004, a decrease of $9.8 million compared to a consolidated  working capital
deficit of $11.9 million at December 31, 2003. The decrease was primarily due to
the $7.8 million  increase in common  stock cash  dividends  payable.  The $21.7
million  working  capital  deficit at December  31, 2004 would have been a $12.5
million  working  capital  deficit  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 us incurring  other current
liabilities.  Additionally,  at the  current  rate  of  cash  flow  provided  by
continuing operations ($47.3 million during 2004) and our contractual commitment
that limits the amount of any future dividends,  we do not expect any difficulty
in meeting our financial obligations in the short term or the long term.

     We generally  advance  significant  commissions to associates at the time a
Membership is sold. We expense  these  advances  ratably over the first month of
the related  Membership.  During 2004, we paid advance commissions to associates
of $115.9 million on new  Membership  sales compared to $113.0 million for 2003.
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,  we typically derive  significant  positive cash flow
from the Membership over its remaining life. See Commissions to Associates above
for additional information on advance commissions.

     We  announced  on  April  6,  1999,  a  treasury  stock  purchase   program
authorizing  management to acquire up to 500,000 shares of our common stock. The
Board of Directors  has  increased  such  authorization  from 500,000  shares to
10,000,000 shares during subsequent board meetings. At December 31, 2004, we had
purchased  9.1 million  treasury  shares under these  authorizations  for $210.9
million,  an  average  price of $23.23  per share,  including  $37.5  million of
purchases  in 2004.  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 our liquidity,  however, due to restrictions contained in
our  debt  agreements  with  lenders,  we  are  limited  in our  treasury  stock
purchases. At December 31, 2004, we had more than $10 million availability under
existing bank covenant  restrictions to purchase  additional treasury shares. 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 our expected  cash flows,  management  believes  that  purchasing
treasury shares enhances  shareholder  value. We expect to continue our treasury
stock program and are actively  evaluating  alternative  sources of financing to
continue or accelerate the program.

     We believe  that we have  significant  ability to finance  expected  future
growth  in  Membership  sales  based  on our  existing  amount  of cash and cash
equivalents and unpledged  investments at December 31, 2004 of $52.2 million. We
expect 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,  dividends,  and  advance  repayment  of debt  subject  to the
restrictions contained in our debt agreements.

     As more fully discussed in Item 2 - Description of Property, we completed a
new office complex during 2004, containing  approximately 170,000 square feet of
office space, and constructed on approximately 87 acres contributed to us by the
City of Ada in 2001 as part of an economic development incentive package.  Costs
incurred  through December 31, 2004 of  approximately  $34.1 million,  including
$706,000 in capitalized  interest costs, have been paid from existing  resources
and proceeds from a $20 million line of credit for the new office construction.

     On June 11, 2002,  we 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 our new corporate office complex. The
treasury  stock line of credit  provided  for  funding  of up to $10  million to
finance  treasury stock  purchases and has been repaid.  The real estate line of
$20 million was fully funded in December  2003 with interest at the 30 day LIBOR
rate plus 2.25%,  adjusted  monthly,  and repayments began in December 2003 with
monthly  principal  payments of $191,000 plus interest with a balloon payment on
September 30, 2008. The loan is primarily  collateralized by a first mortgage on
the 87 acre construction site, the 170,000 square foot home office complex,  our
rights to  receive  Membership  fees on a portion  of our  Memberships  and by a
security interest covering all equipment. The interest rate at December 31, 2004
was 4.56%.  The real estate loan  agreement  provides  for  financial  covenants
substantially  the same as those  described below for the amended stock purchase
loan.

     During  the 2003 third  quarter,  we  arranged  $25  million in  additional
financing for treasury stock purchases from a group of banks, consisting of Bank
of Oklahoma,  Comerica Bank and First United Bank and Trust. The $25 million was
fully funded on November 30, 2003 with scheduled monthly  principal  payments of
$1.4 million  beginning  December 31, 2003 through May 31, 2005 with interest at
the 30 day LIBOR rate plus three percent,  adjusted monthly. During August 2004,
we amended the terms of the loan agreement with these banks to increase the loan
amount to $31.5 million and allow for additional  treasury stock purchases of up
to $31.5 million.  We fully funded the loan on September 30, 2004 which resulted
in a net increase in credit of $19.0  million above the  outstanding  balance of
our existing treasury stock term loan of $12.5 million at the time.  Proceeds of
this loan together with existing cash resources  were used to purchase  treasury
shares.  The  amortization  of the amended loan has been modified to provide for
repayment over 24 months in equal monthly principal  payments  beginning October
31, 2004 and ending  September  30, 2006 with  interest at the 30 day LIBOR rate
plus 3%. The interest rate at December 31, 2004 was 5.31%. The monthly principal
payment is $1.3  million  compared to the  monthly  payment on the prior loan of
$1.4 million.  The amended loan agreement  continues all of the covenants of the
prior agreement with certain  modifications to permit additional stock purchases
and/or dividends while the loan is outstanding generally in an amount no greater
than 50% of net income and modifies the debt service  coverage ratio  definition
slightly.

     The loan is primarily  collateralized  by our rights to receive  Membership
fees  on a  portion  of  our  Memberships  and a  pledge  of  the  stock  of our
subsidiaries.  The definitive  agreement contains covenants  prohibiting us from
pledging  assets,  incurring  additional  indebtedness  and selling  assets.  In
addition to customary  events of default,  an additional event of default occurs
if Harland C. Stonecipher  ceases to be our chairman and Chief Executive Officer
for 90 days.  Pre-payment of the loan is permitted.  The loan agreements contain
the following  financial  covenants:  (a) our quarterly  Debt Coverage Ratio (as
defined  in  the  loan  agreements)  shall  not  be  less  than  125%;  (b)  our
cancellation rate on contracts less than or equal to twelve months old shall not
exceed 45% on a trailing 12 month basis, calculated on a quarterly basis; (c) we
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 monthly  basis;  (d) we shall  not pay  dividends  or  purchase
treasury  shares,  which during any fiscal quarter,  on a combined basis,  would
exceed fifty percent (50%) of our cumulative net income for all previous  fiscal
quarters  beginning  July 1, 2004 less any dividends or stock  purchases in such
previous  fiscal  quarters,   with  provisions  for  carry  forwards  of  unused
availability;  and,  (e) our tangible net worth shall not fall below $10 million
for the period of time dating from  September  30, 2004,  $15 million  beginning
March 31, 2005 and $25 million beginning December 31, 2005.

     Parent Company Funding and Dividends
     Although  we  are  the  operating   entity  in  many   jurisdictions,   our
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  us 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, or any of our
regulated   subsidiaries,   will  be  funded  by  us  in  the  form  of  capital
contributions  or surplus  debentures.  During  February 2004, we made a capital
contribution to a wholly-owned  subsidiary of PPLCI,  Pre-Paid Legal Services of
Tennessee,  Inc. in the amount of $600,000. At December 31, 2004, PPLSIF did not
have funds  available  for payment of  substantial  dividends  without the prior
approval of the insurance commissioner.  While PPLCI had surplus funds available
for payment of an  ordinary  dividend,  no such  dividend  was  declared or paid
during 2004 or 2003. At December 31, 2004 PPLCI had  approximately  $4.1 million
available for payment of an ordinary  dividend.  At December 31, 2004 the amount
of restricted net assets of consolidated subsidiaries was $21.3 million.

     Contractual Obligations
     The following table reflects our contractual obligations as of December 31,
2004.



                                                                   Payments Due by Period (In Thousands)
                                                                                                            More
                                                                    Less than                                than
               Contractual Obligations                    Total       1 year     1-3 years   3-5 years     5 years
--------------------------------------------------      ----------   ----------  ----------   ---------   ----------
                                                                                                 
Long-term debt....................................      $  45,086    $  18,036   $  27,050    $      -    $       -
Purchase obligations (1)..........................          8,209        5,500       2,709           -            -
Capital leases....................................          3,070          420         921         243        1,486
Deferred compensation plan........................          2,794            -           -           -        2,794
Operating leases..................................            324           86         171          67           -
                                                        ----------   ----------  ----------   ---------   ----------
Total (2).........................................      $  59,483    $  24,042   $  30,851    $    310    $   4,280
                                                        ==========   ==========  ==========   =========   ==========

                                                        
(1)  Includes  contractual  commitments  pursuant  to  executory  contracts  for
     products  and  services  such as voice and data  services  and  contractual
     obligations  related to future  Company  events such as hotel room  blocks,
     meeting  space and food and  beverage  guarantees.  We  expect  to  receive
     proceeds from such future events and reimbursement  from provider law firms
     for  certain  voice and data  services  that will  partially  offset  these
     obligations.

(2)  Does not include  commitments for attorney provider payments,  commissions,
     etc.  which are expected to remain in existence for several years but as to
     which our obligations vary directly either based on Membership  revenues or
     new Memberships sold and are not readily estimable.

Forward-Looking Statements

     All  statements  in this report other than purely  historical  information,
including  but not  limited  to,  statements  relating  to our future  plans and
objectives,  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 our historical operating
trends and  financial  condition as of December  31, 2004 and other  information
currently   available  to  management.   We  caution  that  the  Forward-Looking
Statements  are  subject  to all the risks  and  uncertainties  incident  to our
business,  including but not limited to risks described below.  Moreover, we 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.
We assume 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.
     We have  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,   our  ability  to  provide
administrative   services  to  members  or  other  factors.  If  our  Membership
persistency or renewal rates are less than we have historically experienced, our
cash flow, earnings and growth rates could be adversely affected.

     We may not be able to grow  Memberships and revenues at the same rate as we
have  historically  experienced  and have recently  experienced  declines in new
membership sales and associate recruitment.
     Our year end active  Memberships have increased 2%, 3% and 11% in the years
ended December 31, 2004,  2003 and 2002,  respectively.  Net income for the same
three  years  has  increased  2%,  11% and  33%,  respectively.  We  experienced
decreases  in both the number of new  Memberships  written and the number of new
associates  enrolled  during 2004 and 2003 compared to 2002. Our ability to grow
Memberships and revenues is  substantially  dependent upon our ability to expand
or enhance the productivity of our sales force, develop additional legal expense
products, develop alternative marketing methods or expand geographically.  There
is no  assurance  that we will be able to achieve  increases in  Membership  and
revenue growth comparable to our historical growth rates.

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

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

     We are in a regulated industry and regulations could have an adverse effect
on our ability to conduct our business. 
     We are  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  legal  service  plans.  Regulation  of  our  activities  is
inconsistent  among the various  states in which we do business with some states
regulating  legal  service  plans as  insurance  or  specialized  legal  service
products and others regulating such plans as services. Such disparate regulation
requires us to structure our Memberships  and operations  differently in certain
states in accordance with the applicable laws and  regulations.  Our 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 our business could increase the compliance  costs we
incur in order to conduct our  business or limit the  jurisdictions  in which we
are able to conduct business.

     The business in which we operate is competitive.
     There are a number of  existing  and  potential  competitors  that have the
ability to offer competing  products that could adversely  affect our ability to
grow. In addition,  we 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 our  financial  condition  and results of  operations.  See  "Description  of
Business - Competition".

     We are dependent upon the success of our marketing force.
     Our  principal  method  of  product  distribution  is  through  multi-level
marketing. The success of a multi-level marketing force is highly dependent upon
our  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 we must compete  with these  organizations  to recruit,  maintain and
grow our multi-level  marketing  force. In order to do so, we may be required to
increase our marketing costs through increases in commissions,  sales incentives
or other features,  all of which could adversely affect our future earnings.  In
addition,  the level of  confidence  of the sales  associates  in our ability to
perform  is an  important  factor  in  maintaining  and  growing  a  multi-level
marketing  force.  Adverse  financial  developments   concerning  us,  including
negative  publicity or common stock price declines,  could adversely  affect our
ability to maintain the confidence of our sales force.

     Our stock price may be affected by the  significant  level of short sellers
of our stock.
     As of  January  14,  2005,  the  New  York  Stock  Exchange  reported  that
approximately 6.6 million shares of our stock were sold short, which constitutes
approximately  42% of our  outstanding  shares  and  62%  of our  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 our shares
decline in value. We have 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 our stock price and
may adversely affect the ability of our stock price to rise if market conditions
or our performance would otherwise justify a price increase.

     We have  not  been  able  to  increase  significantly  our  employee  group
membership sales.
     Our success in growing membership sales is dependent in part on our ability
to market to employee groups.  At December 31, 2004 and 2003, group  memberships
represented 25% of total Memberships.  Adverse publicity about us may affect our
ability to market  successfully to employee groups,  particularly larger groups.
There is no assurance that we will be able to increase our group business.

     Failure to achieve and maintain  effective  internal  controls could have a
material adverse effect on our business, operating results and stock price.
     We have been unable to complete our  assessment  as of December 31, 2004 of
our internal control procedures as required by Section 404 of the Sarbanes-Oxley
Act, which requires annual  management  assessments of the  effectiveness of our
internal  controls  over  financial  reporting  and a report by our  independent
auditors  addressing  these  assessments.   We  have  also  identified  material
weaknesses  in  our  internal  controls  relating  to the  documentation  of our
application  based  controls and our  application  controls over our  commission
payment  systems.  As a result,  our auditors are unable to render an opinion on
our internal controls or our assessment. See Item 9A- Controls and Procedures. A
material  weakness is a significant  deficiency,  or  combination of significant
deficiencies,  that  result in more  than a remote  likelihood  that a  material
misstatement of the annual or interim financial statements will not be prevented
or detected.  Accordingly,  we are not be able to ensure that we can conclude on
an  ongoing  basis  that we have  effective  internal  controls  over  financial
reporting in accordance with Section 404 of the Sarbanes-Oxley  Act. As a result
of our inability to complete this assessment on a timely basis, our business and
operating results could be harmed, investors and others could lose confidence in
our reported  financial  information,  and the trading  price of our stock could
drop significantly.


ITEM 7A.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     Disclosures About Market Risk
     Our  consolidated  balance  sheets  include a certain  amount of assets and
liabilities whose fair values are subject to market risk. Due to our significant
investment in  fixed-maturity  investments,  interest rate risk  represents  the
largest  market risk  factor  affecting  our  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,  2004,  substantially  all of our  investments  were in
investment   grade  (rated  Baa  or  higher)   fixed-maturity   investments  and
interest-bearing  money market accounts including certificates of deposit. We do
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 our 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 inerest rate
                                                            ----------    -------------------  ----------------------
                                                                            (Dollars in thousands)
                                                                                          
Fixed-maturity investments at December 31, 2004 (1)....      $  27,023      100 bp increase           $  25,454
                                                                            200 bp increase              24,024
                                                                             50 bp decrease              27,605
                                                                            100 bp decrease              28,288


Fixed-maturity investments at December 31, 2003 (1)....      $  27,052      100 bp increase           $  26,009
                                                                            200 bp increase              24,977
                                                                             50 bp decrease              27,451
                                                                            100 bp decrease              27,904

--------------------


(1)  Excluding short-term investments with a fair value of $2.5 million and $2.4
     million at December 31, 2004 and 2003, respectively.

     The table above illustrates,  for example,  that an instantaneous 200 basis
     point  increase in market  interest rates at December 31, 2004 would reduce
     the estimated fair value of our fixed-maturity investments by approximately
     $3.0  million at that date.  At December  31,  2003,  and based on the fair
     value of fixed-maturity  investments of $27.1 million, an instantaneous 200
     basis  point  increase  in market  interest  rates  would have  reduced the
     estimated fair value of our  fixed-maturity  investments  by  approximately
     $2.1 million at that date.  Our increased  sensitivity  to rising  interest
     rates is due to a $9.5 million  reduction in floating rate municipal bonds,
     of which $8.5 million was  reinvested  in longer term fixed rate  municipal
     bonds. The definitive  extent of the interest rate risk is not quantifiable
     or predictable due to the  variability of future interest rates,  but we do
     not believe such risk is material.

     We  primarily  manage our  exposure  to  interest  rate risk by  purchasing
investments that can be readily  liquidated should the interest rate environment
begin to significantly change.

     Interest Rate Risk
     We are exposed to market risk related to changes in interest  rates.  As of
December 31, 2004, we had $45.1 million in notes payable outstanding at interest
rates  indexed to the 30 day LIBOR rate that exposes it to the risk of increased
interest  costs if interest  rates rise.  Assuming a 100 basis point increase in
interest  rates on the floating rate debt,  interest  expense would  increase by
approximately  $450,000.  As of December 31,  2004,  we had not entered into any
interest  rate swap  agreements  with  respect to the term loans or the floating
rate municipal bonds.

     Foreign Currency Exchange Rate Risk
     Although we are exposed to foreign currency  exchange rate risk inherent in
revenues, net income and assets and liabilities denominated in Canadian dollars,
the potential  change in foreign  currency  exchange  rates is not a substantial
risk,  as  approximately  1% of our revenues  are derived  outside of the United
States.







ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


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

                                                                                
Reports of Independent Registered Public Accounting Firm

Consolidated Financial Statements
Consolidated Balance Sheets - December 31, 2004 and 2003
Consolidated Statements of Income - For the years ended December 31, 2004, 2003
  and 2002
Consolidated Statements of Cash Flows - For the years ended December 31, 2004, 
  2003 and 2002
Consolidated Statements of Changes In Stockholders' Equity - For the years ended
  December 31, 2004, 2003 and 2002
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 REGISTERED PUBLIC ACCOUNTING FIRM

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

We were  engaged to audit  management's  assessment,  included  in  Management's
Report on Internal Control over Financial Reporting (included in Item 9A of this
Form 10-K), that Pre-Paid Legal Services,  Inc. and subsidiaries (the "Company")
maintained  effective  internal control over financial  reporting as of December
31, 2004,  based on the  criteria  established  in Internal  Control--Integrated
Framework  issued by the Committee of Sponsoring  Organizations  of the Treadway
Commission  ("COSO").  Management of the Company is responsible  for maintaining
effective  internal  control over financial  reporting and for its assessment of
the effectiveness of internal control over financial reporting.

A control  deficiency  exists when the design or operation of a control does not
allow management or employees, in the normal course of performing their assigned
functions,  to prevent or detect  misstatements on a timely basis. A significant
deficiency is a control deficiency, or combination of control deficiencies, that
adversely affects a company's ability to initiate,  authorize,  record, process,
or report external financial data reliably in accordance with generally accepted
accounting  principles  such that there is more than a remote  likelihood that a
misstatement of the entity's annual or interim financial statements that is more
than inconsequential will not be prevented or detected.
 
A material weakness is a significant  deficiency,  or combination of significant
deficiencies,  that  results  in more than a remote  likelihood  that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. We believe that the following significant  deficiencies  constitute
material  weaknesses  under  the  standards  of the  Public  Company  Accounting
Oversight Board (United States).

A material  weakness  exists as of December 31, 2004, with regard to the lack of
properly  documented  financially  significant  automated  applications,   which
affects   management's   ability  to  effectively   monitor  risks  relating  to
applications  that are  significant  to  financial  reporting.  In  addition,  a
material  weakness  exists as of December 31, 2004, with regard to the Company's
controls  over   commission   processes   that  could   potentially   result  in
misstatements.  The application system that automates  processing of commissions
is complex,  inadequately  documented,  and has not been  maintained in a manner
that provides  assurance that all and only authorized changes have been properly
designed,  tested, and used. The material  weaknesses did not affect our opinion
on the Company's consolidated financial statements.
  
A company's  internal control over financial  reporting is a process designed to
provide reasonable  assurance  regarding the reliability of financial  reporting
and the preparation of financial  statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial  reporting  includes those policies and procedures that (1) pertain to
the  maintenance  of records that, in reasonable  detail,  accurately and fairly
reflect the  transactions  and  dispositions  of the assets of the company;  (2)
provide  reasonable  assurance  that  transactions  are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting  principles,  and that receipts and  expenditures  of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of  unauthorized  acquisition,  use, or  disposition  of the company's
assets that could have a material effect on the financial statements.
 
Because of its inherent  limitations,  internal control over financial reporting
may not prevent or detect misstatements.  Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate  because of changes in  conditions,  or that the degree of compliance
with the policies or procedures may deteriorate.
 
Since  management was unable to complete its assessment on internal control over
financial  reporting as of December 31,  2004,  and  therefore we were unable to
apply other  procedures  to satisfy  ourselves  as to the  effectiveness  of the
Company's internal control over financial  reporting,  the scope of our work was
not sufficient to enable us to express, and we do not express, an opinion either
on management's  assessment or on the  effectiveness  of the Company's  internal
control over financial reporting.
 
We have  audited,  in  accordance  with  the  standards  of the  Public  Company
Accounting  Oversight Board (United States),  the consolidated balance sheets of
the Company as of  December  31,  2004 and 2003,  and the  related  consolidated
statements of income,  stockholders' equity and cash flows for each of the years
in the three-year  period ended December 31, 2004, and our report dated February
25,  2005,  expressed an  unqualified  opinion on those  consolidated  financial
statements.
 
         .

GRANT THORNTON LLP


Oklahoma City, Oklahoma
February 25, 2005



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



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, 2004 and
2003, 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, 2004.  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 the standards of the Public  Company
Accounting Oversight Board (United States). 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,  2004 and 2003,  and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31, 2004, in conformity  with  accounting  principles
generally accepted in the United States of America.

We have also audited Schedule I as of December 31, 2004 and 2003 and for each of
the three years in the period  ended  December 31,  2004.  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 therein.

We were also engaged to audit,  in  accordance  with the standards of the Public
Company  Accounting  Oversight Board (United States),  the  effectiveness of the
Company's  internal  control over  financial  reporting as of December 31, 2004,
based on criteria established in Internal  Control--Integrated  Framework issued
by the Committee of Sponsoring  Organizations of the Treadway Commission.  Since
management  was unable to  complete  its  assessment  on internal  control  over
financial  reporting as of December 31,  2004,  and  therefore we were unable to
apply other  procedures  to satisfy  ourselves  as to the  effectiveness  of the
Company's internal control over financial  reporting,  the scope of our work was
not  sufficient  to enable us to  express,  and we did not  express,  an opinion
either on  management's  assessment  or on the  effectiveness  of the  Company's
internal control over financial reporting in our report dated February 25, 2005.



GRANT THORNTON LLP


Oklahoma City, Oklahoma
February 25, 2005






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

                                     ASSETS
                                                                                                December 31,        
                                                                                         ---------------------------
                                                                                             2004          2003
                                                                                         ------------  -------------
Current assets:
                                                                                                          
  Cash and cash equivalents............................................................   $    25,972   $    21,459
  Available-for-sale investments, at fair value........................................           804        10,203
  Membership fees receivable...........................................................         4,961         4,575
  Inventories..........................................................................         1,623           857
  Refundable income taxes..............................................................         1,241           331
  Deferred member and associate service costs..........................................        15,420        14,215
  Deferred income taxes................................................................         4,829         4,894
                                                                                         ------------  -------------
      Total current assets.............................................................        54,850        56,534
Available-for-sale investments, at fair value..........................................        25,455        15,711
Investments pledged....................................................................         4,381         4,253
Property and equipment, net............................................................        51,232        47,004
Deferred member and associate service costs............................................         2,580         2,375
Other assets...........................................................................         7,566         5,135
                                                                                         ------------  -------------
        Total assets...................................................................   $   146,064   $   131,012
                                                                                         ============  =============



                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Membership benefits..................................................................   $    10,340   $     9,289
  Deferred revenue and fees............................................................        24,585        23,763
  Current portion of capital leases payable............................................           338            19
  Current portion of notes payable.....................................................        18,036        18,953
  Common stock dividends payable.......................................................         7,796             -
  Accounts payable and accrued expenses................................................        15,451        16,380
                                                                                         ------------  -------------
    Total current liabilities..........................................................        76,546        68,404
  Capital leases payable...............................................................         1,618         1,687
  Notes payable........................................................................        27,050        24,468
  Deferred revenue and fees............................................................         2,361         3,330
  Deferred income taxes................................................................         4,248         2,104
  Other non-current liabilities........................................................         2,794         1,445
                                                                                         ------------  -------------
      Total liabilities................................................................       114,617       101,438
                                                                                         ------------  -------------
Stockholders' equity:
  Common stock, $.01 par value; 100,000 shares authorized; 20,465 and
    21,674 issued at December 31, 2004 and 2003, respectively..........................           205           217
  Retained earnings....................................................................       129,290       127,576
  Accumulated other comprehensive income...............................................           980           809
  Treasury stock, at cost; 4,852 shares held at December 31, 2004
    and 2003, respectively.............................................................       (99,028)      (99,028)
                                                                                         ------------  -------------
      Total stockholders' equity.......................................................        31,447        29,574
                                                                                         ------------  -------------
        Total liabilities and stockholders' equity.....................................   $   146,064   $   131,012
                                                                                         ============  ============= 

   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,
                                                                         ------------------------------------------
                                                                              2004          2003          2002
                                                                         -------------  ------------  -------------
Revenues:
                                                                                                      
  Membership fees......................................................  $    355,461   $    330,322  $    308,401
  Associate services...................................................        24,901         25,704        37,418
  Other................................................................         5,575          5,287         4,804
                                                                         -------------  ------------  -------------
                                                                              385,937        361,313       350,623
                                                                         -------------  ------------  -------------
Costs and expenses:
  Membership benefits..................................................       122,280        111,165       103,761
  Commissions..........................................................       118,757        115,386       119,371
  Associate services and direct marketing..............................        29,325         28,929        32,566
  General and administrative...........................................        43,742         36,711        33,256
  Other, net...........................................................         9,578          8,546         6,685
                                                                         -------------  ------------  -------------
                                                                              323,682        300,737       295,639
                                                                         -------------  ------------  -------------
Income before income taxes.............................................        62,255         60,576        54,984
Provision for income taxes.............................................        21,478         20,669        18,970
                                                                         -------------  ------------  -------------
Net income.............................................................  $     40,777   $     39,907  $     36,014
                                                                         =============  ============  =============

Basic earnings per common share........................................  $      2.50    $      2.28   $      1.83
                                                                         =============  ============  ============= 

Diluted earnings per common share......................................  $      2.48    $      2.27   $      1.82
                                                                         =============  ============  ============= 



   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,
                                                                                     ----------------------------------
                                                                                       2004         2003        2002
                                                                                     ---------   ---------    ---------
Cash flows from operating activities:
                                                                                                          
Net income.......................................................................    $ 40,777    $ 39,907     $ 36,014
Adjustments to reconcile net income to net cash provided by operating activities:
  Provision for deferred income taxes............................................       2,197         288          102
  Depreciation and amortization..................................................       7,709       7,082        5,272
  Tax benefit on exercise of stock options.......................................         775         234        1,104
  Compensation expense relating to contribution of stock to ESOP.................         231         220          207
                                                                                     ---------   ---------    ---------
    Cash provided by operating activities before changes in assets and liabilities     51,689      47,731       42,699

  (Increase) decrease in accrued Membership income...............................        (386)        672          225
  (Increase) decrease in inventories.............................................        (766)        355         (290)
  Increase in refundable income taxes............................................        (910)        (56)        (275)
  (Increase) decrease in deferred member and associate service costs.............      (1,410)         40          505
  (Increase) decrease in other assets............................................      (2,431)     (2,407)       3,234
  Increase in accrued Membership benefits........................................       1,051         679          946
  (Decrease) increase in deferred revenue and fees...............................        (147)        215        1,827
  Increase in other non-current liabilities......................................       1,349       1,445            -
  Decrease in income taxes payable...............................................           -           -       (1,087)
  (Decrease) increase in accounts payable and accrued expenses and other.........        (776)      3,019        4,289
                                                                                     ---------   ---------    ---------
    Net cash provided by operating activities....................................      47,263      51,693       52,073
                                                                                     ---------   ---------    ---------
                                                                                       
Cash flows from investing activities:
  Additions to property and equipment............................................     (10,879)    (27,012)     (15,184)
  Purchases of investments - available for sale..................................     (24,135)    (15,695)     (12,280)
  Maturities and sales of investments - available for sale.......................      23,692       5,806       16,390
                                                                                     ---------   ---------    ---------
    Net cash used in investing activities........................................     (11,322)    (36,901)     (11,074)
                                                                                     ---------   ---------    ---------
Cash flows from financing activities:
  Proceeds from issuance of debt.................................................      19,000      42,700       12,300
  Repayments of debt.............................................................     (17,335)     (9,912)      (1,667)
  Proceeds from exercise of stock options........................................       5,176       2,014        5,088
  Purchases of treasury stock....................................................     (37,461)    (48,292)     (50,152)
  Proceeds from other financing..................................................           -       1,000            -
  Decrease in capital lease obligations..........................................        (808)     (1,701)           -
                                                                                     ---------   ---------    ---------
    Net cash used in financing activities........................................     (31,428)    (14,191)     (34,431)
                                                                                     ---------   ---------    ---------
Net increase in cash and cash equivalents........................................       4,513         601        6,568
Cash and cash equivalents at beginning of year...................................      21,459      20,858       14,290
                                                                                     ---------   ---------    ---------
Cash and cash equivalents at end of year.........................................    $ 25,972    $ 21,459     $ 20,858
                                                                                     =========   =========    =========
Supplemental disclosure of cash flow information:
  Cash paid for interest, net of amount capitalized..............................    $  1,752    $     78     $      -
                                                                                     =========   =========    ========= 
  Cash paid for income taxes.....................................................    $ 19,429    $ 20,200     $ 19,116
                                                                                     =========   =========    ========= 
  Non-cash activities - cash dividends declared but not paid.....................    $  7,796    $      -     $      -
                                                                                     =========   =========    ========= 
  Non-cash activities - capital lease obligations incurred.......................    $  1,058    $  2,481     $    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)


                                                                  
                                                 Common Stock     Capital in                        Treasury Stock
                                               ----------------    Excess of  Retained   Accum.   ------------------    
                                               Shares    Amount    Par Value  Earnings   OCI(1)    Shares    Amount      Total
                                               -------   -------   ---------- --------   ------   -------   --------    -------
                                                                                                 
January 1, 2002............................     24,806   $   248   $ 66,223    $ 54,240  $  186     3,989   $(78,673)   $42,224
  Contributed to Company's ESOP plan.......         10         -        207           -       -         -          -        207
  Exercise of stock options and other......        314         3      5,085           -       -         -          -      5,088
  Income tax benefit related to exercise
    of stock options.......................          -         -      1,104           -       -         -          -      1,104
  Subscriptions receivable retired (net
    of additional advances of $489 and
    interest recognized of $85)............          -         -        383           -       -         -          -        383
  Net income...............................          -         -          -      36,014       -         -          -     36,014
  Other comprehensive income...............          -         -          -           -     104         -          -        104
  Treasury shares purchased................          -         -          -           -       -     2,305    (50,152)   (50,152)
  Treasury shares retired..................     (1,442)      (14)   (29,783)          -       -    (1,442)    29,797          -
                                               -------   -------   ---------- ---------- ------   -------   --------    -------
December 31, 2002..........................     23,688       237     43,219      90,254     290     4,852    (99,028)    34,972
  Contributed to Company's ESOP plan.......          8         -        220           -       -         -          -        220
  Exercise of stock options and other......        105         -      2,014           -       -         -          -      2,014
  Income tax benefit related to exercise
    of stock options.......................          -         -        234           -       -         -          -        234
  Net income...............................          -         -          -      39,907       -         -          -     39,907
  Other comprehensive income...............          -         -          -           -     519         -          -        519
  Treasury shares purchased................          -         -          -           -       -     2,127    (48,292)   (48,292)
  Treasury shares retired..................     (2,127)      (20)   (45,687)     (2,585)      -    (2,127)    48,292          -
                                               -------   -------   ---------- ----------  ------   -------   --------    -------
December 31, 2003..........................     21,674       217          -     127,576     809     4,852    (99,028)    29,574
  Contributed to Company's ESOP plan.......         10         -          -         231       -         -          -        231
  Exercise of stock options and other......        234         2          -       5,174       -         -          -      5,176
  Income tax benefit related to exercise
    of stock options.......................          -         -          -         775       -         -          -        775
  Net income...............................          -         -          -      40,777       -         -          -     40,777
  Other comprehensive income...............          -         -          -           -     171         -          -        171
  Treasury shares purchased................          -         -          -           -       -     1,453    (37,461)   (37,461)
  Treasury shares retired..................     (1,453)      (14)         -     (37,447)      -    (1,453)    37,461          -
  Common stock dividends incurred..........          -         -          -      (7,796)      -         -          -     (7,796)
                                               -------   -------   ---------- ---------- ------   -------   --------    -------
December 31, 2004..........................     20,465   $   205   $      -    $129,290  $  980     4,852   $ 99,028    $31,447
                                               ========  ========  ========== ========== ======   ========  =========   ========







                         (1) Other Comprehensive Income                             Year Ended December 31,
                                                                                  -----------------------------
                                                                                   2004       2003      2002
                                                                                  -------- ---------  ---------
                                                                                                   
Net income....................................................................    $ 40,777 $  39,907  $  36,014
                                                                                  -------- ---------  ---------

Other comprehensive income, net of tax:
  Foreign currency translation adjustment.....................................         153       137         85
                                                                                  -------- ---------  ---------
  Unrealized gains on investments:
    Unrealized holding gains arising during period,...........................         116       469         75
      Less: reclassification adjustment for gains included in net income......         (98)      (87)       (56)
                                                                                  -------- ---------  ---------
                                                                                        18       382         19
                                                                                  -------- ---------  ---------
Other comprehensive income, net of income taxes of $12, $206 and $11 in 2004,
  2003 and 2002, respectively.................................................         171       519        104
                                                                                  -------- ---------  ---------
Comprehensive income..........................................................    $ 40,948 $  40,426  $  36,118
                                                                                  ======== ========== ==========

   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 us allow members to access legal
services through a network of independent law firms ("provider law firms") under
contract  with us.  During the third  quarter  of 2003,  we began  offering  our
Identity Theft Shield to new and existing members at $9.95 per month if added to
a legal  service  Membership  or it may be purchased  separately  for $12.95 per
month.  The nationwide  provider of the Identity  Theft Shield  benefits and the
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 us to benefit
providers  do not vary based on the type and amount of benefits  utilized by the
member,  this capitated  arrangement  provides  significant  advantages to us in
managing claims risk. At December 31, 2004, Memberships subject to the capitated
benefit  provider  arrangement   comprised   approximately  99%  of  our  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, 2004, we had 1,451,700  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 our accounts and our wholly
owned  subsidiaries,  as well as  those of PPL  Agency,  Inc.  (See  Note 10 for
additional  information  regarding PPL Agency,  Inc.). Our primary  subsidiaries
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.

     Foreign Currency Translation
     The  financial  results of our  Canadian  operations  are measured in 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
     Our  financial  instruments  consist  primarily  of cash,  certificates  of
deposit,  short-term  investments,  debt and equity securities,  Membership fees
receivable,  Membership benefits payable, notes payable and accounts payable and
accrued  expenses.  Fair  value  estimates  have been  determined  by us,  using
available  market  information  and  appropriate  valuation  methodologies.  The
carrying value of cash,  certificates of deposit,  Membership  fees  receivable,
Membership  benefits  payable and  accounts  payable and  accrued  expenses  are
considered to be representative of their respective fair value, due to the short
term  nature  of these  instruments.  The  carrying  value of notes  payable  is
considered  to be  representative  of their  respective  fair value,  due to the
variable  interest  rate  feature  of such  notes.  The fair  value  disclosures
relating to debt and equity securities are presented in Note 2.

     Cash and Cash Equivalents
     We consider all highly  liquid  unpledged  investments  with  maturities of
three months or less at time of acquisition to be cash equivalents. We place our
temporary cash investments with high credit quality financial  institutions.  At
times  such  investments  may be in  excess  of the  Federal  Deposit  Insurance
Corporation  (FDIC)  insurance limit. We have not experienced any losses in such
accounts and believe we are not exposed to any  significant  credit risk on cash
and cash equivalents.

     Investments
     We classify our  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.   We   classify
available-for-sale  securities  as current  if we expect to sell the  securities
within  one  year,  or if we  intend  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
our investments in certain state and political  subdivision  debt instruments is
not generally taxable for federal income tax purposes.

     Membership fees receivable
     Our  Membership  fees  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 fees 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 our 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
     Our 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  73% are paid in  advance  and,  therefore,  are
deferred and recognized over the following month.

     We also charge 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").  We compute the
expected Membership life using more than 20 years of actuarial data. At December
31, 2004, we 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.

     We derive revenues from services provided to our marketing sales force from
a one-time  non-refundable  enrollment fee of $65 from each new sales  associate
for  which we  provide  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, 2004
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.

     We also encourage  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 zero to $184,  depending on
special promotions we implement 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  revenue also  includes
revenue recognized on the sale of marketing supplies and promotional material to
associates and includes fees related to our eService program for associates. The
eService program provides subscribers Internet based back office support such as
reports,  on-line  documents,  tools,  a personal  e-mail  account and  multiple
personalized web sites with "flash" movie presentations.

     Member and Associate Costs
     Deferred costs  represent the incremental  direct and origination  costs we
incur 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).  Shipping and
handling  costs of $2.4 million in 2004 and $2.3  million in 2003 are  primarily
included in Associate services and direct marketing costs.

     Membership Benefits Liability
     The  Membership  benefits  liability  represents per capita amounts due the
provider  of  Identity   Theft  Shield   benefits  and  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%. We calculate 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 us and  subsequently  paid.  Processing  costs related to
these  claims are accrued  based on an  estimate  of  expenses  to process  such
claims.

     Income Taxes
     We account 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
our financial statements and tax returns. In estimating future tax consequences,
we generally consider 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.
We record  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, we establish a valuation  allowance to reduce such assets to the  estimated
realizable amount.

     Commissions to Associates
     Prior to March 1, 2002, we 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.  Effective  March 1, 2002, and in
order to offer additional  incentives for increased  Membership retention rates,
we 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. Beginning
in August 2003, we allowed the associate to choose between the level  commission
structure and up to three year commission advance or the differential commission
structure with a one year commission advance.

     We expense advance  commissions ratably over the first month of the related
Membership.  As a result  of this  accounting  policy,  our  advance  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.  Associates must qualify for advance  commissions by writing
at least three Memberships.

     Long-Lived Assets
     We review  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
     We have a stock-based  employee  compensation plan, which is described more
fully in Note 13. We account 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 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 we had applied
the fair value recognition  provisions of FASB Statement No. 123, Accounting for
Stock-Based Compensation, to stock-based employee compensation.









                                                                                 2004        2003         2002
                                                                               ---------   ---------    ---------
                                                                                                    
Net income, as reported...................................................     $ 40,777    $ 39,907     $ 36,014
Deduct:  Total stock-based employee compensation expense determined under
fair value based method for all awards, net of related tax effects........         (441)       (860)      (3,201)
                                                                               ---------   ---------    ---------
Pro forma net income......................................................     $ 40,336    $ 39,047     $ 32,813
                                                                               ==========  =========    =========

<

Earnings per share:
    Basic - as reported...................................................     $   2.50    $   2.28     $   1.83
    Basic - pro forma.....................................................     $   2.47    $   2.23     $   1.67
    Diluted - as reported.................................................     $   2.48    $   2.27     $   1.82
    Diluted - pro forma...................................................     $   2.45    $   2.22     $   1.66



     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 2.16%  for 2004,  2.38% for 2003 and 3.06% for 2002;  expected
life of 3-5 years;  and expected  volatility  for the years ending  December 31,
2004,  2003 and 2002 were  52.8%,  55.9% and 59.3%,  respectively.  Using  these
assumptions,  the  weighted  average  fair  values at date of grant for  options
granted during 2004, 2003 and 2002 were $8.74, $8.63 and $9.86, respectively.

     The exercise of certain stock options which have been granted gives rise to
compensation which is includable in the taxable income of the option grantee and
deductible  by us for federal and state income tax purposes.  Such  compensation
results from  increases in the fair market value of our 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.

     Incentive awards payable
     Associates can earn the right to attend an annual incentive trip by meeting
monthly qualification  requirements for the entire calendar year and maintaining
certain  personal  retention rates for the Memberships  sold during the calendar
year.  Associates can also earn the right to receive  additional monthly bonuses
by meeting the monthly qualification  requirements for twelve consecutive months
and maintaining certain personal retention rates for the Memberships sold during
that twelve month period.  The incentive awards payable at any date is estimated
based on an  evaluation  of the  existing  associates  that have met the monthly
qualifications,  any  changes to the  monthly  qualification  requirements,  the
estimated cost for each incentive  earned and the number of associates that have
historically  met  the  personal  retention  rates.  Changes  to  any  of  these
assumptions would directly affect the amount accrued but we do not expect any of
the significant  trends  impacting this account to change  significantly  in the
near term.

     Legal Contingencies
     We account for legal  contingencies  in accordance  with SFAS 5, Accounting
for Contingencies, which requires that 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. We evaluate,  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 our 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 we do 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 our  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 and geographic
areas are presented in Note 16.

     New Accounting Standards Issued
     In December 2004, the FASB issued SFAS 123R which requires the  measurement
of all employee share-based payments to employees,  including grants of employee
stock options, using a fair-value-based method and the recording of such expense
in our consolidated statements of income. The accounting provisions of SFAS 123R
are  effective  for  reporting  periods  beginning  after June 15, 2005.  We are
required to adopt SFAS 123R in the third  quarter of fiscal 2005.  The pro forma
disclosures previously permitted under SFAS 123 no longer will be an alternative
to financial statement recognition. See "Stock-Based Compensation" above for the
pro forma net income and net income per share  amounts,  for fiscal 2002 through
fiscal 2004, as if we had used a fair-value-based  method similar to the methods
required  under SFAS 123R to measure  compensation  expense for  employee  stock
incentive  awards.  Although we have not yet determined  whether the adoption of
SFAS 123R will  result in  amounts  that are  similar to the  current  pro forma
disclosures  under SFAS 123, we are evaluating the requirements  under SFAS 123R
and do not expect  the  adoption  to have a  significant  adverse  impact on our
consolidated statements of income and net income per share.


Note 2 - Investments

     A summary  of the  amortized  cost,  unrealized  gains and  losses and fair
values of our investments at December 31, 2004 and 2003 follows:



                                                                         December 31, 2004
                                                        --------------------------------------------------
                                                        Amortized       Gross Unrealized           Fair
Available-for-Sale                                         Cost         Gains       Losses        Value
------------------                                      -----------    --------     --------    ----------
                                                                                          
U.S. Government obligations........................      $   9,784     $   146      $   (39)    $   9,891
Corporate obligations..............................          2,982          28           (9)        3,001
Equity securities..................................            417         663            -         1,080
Obligations of state and political subdivisions....         13,898         271          (38)       14,131
Certificates of deposit............................          2,537           -            -         2,537
                                                        -----------    --------     --------    ----------
Total..............................................      $  29,618     $ 1,108      $   (86)    $  30,640
                                                        ===========    ========     =========   ==========






                                                                         December 31, 2003
                                                        --------------------------------------------------
                                                        Amortized       Gross Unrealized           Fair
Available-for-Sale                                         Cost         Gains       Losses        Value
------------------                                      -----------    --------     --------    ----------
                                                                                          
U.S. Government obligations........................      $   7,086     $   155      $   (45)    $   7,196
Corporate obligations..............................          4,388         337          (14)        4,711
Equity securities..................................            417         322            -           739
Obligations of state and political subdivisions....         14,968         203          (25)       15,146
Certificates of deposit............................          2,375           -            -         2,375
                                                        -----------    --------     --------    ----------
Total..............................................      $  29,234     $ 1,017      $   (84)    $  30,167
                                                        ===========    ========     =========   ==========



     In  determining  whether  declines in the fair value of  available-for-sale
securities below their cost are other than temporary,  management  considers the
financial  condition of the issuer,  causes for the decline in fair value (i.e.,
interest rate  fluctuations  or declines in  creditworthiness)  and severity and
duration of the decline, among other things. There were no individual securities
with unrealized losses in four consecutive  quarters,  accordingly no individual
security  unrealized  losses have been  recognized  as other than  temporary  at
December 31, 2004.


     The contractual  maturities of our  available-for-sale  investments in debt
securities  and  certificates  of deposit at December 31, 2004 by maturity  date
follows:



                                                                        Amortized
                                                                           Cost       Fair value
                                                                        -----------   -----------
                                                                                       
                 One year or less...................................     $   3,011     $   3,013
                 Two years through five years.......................         4,061         4,082
                 Six years through ten years........................        14,932        15,084
                 More than ten years................................         7,197         7,381
                                                                        -----------   -----------
                 Total..............................................     $  29,201     $  29,560
                                                                        ===========   ===========

 
     Our  investment  securities are included in the  accompanying  consolidated
balance sheets at December 31, 2004 and 2003 as follows:



                                                                              December 31, 
                                                                        -------------------------
                                                                           2004          2003
                                                                        -----------   -----------
                                                                                       
                 Available-for-sale investments (current)...........     $     804     $  10,203
                 Available-for-sale investments (non-current).......        25,455        15,711
                 Investments pledged................................         4,381         4,253
                                                                        -----------   -----------
                 Total..............................................     $  30,640     $  30,167
                                                                        ===========   ===========



     We  are  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,
                                                                        -------------------------
                                                                           2004          2003
                                                                        -----------   -----------
                                                                                       
                 Certificates of deposit............................     $   2,537     $   2,375
                 Obligation of state and political subdivisions.....           131           136
                 U. S. Government obligations.......................         1,713         1,742
                                                                        -----------   -----------
                 Total..............................................     $   4,381     $   4,253
                                                                        ===========   ============



     Proceeds  from sales of  investments  during 2004,  2003 and 2002 were $4.6
million,  $4.7  million and $7.6  million,  respectively,  and resulted in gross
realized gains of $224,000,  $154,000 and $95,000 and gross  realized  losses of
$63,000, $19,000 and $9,000, respectively.


Note 3 - Property and Equipment



         Property and equipment is comprised of the following:

                                                                                  December 31,
                                                                Estimated    ----------------------
                                                               Useful Life     2004         2003
                                                               ------------  ----------  ----------
                                                                                      
                 Equipment, furniture and fixtures..........     3-10 years  $  31,727   $  26,109
                 Computer software..........................        3 years      9,342       8,370
                 Building and improvements..................    20-40 years     36,540      31,107
                 Automotive and aviation equipment..........        3 years      3,104         188
                 Construction in progress...................            N/A          -       3,002
                 Land.......................................            N/A        170         170
                                                                             ----------  ----------
                                                                                80,883      68,946
                 Accumulated depreciation.................................     (29,651)    (21,942)
                                                                             ----------  ----------
                 Property and equipment, net..............................   $  51,232   $  47,004
                                                                             ==========  ==========



     Construction  in  progress  includes  all  construction  costs,   including
capitalized  interest on funds borrowed,  associated with the portion of our new
corporate  headquarters  not placed in service prior to December 31, 2003. As of
December 31, 2004 and 2003, capitalized interest of $706,000 was included in the
cost of the building.


Note 4 - Accounts Payable and Accrued Expenses



         Accounts payable and accrued expenses are comprised of the following:

                                                                              December 31,
                                                                        ------------------------
                                                                           2004          2003
                                                                        ----------    ----------
                                                                                      
                 Accounts payable...................................    $   4,873     $   4,875
                 Marketing bonuses payable..........................        1,792         1,049
                 Incentive awards payable...........................        2,616         4,453
                 Litigation accrual.................................        3,013         3,263
                 Other..............................................        3,157         2,740
                                                                        ----------    ----------
                 Total..............................................    $  15,451     $  16,380
                                                                        ==========    ===========



     Our litigation  accrual increased from $2.0 million at December 31, 2001 to
$3.3 million at December 31, 2002 due to increased  litigation  during 2002 (See
Note 12) and only insignificant changes occurred during 2003 and 2004.


Note 5 - Notes Payable

     On June 11, 2002,  we 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 our new corporate office complex. The
treasury  stock line of credit  provided  for  funding  of up to $10  million to
finance  treasury stock  purchases and has been repaid.  The real estate line of
$20 million was fully funded in December  2003 with interest at the 30 day LIBOR
rate plus 2.25%,  adjusted  monthly,  and repayments began in December 2003 with
monthly  principal  payments of $191,000 plus interest with a balloon payment on
September 30, 2008. The loan is primarily  collateralized by a first mortgage on
the 87 acre construction site, the 170,000 square foot home office complex,  our
rights to  receive  Membership  fees on a portion  of our  Memberships  and by a
security interest covering all equipment. The interest rate at December 31, 2004
was 4.65%.  The real estate loan  agreement  provides  for  financial  covenants
substantially  the same as those  described below for the amended stock purchase
loan.

     During  the 2003 third  quarter,  we  arranged  $25  million in  additional
financing for treasury stock purchases from a group of banks, consisting of Bank
of Oklahoma,  Comerica Bank and First United Bank and Trust. The $25 million was
fully funded on November 30, 2003 with scheduled monthly  principal  payments of
$1.4 million  beginning  December 31, 2003 through May 31, 2005 with interest at
the 30 day LIBOR rate plus three percent,  adjusted monthly. During August 2004,
we amended the terms of the loan agreement with these banks to increase the loan
amount to $31.5 million and allow for additional  treasury stock purchases of up
to $31.5 million.  We fully funded the loan on September 30, 2004 which resulted
in a net increase in credit of $19.0  million above the  outstanding  balance of
our existing treasury stock term loan of $12.5 million at the time.  Proceeds of
this loan together with existing cash resources  were used to purchase  treasury
shares.  The  amortization  of the amended loan has been modified to provide for
repayment over 24 months in equal monthly principal  payments  beginning October
31, 2004 and ending  September  30, 2006 with  interest at the 30 day LIBOR rate
plus 3%. The interest rate at December 31, 2004 was 5.31%. The monthly principal
payment will be $1.3 million  compared to the monthly  payment on the prior loan
of $1.4 million.  The amended loan  agreement  continues all of the covenants of
the prior  agreement  with  certain  modifications  to permit  additional  stock
purchases and/or dividends while the loan is outstanding  generally in an amount
no greater than 50% of net income and modifies the debt service  coverage  ratio
definition slightly.

     The loan is primarily  collateralized  by our rights to receive  Membership
fees  on a  portion  of  our  Memberships  and a  pledge  of  the  stock  of our
subsidiaries.  The definitive  agreement contains covenants  prohibiting us from
pledging  assets,  incurring  additional  indebtedness  and selling  assets.  In
addition to customary  events of default,  an additional event of default occurs
if Harland C. Stonecipher  ceases to be our chairman and Chief Executive Officer
for 90 days.  Pre-payment of the loan is permitted.  The loan agreements contain
the following  financial  covenants:  (a) our quarterly  Debt Coverage Ratio (as
defined  in  the  loan  agreements)  shall  not  be  less  than  125%;  (b)  our
cancellation rate on contracts less than or equal to twelve months old shall not
exceed 45% on a trailing 12 month basis, calculated on a quarterly basis; (c) we
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 monthly  basis;  (d) we shall  not pay  dividends  or  purchase
treasury  shares,  which during any fiscal quarter,  on a combined basis,  would
exceed fifty percent (50%) of our cumulative net income for all previous  fiscal
quarters  beginning  July 1, 2004 less any dividends or stock  purchases in such
previous  fiscal  quarters,   with  provisions  for  carry  forwards  of  unused
availability;  and,  (e) our tangible net worth shall not fall below $10 million
for the period of time dating from  September  30, 2004,  $15 million  beginning
March  31,  2005  and  $25  million  beginning  December  31,  2005.  We were in
compliance with the above covenants at December 31, 2004.

     A schedule of  outstanding  balances as of December 31, 2004 and 2003 is as
follows:



                                                                                  December 31,
                                                                        --------------------------------
                                                                             2004              2003
                                                                        --------------    --------------

                                                                                              
                          Real estate line of credit.................   $      17,524     $      19,810
                          Stock purchase line of credit..............          27,562            23,611
                                                                        --------------    --------------
                          Total notes payable........................          45,086            43,421
                          Less: Current portion of notes payable.....         (18,036)          (18,953)
                                                                        --------------    --------------
                          Long term portion..........................   $      27,050     $      24,468
                                                                        ==============    ===============

                                                                        

     A schedule of future maturities as of December 31, 2004 is as follows:

                Repayment Schedule commencing January 2005:
                Year 1.....................................    $     18,036
                Year 2.....................................          14,098
                Year 3.....................................           2,286
                Year 4.....................................          10,666
                                                             ----------------
                Total notes payable........................    $     45,086
                                                             ================


Note 6 - Income Taxes

     The provision for income taxes consists of the following:



                                                                    Year Ended December 31,
                                                                ----------------------------------
                                                                 2004         2003        2002
                                                                ---------   ---------    ---------
                                                                                     
                 Current....................................    $ 19,281    $ 20,381     $ 18,868
                 Deferred...................................       2,197         288          102
                                                                ---------   ---------    ---------
                   Total provision for income taxes.........    $ 21,478    $ 20,669     $ 18,970
                                                                =========   =========    =========








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



                                                                    Year Ended December 31,
                                                                ----------------------------------
                                                                 2004         2003        2002
                                                                ---------   ---------    ---------
                                                                                    
                 Statutory Federal income tax rate..........      35.0%       35.0%        35.0%
                 Tax exempt interest........................       (.2)        (.1)         (.1)
                 Wage tax credits...........................       (.5)        (.5)         (.4)
                 Other......................................        .2         (.3)         -
                                                                ---------   ---------    ---------
                 Effective income tax rate..................      34.5%       34.1%        34.5%
                                                                =========   =========    =========




     Deferred  tax  liabilities  and assets at  December  31,  2004 and 2003 are
comprised of the following:



                                                                              December 31,
                                                                        ----------------------
                                                                          2004        2003
                                                                        ----------  ----------
                                                                         
                 Deferred tax liabilities relating to:
                                                                                    
                   Unrealized investment gains, net.................    $     399   $     326
                   Deferred member and associate service costs......        7,020       6,337
                   Depreciation.....................................        4,854       2,695
                                                                        ----------  ----------
                      Total deferred tax liabilities................       12,273       9,358
                                                                        ----------  ----------
                 Deferred tax assets relating to:
                   Expenses not yet deducted for tax purposes.......        2,265       1,798
                   Deferred revenue and fees........................       10,509      10,350
                   Other............................................           80           -
                                                                        ----------  ----------
                      Total deferred tax assets.....................       12,854      12,148
                                                                        ----------  ----------
                   Net deferred tax asset...........................    $     581   $   2,790
                                                                        ==========  ==========




     Our deferred tax assets and  liabilities  are included in the  accompanying
consolidated balance sheets at December 31, 2004 and 2003 as follows.



                                                                              December 31,
                                                                        ----------------------
                                                                           2004        2003
                                                                        ----------  ----------
                                                                                    
                 Deferred income taxes (current asset)..............    $   4,829   $   4,894
                 Deferred income taxes (non-current liability)......       (4,248)     (2,104)
                                                                        ----------  ----------
                 Net deferred tax asset.............................    $     581   $   2,790
                                                                        ==========  ==========



     A  significant  portion of the  deferred  tax assets  recognized  relate to
deferred  revenue and fees.  A valuation  allowance  was not  recorded  since we
believe that there was  sufficient  positive  evidence to support our conclusion
not to record a valuation  allowance.  Management  believes that we will realize
the tax  benefit  of these  deferred  tax  assets in the  future  because of our
history of  pre-tax  income.  However,  there can be no  assurance  that we will
generate taxable income or that all of our deferred tax assets will be utilized.


Note 7 - Stockholders' Equity

     We  announced  on  April  6,  1999,  a  treasury  stock  purchase   program
authorizing  management to acquire up to 500,000 shares of our common stock. The
Board of Directors  has  increased  such  authorization  from 500,000  shares to
10,000,000 shares during subsequent board meetings. At December 31, 2004, we had
purchased  9.1 million  treasury  shares under these  authorizations  for $210.9
million, an average price of $23.23 per share. At December 31, 2004 and 2003, we
had 15.6 million and 16.8 million common shares outstanding,  respectively,  net
of treasury shares.

     We  have  lines  of  credit  (see  Note 5) that  prohibit  payment  of cash
dividends  on our common  stock in excess of 50% of net income.  Any decision by
our Board of  Directors  to pay cash  dividends  in the future will depend upon,
among other factors, our earnings, financial condition, capital requirements and
approval  from our lender for any  dividends in excess of 50% of net income.  In
addition,  our ability to pay  dividends  is dependent in part on our ability to
derive  dividends  from our  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.  PPLSIF is  similarly  restricted  pursuant  to the  insurance  laws of
Florida.  At December 31, 2004,  PPLSIF did not have funds available for payment
of   substantial   dividends   without  the  prior  approval  of  the  insurance
commissioner. While PPLCI had surplus funds available for payment of an ordinary
dividend during 2004, no dividends were declared or paid during 2004 or 2003. At
December 31, 2004 PPLCI had approximately  $4.1 million available for payment of
an ordinary  dividend.  At December 31, 2004 the amount of restricted net assets
of consolidated subsidiaries was $21.3 million.


Note 8 - Other Expenses, net

         The components of Other expenses, net are as follows:



                                                                    Year Ended December 31,
                                                                ---------------------------------
                                                                 2004         2003        2002
                                                                ---------   ---------    --------
                                                                                   
                 Depreciation...............................    $  7,709    $  7,082     $ 5,273
                 Premium taxes..............................       1,698       2,703       2,175
                 Interest expense...........................       1,990         123           -
                 Litigation accrual expense.................        (121)          -       1,290
                 Interest income............................      (1,698)     (1,362)     (2,053)
                                                                ---------   ---------    --------
                   Total Other expenses, net................    $  9,578    $  8,546     $ 6,685
                                                                =========   ==========   =========



     Interest  expense  is net of  capitalized  interest  of  $0,  $586,000  and
$120,000 for the years ended December 31, 2004, 2003 and 2002, respectively.

Note 9 - Comprehensive Income

     Comprehensive  income is  comprised  of two  subsets - net income and other
comprehensive income.  Included in other comprehensive income for us 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:



                                                                                 2004        2003
                                                                               --------    --------
                                                                                         
Foreign currency translation adjustments..................................     $   356     $   203
Unrealized gains on investments, net of income taxes of $399 and $326.....         624         606
                                                                               --------    --------
  Accumulated other comprehensive income..................................     $   980     $   809
                                                                               ========    =========



Note 10 - Related Party Transactions

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

     Agency's  financial  position and results of operations are included in our
financial  statements on a combined  basis.  Agency earned  commissions,  net of
amounts paid directly to its agents by the  underwriter,  during 2004,  2003 and
2002 of $220,000,  $119,000  and  $138,000,  respectively,  through its sales of
insurance  products  of an  unaffiliated  company.  Agency  had  net  income  of
$127,000,  $20,000 and $33,000 for the years ended  December 31, 2004,  2003 and
2002,  respectively,  after  incurring  commissions  earned by the  Chairman  of
$55,000, $57,000 and $58,000,  respectively,  and annual management fees paid to
us of $36,000 for 2004, 2003 and 2002.

     Mr.  Stonecipher  and his wife,  Shirley A.  Stonecipher,  own  Stonecipher
Aviation LLC ("SA") and Mr. and Mrs. Stonecipher together with Wilburn L. Smith,
our  National  Marketing  Director and  formerly  our  President  and one of our
directors , own S & S Aviation LLC  ("S&SA").  We had 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  2004,  2003 and  2002,  we paid  $329,000,
$307,000  and  $397,000,  respectively,  to SA and paid  $561,000,  $592,000 and
$436,000 to S&SA during 2004, 2003 and 2002, respectively,  as reimbursement for
such transportation expenses.

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

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

     During 2003, we  terminated a marketing  services  agreement  with a senior
marketing  associate,  and commenced an action in the District Court of Pontotoc
County, Oklahoma alleging breach of contract and seeking to collect $1.4 million
in outstanding  notes receivable  arising from loans made by us at various times
between 1998 and 2001. Due to  uncertainties  about the full  recoverability  of
these  notes,  we recorded a reserve and bad debt expense of $515,000 in 2003 to
write down the notes to our estimate of their  recoverable  value. Each quarter,
we evaluate the  recoverability of these notes receivable and adjust the reserve
accordingly.  During  2004 we  increased  the  reserve by $19,000 to $534,000 at
December 31, 2004.


Note 11 - Leases

     At December 31, 2004, we were committed under  noncancelable  operating and
capital  leases,  principally  for buildings  and  equipment.  Aggregate  rental
expense  under all operating  leases was $79,000,  $93,000 and $174,000 in 2004,
2003 and 2002, respectively.

     Future  commitments   commencing  January  2005  related  to  noncancelable
operating leases are as follows:

Year Ended December 31,
2005...............................................     $      86
2006...............................................            86
2007...............................................            85
2008...............................................            62
2009...............................................             5
Total operating lease commitments..................    ------------
                                                        $     324
                                                       ============

     Future minimum lease payments commencing in January 2005 related to capital
leases are as follows:

Year Ended December 31,
2005...............................................     $     420
2006...............................................           420
2007...............................................           420
2008...............................................            81
2009...............................................            81
Thereafter.........................................         1,648
                                                       -----------
Total minimum lease payments.......................     $   3,070
Less: Imputed interest.............................        (1,114)
                                                       -----------
Present value of net minimum lease payments........         1,956
Less: Current portion..............................          (338)
                                                       -----------
Non current portion of capital leases payable......     $   1,618
                                                       ===========

         We entered into two capital leases near the end of 2002 and one early
     in 2003 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, 2004 and December 31, 2003.

                                  December 31,
                                                           2004          2003
                                                       ------------- -----------
Equipment, furniture and fixtures..................      $   1,670    $   2,094
Buildings and improvements.........................            314          314
                                                       ------------- -----------
                                                             1,984        2,408
Less: accumulated amortization.....................            (91)        (519)
                                                       ------------- -----------
Net capital lease assets...........................      $   1,893    $   1,889
                                                       ============= ===========



Note 12 - Commitments and Contingencies

     We and various of our 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 we  issued  false  and  misleading
financial  information,  primarily  related to the method we used to account for
commission  advance  receivables  from sales  associates.  On March 5, 2002, the
Court granted our 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.  In  August  2002 the lead
institutional   plaintiff   withdrew  from  the  case,  leaving  two  individual
plaintiffs as lead  plaintiffs on behalf of the putative  class.  As of December
31,  2003,  the briefing in the appeal had been  completed.  On January 14, 2004
oral argument was held in the appeal and as of February 22, 2005, a decision was
pending.  We are unable to predict when a decision  will be made on this appeal,
and the ultimate outcome of the case is not determinable.

     Beginning  in the  second  quarter  of 2001  multiple  lawsuits  were filed
against us, 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.  During 2004,
there were at one time as many as 30 separate lawsuits  involving  approximately
285  plaintiffs in Alabama.  As of February 22, 2005, as a result of dismissals,
summary  judgments,  or  settlements  for  nominal  amounts,  we were  aware  of
approximately 15 separate  lawsuits  involving  approximately 56 plaintiffs that
have been filed in multiple  counties in Alabama.  As of February 22,  2005,  we
were aware of 16 separate  lawsuits  involving  approximately  426 plaintiffs in
multiple counties in Mississippi.  Certain of the Mississippi lawsuits also name
our former  provider  attorney in  Mississippi  as a defendant.  Proceedings  in
several of the eleven cases which name our provider  attorney as a defendant had
been stayed  pending the  Mississippi  Supreme  Court's  ruling on the  Pre-Paid
defendants'  appeal of a trial court's  granting of a partial  summary  judgment
that the action is not  required to be  submitted  to  arbitration.  On April 1,
2004, the  Mississippi  Supreme Court affirmed the trial court's partial summary
judgment  that  arbitration  should  not be had in one of the  cases on  appeal.
Pre-Paid  asked the  Mississippi  Supreme  Court to rehear  that  issue but that
motion was denied on June 3, 2004 and Pre-Paid  sought  certiorari on that issue
with the  United  States  Supreme  Court on  September  1 and 8, 2004  which was
denied.  At least three complaints have been filed by the law firm  representing
plaintiffs  in  eleven of the cases on  behalf  of  certain  of the  Mississippi
plaintiffs  and others with the Attorney  General of  Mississippi in March 2002,
December  2002 and August 2003.  We have  responded  to the  Attorney  General's
requests for information  with respect to these  complaints,  and as of February
22, 2005,  we were not aware of any further  actions being taken by the Attorney
General.  In Mississippi,  we filed lawsuits in the United States District Court
for the  Southern  and Northern  Districts  of  Mississippi  in which we seek to
compel  arbitration  of  the  various   Mississippi  claims  under  the  Federal
Arbitration Act and the terms of our Membership  agreements.  One of the federal
courts has ordered arbitration of a case involving 8 plaintiffs. These cases are
all in various  stages of  litigation,  including  trial  settings in Alabama in
April 2005, and in  Mississippi in May 2005, and seek varying  amounts of actual
and punitive damages.  The first trial in Mississippi on these cases resulted in
a unanimous jury verdict in our favor, including other named defendants,  on all
claims on October 19, 2004, while the second trial in Mississippi resulted in an
insubstantial  plaintiff's  verdict on February 15, 2005. Although 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 us and certain of our 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 our
Memberships and seeking  unspecified  damages on behalf of a "nationwide" class.
The Pre-Paid  defendants'  preliminary  motions in this case were denied, and on
June 17, 2003,  the Oklahoma  Court of Civil Appeals  reversed the trial court's
denial of the Pre-Paid  defendants' motion to compel  arbitration,  finding that
the trial court  erred when it denied  Pre-Paid's  motion to compel  arbitration
pursuant to the terms of the valid Membership  contracts,  and remanded the case
to the trial court for further  proceedings  consistent  with that  opinion.  On
December 3, 2004,  the District Court ordered the plaintiffs to proceed with the
arbitration. The ultimate outcome of this case is not determinable.

     On June 29, 2001, an action was filed  against us 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 was
originally a putative class action brought by Gina Kotwitz, later adding, George
Kotwitz, Rick Coker, Richard Starke, Jeff Turnipseed and Aaron Bouren, on behalf
of our sales  associates.  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 our
commission  advances,  and seeks injunctive and declaratory relief regarding the
enforcement of certain contract  provisions with sales  associates,  including a
request  stated in June 2003 for the  imposition of a  constructive  trust as to
earned  commissions  applied to the reduction of debit balances and disgorgement
of all earned renewal commissions applied to the reduction of debit balances. On
September  23,  2003 the court  entered  an order  dismissing  the class  action
allegations  upon the  motion of the  plaintiffs.  The order  provides  that the
action  will  proceed  only on an  individual  basis,  and that the  hearing  on
plaintiffs' motion for class certification  previously set for February 2004 was
cancelled.  Oral argument on our motion for summary judgment was held on July 2,
2004 and on December 17, 2004 the District  Court granted our motion for summary
judgment.  On January  27, 2005 three of the five  plaintiffs  filed a motion to
vacate  and/or for new trial.  This motion is set for hearing on April 22, 2005.
The claims of the remaining two plaintiffs  have been dismissed with  prejudice.
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 us and certain executive
officers.  This action is a putative  class action seeking  unspecified  damages
filed on behalf of our sales  associates  and alleges  that the  marketing  plan
offered by us  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  Pre-Paid
defendants filed motions to dismiss the complaint and to strike the class action
allegations  on  September  19,  2002,  and  discovery  in the action was stayed
pending a ruling on the motion to dismiss.  On July 24, 2003,  the Court granted
in part and  denied in part the  Pre-Paid  defendants'  motion to  dismiss.  The
claims  asserted  under the  Securities  Exchange  Act of 1934 and the  Oklahoma
Securities Act were dismissed without prejudice. The motion was denied as to the
remaining  claims.  On September 8, 2004, the Court denied plaintiffs motion for
class  certification.  Plaintiffs  petitioned the Tenth Circuit Court of Appeals
for permission to appeal the class  certification  ruling, and the Tenth Circuit
Court of Appeals  denied the petition  for  interlocutory  appeal.  The ultimate
outcome of this case is not determinable.

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

     While the ultimate outcome of these proceedings is not determinable,  we do
not currently  anticipate that these  contingencies  will result in any material
adverse  effect to our financial  condition or results of  operation,  unless an
unexpected  result occurs in one of the cases. The costs of the defense of these
various matters are reflected as a part of general and administrative expense in
the consolidated  statements of income. We have established an accrued liability
we believes  will be sufficient to cover  estimated  damages in connection  with
various  cases  (exclusive  of  ongoing  defense  costs  which are  expensed  as
incurred),  which at  December  31,  2004 was $3.0  million.  We believe we have
meritorious defenses in all pending cases and will vigorously defend against the
plaintiffs'  claims.  However, it is possible that an adverse outcome in certain
cases or  increased  litigation  costs  could  have an adverse  effect  upon our
financial condition,  operating results or cash flows in particular quarterly or
annual periods.

     Near the end of 2002,  we  committed  to acquire  significant  new computer
hardware to supplement our current  information  technology platform and provide
redundancy for our critical business systems. We paid approximately $1.6 million
in 2003 and received a $1 million  vendor rebate during 2003 as a result of this
commitment.  The  commitment  calls for us to expend  approximately  $800,000 in
2005.


Note 13 - Stock Options, Stock Ownership Plan and Benefit Plan

     We have a stock option plan (the "Plan") under which the Board of Directors
(the "Board") or our Stock Option Committee (the  "Committee") may grant options
to purchase shares of our common stock. The Plan permits the granting of options
to our  directors,  officers  and  employees to purchase our 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 3,000,000  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 our
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, 2012.

     The Plan  previously  provided  for  automatic  grants  of  options  to our
non-employee directors. Under the Plan, each incumbent non-employee director and
any new  non-employee  director  received  options to purchase  10,000 shares of
common  stock on March 1 of each  year.  The  options  granted  each  year  were
immediately  exercisable as to 2,500 shares and vested 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. These automatic grants of options to non-employee  directors were
eliminated  effective  January  1, 2005,  and  therefore  no  further  grants to
non-employee directors will be made.

     Also included below are stock options that have been issued to our Regional
Vice  Presidents  ("RVPs") in order to encourage stock ownership by our RVPs and
to increase the proprietary interest of such persons in our 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 36,751,  106,002 and 244,679
total  options  granted to RVPs in the years ended  December 31, 2004,  2003 and
2002,  respectively.  We  discontinued  the RVP stock option grants  immediately
after the 2003 fourth quarter stock options were awarded in the first quarter of
2004.

     A summary of the status of our total stock  option  activity as of December
31,  2004,  2003 and 2002,  and for the years ended on those dates is  presented
below:



                                                 2004                       2003                      2002
                                         ---------------------------------------------------------------------------
                                                      Weighted                  Weighted                  Weighted
                                                       Average                  Average                   Average
                                                      Exercise                  Exercise                  Exercise
                                          Shares        Price        Shares       Price        Shares       Price
                                         -----------  ---------     ----------- ----------     ---------- ----------
                                                                                               
Outstanding at beginning of year.....     1,275,499   $  24.06      1,498,392   $  26.09      1,336,636   $  25.09
Granted..............................        76,751      23.42        153,502      20.99        499,679      22.54
Exercised............................      (234,170)     22.10       (105,514)     25.42       (329,229)     16.73
Terminated...........................      (255,590)     26.27       (270,881)     35.45         (8,694)     23.31
                                        -----------  ---------     ----------- ----------     ---------- ----------
Outstanding at end of year...........       862,490   $  23.88      1,275,499   $  24.06      1,498,392   $  26.09
                                        -----------  ---------     ----------- ----------     ---------- ----------
Options exercisable at year end......       837,490   $  23.99      1,206,124   $  24.18      1,378,392   $  26.54
                                        ===========  =========     =========== ==========     ========== ==========



     The following table summarizes  information about stock options outstanding
at December 31, 2004:



                                                             Weighted Average
        Range of Exercise                                        Remaining              Weighted Average
           Prices                 Number Outstanding          Contractual Life            Exercise Price
     --------------------         ------------------         -----------------          -----------------
                                                                                  
      $15.65 - $20.16                   284,772                      2.2                    $  17.56
      $20.24 - $24.20                   277,098                      2.4                       23.67
      $24.46 - $32.81                   300,620                      0.8                       30.07
     --------------------         ------------------         -----------------          -----------------
                                        862,490                      1.8                    $  23.88
                                  ==================         =================          =================




     The following table summarizes  information about stock options exercisable
at December 31, 2004:



                                                            Weighted Average
        Range of Exercise                                        Remaining              Weighted Average
           Prices                 Number Outstanding          Contractual Life            Exercise Price
     --------------------         ------------------         -----------------          -----------------
                                                                                  
      $15.65 - $20.16                   264,772                      1.9                    $  17.43
      $20.24 - $24.20                   274,598                      2.4                       23.69
      $24.46 - $32.81                   298,120                      0.8                       30.10
     --------------------         ------------------         -----------------          -----------------
                                        837,490                      1.7                    $  23.99
                                  ==================         =================          =================




     During 1988, we 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. At our option, we may
make matching  contributions to the plan, and recorded expense during 2004, 2003
and 2002 of $232,000,  $220,000 and $207,000,  based on annual  contributions of
Company stock of 10,100 shares, 8,220 shares and 10,000 shares, respectively.

     In November 2002, we adopted a deferred  compensation  plan,  which permits
executive  officers  and key  employees  to defer  receipt of a portion of their
compensation. Deferred amounts accrue hypothetical returns based upon investment
options selected by the participant.  Deferred amounts are paid in cash based on
the  value  of  the  investment  option  and  are  generally  payable  following
termination  of  employment in a lump sum or in  installments  as elected by the
participant, but the plan permits on demand distributions,  which are subject to
a 10% penalty, and provides for financial hardship distributions,  distributions
in the event of total  disability  or death and  distributions  upon a change in
control.  The plan  also  provides  for a death  benefit  of  $500,000  for each
participant. Although the plan is unfunded and represents an unsecured liability
of ours to the participants,  during 2003, we purchased  variable life insurance
policies  owned by us to insure  the lives of the group of  participants  and to
finance our obligations under the plan. As of December 31, 2004 and 2003, we had
an aggregate deferred  compensation  liability of $2.8 million and $1.4 million,
respectively,  which is included in other non-current  liabilities.  At December
31, 2004,  the cash value of the underlying  insurance  policies owned by us was
$2.4 million and included in other assets.


Note 14 - Earnings Per Share

     Basic  earnings per common share are computed by dividing net income 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
     by the  weighted  average  number of shares  of common  stock and  dilutive
     potential common shares  outstanding  during the year. The weighted average
     number  of common  shares  is also  increased  by the  number  of  dilutive
     potential common 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:                                                        2004       2003      2002
                                                                                -------- ---------  ---------
Earnings:
                                                                                                 
Income from continuing operations.............................................  $ 40,777 $  39,907  $  36,014
                                                                                ======== =========  =========
Shares:
Weighted average shares outstanding...........................................    16,313    17,530     19,674
                                                                                ======== =========  =========







Diluted Earnings Per Share:

Earnings:
                                                                                                 
Income from continuing operations after assumed conversions...................  $ 40,777 $  39,907  $  36,014
                                                                                ======== =========  =========
Shares:
Weighted average shares outstanding...........................................    16,313    17,530     19,674
Assumed exercise of options...................................................       145        69         90
                                                                                -------- ---------  ---------
Weighted average number of shares, as adjusted................................    16,458    17,599     19,764
                                                                                ======== =========  =========



     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  218,000 shares,
799,000  shares and  921,000  shares with an average  exercise  price of $32.05,
$27.48 and $29.76,  were excluded from the  calculation of diluted  earnings per
share for the years ended December 31, 2004, 2003 and 2002, 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, 2004 and 2003.



                                    Selected Quarterly Financial Data
                                 (In thousands, except per share amounts)

                        2004                          1st Quarter  2nd Quarter   3rd Quarter  4th Quarter
                        ----                          -----------  ------------  ------------ ------------
                                                                                         
Revenues...........................................    $  94,609    $  95,429     $  96,853    $  99,046
Net income.........................................       10,622       10,006         9,657       10,492

Basic income per common share (1):
  Net Income.......................................    $     .63    $     .61     $     .59    $     .68

Diluted income per common share (1):
  Net Income.......................................    $     .63    $     .60     $     .58    $     .66

                        2003
Revenues...........................................    $  90,320    $  89,642     $  90,024    $  91,327
Net income.........................................       12,034       10,043         9,438        8,392

Basic income per common share (1):
  Net Income.......................................    $     .67    $     .57     $     .54    $     .49

Diluted income per common share (1):
  Net Income.......................................    $     .67    $     .57     $     .54    $     .49



(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

     Substantially  all of our  business is  currently  conducted  in the United
States.  Revenues from our Canadian operations for 2004, 2003 and 2002 were $4.7
million,  $4.5 million and $4.0 million,  respectively.  We have no  significant
long-lived assets located in Canada.


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

Not applicable.


ITEM 9A.      CONTROLS AND PROCEDURES.

Controls and Procedures

     Based on their  evaluation  as of December  31, 2004,  our Chief  Executive
Officer and Chief Financial Officer have concluded that our disclosure  controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended) were sufficiently effective to ensure that the
information  required to be disclosed  by us in this Annual  Report on Form 10-K
was  recorded,  processed,  summarized  and  reported  within  the time  periods
specified in the SEC's rules and instructions for Form 10-K.

Management's Report on Internal Control over Financial Reporting

     Our management is responsible for  establishing  and  maintaining  adequate
internal  control over financial  reporting (as defined in Rule 13a-15(f)  under
the  Securities  Exchange  Act of 1934,  as  amended).  Our  management  is also
required to assess the  effectiveness  of our internal  control  over  financial
reporting as of December 31, 2004.  In making this  assessment,  our  management
uses the criteria set forth by the Committee of Sponsoring  Organizations of the
Treadway Commission ("COSO") in Internal Control-Integrated Framework.

     During the course of 2004 we engaged in a  substantial  effort to  complete
the documentation  and testing of our internal control over financial  reporting
in order to permit us to make an assessment of the effectiveness of our internal
control as of December 31, 2004 as required by Section 404 of the Sarbanes-Oxley
Act and  applicable  rules of the  Securities  and Exchange  Commission  and the
Public  Company  Accounting   Oversight  Board.  In  the  fall  of  2004,  after
discussions  with our  independent  registered  public  accounting  firm,  Grant
Thornton  LLP,  we engaged  consultants  to assist us in the  documentation  and
assessment of our information  technology internal controls with the expectation
that  these   consultants   would  provide  solutions  to  meet  the  applicable
requirements  by the December 31, 2004  compliance  date. In connection with the
audit  procedures  for the audit of our 2004  financial  statements and internal
controls assessment,  we determined, in consultation with Grant Thornton and our
consultants,   that  documentation  and  assessment  of  our  computer  programs
responsible  for processing  financially-significant  transactions  had not been
adequately documented as we had expected. As a result, we are unable to properly
analyze these computer programs as part of the overall financial  reporting risk
assessment and controls  evaluation  process  necessary to support  management's
opinion on internal controls.  One of the reasons for this lack of documentation
is that much of our software has been custom designed for our  circumstances and
lacks  documentation  typically  available for commercial  business  application
software packages. Accordingly, we have concluded that we are unable to complete
the  required  management  assessment  of our internal  control  over  financial
reporting as of December 31, 2004,  and Grant Thornton has issued a "disclaimer"
opinion,  included in Item 8 of this Annual Report on Form 10-K, indicating that
they do not  express  an  opinion as to  management's  assessment  and as to the
effectiveness  of our internal  control over financial  reporting as of December
31, 2004.

     We have been  informed  by Grant  Thornton  that they have  identified  two
material weaknesses as of December 31, 2004. The first is related to the lack of
properly  documented  financially   significant   applications,   which  affects
management's  ability to effectively monitor risks relating to applications that
are  significant to financial  reporting.  In addition,  Grant Thornton has also
informed  management  that a material  weakness  exists as of December 31, 2004,
with regard to the  Company's  controls  over  commission  processes  that could
potentially  result in  misstatements.  The  application  system that  automates
processing of commissions is complex,  inadequately documented, and has not been
maintained  in a manner that  provides  assurance  that all and only  authorized
changes have been properly designed,  tested, and used. A material weakness is a
significant deficiency, or combination of significant deficiencies, that results
in more than a remote  likelihood that a material  misstatement of the financial
statements  will not be  prevented or detected.  In  response,  management  will
aggressively engage in a process to address these weaknesses, which will include
documentation   and   assessment   of   application   controls  in  general  and
documentation  and  implementation  of  additional  controls  on the  commission
expense  application.  Because of the  relative  complexity  of our  information
technology  systems,  we  currently  expect that the  application-based  control
documentation  process could take up to several months.  When completed later in
2005,  management  expects  to  evaluate,   test,  remediate  and  complete  its
assessment of internal control over financial reporting.

     Notwithstanding   the  fact  that  management  is  unable  to  complete  an
assessment  of  internal  controls  and the  disclaimer  of  opinion  that Grant
Thornton has issued,  Grant  Thornton has issued an  unqualified  opinion on our
financial  statements  for 2004,  which is also  included  Item 8 of this Annual
Report on Form 10-K.

     Nothing has come to the attention of  management  which would cause them to
believe  that the  material  weaknesses  described  above have  resulted  in any
material  inaccuracies  or errors in our financial  statements as of December31,
2004 or any prior  period.  However,  it is possible  during the  completion  of
additional  documentation,  evaluation  and testing we will identify one or more
errors, significant deficiencies or material weaknesses.

     There were no changes in our internal  controls  over  financial  reporting
during the quarter ended December 31, 2004 that have materially affected, or are
reasonably  likely to materially  affect our internal  controls  over  financial
reporting.

     Our management,  including our Chief Executive  Officer and Chief Financial
Officer,  does not expect that our  disclosure  controls and  procedures  or our
internal  controls will prevent all error and all fraud.  A control  system,  no
matter how well  conceived  and  operated,  can  provide  only  reasonable,  not
absolute,  assurance that the objectives of the control system are met. Further,
the design of a control  system must  reflect  the fact that there are  resource
constraints,  and the benefits of controls must be considered  relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within the Company have been detected.

     Our Chief  Executive  and  Chief  Financial  Officers  have  completed  the
certifications  required to be filed as an Exhibit to this Report (See  Exhibits
31.1 and 31.2) relating to the design of our disclosure  controls and procedures
and the design of our internal control over financial reporting.  These officers
believe these  certifications  to be accurate,  despite our inability to provide
documentation  necessary to complete the  assessment  required by Section 404 of
the  Sarbanes-Oxley  Act, because we did have procedures in place during 2004 to
detect  errors in our computer  programs  (although  these  procedures  were not
adequately  documented).  We have also instituted  additional control systems to
for  authorizing  program  changes and Grant  Thornton has issued an unqualified
opinion on our financial statements.


ITEM 9B.      OTHER INFORMATION.
None.

                                    PART III

     In accordance with the provisions of General Instruction G (3), information
required  by  Items  10  through  14 of Form  10-K are  incorporated  herein  by
reference to our Proxy  Statement for the Annual Meeting of  Shareholders  to be
filed prior to April 30, 2005.


                                     PART IV

ITEM 15.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

(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 41 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.



                                   SIGNATURES

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


                                                  

                                                          PRE-PAID LEGAL SERVICES, INC.

Date: March 3, 2005                                   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 3, 2005
----------------------------------------------------
              Harland C. Stonecipher                     (Principal Executive Officer)


                  /s/ Randy Harp                            Chief Operating Officer             March 3, 2005
----------------------------------------------------
                    Randy Harp


                /s/ Steve Williamson                        Chief Financial Officer             March 3, 2005
----------------------------------------------------
                 Steve Williamson                           (Principal Financial and
                                                              Accounting Officer)

              /s/ Orland G. Aldridge                                Director                    March 3, 2005
----------------------------------------------------
                Orland G. Aldridge


               /s/ Martin H. Belsky                                 Director                    March 3, 2005
----------------------------------------------------
                 Martin H. Belsky


              /s/ Peter K. Grunebaum                                Director                    March 3, 2005
----------------------------------------------------
                Peter K. Grunebaum


                 /s/ John W. Hail                                   Director                    March 3, 2005
----------------------------------------------------
                   John W. Hail


                /s/ Thomas W. Smith                                 Director                    March 3, 2005
----------------------------------------------------
                  Thomas W. Smith






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,
                                                                                          -----------------------
                                                                                             2004        2003 
                                                                                          ----------   ----------
Current assets:
                                                                                                       
  Cash and cash equivalents............................................................   $  22,991    $  17,981
  Available-for-sale investments, at fair value........................................         510        9,895
  Membership income receivable.........................................................       3,225        2,637
  Inventories..........................................................................       1,623          857
  Refundable income taxes..............................................................       1,241          331
  Deferred member and associate service costs..........................................      13,893       12,372
  Deferred income taxes................................................................           -        2,837
                                                                                          ----------   ----------
      Total current assets.............................................................      43,483       46,910
                                                                                          ----------   ----------
Available-for-sale investments, at fair value..........................................       1,181          792
Investments pledged....................................................................         374          273
Property and equipment, net............................................................      50,916       46,615
Investments in and amounts due to/from subsidiaries, net...............................      31,331       18,140
Deferred member and associate service costs............................................       2,325        2,375
Other assets...........................................................................       7,471        5,184
                                                                                          ----------   ----------
        Total assets...................................................................   $ 137,081    $ 120,289
                                                                                          ==========   ==========



                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Membership benefits..................................................................   $   9,904    $   9,008
  Deferred revenue and fees............................................................      19,544       17,740
  Current portion of capital leases payable............................................         338           19
  Current portion of notes payable.....................................................      18,036       18,953
  Income taxes payable.................................................................       7,795            -
  Accounts payable and accrued expenses................................................      11,963       14,065
                                                                                          ----------   ----------
    Total current liabilities..........................................................      67,580       59,785
  Capital leases payable...............................................................       1,618        1,687
  Notes payable........................................................................      27,050       24,468
  Deferred revenue and fees............................................................       1,877        3,330
  Deferred income taxes................................................................       4,715            -
  Other non-current liabilities........................................................       2,794        1,445
                                                                                          ----------   ----------
      Total liabilities................................................................     105,634       90,715
                                                                                          ----------   ----------
Stockholders' equity:
  Common stock.........................................................................         205          217
  Retained earnings....................................................................     129,290      127,576
  Accumulated other comprehensive income...............................................         980          809
  Treasury stock, at cost..............................................................     (99,028)     (99,028)
                                                                                          ----------   ----------
      Total stockholders' equity.......................................................      31,447       29,574
                                                                                          ----------   ----------
        Total liabilities and stockholders' equity.....................................   $ 137,081    $ 120,289
                                                                                         ===========   ==========


           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,
                                                                          -----------------------------------------
                                                                              2004          2003          2002
                                                                          ------------  ------------  -------------
Revenues:
                                                                                                      
  Membership fees......................................................   $   260,959   $    211,824  $    199,849
  Associate services...................................................        24,618         25,499        37,195
  Other................................................................         5,247          3,796         3,004
                                                                          ------------  ------------- -------------
                                                                              290,824        241,119       240,048
                                                                          ------------  ------------- -------------
Costs and expenses:
  Membership benefits..................................................        89,016         66,524        63,515
  Commissions..........................................................        88,963         68,353        83,097
  Associate services and direct marketing..............................        24,618         28,823        32,516
  General and administrative...........................................        32,037         14,711        13,773
  Other, net...........................................................         9,157          6,792         5,829
                                                                          ------------  ------------- -------------
                                                                              243,791        185,203       198,730
                                                                          ------------  ------------- -------------
Income before income taxes and equity in net income of subsidiaries....        47,033         55,916        41,318
Provision for income taxes.............................................        16,226         19,080        14,271
                                                                          ------------  ------------- -------------
Income before equity in net income of subsidiaries.....................        30,807         36,836        27,047
Equity in net income of subsidiaries...................................         9,970          3,071         8,967
                                                                          ------------  ------------- -------------
Net income.............................................................   $    40,777    $    39,907   $    36,014
                                                                          ============   ============  ============


           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,
                                                                          -----------------------------------------
                                                                              2004          2003          2002
                                                                          ------------   ------------  ------------
                                                                                                      
Net cash provided by operating activities..............................   $    38,393    $    50,271   $    55,380
                                                                          ------------   ------------  ------------
Cash flows from investing activities:
  Additions to property and equipment..................................       (10,879)       (27,012)      (15,184)
  Purchases of investments - available for sale........................        (2,858)        (9,915)            -
  Maturities and sales of investments - available for sale.............        11,783              -            64
                                                                          ------------   ------------  ------------
    Net cash used in investing activities..............................        (1,954)       (36,927)      (15,120)
                                                                          ------------   ------------  ------------
Cash flows from financing activities:
  Proceeds from exercise of stock options..............................         5,176          2,014         5,088
  Decrease in capital lease obligations................................          (808)        (1,701)            -
  Purchases of treasury stock..........................................       (37,462)       (48,292)      (50,152)
  Proceeds from issuance of debt.......................................        19,000         42,700        12,300
  Repayments of debt...................................................       (17,335)        (9,912)       (1,667)
  Proceeds from other financing........................................             -          1,000             -
                                                                          ------------   ------------  ------------
    Net cash used in financing activities..............................   $   (31,429)       (14,191)      (34,431)
                                                                          ------------   ------------  ------------
Net increase in cash and cash equivalents..............................         5,010           (847)        5,829
Cash and cash equivalents at beginning of year.........................        17,981         18,828        12,999
                                                                          ------------   ------------  ------------
Cash and cash equivalents at end of year...............................   $    22,991    $    17,981   $    18,828
                                                                          ============   ============  ============



           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 5 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 of its
general  and   administrative   expenses   determined  in  accordance  with  the
agreements.

Dividends from Subsidiaries
Dividends paid to the Parent Company from its  subsidiaries are accounted for by
the equity method.  Pre-Paid Legal Casualty, Inc. paid a total of $11 million to
the Parent Company during 2002. No dividends were paid during 2003 or 2004.







                                INDEX TO EXHIBITS


  Exhibit No.                               Description
-------------                               ------------------
             
                                                                
  3.1           Restated Certificate of Incorporation of the Company

  3.2           Amended and Restated Bylaws of the Company  (Incorporated  by reference to Exhibit 3.1 of our Report
                on Form 10-Q for the period ended June 30, 2003)

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

*10.2           Agreements 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 our Annual Report on Form 10-K for the year ended
                December 31, 1985)

*10.3           Amendment 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 our Annual Report on Form 10-KSB
                for the year ended December 31, 1992)

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

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

*10.6           Amendment No. 2 to New Business Generation  Agreement between the Company and Harland C. Stonecipher
                effective  January,  1990  (Incorporated  by reference to Exhibit 10.13 of our Annual Report on Form
                10-K for the year ended December 31, 2002)

*10.7           Stock Option Plan, as amended effective May 2003

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

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

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

*10.11          Deferred  compensation plan effective  November 6, 2002  (Incorporated by reference to Exhibit 10.14
                of our Annual Report on Form 10-K for the year ended December 31, 2002)

 10.12          Loan agreement  dated  September 19, 2003 between  Registrant and Bank of Oklahoma,  N.A.,  Comerica
                Bank and First United Bank & Trust  (Incorporated by reference to Exhibit 10.1 of our Report on Form
                10-Q for the period ended September 30, 2003)

 10.13          Aircraft purchase agreement dated December 9, 2004 by and between S&S Aviation, LLC and the Company

 10.14          Aircraft  purchase  agreement  dated December 9, 2004 by and between Harland C.  Stonecipher  and/or
                Shirley A. Stonecipher and Stonecipher Aviation, LLC and the Company

 10.15          Assignment  and  Assumption  of Lease  dated  December  20,  2004  between  Harland  C. and  Shirley
                Stonecipher and the Company

*10.16          Amended Deferred Compensation Plan effective January 1, 2005

 21.1           List of Subsidiaries of the Company

 23.1           Consent of Grant Thornton LLP

 31.1           Certification of Harland C. Stonecipher, Chairman and Chief Executive Officer, pursuant to
                Rule 13a-14(a) under the Securities Exchange Act of 1934

 31.2           Certification of Steve Williamson, Chief Financial Officer, pursuant to Rule 13a-14(a) under the
                Securities Exchange Act of 1934

 32.1           Certification  of Harland C.  Stonecipher,  Chairman  and Chief  Executive  Officer,  pursuant to 18
                U.S.C. Section 1350

 32.2           Certification of Steve Williamson, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350

--------------------


* Constitutes a management contract or compensatory plan or arrangement required
to be filed as an exhibit to this report.



                                   EXHIBIT 3.1

                                          Filed with Oklahoma Secretary of State
                                                                 August 29, 2000

                                    RESTATED

                          CERTIFICATE OF INCORPORATION

                                       OF

                          PRE-PAID LEGAL SERVICES, INC.

     The  undersigned  officers of Pre-Paid  Legal  Services,  Inc., an Oklahoma
corporation (the "Corporation"), do hereby certify as follows:

     1. The Articles of  Incorporation  of the Corporation were originally filed
with the  Secretary  of State of the State of  Oklahoma  on January 20, 1976 and
were amended from time to time thereafter.

     2. This Restated  Certificate of Incorporation has been duly adopted by the
Board of Directors of the  Corporation  in  accordance  with Section 1080 of the
Oklahoma General Corporation Act.

     3. This Restated  Certificate of Incorporation  restates and integrates and
does not  further  amend the  provisions  of the  Corporation's  Certificate  of
Incorporation,  as amended, and there is no discrepancy between those provisions
and the  provisions of this Restated  Certificate  of  Incorporation,  except as
permitted by Section 1080.C of the Oklahoma General Corporation Act.

     4. The text of the Corporation's Certificate of Incorporation,  as amended,
is hereby restated in its entirety by this Restated Certificate of Incorporation
as follows:

     FIRST. The name of the Corporation is PRE-PAID LEGAL SERVICES, INC.

     SECOND.  The address of its  registered  office in the-State of Oklahoma is
321 East Main, in the City of Ada,  County of Pontotoc,  74820.  The name of its
registered agent at such address is Harland C. Stonecipher.

     THIRD.  The  purpose of the  Corporation  is to engage in any lawful act or
activity  for which  corporations  may be organized  under the Oklahoma  General
Corporation Act.

     FOURTH.  The total number of shares of capital stock which the  Corporation
shall have  authority  to issue is  100,900,000  shares,  consisting  of 400,000
shares of Preferred Stock, par value $1.00 per share,  500,000 shares of Special
Preferred  Stock,  par value $1.00 per share,  and 100,000,000  shares of Common
Stock, par value $.01 per share.

     The shares of such classes shall have the following express terms:

                                   DIVISION A
                      EXPRESS TERMS OF THE PREFERRED STOCK

     The Preferred  Stock may be issued from time to time in one or more series.
The Board of  Directors  is hereby  authorized  to provide  for the  issuance of
Preferred Stock in series and by filing a certificate pursuant to the applicable
law of the State of  Oklahoma,  to  establish  from  time to time the  number of
shares  to be  included  in such  series,  and to fix the  designation,  powers,
preferences and rights of the shares of each such series and the qualifications,
limitations, or restrictions thereof.

     The  authority of the Board of Directors  with respect to each series shall
include, but not be limited to, determination of the following:

          (1) The number of shares  constituting that series and the distinctive
     designation of that series;

          (2) The dividend rate on the shares of that series,  whether dividends
     shall be cumulative, and, if so, from which date or dates, and the relative
     rights of  priority,  if any,  of  payment of  dividends  on shares of that
     series;

          (3) Whether that series shall have voting  rights,  in addition to the
     voting rights provided by law, and, if so, the terms of such voting rights;

          (4) Whether that series shall have conversion privileges,  and, if so,
     the  terms and  conditions  of such  conversion,  including  provision  for
     adjustment of the conversion  rate in such events as the Board of Directors
     shall determine;

          (5) Whether or not the shares of that series will be redeemable,  and,
     if so, the terms and conditions of such  redemption,  including the date or
     dates  upon or after  which they  shall be  redeemable,  and the amount per
     share payable in case of redemption,  which amount may vary under different
     conditions and at different redemption dates;

          (6) Whether that series  shall have a sinking fund for the  redemption
     or purchase of shares of that  series,  and, if so, the terms and amount of
     such sinking fund;

          (7) The rights of the shares of that series in the event of  voluntary
     or involuntary  liquidation,  dissolution or winding up of the corporation,
     and the relative  rights of priority,  if any, of payment of shares of that
     series; and

          (8) Any other relative  rights,  preferences  and  limitations of that
     series.

                                   DIVISION B

                  EXPRESS TERMS OF THE SPECIAL PREFERRED STOCK

     Section 1. The Special  Preferred  Stock may be issued from time to time in
one or more series.  Subject to the  provisions  of Section 2 of this  Division,
which  provisions  shall  apply to all  Special  Preferred  Stock,  the Board of
Directors is authorized to provide for the issuance of Special  Preferred  Stock
in series and by filing a  certificate  pursuant  to the  applicable  law of the
State of  Oklahoma,  to  establish  from time to time the number of shares to be
included in such series,  and to fix the  designation,  powers,  preferences and
rights of the shares of each such series and the qualifications, limitations, or
restrictions thereof.

     The  authority of the Board of Directors  with respect to each series shall
include, but not be limited to, determination of the following:

          (1) The number of shares  constituting that series and the distinctive
     designation of that series;

          (2) The dividend rate on the shares of that series,  whether dividends
     shall be cumulative, and, if so, from which date or dates, and the relative
     rights of  priority,  if any,  of  payment of  dividends  on shares of that
     series;

          (3) Whether that series shall have voting  rights,  in addition to the
     voting rights provided by law, and, if so, the terms of such voting rights;

          (4) Whether that series shall have conversion privileges,  and, if so,
     the  terms and  conditions  of such  conversion,  including  provision  for
     adjustment of the conversion  rate in such events as the Board of Directors
     shall determine;

          (5) Whether or not the shares of that series will be redeemable,  and,
     if no, the terms and conditions of such  redemption,  including the date or
     dates  upon or after  which they  shall be  redeemable,  and the amount per
     share payable in case of redemption,  which amount may vary under different
     conditions and at different redemption dates;

          (6) Whether that series  shall have a sinking fund for the  redemption
     or purchase of shares of that  series,  and, if so, the terms and amount of
     such sinking fund;

          (7) The rights of the shares of that series in the event of  voluntary
     or involuntary  liquidation,  dissolution or winding up of the Corporation,
     and the relative  rights of priority,  if any, of payment of shares of that
     series; and

          (8) Any other relative  rights,  preferences  and  limitations of that
     series.

     Section 2. The Special  Preferred Stock shall be on a ranking junior to the
Preferred Stock as to payment of dividends and as to  distributions in the event
of a voluntary  or  involuntary  liquidation,  dissolution  or winding up of the
corporation. Accordingly, holders of shares of Preferred Stock shall be entitled
to  receive  dividends  and  distributions  in  priority  to  any  dividends  or
distributions to holders of shares of Special Preferred Stock in accordance with
the express terms of the Preferred Stock or any series thereof.

                                   DIVISION C

                        EXPRESS TERMS OF THE COMMON STOCK

     The Common  Stock  shall be subject to the express  terms of the  Preferred
Stock and the Special Preferred Stock in any series thereof.  The holders of the
Common  Stock  voting  together as one class  shall have the sole and  exclusive
right to elect the directors of the Corporation, subject to any voting rights of
any outstanding shares of Preferred Stock or Special Preferred Stock.

     Dividends  on the  Common  Stock  may be  declared  at or for such time and
periods as the Board of Directors may from time to time, in its sole discretion,
determine out of funds legally available therefor.

     In the event of a voluntary  or  involuntary  winding up,  distribution  or
liquidation of this Corporation, after distribution of any amounts distributable
to holders of securities of the Corporation  having a preference in liquidation,
all funds,  assets or property  available for distribution shall be ratably paid
and distributed among the holders of the issued and outstanding Common Stock.

     FIFTH. The bylaws may be adopted, altered, amended or repealed by the Board
of  Directors.  Election of directors  need not be by written  ballot unless the
bylaws so provide.

     SIXTH.  Whenever a  compromise  or  arrangement  is proposed  between  this
Corporation  and its  creditors,  or any  class  of  them  and/or  between  this
Corporation  and its  shareholders  or any class of them, any court of equitable
jurisdiction  within the State of Oklahoma,  on the application in a summary way
of  this  Corporation  or of  any  creditor  or  shareholder  thereof  or on the
application of any receiver or receivers  appointed for this  Corporation  under
the provisions of Section 1106 of Title 18 of the Oklahoma Statutes (Supp. 1986)
or on the application of trustees in dissolution or of any receiver or receivers
appointed for this Corporation  under the provisions of Section 1100 of Title 18
of the Oklahoma  Statutes (Supp.  1986), may order a meeting of the creditors or
class of creditor,  and/or of the  shareholders or class of shareholders of this
Corporation,  as the case may be,  to be  summoned  in such  manner as the court
directs.  If a majority in number  representing  three-fourths (3/4) in value of
the  creditors or class of  creditors,  and/or of the  shareholders  or class of
shareholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any  reorganization  of this  Corporation as a consequence of
such  compromise  or   arrangement,   the  compromise  or  arrangement  and  the
reorganization,  if  sanctioned by the court to which the  application  has been
made, shall be binding on all the creditors or class of creditors, and/or on all
the shareholders or class of shareholders,  of this Corporation, as the case may
be, and also on this Corporation.

     SEVENTH:  (1) To the fullest extent that the Oklahoma  General  Corporation
Act as it existed on  December  16, 1987 (the  original  date of filing with the
Oklahoma  Secretary  of  State  of  the  Amended  and  Restated  Certificate  of
Incorporation  originally  containing  this  Article  SEVENTH)  (the  "Effective
Date"), permits the limitation or elimination of the liability of directors,  no
director  of  this  Corporation  shall  be  liable  to this  Corporation  or its
stockholders for monetary damages for breach of fiduciary duty as a director. No
amendment to or repeal of this Article SEVENTH shall apply to or have any effect
on the liability or alleged liability of any director of this Corporation for or
with respect to any acts or omissions of such  director  occurring  prior to the
time of such amendment or repeal.

     (2) If the Oklahoma General  Corporation Act is amended after the Effective
Date to further limit or eliminate liability of this Corporation's directors for
breach of  fiduciary  duty,  then a director  of this  Corporation  shall not be
liable for any such  breach to the  fullest  extent  permitted  by the  Oklahoma
General  Corporation Act as so amended.  If the Oklahoma General Corporation Act
is amended  after the  Effective  Date to increase or expand  liability  of this
Corporation's  directors for breach of fiduciary  duty, no such amendment  shall
apply to or have  any  effect  on the  liability  or  alleged  liability  of any
director of this  Corporation  for or with  respect to any acts or  omissions of
such  director  occurring  prior  to the  time of such  amendment  or  otherwise
adversely  affect  any right or  protection  of a director  of this  Corporation
existing at the time of such amendment.

     EIGHTH:  The  provisions  of this Article  EIGHTH shall apply to any of the
following transactions (hereinafter referred to as "Business Combinations"):

          (a) any merger,  consolidation or reorganization of the Corporation or
     any significant  subsidiary of the  Corporation in any manner  permitted by
     law with or into any Related Person; or

          (b) any sale, lease, mortgage,  pledge,  exchange or other disposition
     (in  one  transaction  or  series  of  related   transactions)  of  all  or
     substantially  all of the assets of the  Corporation or of any  significant
     subsidiary of the Corporation to any Related Person, or

          (c) any sale, lease, mortgage,  pledge,  exchange or other disposition
     (in one  transaction  or a series of related  transactions)  by any Related
     Person to the  Corporation  or any  subsidiary  of the  Corporation  of any
     assets in  exchange  for voting  securities  (or  securities,  or  options,
     warrants or rights to purchase voting securities or securities  convertible
     into or exchangeable for voting securities)  constituting 5% or more of the
     outstanding securities of the Corporation after such transaction; or

          (d) any  reclassification  of  securities,  recapitalization  or other
     transaction  which has the  direct or  indirect  effect of  increasing  the
     voting power, whether or not then exercisable, of any Related Person; or

          (e) the  adoption  of any  plan or  proposal  for the  liquidation  or
     dissolution  of the  Corporation  proposed  by or on behalf of any  Related
     Person.

A corporation, person or other entity which is the beneficial owner, directly or
indirectly,  of 5% or more of the total voting power of the  outstanding  voting
securities of the Corporation is herein referred to as the "Related Person."

     Section  1. No  Business  Combination  may be  effected  unless  all of the
following conditions, to the extent applicable, are fulfilled:

               (a) The  Related  Person  shall  not  have  acquired  any  voting
          securities,  directly or indirectly,  from the Corporation except in a
          Business  Combination  to which  this  Article  did not  apply or in a
          Business  Combination  to which  this  Article  did  apply  and  which
          satisfied all of the requirements of this Article.

               (b) After the time when the Related  Person became the beneficial
          owner, directly or indirectly, of 5% or more of the total voting power
          of the outstanding  voting securities of the Corporation,  the Related
          Person  shall  not  have  (i)   received  the  benefit,   directly  or
          indirectly, of any loans, advances,  extensions of credit, guarantees,
          pledges  or  other  financial  assistance  or tax  benefits  provided,
          directly or indirectly, by the Corporation,  or (ii) made or caused to
          be made any major  changes  in the  Corporation's  business  or equity
          capital structure  without the unanimous  approval of the directors of
          the Corporation then in office.

               (c) A proxy  statement  complying  with the  requirements  of the
          Securities Exchange Act of 1934, or any similar or superseding federal
          statute,  as at the time in effect  (whether or not the  provisions of
          such act or statute shall be applicable to the  Corporation)  shall be
          mailed  to   shareholders  of  the  Corporation  for  the  purpose  of
          soliciting  shareholder approval of the Business Combination and shall
          contain   at  the  front   thereof,   in  a   prominent   place,   any
          recommendations  as to the  advisability  (or  inadvisability)  of the
          Business  Combination  which any of the  directors may choose to state
          and an opinion of a reputable investment banking firm stating that the
          terms of the Business  Combination  are fair from the point of view of
          both the  Corporation and the  shareholders  of the Corporation  other
          than any Related Person.

     Section 2. No Business  Combination shall be effected unless it is approved
at an annual  meeting  or a special  meeting of the  Corporation's  shareholders
called  for that  purpose.  The  affirmative  vote in  person or by proxy of the
holders of not less than 80% of the voting power of all outstanding voting stock
of the Corporation,  voting as a single class, shall be required for approval of
any such Business Combination.

     Section 3. For the purposes of this  Article,  any  corporation,  person or
entity will be deemed to be the beneficial owner of any voting securities of the
Corporation:

               (a) which it owns directly, whether or not of record; or

               (b) which it has the right to acquire  pursuant to any  agreement
          or arrangement or understanding or upon exercise of conversion rights,
          exchange rights, warrants or options or otherwise; or

               (c)  which  are  beneficially   owned,   directly  or  indirectly
          (including shares deemed to be owned through application of clause (b)
          above), by any 'affiliate' or 'associate' as those terms as defined in
          Rule 12b-2 of the General Rules and  Regulations of the Securities and
          Exchange Commission adopted pursuant to the Securities Exchange Act of
          1934 as in effect on the date hereof; or

               (d)  which  are  beneficially   owned,   directly  or  indirectly
          (including  shares  deemed  owned  through  application  of clause (b)
          above),  by any other  corporation,  person or entity with which it or
          any  of  its   'affiliates'  or  'associates'  has  any  agreement  or
          arrangement or  understanding  for the purpose of acquiring,  holding,
          voting or disposing of voting securities of the Corporation.

     For the purposes only of determining whether a corporation, person or other
entity  owned  beneficially,  directly  or  indirectly,  5% or more of the total
voting  power of the  outstanding  voting  securities  of the  Corporation,  the
outstanding  voting  securities of the Corporation will be deemed to include any
voting securities that may be issuable pursuant to any agreement, arrangement or
understanding or upon exercise of conversion rights, exchange rights,  warrants,
options  or  otherwise  which  are  deemed  to be  beneficially  owned  by  such
corporation, person or other entity pursuant to the foregoing provisions of this
Section 3.

     Section 4. The  provisions  of this  Article  shall not apply to a Business
Combination  which  (a)  (i)  does  not  change  any  voting  security  holder's
percentage  ownership of voting power in any successor of the  corporation  from
the  percentage  of  voting  power  beneficially  owned  by such  holder  in the
Corporation,  (ii)  provides for the  provisions  of this  Article,  without any
amendment,  change,  alteration  or deletion,  to apply to any  successor to the
Corporation,  and  (iii)  does  not  transfer  all or  substantially  all of the
Corporation's assets other than to a wholly-owned subsidiary of the corporation;
or (b) shall have been authorized by a majority of the Board of Directors of the
Corporation  prior to the time that the  Related  Person  became the  beneficial
owner,  directly or  indirectly,  of 5% or more of the total voting power of the
outstanding voting securities of the Corporation.

     Section  5.  The  affirmative  vote  required  by this  Article  will be in
addition  to the vote of the  holders  of any  class or  series  of stock of the
Corporation otherwise required by law, or this Certificate of Incorporation,  or
the  resolution  providing  for the issuance of a class or series of stock which
has been  adopted  by the  Board of  Directors,  or any  agreement  between  the
Corporation and any national securities exchange.

     Section  6. The  Board  of  Directors  of the  Corporation  shall  make all
determinations pursuant to this Article, including,  without limitation, (i) the
amount of  voting  power  beneficially  owned  directly  or  indirectly,  by any
corporation, person or entity, and (ii) the status of any corporation, person or
entity  as  an  affiliate  or  associate  of  another.  Any  such  determination
reasonably  made in good  faith  by the  Board  of  Directors  on the  basis  of
available information shall be conclusive and binding, and no director will have
any liability to the Corporation, or any other corporation,  person or entity by
reason of any such determination so made.

     Section 7. This Article  EIGHTH shall not be altered,  amended or repealed,
nor shall any provision inconsistent with this Article EIGHTH be adopted, except
by the affirmative  vote of at least eighty percent (80%) of the voting power of
the outstanding voting stock of the Corporation, voting as a single class.

     NINTH:   Notwithstanding   anything   contained  in  the   Certificate   of
Incorporation or the Bylaws of the Corporation to the contrary:

     Section 1.  Number,  Election  and  Terms.  The Board of  Directors  of the
Corporation  shall  consist  of not less than  three  nor more than  twenty-four
members  with the  exact  number  to be fixed  from time to time by the Board of
Directors.  Upon the  adoption of this Article  NINTH,  the  directors  shall be
divided into three classes,  designated Class A, Class B, and Class C, as nearly
equal in number as possible, with the term of office of the Class C directors to
expire at the 1988  annual  meeting of  shareholders,  the term of office of the
Class B directors to expire at the 1989 annual meeting of shareholders,  and the
term of office of the Class A directors to expire at the 1990 annual  meeting of
shareholders.   At  each  meeting  of   shareholders   following   such  initial
classification and election,  the number of directors equal to the number of the
class whose term  expires at the time of such  meeting  shall be elected to hold
office until the third succeeding annual meeting of shareholders.  Each director
shall hold office  until his  successor is elected and  qualified,  or until his
earlier resignation or removal.

     Section  2.  Newly  Created  Directorships  and  Vacancies.  Newly  created
directors  resulting from any increase in the authorized number of directors and
any  vacancies  in the Board of  Directors  resulting  from death,  resignation,
retirement,  disqualification,  removal from office or other cause may be filled
only by the  affirmative  vote of 80% of the directors then in office,  although
less  than a quorum,  and  directors  so chosen  shall  hold  office  for a term
expiring at the annual meeting of shareholders at which the term of the class to
which they have been  elected  expires  and until his  successor  is elected and
qualified.

     Section 3. Removal. At a meeting of shareholders or directors,  as the case
may be, called expressly for that purpose, any director,  or the entire Board of
Directors,  may be removed from office at any time,  with or without  cause,  by
only by the  affirmative  vote of the holders of at least 80% of the outstanding
shares of the Corporation  then entitled to be voted in an election of directors
or by the affirmative vote of at least two-thirds (2/3) of the directors then in
office.

     Section 4. Amendment,  Repeal,  Etc. The affirmative vote of the holders of
at least 80% of the outstanding  shares of the  Corporation  then entitled to be
voted in an election of directors  shall be required to alter,  amend or repeal,
or to adopt any provision inconsistent with, this Article NINTH.

     TENTH.  Except upon the affirmative  vote of  shareholders  holding all the
issued and outstanding shares of stock of the Corporation,  no amendment to this
Certificate  of  Incorporation  may be adopted by the  Corporation  which  would
impose personal  liability for the debts of the Corporation on the  shareholders
of the  Corporation or which would amend,  alter or repeal this Article TENTH or
would adopt any provision inconsistent with this Article TENTH.

     ELEVENTH.  The shareholders of the Corporation duly adopted the Amended and
Restated  Certificate  of  Incorporation   originally  containing  this  Article
ELEVENTH  (as filed with the  Oklahoma  Secretary of State on December 16, 1987)
for the purpose of  definitively  providing  that all provisions of the Oklahoma
General  Corporation Act will apply to the  Corporation and its  shareholders to
the  fullest  extent,  and that from and after the  filing of such  Amended  and
Restated  Certificate with the Oklahoma Secretary of State the provisions of the
Oklahoma  Business  Corporation  Act  and  any and  all  rights,  privileges  or
immunities  thereunder shall be of no further force or effect with regard to the
Corporation and its shareholders.

     TWELFTH.  Subject  to the  limitations  set  forth in this  Certificate  of
Incorporation,  the Corporation  reserves the right to amend,  alter,  change or
repeal any provision  contained in this  Certificate  of  Incorporation,  in the
manner now or hereafter  prescribed by statute,  and all rights  conferred  upon
shareholders herein are granted subject to this reservation.

     IN  WITNESS  WHEREOF,   Pre-Paid  Legal  Services,  Inc.  has  caused  this
Certificate to be signed and attested by its duly authorized  officers as of the
28th day of August, 2000.


ATTEST:                                      PRE-PAID LEGAL SERVICES, INC.

  /s/  Kathryn Walden                        By:   /s/  Harland C. Stonecipher  
------------------------------------         ----------------------------------
Kathryn Walden, Secretary                          Harland C. Stonecipher,
                                                   Chairman 
                                                   Chief Executive Officer





                                  EXHIBIT 10.7

                                STOCK OPTION PLAN
                                       OF
                          PRE-PAID LEGAL SERVICES, INC.
                        (as amended through May 29, 2003)

     1.  Purpose.  This  Amended and  Restated  Stock  Option  Plan  ("Plan") is
intended  as an  incentive  and to  encourage  stock  ownership  by certain  key
employees,   officers  and   directors   of  Pre-Paid   Legal   Services,   Inc.
("Corporation")  and of its  Subsidiaries  (as hereinafter  defined) in order to
increase their proprietary interest in the Corporation's success.

     2. Administration. The Plan shall be administered by the Board of Directors
of the Corporation,  which shall determine the persons who shall  participate in
the Plan and the  extent of their  participation;  provided,  however,  that the
Board of Directors  shall have the  authority to appoint a committee of not less
than two members of the Board ("Stock Option  Committee") to administer the Plan
and to make determinations  concerning the granting of options  thereunder.  The
interpretation  and  construction  by the Board of any provisions of the Plan or
any  option  granted  under it and any  determination  by the Board or the Stock
Option Committee  pursuant to any provision of the Plan or any such option shall
be final and conclusive.

     No member of the Board of Directors or the Stock Option  Committee shall be
liable for any action or determination made in good faith, and the members shall
be entitled to  indemnification  and reimbursement in the manner provided in the
Corporation's Certificate of Incorporation, or as otherwise permitted by law.

     3. Stock. The stock subject to the options and other provisions of the Plan
shall be shares of the  Corporation's  authorized  but unissued  Common Stock or
treasury stock,  as determined by the Board of Directors.  Subject to adjustment
in accordance with the provisions of Subparagraph  6.6 hereof,  the total number
of shares of Common  Stock of the  Corporation  on which  options may be granted
under the Plan shall not exceed in the aggregate  3,000,000 shares. In the event
that  any  outstanding  option  under  the  Plan for any  reason  expires  or is
terminated  prior to the end of the period  during which options may be granted,
the shares of Common Stock allocable to the  unexercised  portion of such option
may again be subject to an option under the Plan.


     4. Terms and Conditions of Incentive Options.  Options may be granted under
this Plan which qualify as Incentive Stock Options  ("Incentive  Options") under
Section 422A of the Internal Revenue Code. Incentive Options granted pursuant to
the Plan shall  comply with and be subject to the  following  special  terms and
conditions:

     4.1 Eligibility. The individuals who shall be eligible to receive Incentive
     Stock  Options  under  this  Plan  shall be such key  employees  (including
     officers and directors who are  employees)  of the  Corporation,  or of any
     corporation  (hereinafter  called a "Subsidiary")  in which the Corporation
     has a  proprietary  interest  by reason of stock  ownership  or  otherwise,
     including any corporation in which the  Corporation  acquires a proprietary
     interest after the adoption of this Plan (but only if the Corporation owns,
     directly or  indirectly,  stock  possessing  not less than 50% of the total
     combined voting power of all classes of stock in the  corporation),  as the
     Board of Directors of the Corporation shall determine from time to time.

     4.2 Limitation on Aggregate  Value of Shares  Subject to Incentive  Option.
     The aggregate fair market value (determined in accordance with Section 6.3)
     as of the date of the grant of shares  with  respect to which  options  are
     exercisable  for the first time by an  optionee  during any  calendar  year
     shall not exceed $100,000.

     4.3  Limitation  for  Certain  Shareholders.  Any  person  who  owns  stock
     possessing  more than ten percent (10%) of the total combined  voting power
     of all  classes of stock of the  Corporation  or its  Subsidiaries  may not
     receive an Incentive Option under the Plan, unless at the time an option is
     granted to such person the option price is at lease one hundred ten percent
     (110%) of the fair value  market  value of the shares and the option is not
     exercisable  after the  expiration  of five (5) years  from the date of the
     grant.  For purposes of this Section 4.3 a person  shall be  considered  as
     owning the shares owned, directly or indirectly, by or for his brothers and
     sisters  (whether in whole or half blood),  spouse,  ancestors,  and lineal
     descendants,  and the shares owned,  directly or  indirectly,  by and for a
     corporation,  partnership,  estate or trust  shall be  considered  as being
     owned   proportionately   by  or  for   its   shareholders,   partners   or
     beneficiaries.

     4.4 Term of Incentive Option.  Each Incentive Option granted under the Plan
     shall not be  exercisable  more than 10 years  from the date the  option is
     granted.

     5. Terms and Conditions of Non-Incentive  Options. In addition to Incentive
Options,  options not qualifying as Incentive  Options may be granted under this
Plan  ("Non-Incentive  Options").  Certain special terms and conditions apply to
Non-Incentive Options, as set forth below:

     5.1  Eligibility.  The  individuals  who shall be eligible for the grant of
     Non-Incentive  Options  shall be  directors,  officers and employees of the
     Corporation  or any  Subsidiary  (as  defined in Section  4.1 above) as the
     Board of Directors or the Stock Option  Committee shall determine from time
     to time.

     5.2 Term of Option.  Any Non-Incentive  Option granted under the Plan shall
     be for a term as  determined at the time of grant by the Board of Directors
     or the Stock Option  Committee  but not to exceed 15 years from the date of
     grant.

     6. Terms and Conditions for All Options. The following terms and conditions
shall apply to all options granted under the Plan.

     6.1 Medium and Time of Payment. The option price shall be payable in United
     States  Dollars  upon the exercise of the option and may be paid in cash or
     by certified  check,  bank draft or money order payable to the order of the
     Corporation,  or if so  determined  by the Board of  Directors or the Stock
     Option  Committee,  the  option  price  may  be  paid  in  property  or  in
     installment payments.

     6.2 Number of Shares.  The option shall state the total number of shares to
     which it pertains. 

     6.3 Option  Price.  The option  price shall be  determined  by the Board of
     Directors or the Stock Option Committee but shall be not less than the fair
     market value of the shares of Common Stock of the  Corporation  on the date
     of the granting of the option.  For this  purpose,  fair market value means
     the last  sales  price  of the  shares  of  Common  Stock  on any  national
     securities exchange on which the shares are listed on the day on which such
     value is to be determined  or, if no shares were traded on such day, on the
     next  preceding  day on which  shares  were  traded,  as  reported  by such
     exchange,  by National  Quotation Bureau,  Inc. or other national quotation
     service.  If the  Common  Stock  is not  listed  on a  national  securities
     exchange,  fair  market  value  means the last sales price of the shares of
     Common Stock in the over-the-counter  market on the date on which such vale
     is to be  determined  or, if no shares were traded on such day, on the next
     preceding day on which the shares were traded,  as reported on the National
     Association of Securities  Dealers  Automated  Quotation System (NASDAQ) or
     other national quotation service. If at any time shares of Common Stock are
     not traded on an exchange or in the  over-the-counter  market,  fair market
     value shall be the value  determined by the Board of Directors or the Stock
     Option  Committee,  taking into  consideration  those factors  affecting or
     reflecting value which they deem  appropriate.  For purposes of determining
     the exercise price of any Incentive Option,  fair market value shall in any
     event be determined in accordance with Section 422 of the Internal  Revenue
     Code.

     6.4 Date of Exercise.  Options shall be  exercisable  at the rate of 20% of
     the number of shares  covered  thereby per year beginning one year from the
     date of grant,  unless otherwise  provided by the Board of Directors or the
     Stock Option  Committee at the time the option is granted.  After  becoming
     exercisable,  the option may be exercised at any time and from time to time
     in  whole  or in part  until  termination  of the  option  as set  forth in
     Sections 4.5, 5.2 or 6.5.


     6.5  Termination  of  Employment;  Death of Employee.  In the event that an
     optionee's  employment  by the  Corporation  shall  terminate,  his  option
     whether or not then  exercisable  shall  terminate  immediately;  provided,
     however, that if the termination is not as a result of embezzlement, theft,
     other violation of law, or termination by the  Corporation  for cause,  the
     optionee  shall  have the  right to  exercise  his  option  (to the  extent
     exercisable  at the date of  termination)  at any time within 30 days after
     such termination;  provided, further, that if any termination of employment
     is related to retirement  with the consent of the  Corporation the optionee
     shall have the right to exercise his option (to the extent  exercisable  up
     to the  date  of  retirement)  at any  time  within  3  months  after  such
     retirement; and provided,  further, that if the optionee shall die while in
     the  employment  of the  Corporation  or within  the  period of time  after
     termination  of employment  or  retirement  during which he was entitled to
     exercise   his   option   as  herein   provided,   his   estate,   personal
     representative,  or beneficiary shall have the right to exercise his option
     (to the  extent  exercisable  at the date of death)  at any time  within 12
     months from the date of his death.

     Retirement by an optionee at his normal  retirement date in accordance with
     provisions of any retirement plan of the Corporation or a Subsidiary  under
     which the optionee is then covered shall be deemed to be a retirement  with
     the consent of the Corporation. Whether any other termination of employment
     is to be considered a retirement  with the consent of the  Corporation  and
     whether an authorized leave of absence on military or government service or
     for other reasons  shall  constitute a  termination  of employment  for the
     purposes of the Plan,  shall be  determined  by the Board of  Directors  or
     Stock Option Committee,  which determination shall be final and conclusive;
     provided, however, that where the period of leave exceeds 90 days and where
     the individual's  employment is not guaranteed by statute or contract,  the
     employment  relationship will be deemed to have been terminated on the 91st
     day of any leave.  Employment by the Corporation shall be deemed to include
     employment by, and to continue during any period in which an optionee is in
     the employment of, a Subsidiary.

     6.6  Recapitalization.  The  aggregate  number of shares of Common Stock on
     which options may be granted to persons  participating  under the Plan, the
     number of shares thereof covered by each outstanding  option, and the price
     per  share  thereof  in each  such  option,  shall  all be  proportionately
     adjusted  for any  increase or  decrease in the number of issued  shares of
     Common  Stock  of  the   Corporation   resulting   from  a  subdivision  or
     consolidation  of shares or other capital  adjustment,  or the payment of a
     stock  dividend or other  increase or  decrease  in such  shares,  effected
     without receipt of  consideration by the  Corporation;  provided,  however,
     that any  fractional  shares  resulting from any such  adjustment  shall be
     eliminated.

     In the event of a change in the Corporation's Common Stock which is limited
     to a change in the designation  thereof to "Capital Stock" or other similar
     designation,  or a change in the par value thereof, or from par value to no
     par value,  without  increase  in the number of issued  shares,  the shares
     resulting  from any such change  shall be deemed to be Common  Stock within
     the meaning of the Plan.

     6.7  Reorganization  of Corporation.  Subject to any required action by the
     stockholders,  if the  Corporation  shall  be the  surviving  or  resulting
     corporation in any merger or consolidation  which does not result in change
     of control of the Corporation,  any option granted  hereunder shall pertain
     to and apply to the securities to which a holder of the number of shares of
     Common Stock subject to the option would have been  entitled.  In the event
     of  a  dissolution  or  liquidation  of  the  Corporation  or a  merger  or
     consolidation  in which the  Corporation  is not the surviving or resulting
     corporation or which results in a change in control of the Corporation,  or
     a tender or  exchange  offer  which  results  in a change in control of the
     Corporation,  the Board of Directors or the Stock  Option  Committee  shall
     determine:  (i) whether all or any part of the  unexercised  portion of any
     option outstanding under the Plan shall terminate; (ii) whether the options
     hall become immediately  exercisable;  or (iii) whether such options may be
     exchanged  for options  covering  securities  of any surviving or resulting
     corporation,  subject to the  agreement of any such  surviving or resulting
     corporation,  on terms and  conditions  substantially  similar to an option
     hereunder.

     6.8 Assignability.  No option shall be assignable or transferable except by
     will or by the laws of descent and distribution.  During the lifetime of an
     optionee, the option shall be exercisable only by him.

     6.9 Optionee's Agreement. If, at the time of the exercise of any option, it
     is necessary or desirable,  in order to comply with any applicable  laws or
     regulations  relating  to  the  sale  of  securities,   that  the  optionee
     exercising the option shall agree that he will purchase the shares that are
     subject to the option for investment and not with any present  intention to
     resell the same,  the optionee will,  upon the request of the  Corporation,
     execute and deliver to the Corporation an agreement to such effect.

     6.10  Rights  as a  Stockholder.  An  optionee  shall  have no  rights as a
     stockholder  with respect to shares covered by his option until the date of
     the  issuance  of the shares to him and only  after  such  shares are fully
     paid.

     6.11 Other Provisions.  The option agreements authorized under the Plan may
     contain  such  other  provisions  as the  Board  of  Directors  shall  deem
     advisable.

     7. Non Employee Director Options. Notwithstanding anything elsewhere in the
Plan to the  contrary,  each person who is a member of the Board of Directors of
the Corporation  but who is not an employee of the Corporation (a  "Non-Employee
Director")  shall be  eligible  for  grants of stock  options  under the Plan in
accordance  with the  provisions of this Section 7. The following  provisions of
this  Section 7 shall  apply to the  granting of stock  options to  Non-Employee
Directors.

     7.1 Grant of Options.  Each  individual who is a  Non-Employee  Director on
     December 12, 1995 shall receive an initial  option grant to purchase  7,500
     shares of the Common Stock of the Corporation.  Each Non-Employee  Director
     shall receive  subsequent grants of stock options to purchase 10,000 shares
     of Common Stock on March 1st of each year  commencing  on March 1, 1996 and
     each year thereafter during the term of the Plan, subject to there being at
     the time of any such  grant  sufficient  remaining  shares of Common  Stock
     available for awards under the Plan.  No options shall be granted  pursuant
     to this  Section 7 after any date that the  Non-Employee  Director  becomes
     employed by the Corporation or ceases to be a director of the  Corporation.
     All stock options  granted to the  Non-Employee  Directors shall consist of
     options that do not qualify as incentive  stock  options under the Internal
     Revenue Code.

     7.2  Purchase  Price.  The  purchase  price for each share  placed under an
     option  for a  Non-Employee  Director  shall  be  equal to 100% of the fair
     market value of such share on the date the option is granted (as determined
     pursuant to Section 6.3 hereof).

     7.3 Vesting and Term.  Except as  otherwise  provided in Section 13 hereof,
     (i) the initial options to purchase 7,500 shares granted as of December 12,
     1995 shall be fully vested and immediately exercisable on the date of grant
     and (ii) the  options to purchase  10,000  shares to be granted as of March
     1st of each year shall be fully vested and  immediately  exercisable  as to
     2,500 shares on the date of grant and shall vest and become  exercisable in
     additional  increments  of 2,500  shares  on June  1st,  September  1st and
     December 1st in the year the option is granted; provided,  however, that it
     shall be a  condition  to the  vesting of each  incremental  portion of the
     option  that  the  Non-Employee  Director  continue  to  be a  Non-Employee
     Director of the Corporation through the applicable vesting date. The period
     during which a Non-Employee  Director option may be exercised shall be five
     years from the date of grant, subject to earlier termination as provided in
     Section 7.5 below.

     7.4 Exercise of Options. Options granted pursuant to this Section 7, to the
     extent the option has vested and become  exercisable,  may be  exercised in
     whole or in part from  time to time by  written  notice to the  Corporation
     accompanied  by  a  certified  or  bank  cashier's  check  payable  to  the
     Corporation for the aggregate  purchase price of the number of shares being
     purchased.

     7.5 Removal for Cause; Death of Non-Employee  Director. In the event that a
     Non-Employee  Director is removed from the Board of Directors  for cause in
     accordance  with applicable law and the  Certificate of  Incorporation  and
     By-Laws of the Corporation,  options granted to such Non-Employee  Director
     pursuant to this  Section 7 shall  terminate as of the date of such removal
     and the Non-Employee  Director shall have no further rights to exercise any
     portion of such options. If a Non-Employee Director shall die while serving
     on the Board of  Directors  or within any period of time  during  which any
     options  granted  pursuant to this  Section 7 are  exercisable  as provided
     herein, the Non-Employee  Director's estate,  personal  representative,  or
     beneficiary  shall have the right to  exercise  the  options (to the extent
     exercisable  at the date of  death) at any time  within 12 months  from the
     date of death.  Notwithstanding  any of the  foregoing,  in no event may an
     option granted pursuant to this Section 7 be exercised more than five years
     after the date of grant.

     7.6 Changes. All options granted to Non-Employee Directors shall be subject
     to the  provisions  of Section  6.6  ("Recapitalization")  and  Section 6.7
     ("Reorganization of Corporation") hereof.

     8. Term of Plan.  No stock  option  shall be granted  pursuant  to the Plan
after December 12, 2012.

     9. Amendments.  The Board of Directors may from time to time amend,  alter,
suspend, or discontinue the Plan or alter or amend (including decrease of option
price by  cancellation  and  substitution  of options or otherwise)  any and all
option agreements granted thereunder;  provided, however, that no such action of
the Board of Directors  may,  without  approval of the  stockholders,  alter the
provisions of the Plan so as to (a) materially increase the benefits accruing to
participants  under the Plan; (b)  materially  increase the number of securities
which may be issued under the Plan; or (c) materially modify the requirements as
to eligibility for  participation  in the Plan; and provided,  further,  that no
amendment may, without the consent of the optionee,  affect any then outstanding
options or unexercised portions thereof.

     10. No  Obligation  to Exercise  Option.  The  granting of an option  shall
impose no obligation upon the optionee to exercise such an option.

     11.   Registration  under  Securities  Act  of  1933.   Provided  that  the
Corporation  is filing  reports  with the  Securities  and  Exchange  Commission
pursuant to Section 15(d) of the Securities  Exchange Act of 1934 or has a class
of equity securities registered pursuant to the Securities Exchange Act of 1934,
the Corporation will use its best efforts to cause the Common Stock which may be
acquired  pursuant  to the  exercise  of any option to be  registered  under the
Securities Act of 1933.

     12.  Stockholder  Approval.  The Plan (as  previously  amended and restated
through May 29, 2003) has been submitted to and approved by the  stockholders of
the Corporation.




                                  EXHIBIT 10.13

                           AIRCRAFT PURCHASE AGREEMENT


     THIS AIRCRAFT PURCHASE  AGREEMENT (this  "Agreement") is entered into as of
the 9th day of  December  2004,  by and  between  S&S  Aviation  LLC,  a limited
liability  company  organized  and existing  under the laws of Oklahoma,  having
offices at 2800 Airport Road,  Hangar 1, Box 6, Ada,  Oklahoma 74820 ("Seller"),
and Pre-Paid Legal  Services,  Inc., a corporation  organized and existing under
the laws of  Oklahoma  ("Buyer"),  having  offices  at One  Pre-Paid  Way,  Ada,
Oklahoma 74820.

                              W I T N E S S E T H :

     WHEREAS,  Seller desires to sell the Aircraft (as hereinafter defined), and
Buyer  desires  to  purchase  the  Aircraft  in  accordance  with the  terms and
conditions hereinafter set forth for the purpose of resale;

     NOW,  THEREFORE,  in  consideration  of the mutual covenants and agreements
herein contained, the parties hereto hereby agree as follows:

                                    ARTICLE 1

                                   DEFINITIONS

     1.01 Definitions. As used in this Agreement:

     "Aircraft"  shall  mean  one (1)  used  MU 300  model  Mitsubishi  Aircraft
aircraft with manufacturer's serial number A024SA, and United States nationality
and  registration  number N674AC  (hereinafter  referred to as the  "Airframe"),
together with the Engines and all Parts installed thereon.

     "Bill of Sale" shall mean a limited  warranty Bill of Sale conveying  title
to the Aircraft to Buyer, substantially in the form of Exhibit A annexed hereto,
duly executed by Seller and delivered to Buyer on or before the Closing Date.

     "Closing  Date" shall mean  November 30, or such other  business day as the
parties may mutually  select,  provided that the Seller is then in possession of
the entire Purchase Price in immediately available funds, and a Bill of Sale and
FAA Bill of Sale duly executed by Seller,  all Uniform  Commercial  Code and FAA
documents  necessary to convey to Buyer title to the Aircraft  free and clear of
all Liens, and all other documents  required to be delivered pursuant to Section
8.01.

     "Delivery" shall occur on the Closing Date when all conditions set forth in
Sections 7.01 and 7.02 have been satisfied.

     "Engines" shall mean the JT15D-4D model Pratt and Whitney engines,  bearing
manufacturer's  serial numbers PCE-70858 and PCE-71013,  and all Parts installed
thereon, installed on the Aircraft.

     "FAA"   shall  mean  the  United   States  of  America   Federal   Aviation
Administration, or any successor agency thereto.

     "FAA  Bill of Sale"  shall  mean an FAA Bill of Sale (AC Form  8050-2)  for
aircraft conveying title to the Aircraft to Buyer.

     "Lien" or "Liens" shall mean each of any mortgage,  pledge,  lien,  charge,
encumbrance,  security  interest  or  lease  (including  any  conditional  sales
agreement, equipment trust agreement or other title retention agreement).

     "Part" or "Parts"  shall mean each of all  appliances,  parts,  components,
instruments,  appurtenances,  accessories,  furnishings  and other  equipment or
property of whatever nature (including, without limitation, avionics, radios and
radar,  but excluding  the Engines and Airframe)  which may from time to time be
incorporated or installed in or attached to the Airframe or the Engines.

     "Purchase  Price"  shall mean a total of One  Million  Two  Hundred  Thirty
Thousand Two Hundred United States Dollars (U.S. $1,230,200.00).

                                    ARTICLE 2

                             SUBJECT MATTER OF SALE

     2.01 The Purchase  and Sale.  Subject to the terms and  conditions  of this
Agreement,  Seller shall sell and deliver to Buyer, free and clear of all Liens,
and Buyer shall  purchase and accept  Delivery  from Seller of, the Aircraft and
the Parts  installed  thereon.  THE  AIRCRAFT  SHALL BE  PURCHASED  HEREUNDER AT
DELIVERY  ON AN "AS IS,  WHERE IS" BASIS AND,  EXCEPT FOR  SELLER'S  WARRANTY OF
TITLE,  SELLER  MAKES NO  WARRANTIES  OR  REPRESENTATIONS  WITH  RESPECT  TO THE
AIRCRAFT  WHICH SHALL SURVIVE SALE AND DELIVERY.  SELLER'S  WARRANTY OF TITLE IS
EXCLUSIVE,  AND BUYER,  CONCURRENTLY WITH THE SALE AND DELIVERY HEREUNDER OF THE
AIRCRAFT, HEREBY WAIVES, RELEASES AND RENOUNCES ALL OTHER WARRANTIES, PATENT AND
OTHER INDEMNITIES,  OBLIGATIONS AND LIABILITIES OF SELLER OR ITS ASSIGNS AND ANY
AND ALL RIGHTS,  CLAIMS AND  REMEDIES OF BUYER  AGAINST  SELLER OR ITS  ASSIGNS,
EXPRESS  OR  IMPLIED,   ARISING  BY  LAW  OR  OTHERWISE   WITH  RESPECT  TO  ANY
NON-CONFORMANCE  OR  DEFECT  IN  THE  AIRCRAFT  SO  DELIVERED  OR  OTHER  THINGS
DELIVERED,  FURNISHED, SOLD, OR TRANSFERRED UNDER THIS AGREEMENT,  INCLUDING BUT
NOT  LIMITED TO (A) ANY IMPLIED  WARRANTY  ARISING  FROM COURSE OF  PERFORMANCE,
COURSE  OF  DEALING,   OR  USAGE  OF  TRADE,   (B)  ANY   IMPLIED   WARRANTY  OF
MERCHANTABILITY OR FITNESS FOR ANY PURPOSE, (C) ANY OBLIGATION OR LIABILITY WITH
RESPECT TO ANY ACTUAL OR ALLEGED  INFRINGEMENT  OR SIMILAR  MATTER,  AND (D) ANY
OBLIGATION,  LIABILITY,  RIGHT,  CLAIM  OR  REMEDY  FOR  LOSS OR  DAMAGE  TO THE
AIRCRAFT,  FOR LOSS OF USE,  REVENUE OR PROFIT WITH RESPECT TO THE AIRCRAFT,  OR
FOR ANY OTHER DIRECT,  INCIDENTAL  OR  CONSEQUENTIAL  DAMAGES,  ARISING FROM THE
FOREGOING.

                                    ARTICLE 3

                           PURCHASE PRICE AND PAYMENT

     3.01  Purchase  Price.  Buyer shall pay Seller the  Purchase  Price for the
Aircraft in full on the Closing Date upon accepting Delivery of the Aircraft.

                                    ARTICLE 4

                       DELIVERY, INSPECTION AND ACCEPTANCE

     4.01 Delivery. The Aircraft shall be delivered to Buyer on the Closing Date
at such place as to which Buyer and Seller may agree.

     4.02 Inspection.  Buyer has had or shall be given adequate opportunities to
inspect the Aircraft in accordance with any manufacturer's inspection procedures
for used aircraft and engines. Buyer's acceptance of Delivery of the Aircraft on
the Closing Date shall confirm that Buyer is satisfied with the condition of the
Aircraft  and accepts  such  Delivery AS IS. Buyer is aware that the Aircraft is
currently   undergoing  certain  maintenance  and  overhaul  anticipated  to  be
completed in December 2004 (the "Ongoing  Maintenance").  Buyer agrees that upon
Delivery of the Aircraft, Buyer will assume all responsibility for the costs and
expenses associated with the Ongoing Maintenance.

     4.03 Title and Risk of Loss.  Title to the  Aircraft  shall be  transferred
from Seller to Buyer upon Delivery.  Until such  completion of Delivery,  Seller
shall bear all risk of loss,  injury,  or  destruction or damage of the Aircraft
and shall ensure that such risk is properly  insured with a reputable  insurance
company. From and after Delivery,  Buyer shall bear all risk of loss, injury, or
destruction or damage of the Aircraft.

                                    ARTICLE 5

                 AIRCRAFT DOCUMENTATION: ACCEPTANCE CERTIFICATE

     5.01 Records.

          (a) At  Delivery,  Seller  shall  provide to Buyer all logs,  manuals,
     certificates, data and inspection, modification and restoration records and
     other  materials  as are  required  by any  governmental  authority  having
     jurisdiction  over the Aircraft to be maintained in respect of the Aircraft
     (collectively, the "Aircraft Documentation").

          (b) Seller shall also provide all  additional  documentation,  if any,
     necessary to effect the assignments provided by Article 9 hereof.

     5.02  Acceptance  Certificate.  Upon Delivery of the Aircraft in accordance
with this  Agreement,  Buyer shall deliver to Seller a duly executed  Acceptance
Certificate in the form of Exhibit "B" hereto (with appropriate insertions).

                                    ARTICLE 6

                         REPRESENTATIONS AND WARRANTIES

     6.01  Seller's  Representations  and  Warranties.   Seller  represents  and
warrants to Buyer that:
                    

          (a) At the time of  Delivery  of the  Aircraft,  Seller will have full
     legal and  beneficial  title to the Aircraft,  together with full power and
     lawful authority to deliver the Aircraft to Buyer, and upon delivery of the
     Bill of Sale and FAA Bill of Sale to Buyer in accordance with Section 8.01,
     Seller  shall  have  transferred  full  legal and  beneficial  title to the
     Aircraft to Buyer, free and clear of all Liens.

          (b) Seller is a limited  liability  company duly organized and validly
     existing and in good standing under the laws of the State of Oklahoma.

          (c) Seller has the corporate power to execute this Agreement.

          (d) The making,  execution and performance of this Agreement by Seller
     has been duly authorized by all necessary  corporate  action,  and will not
     violate,  breach or  contravene  any  provision  of law or the  articles of
     organization or the operating agreement of Seller, or any license or permit
     under which Seller conducts its business, and will not result in the breach
     of or constitute a default under any indenture,  credit or loan  agreement,
     mortgage or other  instrument to which Seller is a party or by which Seller
     may be bound, and this Agreement constitutes a valid and binding obligation
     of Seller enforceable in accordance with its terms.

     6.02 Buyer's Representations and Warranties.  Buyer represents and warrants
to Seller that:
        

          (a) Buyer is a corporation  duly organized and validly  existing under
     the laws of the State of Oklahoma.

          (b) Buyer has the corporate power to execute this Agreement.

          (c) The making,  execution and  performance of this Agreement by Buyer
     has been duly authorized by all necessary  corporate  action,  and will not
     violate,  breach or contravene any provisions of law or the  certificate of
     incorporation  or the bylaws of Buyer, and will not result in the breach of
     or  constitute a default  under any  indenture,  credit or loan  agreement,
     mortgage  or other  instrument  to which Buyer is a party or by which Buyer
     may be bound, and this Agreement constitutes a valid and binding obligation
     of Buyer enforceable in accordance with its terms.

     6.03 Survival of  Warranties.  All  representations  and  warranties of the
parties  contained in this Agreement shall be fully effective and true as of the
Closing Date and shall survive Delivery of the Aircraft.

                                    ARTICLE 7

                              CONDITIONS PRECEDENT

     7.01 Conditions Precedent to Buyer's Obligations.  The obligations of Buyer
to consummate the transaction contemplated hereby are subject to and conditional
upon the following  conditions having been met (or waived by Buyer) on or before
the Closing Date:

          (a) Buyer shall have  received  all  documents  referred to in Section
     8.01 hereof.

          (b) All representations and warranties of Seller made pursuant to this
     Agreement shall be true and correct as of the Closing Date.

     7.02  Conditions  Precedent to Seller's  Obligations.  The  obligations  of
Seller to  consummate  the  transaction  contemplated  hereby is  subject to and
conditional upon the following  conditions having been met (or waived by Seller)
on or before the Closing Date:

          (a) Seller shall have  received all the Purchase  Price in  accordance
     with Section 3.01.

          (b) Seller shall have received all documents  required to be delivered
     by Buyer pursuant to Section 8.01.

                                    ARTICLE 8

                                     CLOSING

          8.01 Documents. On or before the Closing Date:
                        
               (a) Except as otherwise provided in this Section 8.01(a),  Seller
          shall deliver, or cause to be delivered, to Buyer the following:

                    (1) A Bill of Sale conveying to Buyer full right,  title and
               interest  in and  to the  Aircraft  and  the  FAA  Bill  of  Sale
               conveying  to  Buyer  full  right,  title  and  interest  in  the
               Aircraft, free and clear of all Liens.

                    (2) Releases,  satisfactions  and/or terminations of any and
               all Liens against the Aircraft.

                    (3) All Aircraft Documentation as set forth in Section 5.01,
               which shall be on board the Aircraft unless alternative  delivery
               arrangements are agreed to by the parties.

          (b) Buyer shall prepare and deliver the following:

                    (1) An AC Form 8050-1 Aircraft Registration  Application for
               registration  of the Aircraft in the name of the Buyer for filing
               with the FAA.

     8.02 Closing.  On the Closing Date, Buyer shall deliver the Purchase Price.
Upon receipt of the entire  Purchase  Price,  Buyer shall  record all  documents
delivered  pursuant to Section  8.01 which are  necessary to convey title to the
Aircraft to Buyer,  free and clear of all Liens,  and Seller  shall  deliver all
other documents described in Section 8.01(a) to Buyer. All transactions shall be
deemed to have  occurred on the Closing Date  simultaneously.  Upon Delivery and
the  filing  of the FAA Bill of Sale  and of the  releases  of all  Liens on the
Aircraft with the FAA  Registration  Office in Oklahoma City and any  applicable
state filing office, Buyer shall immediately deliver or cause to be delivered to
Seller the Acceptance Certificate.

                                    ARTICLE 9

                            ASSIGNMENT OF WARRANTIES,
                  SERVICE LIFE POLICIES AND PATENT INDEMNITIES

     9.01 Seller's  Assignment.  Seller hereby  assigns to Buyer as of Delivery,
any and all existing  assignable  warranties,  service life  policies and patent
indemnities of  manufacturers  and maintenance  and overhaul  agencies to or for
Seller,  of and for the Engines,  the Airframe  and/or the Aircraft.  At Buyer's
request,  Seller shall give Buyer reasonable  assistance in enforcing the rights
of Buyer  arising  under  such  warranties,  service  life  policies  and patent
indemnities,  but Buyer  shall  reimburse  Seller for the  reasonable  costs and
expenses incurred by Seller in rendering such assistance. Upon request by Buyer,
Seller shall give written notice to any such  manufacturers  or maintenance  and
overhaul  agencies of the assignment of such  warranties,  service life policies
and patent  indemnities to Buyer. In the event any of the foregoing  warranties,
service life policies and patent  indemnities are not assignable,  Seller agrees
to act as agent for and use its best  efforts  to obtain  the  benefits  of such
warranties,  service  life  policies and patent  indemnities  for the benefit of
Buyer.

                                   ARTICLE 10

                               TAXES AND EXPENSES

     10.01  Payment  of Taxes.  Buyer  shall do all things  necessary  to obtain
exemption from any and all taxes,  excises,  duties and assessments  whatsoever,
including,  without limitation,  sales, use and similar taxes arising solely out
of the sale and  delivery  of the  Aircraft  in any manner  levied,  assessed or
imposed by the any state, local or federal authority, and Buyer hereby agrees to
indemnify Seller for any and all such taxes, excises, duties and assessments.

     10.02 Expenses.

          (a) Seller  shall be  responsible  for paying  Seller's  broker's  and
     attorney's  fees for services in  connection  with the sale and transfer of
     ownership of the Aircraft.

          (b)  Buyer  shall be  responsible  for  paying  Buyer's  broker's  and
     attorney's  fees for services in connection  with the purchase and transfer
     of ownership of the Aircraft.

                                   ARTICLE 11

                             DESTRUCTION OF AIRCRAFT

     11.01.  Loss or Damage to Aircraft  Prior to Delivery.  Should the Aircraft
suffer a total or a constructive total loss prior to Delivery, the parties shall
have no further liability to each other with respect to the sale and Delivery of
the Aircraft.

                                   ARTICLE 12

                                  MISCELLANEOUS

     12.01 Assignment.  This Agreement,  and the rights and obligations  created
hereunder,  shall not be assignable or delegable by either party hereto  without
the prior written  consent of the other party.  Subject to the  foregoing,  this
Agreement  shall be binding upon and inure to the benefit of the parties,  their
respective successors and assigns.

     12.02 Headings. The headings used herein are for convenience only and shall
not be  considered  part of any Article for  purposes of  construing  provisions
hereof.

     12.03 Notices and Requests. All notices and other communications authorized
hereunder  shall,  except where  specifically  provided  otherwise,  be given in
writing either by personal delivery to an officer of the party to whom notice is
given,  or by registered or certified  mail,  return  receipt  requested,  or by
telecopier,  and the date upon which any such notice is so personally  delivered
(or if the notice is given by  registered or certified  mail, or by  telecopier,
the date upon which it is received by the  addressee)  shall be deemed to be the
date of such notice, irrespective of the date appearing therein.

                  Buyer shall be addressed:
                           Pre-Paid Legal Services, Inc.
                           One Pre-Paid Way
                           Ada, Oklahoma  74820
                           Attention:.......Randy Harp

                  Seller shall be addressed:
                           S&S Aviation LLC
                           2800 Airport Road, Hangar 1, Box 6
                           Ada, Oklahoma  74820
                           Attention: ......Harland Stonecipher

     12.04 Entire Agreement. This Agreement supersedes all previous discussions,
negotiations and communications and constitutes the entire agreement between the
parties with respect to the subject matter hereof and shall not in any manner be
supplemented,  amended or modified  except by a written  instrument  executed on
behalf of the parties by their duly authorized  representatives  and executed on
or after the date hereof.

     12.05  Governing Law. This  Agreement  shall be construed and determined in
accordance with the laws of the State of Oklahoma.

     12.06  Payments.  All  payments  due and owing  hereunder  shall be made in
immediately  available  funds  without any  deduction  for any  counterclaim  or
setoff.

     12.07  Execution  in  Counterparts.  This  Agreement  may  be  executed  in
counterparts, each of which shall constitute an original document.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.

SELLER:                                            BUYER:

S&S AVIATION LLC                                  PRE-PAID LEGAL SERVICES, INC.

By:      /s/ Harland C. Stonecipher               By:      /s/ Randy Harp     
         ---------------------------              --------------------------
Name:    Harland Stonecipher                      Name:    Randy Harp
Title:   Manager                                  Title: Chief Operating Officer

and

By:      /s/ Wilburn L. Smith               
         -----------------------------------
Name:    Wilburn Smith
Title:   Manager

                                    EXHIBIT A

                              WARRANTY BILL OF SALE

     For  $1.00 and other  good and  valuable  consideration,  the  receipt  and
sufficiency  of which are hereby  acknowledged,  S&S Aviation LLC ("Seller") has
bargained, sold, conveyed,  transferred and delivered and by these presents does
bargain,  sell,  convey,  transfer and deliver to Pre-Paid Legal Services,  Inc.
("Buyer") the MU 300 model  Mitsubishi  Aircraft  aircraft  with  manufacturer's
serial number  A024SA and United  States  nationality  and  registration  number
N674AC,  including the JT15D-4D  model Pratt and Whitney  aircraft  engines with
manufacturer's  serial numbers PCE-70858 and PCE-71013;  (ii) all data, records,
manuals,  aircraft  and  maintenance  log  books,  and  manufacturer's  customer
bulletins  relating  thereto;  and (iii) all  instruments,  accessories,  parts,
fittings,  special tools and equipment installed thereon or related thereto (all
of the foregoing is hereinafter collectively referred to as the "Aircraft"). The
terms of sale for the Aircraft are set forth in the Aircraft Purchase  Agreement
dated November __, 2004,  between Seller and Buyer, and are incorporated  herein
by reference.

     Seller  hereby  warrants  that at the  time of  transfer  of  title  to the
Aircraft hereunder, Seller has good, legal and beneficial title to the Aircraft,
free and clear of all mortgages, claims, liens, charges, encumbrances,  security
interests,  leases and other rights of others,  and that Seller will warrant and
defend such title against the claims and demands of all persons.

     This  Warranty  Bill of Sale shall be  governed by the laws of the State of
Oklahoma.

     IN WITNESS  WHEREOF,  Seller has caused  this  Warranty  Bill of Sale to be
executed and delivered to Buyer this ___ day of ___________, 2004.



                            S&S AVIATION LLC

                            By:      /s/ Harland C. Stonecipher         
                            -----------------------------------
                            Name: Harland Stonecipher
                            Title:   Manager

                                      and

                            By:      /s/ Wilburn L. Smith               
                            -----------------------------------
                            Name:    Wilburn Smith
                            Title:   Manager








                                    EXHIBIT B


ACCEPTANCE CERTIFICATE

Place of Delivery:  ______________________________

Date of Delivery:  _______________________________

Time of Delivery:  _______________________________

     Received from S&S Aviation LLC ("Seller"),  at the time and place set forth
above, in accordance with and subject to the Aircraft  Purchase  Agreement dated
December 9th, 2004,between Seller and Pre-Paid Legal Services, Inc. ("Buyer").

     One MU 300 model Mitsubishi  Aircraft aircraft with  manufacturer's  serial
number A024SA and United States  nationality  and  registration  number  N674AC,
including  the  JT15D-4D   model  Pratt  and  Whitney   aircraft   engines  with
manufacturer's serial numbers PCE-70858 and PCE-71013 (the "Aircraft").

     The  undersigned is authorized by Buyer to accept delivery of the Aircraft,
and hereby accepts it on behalf of Buyer.

     IN  WITNESS   WHEREOF,   Buyer  and  Seller  have  caused  this  Acceptance
Certificate to be executed by their duly authorized representatives this 9th day
of December, 2004.

Aircraft Delivered by:                        Aircraft Received and Accepted by:

S&S AVIATION LLC                              PRE-PAID LEGAL SERVICES, INC.



By:   /s/ Harland C. Stonecipher                  By:       /s/ Randy Harp      
         -----------------------                 ----------------------------
Name:    Harland C. Stonecipher                     Name:     Randy Harp
Title:                                              Title:  
         -----------------------                          -------------------
       




                                  EXHIBIT 10.14

                           AIRCRAFT PURCHASE AGREEMENT


     THIS AIRCRAFT PURCHASE  AGREEMENT (this  "Agreement") is entered into as of
the 9th day of December,  2004,  by and between  Harland C.  Stonecipher  and/or
Shirley A. Stonecipher and Stonecipher Aviation LLC, a limited liability company
organized and existing  under the laws of Oklahoma,  having offices at Rt. 1 Box
39,  Centrahoma,  Oklahoma 74534  (collectively,  "Seller"),  and Pre-Paid Legal
Services,  Inc., a corporation organized and existing under the laws of Oklahoma
("Buyer"), having offices at One Pre-Paid Way, Ada, Oklahoma 74820.

                              W I T N E S S E T H :

     WHEREAS,  Seller desires to sell the Aircraft (as hereinafter defined), and
Buyer  desires  to  purchase  the  Aircraft  in  accordance  with the  terms and
conditions hereinafter set forth for the purpose of resale;

     NOW,  THEREFORE,  in  consideration  of the mutual covenants and agreements
herein contained, the parties hereto hereby agree as follows:

                                    ARTICLE 1

                                   DEFINITIONS

     1.01 Definitions. As used in this Agreement:
                      

     "Aircraft"  shall mean one (1) used 200-Super King Air model Beech Aircraft
Company  aircraft with  manufacturer's  serial number BB-711,  and United States
nationality and  registration  number N1162V and hereinafter  referred to as the
"Airframe", together with the Engines and all Parts installed thereon.

     "Bill of Sale" shall mean a limited  warranty Bill of Sale conveying  title
to the Aircraft to Buyer, substantially in the form of Exhibit A annexed hereto,
duly executed by Seller and delivered to Buyer on or before the Closing Date.

     "Closing  Date" shall mean  November 30, or such other  business day as the
parties may mutually  select,  provided that the Seller is then in possession of
the entire Purchase Price in immediately available funds, and a Bill of Sale and
FAA Bill of Sale duly executed by Seller,  all Uniform  Commercial  Code and FAA
documents  necessary to convey to Buyer title to the Aircraft  free and clear of
all Liens, and all other documents  required to be delivered pursuant to Section
9.01.

     "Delivery" shall occur on the Closing Date when all conditions set forth in
Sections 8.01 and 8.02 have been satisfied.

     "Engines" shall mean the PT6A-41 model Pratt and Whitney  engines,  bearing
manufacturer's  serial numbers PCE-81679 and PCE-81683,  and all Parts installed
thereon, installed on the Aircraft.

     "FAA"   shall  mean  the  United   States  of  America   Federal   Aviation
Administration, or any successor agency thereto.

     "FAA  Bill of Sale"  shall  mean an FAA Bill of Sale (AC Form  8050-2)  for
aircraft conveying title to the Aircraft to Buyer.

     "Lien" or "Liens" shall mean each of any mortgage,  pledge,  lien,  charge,
encumbrance,  security  interest  or  lease  (including  any  conditional  sales
agreement, equipment trust agreement or other title retention agreement).

     "Part" or "Parts"  shall mean each of all  appliances,  parts,  components,
instruments,  appurtenances,  accessories,  furnishings  and other  equipment or
property of whatever nature (including, without limitation, avionics, radios and
radar,  but excluding  the Engines and Airframe)  which may from time to time be
incorporated or installed in or attached to the Airframe or the Engines.

     "Purchase  Price" shall mean a total of One Million  Eighty Three  Thousand
Three Hundred Fifty Five United States Dollars (U.S. $1,083,355.00).

                                    ARTICLE 2

                             SUBJECT MATTER OF SALE

     2.01 The Purchase  and Sale.  Subject to the terms and  conditions  of this
Agreement,  Seller shall sell and deliver to Buyer, free and clear of all Liens,
and Buyer shall  purchase and accept  Delivery  from Seller of, the Aircraft and
the Parts  installed  thereon.  THE  AIRCRAFT  SHALL BE  PURCHASED  HEREUNDER AT
DELIVERY  ON AN "AS IS,  WHERE IS" BASIS AND,  EXCEPT FOR  SELLER'S  WARRANTY OF
TITLE CONTAINED IN SECTION 7.01(a) AND IN THE BILL OF SALE AND THE PROVISIONS OF
SECTION 5.01, SELLER MAKES NO WARRANTIES OR REPRESENTATIONS  WITH RESPECT TO THE
AIRCRAFT WHICH SHALL SURVIVE SALE AND DELIVERY.  SELLER'S  WARRANTY OF TITLE SET
FORTH IN SECTION 7.01(a) IS EXCLUSIVE AND BUYER,  CONCURRENTLY WITH THE SALE AND
DELIVERY  HEREUNDER OF THE AIRCRAFT,  EXCEPT FOR THE PROVISIONS OF SECTION 5.01,
HEREBY  WAIVES,  RELEASES AND RENOUNCES ALL OTHER  WARRANTIES,  PATENT AND OTHER
INDEMNITIES,  OBLIGATIONS  AND  LIABILITIES OF SELLER OR ITS ASSIGNS AND ANY AND
ALL RIGHTS, CLAIMS AND REMEDIES OF BUYER AGAINST SELLER OR ITS ASSIGNS,  EXPRESS
OR IMPLIED,  ARISING BY LAW OR OTHERWISE WITH RESPECT TO ANY  NON-CONFORMANCE OR
DEFECT IN THE AIRCRAFT SO DELIVERED OR OTHER THINGS DELIVERED,  FURNISHED, SOLD,
OR  TRANSFERRED  UNDER  THIS  AGREEMENT,  INCLUDING  BUT NOT  LIMITED TO (A) ANY
IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING, OR USAGE
OF TRADE,  (B) ANY  IMPLIED  WARRANTY  OF  MERCHANTABILITY  OR  FITNESS  FOR ANY
PURPOSE,  (C) ANY  OBLIGATION OR LIABILITY WITH RESPECT TO ANY ACTUAL OR ALLEGED
INFRINGEMENT OR SIMILAR MATTER, AND (D) ANY OBLIGATION,  LIABILITY, RIGHT, CLAIM
OR REMEDY FOR LOSS OR DAMAGE TO THE AIRCRAFT, FOR LOSS OF USE, REVENUE OR PROFIT
WITH  RESPECT  TO  THE  AIRCRAFT,  OR  FOR  ANY  OTHER  DIRECT,   INCIDENTAL  OR
CONSEQUENTIAL DAMAGES, ARISING FROM THE FOREGOING.

                                    ARTICLE 3

                           PURCHASE PRICE AND PAYMENT

     3.01  Purchase  Price.  Buyer shall pay Seller the  Purchase  Price for the
Aircraft in full on the Closing Date upon accepting Delivery of the Aircraft.

                                    ARTICLE 4

                       DELIVERY, INSPECTION AND ACCEPTANCE

     4.01 Delivery. The Aircraft shall be delivered to Buyer on the Closing Date
at such place as to which Buyer and Seller may agree.

     4.02 Inspection.  Buyer has had or shall be given adequate opportunities to
inspect the Aircraft in accordance with any manufacturer's inspection procedures
for used aircraft and engines. Buyer's acceptance of Delivery of the Aircraft on
the Closing Date shall confirm that Buyer is satisfied with the condition of the
Aircraft and accepts such Delivery AS IS.

     4.03 Title and Risk of Loss.  Title to the  Aircraft  shall be  transferred
from Seller to Buyer upon Delivery.  Until such  completion of Delivery,  Seller
shall bear all risk of loss,  injury,  or  destruction or damage of the Aircraft
and shall ensure that such risk is properly  insured with a reputable  insurance
company. From and after Delivery,  Buyer shall bear all risk of loss, injury, or
destruction or damage of the Aircraft.

                                    ARTICLE 5

                              CONDITION OF AIRCRAFT

     5.01 Delivery Condition Criteria. At Delivery:  (i) the Aircraft shall have
installed  thereon the Engines and all Parts which were installed  thereon as of
the date of this Agreement,  (or  replacements  for such Parts having like value
and utility), and such Parts shall be functional within FAA guidelines or, if no
such  guidelines  exist,  applicable  published  industry  tolerances;  (ii) the
Aircraft shall have a currently effective Certificate of Airworthiness issued by
the FAA and, in any event shall be in such state of maintenance and repair as to
qualify for a Certificate of Airworthiness issued by the FAA; (iii) the Aircraft
shall  be  suitable  for  operation  under  Part  91  of  the  Federal  Aviation
Regulations  and shall  comply with all  outstanding  FAA  regulations  or other
mandatory  maintenance  directives,  including  Chapter V  corrosion  inspection
requirements, airworthiness directives or other instructions or others requiring
compliance; (iv) the Aircraft shall be free and clear of all Liens and rights of
others;  and (v) the Aircraft  shall have been  configured and equipped as it is
configured and equipped on the date of this Agreement.

                                    ARTICLE 6

                 AIRCRAFT DOCUMENTATION: ACCEPTANCE CERTIFICATE

     6.01 Records.

          (a) At  Delivery,  Seller  shall  provide to Buyer all logs,  manuals,
     certificates, data and inspection, modification and restoration records and
     other  materials  as are  required  by any  governmental  authority  having
     jurisdiction  over the Aircraft to be maintained in respect of the Aircraft
     (collectively, the "Aircraft Documentation").

          (b) Seller shall also provide all  additional  documentation,  if any,
     necessary to effect the assignments provided by Article 10 hereof.

     6.02  Acceptance  Certificate.  Upon Delivery of the Aircraft in accordance
with this  Agreement,  Buyer shall deliver to Seller a duly executed  Acceptance
Certificate in the form of Exhibit "B" hereto (with appropriate insertions).

                                    ARTICLE 7

                         REPRESENTATIONS AND WARRANTIES

     7.01  Seller's  Representations  and  Warranties.   Seller  represents  and
warrants to Buyer that:
                         
          (a) At the time of  Delivery  of the  Aircraft,  Seller will have full
     legal and  beneficial  title to the Aircraft,  together with full power and
     lawful authority to deliver the Aircraft to Buyer, and upon delivery of the
     Bill of Sale and FAA Bill of Sale to Buyer in accordance with Section 9.01,
     Seller  shall  have  transferred  full  legal and  beneficial  title to the
     Aircraft to Buyer, free and clear of all Liens.

          (b) Seller is a limited  liability  company duly organized and validly
     existing and in good standing under the laws of the State of Oklahoma.

          (c) Seller has the corporate power to execute this Agreement.

          (d) The making,  execution and performance of this Agreement by Seller
     has been duly authorized by all necessary  corporate  action,  and will not
     violate,  breach or  contravene  any  provision  of law or the  articles of
     organization or the operating agreement of Seller, or any license or permit
     under which Seller conducts its business, and will not result in the breach
     of or constitute a default under any indenture,  credit or loan  agreement,
     mortgage or other  instrument to which Seller is a party or by which Seller
     may be bound, and this Agreement constitutes a valid and binding obligation
     of Seller enforceable in accordance with its terms.

          (e) At Delivery,  the  Aircraft is  possessed  of all Parts  installed
     thereon as of the date of this Agreement (or replacements for such Parts of
     equal value and utility) and complies with the provisions of Section 5.01.

     7.02 Buyer's Representations and Warranties.  Buyer represents and warrants
to Seller that:
                      
          (a) Buyer is a corporation  duly organized and validly  existing under
     the laws of the State of Oklahoma.

          (b) Buyer has the corporate power to execute this Agreement.

          (c) The making,  execution and  performance of this Agreement by Buyer
     has been duly authorized by all necessary  corporate  action,  and will not
     violate,  breach or contravene any provisions of law or the  certificate of
     incorporation  or the bylaws of Buyer, and will not result in the breach of
     or  constitute a default  under any  indenture,  credit or loan  agreement,
     mortgage  or other  instrument  to which Buyer is a party or by which Buyer
     may be bound, and this Agreement constitutes a valid and binding obligation
     of Buyer enforceable in accordance with its terms.

     7.03 Survival of  Warranties.  All  representations  and  warranties of the
parties  contained in this Article 7 shall be fully effective and true as of the
Closing Date and shall  survive  Delivery of the  Aircraft,  except for Seller's
representation in Section 7.01(e) which shall be true as of the Closing Date but
shall not survive such Closing Date.

                                    ARTICLE 8

                              CONDITIONS PRECEDENT

     8.01 Conditions Precedent to Buyer's Obligations.  The obligations of Buyer
to consummate the transaction contemplated hereby are subject to and conditional
upon the following  conditions having been met (or waived by Buyer) on or before
the Closing Date:

          (a) Buyer shall have  received  all  documents  referred to in Section
     9.01 hereof.

          (b) All representations and warranties of Seller made pursuant to this
     Agreement shall be true and correct as of the Closing Date.

     8.02  Conditions  Precedent to Seller's  Obligations.  The  obligations  of
Seller to  consummate  the  transaction  contemplated  hereby is  subject to and
conditional upon the following  conditions having been met (or waived by Seller)
on or before the Closing Date:

          (a) Seller shall have  received all the Purchase  Price in  accordance
     with Section 3.01.

          (b) Seller shall have received all documents  required to be delivered
     by Buyer pursuant to Section 9.

                                    ARTICLE 9

                                     CLOSING

     9.01 Documents. On or before the Closing Date:
                      
          (a) Except as otherwise provided in this Section 9.01(a), Seller shall
     deliver, or cause to be delivered, to Buyer the following:

                    (1) A Bill of Sale conveying to Buyer full right,  title and
               interest  in and  to the  Aircraft  and  the  FAA  Bill  of  Sale
               conveying  to  Buyer  full  right,  title  and  interest  in  the
               Aircraft, free and clear of all Liens.

                    (2) A current  standard  FAA  Certificate  of  Airworthiness
               which shall be on board the Aircraft.

                    (3) Releases,  satisfactions  and/or terminations of any and
               all Liens against the Aircraft.

                    (4) All Aircraft Documentation as set forth in Section 6.01,
               which shall be on board the Aircraft unless alternative  delivery
               arrangements are agreed to by the parties.

          (b) Buyer shall prepare and deliver the following:

                    (1) An AC Form 8050-1 Aircraft Registration  Application for
               registration  of the Aircraft in the name of the Buyer for filing
               with the FAA.

     9.02 Closing.  On the Closing Date, Buyer shall deliver the Purchase Price.
Upon receipt of the entire  Purchase  Price,  Buyer shall  record all  documents
delivered  pursuant to Section  9.01 which are  necessary to convey title to the
Aircraft to Buyer,  free and clear of all Liens,  and Seller  shall  deliver all
other documents described in Section 9.01(a) to Buyer. All transactions shall be
deemed to have  occurred on the Closing Date  simultaneously.  Upon Delivery and
the  filing  of the FAA Bill of Sale  and of the  releases  of all  Liens on the
Aircraft with the FAA  Registration  Office in Oklahoma City and any  applicable
state filing office, Buyer shall immediately deliver or cause to be delivered to
Seller the Acceptance Certificate.

                                   ARTICLE 10

                            ASSIGNMENT OF WARRANTIES,
                  SERVICE LIFE POLICIES AND PATENT INDEMNITIES

     10.01 Seller's  Assignment.  Seller hereby assigns to Buyer as of Delivery,
any and all existing  assignable  warranties,  service life  policies and patent
indemnities of  manufacturers  and maintenance  and overhaul  agencies to or for
Seller,  of and for the Engines,  the Airframe  and/or the Aircraft.  At Buyer's
request,  Seller shall give Buyer reasonable  assistance in enforcing the rights
of Buyer  arising  under  such  warranties,  service  life  policies  and patent
indemnities,  but Buyer  shall  reimburse  Seller for the  reasonable  costs and
expenses incurred by Seller in rendering such assistance. Upon request by Buyer,
Seller shall give written notice to any such  manufacturers  or maintenance  and
overhaul  agencies of the assignment of such  warranties,  service life policies
and patent  indemnities to Buyer. In the event any of the foregoing  warranties,
service life policies and patent  indemnities are not assignable,  Seller agrees
to act as agent for and use its best  efforts  to obtain  the  benefits  of such
warranties,  service  life  policies and patent  indemnities  for the benefit of
Buyer.

                                   ARTICLE 11

                               TAXES AND EXPENSES

     11.01 Payment of Taxes. Buyer shall pay any and all taxes, excises,  duties
and  assessments  whatsoever,  including,  without  limitation,  sales,  use and
similar taxes arising solely out of the sale and delivery of the Aircraft in any
manner levied, assessed or imposed by the any state, local or federal authority,
other than any income tax of Seller or Seller's owners,  and Buyer hereby agrees
to indemnify Seller for any and all such taxes, excises, duties and assessments.

     11.02 Expenses.

          (a) Seller  shall be  responsible  for paying  Seller's  broker's  and
     attorney's  fees for services in  connection  with the sale and transfer of
     ownership of the Aircraft.

          (b)  Buyer  shall be  responsible  for  paying  Buyer's  broker's  and
     attorney's  fees for services in connection  with the purchase and transfer
     of ownership of the Aircraft.

                                   ARTICLE 12

                             DESTRUCTION OF AIRCRAFT

     12.01.  Loss or Damage to Aircraft  Prior to Delivery.  Should the Aircraft
suffer a total or a constructive total loss prior to Delivery, the parties shall
have no further liability to each other with respect to the sale and Delivery of
the Aircraft.

                                   ARTICLE 13

                                  MISCELLANEOUS

     13.01 Assignment.  This Agreement,  and the rights and obligations  created
hereunder,  shall not be assignable or delegable by either party hereto  without
the prior written  consent of the other party.  Subject to the  foregoing,  this
Agreement  shall be binding upon and inure to the benefit of the parties,  their
respective successors and assigns.

     13.02 Headings. The headings used herein are for convenience only and shall
not be  considered  part of any Article for  purposes of  construing  provisions
hereof.

     13.03 Notices and Requests. All notices and other communications authorized
hereunder  shall,  except where  specifically  provided  otherwise,  be given in
writing either by personal delivery to an officer of the party to whom notice is
given,  or by registered or certified  mail,  return  receipt  requested,  or by
telecopier,  and the date upon which any such notice is so personally  delivered
(or if the notice is given by  registered or certified  mail, or by  telecopier,
the date upon which it is received by the  addressee)  shall be deemed to be the
date of such notice, irrespective of the date appearing therein.

                  Buyer shall be addressed:

                           Pre-Paid Legal Services, Inc.
                           One Pre-Paid Way
                           Ada, Oklahoma  74820
                           Attention:       Randy Harp

                  Seller shall be addressed:

                           Stonecipher Aviation LLC
                           Rt. 1, Box 39
                           Centrahoma, Oklahoma  74534
                           Attention:       Harland Stonecipher

     13.04 Entire Agreement. This Agreement supersedes all previous discussions,
negotiations and communications and constitutes the entire agreement between the
parties with respect to the subject matter hereof and shall not in any manner be
supplemented,  amended or modified  except by a written  instrument  executed on
behalf of the parties by their duly authorized  representatives  and executed on
or after the date hereof.

     13.05  Governing Law. This  Agreement  shall be construed and determined in
accordance with the laws of the State of Oklahoma.

     13.06  Payments.  All  payments  due and owing  hereunder  shall be made in
immediately  available  funds  without any  deduction  for any  counterclaim  or
setoff.

     13.07  Execution  in  Counterparts.  This  Agreement  may  be  executed  in
counterparts, each of which shall constitute an original document.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.


SELLER:                                              BUYER:

STONECIPHER AVIATION LLC                    PRE-PAID LEGAL SERVICES, INC.


By:   /s/ Harland C. Stonecipher            By:   /s/ Randy Harp            
         ---------------------------            --------------------------
Name:    Harland C. Stonecipher                 Name:    Randy Harp
Title:                                          Title:   Chief Operating Officer
        ----------------------------


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


/s/ Shirley A. Stonecipher
--------------------------          
    Shirley A. Stonecipher






                                       114

                                    EXHIBIT A

                              WARRANTY BILL OF SALE

     For  $1.00 and other  good and  valuable  consideration,  the  receipt  and
sufficiency  of  which  are  hereby   acknowledged,   Stonecipher  Aviation  LLC
("Seller") has bargained, sold, conveyed, transferred and delivered and by these
presents  does bargain,  sell,  convey,  transfer and deliver to Pre-Paid  Legal
Services,  Inc.  ("Buyer") the 200-Super King Air model Beech  Aircraft  Company
aircraft with manufacturer's  serial number BB-711 and United States nationality
and  registration  number N1162V,  including the PT6A-41 model Pratt and Whitney
aircraft  engines with  manufacturer's  serial numbers  PCE-81679 and PCE-81683;
(ii) all data,  records,  manuals,  aircraft  and  maintenance  log  books,  and
manufacturer's  customer bulletins relating thereto;  and (iii) all instruments,
accessories,  parts, fittings,  special tools and equipment installed thereon or
related thereto (all of the foregoing is hereinafter collectively referred to as
the  "Aircraft").  The  terms  of sale  for the  Aircraft  are set  forth in the
Aircraft Purchase  Agreement dated December __, 2004,  between Seller and Buyer,
and are incorporated herein by reference.

     Seller  hereby  warrants  that at the  time of  transfer  of  title  to the
Aircraft hereunder, Seller has good, legal and beneficial title to the Aircraft,
free and clear of all mortgages, claims, liens, charges, encumbrances,  security
interests,  leases and other rights of others,  and that Seller will warrant and
defend such title against the claims and demands of all persons.

     This  Warranty  Bill of Sale shall be  governed by the laws of the State of
Oklahoma.

     IN WITNESS  WHEREOF,  Seller has caused  this  Warranty  Bill of Sale to be
executed and delivered to Buyer this ___ day of December, 2004.



                            STONECIPHER AVIATION LLC


                            By:      /s/ Harland C. Stonecipher                
                               --------------------------------------------
                                     Name:    Harland C. Stonecipher           
                                     Title:   
                                              ------------------------------

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


                                              /s/ Shirley A. Stonecipher
                                              --------------------------       
                                              Shirley A. Stonecipher





                                    EXHIBIT B


                             ACCEPTANCE CERTIFICATE

Place of Delivery:  ______________________________

Date of Delivery:  _______________________________

Time of Delivery:  _______________________________

     Received from  Stonecipher  Aviation LLC ("Seller"),  at the time and place
set forth  above,  in  accordance  with and  subject  to the  Aircraft  Purchase
Agreement  dated December 9, 2004,  between Seller and Pre-Paid Legal  Services,
Inc. ("Buyer").

     One  200-Super  King  Air  model  Beech  Aircraft   Company  aircraft  with
manufacturer's  serial number BB-711, FAA Registration  Number N1162V,  equipped
with PT6A-41 model Pratt and Whitney aircraft engines with manufacturer's serial
numbers PCE-81679 and PCE-81683 (the "Aircraft").

     The  undersigned is authorized by Buyer to accept delivery of the Aircraft,
and hereby accepts it on behalf of Buyer.

     IN  WITNESS   WHEREOF,   Buyer  and  Seller  have  caused  this  Acceptance
Certificate to be executed by their duly authorized representatives this 9th day
of December, 2004.

Aircraft Delivered by:              Aircraft Received and Accepted by:

STONECIPHER AVIATION LLC                           PRE-PAID LEGAL SERVICES, INC.


By:    /s/ Harland C. Stonecipher                  By:  /s/ Randy Harp        
         ---------------------------                  --------------------------
Name:  Harland C. Stonecipher                           Name:    Randy Harp
Title:                                                 Title:  
         ---------------------------                         -------------------


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


/s/ Shirley A. Stonecipher
---------------------------          
    Shirley A. Stonecipher





                                  EXHIBIT 10.15


                       Assignment and Assumption of Lease


     ASSIGNMENT AND ASSUMPTION OF LEASE (this  "Agreement"),  entered into as of
effective  as of  December  __,  2004  by  and  among  Harland  C.  and  Shirley
Stonecipher   (collectively,   "Assignor"),   Pre-Paid  Legal   Services,   Inc.
("Assignee"),  and Ada Public Works Authority ("Landlord").  Assignor,  Assignee
and Landlord are referred to collectively herein as the "Parties."

                                   WITNESSETH:

     WHEREAS,  Assignor,  as "Lessee," and Landlord, as "Lessor," are parties to
that lease dated  October 27, 1997 (the  "Lease"),  presently  covering a hangar
facility (the "Premises") located at the Ada Municipal Airport; and

     WHEREAS,  the Parties  mutually  desire (a) that Assignor assign all of its
right,  title and interest in, under and to the Lease to Assignee,  and (b) that
Landlord  consent to the assignment  contemplated  hereby,  all on the terms and
conditions hereinafter set forth.

     NOW,  THEREFORE,  in consideration of the mutual covenants contained herein
and  other  valuable  consideration,  the  receipt  and  adequacy  of which  are
expressly acknowledged, the Parties agree as follows:

     Effective Date. For all purposes under this Agreement,  the term "Effective
Date" shall mean the date hereof.

     Assignment and Assumption.

          (a)  Effective as of the  Effective  Date,  Assignor  hereby  assigns,
     transfers and sets over unto Assignee all of  Assignor's  right,  title and
     interest in, under and to (i) the Lease.  Assignor will deliver  possession
     of the Premises to Assignee on the Effective Date.

          (b) Assignee hereby accepts the foregoing assignment and hereby agrees
     to perform all of the terms and  conditions of the Lease to be performed on
     the part of Assignor and assumes all of the  liabilities and obligations of
     Assignor  under the Lease,  as amended  hereby,  arising or  accruing on or
     after the Effective Date, including, without limitation,  liability for the
     payment of rent and for the due performance of all the terms, covenants and
     conditions of the tenant pursuant to the Lease as amended hereby.

     Consent to Assignment.  Effective as of the Effective Date, Landlord hereby
(a) consents to the assignment effected hereby, (b) agrees to recognize Assignee
as the tenant under the Lease and thereby establish direct privity of estate and
privity of contract with Assignee, and (c) releases Assignor for any obligations
under the Lease after the Effective Date.


     Miscellaneous.

     Headings.  The section  headings  used herein are inserted for  convenience
only and  shall not  affect in any way the  meaning  or  interpretation  of this
Agreement.

     Governing  law.  This  Agreement  shall be  governed  by and  construed  in
accordance with the laws of the State of Oklahoma.

     Counterparts.  This Agreement may be executed in one or more  counterparts,
each of which  shall be  deemed  an  original  but all of  which  together  will
constitute one and the same instrument.

     IN WITNESS WHEREOF,  the parties have executed this Agreement as of the day
and year first above written.


LANDLORD:
Ada Public Works Authority

By: /s/ Darrell Nemecek
    --------------------
Name: Darrell Nemecek
Title:   Mayor/Chairman


ASSIGNOR:

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

/s/ Shirley Stonecipher
------------------------
    Shirley Stonecipher


ASSIGNEE:
Pre-Paid Legal Services, Inc.

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



<

                                  EXHIBIT 10.16

                          PRE-PAID LEGAL SERVICES, INC.
                       AMENDED DEFERRED COMPENSATION PLAN

     The formal plan document to amend the Company's Deferred  Compensation Plan
to comply  with  Section  409A of the  Internal  Revenue  Code as amended by the
American Jobs  Protection Act of 2004 has not yet been adopted  pending  further
guidance from the Internal  Revenue  Service,  but when adopted the plan will be
effective  as of January 1, 2005.  Other than  changes  designed  to comply with
these new provisions and to add additional  participants,  the amended plan will
be  substantially  the same as the existing  plan filed as Exhibit 10.11 to this
Report.









                                  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%

Legal Service Plans of Virginia, Inc.                           Virginia              100%

Ada Travel Service, Inc.                                        Oklahoma              100%

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

Pre-Paid Legal Access, Inc.                                     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 REGISTERED PUBLIC ACCOUNTING FIRM



We have issued our report dated February 25, 2005, 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, 2004. 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.  333-120403,  effective
November  12,  2004,  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 25, 2005




                                  EXHIBIT 31.1

                                  CERTIFICATION


I, Harland C. Stonecipher, Chief Executive Officer of the registrant, 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 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
     report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in  this  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 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-15(e) and 15d-15(e))  and internal  control over
     financial  reporting  (as  defined  in  Exchange  Act Rules  13a-15(f)  and
     15d-15(f)) for the registrant and have:

     (a)  Designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  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 report is being prepared;

     (b)  Designed such internal  control over  financial  reporting,  or caused
          such internal  control over  financial  reporting to be designed under
          our  supervision,   to  provide  reasonable  assurance  regarding  the
          reliability  of financial  reporting and the  preparation of financial
          statements for external purposes in accordance with generally accepted
          accounting principles;

     (c)  Evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures and presented in this report our conclusions  about the
          effectiveness of the disclosure controls and procedures, as of the end
          of the period covered by this report based on such evaluation; and

     (d)  Disclosed  in this  report  any  change in the  registrant's  internal
          control over financial reporting that occurred during the registrant's
          most recent fiscal quarter (the registrant's  fourth fiscal quarter in
          the case of an annual  report)  that has  materially  affected,  or is
          reasonably  likely to materially  affect,  the  registrant's  internal
          control over financial reporting.

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

     (a)  All significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably  likely to  adversely  affect the  registrant's  ability to
          record,  process,  summarize  and report  financial  information.

     (b)  Any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          control over financial reporting.


Dated: March 3, 2005        /s/ Harland C. Stonecipher
                            -------------------------------------------
                            Harland C. Stonecipher
                            Chief Executive Officer





E>


                                  EXHIBIT 31.2

                                  CERTIFICATION


I, Steve Williamson, Chief Financial Officer of the registrant, 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 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
     report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in  this  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 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-15(e) and 15d-15(e))  and internal  control over
     financial  reporting  (as  defined  in  Exchange  Act Rules  13a-15(f)  and
     15d-15(f)) for the registrant and have:

     (a)  Designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  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 report is being prepared;

     (b)  Designed such internal  control over  financial  reporting,  or caused
          such internal  control over  financial  reporting to be designed under
          our  supervision,   to  provide  reasonable  assurance  regarding  the
          reliability  of financial  reporting and the  preparation of financial
          statements for external purposes in accordance with generally accepted
          accounting principles;

     (c)  Evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures and presented in this report our conclusions  about the
          effectiveness of the disclosure controls and procedures, as of the end
          of the period covered by this report based on such evaluation; and

     (d)  Disclosed  in this  report  any  change in the  registrant's  internal
          control over financial reporting that occurred during the registrant's
          most recent fiscal quarter (the registrant's  fourth fiscal quarter in
          the case of an annual  report)  that has  materially  affected,  or is
          reasonably  likely to materially  affect,  the  registrant's  internal
          control over financial reporting.

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

     (a)  All significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably  likely to  adversely  affect the  registrant's  ability to
          record,  process,  summarize  and report  financial  information.

     (b)  Any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          control over financial reporting.


Dated: March 3, 2005        /s/ Steve Williamson
                            --------------------------------------
                            Steve Williamson
                            Chief Financial Officer







                                  Exhibit 32.1

                  CERTIFICATION PURSUANT TO 18 U.S.C. ss. 1350


     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, 2004 (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 3, 2005         /s/ Harland C. Stonecipher
                            ------------------------------------------
                            Harland C. Stonecipher
                            Chairman,   Chief  Executive  Officer  and
                            President






                                  Exhibit 32.2

                  CERTIFICATION PURSUANT TO 18 U.S.C. ss. 1350


     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, 2004 (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 3, 2005         /s/ Steve Williamson
                            --------------------------- 
                            Steve Williamson
                            Chief Financial Officer