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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
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(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, 2007
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from _____________ to ____________
Commission File Number: 1-9293
PRE-PAID LEGAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 73-1016728
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 if registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. Yes | | No |X|
Indicate by check mark if registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes | | No |X|
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 |X|.
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. Check one:
Large accelerated filer | | Accelerated filer |X| Non-accelerated file | |
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act) Yes | | No |X|
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, 2007: $576,352,000
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 15, 2008 there
were 12,432,491 shares of Common Stock, par value $.01 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of our definitive proxy statement for our 2008 annual meeting of
shareholders are incorporated into Part III of this Form 10-K by reference.
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EXPLANATORY NOTE
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This amendment is being filed soley for purposes of filing the financial
statements of the Pre-Paid Legal Services, Inc. Employee Stock Ownership and
Thrift Plan, as required by form 11-K for the fiscal year of the plan ended
December 31, 2007 pursuant to Rule 15d-21.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
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(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 40 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: June 30, 2008 By: /s/ Steve Williamson
-------------------------------------------
Steve Williamson
Chief Financial Officer
INDEX TO EXHIBITS
Exhibit No. Description
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3.1 Amended and Restated Certificate of Incorporation of the Company, as amended (Incorporated by
reference to Exhibit 3.1 of the Company's Report on Form 8-K dated June 27, 2005)
3.2 Amended and Restated Bylaws of the Company (Incorporated by reference to Exhibit 3.1 of the
Company's Report on Form 10-Q for the period ended 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 the Company's 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
the Company's 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 the Company's 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 the Company's 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 the Company's 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 the Company's Annual Report
on Form 10-K for the year ended December 31, 2002)
*10.7 Stock Option Plan, as amended effective May 2003 (Incorporated by reference to Exhibit 10.7 of the
Company's Annual Report on Form 10-K for the year ended December 31, 2004)
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 the Company's Quarterly Report on Form 10-Q for the six-months ended
June 30, 2002)
10.9 Form of Mortgage dated July 23, 2002 between Bank of Oklahoma, N.A. and the Company (Incorporated
by reference to Exhibit 10.3 of the Company's Quarterly Report on Form 10-Q for the six months
ended June 30, 2002)
*10.10 Deferred compensation plan effective November 6, 2002 (Incorporated by reference to Exhibit 10.14
of the Company's Annual Report on Form 10-K for the year ended December 31, 2002)
*10.11 Amended Deferred Compensation Plan effective January 1, 2005
(Incorporated by reference to Exhibit 10.16 of the Company's Report on Form 10-K for the year ended
December 31, 2004)
10.12 Credit Agreement dated June 23, 2006 among Pre-Paid Legal Services, Inc, the lenders signatory
thereto and Wells Fargo Foothill, Inc. as Arranger and Administrative Agent and Bank of Oklahoma,
N.A. (Incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed
June 27, 2006)
10.13 Security Agreement dated June 23, 2006 between Pre-Paid Legal Services, Inc and certain of its
subsidiaries and Wells Fargo Foothill, Inc., as Agent (Incorporated by reference to Exhibit 10.2 of
the Company's Current Report on Form 8-K filed June 26, 2006)
10.14 Guaranty Agreement dated June 23, 2006 between certain subsidiaries of Pre-Paid Legal Services,
Inc. and Wells Fargo Foothill, Inc., as Agent (Incorporated by reference to Exhibit 10.3 of the
Company's Current Report on Form 8-K filed June 27, 2006)
10.15 Mortgage, Assignment of Rents and Leases and Security Agreement by Pre-Paid Legal Services, Inc. in
favor of Wells Fargo Foothill, Inc as Agent (Incorporated by reference to Exhibit 10.4 of the
Company's Current Report on Form 8-K filed June 26, 2006)
10.16 First Amendment to Loan Agreement dated June 23, 2006 between Pre-Paid Legal Services, Inc. and
Bank of Oklahoma, N.A. (Incorporated by reference to Exhibit 10.5 of the Company's of the Company's
Current Report on Form 8-K filed June 26, 2006)
10.17 First Amendment to Credit Agreement dated September 10, 2007 between Pre-Paid Legal Services, Inc.
and the lenders named therein and Wells Fargo Foothill, Inc. as administrative agent
(Incorporated by reference to Exhibit 10.1 of the Company's of the Company's Current Report on Form
8-K filed September 10, 2007)
10.18 Term Loan Agreement dated September 28, 2007 between Pre-Paid Legal Services, Inc. and Wells Fargo
Equipment Finance, LLC (Incorporated by reference to Exhibit 10.1 of the Company's of the Company's
Current Report on Form 8-K filed October 2, 2007)
10.19 Form of Aircraft Mortgage and Security Agreement between Pre-Paid Legal Services, Inc. and Wells
Fargo Equipment Finance, LLC (Incorporated by reference to Exhibit 10.2 of the Company's of the
Company's Current Report on Form 8-K filed October 2, 2007)
10.20 Second Amendment to Credit Agreement dated February 22, 2008 between Pre-Paid Legal Services, Inc.
and the lenders named therein and Wells Fargo Foothill, Inc. as administrative agent
21.1 List of Subsidiaries of the Company (Incorporated by reference to Exhibit 21.1 of our Annual Report
on Form 10-K for the year ended December 31, 2005)
23.1 Consent of Grant Thornton LLP
23.2** Consent of Grant Thornton LLP relating to report concerning plan financial information included as
part of Exhibit 99.1
31.1 Certification of Harland C. Stonecipher, Chairman, Chief Executive Officer and President, Pursuant
to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.1(a)** Certification of Harland C. Stonecipher, Chairman, Chief Executive Officer and President, 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
31.2(a)** 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, Chief Executive Officer and President, Pursuant
to 18 U.S.C. Section 1350
32.1(a)** Certification of Harland C. Stonecipher, Chairman, Chief Executive Officer and President, 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
32.2(a)** Certification of Steve Williamson, Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350
99.1** Financial information relating to the Pre-Paid Legal Services, Inc. Employee Stock Ownership and
Thrift Plan, as required by Form 11-K for the fiscal year of the
plan ended December 31, 2007.
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* Constitutes a management contract or compensatory plan or arrangement required
to be filed as an exhibit to this report.
** Filed herewith. All other Exhibits have been previously filed.
EXHIBIT 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our report dated June 30, 2008, with respect to the financial
statements and supplemental schedules of the Pre-Paid Legal Services, Inc.
Employee Stock Ownership and Thrift Plan for the year ended December 31, 2007,
included in this Amendment No. 1 on Form 10-K/A of Pre-Paid Legal Services, Inc.
for the year ended December 31, 2007. We hereby consent to the incorporation by
reference of said report in the Registration Statement of Pre-Paid Legal
Services, Inc. on Form S-8 (File No. 33-82144, effective July 28, 1994).
/s/GRANT THORNTON LLP
Oklahoma City, Oklahoma
June 30, 2008
EXHIBIT 31.1(a)
CERTIFICATION
I, Harland C. Stonecipher, 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: June 30, 2008 /s/ Harland C. Stonecipher
--------------------------
Harland C. Stonecipher
Chief Executive Officer
EXHIBIT 31.2(a)
CERTIFICATION
I, Steve Williamson, 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: June 30, 2008 /s/ Steve Williamson
--------------------
Steve Williamson
Chief Financial Officer
Exhibit 32.1(a)
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, 2007 (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: June 30, 2008 /s/ Harland C. Stonecipher
--------------------------
Harland C. Stonecipher
Chairman, Chief Executive Officer
and President
Exhibit 32.2(a)
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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, 2007 (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: June 30, 2 008 /s/ Steve Williamson
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Steve Williamson
Chief Financial Officer
Exhibit 99.1
Financial information relating to the Pre-Paid Legal Services, Inc. Employee
Stock Ownership and Thrift Plan, as required by Form 11-K for the fiscal year of
the plan ended December 31, 2007.
C O N T E N T S
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FINANCIAL STATEMENTS
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
NOTES TO FINANCIAL STATEMENTS
SUPPLEMENTAL SCHEDULES
SCHEDULE H, LINE 4i--ASSETS HELD FOR INVESTMENT PURPOSES
SCHEDULE H, LINE 4j--REPORTABLE TRANSACTIONS
Report of Independent Registered Public Accounting Firm
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Trustee and Participants
Pre-Paid Legal Services, Inc. Employee Stock Ownership and Thrift Plan
We have audited the accompanying statements of net assets available for benefits
of Pre-Paid Legal Services, Inc. Employee Stock Ownership and Thrift Plan as of
December 31, 2007 and 2006, and the related statements of changes in net assets
available for benefits for the years then ended. These financial statements are
the responsibility of the Plan'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. The Plan is not required to have,
nor were we engaged to perform an audit of its internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Plan's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, 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 financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of Pre-Paid Legal
Services, Inc. Employee Stock Ownership and Thrift Plan as of December 31, 2007
and 2006, and the changes in net assets available for benefits for the years
then ended in conformity with accounting principles generally accepted in the
United States of America.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets held
at end of year and reportable transactions are presented for the purpose of
additional analysis and are not a required part of the basic financial
statements but are supplemental information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. These supplemental schedules are the
responsibility of the Plan's management. Such supplemental schedules have been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
/s/ GRANT THORNTON LLP
Oklahoma City, Oklahoma
June 30, 2008
Pre-Paid Legal Services, Inc. Employee Stock Ownership and Thrift Plan
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
December 31,
2007 2006
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ASSETS
Investments, at fair value
Pre-Paid Legal Services, Inc. common stock $ 10,117,316 $ 7,988,233
Participant-directed mutual funds 4,322,935 3,109,596
Common collective trust funds 593,477 485,693
Money market funds 4,129 706
Participant notes 199,560 169,900
Receivables
Employer contributions 480,202 471,497
Other receivables 6,327 -
Cash and cash equivalents 6,749 22,266
---------------- ----------------
Total assets 15,730,695 12,247,891
LIABILITIES
Accounts payable 20,854 21,624
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NET ASSETS AVAILABLE FOR BENEFITS AT FAIR VALUE 15,709,841 12,226,267
Adjustment from fair value to contract value for interest in collective trust
relating to fully benefit-responsive investment contracts 15,305 12,784
---------------- ----------------
NET ASSETS AVAILABLE FOR BENEFITS $ 15,725,146 $ 12,239,051
---------------- ----------------
The accompanying notes are an integral part of these statements.
Pre-Paid Legal Services, Inc. Employee Stock Ownership and Thrift Plan
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
Year ended December 31,
2007 2006
----------------- ----------------
Additions to net assets attributed to
Employer contributions $ 482,135 $ 471,497
Participant contributions 689,629 646,334
Interest and dividend income 303,397 167,056
Net appreciation in fair value of investments 3,237,827 495,567
---------------- ----------------
Total additions 4,712,988 1,780,454
Deductions from net assets attributed to
Benefits paid to participants 1,225,033 376,478
Administrative fees 1,860 1,000
---------------- ----------------
NET INCREASE IN NET ASSETS 3,486,095 1,402,976
Net assets available for benefits at beginning of year 12,239,051 10,836,075
---------------- ----------------
Net assets available for benefits at end of year $ 15,725,146 $ 12,239,051
---------------- ----------------
The accompanying notes are an integral part of these statements.
Pre-Paid Legal Services, Inc. Employee Stock Ownership and Thrift Plan
NOTES TO FINANCIAL STATEMENTS
December 31, 2007 and 2006
NOTE A - DESCRIPTION OF PLAN
The Pre-Paid Legal Services, Inc. Employee Stock Ownership and Thrift Plan
(the "Plan") was established on January 1, 1988 for the benefit of the
employees of Pre-Paid Legal Services, Inc. and its subsidiaries (the
"Company"). The Plan is administered by a committee (the "Committee") of
three employees appointed by the Company. The 401(k) Company serves as
Investment Manager. The Employer and Nationwide Trust Company, FSB
("Nationwide") have entered into a Trust Agreement whereby Nationwide acts
as Plan Trustee.
The following brief description of the provisions of the Plan is provided
for general information purposes only. Participants should refer to the
Plan agreement for more complete information.
Under the terms of the Plan, the Trustee may acquire, hold and dispose of
all cash and investments, including common and preferred stock of the
Company in accordance with the Committee's written investment policy.
Effective January 1, 2007, participants may direct the investment of 100%
(25% prior to January 1, 2007) of their Elective Deferral accounts to any
one or more of the investment funds designated by the Committee as
permissible under the written investment policy. In addition, prior to
January 1, 2007, participants who had attained the age of 55 had the right
to make an election to direct the investment of up to 100% of their
deferred compensation account and the vested portion of their Company
Contribution Account in one or more of those permissible funds.
Each participant or beneficiary shall have the sole right to vote shares of
Company common stock allocated to such participant's account. The right to
vote such shares shall be exercised by directing the Committee as to the
manner in which the shares shall be voted.
The Plan is a defined contribution plan covering certain employees of the
Company and employees of affiliated companies which are included in the
Company's consolidated tax return. The Plan year-end is December 31. All
employees at least 21 years of age are eligible to enroll in the Plan on
the first day of the month following the date the employee completes one
year of service (1,000 hours) within 12 consecutive months of his/her
employment date.
The Company may make discretionary contributions to the Plan for each Plan
year. The contributions may vary from year to year and are determined by
written action of the Board of Directors of the Company. Contributions may
be made only out of the Company's consolidated net profits before federal
and state income taxes from the current or a preceding year. The Company's
contribution may be paid to the Trustee either in cash, qualified employer
securities or in other property.
The discretionary matching company contribution is an amount determined, in
the sole discretion of the Company and added to amounts forfeited by other
participants, to match the following percentages of participants' deferred
compensation contributions (up to a maximum of 6%) for the Plan year. The
discretionary matching company contribution is allocated at the end of each
Plan year to each participant's Company Contribution Account based on the
following percentages:
Years of service
on first day of Matching
Plan year percentages
---------------- -----------
0-3 50%
4-5 75%
6 or more 100%
A participant may elect to defer a portion of his compensation in the form
of a contribution to his deferred compensation account under the Plan.
Participants contribute to the Plan on a pre-tax basis only. Subject to the
limitations contained in the Plan, a participant may elect to defer any
portion of his compensation. However, a participant may never defer more
than the lesser of the Internal Revenue Service limitation ($15,500 and
$15,000 for 2007 and 2006, respectively) in any Plan year or a percentage
of compensation greater than the maximum percentage of compensation
determined annually by the Committee.
Separate accounts are maintained for each participant in the Plan. When an
election is made by the participant to defer part of his compensation, an
Employee Deferred Compensation Account is established. Each participant
will also have a Company Contribution Account consisting of discretionary
matching contributions made by the Company and a proportionate share of
forfeitures.
All amounts in the participant's accounts are placed in a trust fund and
invested by the Trustee. The Trustee must invest the trust fund solely in
the interest of and for the exclusive purpose of providing benefits to the
participants and their beneficiaries while minimizing the expenses of
administering the Plan. Prior to January 1, 2007, all Company contributions
and up to 75% of the participant's contributions could be invested in
common stock of the Company, which are termed qualified employer
securities. Effective January 1, 2007, the Plan was amended to allow the
participants to direct the Trustee as to the investment of their
contributions including the portion, if any, to be invested in employer
securities.
A participant will be entitled to the full amount credited to his Company
Contribution Account at the normal retirement date or upon permanent
disability or death. If a participant terminates employment for any reason
after he has completed at least one year of service, he will be entitled to
receive a portion or all of his account, depending on his years of service.
The percentage of the Company Contribution Account to which a participant
is entitled and the percentage forfeited if a participant leaves the
Company for reasons other than retirement, permanent disability or death
prior to becoming fully vested is computed according to the following
formula:
Vested Forfeited
Years of service percentage percentage
------------------ ---------- ----------
Less than 1 0% 100%
1 but less than 2 20% 80%
2 but less than 3 40% 60%
3 but less than 4 60% 40%
4 but less than 5 80% 20%
5 or more 100% 0%
A participant will always be fully vested in his Employee Deferred
Compensation Account, regardless of his years of service.
Upon termination of a participant's employment with the Company, the
nonvested portion of the Company contribution is forfeited. Forfeitures are
used to reduce future Company contributions. At December 31, 2007,
forfeited nonvested accounts totaled approximately $5,000.
The Company may amend the Plan at any time to conform to the Internal
Revenue Code, Treasury Regulations and Rulings thereunder. The Company has
the right to terminate the Plan at any time upon prior written notice to
the Trustee and may direct the Trustee to liquidate the shares of
participants in the trust fund. Upon termination or permanent suspension of
contributions, the accounts of all participants affected thereby shall
become nonforfeitable and shall be distributed.
NOTE B - SUMMARY OF ACCOUNTING POLICIES
The following is a summary of the Plan's significant accounting policies.
1. Basis of Accounting
-------------------
The Plan's financial statements are prepared on the accrual basis of
accounting in conformity with accounting principles generally accepted in
the United States of America.
2. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents consist of the Plan's linked cash and money fund
accounts at a national brokerage firm which may not be federally insured.
The Plan has not experienced any losses in such accounts and believes it is
not exposed to any significant credit risks on cash and cash equivalents.
Money fund amounts have a unit value of $1 and balances are immediately
accessible by the Plan.
3. Investments
-----------
Investments are presented at fair value as measured by market prices in
active markets, including national securities exchanges. The cost of
Company common stock sold is determined on the basis of average cost.
Actual cost is used as a basis for sales of all other investments.
Investment transactions are recorded on a trade-date basis. The Plan's
interest in the collective trust is valued based on information reported by
the investment advisor using the audited financial statements of the
collective trust at year-end. Dividends are recorded on the ex-dividend
date.
The Plan presents in the statements of changes in net assets available for
benefits, the net appreciation (depreciation) in the fair value of its
investments, which consists of the realized gains or losses and the
unrealized appreciation (depreciation) on those investments.
As described in Financial Accounting Standards Board Staff Position, FSP
AAG INV-1 and SOP 94-4-1, Reporting on Fully Benefit-Responsive Investment
Contracts Held by Certain Investments Companies Subject to the AICPA
Investment Company Guide and Defined-Contribution Health and Welfare and
Pension Plans (the "FSP"), investment contracts held by a
defined-contribution plan are required to be reported at fair value.
However, contract value is the relevant measure attribute for that portion
of the net assets available for benefits of a defined-contribution plan
attributable to a fully-benefit responsive investment contracts because
contract value is the amount participants would receive if they were to
initiate permitted transactions under the terms of the Plan. The Plan
invests in investment contracts through a collective trust. As required by
the FSP, the Statement of Net Assets Available for Benefits presents the
fair value of the investment in the collective trust as well as the
adjustment of the investment in the collective trust from fair value to
contract value relating to the investment contracts. The Statement of
Changes in Net Assets Available for Benefits is prepared on a contract
value basis.
4. Participant Notes
-----------------
Participant notes are approved by the Committee and cannot be made for an
amount less than $1,040 or exceed the lesser of $50,000 reduced by the
excess of the highest outstanding balance of loans during the one-year
period ending on the day before the loan is made or one-half of the
participant's vested balance. The notes are secured by the participants'
vested interest in the Plan, bear interest and are repayable based upon
rates and terms set forth in the Loan Policy. Participant notes are valued
at cost which approximates fair value.
5. Noncash Contributions
---------------------
Contributions of Company common stock are recorded at fair value as
determined by the market price of Company common stock on the New York
Stock Exchange for the day when the company match is contributed.
6. Expenses
--------
The Company elected to pay substantially all of the Plan's administration
expenses in 2007 and 2006 although it is not obligated to do so. Any
expenses not paid by the Company are to be paid by the Plan and totaled
$1,860 in 2007 and $1,000 for 2006.
7. Estimates
---------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of net assets available for benefits and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of changes in net assets available for benefits during the
reporting period. Actual results could differ from those estimates.
Investment securities, in general, are exposed to various risks, such as
interest rate, credit and overall market volatility. Due to the level of
risk associated with certain investment securities, it is reasonably
possible that changes in the values of investment securities will occur in
the near term and that such changes could materially affect the amounts
reported in the statements of net assets available for benefits.
8. Adoption of New Accounting Guidance
-----------------------------------
In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157, Fair Value Measurements ("FASB 157"). FAS 157 defines
fair value, establishes a framework for measuring fair value in GAAP and
expands disclosures about fair value measurements. FAS 157 is effective for
years beginning after November 15, 2007 and is not expected to have a
material impact on the Plan's statement of assets available for benefits or
statement of changes in assets available for benefits.
NOTE C - INVESTMENTS
The following presents investments that represent 5% or more of the Plan's
net assets:
2007 2006
-------------- --------------
Non-participant directed investments
Common stock - Pre-Paid Legal Services, Inc. (0 and 204,146 shares, respectively) $ - $ 7,988,233
Participant directed investments
Common stock - Pre-Paid Legal Services, Inc. (182,788 and 0 shares,
respectively) 10,117,316 -
Washington Mutual Investors Fund/R4 (32,704 and 23,673 units, respectively) 1,097,785 823,105
Growth Fund of America/R4 (26,737 and 19,015 units, respectively) 902,634 621,037
Euro Pacific Growth Fund/R4 (16,736 units and 11,303 units, respectively) 839,592 519,729
The following table presents the net appreciation (depreciation) (including
gains and losses on investments bought and sold, as well as held during the
year) by type of investment for the years ended December 31:
2007 2006
------------ ------------
Corporate common stock - Pre-Paid Legal Services, Inc. $ 3,265,791 $ 283,977
Mutual funds (27,964) 211,590
------------ -------------
$ 3,237,827 $ 495,567
============ ============
NOTE D - NONPARTICIPANT-DIRECTED INVESTMENTS
Information regarding the Plan's nonparticipant-directed investment in the
Company's common stock at December 31, 2006 is included in Note C above.
Due to a plan amendment effective January 1, 2007, participants are able to
direct all investments. Significant components of the changes in net assets
relating to nonparticipant-directed investments (including activity in the
Plan's cash and cash equivalents) is as follows for the year ended December
31, 2006:
2006
----------
Net investment gain and interest income $ 303,301
Contributions
Employer 445,055
Employee 492,191
Benefits paid to participants (376,478)
Transfers from participant-directed investments, net 19,323
---------
$ 883,392
---------
NOTE E - TAX STATUS
A favorable determination letter dated November 16, 2005 was received from
the Internal Revenue Service indicating that the Plan, as amended through
November 1, 2004, qualifies under section 401(a) of the Internal Revenue
Code and is exempt from federal income taxes under section 501(a) of the
Code. The Plan has been further amended since receiving the determination
letter. However, the Company and the Committee believe that the Plan is
currently designed and operated in compliance with the applicable
requirements of the Internal Revenue Code. Therefore, the Company and the
Committee believe that the Plan continues to be qualified and no provision
for income taxes has been included in the Plan's financial statements.
NOTE F - DISTRIBUTIONS
Former participants may request distribution of their accounts in the form
of Company common stock or cash. Former participants who have elected to
diversify all or a portion of their Plan accounts into mutual fund
investments will receive a distribution of mutual fund shares or cash.
Distributions made in 2007 consisted of cash of $1,225,033. Distributions
made in 2006 consisted of cash of $376,478.
Former participants who terminated employment during 2007 and had not yet
received distribution of their account at December 31, 2007 will receive
distribution in 2008. The balance due former participants at December 31,
2007 included cash of $2,203.
SUPPLEMENTAL SCHEDULES
----------------------
Pre-Paid Legal Services, Inc. Employee Stock Ownership and Thrift Plan
SCHEDULE H, LINE 4i--SCHEDULE OF ASSETS (HELD AT END OF YEAR)
December 31, 2007
---------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Identity of issuer, borrower, Description of investment including maturity
Identity of issuer, borrower date, rate of interest,collateral, par or
lessor or similar party maturity value Cost Current Value
----------------------------- --------------------------------------------- ---- -------------
*Pre-Paid Legal Services, Common Stock, 182,788 shares/units ** $10,117,316
Inc. Common Stock
Federated Capital Reserve Money Market Funds, 4,129.140 shares/units ** 4,129
SEI Stable Asset Common Collective Trust Fund, 608,782.150 ** 608,782
shares/units
American Balanced Fund/R4 Mutual Funds, 11,159.395 shares/units ** 215,153
Bond Fund of America/R4 Mutual Funds, 58,046.044 shares/units ** 758,081
Euro Pacific Growth Fund/R4 Mutual Funds, 16,736.273 shares/units ** 839,592
Growth Fund of America/R4 Mutual Funds, 26,736.778 shares/units ** 902,634
Vanguard Small Cap Growth Mutual Funds, 9,333.081 shares/units ** 186,755
Index Fund
Vanguard Small Cap Value Mutual Funds, 20,847.991 shares/units ** 322,935
Index/Inv
Washington Mutual Mutual Funds, 32,703.615 shares/units ** 1,097,785
Investors Fund/R4
*Participant Loans Participant loans, maturity dates various 199,560
thru June 2016; interest rates vary between -----------
6.75% and 10.25%
Total Investments $15,252,722
===========
*Party-in-interest
**Cost not required for participant-directed investments
Pre-Paid Legal Services, Inc. Employee Stock Ownership and Thrift Plan
SCHEDULE H, LINE 4j--REPORTABLE TRANSACTIONS
Year ended December 31, 2007
------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Expenses Current value
Identity of party Description of Purchase Selling Lease incurred with Cost of of asset on Net gain
involved asset price price rental transaction asset transaction date (loss)
----------------- -------------- -------- ---------- ------ ------------- --------- ---------------- ----------
*Pre-Paid Legal Common Stock,
Services, Inc. 101 sales $ - $1,885,956 $ - $ - $ 718,362 $ 1,885,956 $1,167,594
* Party in interest