UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
(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, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File Number: 1-9293
--------------------------------------------------------------
PRE-PAID LEGAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 73-1016728
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
321 East Main
Ada, Oklahoma 74820
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (405) 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 American Stock Exchange
Securities registered under Section 12 (g) of the Exchange Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K ( ).
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within the past 60 days prior to the date of
the filing:
As of March 20, 1997 - $328,167,721.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: As of March 20, 1997
there were 21,864,585 shares of Common Stock, par value $.01 per share,
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the Company's definitive proxy statement for its 1997 meeting
of shareholders are incorporated into Part III of this Form 10-K by reference.
<PAGE>
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report on Form 10-K
pursuant to Section 13 of the Securities and Exchange Act of 1934 for the fiscal
year ended December 31, 1996, as set forth below and in the pages attached
hereto.
Part IV, Item 14 - "Exhibits and Reports on Form 8-K" is amended (i) to
include as Exhibit 99.1 the attached financial information relating to The
Employee Stock Ownership and Thrift Plan and Trust ("Plan"), as required by Form
11-K, for the fiscal year of the Plan ended December 31, 1996, which is filed as
an exhibit pursuant to Rule 15d-21 under the Securities Exchange Act of 1934,
and (ii) to include as Exhibit 23.2 the Consent of Deloitte & Touche LLP
relating to the use of their report which is included as part of Exhibit 99.1.
The full text of Item 14 and the Exhibit Index, as amended, referred to
therein are as set forth below.
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: For a list of the documents filed as exhibits to this report,
see the Exhibit Index following the signatures to this report.
(b) Reports on Form 8-K: None.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRE-PAID LEGAL SERVICES, INC.
/s/ RANDY HARP
Randy Harp, Chief Financial Officer
Date: June 23, 1997
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
3.1 Amended and Restated Certificate of Incorporation of the
Company, as amended (Incorporated by reference to Exhibit 4.1 of
the Company's Report on Form 8-K dated January 10, 1997.
3.2 Amended and Restated Bylaws of the Company (Incorporated
by reference to Exhibit 3.1 of the Company's Report on Form
10-Q for the period ended September 30, 1996)
*10.1 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 Stock Option Plan, as amended and restated effective December
12, 1995 (Incorporated by reference to Exhibit 10.6 of the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 1995)
*10.7 Demand Note of Wilburn L. Smith and Carol Smith dated December
11, 1992 in favor of the Company (Incorporated by reference to
Exhibit 10.15 of the Company's Form SB-2 filed February 8, 1994)
*10.8 Security Agreement between the Company, Wilburn L. Smith and
Carol Smith dated December 11, 1992 ((Incorporated by reference
to Exhibit 10.16 of the Company's Form SB-2 filed February 8,
1994)
*10.9 Letter Agreements dated July 8, 1993 and March 7, 1994 between
the Company and Wilburn L. Smith (Incorporated by reference to
Exhibit 10.17 of the Company's Form 10-KSB filed for the year
ending December 31, 1993)
+*10.10 Employment agreement effective March 26, 1996 between the
Company and Jack Mildren (Incorporated by reference to Exhibit
10.10 of the Company's Form 10-KSB filed for the year ending
December 31, 1995)
<PAGE>
INDEX TO EXHIBITS, (Continued)
Exhibit No. Description
- ----------- -----------
10.11 Revolving Credit Agreement between Company and Bank One, Texas,
National Association dated January 27, 1995 (Incorporated by
reference to Exhibit 10.14 of the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1994)
+11.1 Statement of Computation of Per Share Earnings
21.1 List of Subsidiaries of the Company
+23.1 Consent of Deloitte & Touche LLP
++23.2 Consent of Deloitte & Touche LLP relating to report concerning
plan financial information included as part of Exhibit 99.1.
++99.1 Financial information relating to the Pre-Paid Legal Services,
Inc. Employee Stock Ownership and Thrift Plan and Trust, as
required by Form 11-K for the fiscal year of the plan ended
December 31, 1996.
- --------------------
* Constitutes a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this report.
+ Previously filed.
++ Filed herewith.
EXHIBIT 23.2
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-82144 of Pre-Paid Legal Services, Inc. on Form S-8 of our report dated May 6,
1997, on the financial statements of the Pre-Paid Legal Services, Inc. Employee
Stock Ownership and Thrift Plan and Trust for the year ended December 31, 1996
appearing in this Amendment No. 1 on Form 10-K/A of Pre-Paid legal Services,
Inc. for the year ended December 31, 1996.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Oklahoma City, Oklahoma
June 23, 1997
EXHIBIT 99.1
<PAGE>
Pre-Paid Legal Services, Inc.
Employee Stock Ownership
and Thrift Plan and Trust
Financial Statements
for the Years Ended December 31, 1996 and 1995
and Independent Auditors' Report
<PAGE>
Pre-Paid Legal Services, Inc.
Employee Stock Ownership and Thrift Plan and Trust
Index to Financial Statements
Independent Auditors' Report
Financial Statements as of December 31, 1996 and 1995
and for the Years Then Ended:
Statement of Net Assets Available for Benefits
Statement of Changes in Net Assets Available for Benefits
Notes to Financial Statements
Schedules required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under ERISA have been omitted because they are not
applicable.
<PAGE>
INDEPENDENT AUDITORS REPORT
To the Trustees and Participants of the
Pre-Paid Legal Services, Inc.
Employee Stock Ownership and
Thrift Plan and Trust
We have audited the accompanying statements of net assets available for benefits
of the Pre-Paid Legal Services, Inc. Employee Stock Ownership and Thrift Plan
and Trust (the "Plan") as of December 31, 1996 and 1995, 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 generally accepted auditing
standards. 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, such financial statements present fairly, in all material
respects, the net assets available for benefits of the Plan at December 31, 1996
and 1995, and the changes in net assets available for benefits for the years
then ended in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Oklahoma City, Oklahoma
May 6, 1997
<PAGE>
Pre-Paid Legal Services, Inc.
Employee Stock Ownership and Thrift Plan and Trust
Statements of Net Assets Available for Benefits
<TABLE>
<CAPTION>
December 31,
1996 1995
Assets
<S> <C> <C>
Investments, at fair value:
Short-term investment fund (Cost: 1996, $89,158;
1995, $80,304) ....................................... $ 89,158 $ 80,304
Pre-Paid Legal Services, Inc. common stock
(Cost: 1996, $394,569; 1995, $390,132) .......... 3,895,536 2,905,705
Participant - directed mutual funds ............... 953,218 --
Receivables:
Employer contribution ............................. 55,705 46,026
Participants' elective deferrals .................. 2,673 1,257
---------- ----------
Net assets available for benefits ............... $4,996,290 $3,033,292
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Pre-Paid Legal Services, Inc.
Employee Stock Ownership and Thrift Plan and Trust
Statements of Changes in Net Assets Available for Benefits
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Additions to net assets:
Net investment income:
Net appreciation in fair value of investments $2,257,438 $2,600,978
Interest and dividend income ................ 29,380 5,152
---------- ----------
2,286,818 2,606,130
---------- ----------
Contributions:
Employer (Pre-Paid Legal Services, Inc.
common stock)................................ 55,705 46,026
Participants ................................ 91,502 69,279
---------- ----------
147,207 115,305
---------- ----------
Total additions ............................. 2,434,025 2,721,435
---------- ----------
Deductions from net assets:
Benefits paid to participants ................. 471,027 451,799
---------- ----------
Net increase in net assets .................. 1,962,998 2,269,636
Net assets available for benefits:
Beginning of year ............................. 3,033,292 763,656
---------- ----------
End of year ................................... $4,996,290 $3,033,292
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Pre-Paid Legal Services, Inc.
Employee Stock Ownership and Thrift Plan and Trust
Notes to Financial Statements
For the Years Ended December 31, 1996 and 1995
1. Formation of the Plan and Summary of Significant Accounting Policies
The Pre-Paid Legal Services, Inc. Employee Stock Ownership and Thrift Plan and
Trust (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 of three employees of the Company
appointed by the Company (the "Committee"). The Committee also serves as the
Plan's Trustee and Investment Manager.
During December 1995, the Board of Directors of the Company approved an
amendment to the Plan effective January 1, 1996. The amendment provides that
participants who have attained the age of fifty-five shall have the right to
make an election to direct the Trustee as to the investment of their accounts.
Such participants may elect to diversify up to 100% of their deferred
compensation accounts and the vested portion of their Company Contribution
Accounts in one or more "no load" mutual funds of any regulated investment
company as defined by Section 851 of the Internal Revenue Code.
The following is a summary of the Plan's significant accounting policies:
Basis of accounting
The Plan's financial statements are prepared on the accrual basis of accounting
in conformity with generally accepted accounting principles.
Investments
Investments traded on national securities exchanges are valued at closing prices
on the last business day of the year. The cost of 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.
Under the terms of the Plan, the Committee acquires, holds and disposes of all
cash and investments, including common and preferred stock of the Company,
through a trust fund.
Non-Cash Contributions
Contributions of Company stock are recorded at fair value at the date of
contribution.
Expenses
The Company elected to pay all of the Plan's administration expenses in 1996 and
1995 although it is not obligated to do so. Any expenses not paid by the
Company would be paid by the Plan.
Reclassification
Certain prior year amounts have been reclassified to conform to current year
presentation.
2. Plan Description
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.
General
The Plan is a defined contribution plan covering certain employees of the
Company and employees of affiliated companies which file a consolidated tax
return with the Company. The plan year is January 1 to December 31. All
employees at least 21 years of age are eligible to enroll in the Plan on January
1 or July 1 following the date the employee completes one year of service (1,000
hours) within 12 consecutive months of their employment date.
Participants contribute to the Plan on a pre-tax basis only. Types of
contributions provided for in the Plan are:
Discretionary Company Contributions
The Company may make discretionary contributions to the Plan for each plan year.
The contributions may vary from year to year and shall be 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 plan year. The Company's contribution may
be paid to the Trustee either in cash, qualified employer securities or in other
property. In 1996 and 1995 all Company contributions were made in qualified
employer securities.
Discretionary Matching Company Contribution
The 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 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 Matching
Of Plan Year Percentages
------------ -----------
0 - 5 50%
6 - 10 75%
11 or more 100%
Employee Deferred Compensation Contribution
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. 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 ($9,500 in 1996 and $9,240 in 1995)
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 matching and/or
discretionary 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. Under the terms of the Plan, all Company contributions
and up to seventy-five percent (75%) of the participant's contributions may be
invested in common stock of the Company or in preferred stock convertible into
common stock of the Company at a conversion price which, as of the date of
acquisition by the Plan, is reasonable. Such securities are termed qualified
employer securities.
Participants who have reached the age of fifty-five may elect to diversify up to
100% of their deferred compensation accounts and the vested portion of their
Company contribution accounts in one or more no load mutual funds.
A participant will be entitled to his employee deferred compensation account at
the normal retirement date, permanent disability, death, separation from
employment, attaining age 59 1/2, or in the case of hardship (as determined by
the Committee).
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 (1) 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.
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 within twenty-five (25) months of the termination.
3. Investments
At December 31, 1996 and 1995, the Plan held 213,454 and 279,933 shares,
respectively, of the Company's common stock. Other than the Company's common
stock, investments of the Plan which represented five percent or more of the
Plan's net assets available for benefits consisted of $304,106 in Fidelity Cash
Reserves Fund at December 31, 1996.
4. Fund Information
Benefits paid to participants and net investment income by fund are as follows
for the years ended December 31, 1996 and 1995:
1996 1995
Benefits paid to participants:
Company common stock ................... $ 426,163 $ 414,039
Participant - directed mutual funds .... 34,907 --
Short-term investment fund ............. 9,957 37,760
---------- ----------
Total ..................................... $ 471,027 $ 451,799
========== ==========
Net investment income:
Company common stock ................... $2,237,420 $2,600,978
Participant - directed mutual funds 45,222 --
Short-term investment fund ............. 4,176 5,152
---------- ----------
Total ..................................... $2,286,818 $2,606,130
========== ==========
During 1996, qualifying participants elected to transfer approximately $943,000
into participant-directed mutual funds.
5. Tax Status
A favorable determination letter dated June 22, 1993 was received from the
Internal Revenue Service indicating that the Plan, as amended through December
17, 1991, 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 amended since receiving the determination letter. However, the Company and
plan administrator believe that the Plan is currently designed and being
operated in compliance with the applicable requirements of the Internal Revenue
Code. Therefore, the Company and plan administrator believe that the Plan
continues to be qualified and no provision for income taxes has been included in
the Plan's financial statements.
6. Distributions
Former participants are entitled to receive distribution of the vested portion
of their account balance sixty days after the plan year end. The 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 no load mutual fund investments will receive
a distribution of mutual fund shares included in their account. The ability of
the Plan to make distributions in cash depends, in part, on the cash available
within the Plan to purchase the former participant's vested shares of the
Company's common stock. Distributions made in 1996 consisted of 27,735 shares of
the Company's common stock and cash of $44,864. Distributions made in 1995
consisted of 70,897 shares of the Company's common stock and cash of $37,760.
Former participants who terminated employment during 1996 and have not yet
received distribution of their account, will receive distribution in 1997. The
balance of the accounts of the former participants at December 31, 1996 included
694 vested shares of the Company's common stock and cash of $436. The closing
price per share of the Company's common stock on March 1, 1997 was $16.00.
At December 31, 1995, the balance of the accounts of former participants who
terminated during 1995 and received distribution in 1996 included 4,169 vested
shares of the Company's common stock and cash of $1,647. The closing price per
share of the Company's common stock on February 29, 1996 was $10.13.
