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, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File Number: 1-9293
______________________________________________________________
PRE-PAID LEGAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 73-1016728
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
321 East Main
Ada, Oklahoma 74820
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (580) 436-1234
Securities registered pursuant to Section 12(b) of the Exchange Act:
Name of each exchange on
Title of each class which registered
Common Stock, $0.01 Par Value 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 February 3, 1998 - $843,262,424.
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 3,
1998 there were 22,404,853 shares of Common Stock, par value $.01 per share,
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the Company's definitive proxy statement for its 1998 annual
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, 1997, 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, 1997, 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 19, 1997
<PAGE>
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 Demand Note of Wilburn L. Smith and Carol Smith dated December 31,
1996 in favor of the Company
*10.9 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)
*10.10 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)
*10.11 Stock Option Agreement dated May 13, 1997 between the Company and
Francis A. Tarkenton (Incorporated by reference to Exhibit 10.1 of
the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997)
+11.1 Statement of Computation of Per Share Earnings
+21.1 List of Subsidiaries of the Company
+23.1 Consent of Deloitte & Touche LLP
++23.1 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, 1997.
- --------------------
* 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 April
27, 1998, 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, 1997 appearing in this Amendment No. 1 on Form 10-K/A of Pre-Paid Legal
Services, Inc. for the year ended December 31, 1997.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Tulsa, Oklahoma
June 19, 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, 1997 and 1996
and Independent Auditors' Report
<PAGE>
Employee Stock Ownership and Thrift Plan and Trust
Index to Financial Statements
Independent Auditors' Report
Financial Statements as of December 31, 1997 and 1996 and for the Years
Then Ended:
Statements of Net Assets Available for Benefits
Statements 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, 1997 and 1996, 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, 1997
and 1996, and the changes in net assets available for benefits for the years
then ended in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Tulsa, Oklahoma
April 27, 1998
<PAGE>
Pre-Paid Legal Services, Inc.
Employee Stock Ownership and Thrift Plan and Trust
Statements of Net Assets Available for Benefits
December 31,
1997 1996
Assets
Investments, at fair value:
Short-term investment fund (Cost approximates
fair value) .................................... $ 106,112 $ 89,158
Pre-Paid Legal Services, Inc. common stock
(Cost: 1997, $395,649; 1996, $394,569) ......... 5,467,333 3,895,536
Participant-directed mutual funds ................ 1,814,237 953,218
Receivables:
Employer contribution ............................ 58,027 55,705
Participants' elective deferrals ................. 1,593 2,673
---------- ----------
Net assets available for benefits .............. $7,447,302 $4,996,290
========== ==========
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
Year Ended
December 31,
1997 1996
Additions to net assets:
Net investment income:
Net appreciation in fair value of investments .. $2,940,655 $2,257,438
Interest and dividend income ................... 67,257 29,380
---------- ----------
3,007,912 2,286,818
---------- ----------
Contributions:
Employer (Pre-Paid Legal Services, Inc.
common stock)................................... 58,027 55,705
Participants ................................... 94,835 91,502
---------- ----------
152,862 147,207
---------- ----------
Total additions ................................ 3,160,774 2,434,025
---------- ----------
Deductions from net assets:
Benefits paid to participants .................... 709,762 471,027
---------- ----------
Net increase in net assets ..................... 2,451,012 1,962,998
Net assets available for benefits:
Beginning of year ................................ 4,996,290 3,033,292
---------- ----------
End of year ...................................... $7,447,302 $4,996,290
========== ==========
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
Years Ended December 31, 1997 and 1996
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 two employees 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 are presented at fair value as measured by market prices in active
markets, including national securities exchanges. 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.
<PAGE>
Non-Cash Contributions
Contributions of Company stock are recorded at fair value as determined by using
the average closing price of Company stock as quoted on the American Stock
Exchange for each day when the stock is traded during the twenty (20) day period
immediately preceding the date of contribution.
Expenses
The Company elected to pay all of the Plan's administration expenses in 1997 and
1996 although it is not obligated to do so. Any expenses not paid by the Company
would be paid by the Plan.
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 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.
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:
<PAGE>
Discretionary Matching 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 1997 and 1996 all Company contributions were made in qualified
employer securities.
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 Matching Percentages
Of Plan Year
0 - 5 50%
6 - 10 75%
11 or more 100%
Employee Deferred Compensation Contributions
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 1997 and 1996) 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.
<PAGE>
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 qualifying "no load" mutual funds.
A participant will be entitled to his Employee Deferred Compensation Account at
the normal retirement date, or upon 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.
<PAGE>
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, 1997 and 1996, the Plan held 159,922 and 213,454 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 $873,399 and $304,106 in
Fidelity Cash Reserves Fund at December 31, 1997 and 1996, respectively.
4. Fund Information
Benefits paid to participants and net investment income by fund are as follows
for the years ended December 31, 1997 and 1996:
1997 1996
Benefits paid to participants:
Company common stock ............ $ 696,477 $ 426,163
Participant-directed mutual funds -- 34,907
Short-term investment fund ...... 13,285 9,957
---------- ----------
Total .............................. $ 709,762 $ 471,027
========== ==========
Net investment income:
Company common stock ............ $2,854,955 $2,237,420
Participant-directed mutual funds 147,845 45,222
Short-term investment fund ...... 5,112 4,176
---------- ----------
Total .............................. $3,007,912 $2,286,818
========== ==========
During 1997 and 1996, qualifying participants elected to transfer approximately
$713,174 and $943,000 respectively, 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 qualified "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 1997 consisted of 25,363
shares of the Company's common stock and cash of $13,285. Distributions made in
1996 consisted of 27,735 shares of the Company's common stock and cash of
$44,864.
All former participants who terminated during 1997 (and could be located)
received their distributions in 1997.
Former participants who terminated employment during 1996 and had not yet
received distribution of their account at December 31, 1996 received
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.
