PRE-PAID LEGAL SERVICES, INC.
321 East Main Street
P. 0. Box 145
Ada, Oklahoma 74821-0145
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE HOLDERS OF SHARES OF COMMON STOCK:
The Annual Meeting of Shareholders of PRE-PAID LEGAL SERVICES, INC.
(the "Company") will be held in the Seminar Center at Pontotoc Area VoTech
School at 601 West 33rd Street in Ada, Oklahoma, on Friday, April 23, 1999, at
1:00 p.m., local time, for the following purposes:
(1) To elect three members to the Company's Board of Directors.
(2) To transact such other business as may properly be brought before the
Annual Meeting or any adjournment thereof.
The Annual Meeting may be recessed from time to time and, at any
reconvened meeting, action with respect to the matters specified in this notice
may be taken without further notice to shareholders unless required by the
bylaws.
Shareholders of record of Common Stock at the close of business on
February 26, 1999 are entitled to notice of, and to vote on all matters at, the
Annual Meeting. A list of all shareholders will be available for inspection at
the Annual Meeting and, during normal business hours the ten days prior thereto,
at the offices of the Company, 321 East Main Street, Ada, Oklahoma.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ KATHRYN WALDEN
---------------------------------------
Kathryn Walden, Secretary
Ada, Oklahoma
March 12, 1999
Please Sign The Enclosed Form Of Proxy And Return It Promptly In The Envelope
Enclosed For That Purpose. You May Nevertheless Vote In Person If You Do Attend
The Meeting.
<PAGE>
PROXY STATEMENT
PRE-PAID LEGAL SERVICES, INC.
321 East Main Street
P. 0. Box 145
Ada, Oklahoma 74821-0145
1999 ANNUAL MEETING OF SHAREHOLDERS
The following information is furnished in connection with the 1999
Annual Meeting of Shareholders of PRE-PAID LEGAL SERVICES, INC. (the "Company")
to be held in the Seminar Center at Pontotoc Area VoTech School at 601 West 33rd
Street in Ada, Oklahoma, on Friday, April 23, 1999, at 1:00 p.m., local time.
This Proxy Statement and accompanying materials will be mailed on or about March
12, 1999 to holders of record of Common Stock as of the record date.
The record date for determining shareholders entitled to notice of the
Annual Meeting and to vote has been established as the close of business on
February 26, 1999. On that date, the Company had 23,654,345 shares of Common
Stock, par value $.01 per share, outstanding and eligible to vote, exclusive of
treasury stock. Holders of record of the Company's Common Stock on the record
date will be entitled to one vote for each share held on all matters properly
brought before the Annual Meeting.
The Board of Directors of the Company is soliciting the enclosed proxy.
All costs of soliciting proxies for the Annual Meeting will be borne by the
Company. In addition to use of the mails, proxies may be solicited by telephone,
telecopy or personal interview by directors, officers or other regular employees
of the Company. No additional compensation will be paid to directors, officers
or other regular employees for such services. Copies of solicitation materials
will be furnished to banks, brokerage houses, fiduciaries and custodians holding
in their names shares of Common Stock beneficially owned by others to forward to
such beneficial owners. The Company will, upon request, reimburse such persons
for their reasonable expenses in forwarding proxy materials to beneficial
owners.
Any shareholder returning the accompanying proxy may revoke such proxy
at any time prior to its exercise by (a) giving written notice to the Company of
such revocation, (b) voting in person at the Annual Meeting, or (c) executing
and delivering to the Company a later dated proxy. Written revocations and later
dated proxies should be sent to PRE-PAID LEGAL SERVICES, INC., P. O. Box 145,
Ada, Oklahoma 74821-0145, Attention: Kathryn Walden, Secretary.
ELECTION OF DIRECTORS
The Board of Directors of the Company consists of nine members and is
divided into three classes equal in size, with the term of office of one class
expiring each year. The Board of Directors has nominated and proposes that
Harland C. Stonecipher, Wilburn L. Smith and Martin H. Belsky, whose terms as
directors expire as of the Annual Meeting of Shareholders for 1999, be
re-elected for three-year terms as directors.
The election of directors will require the affirmative vote of a
plurality of the shares of Common Stock voting in person or by proxy at the
Annual Meeting. All proxies received by the Board of Directors of the Company
will be voted, in the absence of instructions to the contrary, FOR the
re-election of Harland C. Stonecipher, Wilburn L. Smith and Martin H. Belsky to
the Board of Directors.
Should the nominees for election to the Board of Directors be unable to
serve for any reason, the Board of Directors may, unless the Board by resolution
provides for a lesser number of directors, designate substitute nominees in
which event all proxies received without instructions will be voted for the
election of such substitute nominees. However, to the best knowledge of the
Board of Directors of the Company, the named nominees will serve if elected.
<PAGE>
The following is certain information about each director of the
Company:
Name Age Director Since Term Expires
Harland C. Stonecipher 60 1976 1999
Wilburn L. Smith 58 1997 1999
Martin H. Belsky 54 1998 1999
Kathleen S. Pinson 46 1990 2000
David A. Savula 51 1998 2000
John W. Hail 68 1998 2000
Shirley A. Stonecipher 58 1998 2001
Peter K. Grunebaum 65 1980 2001
Randy Harp 43 1990 2001
Harland C. Stonecipher
Mr. Stonecipher has been the Chairman of the Board of Directors of the
Company since its organization in 1976. Mr. Stonecipher also served as Chief
Executive Officer until March 1996 and since February 1997. Prior to 1984 and
from May 1987 through January 1995, he also served as its President (except for
the period from May 1989 to March 1990). Mr. Stonecipher also serves as an
executive officer of various subsidiaries of the Company and as a director of
Advantage Marketing Systems, Inc. Mr. Stonecipher is employed pursuant to an
employment agreement which, unless sooner terminated, expires on June 30, 2003,
with the Company retaining the right to extend the agreement for up to ten
additional years.
Wilburn L. Smith
Mr. Smith has been active in the marketing division of the Company
since 1980 and was named Vice President of Marketing and Agency Director in July
1990. Mr. Smith served as a director of the Company from March 1993 to October
1995. In April 1997, the Board of Directors appointed Mr. Smith as the Company's
President and he was elected by the Board of Directors to serve once again as a
director of the Company.
Martin H. Belsky
Mr. Belsky, currently Dean and Professor of Law at the University of
Tulsa College of Law, teaches courses in constitutional law, ethics,
international law, and oceans policy. Previously, Mr. Belsky was Dean and
Professor of Law at Albany Law School from 1986 to 1995.
Kathleen S. Pinson
Ms. Pinson was named Controller of the Company in May 1989 and has been
a Vice President of the Company since June 1982. Ms. Pinson has been employed by
the Company since 1979 and has been the chief accounting officer since 1982. Ms.
Pinson is a Certified Public Accountant.
David A. Savula
Mr. Savula has been active in the marketing division of the Company as
an independent contractor since 1992. Prior to his involvement with the Company,
Mr. Savula developed extensive multilevel marketing experience, both in the U.S.
as well as Canada with other multilevel marketing companies.
John W. Hail
John W. Hail is the founder of Advantage Marketing Systems, Inc. and
has served as Chief Executive Officer and Chairman of the Board of Directors of
Advantage Marketing Systems, Inc. since its inception in June 1988. From July
1986 through May 1988, Mr. Hail served as Executive Vice President, Director and
Agency Director of the Company and also served as Chairman of the Board of
Directors of TVC Marketing, Inc., who was the exclusive marketing agent of the
Company from April 1984 through September 1985.
<PAGE>
Shirley A. Stonecipher
Mrs. Stonecipher has been involved with the Company since its inception
in 1972 as an advisor to her husband, Harland C. Stonecipher. Mrs. Stonecipher
has attended most major Company-sponsored marketing rallies over the past 25
years and has been involved with certain specific marketing initiatives, such as
the First Ladies Club aimed at providing recognition for the wives of marketing
associates.
Peter K. Grunebaum
Mr. Grunebaum is currently Managing Director of Fortrend International,
an investment firm headquartered in New York, New York, a position he has held
since 1989. He also serves as a director of Prime Succession, Inc.
Randy Harp
Mr. Harp was named Chief Financial Officer in March 1990 and Chief
Operating Officer in March 1996. Mr. Harp is a Certified Public Accountant.
Board Meetings and Committees
The Board of Directors held five meetings during the year ended
December 31, 1998. During such year all directors attended at least 75% of the
meetings of the full Board and the committees on which they served.
The Board of Directors has established an Executive Committee
consisting of Messrs. Stonecipher, Harp and Grunebaum and an Audit Committee
consisting of Messrs. Grunebaum and Belsky. The Executive Committee may exercise
all of the powers of the Board of Directors, except to the extent limited by
law. The Audit Committee makes recommendations to the Board of Directors
concerning the selection of and oversees the Company's independent auditors and
reviews with the independent auditors the scope and results of the annual audit.
The Audit Committee also reviews financial statements and reports including
proxy statements, Forms 10-K and Forms 10-Q, reviews all significant financial
reporting issues and practices and monitors internal control policies. The Audit
Committee held three meetings during 1998. The Board of Directors does not have
standing nominating or compensation committees.
Harland C. Stonecipher and Shirley A. Stonecipher are husband and wife.
No other family relationships exist among the directors or executive officers of
the Company.
Compensation of Directors
Directors who are also employees of the Company or its subsidiaries
receive no additional compensation for their services as directors. Non-employee
directors of the Company receive $500 per meeting attended. Under the Company's
Stock Option Plan, each non-employee director also receives on March 1 of each
year options to purchase 10,000 shares of Common Stock. These options are
immediately exercisable as of the date of grant as to one-fourth of the shares
covered by the options and vest in additional one-fourth increments on the
following June 1st, September 1st and December 1st in the year of grant, subject
to continued service by the non-employee director during such periods. Options
granted to non-employee directors under the Stock Option Plan have an exercise
price equal to the closing price of the Common Stock on the date of grant as
reported by the American Stock Exchange and expire five years from the date of
grant.
The Board of Directors recommends that the shareholders vote "FOR" the
re-election of Harland C. Stonecipher, Wilburn L. Smith and Martin H. Belsky to
the Board of Directors.
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Executive Officers
Name Position
---- --------
Harland C. Stonecipher Chairman of the Board of Directors and
Chief Executive Officer
Wilburn L. Smith President
Randy Harp Chief Operating Officer and Chief
Financial Officer
Kathleen S. Pinson Vice President and Controller
Each of the executive officers of the Company is also a director of the
Company. For descriptions of the business background and other information
concerning the executive officers, see "Election of Directors" above.
Executive Compensation
The following table sets forth the compensation paid by the Company and
its subsidiaries for services rendered during the twelve months ended December
31, 1998, 1997 and 1996 to the chief executive officer and to each other person
serving as an executive officer of the Company as of December 31, 1998 whose
compensation exceeded $100,000 during 1998. Such individuals are referred to
herein as the "named executive officers."
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Annual Compensation Compensation
------------------- ------------
Securities
Underlying All Other
Name and Principal Position Year Salary Bonus (1) Options Compensation (2)
--------------------------- ---- -------- --------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Harland C. Stonecipher.......... 1998 $157,755 $ 654,835 100,000 $12,554
Chairman of the Board and 1997 157,755 419,555 100,000 12,811
Chief Executive Officer 1996 160,789 129,293 - 12,939
Wilburn Smith................... 1998 - 871,122 30,000 5,250
President 1997 - 682,468 - 5,250
1996 - 615,219 - 3,881
Randy Harp...................... 1998 129,615 40,000 50,000 3,900
Chief Operating Officer and 1997 107,169 20,000 50,000 3,900
Chief Financial Officer 1996 102,461 - - 3,975
</TABLE>
- ----------------
(1) Bonus to Mr. Stonecipher consists primarily of override commissions earned
by Mr. Stonecipher pursuant to his employment agreement with the Company of
$156,339, $109,424, and $75,990 during 1998, 1997 and 1996, respectively,
and override commissions earned by Mr. Stonecipher with respect to
commissions earned by PPL Agency, Inc., a Company affiliated insurance
agency, of $38,306, $49,907 and $49,496 during 1998, 1997 and 1996,
respectively. Additionally, Mr. Stonecipher received $460,190 and $259,830
during 1998 and 1997 representing a payment of $10 for each marketing
associate who participated in the Company's "Fast Start to Success"
training program which commenced in January 1997. No such payments were
received in 1996. See "Executive Compensation and Other
Information-Employment Contracts and Termination of Employment and
Change-in-Control Arrangements" and "Certain Relationships and Related
Transactions."
Bonus to Mr. Smith consists of override commissions and other fees paid
with respect to commissions earned by, and new sales associate sponsorships
within, the Company's multi-level marketing sales force. The amounts
indicated for Mr. Smith do not include any amounts received by Mr. Smith as
a result of his equity ownership in certain entities which are not
affiliated with the Company but which are engaged in the marketing of the
Company's legal service memberships and earn commissions from sales of
memberships. See "Certain Relationships and Related Transactions."
Bonus to Mr. Harp for 1998 and 1997 consisted of a performance bonus based
upon the achievement by the Company of certain earnings per share goals.
(2) All Other Compensation of Mr. Stonecipher includes $6,244, $6,501 and
$6,739 for the years 1998, 1997 and 1996, respectively, relating to the
time value of premiums paid pursuant to a certain split dollar life
insurance agreement that provides for such premiums to be refunded to the
Company upon Mr. Stonecipher's death, and also includes $6,310 for each of
1998 and 1997 and $6,200 for 1996 representing vested contributions by the
Company to the Employee Stock Ownership and Thrift Plan and Trust (the
"ESOP").
All Other Compensation of Messrs. Smith and Harp consists of vested
contributions by the Company to the ESOP.
The following table contains information concerning the grant of stock
options during the year ended December 31, 1998 under the Company's Stock Option
Plan to each of the named executive officers who received option grants during
such year.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
% of Total Potential Realizable
Number of Options Value at Assumed
Securities Granted to Annual Rates of Stock
Underlying Employees Exercise or Price Appreciation For
Options in Fiscal Base Price Expiration Option Term (3)
Name Granted (1) Year ($/Sh) (2) Date 5% 10%
- ---------------------- ----------- --------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Harland C. Stonecipher 100,000 13.9% $35.88 04/02/2003 $ 991,000 $ 2,191,000
Wilburn L. Smith 10,000 1.4 25.50 09/18/2001 40,200 84,400
Wilburn L. Smith 10,000 1.4 25.56 09/30/2001 40,300 84,600
Wilburn L. Smith 10,000 1.4 43.13 03/27/2001 68,000 142,800
Randy Harp 50,000 7.0 35.88 04/02/2003 495,500 1,095,500
</TABLE>
(1) All options granted to Messrs. Stonecipher and Harp during 1998 were
granted under the Company's Stock Option Plan. The exercise price of such
options is equal to 100% of the market price per share of the Common Stock
on the date of grant. The options were immediately exercisable as of the
date of grant as to one-fourth of the shares covered thereby and became
exercisable in additional one-fourth increments on June 1, September 1,
and December 1, 1998. The options expire if not exercised five years after
the date of grant.
All options granted to Mr. Smith during 1998 were granted under the
Company's Stock Option Plan. The grant of the options received by Mr.
Smith was tied to the success of the Company's Regional Vice Presidents in
meeting performance goals determined by the Board of Directors. The
exercise price of such options is equal to 100% of the market price per
share of the Common Stock on the date of grant. The options were
immediately exercisable as of the date of grant. The options expire if not
exercised three years after the date of grant.
(2) Exercise price of the options must be paid in cash or, if the Board of
Directors so permits, by tender of shares of Common Stock or other
property, or by a combination of such means of payment.
(3) Potential realizable value is the amount that would be realized upon
exercise by the named executive officer of the options immediately prior
to the expiration of their respective terms, assuming the specified
compound annual rates of appreciation of the Company's Common Stock over
the respective terms of the options. These amounts represent assumed rates
of appreciation only. Actual gains, if any, on stock option exercises
depend on the future performance of the Common Stock and overall market
conditions. There can be no assurances that the potential values reflected
in this table will be achieved.
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised Unexercised In-the-Money
Options at Options at
December 31, 1998 December 31, 1998 (1)
Shares
Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ----------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Harland C. Stonecipher - - 200,000 - $ 1,875,000 -
Wilburn L. Smith - - 30,000 - 149,375 -
Randy Harp - - 150,000 - 2,125,000 -
</TABLE>
(1) Value of unexercised in-the-money options at December 31, 1998 is
calculated based on the market price per share of Common Stock of $33.00
per share on December 31, 1998 less the option exercise price.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
The Company has an employment agreement with Mr. Stonecipher that
commenced in January 1993, and, unless sooner terminated, expires on June 30,
2003. Under the terms of the employment agreement, Mr. Stonecipher is to receive
compensation as determined by the Board of Directors but not less than $157,750
per year. In addition to his annual salary, Mr. Stonecipher also is entitled to
receive a supplemental retirement benefit in the amount of $26,000 per year
payable on the first day of the month following his termination of employment
and annually thereafter until the earlier of his death or the date upon which
ten such payments have been made. Mr. Stonecipher must meet certain minimal
conditions subsequent to the termination of his employment in order to receive
such payments. The Company's obligation pursuant to the employment agreement is
subject to the continuation of a certain split dollar life insurance agreement
between the Company and Shirley A. Stonecipher, Mr. Stonecipher's wife,
described below. If the Company terminates the employment agreement for any
reason (other than Mr. Stonecipher's death) or Mr. Stonecipher terminates the
agreement for certain specified events including a change of control of the
Company (as defined in the agreement), the Company is required to pay Mr.
Stonecipher a lump sum payment equal to the present value (using a 3% discount
rate) of the remaining salary and retirement benefits throughout the term of the
contract.
Pursuant to an agreement with the Company, Mr. Stonecipher is also
entitled to an override commission, payable monthly, in an amount equal to $.025
per active membership as compensation for his efforts in assisting in the growth
and development of new production for the Company and its subsidiaries. The
agreement provides that the amount of the commissions shall in no event exceed
$20,000 per month. The payment of such commissions to Mr. Stonecipher continues
during his lifetime. The agreement requires that Mr. Stonecipher devote
reasonable efforts to the generation of new membership sales for the Company.
The amounts paid to Mr. Stonecipher under this agreement during the fiscal year
ended December 31, 1998 are reflected in the summary compensation table set
forth above. Mr. Stonecipher has deferred payments under this agreement of
$194,991 at December 31, 1998. Mr. Stonecipher also receives a portion of the
annualized commission revenue of PPL Agency, Inc., which is owned by Mr.
Stonecipher as a nominee for the Company. See "Certain Relationships and Related
Transactions." Such amounts paid to Mr. Stonecipher are also reflected in the
summary compensation table set forth above.
<PAGE>
Commencing in January 1997, the Company implemented its "Fast Start to
Success" program pursuant to which electing marketing associates may participate
in Company-sponsored sales training programs, including use of an interactive
video and other training aides developed by the Company. The cost to each
marketing associate for participation in the program is $249. Mr. Stonecipher
receives a payment of $10 for each marketing associate who participates in the
program. Such amounts paid to Mr. Stonecipher in connection with the "Fast Start
to Success" program are reflected in the summary compensation table set forth
above.
In July 1984, the Company entered into a life insurance arrangement
with Shirley A. Stonecipher, Mr. Stonecipher's wife, whereby the Company agreed
to pay premiums on a life insurance policy covering Mr. Stonecipher. The face
amount of the policy is $600,000 and Mrs. Stonecipher is the owner and
beneficiary. Mrs. Stonecipher has an agreement with the Company whereby upon Mr.
Stonecipher's death, the proceeds of the policy will be paid to the Company in
an amount sufficient to reimburse premiums paid to date by the Company and any
supplemental retirement payments made pursuant to his employment contract. This
agreement is secured by a collateral assignment of the policy proceeds.
Board of Director Interlocks and Insider Participation in Executive Compensation
Decisions
The Board of Directors of the Company is responsible for establishing
compensation of Harland C. Stonecipher, Chairman and Chief Executive Officer of
the Company. Mr. Stonecipher establishes the cash compensation of all other
executive officers. The Board of Directors does not have a standing compensation
committee. Since Mr. Stonecipher's cash compensation for 1998 was determined
pursuant to his employment agreement and other arrangements with the Company
approved by the Board of Directors prior to 1998, the Board of Directors did not
have any deliberations during 1998 relating to Mr. Stonecipher's cash
compensation for such year. However, during 1998, the Board of Directors
approved the grant of stock options to Mr. Stonecipher, Wilburn L. Smith, Randy
Harp and Kathleen S. Pinson, each executive officers and directors of the
Company, for the purchase of 100,000, 30,000, 50,000 and 5,000 shares,
respectively, under the Company's Stock Option Plan. Messrs. Stonecipher, Smith
and Harp and Ms. Pinson participated in the deliberations of the Board of
Directors with respect to such stock option grants.
Report On Executive Compensation
As previously indicated, the Board of Directors of the Company (the
"Board") is responsible for establishing compensation of Harland C. Stonecipher,
the Chairman and Chief Executive Officer. Mr. Stonecipher is responsible for
establishing the cash compensation of all other executive officers including, as
applicable, the negotiation of employment contracts with executive officers. The
Board does not have a standing compensation committee. The Company's
compensation of executives is established to provide reasonable base salaries
and other compensation in the form of cash and equity incentive compensation
opportunities that are linked to performance of the Company and increases in
shareholder value.
The base salary of Mr. Stonecipher 1998 was as provided in his
employment agreement with the Company entered into in 1993. The principal terms
of his employment agreement are described elsewhere herein. See "Executive
Compensation and Other Information Employment Contracts and Termination of
Employment and Change-in-Control Arrangements." The level of base salary for Mr.
Stonecipher in the employment agreement was determined through negotiations with
Mr. Stonecipher at the time the employment agreement was entered into and the
base salaries of the other executive officers of the Company for 1998 were
determined by Mr. Stonecipher based upon his assessment of the respective
executive officer's performance and potential contribution to the Company's
financial and operational objectives.
Pursuant to his employment agreement, Mr. Stonecipher receives a
monthly override commission of $0.025 per active membership, subject to certain
limitations, and a portion of the annualized commission revenue of PPL Agency,
Inc., which is owned by Mr. Stonecipher as a nominee of the Company. During
1998, Mr. Stonecipher received $156,339 pursuant to these commission-based
incentive compensation arrangements. These arrangements foster the goals of the
Company's compensation policy by linking a significant portion of the respective
executive officer's annual compensation to the level of revenues derived from
active memberships, thereby creating strong financial incentives to such
executive officers for the continued growth of the Company's membership base.
During 1998, new membership sales increased 38% to 391,827 compared to 283,723
during 1997, and active memberships in force of 603,017 at December 31, 1998
increased 42% compared to 425,381 memberships in force at December 31, 1997. The
Company has achieved increased levels of total active memberships in force each
year since 1992.
During 1997, the Company implemented its "Fast Start to Success"
program. The "Fast Start to Success" program is a Company-sponsored classroom
and field training program for the Company's marketing associates that utilizes
interactive video and other training aides developed by the Company and is
designed to increase new memberships sold and new sales associates recruited per
participating associate. Participating associates are required to pay the
Company a one-time training fee to offset the Company's direct and indirect
costs incurred in developing and maintaining the program. Mr. Stonecipher
receives a payment from the Company of $10 for each marketing associate who
participates in the "Fast Start to Success" program. Such payments totaled
$460,190 during 1998. During such year, marketing associates who participated in
the "Fast Start to Success" program sold new memberships at a rate 3.4 times
greater and recruited new associates at a rate 2.7 times greater than associates
who did not participate in the program. Mr. Stonecipher was instrumental in the
conception and development of the program, which the Board believes has enhanced
the Company's marketing efforts and contributed to the growth of new membership
sales during 1998. Mr. Stonecipher's compensation in connection with the program
represents another element in the Company's incentive compensation policy
designed to link significant portions of the chief executive officer's
compensation with growth in the Company's membership base.
The Company maintains a Stock Option Plan (the "Plan") pursuant to
which the Board may grant options to purchase Common Stock to directors and
employees of the Company, including the executive officers. The exercise price
of options granted under the Plan may not be less than the fair market value per
share of Common Stock on the date of grant. In authorizing option awards under
the Plan to executive officers, the Board considers various factors including
the recommendation of the Chairman, the relative responsibilities of the
optionee, the Board's subjective evaluation of the optionee's performance, and
the optionee's relative equity interest in the Company in the form of stock and
options. The Board granted options during 1998 to each of the Company's
executive officers as follows: Harland C. Stonecipher - 100,000; Wilburn L.
Smith - 30,000; Randy Harp - 50,000 and Kathleen S. Pinson - 5,000. The grant of
the options received by Mr. Smith was tied to the success of the Company's
Regional Vice Presidents in meeting performance goals determined by the Board of
Directors. The Board considers stock options to be an important element of the
Company's incentive compensation policies and anticipates that additional
options will be granted to certain executive officers during 1999.
The preceding report is presented by each of the current members of the
Board of Directors.
Harland C. Stonecipher Wilburn L. Smith Martin H. Belsky
Kathleen S. Pinson David A. Savula John W. Hail
Shirley S. Stonecipher Peter K. Grunebaum Randy Harp
Shareholder Return Performance Graph
The following graph compares the cumulative total shareholder returns
of the Company's Common Stock during the five years ended December 31, 1998 with
the cumulative total shareholder returns of the Russell 2000 Index and a
selected peer group. The peer group consists of companies principally engaged in
activities within the Standard Industrial Classification Code applicable to the
activities of the Company (Insurance Carriers Not Elsewhere Classified) and
includes the following companies: American Annuity Group, Inc.; E. W. Blanch
Holdings, Inc.; Enhance Financial Services Group, Inc.; Financial Security
Assurance Holdings LTD.; Foundation Health Systems, Inc. Class A; Hallmark
Financial Services, Inc. and Horace Mann Educators Corporation. The Company has
selected this peer group primarily because there are no comparable issuers with
publicly traded securities that are engaged principally in the development,
underwriting and marketing of prepaid legal service plans. The comparison
assumes an investment of $100 on January 1, 1994 in each of the Company's Common
Stock, the Russell 2000 Index and the peer group and that any dividends were
reinvested.
Comparison of Cumulative Total Return of Company,
Russell 2000 Index and Peer Group
[GRAPH APPEARS HERE]
================================================================================
FISCAL YEAR ENDING
COMPANY 1993 1994 1995 1996 1997 1998
PRE-PAID LEGAL SVCS INC 100.00 118.52 614.81 1081.48 2025.93 1955.56
RUSSELL 2000 INDEX 100.00 98.19 126.11 147.05 179.90 174.86
PEER GROUP 100.00 109.44 139.75 161.81 233.22 241.40
================================================================================
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of shares of Common Stock of the Company by each person
(other than directors and executive officers of the Company) known by the
Company to be the beneficial owner of more than five percent of the issued and
outstanding Common Stock. The information is based on Schedules 13D or 13G filed
by the applicable beneficial owner with the Securities and Exchange Commission.
Security Ownership of Certain Beneficial Owners
Beneficial Ownership
Number Percent of
of Class
Name and Address of Beneficial Owner Shares
Gilder, Gagnon, Howe & Co.
1775 Broadway, 26th Floor
New York, NY 10019.............................. 2,868,122 (1) 12.1
Thomas W. Smith
323 Railroad Avenue
Greenwich, CT 06830............................. 2,533,300 (2) 10.7
Thomas N. Tryforos
323 Railroad Avenue
Greenwich, CT 06830............................. 2,046,102 (2) 8.7
Pilgrim Baxter & Associates, Ltd.
825 Duportail Road
Wayne, PA 19087................................. 1,302,400 (3) 5.5
J. & W. Seligman & Co. Incorporated
100 Park Avenue
New York, NY 10017.............................. 1,279,327 (4) 5.4
- ---------------------
(1) Gilder, Gagnon, Howe & Co. has shared voting power with respect to 23,000
shares and shared dispositive power with respect to all of the shares
reported as beneficially owned by it.
(2) Included in the shares of Common Stock indicated as beneficially owned by
Thomas W. Smith ("Smith") and Thomas N. Tryforos ("Tryforos") are 2,017,000
shares as to which they have shared voting and shared dispositive power.
These shares are beneficially owned by Smith and Tryforos in their
respective capacities as investment managers of certain managed accounts
and are included in the respective beneficial ownership totals of both
Smith and Tryforos. In addition, Smith beneficially owns 516,300 shares of
Common Stock as to which he has sole voting and dispositive power and
Tryforos beneficially owns 29,102 shares of Common Stock as to which he has
sole voting and dispositive power.
(3) Pilgrim, Baxter & Associates, Ltd. has sole voting power with respect to
1,182,700 shares and sole dispositive power with respect to all of the
shares reported as beneficially owned by it.
(4) J. & W. Seligman & Co. Incorporated ("JWS") has shared voting power with
respect to 1,083,500 shares and shared dispositive power with respect to
all of the shares reported as beneficially owned by it. William C. Morris,
as the owner of a majority of the outstanding voting securities of JWS, may
be deemed to beneficially own the shares reported by JWS.
The following table sets forth certain information concerning the
beneficial ownership of shares of Common Stock of the Company as of February 26,
1999 by (a) each director of the Company, (b) each executive officer of the
Company, and (c) all of the directors and executive officers of the Company as a
group.
Security Ownership of Directors and Executive Officers
Beneficial Ownership (1)
Number Percent of
of Class
Name of Director or Executive Officer Shares
Harland C. Stonecipher
321 East Main Street
Ada, Oklahoma 74820........................ 1,289,381 (2) (3) 5.4
Randy Harp..................................... 180,445 (4) *
Wilburn L. Smith............................... 112,648 (5) *
Kathleen S. Pinson............................. 63,769 (6) *
Peter K. Grunebaum............................. 51,600 (7) *
John W. Hail................................... 14,375 (8) *
David A. Savula................................ 70,278 (9) *
Martin H. Belsky............................... 10,350 (10) *
Shirley A. Stonecipher......................... 1,084,525 (2) (11) 4.6
All directors and executive officers as a group
(9 persons)................................... 1,805,346 (12) 7.5
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* Less than 1%.
(1) Unless otherwise indicated in the footnotes to the table and subject to
community property laws where applicable, each of the shareholders named
in this table has sole voting and investment power with respect to the
shares indicated as beneficially owned. The percentage of ownership for
each person is calculated in accordance with rules of the Securities and
Exchange Commission without regard to shares of Common Stock issuable
upon exercise of outstanding stock options, except that any shares a
person is deemed to own by having a right to acquire by exercise of an
option are considered outstanding solely for purposes of calculating such
person's percentage ownership.
(2) Harland C. Stonecipher and Shirley A. Stonecipher are husband and wife.
Included in the shares of Common Stock indicated as beneficially owned by
Mr. and Mrs. Stonecipher are 1,072,025 shares as to which they have
shared voting and shared dispositive power.
(3) Includes 17,356 shares owned under the ESOP as to which Mr. Stonecipher
has sole voting power, but shared dispositive power, and 200,000 shares
issuable upon exercise of outstanding options.
(4) Includes 15,445 shares owned under the ESOP as to which Mr. Harp has sole
voting power, but shared dispositive power, and 147,000 shares issuable
upon exercise of outstanding options.
(5) Includes 33,264 shares owned under the ESOP as to which Mr. Smith has
sole voting power, but shared dispositive power, and 30,000 shares
issuable upon exercise of outstanding options.
(6) Includes 17,897 shares owned under the ESOP as to which Ms. Pinson has
sole voting power, but shared dispositive power, and 7,500 shares
issuable upon the exercise of outstanding options. Also, includes 2,465
shares owned under the ESOP by Ms. Pinson's husband, also an employee of
the Company, as to which he has sole voting power, but shared dispositive
power. Ms. Pinson disclaims beneficial ownership of shares that are owned
by her husband.
(7) Includes 35,000 shares issuable upon exercise of outstanding options.
(8) Includes 500 shares owned by a corporation that Mr. Hail controls and
12,500 shares issuable upon exercise of outstanding options.
(9) Includes 30,000 shares issuable upon exercise of outstanding options.
(10) Includes 10,000 shares issuable upon exercise of outstanding options.
(11) Includes 12,500 shares issuable upon exercise of outstanding options but
does not include the shares beneficially owned by Mr. Stonecipher
described in Note (3) above as to which Mrs. Stonecipher shares neither
voting nor dispositive power, and Mrs.
Stonecipher disclaims beneficial ownership of such shares.
(12) Includes 484,500 shares issuable upon exercise of outstanding options and
86,427 shares owned under the ESOP as to which the respective executive
officers and directors have sole voting power, but shared dispositive
power.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Harland C. Stonecipher, Chairman of the Board of Directors and Chief
Executive Officer of the Company, owns all of the outstanding shares of PPL
Agency, Inc. ("Agency") as a nominee for the Company. Any income of Agency
accrues to the Company and the Company has agreed to indemnify and hold harmless
Mr. Stonecipher for any personal losses as a result of his ownership of Agency.
Agency's financial position and results of operations are included in
the Company's financial statements on a combined basis. Agency earned
commissions, net of amounts paid directly to its agents by the underwriter,
during 1998 and 1997 of $119,000 and $110,000, respectively, through its sales
of insurance products of an unaffiliated company. Annual management fees paid to
the Company in 1998 and 1997 were $36,000 and $72,000, respectively. Agency had
a net loss for the years ended December 31, 1998 and 1997 of $10,694 and
$12,500, respectively, after the payment of commissions to Mr. Stonecipher of
$47,000 and $49,906, respectively.
Mr. Stonecipher and Shirley A. Stonecipher own Stonecipher Aviation LLC
("SA"). The Company has agreed to reimburse SA for certain expenses pertaining
to trips made by Company personnel for Company business purposes using aircraft
owned by SA. Such reimbursement represents the pro rata portion of direct
operating expenses, such as fuel, maintenance, pilot fees and landing fees,
incurred in connection with such aircraft based on the relative number of
flights taken for Company business purposes versus the number of other flights
during the applicable period. No reimbursement is made for depreciation, capital
expenditures or improvements relating to such aircraft. During 1998 and 1997,
the Company paid $279,109 and $192,000, respectively, to SA as reimbursement for
such transportation expenses.
Wilburn L. Smith, President and a director of the Company, has loans
from the Company made in December 1992, December 1996 and October, 1998. The
largest aggregate balance of the loans during the year ended December 31, 1998
was $504,000. The outstanding balance of the loans as of December 31, 1998 was
$501,737. The loans bear annual interest at the rate of 3% in excess of the
prime rate, adjusted on January 1 of each year, and are secured by Mr. Smith's
commissions from the Company. Mr. Smith also owns interests ranging from 10% to
67% in corporations or partnerships not affiliated with the Company but engaged
in the marketing of the Company's legal service memberships and which earn
commissions from sales of memberships. These entities earned commissions, net of
amounts passed through as commissions to their sales agents, during 1998 and
1997 of $39,000 and $49,000, respectively.
John W. Hail, a director of the Company, served as Executive Vice
President, Director and Agency Director of the Company from July 1986 through
May 1988 and also served as Chairman of the Board of Directors of TVC Marketing,
Inc., which was the exclusive marketing agent of the Company from April 1984
through September 1985. Pursuant to agreements between Mr. Hail and the Company
entered into during the period in which Mr. Hail was an executive officer of the
Company, Mr. Hail receives override commissions from renewals of certain
memberships initially sold by the Company during such period. During 1998 and
1997, such override commissions on renewals totaled $93,867 and $99,938,
respectively. Mr. Hail also owns interests ranging from 12% to 100% in
corporations not currently affiliated with the Company, including TVC Marketing,
Inc., but which were engaged in the marketing of the Company's legal service
memberships and which earn renewal commissions from memberships previously sold.
These entities earned renewal commissions, net of amounts passed through as
commissions to their sales agents, during 1998 and 1997 of $284,344 and
$293,932, respectively.
David A. Savula, a director of the Company, is actively engaged as an
independent contractor in the marketing of the Company's legal service
memberships. During 1998 and 1997, Mr. Savula received from the Company $651,215
and $594,081, respectively, pursuant to a previous agreement with the Company
providing for the payment to Mr. Savula of override commissions and other fees
with respect to commissions earned by, and new sales associate sponsorships
within, the Company's multi-level marketing sales force. Mr. Savula also
received during 1998 grants of options to purchase a total of 30,000 shares of
the Company's Common Stock at a weighted average exercise price of $31.40 per
share. The grant of the options was tied to the success of the Company's
Regional Vice Presidents in meeting performance goals determined by the Board of
Directors. The exercise prices of the options were equal to 100% of the market
price per share of the Common Stock on the respective dates of grant. The
options expire if not exercised within three years after the respective dates of
grant.
COMPLIANCE WITH SECTION 16 REPORTING REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934 requires directors
and executive officers of the Company and persons who beneficially own more than
10% of the Company's Common Stock to file reports of ownership and changes in
ownership of the Company's Common Stock with the Securities and Exchange
Commission. The Company is required to disclose delinquent filings of reports by
such persons during 1998. Based on a review of the copies of such reports and
amendments thereto received by the Company, or written representations that no
filings were required, the Company believes that during 1998, all Section 16(a)
filing requirements applicable to its executive officers, directors and 10%
shareholders were met, except as described below.
Thomas W. Smith, believed by the Company to beneficially own in excess
of 10% of the Company's Common Stock, was late in filing one report relating to
twelve transactions.
VOTING
Directors will be elected by a plurality of the votes of the shares
present in person or represented by proxy at the Annual Meeting. All other
matters properly brought before the Annual Meeting will be decided by a majority
of the votes cast on the matter, unless otherwise required by law.
Shares represented by proxies which are marked "withhold authority"
with respect to the election of any one or more nominee for election as director
will be counted for purposes of determining the number of shares represented by
proxy at the Annual Meeting. However, because directors are elected by a
plurality rather than a majority of the shares present in person or represented
by proxy at the Annual Meeting, proxies marked "withhold authority" with respect
to any one or more nominee will not affect the outcome of the nominee's election
unless the nominee receives no affirmative votes or unless other candidates are
nominated for election as directors.
Shares represented by limited proxies will be treated as represented at
the meeting only as to such matter or matters for which authority is granted in
the limited proxy. Shares represented by proxies returned by brokers where the
brokers' discretionary authority is limited by stock exchange rules will be
treated as represented at the Annual Meeting only as to such matter or matters
voted on in the proxies.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company engaged Deloitte & Touche LLP as its independent
accountants in September 1994. Deloitte & Touche LLP served as the Company's
independent accountants for the year ended December 31, 1998. Representatives of
Deloitte & Touche LLP are expected to be present at the Annual Meeting, with the
opportunity to make a statement if they desire to do so, and will be available
to respond to appropriate questions.
ANNUAL REPORT TO SHAREHOLDERS
The Company's Annual Report to Shareholders for the year ended December
31, 1998, including audited financial statements, accompanies this Proxy
Statement. The Annual Report is not incorporated by reference into this Proxy
Statement or deemed to be a part of the materials for the solicitation of
proxies.
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
A copy of the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 filed with the Securities and Exchange Commission is available
without charge to any shareholder of the Company who requests a copy in writing
from the Company, Attn.: Janice Stinson, Investor Relations, P. O. Box 145, Ada,
Oklahoma 74821-0145.
PROPOSALS OF SHAREHOLDERS
The Board of Directors will consider properly presented proposals of
shareholders intended to be presented for action at the Annual Meeting of
Shareholders. Such proposals must comply with the applicable requirements of the
Securities and Exchange Commission and the Company's bylaws. Under the Company's
bylaws, a notice of intent of a shareholder to bring any matter before a meeting
shall be made in writing and received by the Secretary of the Company not more
than 150 days and not less than 90 days in advance of the annual meeting or, in
the event of a special meeting of shareholders, such notice shall be received by
the Secretary of the Company not later than the close of the fifteenth day
following the day on which notice of the meeting is first mailed to
shareholders. Every such notice by a shareholder shall set forth: (a) the name
and address of the shareholder who intends to bring up any matter; (b) a
representation that the shareholder is a registered holder of the Company's
voting stock and intends to appear in person or by proxy at the meeting to bring
up the matter specified in the notice; (c) with respect to notice of an intent
to make a nomination, a description of all understandings among the shareholder
and each nominee and any other person (naming such person or persons) pursuant
to which the nomination or nominations are to be made by the shareholder and
such other information regarding each nominee proposed by the shareholder as
would have been required to be included in a proxy statement filed pursuant to
the proxy rules of the Securities and Exchange Commission had each nominee been
nominated by the Board of Directors of the Company; and (d) with respect to
notice of an intent to bring up any other matter, a description of the matter,
and any material interest of the shareholder in the matter. Notice of intent to
make a nomination shall be accompanied by the written consent of each nominee to
serve as a director of the Company, if elected. According to the rules of the
Securities and Exchange Commission and the Company's bylaws, in order for a
shareholder proposal to be included in the Company's Proxy Statement relating to
the 2000 Annual Meeting of Shareholders, a written proposal complying with the
requirements established by the Securities and Exchange Commission and the above
requirements must be received by the Secretary of the Company at P. O. Box 145,
Ada, Oklahoma 74821-0145, no later than November 14, 1999.
OTHER MATTERS
The Board of Directors of the Company does not know of any other
matters to be presented for action at the Annual Meeting other than those listed
in the Notice of Meeting and referred to herein. If any other matters properly
come before the Annual Meeting or any adjournment thereof, it is intended that
the proxy solicited hereby be voted as to any such matter in accordance with the
recommendations of the Board of Directors of the Company.
