EXHIBIT 99.1
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Pre-Paid Legal Services, Inc.
Employee Stock Ownership
and Thrift Plan and Trust
Financial Statements
For the Years Ended December 31, 1999 and 1998,
Supplemental Schedule as of December 31, 1999,
and Independent Auditors' Report
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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, 1999 and 1998, 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 auditing standards generally accepted
in the United States of America. 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, 1999
and 1998, and the changes in net assets available for benefits for the years
then ended in conformity with accounting principles generally accepted in the
United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets held
for investment purposes as of December 31, 1999 is presented for the purpose of
additional analysis and is not a required part of the basic financial
statements, but is supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. This schedule is the responsibility of
the Plan's management. Such schedule has been subjected to the auditing
procedures applied in our audit of the basic 1999 financial statements and, in
our opinion, is fairly stated in all material respects when considered in
relation to the basic 1999 financial statements taken as a whole.
Deloitte & Touche LLP
Tulsa, Oklahoma
June 9, 2000
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Pre-Paid Legal Services, Inc.
Employee Stock Ownership and Thrift Plan and Trust
Statements of Net Assets Available for Benefits
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December 31,
1999 1998
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Assets
Cash and cash equivalents $ 205,235 $ 158,282
Investments, at fair value:
Pre-Paid Legal Services, Inc. common stock
(Cost: 1999, $757,747; 1998, $540,133) 3,883,704 5,384,313
Participant-directed mutual funds 819,266 1,669,962
Receivables:
Employer contribution 130,281 86,150
Participants' elective deferrals 5,383 2,809
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Net assets available for benefits $ 5,043,869 $ 7,301,516
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Pre-Paid Legal Services, Inc.
Employee Stock Ownership and Thrift Plan and Trust
Statements of Changes in Net Assets Available for Benefits
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Year Ended
December 31,
1999 1998
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Additions to net assets:
Net investment income (loss):
Net depreciation in fair value of
investments $(1,482,943) $ (144,787)
Interest and dividend income 64,533 81,497
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(1,418,410) (63,290)
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Contributions:
Employer (Pre-Paid Legal Services, Inc.
common stock) 130,281 86,150
Participants 234,719 152,941
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365,000 239,091
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Total additions (reductions) (1,053,410) 175,801
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Deductions from net assets -
Benefits paid to participants 1,204,237 321,587
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Net decrease in net assets (2,257,647) (145,786)
Net assets available for benefits:
Beginning of year 7,301,516 7,447,302
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End of year $ 5,043,869 $ 7,301,516
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Pre-Paid Legal Services, Inc.
Employee Stock Ownership and Thrift Plan and Trust
Notes to Financial Statements
Years Ended December 31, 1999 and 1998
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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.
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. Participants who have attained the age of fifty-five (55)
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 one-hundred
percent (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.
Each Participant or Beneficiary shall have the sole right to vote shares of
Company common stock allocated to such Participant's account. The right to vote
such shares shall be exercised by directing the Committee as to manner in which
such shares shall be voted.
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 accounting principles generally accepted in the United States
of America ("generally accepted accounting principles").
Cash and Cash Equivalents
Cash and cash equivalents consist of the Plan's linked cash and money fund
accounts at a national brokerage firm. Money fund amounts have a unit value of
$1, and balances are immediately accessible by the Plan.
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.
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 New York Stock
Exchange for each day when the stock is traded during the twenty (20) day period
immediately preceding the date of contribution.
New Accounting Standard
In 1999 the Plan adopted Statement of Position 99-3, "Accounting and Reporting
of Certain Defined Contribution Plan Investments and Other Disclosure Matters",
which changes the required disclosures for plans with participant-directed
investment programs. Prior year amounts in comparative disclosures have been
reclassified for consistency with current presentations as required by the
Statement.
Expenses
The Company elected to pay all of the Plan's administration expenses in 1999 and
1998 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.
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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 are included in the
Company's consolidated tax return. 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 twelve (12) consecutive months of their employment
date.
Types of contributions provided for in the Plan are:
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 1999 and 1998 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 six percent (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
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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. Participants
contribute to the Plan on a pre-tax basis only. Subject to the limitations
contained in the Plan, a participant may elect to defer any portion of his
compensation. However, a participant may never defer more than the lesser of the
Internal Revenue Service limitation ($10,000 in 1999 and 1998) in any plan year
or a percentage of compensation greater than the maximum percentage of
compensation determined annually by the Committee.
Separate accounts are maintained for each participant in the Plan. When an
election is made by the participant to defer part of his compensation, an
Employee Deferred Compensation Account is established. Each participant will
also have a Company Contribution Account consisting of discretionary matching
contributions made by the Company and a proportionate share of forfeitures.
All amounts in the participant's accounts are placed in a trust fund and
invested by the Trustee. The Trustee must invest the trust fund solely in the
interest of and for the exclusive purpose of providing benefits to the
participants and their beneficiaries while minimizing the expenses of
administering the Plan. 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 (55) may elect to diversify
up to one-hundred percent (100%) of their Employee 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 (age fifty-nine and one-half (59 1/2)), or upon
permanent disability, death, separation from employment, 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
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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, 1999 and 1998, the Plan held 161,821 and 163,161 shares,
respectively, of the Company's common stock. Other than the Company's common
stock (which is a nonparticipant-directed investment), investments of the Plan
which represented five percent or more of the Plan's net assets available for
benefits at December 31, 1999 were $404,301 held in the Federated Investors
Automated Cash Management Trust SS and at December 31, 1998 were $926,217 held
in the Fidelity Cash Reserves Fund ($1 per unit). Each of these represent
participant-directed investments.
4. Nonparticipant-directed Investments
Information regarding nonparticipant-directed investment in the Company's common
stock at December 31, 1999 and 1998 is included in Note 3 above. Significant
components of the changes in net assets relating to nonparticipant-directed
investments (including activity in the Plan's cash and cash equivalents) for the
years ended December 31, 1999 and 1998 is as follows:
1999 1998
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Net investment loss $(1,470,996) $ (177,257)
Contributions:
Employer 130,281 86,150
Employee 234,719 152,941
Benefits paid to participants (233,126) (51,846)
Transfers to participant-directed investments (68,010) (11,499)
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Total $(1,407,132) $ (1,511)
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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
the Committee believe that the Plan is currently designed and operated in
compliance with the applicable requirements of the Internal Revenue Code.
Therefore, the Company and the Committee believe that the Plan continues to be
qualified and no provision for income taxes has been included in the Plan's
financial statements.
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. 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. 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 or cash. Distributions made in 1999 consisted of 7,431 shares
of the Company's common stock and cash of $998,519. Distributions made in 1998
consisted of 1,150 shares of the Company's common stock and cash of $291,434.
Former participants who terminated employment during 1999 and had not yet
received distribution of their account at December 31, 1999 will receive
distribution in 2000. The balance due former participants at December 31, 1999
included 1,776 shares of the Company's common stock and cash of $10,454. The
balance due former participants at December 31, 1998 included 4 shares of the
Company's common stock and cash of $7,367.
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<TABLE>
<CAPTION>
Pre-Paid Legal Services, Inc.
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Employee Stock Ownership and Thrift Plan and Trust
Schedule H, Line 4i - Schedule of Assets Held for Investment Purposes at End of
Year December 31, 1999
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(a) (b) (c) (d) (e)
Description of Investment,
Including Maturity Date,
Identity of Issue, Rate of Interest,
Borrower, Lessor Collateral, Par, or Current
Maturity Value Cost Value
<S> <C> <C> <C> <C> <C> <C>
Corporate Common Stock:
* Pre-Paid Legal Services, Inc. 168,821 shares $ 757,747 $3,883,704
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Short-Term Funds
Federated Investors Automated Cash Management Trust SS, 404,301 404,301
404,301 units
American Funds U.S. Treasury Money Fund of America, 194,864 194,864
194,864 units
Morgan Stanley Dean Witter Dividend Growth Securities B, 187,067 174,126
3,015 units
Vanguard Group 500 Index Fund, 33,975 41,557
307 units
Vanguard Group Windsor II Fund, 3,868 4,417
177 units
Morgan Stanley Dean Witter Liquid Asset Fund, 1 1
1 unit
1,031,468 1,024,501
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TOTAL INVESTMENTS $1,789,215 $4,908,205
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* Party-in-interest to the Plan
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