UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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[ ] Soliciting Material Pursuant to ss. 240.14a-12
PRE-PAID LEGAL SERVICES, INC.
(Name of Registrant as Specified in its Charter)
NOT APPLICABLE
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
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PRE-PAID LEGAL SERVICES, INC.
One Pre-Paid Way
Ada, Oklahoma 74820
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE HOLDERS OF SHARES OF COMMON STOCK:
Our Annual Meeting of Shareholders will be held in the Liberty Auditorium
at our corporate offices located at One Pre-Paid Way in Ada, Oklahoma, on
Friday, May 22, 2009, at 1:00 p.m., local time, for the following purposes:
(1) To elect two members to our Board of Directors;
(2) To ratify the selection of Grant Thornton LLP as our independent
registered public accounting firm;
(3) 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 March
24, 2009 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
our offices, One Pre-Paid Way, Ada, Oklahoma.
BY ORDER OF THE BOARD OF DIRECTORS
Kathy Pinson, Secretary
Ada, Oklahoma
March 24, 2009
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IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL
MEETING OF SHAREHOLDERS TO BE HELD ON MAY 22, 2009
This proxy statement, this notice of annual meeting, a form of proxy and our
2008 Annual Report to Shareholders, are all available free of charge on our
website at http://www.prepaidlegal.com/shareholder_docs
--------------------------------------------------------------------------------
Please vote by telephone or by using the Internet as instructed on the enclosed
Proxy Card or complete, sign and date the enclosed Proxy Card and return it
promptly in the envelope enclosed for that purpose. You may nevertheless vote in
person if you do attend the meeting.
TABLE OF CONTENTS
-----------------
Description
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QUESTIONS AND ANSWERS ABOUT THIS PROXY MATERIAL AND VOTING
When and where is the Annual Meeting?
Why am I receiving these materials?
Who can vote at the Annual Meeting?
What am I voting on?
How do I vote?
How many votes do I have?
What if I return a proxy card but do not make specific choices?
Who is paying for this proxy solicitation?
What does it mean if I receive more than one proxy card?
Can I change my vote after submitting my proxy?
How are votes counted?
How many votes are needed to approve each proposal?
What is the quorum requirement?
How can I find out the results of the voting at the Annual Meeting?
PROPOSAL ONE ELECTION OF DIRECTORS
General
Corporate Governance Matters
Compensation Committee Interlocks and Insider Participation
Corporate Governance Guidelines and Communications with the Board
Director Compensation
PROPOSAL TWO RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
General
Audit Committee Report
Audit and Other Fees
EXECUTIVE OFFICERS, COMPENSATION AND OTHER INFORMATION
Executive Officers
Compensation Discussion and Analysis
Compensation Committee Report
Summary Compensation Table
Plan-Based Awards
Stock Options
Outstanding Equity Awards
Option Exercises
Equity Compensation Plans
Nonqualified Deferred Compensation
Defined Contribution Plan
Other Potential Post-Employment Payments
Change of Control
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
COMPLIANCE WITH SECTION 16 REPORTING REQUIREMENTS
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ANNUAL REPORT TO SHAREHOLDERS
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
PROPOSALS OF SHAREHOLDERS AND NOMINATIONS
OTHER MATTERS
PROXY STATEMENT
PRE-PAID LEGAL SERVICES, INC.
One Pre-Paid Way
Ada, Oklahoma 74820
2009 ANNUAL MEETING OF SHAREHOLDERS
QUESTIONS AND ANSWERS ABOUT THIS PROXY MATERIAL AND VOTING
When and where is the Annual Meeting?
Our 2009 Annual Meeting of Shareholders ("Annual Meeting") will be held in the
Liberty Auditorium at our corporate offices located at One Pre-Paid Way in Ada,
Oklahoma, on Friday, May 22, 2009, at 1:00 p.m., local time.
Why am I receiving these materials?
We sent you this proxy statement and the enclosed proxy card because our Board
of Directors is soliciting your proxy to vote at the Annual Meeting. You are
invited to attend the Annual Meeting to vote on the proposals described in this
proxy statement. However, you do not need to attend the meeting to vote your
shares. Instead, you may simply complete, sign and return the enclosed proxy
card, or follow the instructions below to submit your proxy over the telephone
or on the Internet.
We intend to mail this proxy statement and accompanying proxy card on or about
April 7, 2009 to all shareholders of record entitled to vote at the Annual
Meeting.
Who can vote at the Annual Meeting?
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 March 24,
2009. On that date, we had 10,984,217 shares of Common Stock, par value $.01 per
share, outstanding and eligible to vote, exclusive of treasury stock.
Shareholder of Record: Shares Registered in Your Name
If on March 24, 2009 your shares were registered directly in your name with our
transfer agent, Computershare Trust Company, N.A., then you are a shareholder of
record. As a shareholder of record, you may vote in person at the meeting or
vote by proxy. Whether or not you plan to attend the meeting, we urge you to
fill out and return the enclosed proxy card or vote by proxy over the telephone
or on the Internet as instructed below to ensure your vote is counted.
Beneficial Owner: Shares Registered in the Name of a Broker or Bank
If on March 24, 2009 your shares were held, not in your name, but rather in an
account at a brokerage firm, bank, dealer, or other similar organization, then
you are the beneficial owner of shares held in "street name" and these proxy
materials are being forwarded to you by that organization. The organization
holding your account is considered to be the shareholder of record for purposes
of voting at the Annual Meeting. As a beneficial owner, you have the right to
direct your broker or other agent on how to vote the shares in your account. You
are also invited to attend the Annual Meeting. However, since you are not the
shareholder of record, you may not vote your shares in person at the meeting
unless you request and obtain a valid proxy from your broker or other agent.
What am I voting on?
There are two matters scheduled for a vote:
* Election of two (2) directors; and,
* Ratification of Grant Thornton LLP as our independent registered
public accounting firm.
How do I vote?
You may either vote "For" all the nominees to the Board of Directors or you may
"Withhold" your vote for any nominee you specify. For each of the other matters
to be voted on, you may vote "For" or "Against" or abstain from voting. The
procedures for voting are as follows:
Shareholder of Record: Shares Registered in Your Name
If you are a shareholder of record, you may vote in person at the Annual
Meeting, vote by proxy using the enclosed proxy card, vote by proxy over the
telephone, or vote by proxy on the Internet. Whether or not you plan to attend
the meeting, we urge you to vote by proxy to ensure your vote is counted. You
may still attend the meeting and vote in person if you have already voted by
proxy.
* To vote in person, come to the Annual Meeting and we will give you a
ballot when you arrive.
* To vote using the proxy card, simply complete, sign and date the
enclosed proxy card and return it promptly in the envelope provided.
If you return your signed proxy card to us before the Annual Meeting,
we will vote your shares as you direct.
* To vote over the telephone, dial toll-free 1-800-690-6903 using a
touch-tone phone and follow the recorded instructions. You will be
asked to provide the company number and control number from the
enclosed proxy card. Your vote must be received by 11:59 p.m. on May
21, 2009 to be counted.
* To vote on the Internet, go to www.proxyvote.com to complete an
electronic proxy card. You will be asked to provide the company number
and control number from the enclosed proxy card. Your vote must be
received by 11:59 p.m. on May 21, 2009 to be counted.
Beneficial Owner: Shares Registered in the Name of Broker or Bank
If you are a beneficial owner of shares registered in the name of your broker,
bank, or other agent, you should have received a proxy card and voting
instructions with these proxy materials from that organization rather than from
us. Simply complete and mail the proxy card to ensure that your vote is counted.
Alternatively, you may vote by telephone or over the Internet as instructed by
your broker or bank. To vote in person at the Annual Meeting, you must obtain a
valid proxy from your broker, bank, or other agent. Follow the instructions from
your broker or bank included with these proxy materials, or contact your broker
or bank to request a proxy form.
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| We provide Internet proxy voting to allow you to vote your shares on-line,|
| with procedures designed to ensure the authenticity and correctness of |
| your proxy vote instructions. However, please be aware that you must bear |
| any costs associated with your Internet access, such as usage charges|
| from Internet access providers and telephone companies. |
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How many votes do I have?
On each matter to be voted upon, you have one vote for each share of Common
Stock you own as of March 24, 2009.
What if I return a proxy card but do not make specific choices?
If you return a signed and dated proxy card without marking any voting
selections, your shares will be voted "For" the election of the nominees for
director, and "For" the ratification of Grant Thornton LLP as our independent
registered public accounting firm. If any other matter is properly presented at
the meeting, your proxy (one of the individuals named on your proxy card) will
vote your shares using his or her best judgment.
Who is paying for this proxy solicitation?
We will pay for the entire cost of soliciting proxies. In addition to these
mailed proxy materials, our directors and employees may also solicit proxies in
person, by telephone, or by other means of communication. Directors and
employees will not be paid any additional compensation for soliciting proxies.
We may also reimburse brokerage firms, banks and other agents for the cost of
forwarding proxy materials to beneficial owners.
What does it mean if I receive more than one proxy card?
If you receive more than one proxy card, your shares are registered in more than
one name or are registered in different accounts. Please complete, sign and
return each proxy card to ensure that all of your shares are voted.
Can I change my vote after submitting my proxy?
Yes. You can revoke your proxy at any time before the final vote at the meeting.
If you are the record holder of your shares, you may revoke your proxy in any
one of three ways:
* You may submit another properly completed proxy card with a later
date;
* You may send a written notice that you are revoking your proxy to
PRE-PAID LEGAL SERVICES, INC., One Pre-Paid Way, Ada, Oklahoma 74820,
Attention: Kathy Pinson, Secretary.
* You may attend the Annual Meeting and vote in person. Simply attending
the meeting will not, by itself, revoke your proxy.
If your shares are held by your broker or bank as a nominee or agent, you should
follow the instructions provided by your broker or bank.
How are votes counted?
Votes will be counted by the inspector of election appointed for the meeting,
who will separately count "For" and "Withhold" for election of directors and,
with respect to proposals other than the election of directors, "Against" votes,
abstentions and broker non-votes. Abstentions will be counted towards the vote
total for each proposal, and will have the same effect as "Against" votes.
Broker non-votes have no effect and will not be counted towards the vote total
for any proposal.
If your shares are held by your broker as your nominee (that is, in "street
name"), you will need to obtain a proxy form from the institution that holds
your shares and follow the instructions included on that form regarding how to
instruct your broker to vote your shares. If you do not give instructions to
your broker, your broker can vote your shares with respect to "discretionary"
items, but not with respect to "non-discretionary" items. Discretionary items
are proposals considered routine under the rules of the New York Stock Exchange
("NYSE") on which your broker may vote shares held in street name in the absence
of your voting instructions. On non-discretionary items for which you do not
give your broker instructions, the shares will be treated as broker non-votes.
Shares represented by proxies which are marked "withhold authority" with respect
to the election of any one or more nominees for election as directors will be
counted for the purpose of determining the number of shares represented by proxy
at the meeting. 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.
How many votes are needed to approve each proposal?
Directors will be elected by a plurality of the votes of the shares present in
person or represented by proxy at the Annual Meeting.
For the ratification of Grant Thornton LLP as our independent registered public
accounting firm, Proposal No. 2 must receive a "For" vote from the majority of
shares present and entitled to vote either in person or by proxy. If you
"Abstain" from voting, it will have the same effect as an "Against" vote. Broker
non-votes will have no effect.
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.
What is the quorum requirement?
A quorum of shareholders is necessary to hold a valid meeting. A quorum will be
present if at least a majority of the outstanding shares are represented by
shareholders present at the meeting or by proxy. On the record date, there were
10,984,217 outstanding and entitled to vote. Therefore, 5,492,109 must be
represented by shareholders present at the meeting or by proxy to have a quorum.
Your shares will be counted towards the quorum only if you submit a valid proxy
(or one is submitted on your behalf by your broker, bank or other nominee) or if
you vote in person at the meeting. Abstentions and broker non-votes will be
counted towards the quorum requirement. If there is no quorum, a majority of the
votes present at the meeting may adjourn the meeting to another date.
How can I find out the results of the voting at the Annual Meeting?
Preliminary voting results will be announced at the Annual Meeting. Final voting
results will be published in our quarterly report on Form 10-Q for the second
quarter of 2009.
PROPOSAL ONE
ELECTION OF DIRECTORS
General
Our Board of Directors currently consists of seven members and is divided
into three classes as nearly equal in size as possible, with the term of office
of one class expiring each year. Based on the recommendation of the Nominating
Committee, the Board of Directors has nominated and proposes that John W. Hail
and Thomas W. Smith, whose terms as directors expire as of the Annual Meeting of
Shareholders for 2009, be re-elected for three-year terms as directors.
The election of a director requires the affirmative vote of a plurality of
the shares of Common Stock voting in person or by proxy at the Annual Meeting.
All proxies will be voted, in the absence of instructions to the contrary, FOR
the re-election of John W. Hail and Thomas W. Smith 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 of Directors
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
our Board of Directors, the named nominees will serve if elected.
The following is certain information about each of our directors and
nominee for director:
Existing
Name Age Director Since Term Expires
---------------------------------- --- -------------- ------------
John W. Hail...................... 78 1998 2009
Thomas W. Smith................... 80 2004 2009
Orland G. Aldridge................ 70 2004 2010
Peter K. Grunebaum................ 75 1980 2010
Duke R. Ligon..................... 67 2007 2010
Martin H. Belsky.................. 64 1998 2011
Harland C. Stonecipher............ 70 1976 2011
John W. Hail
John W. Hail is the founder of AMS Health Sciences, Inc. (formerly
Advantage Marketing Systems, Inc.) ("AMS") and served as Chief Executive Officer
and Chairman of the Board of Directors of AMS since its inception in June 1988
until February 12, 2006. AMS sells natural nutritional supplements, weight
management products, and natural skincare products. AMS filed a voluntary
petition for relief under Chapter 11 of the United States Bankruptcy Code on
December 27, 2007. From July 1986 through May 1988, Mr. Hail served as our
Executive Vice President, Director and Agency Director and also served as
Chairman of the Board of Directors of TVC Marketing, Inc., which was our
exclusive marketing agent from April 1984 through September 1985. Mr. Hail also
serves as a director of InPlay Technologies, Inc. (NASDAQ: NPLA) (formerly
Duraswitch Industries, Inc.).
Thomas W. Smith
Mr. Smith is the largest outside shareholder of the Company and is the
managing partner of Prescott Investors, Inc, a private investment firm he
founded in 1973. He currently serves as a director of Copart, Inc. (NASDAQ-GS:
CPRT).
Orland G. Aldridge
Mr. Aldridge retired as a professor from Northeastern Oklahoma A & M
College in Miami, Oklahoma in 2002 where he had been an instructor since 1999
and has been and remains an independent insurance agent. He has served as a
director of our wholly-owned subsidiary, Pre-Paid Legal Casualty, Inc. since
1991.
Peter K. Grunebaum
Mr. Grunebaum, currently an independent investment banker and corporate
consultant, was the Managing Director of Fortrend International, an investment
firm headquartered in New York, New York, a position he held from 1989 until
the end of 2003. Mr. Grunebaum also serves as a director of StoneMor GP, LLC the
general partner of StoneMor Partners LP (NASDAQ-GM: STON) and Lucas Energy, Inc.
(AMEX: LEI).
Duke R. Ligon
Mr. Ligon retired in January 2007 as senior vice president and general
counsel for Devon Energy Corporation (NYSE:DVN) and brings more than 35 years of
legal expertise in corporate securities, litigation, governmental affairs and
mergers and acquisitions. Mr. Ligon is currently serving as executive director
of the Love's Entrepreneurial Center at Oklahoma City University as well as
strategic advisor to the Oklahoma based Love's Travel Stores. Prior to joining
Devon in 1997, he practiced law for 12 years and last served as a partner at the
law firm of Mayer, Brown & Platt in New York City. In addition, he was senior
vice president and managing director for investment banking at Bankers Trust Co.
in New York City for 10 years. Ligon received an undergraduate degree in
chemistry from Westminster College and a law degree from the University of Texas
School of Law. Mr. Ligon also serves as a director of Panhandle Oil & Gas (AMEX:
PHX), Quest Midstream Partners L.P., an affiliate of Quest Resource Corporation
(NASDAQ-GM: QRCP), TransMontaigne Partners, L.P. (NYSE:TLP), and SemGroup Energy
Partners G.P., L.L.C, the general partner of SemGroup Energy Partners, L.P.
(NASDAQ-GM: SGLP). Additionally, Ligon is a member of our Advisory Council;
appears as a spokesman on our videos and communicates with our associates in
connection with matters we determine material.
Martin H. Belsky
Mr. Belsky is currently Dean of the University of Akron School of Law, a
position he has held since January 2008. Previously, Mr. Belsky was Dean of the
University of Tulsa College of Law from 1995 to 2004. Subsequent to being Dean,
Mr. Belsky was a professor of Law at the University of Tulsa College of Law,
teaching courses in constitutional law, ethics, international law, and oceans
policy until accepting his current position at the University of Akron.
Harland C. Stonecipher
Mr. Stonecipher has been the Chairman of our Board of Directors since its
organization in 1976 and served as Chief Executive Officer until March 1996 and
since February 1997. Mr. Stonecipher also served as our President at various
times through January 1995 and since December 2002. Mr. Stonecipher also serves
as an executive officer of several of our subsidiaries and served as a director
of AMS Health Sciences, Inc. until December 5, 2005.
Corporate Governance Matters
The Board of Directors uses the independence standards under the New York
Stock Exchange ("NYSE") corporate governance rules for determining whether
directors are independent. The Board additionally follows the rules of the
Securities and Exchange Commission ("SEC") in determining independence for audit
committee members. The Board has determined that Messrs. Aldridge, Belsky,
Grunebaum, Ligon and Smith are independent under these NYSE and SEC rules for
purposes of service on the Board and on the nominating, compensation and audit
committees (except for Mr. Smith as to the audit committee due to his potential
status as an affiliate due to his level of ownership). Members of each committee
are elected annually by the Board and serve for one-year terms or until their
successors are elected and qualified.
The Board of Directors held six meetings during 2008 and acted by unanimous
consent three times. During such year all directors listed above attended at
least 75% of the meetings of the full Board and the committees on which they
served.
We do not have a specific policy regarding board member's attendance at
annual meetings of shareholders, although, as a general rule, all directors
usually attend such meeting. At the 2008 annual meeting of shareholders, all
directors attended the meeting except for Mr. Smith.
The Board has established an Audit Committee currently consisting of
Messrs. Aldridge, Belsky and Grunebaum. The Audit Committee selects, and
oversees our relationship with, our independent registered public accounting
firm and reviews with the independent registered public accounting firm the
scope and results of the annual audit. The Audit Committee also reviews
financial statements and reports including Forms 10-K and Forms 10-Q, reviews
all significant financial reporting issues and practices and monitors internal
control policies. The Audit Committee also establishes procedures for receipt,
retention and treatment of complaints received by us regarding accounting,
internal accounting control or auditing matters, recommends and reviews our code
of ethics and oversees our internal audit function. The Audit Committee held
nine meetings during 2008 and acted by unanimous consent once. The Committee
chair, as representative of the Committee, discussed the interim financial
information contained in each quarterly earnings announcement with the CFO and
independent auditors prior to public release. The Board has determined that none
of the members of the Audit Committee qualify as a "financial expert" as defined
by the rules of the SEC, because none of the members meet the requisite
qualifications for such designation.
Additionally, the Board has established a Nominating Committee. The
nominating committee currently consists of Messrs. Belsky, Ligon and Smith and
is responsible for assisting the full Board in selecting individuals for service
on the Board and evaluating their performance. During 2008, the Nominating
Committee met once and acted by unanimous consent once.
The Board has also established a Compensation Committee currently
consisting of Messrs. Belsky, Ligon and Smith. During 2008, the Compensation
Committee met four times and acted by unanimous consent once.
The Board has authorized the Compensation Committee to annually review and
approve corporate goals and objectives relevant to our CEO's compensation,
evaluate the performance of the CEO in light of these goals and objectives and
approve the amounts and individual elements of total compensation for the CEO
based on this evaluation. In addition to determining the CEO's total
compensation, the Compensation Committee advises the CEO in his establishment of
the compensation of the other executive officers. No other executive officer has
the authority to participate, and has not participated, in the determination of
executive officer compensation.
In addition to its role in determining our Chief Executive Officer's
compensation, the Compensation Committee has the authority to:
o periodically evaluate, in conjunction with the CEO, and make
recommendations to the Board regarding the terms and administration of
our annual and long-term incentive plans to assure that they are
structured and administered in a manner consistent with our
compensation objectives as to participation, annual incentive awards,
corporate financial goals, actual awards paid to our executive
officers, and total funds reserved for payment under the compensation
plans, if any.
o periodically evaluate, in conjunction with the CEO, equity-related
executive compensation plans and make recommendations to the Board
based on the committee's evaluation.
o periodically evaluate and make recommendations to the Board regarding
annual retainer and meeting fees for the Board and the committees of
the Board and the terms and awards of any stock compensation for
members of the Board.
If the Board so approves, the Compensation Committee has the sole authority
to retain or terminate consultants, including the authority to approve the
consultant's fees and other retention terms. The Compensation Committee did not
employ any consultants in 2008.
Compensation Committee Interlocks and Insider Participation
As stated above, Messrs. Belsky, Ligon and Smith were the members of our
Compensation Committee in 2008. None of them have ever been an officer or
employee of ours or any of our subsidiaries. Additionally, none of our executive
officers serves on the compensation committee of any entity that has one or more
of such entity's executive officers serving on our Board.
Corporate Governance Guidelines and Communications with the Board
We adopted Corporate Governance Guidelines and a Code of Business Conduct
and Ethics in accordance with the rules of the NYSE in January 2004. The Code of
Business Conduct and Ethics is applicable to all employees and directors,
including our principal executive, financial and accounting officers. In
addition, each of the committees of the Board has a charter which has been
approved by the Board. Copies of the Corporate Governance Guidelines, Code of
Business Conduct and Ethics and committee charters are available at our website,
www.prepaidlegal.com. In addition, copies of these documents are available to
any shareholder who requests them from our Secretary. The Audit Committee
reviewed its charter in March 2007 and adopted an amended and restated charter.
We intend to disclose amendments to, or waivers from, our Code of Business
Conduct and Ethics by posting to our website.
Our Corporate Governance Guidelines requires that the non-management
directors meet in executive session immediately following each meeting of the
Board. The Guidelines provide that the Chairman of the Nominating Committee,
currently Mr. Belsky, will preside over these meetings.
Our Corporate Governance Guidelines provide that any person, including any
shareholder, desiring to communicate with, or make any concerns known to us,
directors generally, non-management directors or an individual director only,
may do so by submitting them in writing to our Quality Assurance Supervisor, One
Pre-Paid Way, Ada, Oklahoma 74820, with information to identify the person
submitting the communication or concern, including the name, address, telephone
number and an e-mail address (if applicable), together with information
indicating the relationship of such person to us. Our Quality Assurance
Supervisor is responsible for maintaining a record of any such communications or
concerns and submitting them to the appropriate addressee(s) for potential
action or response. We will establish the authenticity of any communication or
concern before forwarding. Under the Corporate Governance Guidelines, we are not
obligated to investigate or forward any anonymous submissions from persons who
are not our employees.
Director Compensation
The following table summarizes the compensation of directors in 2008:
Fees Earned
or Paid in All Other
Name Cash (1) Compensation
---------------------------------- ----------- -------------
Orland G. Aldridge................ $ 44,000 $ -
Martin H. Belsky.................. 49,500 -
Peter K. Grunebaum................ 57,500 -
John W. Hail...................... 35,000 -
Duke R. Ligon (2)................. 40,000 50,000
Thomas W. Smith (1)............... - -
Harland C. Stonecipher (1)........ - -
(1) Our 2008 standard compensation for non-employee directors consisted of
a retainer in the amount of $7,500 per quarter in addition to the
payment of $1,000 per Board and committee meeting attended. The chairs
of the Compensation and Nominating Committees received an additional
$1,500 per meeting and the chair of the Audit Committee received an
additional $2,500 per meeting. No form of compensation other than cash
was provided to any director except as discussed below. Mr. Smith has
waived the receipt of any cash compensation in exchange for
reimbursement of expenses related to charter aircraft used for travel
to and from Board meetings. Such reimbursement paid to third parties
was $127,821 for 2008 and does not include any costs related to the
use of our aircraft to transport Mr. Smith. Mr. Stonecipher, as an
employee of ours, does not receive additional compensation for Board
service.
(2) Mr. Ligon received compensation during 2008 for his services as a
member of our Advisory Council. The Advisory Council is currently
comprised of four legal professionals with a wide range of experience
in law and business, including three former Attorneys General and Mr.
Ligon. Each member of the Advisory Council receives $50,000 annually,
paid monthly, for his participation.
As of December 31, 2008, the director listed below held options to purchase
shares of common stock which had been granted in prior years:
Weighted
Number Average Exercise
Director of Shares Price Expiration Date
---------------------------------- --------- ---------------- ---------------
Peter K. Grunebaum................ 4,500 $23.93 March 1, 2009
The Board of Directors recommends that the shareholders vote "FOR" the
re-election of John W. Hail and Thomas W. Smith to the Board of Directors.
PROPOSAL TWO
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
General
The Audit Committee has directed us to submit the selection of our
independent registered public accounting firm for ratification by the
shareholders at the Annual Meeting. Neither our bylaws nor other governing
documents or law require shareholder ratification of the selection of Grant
Thornton LLP ("Grant Thornton") as our independent registered public accounting
firm. However, the Audit Committee is submitting the selection of Grant Thornton
to the shareholders for ratification as a matter of good corporate practice. If
the shareholders fail to ratify the selection, the Audit Committee will
reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee may in its discretion direct the appointment of a
different independent registered public accounting firm at any time during the
year if it determines that such a change would be in our best interest and that
of our shareholders.
The Board of Directors recommends that the shareholders vote "FOR" the
ratification of Grant Thornton as our independent registered public accounting
firm for the year ending December 31, 2009.
Audit Committee Report
In accordance with its written charter adopted by the Board of Directors
("Board"), the Audit Committee of the Board ("Committee") assists the Board in
fulfilling its responsibility for oversight of the quality and integrity of our
accounting, auditing and financial reporting practices.
In discharging its oversight responsibility as to the audit process, the
Audit Committee received the written disclosures and the letter from the
independent accountant required by applicable requirements of the Public Company
Accounting Oversight Board regarding the independent auditor's communications
with the audit committee concerning independence, and has discussed with the
auditors any relationships that may impact their objectivity and independence
and satisfied itself as to the auditors' independence. The Committee also
discussed with management and the independent auditors the quality and adequacy
of our internal controls. The Committee reviewed with the independent auditors
their audit plans, audit scope, and identification of audit risks.
The Committee discussed and reviewed with the independent auditors all
communications required by generally accepted auditing standards, including
those described in Statement on Auditing Standards No. 61, as amended,
"Communication with Audit Committees" and, with and without management present,
discussed and reviewed the results of the independent auditors' examination of
the financial statements.
The Committee reviewed and discussed our audited financial statements as of
and for the fiscal year ended December 31, 2008, with management and the
independent auditors. Management has the responsibility for the preparation of
our financial statements and the independent auditors have the responsibility
for the examination of those statements.
Based on the above-mentioned review and discussions with management and the
independent auditors, the Committee recommended to the Board that our audited
financial statements be included in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2008, for filing with the Securities and Exchange
Commission. The Committee has approved reappointment of the independent auditors
for 2009.
/s/ Peter K. Grunebaum /s/ Martin H. Belsky /s/ Orland G. Aldridge
-------------------------- ------------------------- ---------------------------
Peter K. Grunebaum Martin H. Belsky Orland G. Aldridge
Committee Chairman Committee Member Committee Member
Audit and Other Fees
Grant Thornton served as our independent registered public accounting firm
during 2008 and 2007. The aggregate fees billed by Grant Thornton for 2008 and
2007 for various services are set forth below:
2008 2007
---- ----
Audit Fees........................ $ 430,630 $ 469,740
Audit Related Fees................ 21,000 21,750
Tax Fees.......................... - -
All Other Fees.................... - -
Fees for audit services include fees associated with the annual audit of us
and our subsidiaries (including audit fees related to Section 404 of the
Sarbanes-Oxley Act), the review of our quarterly reports on Form 10-Q and
required statutory audits. Audit-related fees principally include audits in
connection with our employee benefit plans, due diligence and accounting
consultations. Tax fees include tax compliance, tax advice and tax planning
related to Federal, state and international tax matters.
The Audit Committee has considered whether the provision of non-audit
services by Grant Thornton is compatible with maintaining auditor independence
and adopted in 2003 a policy that requires pre-approval of all audit and
non-audit services. Such policy requires the Committee to approve services and
fees in advance and requires documentation regarding the specific services to be
performed. All 2008 audit and non-audit services fees were approved in advance
in accordance with the Committee's policies.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Executive Officers
Our current executive officers are named below:
Name Age Position
----------------------------- --- -----------------------------------------------------
Harland C. Stonecipher....... 70 Chairman of the Board of Directors, Chief Executive
Officer and President
Steve Williamson............. 48 Chief Financial Officer
Mark Brown................... 55 Senior Vice President and Chief Marketing Officer
Randy Harp................... 53 Chief Operating Officer
Kathleen S. Pinson........... 56 Vice President of Regulatory Compliance and Secretary
For description of the business background and other information concerning
Mr. Stonecipher, see "Election of Directors" above. All executive officers serve
at the discretion of the Board, subject to, in the case of Mr. Stonecipher, the
terms of his employment agreement described below.
Steve Williamson
Mr. Williamson was named our Chief Financial Officer in May 2000. From
April 1997 until his employment with us in March 2000, Mr. Williamson served as
the Chief Financial Officer of Peripheral Enhancements, Inc., an electronic
memory assembly company. Prior to April 1997, Mr. Williamson served as Director
in Charge of Banking Practice for Horne & Company, a public accounting firm. Mr.
Williamson is a Certified Public Accountant.
Mark Brown
Mr. Brown was named Senior Vice President and Chief Marketing Officer in
October 2006. Prior to his appointment to the new position, Mr. Brown was our
National Sales Director for Group Marketing and Senior Regional Vice President
for most of the State of Texas and has been one of our independent associates
for more than eleven years. Prior to his association with us, Mr. Brown owned
his own printing business for 18 years.
Randy Harp
Mr. Harp was named Chief Financial Officer in March 1990 and served in that
capacity until May 2000 and has served as Chief Operating Officer since March
1996. Mr. Harp served on the Board of Directors from March 1990 until May 2004
when he resigned from the Board of Directors as part of a corporate governance
initiative required by the rules of the NYSE to have independent, outside
directors comprise the majority of the Board. Mr. Harp is a Certified Public
Accountant.
Kathleen S. Pinson
Ms. Pinson was named our Controller in May 1989 and has been a Vice
President of ours since June 1982. Ms. Pinson served on the Board of Directors
from April 1990 until August 2002 when she resigned from the Board of Directors
together with three other directors as part of a corporate governance initiative
to have outside directors comprise the majority of the Board. Ms. Pinson has
been employed by us since 1979 and currently serves as Vice President of
Regulatory Compliance and Secretary. Ms. Pinson is a Certified Public
Accountant.
Significant Employee - Wilburn L. Smith
Wilburn Smith has been active in our marketing division since 1980. He
served as one of our directors from March 1993 to October 1995 and from April
1997 to December 2001, during which time he also served as our President. Mr.
Smith currently serves as our National Marketing Director.
Compensation Discussion and Analysis
General
Our compensation philosophy and the objectives of our compensation programs
are to:
o Recognize that membership revenues and growth in membership revenues
are the most significant factors in our corporate objectives, since
the expense components of our business as a percentage of membership
revenues do not vary materially. Accordingly, incentive compensation
should be based on membership or membership revenue metrics.
o Pay compensation to our Chief Executive Officer primarily based on
incentive compensation tied to membership revenues, and secondarily as
required by long-standing written agreements with him.
o Pay our Chief Marketing Officer based solely on incentive compensation
tied to memberships written.
o Pay our other home office named executive officers primarily with
annual salaries competitive in the local market and in amounts
recognizing relative levels of responsibility, and secondarily with
incentive compensation based on growth of in-force membership revenues
due to their lesser level of influence over marketing efforts.
o Eliminate equity compensation as a component of executive
compensation, as it is inconsistent with our stock repurchase policy.
o Provide a non-qualified deferred compensation program to permit us and
our CEO to avoid the nondeductibility provisions of Section 162 of the
Internal Revenue Code for compensation in excess of $1 million, and to
permit supplemental retirement benefits for all named executive
officers in excess of amounts provided under our defined contributions
plan.
To maintain simplicity in our compensation, we have not historically
adopted any equity or long term compensation plans other than stock options,
which we discontinued granting to executive officers in 2002. We have not
evaluated gains from historical option exercises or potential gains from option
exercises in evaluating other executive officer compensation. We do not have any
specific equity ownership guidelines, but we strongly encourage our executive
officers to own our Common Stock.
We also do not have term employment agreements with anyone other than our
Chief Executive Officer, which was entered into in 1993 and is currently on a
year to year basis.
The Compensation Committee has not engaged in any benchmarking or peer
group comparisons in connection with any compensation decisions because of the
unique characteristics of the Company and the absence of any true peer groups.
For our incentive cash compensation plans that are based on the formulas
described, there have been no historical discrepancy adjustments to the amount
of such compensation, except as with respect to Mr. Stonecipher's incentive
compensation as described below.
The elements of our compensation for named executive officers vary,
depending on their position, and are described below. All of these elements,
other than those for which the Company is contractually obligated, are subject
to change if the Compensation Committee believes a change is appropriate. The
Compensation Committee has reviewed the relative compensation of all of the
named executive officers. The total compensation of the Chief Executive Officer,
which is significantly higher than our other named executive officers, reflects
his critical role in the founding, development of the Company, ongoing marketing
of the Company's memberships, and supervision of the marketing force. Likewise,
the compensation of our Chief Marketing Officer at potentially higher levels
than other named executive officers reflects our philosophy that marketing is
the most important factor in our Company's growth and success.
Because our compensation arrangements are relatively simple and we do not
have complex equity plans, or significant change of control or severance
obligations, the Compensation Committee does not use tally sheets in analyzing
executive officer compensation, but does review each element of compensation as
described in this Proxy Statement in evaluating and approving our Chief
Executive Officer's total compensation and consulting with the Chief Executive
Officer with respect to the total compensation of other executive officers.
Individual Elements of Compensation
-----------------------------------
Chief Executive Officer
Incentive Compensation. The primary element of compensation paid to our
Chief Executive Officer is formula incentive compensation based on the level of
our membership fees (the "Membership Fee Plan"). Since 2004, and during 2008,
our Chief Executive Officer has been eligible to receive up to one-half of one
percent (.5%) of Membership fees collected. Payment of this 0.5% incentive has
been conditioned on our meeting certain monthly and quarterly Membership revenue
thresholds. Mr. Stonecipher receives a monthly bonus equal to 0.25% of monthly
Membership fees if the month's Membership fees are at least 85% of the
Membership fees for the same month of the prior year. Additionally, Mr.
Stonecipher receives a quarterly bonus equal to 0.25% of the quarter's
Membership fees, if the quarter's Membership fees are greater than the
Membership fees for the comparable quarter of the prior year. The aggregate
annual amount of these bonuses has been reduced by $500,000 since 2005 by reason
of our now owning and operating corporate aircraft, which aircraft services were
previously provided through aircraft partially owned by Mr. Stonecipher (the
"aircraft reduction"). The Membership Fee Plan is subject to annual review by
the Compensation Committee. During 2008, Mr. Stonecipher received $1,755,540 in
bonuses under this plan after the aircraft reduction and it will remain in
effect under the same terms in 2009. Mr. Stonecipher also has historically
received and is expected to continue to receive incentive compensation equal to
2.5% of premiums received by PPL Agency, Inc., a subsidiary of ours which sells
cancer and dread disease insurance (the "PPL Agency Plan"). This incentive was
originated in 1982 when PPL Agency was organized to recognize Mr. Stonecipher's
efforts in organizing this agency. In 2008, Mr. Stonecipher received $28,326 in
compensation under this arrangement. In 2008, these incentive compensation
components represented 80% of Mr. Stonecipher's total cash compensation.
Salary and Member Override. The base salary of Mr. Stonecipher has been
established pursuant to an employment agreement which commenced in January 1993
and expired in 2003, but automatically extends for successive one-year periods
until either party elects to terminate the agreement at least 30 days prior to
the expiration date. At inception of the agreement, Mr. Stonecipher's base
salary was $157,755 and it has not been adjusted since that time as the
Compensation Committee prefers to provide compensation to Mr. Stonecipher
primarily in the form of incentive compensation described above. Pursuant to a
separate agreement with us entered into in 1986 originally intended to
incentivize growth in new memberships, Mr. Stonecipher is entitled to an
override commission, payable monthly, in an amount equal to $.025 per active
Membership, with a maximum payable of $20,000 per month (equivalent to 800,000
members) or $240,000 per year (the "Member Override Agreement"). At the time the
agreement was entered into in 1986, the Company had 133,816 members. The payment
of such commissions to Mr. Stonecipher continues during his lifetime and after
his death to his designated beneficiaries and their successors so long as the
Company sells legal expense plans. The Company intends to continue to abide by
this agreement but it is now considered to be the same as salary given the level
of the Company's memberships far exceeds the 800,000 members needed to generate
the maximum override commission.
Post Employment Compensation. Mr. Stonecipher is entitled to post
employment compensation under our defined contribution qualified retirement plan
in which he participates on the same basis as all other employees. He is also a
participant in our non-qualified deferred compensation plan which is described
below. He also receives a supplemental retirement benefit under his employment
agreement which is described below under "Other Potential Post-Employment
Payments." Finally, as noted above, he will continue to receive payments under
the Member Override Agreement.
Chief Marketing Officer
Incentive Compensation. Our Chief Marketing Officer receives solely cash
incentive compensation in various capacities. As a sales associate, he receives
commissions from sales of memberships both personally, and by members in his
personal sales organization on the same basis as all other sales associates
("Personal Commissions"). As head of our group marketing, he receives a 0.5%
override on group membership revenues received for memberships written after
April 15, 2002, the date on which this override was created ("Group Override").
As a regional vice president for Texas, he receives a 0.2% override on Texas
membership revenues received for memberships written after July 10, 1996, the
date on which the override was created ("RVP Override"). All of the foregoing
was in place before he became Chief Marketing Officer. As Chief Marketing
Officer, he receives a 0.13% override on membership revenues that are received
on memberships written after November 22, 2006, the date on which this override
was created ("Membership Fee Override").
Post Employment Compensation. Mr. Brown, like all other sales associates,
will continue to receive Personal Commissions after separation for employment so
long as he remains a vested associate, which requires him to maintain a personal
membership or sell at least three memberships per quarter and abide by the
applicable policies and procedures for our associates. He will also receive post
employment compensation under our defined contribution plan on the same basis as
all other employees.
Other Named Executive Officers
Salary. The other named executive officers receive salaries established by
our Chief Executive Officer in consultation with the Compensation Committee that
are based on their relative seniority, level of responsibility, an assessment of
each executive officer's performance and potential contribution to our financial
and operational objectives. Salary is the more significant portion of the other
named executive officers' compensation which represented 89% of their total
compensation in 2008.
Incentive Compensation. We have a non-equity incentive plan for the other
named executive officers under which they are entitled to quarterly bonuses
equal to a percentage of their salaries equal to the percentage increase in
active membership fee revenue in force as of the end of each quarter from the
end of the same quarter in the preceding year subject to such increase being
more than 2% (the "In Force Premium Bonus Plan").
Post Employment Compensation. Our other executive officers are entitled to
post employment compensation under our defined contribution qualified retirement
plan in which they participate on the same basis as all other employees. They
are also participants in our non-qualified deferred compensation plan which is
described below.
Personal Benefits and Perquisites
We own two corporate airplanes that are used almost exclusively for
business purposes by our executive officers and other employees. On business
travel, Mrs. Stonecipher routinely accompanies Mr. Stonecipher. We believe this
practice is consistent with the family image we desire to present to our sales
force and employees. There is no incremental cost to us for Mrs. Stonecipher to
accompany Mr. Stonecipher on these trips. Occasionally, we permit Mr.
Stonecipher to use one of the planes for personal purposes. In these
circumstances, Mr. Stonecipher reimburses us at an hourly rate intended to fully
offset both our fixed and incremental cost of this travel, including fuel,
maintenance, personnel, insurance, etc. and any miscellaneous trip expense.
During 2008, Mr. Stonecipher used the corporate aircraft for personal purposes
11.8 hours (approximately 3.0% of the total aircraft usage) and reimbursed us
$17,530. We also provide automobiles (including fuel and maintenance) for Mr.
Stonecipher and Mr. Harp. The cost attributable to their personal use based on
the estimated lease value of the automobiles, plus fuel and maintenance, is
included in their taxable wages and unless the aggregate amount of personal
benefits is less than $10,000, is reflected in the summary compensation table
below. We also have a split dollar life insurance plan for Mr. Stonecipher and
his wife that was entered into in 1984 and is described below.
Impact of Regulatory Requirements on Executive Compensation Decisions
Section 162(m) of the Internal Revenue Code provides that we may be limited
in deducting annual compensation in excess of $1 million paid to certain
executive officers. The Compensation Committee has considered the effect of
Section 162(m) on our compensation program. The deferred compensation plan
described below was adopted in 2002 in part to be responsive to the limitations
of Section 162, to permit the deferral of compensation that would not otherwise
be deductible under Section 162. In certain circumstances it may be in our
shareholders' best interests to retain the flexibility to pay compensation that
may not be deductible under Section 162. The Compensation Committee reviewed
this amount from a cost/benefit perspective and concluded that it was
acceptable.
Compensation Committee Report
In accordance with its written charter adopted by the Board of Directors
("Board"), the Compensation Committee of the Board is responsible for
establishing the compensation of our CEO, Mr. Stonecipher, and overseeing the
compensation process as it relates to our other executive officers to assure
they are compensated in a manner consistent with our overall objectives. The
Compensation Committee is also obligated to communicate to shareholders
information regarding the Company's compensation policies and the reasoning
behind such policies.
The Compensation Committee has reviewed and discussed the Compensation
Discussion and Analysis ("CD&A") with management. Based on this review and
discussions, the Compensation Committee recommended to the Board that the CD&A
be included in this proxy statement.
The preceding report is presented by the members of the Compensation
Committee.
/s/ Thomas W. Smith /s/ Martin H. Belsky /s/ Duke R. Ligon
-------------------------- ------------------------- -----------------------
Thomas W. Smith Martin H. Belsky Duke R. Ligon
Committee Chairman Committee Member Committee Member
Summary Compensation Table
The following table sets forth the compensation paid by us for services
rendered during the years ended December 31, 2008, 2007 and 2006, respectively,
to the individuals identified below, who are referred to as our "named executive
officers."
Non-Equity All
Name and Principal Incentive Plan Other
Position Year Salary(1) Compensation(2) Compensation(3) Total(4)
-------------------------------------- ---- ------------ ---------------- --------------- ------------
Harland C. Stonecipher................ 2008 $ 400,781 $ 1,783,866 $ 35,315 $ 2,219,962
Chairman, Chief Executive Officer 2007 397,747 1,748,475 36,112 2,182,334
and President 2006 397,755 1,694,315 31,361 2,123,431
Steve Williamson...................... 2008 161,629 10,616 11,140 183,385
Chief Financial Officer 2007 146,411 12,047 8,550 167,008
2006 129,352 30,902 14,500 174,754
Mark Brown............................ 2008 - 1,006,707 5,300 1,012,007
Chief Marketing Officer 2007 - 758,092 5,200 763,292
2006 - 699,072 5,200 704,272
Randy Harp............................ 2008 276,464 18,442 15,060 309,966
Chief Operating Officer 2007 250,394 21,841 13,200 285,435
2006 229,428 57,941 12,058 299,427
Kathleen S. Pinson.................... 2008 172,923 11,144 11,637 195,704
Vice President of Regulatory 2007 151,861 12,392 7,500 171,753
Compliance and Secretary 2006 134,692 32,190 6,250 173,132
--------------------
(1) The salary amount for Mr. Stonecipher includes salary payable under
his employment agreement and amounts payable under the Member Override
Agreement.
(2) Non-equity incentive plan compensation paid to Mr. Stonecipher
consists of: (i) $1,755,540, $1,690,964 and $1,636,056, in 2008, 2007
and 2006, respectively, payable under the Membership Fee Plan after
the aircraft reduction; and (ii) $28,326, $57,511 and $58,259, in
2008, 2007 and 2006, respectively, payable under the PPL Agency Plan.
For Mr. Brown, non-equity incentive compensation includes (i)
$353,857, $303,364 and $358,191, in 2008, 2007 and 2006, respectively,
payable as Personal Commissions; (ii) $374,444, $258,045 and $241,113,
in 2008, 2007 and 2006, respectively, payable as Group Override; (iii)
$84,201, $88,622 and $73,694, in 2008, 2007 and 2006, respectively,
payable as State Override; and (iv) $194,205, $108,061 and $26,074, in
2008, 2007 and 2006, respectively, payable as Membership Override.
For the other named executive officers, non-equity incentive
compensation consists of amounts payable under the In Force Premium
Plan.
For a description of these various incentives, see "Compensation
Discussion and Analysis - Individual Elements of Compensation"
beginning on page 11.
(3) All Other Compensation of Mr. Stonecipher includes $1,322, $1,721 and
$2,100, in 2008, 2007 and 2006, 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
us upon Mr. Stonecipher's death, $21,191 in each of 2008, 2007 and
2006 automobile related cost attributable to personal use based on the
estimated lease value of the automobile and also includes $12,802,
$13,200 and $8,070, in 2008, 2007 and 2006, respectively, representing
vested contributions by us to deferred compensation plan and the
Employee Stock Ownership and Thrift Plan and Trust (the "ESOP"). All
Other Compensation of Messrs. Williamson, Brown and Harp and Ms.
Pinson consists of vested contributions by us to the deferred
compensation plan and the ESOP.
(4) Annual compensation amounts include amounts deferred at the election
of the named executive officers pursuant to a non-qualified deferred
compensation plan which we adopted in 2002, as described below under
"Nonqualified Deferred Compensation."
Plan-Based Awards
Under various incentive plans described above in the Compensation
Discussion and Analysis, our executive officers will be entitled to receive
incentive compensation in 2009 (and potentially future years if such plans
continue) based on the level of membership fees or annual in force membership
fees at the end of each quarter. The following table estimates the amount of
such payments based on the various assumptions contained in the table. There is
no assurance that any of such payments will be made if the criteria for payment
under such incentive plans are not achieved. In addition, there are no maximum
amounts payable under the plans listed, so if the performance criteria exceeds
the assumed maximum level reflected in the table, the amount of compensation
would also be greater.
Actual or Estimated Future Payouts Under
Non Equity Incentive Plan Awards
------------------------------------------
Name and Principal Position Plan Threshold Target Maximum
------------------------------------ ----------------------------------- ------------- ------------- ------------
Harland C. Stonecipher,............. Membership Fee Plan-Monthly (1) $ 958,605 $ 1,184,159 $ 1,296,936
Chairman, Chief Executive Officer Membership Fee Plan-Quarterly (2) 627,770 659,159 721,936
and President PPL Agency Commission (3) 21,245 28,326 35,408
Steve Williamson,................... In Force Premium Bonus Plan (4) 18,002 30,004 60,008
Chief Financial Officer
Mark Brown,......................... Personal Commission (5) 300,778 371,550 406,936
Chief Marketing Officer Group Override (6) 318,277 393,166 430,611
State Override (7) 71,571 88,411 96,831
Membership Fee Override (8) 165,074 203,915 223,336
Randy Harp,......................... In Force Premium Bonus Plan (4) 31,947 53,245 106,490
Chief Operating Officer
Kathleen Pinson,.................... In Force Premium Bonus Plan (4) 18,601 31,002 62,005
Vice President of Regulatory
Compliance and Secretary
--------------------
(1) The Membership Fee Plan - Monthly estimated payouts for 2009 are based
on the following level of membership fees for each month of 2009
compared to the comparable month of 2008: Threshold 85%; Target 105%
and Maximum 115%
(2) The Membership Fee Plan - Quarterly estimated payouts, after the
aircraft reduction, for 2009 are based on the following level of
membership fees for each quarter of 2009 compared to the comparable
quarter of 2008: Threshold 100%; Target 105% and Maximum 115%
(3) The PPL Agency Commission estimated payouts for 2009 are based on the
following levels of PPL Agency commission income compared to 2008:
Threshold 75%; Target 100% and Maximum 125%
(4) The In-Force Premium Bonus Plan estimated payouts for 2009 are based
on the following levels of increases in annual in force premiums at
the end of each quarter of 2009 compared to the comparable quarter of
the prior year: Threshold 3%; Target 5% and Maximum 10%. There are no
payments made under this Plan unless the annual in force premium at
the end of each quarter of 2009 is more than 2% above the annual in
force premium as of the end of the comparable quarter of 2008.
(5) The Personal Commission estimated payouts for 2009 are based on the
following levels of personal commissions for 2009 compared to 2008:
Threshold 85%; Target 105%; Maximum 115%.
(6) The Group Override estimated payouts for 2009 are based on the
following levels of group membership fees for 2009 compared to 2008:
Threshold 85%; Target 105%; Maximum 115%.
(7) The State Override estimated payouts for 2009 are based on the
following levels as Texas membership fee revenue for 2009 compared to
2008: Threshold 85%; Target 105%; Maximum 115%.
(8) The Membership Fee Override estimated payouts for 2009 are based on
the following levels of membership fees in 2009 compared to 2008:
Threshold 85%; Target 105%; Maximum 115%.
Stock Options
There have been no grants of stock options under our Stock Option Plan to
any of the named executive officers since May 2002.
Outstanding Equity Awards
The following table reflects outstanding stock options held by our
executive officers as of December 31, 2008:
Option Awards
----------------------------------------------------------
Number of
Securities Underlying
Unexercised Option Option Option
------------------------------- Exercise Expiration
Name Exercisable Unexercisable Price Date
-------------------------------- ------------- --------------- ---------- -------------
Harland C. Stonecipher.......... - - N/A N/A
Steve Williamson (1)............ 8,000 - $19.20 March 1, 2011
Mark Brown...................... - - N/A N/A
Randy Harp (1).................. 30,000 - 19.20 March 1, 2011
Kathleen S. Pinson.............. - - N/A N/A
(1) Option vesting date is May 23, 2005
Option Exercises
The following table reflects information concerning options exercised by
our named executive ogficers during 2008:
Option Awards
----------------------------------
Number of Value
Shares Acquired Realized on
Name on Exercise Exercise
------------------------------ ---------------- --------------
Harland C. Stonecipher........ - $ -
Steve Williamson.............. 2,000 50,380
Mark Brown.................... - -
Randy Harp.................... - -
Kathleen S. Pinson............ - -
Equity Compensation Plans
The following table provides information with respect to our equity
compensation plans as of December 31, 2008, (other than our tax qualified
Employee Stock Ownership Plan designed to provide retirement benefits).
Number of securities
remaining available for
Number of securities future issuance under
to be issued upon Weighted average equity compensation
exercise of exercise price of plans (excluding
outstanding options, outstanding options, securities reflected in
warrants and rights warrants and rights column (a))
Plan Category (a) (b) (c)
---------------------------------------- --------------------- -------------------- -------------------------
Equity compensation plans approved by
security holders (1)................. 42,500 $ 19.70 1,346,252
Equity compensation plans not approved
by security holders.................. - - -
Total.................................. 42,500 $ 19.70 1,346,252
-----------
(1) These stock options have been issued pursuant to our Stock Option Plan
which has been approved by security holders. We do not expect to grant any
additional options under this plan.
Nonqualified Deferred Compensation
In 2002, we adopted, as part of our post-employment compensation policy for
executive officers and certain managers, an unfunded, nonqualified deferred
compensation plan, which permits our executive officers and other key employees
to defer receipt of a portion of their annual compensation. Deferred amounts
accrue hypothetical returns based on investment options selected by the
participant. Deferred amounts are paid in cash based on the value of the
investment option and are generally payable following termination of employment
in a lump sum or in installments as elected by the participant, but the plan
provides for distributions in the event of total disability or death and
distributions upon a change in control. The plan also provides a death benefit
of $500,000 payable to the beneficiary of each named executive officer
participant in the plan if such officer dies before he is entitled to receive
the benefits offered pursuant to such plan. Although the plan is unfunded and
represents an unsecured liability of ours to the participants, we have purchased
variable life insurance policies owned by us to insure the lives of the group of
participants and to finance our obligations under the plan.
A participant in the plan may elect to defer receipt of up to 75% of their
base salary and up to 100% of their bonus compensation. Amounts deferred accrue
hypothetical returns based upon investment options selected by the participant.
These investment options generally include mutual funds representing various
asset classes and each executive may change investment elections daily. Earnings
(losses) on these mutual funds ranged from 5.1% to (48.4)% during the 12 months
ended December 31, 2008. Under the plan, we promise to pay our executives the
amounts of their compensation that the executives elected to defer plus the
accrued returns. We may, in our sole discretion, make a discretionary make-up
matching contribution to the deferral account of each participant in the
deferred compensation plan who (1) had elective salary deferrals to the 401(k)
plan in the maximum amount permitted under the 401(k) plan for the prior plan
year, and (2) deferred an amount to the deferred compensation plan for the prior
plan year. The amount of the discretionary make-up matching contribution made to
the deferred compensation plan shall be determined to be any amount necessary
(a) to replace any lost benefit due to the participant's participation in the
deferred comp plan and (b) to restore any matching contribution that would have
been made on behalf of the participant under the 401(k) plan for such plan year
but which could not be made because of any reduction in matching contributions
under the 401(k) plan attributable to ADP testing limitations on the
Participant's elective salary deferrals to the 401(k) Plan. During 2008, we made
$32,580 in discretionary make-up matches and amounts attributable to our named
executive officers are included in the table below.
The participants in the plan are entitled to payments from the plan upon
the earlier of: (i) reaching the age of 65, or in the case of Mr. Stonecipher,
on November 6, 2012, (which was 10 years after adoption of the plan); (ii)
disability; (iii) death; (iv) a change in control; or (v) termination of
employment. Amounts payable to plan participants are payable in a lump sum or in
annual installments (5, 10 or 15) as elected by the executive, although we may,
at our discretion, pay the executive the lump sum to which such executive is
entitled.
We consider our nonqualified compensation plan as an important element of
compensation payable to our executive officers. Because the plan is voluntary
and primarily funded only by participant individual deferrals, we do not take
into consideration amounts payable to a participating executive officer under
the plan when making compensation decisions regarding such officer. The purpose
of the deferred compensation plan is to provide our officers with an additional
investment vehicle in which to achieve their long-term investment and other
income tax planning goals in recognition of certain limitations on such
individuals' participation in our defined contribution plan pursuant to federal
income tax rules and regulations applicable to highly compensated individuals.
Additionally, the plan was adopted to allow us to address the limitations on
executive compensation imposed by Section 162(m) of the Internal Revenue Code.
The following table sets forth activity under the plan in 2008:
Executive Registrant Aggregate Aggregate
Contributions Contributions Earnings in Aggregate Balance at
in Last Fiscal in Last Fiscal Last Fiscal Withdrawals/ Last Fiscal
Name Year (1) Year (1) Year(3) Distributions Year-End
---------------------------- -------------- --------------- ------------ -------------- ---------------
Harland C. Stonecipher...... $ 954,691 $ 3,364 $ 251,017 $ - $ 5,843,094
Steve Williamson............ 11,965 1,702 (11,988) - 46,716
Mark Brown (2).............. - - - - -
Randy Harp.................. 89,894 5,622 (122,484) - 302,087
Kathleen S. Pinson.......... 15,803 2,199 (12,920) - 81,777
(1) Amounts deferred at the election of the named individuals and
discretionary make-up contributions by us pursuant to our nonqualified
deferred compensation plan are included in the Summary Compensation
Table above.
(2) Mr. Brown is not eligible to participate in the plan.
(3) Earnings are based on the hypothetical investment options selected by
each participant.
As of December 31, 2008, we had an aggregate deferred compensation
liability of $7.9 million, which is included in other non-current liabilities.
At December 31, 2008, the cash value of the underlying insurance policies owned
by us was $6.5 million and was included in other assets.
Defined Contribution Plan
We offer a tax qualified defined contribution "401K" plan to all of our
employees, including our executive officers, to provide a benefit payable to an
employee or his heirs upon retirement, total disability, or death. Under the
terms of the plan and subject to limitations of federal law, each of our
employees can elect to defer a portion of his compensation and direct such
deferrals to the investments offered under the plan, generally consisting of
mutual funds in various asset classes as well as our common stock. Subject to
the terms of the plan, we make discretionary matching cash contributions to the
plan on behalf of the participant employees. Participants are immediately vested
in their deferred contributions, but our contributions are subject to certain
vesting requirements. By permitting employee deferrals to be invested in our
common stock, we believe the interests of employees are aligned with the
interest of shareholders. The Plan permits employees to diversify their
investment in our common stock made with our contributions in accordance with
federal law. Executive officers participate in the plan on the same basis as all
other employees. Our 2008 contributions to the plan for the account of the named
executive officers are included in the Summary Compensation Table set forth
above.
Other Potential Post-Employment Payments
In addition to the other post-employment payments described above, our
Chief Executive Officer is entitled to certain additional compensation under
separate contractual arrangements as described below.
Under the terms of his 1993 employment agreement, Mr. Stonecipher is
entitled to a supplemental retirement benefit of $26,000 per year for ten years
or until the date of his death, if earlier. In order to receive such payments,
Mr. Stonecipher has agreed to make himself available to render advisory and
consulting services to us and not to compete with us.
In July 1984, we entered into a split dollar life insurance arrangement
with Shirley A. Stonecipher, Mr. Stonecipher's wife, whereby we 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 us whereby upon Mr. Stonecipher's death, the
proceeds of the policy will be paid to us in an amount sufficient to reimburse
premiums paid to date by us in addition to any supplemental retirement payments
made pursuant to Mr. Stonecipher's employment contract. The time value of
premiums paid pursuant to this agreement are included in Summary Compensation
Table set forth above. Our obligation to pay the supplemental retirement benefit
described above is subject to the continuation of split dollar life insurance
agreement between us and Mrs. Stonecipher. If this agreement is terminated for
any reason by either party, our obligation to pay the supplemental retirement
benefit also terminates.
Mr. Stonecipher's employment contract provides that if we terminate his
employment for any reason (other than for Mr. Stonecipher's death or disability)
or Mr. Stonecipher terminates his employment after a change of control of us (as
defined in the agreement) or due to an uncured material breach of the agreement
by us, we are required to pay Mr. Stonecipher a lump sum payment equal to the
present value, using a 3% discount rate, of the total salary for the remaining
term plus the supplemental retirement benefits, which are described in more
detail above. If Mr. Stonecipher's employment is terminated by us due to his
disability, we are required to pay the full amount of Mr. Stonecipher's salary
to him for twelve weeks and 75% of the amount of his salary for the remaining
term of the agreement subsequent to the initial twelve weeks. Additionally, if
Mr. Stonecipher dies during his employment, we are obligated to pay his estate
$5,000 plus the full amount of Mr. Stonecipher's salary for 26 weeks. As
described above, Mr. Stonecipher's salary under the employment agreement is
$157,755 and the maximum remaining term is one-year since the agreement is
annually renewable on a year by year basis.
Change of Control
There are no special benefits payable to the named executive officers by
reason of a change in control other than such an event entitles the named
executive officers who are participants in the deferred compensation plan to
commence to receive payments as described under "Nonqualified Deferred
Compensation."
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
John W. Hail, one of our directors, served as our Executive Vice President,
Director and Agency Director from July 1986 through May 1988 and also served as
Chairman of the Board of Directors of TVC Marketing, Inc., which was our
exclusive marketing agent from April 1984 through September 1985. Pursuant to
agreements between Mr. Hail and us entered into during the period in which Mr.
Hail was one of our executive officers, Mr. Hail receives override commissions
from renewals of certain Memberships initially sold by us during such period.
During 2008, such override commissions on renewals together with new commission
advances totaled $117,000. Mr. Hail also owns interests ranging from 12% to 100%
in corporations not currently affiliated with us, including TVC Marketing, Inc.,
but which were engaged in the marketing of our legal service Memberships and
which earn renewal commissions from Memberships previously sold. These entities
earned renewal commissions of $491,000 during 2008 of which $257,000 was passed
through as commissions to their sales agents. We expect these arrangements will
continue in 2009 and thereafter.
Our new office building contains two apartments, one for use by certain of
our visitors and one for use by Mr. Stonecipher and his wife, for his
convenience as well as to entertain visitors using the visitor apartment. The
full Board, with Mr. Stonecipher abstaining, has approved the arrangements for
the use of this apartment which require Mr. Stonecipher to pay rent to us at a
rate of $1,000 per month, which exceeds the estimated fair market rental value
based on an outside appraisal. Additionally, the full Board, with the exception
of Mr. Stonecipher, has approved that Shirley Stonecipher, Mr. Stonecipher's
wife, can continue to rent and use the apartment subsequent to Mr. Stonecipher's
death.
We require that any situation, transaction or relationship that gives rise
to an actual or potential conflict of interest for our executive officers must
be disclosed to the Board in writing. We may permit the conflicted transaction
only if full disclosure is made and our interests are fully protected. We
consider conflicted transactions to consist of any transaction in which the
executive (1) causes us to engage in business transactions with relatives or
friends or companies controlled or owned by our executives; (2) uses nonpublic
information for personal gain by the executive, his relatives or his friends
(including securities transactions based on such information); (3) has more than
a nominal financial interest any entity with which we do business or compete;
(4) receives a loan, or guarantee of obligations, from us or a third party as a
result of his position with us; (5) competes, or prepares to compete, with us
while still employed by us; or (6) has a financial interest or potential for
gain in any transaction with us (other than compensation arrangements we have
approved).
The preceding policy and examples of conflicted transactions are provided
in our written Code of Business Conduct and Ethics and is available on our
website at www.prepaidlegal.com.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of our shares of Common Stock by each person (other than
our directors and executive officers) known by us to be the beneficial owner of
more than five percent of the issued and outstanding Common Stock. Unless
otherwise noted, the information is based on Schedules 13D or 13G filed by the
applicable beneficial owner with the SEC or other information provided to us by
the beneficial owner as of December 31, 2008, which is the date such beneficial
owners were required to report their ownership to the SEC.
Security Ownership of Certain Beneficial Owners
Beneficial Ownership
--------------------
Number Percent
of of
Name and Address of Beneficial Owner Shares Class
------------------------------------ ----------- -------
Thomas W. Smith (1)......................................... 2,621,245 23.9
Scott J. Vassalluzzo (1).................................... 1,629,515 14.8
Steven M. Fischer (1) ...................................... 1,544,415 14.1
Prescott Associates (1)..................................... 1,014,675 9.2
Renaissance Technologies LLC and James H. Simons((2))....... 817,300 7.4
Robert S. Pitts, Jr. (3).................................... 805,604 7.3
Barclays Global Investors, NA. (4).......................... 615,804 5.6
---------------------
(1) Messrs. Smith and Vassalluzzo have the sole power to vote or to direct the
vote of 823,930 and 9,000 shares of Common Stock, respectively, and to
dispose or to direct the disposition of 1,011,830 and 20,100 shares of
Common Stock, respectively. Mr. Fischer has the sole power to vote or to
direct the vote and to dispose or direct the disposition of no shares.
Idoya Partners and Prescott Associates have the sole power to vote or to
direct the vote and the sole power to dispose or to direct the disposition
of 488,434 and 1,014,675 shares of Common Stock, respectively. Of the
2,024,845 shares of Common Stock owned by the Managed Accounts, Messrs.
Smith, Vassalluzzo and Fischer share the power to vote or to direct the
vote of and dispose or to direct the disposition of 1,609,415, 1,609,415
and 1,544,415 shares of Common Stock, respectively. Idoya Partners and
Prescott Associates do not share the power to vote or to direct the vote
and dispose or to direct the disposition of any Common Stock. The address
of Smith, Vassalluzzo, Fischer and Prescott is 323 Railroad Avenue,
Greenwich CT 06830. Information is as of March 24, 2009.
(2) Included in the shares of Common Stock indicated as beneficially owned by
Renaissance Technologies LLC ("Renaissance") and its controlling person,
James H. Simons ("Simons") in Renaissance's capacity as an investment
advisor are 817,300 shares as to which they have sole voting power and
817,300 shares as to which they have sole dispositive power. The address of
Renaissance and Simons is 800 Third Avenue, New York, NY 10022.
(3) Included in the shares of Common Stock indicated as beneficially owned by
Robert S. Pitts, Jr. ("Pitts") are 699,079 shares beneficially owned by
Steadfast Capital Management LP, a Delaware limited partnership (the
"Investment Manager"), 106,525 shares beneficially owned by Steadfast
Advisors LP, a Delaware limited partnership (the "Managing General
Partner"), 106,525 shares beneficially owned by Steadfast Capital, L.P., a
Delaware limited partnership ("Steadfast Capital"), 221,411 shares
beneficially owned by American Steadfast, L.P., a Delaware limited
partnership ("American Steadfast"); 477,668 shares beneficially owned by
Steadfast International Ltd., a Cayman Island exempted company (the
"Offshore Fund"); 699,079 shares beneficially owned by Steadfast GP LLC, a
Delaware limited liability company (the "IM General Partner"); 106,525
shares beneficially owned by Steadfast GP Holdings LLC, a Delaware limited
liability company (the "MGP General Partner"). The Investment Manager, the
IM General Partner and Mr. Pitts have shared power to vote or direct the
vote of 699,079 shares of Common Stock. Steadfast Capital has shared power
with the Managing General Partner, the MGP General Partner and Mr. Pitts to
vote or direct the vote of the 106,525 shares of Common Stock held by the
Steadfast Capital. American Steadfast has shared power with the Investment
Manager, the IM General Partner and Mr. Pitts to vote or direct the vote of
the 221,411 shares of Common Stock held by American Steadfast. The Offshore
Fund has shared power with the Investment Manager, the IM General Partner
and Mr. Pitts to vote or direct the vote of the 477,668 shares of Common
Stock held by the Offshore Fund. The business address of each of Pitts, the
Investment Manger, the Managing General Partner, Steadfast Capital and
American Steadfast is 767 Fifth Avenue, 6th Floor, New York, NY 10153. The
business address of the Offshore Fund is c/o Appleby Corporate Services
(Cayman) Limited, P. O. Box 1350 GT, George Town, Grand Cayman, Cayman
Islands.
(4) Included in the shares of Common Stock indicated as beneficially owned by
Barclays Global Investors, NA ("Barclays") are 294,086 shares beneficially
owned by Barclays as to which they have sole dispositive power of which
they have sole voting power for 257,599 shares. Also included are 316,373
shares beneficially owned by Barclays Global Fund Advisors ("Advisors") as
to which they have sole dispositive power of which they have sole voting
power for 230,473 shares and 5,345 shares beneficially owned by Barclays
Global Investors, Ltd. ("Investors") as to which they have sole dispositive
power of which they have sole voting power for 465 shares. The business
address of Barclays and Advisors is 400 Howard Street, San Francisco, CA
94105 and the business address for Investors is 1 Royal Mint Court, London,
EC3N 4HH.
The following table sets forth certain information concerning the
beneficial ownership of our shares of Common Stock as of March 24, 2009 by (a)
each of our directors or nominee for director (b) each of the named executive
officers, and (c) all of our directors, nominee and named executive officers as
a group.
Security Ownership of Directors and Named Executive Officers
Beneficial Ownership (1)
--------------------------
Number Percent
of of
Name of Director or Named Executive Officer Shares Class
------------------------------------------- ---------------- --------
Harland C. Stonecipher, One Pre-Paid Way, Ada, Oklahoma 74820........... 897,796 (2) 8.2
Steve Williamson........................................................ 11,319 (3) *
Mark Brown.............................................................. 2,152 (4) *
Randy Harp.............................................................. 64,844 (5) *
Kathleen S. Pinson...................................................... 47,979 (6) *
Orland G. Aldridge...................................................... - -
Martin H. Belsky........................................................ 350 *
Peter K. Grunebaum...................................................... 1,400 *
John W. Hail............................................................ 512 *
Duke R. Ligon........................................................... - -
Thomas W. Smith......................................................... 2,621,245 (7) 23.9
All directors, nominees and executive officers as a group (11 persons).. 3,647,597 (8) 33.1
-----------------
* 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 SEC 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) Included in the shares of Common Stock indicated as beneficially owned by
Mr. Stonecipher are 874,877 shares as to which he has shared voting and
shared dispositive power with his wife and 22,919 shares owned under the
ESOP as to which Mr. Stonecipher has sole voting power, but shared
dispositive power.
(3) Includes 2,947 shares owned under the ESOP as to which Mr. Williamson has
sole voting power, but shared dispositive power, 372 shares held in an
individual retirement account and 8,000 shares issuable upon exercise of
outstanding options.
(4) Includes 2,152 shares owned under the ESOP as to which Mr. Brown has sole
voting power, but shared dispositive power.
(5) Includes 19,999 shares owned under the ESOP as to which Mr. Harp has sole
voting power, but shared dispositive power, and 30,000 shares issuable upon
exercise of outstanding options.
(6) Includes 21,286 shares owned under the ESOP as to which Ms. Pinson has sole
voting power, but shared dispositive power. Also, includes 4,672 shares
owned under the ESOP by Ms. Pinson's husband, also one of our employees, 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) See "Security Ownership of Certain Beneficial Owners" above.
(8) Includes 38,000 shares issuable upon exercise of outstanding options and
73,975 shares owned under the ESOP as to which the respective executive
officers and directors have sole voting power, but shared dispositive
power.
COMPLIANCE WITH SECTION 16 REPORTING REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers and persons who beneficially own more than 10% of our
Common Stock to file reports of ownership and changes in ownership of our Common
Stock with the SEC. We are required to disclose delinquent filings of reports by
such persons during 2008. Based on a review of the copies of such reports and
amendments thereto received by us, or written representations that no filings
were required, we believe that during 2008 all Section 16(a) filing requirements
applicable to our executive officers, directors and 10% shareholders were met
except for a Form 4 for May 2008 for Mr. Grunebaum, a director of the Company,
relating to one transaction of 500 shares which was inadvertently filed four
days late due to an administrative error by Mr. Grunebaum.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Grant Thornton served as our independent registered public accounting firm
for the year ended December 31, 2008 and has been selected by our Audit
Committee to continue in 2009. Representatives of Grant Thornton 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
Our Annual Report to Shareholders for the year ended December 31, 2008,
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 our Annual Report on Form 10-K for the year ended December 31,
2008 filed with the SEC is available without charge to any of our shareholders
who request a copy in writing from us, Attn. Janice Stinson, Investor Relations,
One Pre-Paid Way, Ada, Oklahoma 74820.
PROPOSALS OF SHAREHOLDERS AND NOMINATIONS
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
SEC and our bylaws. Under our bylaws, a notice of intent of a shareholder to
bring any matter before a meeting shall be made in writing and received by our
Secretary 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 our Secretary 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 our 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 SEC had each nominee been nominated by our Board of Directors; 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 one of our directors, if elected.
All shareholder proposals should be sent to our Secretary at One Pre-Paid Way,
Ada, Oklahoma 74820.
A shareholder proposal submitted pursuant to Rule 14a-8 under the
Securities Exchange Act of 1934 and intended to be included in our proxy
statement relating to the 2010 Annual Meeting must be received no later than
December 8, 2009. To be considered for presentation at the 2010 Annual Meeting,
although not included in the Proxy Statement for such meeting, a proposal must
be received within the time period set forth in our bylaws as described above.
In addition, the proxy solicited by the Board of Directors for the 2010 Annual
Meeting will confer discretionary authority to vote on any such shareholder
proposal presented at the 2010 Annual Meeting unless we are provided with notice
of such proposal no later than ninety days prior to the date of the 2010 annual
meeting.
The nominating committee has a charter which is posted on our website at
www.prepaidlegal.com. The nominating committee has not adopted a separate policy
relating to nomination of directors by shareholders because the procedure for
nomination is governed by our bylaws described above. The criteria for
nomination of directors are set forth in the nominating committee charter and
the charter does not address specific minimum qualifications or skills that a
nominee or board member must have. The process used by the nominating committee
for identifying and evaluating nominees for our board consists of reviewing
qualifications of candidates suggested by management, other board members or
shareholders, including personal interviews of the candidate. The specific
requirements for nominees from shareholders provided by our bylaws described
above are required to be followed. We have not previously received nominees from
shareholders and, accordingly, are unable to determine whether the process for
evaluation of shareholder nominees differs from the process for evaluation of
other nominees.
OTHER MATTERS
Our Board of Directors 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 our Board of Directors.
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting
PRE-PAID LEGAL SERVICES, INC. instructions and for electronic delivery of
ONE PRE-PAID WAY information up until 11:59 P.M. Eastern Time
ADA, OKLAHOMA 74820-5813 the day before the cut-off date or meeting date.
Have your proxy card in hand when you access the
web site and follow the instructions to obtain
your records and to create an electronic voting
instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred
by our company in mailing proxy materials, you
can consent to receiving all future proxy state-
ments, proxy cards and annual reports electroni-
cally via e-mail or the Internet. To sign up for
electronic delivery, please follow the instruc-
tions above to vote using the Internet and, when
prompted, indicate that you agree to receive or
access proxy materials electronically in future
years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your
voting instructions up until 11:59 P.M. Eastern
Time the day before the cut-off date or meeting
date. Have your proxy card in hand when you
call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return
it in the postage-paid envelope we have provided
or return it to Vote Processing, c/o Broadridge,
51 Mercedes Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS
-----------------------------------------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED
-----------------------------------------------------------------------------------------------------------------------
| |
| |
| THE BOARD OF DIRECTORS RECOMMENDS THAT YOU |
| VOTE "FOR" THE FOLLOWING. |
| |
| For Withhold For All To withhold authority to vote for any |
| All All Except individual nominee(s), mark "For All |
| Except" and write the number(s)of the |
| nominee(s) on the line below. |
| __ __ __ |
| 1. Election of directors: |__| |__| |__| ____________________________________ |
| |
| Nominees |
| |
| (01) John W. Hail (02) Thomas W. Smith |
| |
| The Board of Directors recommends you vote FOR the following proposal(s). |
| |
| 2. Ratify the selection of Grant Thornton LLP as our independent registered public accounting firm. |
| For Against Abstain |
| __ __ __ |
| |__| |__| |__| |
| |
| Such other business as may properly come before the meeting or any adjournment thereof. |
| |
| The shares represented by this proxy when properly executed will be voted in the manner directed herein by the |
| undersigned Shareholder(s). If no direction is made, this proxy will be voted FOR items 1 and 2. If any other |
| matters properly come before the meeting, or if cumulative voting is required, the person named in this proxy |
| will vote in their discretion. |
| |
| |
| --------------------------------------------------- --------------------------------------------------- |
| | | | | | | |
| --------------------------------------------------- --------------------------------------------------- |
| Signature (PLEASE SIGN WITHIN BOX Date Signature (PLEASE SIGN WITHIN BOX Date |
| |
-----------------------------------------------------------------------------------------------------------------------
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| |
| |
| PRE-PAID LEGAL SERVICES, INC. |
| |
| This Proxy Solicited on Behalf of the Board of Directors |
| |
| Annual Meeting of the Shareholders |
| |
| Friday, May 22, 2009 |
| |
| The shareholders of Pre-Paid Legal Services, Inc., an Oklahoma corporation, hereby acknowledges receipt of |
| the Notice of Shareholders and Proxy Statement, each dated March 24, 2009, and hereby appoints Randy Harp and |
| Kathleen S. Pinson, or either of them, as proxies and attorney-in-fact, with full power to each of substitution |
| on behalf and in the name of the undersigned, to represent the undersigned at our 2009 Annual Meeting of |
| Shareholders, to be held in the Liberty Auditorium at our corporate offices located at One Pre-Paid Way in Ada, |
| Oklahoma, on Friday, May 22, 2009, at 1:00 p.m., local time, and at any adjournment thereof, and to vote all |
| shares of our Common Stock which the undersigned would be entitled to vote if then and there personally present |
| on the matters set forth on the reverse side. |
| |
| THIS PROXY WILL BE VOTED AS DIRECTED OR, IN NO CONTRARY DIRECTION IS INDICATED, WILL BE VOTED "FOR" THE |
| NOMINEES LISTED IN ITEM 1 AND "FOR" THE PROPOSALS IN ITEM 2. IF ANY OTHER MATTERS ARE BROUGHT BEFORE THE MEETING |
| OR IF THE NOMINEES FOR ELECTION AS DIRECTORS NAMED IN THE PROXY STATEMENT FOR ELECTION AS DIRECTORS ARE UNABLE |
| TO SERVE OR FOR GOOD CAUSE WILL NOT SERVE, THE PROXY WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE |
| BOARD ON SUCH MATTERS OR FOR SUCH SUBSTITUTE NOMINEES AS THE BOARD MAY RECOMMEND. |
| |
| PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE |
| |
| |
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APPENDIX TO PROXY STATEMENT OF PRE-PAID LEGAL SERVICES, INC.
CONTAINING SUPPLEMENTAL INFORMATION REQUIRED TO BE
PROVIDED TO THE SECURITIES AND EXCHANGE COMMISSION
The following is information required to be provided to the Securities and
Exchange Commission in connection with our Definitive Proxy Materials in
connection with our 2009 Annual Meeting of Shareholders. This information is not
deemed to be a part of the Proxy Statement and will not be provided to
shareholders in connection with the Proxy Statement.
1. We plan to mail the definitive Proxy Materials to our shareholders on
or about April 7, 2009.