Via Facsimile
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Mr. Larry Spirgel
Assistant Director - Division of Corporation Finance
United States Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Re: Pre-Paid Legal Services, Inc.
Form 10-K for fiscal year ended December 31, 2008
Filed February 27, 2009
File No. 001-09293
Dear Mr. Spirgel:
Below are our responses to your enumerated comments contained in your letter of
October 26, 2009 to the above referenced filing. We understand the purpose of
your review and comments is to assist us in complying with the applicable
disclosure requirements and to enhance the overall disclosure in our filings. We
look forward to your comments to our responses and once agreed upon, we will
file amended documents in a timely manner.
Item 1 -We note your response to our prior comment five in our letter dated
September 25, 2009. Please revise to provide a narrative explanation of the
membership data provided in the table. For example, explain the significance and
relevance of the data provided in each column of the table. Also, tell us
whether the table includes disclosure related to the number of sales associates
that maintain a personal membership to vest. If not, please include that data in
the table. Finally, please consider revising the table to include an annual
breakdown of the number of associates selling one membership, the number of
associates selling between one and two memberships, and those associates selling
three or more, as these are important metrics for your annual membership vesting
requirements. Provide in the table or by footnote to the table how many of the
associates selling three or more memberships did not retain their own membership
but yet vested by virtue of personally selling three or more memberships per
quarter. Refer to our prior comment 12 in our letter dated August 11, 2009.
After conversation with the Commission staff, we withdraw our previous suggested
disclosure in its entirety and propose the following new tabular disclosures:
(this table and introductory language would be inserted following the "General"
paragraph at the bottom of page 9 of the printed Form 10-K.)
The following table recaps, on a quarterly basis for the last two fiscal years,
total vested sales associates that made new Membership sales and those that did
not as well as those that own a Membership and those that do not own a
Membership, by their respective levels of sales:
Assocs Without A Membership
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Assocs Selling
Assocs Selling Assocs Selling With a Assocs Not
Qtr/Year 3 or more Less than 3 Membership Selling Total Assocs
-------- -------------- -------------- -------------- ---------- ------------
Q1/07 212 297 34,443 398,956 433,908
Q2/07 152 583 33,092 400,387 434,214
Q3/07 140 540 34,196 408,424 443,300
Q4/07 146 497 34,444 407,274 442,361
Q1/08 93 366 30,174 397,575 428,208
Q2/08 90 358 30,614 401,289 432,351
Q3/08 95 402 31,702 392,118 424,317
Q4/08 98 367 29,177 395,376 425,018
(this table and introductory language would replace existing table and last two
sentences of existing introductory paragraph at the top of page 30 of the
printed Form 10-K)
The following table presents new Memberships produced, Memberships canceled and
ending active Memberships for members who are sales associates, and the
respective percentage, and members who are not sales associates.
Memberships Produced Memberships Canceled Active Memberships
c Assoc s Assoc s Assoc
Year Non-Asso Assocs Total % Non-Assoc Assocs Total % Non-Assoc Assocs Total %
2004 535,295 89,230 624,525 14.3 (510,007) (81,815) (591,822) 16.0 1,148,569 303,131 1,451,700 20.9
2005 480,437 220,290 700,727 31.4 (496,710) (112,928) (609,638) 18.5 1,132,296 410,493 1,542,789 26.6
2006 477,937 134,789 612,726 22.0 (466,561) (150,214) (616,775) 24.4 1,143,672 395,068 1,538,740 25.7
2007 498,072 114,024 612,096 18.6 (456,704) (118,330) (575,034) 20.6 1,185,040 390,762 1,575,802 24.8
2008 457,000 95,327 552,327 17.3 (499,894) (69,081) (568,975) 12.1 1,142,146 417,008 1,559,154 26.7
Item 2 - Please clarify whether your related party share repurchases were
subject to your policies and procedures for the review, approval, or
ratification of related party transactions and, if so, whether such review and
approval was conducted. For example, we note from your disclosure that your
audit committee approved the share repurchase from Randy Harp, but it is not
clear whether the purchase was first disclosed in writing to the entire Board.
Discuss how the terms of the transactions between the company and the related
parties involved in the share repurchase program are determined and whether you
believe that such terms are no less favorable than terms generally available to
an unaffiliated third party. In addition, please file as an Exhibit the letter
agreement executed by Idoya Partners and the Company's CEO or tell us why you do
not believe you are required to file it under Item 601(b)(10)(ii)(A) of
Regulation S-K.
Our related party share repurchases from Randy Harp, our Chief Operating
Officer, were conducted in accordance with (1) our company trading policy
regarding material non-public information, (2) our Code of Business Conduct and
Ethics for Directors, Officers, and Employees as approved by the Board of
Directors on February 26, 2004 and (3) our Audit Committee Charter as amended
March 7, 2007. Shares purchased from Mr. Harp were disclosed to the Board prior
to the purchase through unanimous written consent of the Board's properly
constituted Audit Committee, which also pre-approved the transaction in writing
in accordance with item 24 of the Audit Committee charter. There is no
disclosure requirement in our Code of Business Conduct that such transactions
must be made to the entire Board of Directors.
Our related party share repurchases from Idoya Partners were pursuant to the
terms contained in a letter agreement executed by our Chief Executive Officer.
We will file the executed letter agreements with Idoya Partners as an exhibit to
the above referenced Form 10-K.
The shares repurchased from Mr. Harp and Idoya Partners were specifically
approved and ratified in all respects by our entire Board of Directors.
The transactions between the company and all related parties constitute less
than one tenth of one percent of total share transactions since the company
began its share repurchase program. All related parties inherently know that any
such transaction must not be on terms more favorable than those available to an
unaffiliated third party, so the only determination or negotiation is to choose
a benchmark that clearly conveys such intent. All three listed transactions were
either priced at the prior day's close or below.
We also acknowledge that we are responsible for the adequacy and accuracy of the
disclosure in our filings with the Commission; that staff comments or changes to
disclosure in response to staff comments do not foreclose the Commission from
taking any action with respect to our filings, and that we may not assert staff
comments as a defense in any proceeding initiated by the Commission or any
person under the federal securities laws of the United States.
Sincerely yours,
PRE-PAID LEGAL SERVICES, INC.
/s/ Randy Harp
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Randy Harp
Chief Operating Officer