CLARK/BARDES INC - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
Commission File No. 000-24769

CLARK/BARDES, INC.
(Exact name of Registrant as specified in its charter)

Delaware 52-2103926
(State of Incorporation) (I.R.S. Employer Identification No.)

102 South Wynstone Park Drive
North Barrington, Illinois 60010
(Address of principal executive offices) (Zip code)

Registrant's telephone number: (847) 304-5800

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

As of November 1, 2002 there were 16,852,430 shares of common stock
outstanding.

2

FORWARD-LOOKING STATEMENTS

This Form 10-Q and the documents incorporated by reference in this Form 10-Q may
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Such statements are identified by words such as
"anticipate," "believe," "estimate," "expect," "intend," "predict," "project,"
and similar expressions, as they relate to us or our management. When we make
forward-looking statements, we are basing them on our management's beliefs and
assumptions, using information currently available to us. These forward-looking
statements are subject to risks, uncertainties and assumptions, including but
not limited to, risks, uncertainties and assumptions related to the following:

o changes in tax legislation;
o our ability to complete our pending acquisition of Long,
Miller and Associates, L.L.C.;
o federal and state regulations;
o general economic conditions;
o competitive factors and pricing pressures;
o our dependence on key consultants and services of key
personnel;
o our dependence on persistency of existing business;
o our ability to achieve our earnings projections;
o risks associated with acquisitions;
o significant intangible assets;
o our dependence on a select group of insurance companies; and
o our dependence on information processing systems and risk of
errors or omissions.

If one or more of these or other risks or uncertainties materialize, or if our
underlying assumptions prove to be incorrect, actual results may vary materially
from those anticipated. Any forward-looking statements you read in this Form
10-Q or the documents incorporated herein by reference reflect our current views
with respect to future events and are subject to these and other risks,
uncertainties and assumptions relating to our operations, results of operations,
growth strategy and liquidity. You should specifically consider the factors
identified in our Form 10-K for the year ended December 31, 2001, included under
the caption "Risk Factors," which could cause actual results to differ
materially from those indicated by the forward-looking statements. In light of
the foregoing risks and uncertainties, you should not unduly rely on such
forward looking statements when deciding whether to buy, sell or hold any of our
securities. We disclaim any intent or obligation to update or alter any of the
forward-looking statements whether in response to new information, unforeseen
events, changed circumstances or otherwise.

3

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

See accompanying notes to condensed consolidated financial statements

4

See accompanying notes to condensed consolidated financial statements

5

See accompanying notes to condensed consolidated financial statements

6

CLARK/BARDES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
SEPTEMBER 30, 2002

(Tables shown in thousands of dollars, except share and per share amounts)

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The condensed consolidated financial statements reflect the accounts of
Clark/Bardes, Inc. ("CBI") and its wholly owned subsidiaries. Through our six
operating segments, Executive Benefits Practice (formerly our Compensation
Resource Group), Banking Practice, Healthcare Group, Human Capital Practice,
Pearl Meyer & Partners, and Federal Policy Group, we design, market and
administer compensation and benefit programs for companies supplementing and
securing employee benefits and provide executive compensation and related
consulting services to U.S. corporations, banks and healthcare organizations. We
assist our clients in using customized life insurance products to finance their
long-term benefit liabilities. In addition, we own Clark/Bardes Financial
Services, Inc. ("CBFS"), a registered broker-dealer through which we sell all
our securities products and receive related commissions.

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, certain information and disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted as permitted by such requirements.
However, we believe that the disclosures are adequate and the information is
fairly presented. In our opinion, all adjustments, which are normal recurring
accruals, considered necessary for a fair presentation have been included.
Operating results for the three-month and nine-month periods ended September 30,
2002 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2002 or any other period.

All intercompany amounts and transactions have been eliminated in the
accompanying condensed consolidated financial statements.

Certain previously reported amounts have been reclassified to conform to the
current period presentation.

The balance sheet as of December 31, 2001 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.

These condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and footnotes thereto included in our
Annual Report on Form 10-K for the year ended December 31, 2001.

7

CLARK/BARDES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
SEPTEMBER 30, 2002

2. RECENT ACCOUNTING PRONOUNCEMENTS

FASB Accounting Standards - Business Combinations and Goodwill

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") 141, Business Combinations and
SFAS 142, Goodwill and Other Intangible Assets. SFAS 141 requires that the
purchase method of accounting be used for all business combinations and also
includes guidance on the initial recognition and measurement of goodwill and
other intangible assets arising from business combinations completed after June
30, 2001. SFAS 142 eliminates the amortization of goodwill and intangible assets
with indefinite useful lives and requires that these assets be reviewed for
impairment at least annually. Intangible assets with determinable lives will
continue to be amortized over their estimated useful lives.

We adopted SFAS 142 in the first quarter of 2002. We tested goodwill for
impairment using the two-step process prescribed in SFAS 142. The first step is
a determination of potential impairment, while the second step measures the
amount of the impairment, if any. We performed the required impairment tests of
goodwill as of January 1, 2002 in the first quarter of 2002. An after-tax
impairment charge of $523,000 ($892,000 before tax) resulting from these
impairment tests is reflected as the cumulative effect of a change in accounting
principle in the first quarter of 2002. We expect to perform our annual goodwill
impairment analysis in the fourth quarter of each year.

In accordance with SFAS 142, we discontinued the amortization of goodwill
effective January 1, 2002. A reconciliation of previously reported net income
and earnings per share to the amounts adjusted for the exclusion of goodwill
amortization, net of the related income tax effect, follows:

8

CLARK/BARDES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
SEPTEMBER 30, 2002

FASB Accounting Standards - Accounting for the Impairment or Disposal of
Long-Lived Assets

On January 1, 2002, we adopted SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS 144 supercedes SFAS 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of and
the accounting and reporting requirements of Accounting Principles Board Opinion
("APB") No. 30, Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions for the disposal of a segment of a business.
SFAS 144 removes goodwill from its scope and it establishes a primary asset
approach to determine the cash flow estimation period for determining potential
impairment of a group of assets. The adoption of this statement did not have a
material impact on our condensed consolidated financial statements.

Emerging Issues Task Force Issue No. 01-14, Income Statement Characterization of
Reimbursements Received for "Out-of-Pocket" Expenses Incurred

In accordance with Emerging Issue Task Force ("EITF") Issue No. 01-14, Income
Statement Characterization of Reimbursements Received for "Out-of-Pocket"
Expenses Incurred, reimbursements received for out of pocket expenses incurred
are characterized as revenues and are shown as a separate component of total
revenue. Similarly, related reimbursable expenses are also shown separately
within operating expenses. EITF 01-14 was effective as of January 1, 2002 and
all periods presented have been reclassified to reflect the adoption of this
accounting literature. The net result of the above is an increase in revenue and
operating expense of $768,000 and $1.2 million for the three months ended
September 30, 2002 and 2001, respectively, and $3.4 million and $3.1 million for
the nine months ended September 30, 2002 and 2001, respectively. These
reclassifications had no effect on our operating results.

3. FORMATION OF HUMAN CAPITAL PRACTICE

On May 16, 2002, we announced the formation of our Human Capital Practice. The
new practice includes our existing Rewards and Performance Group and ten former
partners ("partners") and 74 support staff from Arthur Andersen LLP's
("Andersen") Human Capital Practice. Prior to hiring, the partners and Andersen
mutually terminated their partnership interest and association with each other
free of all restrictive provisions under the Andersen Partnership Agreement and
under any agreements relating to the employment with Andersen. We believe any
successor liability is mitigated by hiring each new employee in a conventional
employer/employee relationship.

The former Andersen partners received full recourse and interest bearing loans
in the amount of $8.4 million. Of these loans, $1.2 million have a term of two
years and the remaining $7.2 million have a term of six and one-half years. As
long as the partner is employed on the hiring anniversary date for the two year
loans and each December 31st for the six and one-half year loans, a portion of
the loans will be forgiven at each date. These loans are being amortized into
the Human Capital Practice financial results as general and administrative
expense and are classified as "other assets" on the September 30, 2002 balance
sheet. Assuming all partners continue to be employed by us throughout the terms
of the loans, the amounts amortized into operating expense for the following
fiscal years would be:

2002 $ 988
2003 1,693
2004 1,348
2005 1,101
2006 1,101
2007 and thereafter 2,202

In addition, support staff received $602,000 of sign on bonuses at the time of
their employment. The support staff will retain the bonus payments if they are
employed on May 16, 2003. If they voluntarily leave before this

9

CLARK/BARDES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
SEPTEMBER 30, 2002

date, they must repay a pro-rata portion of their bonus. The sign on bonuses are
being amortized into the Human Capital Practice results over the first twelve
months of their employment.

4. THIRD QUARTER PENDING ACQUISITION

On September 25, 2002, we entered into an agreement to acquire Long, Miller and
Associates, LLC ("LongMiller"). LongMiller, located in Greensboro, North
Carolina, specializes in bank-owned life insurance portfolio services. If
completed, this acquisition is expected to enhance our capabilities by coupling
LongMiller's product offerings and personnel with our current Banking Practice's
extensive distribution channel. Completion of the acquisition is subject to
customary conditions, including the successful completion of the financing.
Approximately $768,000 of costs paid to various regulatory agencies and
financing and investment companies has been capitalized in the September 30,
2002 balance sheet. If this acquisition is not completed, these costs would be
expensed in the period the acquisition agreement is terminated.

5. ACQUISITIONS OF COMISKEY KAUFMAN AND HILGENBERG

During the second quarter of 2002, we made two acquisitions. On April 26, 2002,
we acquired the assets of Comiskey Kaufman, Inc ("Comiskey Kaufman"). Comiskey
Kaufman, located in Houston, Texas, specializes in executive benefits consulting
for major companies in the Southwest. On April 25, 2002, we acquired the assets
of Hilgenberg and Associates. Hilgenberg and Associates, located in Minneapolis,
MN, specializes in providing compensation, benefit and business-owned life
insurance consulting services to banks located in the Midwest. The total
purchase price for these two acquisitions, excluding acquisition costs of
approximately $100,000, was $11.6 million with initial payments totaling $6.1
million in cash and stock. Included in the total purchase price are contingent
payments of $5.5 million in cash and stock payable over three years based on
achieving certain revenue and earnings objectives.

The allocation of the purchase price for these acquisitions is preliminary and
will be finalized in accordance with the provisions of SFAS 141, Business
Combinations.

6. ACQUISITION OF FEDERAL POLICY GROUP

On February 25, 2002, we acquired the Federal Policy Group of
PricewaterhouseCoopers LLP. Based in Washington, D.C., Federal Policy Group is a
consulting practice representing Fortune 500 companies, trade associations and
other businesses before the government on legislative and regulatory policy
matters. This acquisition allows us to continue to expand our service offerings
to the corporate market. The purchase price was $11.0 million before acquisition
costs of approximately $28,000, consisting of a cash payment at closing of $5.0
million and $6.0 million of contingent payments over the next four years based
upon attainment of established performance criteria. If earned, the contingent
payments will consist of 70% cash and 30% CBI common stock. As of September 30,
2002, Federal Policy Group attained its 2002 performance criteria. Accordingly,
$1.5 million has been included in accrued liabilities and goodwill on the
September 30, 2002 balance sheet.

The allocation of the purchase price is preliminary, pending completion of a
valuation by an independent valuation firm. Upon completion of such valuation,
the allocation of purchase price will be finalized in accordance with the
provisions of SFAS 141, Business Combinations.

The results of the Federal Policy Group are included beginning March 1, 2002.

10

CLARK/BARDES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
SEPTEMBER 30, 2002

7. CONTINGENT CONSIDERATION PAYOUTS

As a result of our acquisitions, we expect to pay up to $37.7 million of
potential additional purchase price payable to the former owners of our acquired
companies. These amounts are payable as additional consideration upon the
achievement of certain defined performance criteria as negotiated at the time of
each acquisition and as defined in the purchase agreements. As of September 30,
2002, approximately $5.7 million has been accrued for additional purchase price
to former owners of three of our acquisitions. A summary of the amounts payable
in the years below if the performance criteria for the prior years' results are
met is as follows for acquisitions that were completed as of September 30, 2002:
(dollar amounts in millions)

SHARE
CASH SHARES VALUE (1)
-------------------------------

2003 $ 7.1 376,520 $ 6.7
2004 7.0 475,222 8.5
2005 6.0 134,845 2.4
-------------------------------
$20.1 986,587 $17.6
-------------------------------

(1) Share value computed using the closing price as
of September 30, 2002 of $17.79 per share.

In addition to the contingent purchase price payments, we entered into a bonus
arrangement for certain key executives and employees of the company formerly
known as Compensation Resource Group. This arrangement provides for the payment
of bonuses of up to $20 million for the years ended December 31, 2003 to 2005 if
certain stipulated financial objectives are achieved. These bonuses will be
recorded as expense in the year earned. In addition, the practice president has
the opportunity to earn up to $3.5 million in bonuses through 2003 based on the
achievement of certain financial objectives, of which $1.75 million has been
paid as of September 30, 2002. An additional $437,500 was earned and accrued in
the consolidated financial statements as of September 30, 2002 and paid
subsequent to quarter end.

In connection with the formation of the Human Capital Practice, the Asset
Purchase Agreement for Rewards and Performance Group (formerly Rich,
Florin/Solutions, Inc.) was amended. One-half of the original contingent
consideration (approximately $3.8 million) will be paid in March 2003 through
March 2005 regardless of performance of the practice and the other half is
contingent upon the results of the Human Capital Practice. These amounts are
included in the September 30, 2002 consolidated balance sheet. In addition, the
previous owners of Rewards and Performance Group will participate in the Human
Capital Practice Long Term Incentive Plan. Any payments under this plan will be
recorded as expense in the year earned.

11

CLARK/BARDES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
SEPTEMBER 30, 2002

8. GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the carrying amount of goodwill between December 31, 2001 and
September 30, 2002 by reporting units are as follows:

BALANCE ACQUIRED BALANCE
DECEMBER 31, DURING IMPAIRMENT SEPTEMBER 30,
2001 THE PERIOD EARNOUTS/ETC. CHARGE 2002
-------- ---------- ------------- ------ --------

Executive Benefits Practice $ 14,930 $ - $ 492 $ - $ 15,422
Banking Practice 35,768 594 54 - 36,416
Healthcare Group 14,968 - - (892) 14,076
Management Science Associates 5,010 - - - 5,010
Human Capital Practice 11,313 - 3,880 - 15,193
Pearl Meyer & Partners 21,753 - 35 - 21,788
Federal Policy Group - 3,373 690 - 4,063
Corporate 26 310 - - 336
-------- ------ ------ ----- --------
TOTAL $103,768 $4,277 $5,151 ($892) $112,304
======== ====== ====== ===== ========

Information regarding our other intangible assets follows:

AS OF SEPTEMBER 30, 2002 AS OF DECEMBER 31, 2001
----------------------------------------------------------------------------------------------
CARRYING ACCUMULATED CARRYING ACCUMULATED
AMOUNT AMORTIZATION NET AMOUNT AMORTIZATION NET
------ ------------ --- ------ ------------ ---

Inforce revenue $104,126 ($21,265) $82,861 $ 98,936 ($15,693) $83,243
Non-compete
agreements 4,550 (1,531) 3,019 1,750 (1,033) 717
Other 50 (21) 29 - - -
-------- -------- ------- -------- -------- -------
Total $108,726 ($22,817) $85,909 $100,686 ($16,726) $83,960
======== ======== ======= ======== ======== =======

Amortization expense of other intangible assets was $2.2 million and $1.9
million for the three months ended September 30, 2002 and 2001, respectively,
and $6.1 million and $5.6 million for the nine months ended September 30, 2002
and 2001, respectively.

We estimate that our amortization expense for 2002 through 2006 for intangible
assets related to all acquisitions consummated to date will be as follows
(assuming no impairment charges):

2002 $8,099
2003 7,453
2004 6,628
2005 5,676
2006 4,725

12

CLARK/BARDES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
SEPTEMBER 30, 2002

9. ACCOUNTS RECEIVABLE

As of September 30, 2002, there were approximately $1.0 million of unbilled
receivables included in accounts receivable on the condensed consolidated
balance sheet. These unbilled amounts are expected to be billed during the
fourth quarter of 2002.

10. EARNINGS PER SHARE

The following table sets forth the computation of historical basic and diluted
earnings per common share:

THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2002 2001 2002 2001
---- ---- ---- ----

NUMERATOR:
Net income for basic earnings per common share $1,677 $1,765 $8,079 $8,879
--------------- --------------- ------------ -------------

Numerator for diluted earnings per common share $1,677 $1,765 $8,079 $8,879
=============== =============== ============ =============

DENOMINATOR
Denominator for basic earnings per common
share - weighted average common shares 16,845,529 12,781,935 16,753,347 12,739,727
Effect of dilutive securities:
Stock options 280,665 544,553 468,409 330,090
Contingent shares earned, not yet issued 34,482 - 67,536 -
--------------- --------------- ------------ -------------

Denominator for diluted earnings per common
share - weighted average common shares 17,160,676 13,326,488 17,289,292 13,069,817
=============== ================ ============ =============

PER COMMON SHARE
Basic earnings $0.10 $0.14 $0.48 $0.70
=============== =============== ============ =============

Diluted earnings $0.10 $0.13 $0.47 $0.68
=============== =============== ============ =============

There are 745,761 and 568,921 weighted average options equivalents which are not
included in the three and nine months ended September 30, 2002 calculation,
respectively, as they are anti-dilutive.

13

CLARK/BARDES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
SEPTEMBER 30, 2002

11. RISKS AND UNCERTAINTIES

Federal tax laws create certain advantages for the purchase of life insurance
products; therefore, the life insurance products underlying the benefit programs
marketed by us are vulnerable to adverse changes in laws and interpretation. Any
proposal or enactment of changes in federal tax laws that would reduce or
eliminate such advantages could result in the surrender of existing policies. As
a result of any such change, we could lose a substantial amount of renewal
revenue and our ability to write new business could be curtailed.

In January 2002, an IRS Notice and proposed Treasury regulations changed the
manner in which split dollar life insurance arrangements will be taxed in the
future. The new tax treatment is, in certain respects, less attractive than the
historical tax treatment of split dollar arrangements. Consequently, this
initiative could result in reduced revenue from split dollar arrangements.

Other types of potential changes to federal tax laws could also have a
significant adverse effect on our revenues. On July 11, 2002, the Senate Finance
Committee reported legislation that would remove a 1978 moratorium on Treasury
Department regulatory guidance on the tax treatment of nonqualified deferred
compensation arrangements. Also, on July 11, 2002, House Ways and Means
Committee Chairman Bill Thomas introduced legislation (H.R. 5095) that would tax
deferrals of compensation by top executives after July 10, 2002, under "funded"
deferred compensation arrangements. Chairman Thomas has subsequently circulated
a revised proposal removing the 1978 guidance moratorium and directing the
Treasury Department to issue guidance within 90 days of enactment of the
proposal. If any of these legislative proposals were enacted, future
compensation deferrals under arrangements we market could be significantly
curtailed, with a resulting reduction in our revenues from these arrangements.

There have been several recent legislative proposals to change the federal tax
laws with respect to the tax treatment of business-owned life insurance. For
example, in 1998, 1999, and 2000, the Clinton Administration proposed to deny
interest deductions of corporate taxpayers in proportion to the unborrowed cash
values of life insurance policies they held on the lives of their employees;
however, this proposal was not adopted by the Congress and has not been renewed
by the Bush Administration. More recently, in the aftermath of negative media
coverage regarding certain types of business-owned life insurance, Senator Jeff
Bingaman (D-NM) has proposed to tax the death benefits taxpayers receive from
policies on the lives of former employees. Significant segments of the life
insurance industry are engaged in an ongoing, intensive effort to oppose the
Bingaman proposal. While Senator Bingaman did not offer his proposal prior to
Congress's pre-election recess, and while there has not been any significant
demonstration of Congressional support for the proposal, there can be no
assurance that the proposal will not ultimately be included in enacted
legislation. If Congress were to adopt this proposal or other legislation
eliminating or limiting the tax-deferred appreciation of business-owned life
insurance policies, eliminating or limiting the tax-free payment of death
benefits on such policies, or otherwise adversely affecting the tax treatment of
the policies, these policies would be less attractive to policyholders and a
large number of such policies could be surrendered or exchanged, which could
have a material adverse effect on our financial condition and results of
operations.

14

CLARK/BARDES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
SEPTEMBER 30, 2002

In recent years, the Internal Revenue Service ("IRS") has undertaken a major
enforcement initiative to disallow the interest deductions on certain leveraged
business-owned life insurance programs sold during or prior to 1995. The IRS has
prevailed on the majority of cases it has litigated related to this initiative
and has recently made a temporary public settlement offer to address ongoing
cases. While we stopped selling leveraged business-owned life insurance programs
after 1995 and we do not expect any material adverse impact on our revenue from
this enforcement initiative, it is impossible to determine the impact of this
initiative on a client's decision to continue or surrender an existing leveraged
business-owned life insurance program.

On July 30, 2002, President Bush signed the Sarbanes-Oxley Act of 2002 into law.
This law generally prohibits any personal loans from certain SEC regulated
companies to current directors or executive officers of such companies. While it
is not entirely clear, there is a possibility that company premium payments made
on or after July 30 on collateral-assignment split dollar policies, on current
directors or executive officers of those SEC-regulated companies, could be
covered by the loan prohibition. We have a plan which includes some of these
split dollar policies include in our financial statements which may need to be
revised as a result of this legislation. Without favorable clarification of this
law, revenue from collateral assignment split dollar arrangements could be
reduced as a result of this law.

For more information about additional risks and uncertainties related to our
company, see "Risk Factors" in Item 1 of our Annual Report on Form 10-K for the
year ended December 31, 2001.

12. SEGMENTS AND RELATED INFORMATION

We have six operating segments:
Executive Benefits Practice (formerly Compensation Resource Group)
Banking Practice
Healthcare Group
Human Capital Practice (See Note 3)
Pearl Meyer & Partners
Federal Policy Group

The six operating segments operate as independent and autonomous business units
with a central corporate staff responsible for finance, strategic planning, and
human resources. Each segment has its own client base as well as its own
marketing, administration, and management.

Prior to May 16, 2002, the amounts reflected below for the Human Capital
Practice segment reflect the results of and information related to the Rewards
and Performance Group, which is now part of the Human Capital Practice (see Note
3).

In order to provide consistent presentation, we have reclassified certain
revenue and expense amounts related to CBFS. These amounts are included with
Corporate revenue and expense.

The accounting policies of the operating segments are the same as those
described in the summary of significant policies as disclosed in our Annual
Report on Form 10-K as of December 31, 2001. There are no inter-segment revenues
or expenses reflected in our consolidated financial statements.

15

CLARK/BARDES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
SEPTEMBER 30, 2002

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------------------
2002 2001 2002 2001
-------------------------------------------------

REVENUES FROM EXTERNAL CUSTOMERS
Executive Benefits Practice $15,709 $15,057 $70,085 $66,602
Banking Practice 25,971 17,318 58,088 53,701
Healthcare Group 9,594 7,990 29,055 20,097
Human Capital Practice 2,831 2,207 7,587 6,869
Pearl Meyer & Partners 3,016 2,519 9,172 9,089
Federal Policy Group 2,780 - 6,590 -
-----------------------------------------------
Total segments - reported 59,901 45,091 180,577 156,358
Corporate/CBFS 2,789 585 4,165 610
-----------------------------------------------
Total consolidated - reported $62,690 $45,676 $184,742 $156,968
======= =======================================
OPERATING INCOME/(LOSS)
Executive Benefits Practice ($2,693) $ 291 $6,161 $8,270
Banking Practice 6,995 4,386 11,602 14,787
Healthcare Group 1,995 (34) 5,067 (431)
Human Capital Practice (3,205) 675 (3,852) 2,431
Pearl Meyer & Partners 423 (490) 1,152 710
Federal Policy Group 1,097 - 2,738 -
-----------------------------------------------
Total segments - reported 4,612 4,828 22,868 25,767
Corporate/CBFS (1,061) (1,882) (7,060) (8,476)
Other income 58 64 192 311
Interest - net (501) (1,206) (1,163) (3,944)
------- ---------------------------------------
Income before taxes $3,108 $1,804 $14,837 $13,658
======= =======================================
DEPRECIATION AND AMORTIZATION
Executive Benefits Practice $1,202 $1,750 $3,667 $ 4,692
Banking Practice 648 383 1,747 1,749
Healthcare Group 716 818 2,183 2,363
Human Capital Practice 60 140 161 325
Pearl Meyer & Partners 164 440 475 1,201
Federal Policy Group 129 - 298 -
------- ---------------------------------------
Total segments - reported 2,919 3,531 8,531 10,330
Corporate/CBFS 158 50 296 169
------- ---------------------------------------
Total consolidated - reported $3,077 $3,581 $8,827 $10,499
======= =======================================
CAPITAL EXPENDITURES
Executive Benefits Practice $58 $ 575 $ 275 $1,452
Banking Practice 247 235 1,305 482
Healthcare Group 265 274 735 972
Human Capital Practice 61 71 742 123
Pearl Meyer & Partners 164 245 315 849
Federal Policy Group 4 - 67 -
------- ---------------------------------------
Total segments - reported 799 1,400 3,439 3,878
Corporate/CBFS 117 3 1,581 3
------- ---------------------------------------
Total consolidated - reported $916 $1,403 $5,020 $3,881
======= =======================================

SEPTEMBER 30, DECEMBER 31,
IDENTIFIABLE ASSETS 2002 2001
---- ----

Executive Benefits Practice $ 75,549 $ 93,743
Banking Practice 80,327 79,720
Healthcare Group 40,322 41,520
Human Capital Practice 30,472 16,364
Pearl Meyer & Partners 32,024 31,670
Federal Policy Group 8,855 -
-------- --------
Total segments - reported 267,549 263,017
Deferred tax assets 1,513 690
Corporate/CBFS 12,657 6,224
-------- --------
Total consolidated - reported $281,719 $269,931
======== ========

16

CLARK/BARDES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
SEPTEMBER 30, 2002

13. RELATED PARTY TRANSACTIONS

In connection with the acquisition of The Wamberg Organization in September
1999, the asset purchase agreement provided for additional payments to W.T.
Wamberg, our Chairman and chief executive officer and previous owner of The
Wamberg Organization, upon attainment of certain stipulated annual financial
objectives for the period ended December 31, 1999 through December 31, 2002. As
of December 31, 2001, the financial objectives for each of those years had been
met. Consequently, the Board of Directors approved the contingent consideration
payment to Mr. Wamberg prior to the February 2003 the date we were obligated to
distribute the payout. The final contingent consideration payment of $3.5
million was distributed in April 2002, net of cost-of-funds for the prepayment
period.

We lease 16,266 square feet of office space owned by Mr. Wamberg for an annual
rental of approximately $260,000, under a lease expiring on February 21, 2009.

Wamberg Financial Corporation, one of our subsidiaries, leases hanger space for
the corporate aircraft from WTW Investment, an entity controlled by Mr. Wamberg
for an annual rent of approximately $45,000.

On September 25, 2002, we entered into an Administrative Services Agreement and
Bonus Forfeiture Agreement with an affiliate of AUSA Holding, Inc., one of our
principal shareholders. During the third quarter of 2002, we received $2.5
million for services rendered prior to and through September 30, 2002, pursuant
to this agreement. Under the terms of this agreement, we expect to continue to
receive between approximately $500,000 and $1.25 million annually from the
carrier for a period of 30 years depending upon certain conditions. This
revenue, net of amounts provided for chargebacks, will be recognized on a
monthly basis beginning in October 2002. The amounts received are subject to
chargeback (reimbursement of a portion of amounts received), if any policies
under this agreement are surrendered or if there is a section 1035 exchange. Any
chargeback amounts would be deducted from the next scheduled payment.

14. LITIGATION

On July 25, 2000, Constellation Energy Group, Inc. ("Constellation") and related
entities filed a civil action against us in the U.S. District Court for the
District of Maryland. On September 14, 2001, Constellation amended its complaint
and added a life insurance company as a defendant. Constellation claims that we
failed to take proper action in connection with the administration of an
employee benefit life insurance program under which policies were issued by this
insurance company. On July 19, 2002, an agreement was reached for a complete
settlement of this litigation; however, the definitive settlement documents have
not yet been finalized. While the settlement terms are confidential, we regard
the outcome as favorable and believe such terms will not have a material adverse
impact on our financial condition or results of operations.

On February 2, 2001, an action was commenced in the Superior Court of Maricopa
County, Arizona by Ms. Kunkel against various defendants including our
Healthcare Practice. Ms. Kunkel alleges that her deceased husband was entitled
to a life insurance policy in the face amount of $525,000 to be issued by the
defendant insurance company under a split dollar life insurance plan sponsored
by his defendant employer which was administered by our Healthcare Practice.
According to the complaint, Dr. Kunkel died before the initial premium was paid
by his employer and before the policy was issued. On September 13, 2002, an
agreement was reached for a complete settlement of this litigation. While the
settlement terms are confidential, we regard the outcome as favorable and it
does not have a material adverse impact on our financial condition or results of
operations.

We are occasionally subject to lawsuits and claims arising out of the normal
conduct of our business. Management does not expect the outcome of pending
claims to have a material adverse effect on the business, financial condition or
results of operations.

17

15. SUBSEQUENT EVENTS

During the fourth quarter 2002, we determined not to pursue the International
Employment Solutions practice which was a product category originally
contemplated as part of our Human Capital Practice. In connection with this
decision, one partner and nine staff are anticipated to be terminated. Any
restructuring costs will be reserved for in the fourth quarter of 2002.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Tables shown in thousands of dollars, except share and per share
amounts)

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our financial statements, the
notes thereto and other information appearing elsewhere in this Form 10-Q.

BUSINESS

The condensed consolidated financial statements reflect the accounts of CBI and
its wholly owned subsidiaries. Through our six operating segments, we design,
market and administer compensation and benefit programs for companies
supplementing and securing employee benefits and provide executive compensation
and related consulting services to U.S. corporations, banks and healthcare
organizations. We assist our clients in using customized life insurance products
to finance their long-term benefit liabilities. In addition, we own Clark/Bardes
Financial Service, Inc. ("CBFS"), a registered broker-dealer through which we
sell all our securities products and receive related commissions.

General economic conditions and market factors, such as changes in interest
rates and stock prices, can affect our commission and fee income and the extent
to which clients keep their policies in force year after year. Equity returns
and interest rates can have a significant effect on the sale and profitability
of many employee benefit programs whether they are financed by life insurance or
other financial instruments. For example, if interest rates increase, competing
products could become attractive to potential purchasers of the programs we
market. Further, a prolonged decrease in stock prices can have an effect on the
sale and profitability of our clients' programs that are linked to stock market
indices.

CRITICAL ACCOUNTING POLICIES

As a service organization, the significant accounting policies that most affect
our company are in the area of revenue recognition and employee compensation.
Our revenue recognition policy affects the timing and amount of revenue that is
recognized in a given period. Accounting policies related to employee
compensation affect issues such as timing and amount of bonus accruals and the
accounting for stock options. In addition, because we have completed a
significant number of acquisitions, the accounting policies with regard to the
classification of purchase price, the amortization of intangibles and testing
for impairment relating to acquisitions are also significant to our company.

REVENUE SOURCES AND RECOGNITION

Our operating segments derive their revenue primarily from:

o commissions paid by the insurance companies issuing the
policies underlying our benefit programs;
o program design and administrative service fees paid by our
clients;
o executive compensation and benefit and related consulting
fees; and
o legislative liaison and related advisory services.

Our commission revenue is normally recurring, is typically paid annually and
usually extends for a period of ten years or more after the sale. Commissions
are paid by insurance companies and vary by policy and by program

18

and represent a percentage of the premium or the cash surrender value of the
insurance policies underlying the program.

First Year Commission Revenue and Related Fees. First year commission
revenue is derived from two principal sources: (a) the commission we
earn when the client first purchases the policies, which revenue is
recognized at the time the application is substantially completed, the
client is contractually committed to purchase the insurance policies
and the premiums are paid, by the client, to the insurance company; and
(b) fees for the services related to the enrollment and initial
administration of the benefit programs and underlying policies.

Our first year commission revenue is subject to chargeback, which means
that insurance companies retain the right to recover commissions paid
in the event policies prematurely terminate. The chargeback schedules
differ by product and usually apply to first year commission only. A
typical chargeback schedule, based on a percent of first year
commission, is as follows:

Year 1 100%
Year 2 and 3 50%
Year 4 25%
Year 5 and beyond 0%

While the commission revenue is subject to chargeback, our experience
has indicated that less than 1% of revenue recognized has ever been
subject to such chargeback provisions. Given the homogenous nature of
such cases and historical information about chargebacks, we are able to
accurately estimate the revenue earned. We currently maintain a
chargeback allowance, which is monitored on a quarterly basis for
adequacy.

Renewal Commission Revenue and Related Fees. Renewal commission revenue
is the commission we earn on the policies underlying the benefit
programs we have sold in prior years. Renewal revenue is recognized on
the date that the renewal premium is due or paid by the client to the
insurance company depending on the type of policy.

Consulting Fee Revenue. Consulting fee revenue consists of fees of
Human Capital Practice, Pearl Meyer and Partners and Federal Policy
Group for the services we perform in advising our clients on their
executive compensation programs and related consulting services,
retirement, benefit, actuarial, and pension savings plan design and
management, international compensation and expatriate plan development,
people strategy, compensation surveys, institutional registered
investment advisory services and legislative and regulatory policy
matters. These fees are based on a rate per hour arrangement and are
earned when the service is rendered. Some of our consulting clients pay
a retainer at the beginning of a project. These revenues are recognized
ratably over the term of the engagement. Consulting revenue generated
by the Executive Benefits Practice, Banking Practice and Healthcare
Group are included in the first year revenue line on our consolidated
income statement.

Other Revenue. Other revenue consists mostly of fees we charge our
clients for the administration of their benefit programs and are earned
when services are rendered. These revenues are included in our renewal
revenue line on our consolidated income statement.

We record revenue on a gross basis when we are the primary obligor in the
arrangement or when we have the credit risk in the arrangement. We record
revenue on a net basis when another party is the primary obligor in the
arrangement or when another party has the credit risk.

In accordance with Emerging Issues Task Force ("EITF") Issue No. 01-14, Income
Statement Characterization of Reimbursements Received for "Out-of-Pocket"
Expenses Incurred, reimbursements received for out of pocket expenses incurred
are characterized as revenues and are shown as a separate component of total
revenue. Similarly, related reimbursable expenses are also shown separately
within operating expenses. EITF 01-14 was effective as of January 1, 2002 and
all periods presented have been reclassified to reflect the adoption of this
accounting

19

literature. The net result of the above is an increase in revenue and operating
expense of $768,000 and $1.2 million for the three months ended
September 30, 2002 and 2001, respectively, and $3.4 million and $3.1 million for
the nine months ended September 30, 2002 and 2001, respectively. These
reclassifications had no effect on our operating results.

EMPLOYEE COMPENSATION

We account for stock-based compensation to employees using the intrinsic value
method prescribed in Accounting Principles Board Opinion ("APB") No. 25,
Accounting for Stock Issued to Employees. Compensation cost for stock options is
measured as the excess, if any, of the quoted market price of our stock at the
date of grant over the amount an employee must pay to acquire the stock.

Statement of Financial Accounting Standard ("SFAS") 123, Accounting for
Stock-Based Compensation, established accounting and disclosure requirements
using a fair value based method of accounting for stock based employee
compensation plans. We have elected to remain on the current method of
accounting as described above for employees. However, we account for stock
options granted to non-employees under the provisions of SFAS 123.

Employees are eligible for bonuses based upon us achieving certain
pre-determined targets. The bonus expense is accrued ratably over the year based
upon our estimate of meeting these targets. This bonus accrual is reviewed and
adjusted periodically.

INTANGIBLE ASSETS

We have intangible assets representing the excess of the costs of acquired
businesses over the fair values of the tangible net assets associated with the
acquisition. Intangible assets consist of the net present value of future cash
flows from policies in force at the acquisition date, non-compete agreements
with the former owners, and other identifiable intangibles and goodwill.
Non-compete agreements are amortized over the period of the agreements and other
identifiable intangibles are amortized over their useful lives.

The net present value of inforce revenue is typically amortized over a 30-year
period (the expected average policy duration). There are certain assumptions
related to persistency, expenses, and discount rates that are used in the
calculation of the carrying value of inforce revenue. If any of these
assumptions change or actual experience differs materially from the assumptions
used, it could affect the carrying value of the inforce revenue.

OVERVIEW

Total revenues for the three months ended September 30, 2002 was $62.7 million,
an increase of 37.2% from revenues of $45.7 million in the third quarter of
2001. Third quarter 2002 operating income before amortization expense (EBITA)
was $5.7 million, as compared to $5.8 million from the comparable 2001 period.
We reported net income for the third quarter 2002 of $1.7 million, or $0.10 per
diluted share, compared to reported net income of $1.8 million, or $0.13 per
diluted share, for the same period last year.

For the nine months ended September 30, 2002, total revenue was $184.7 million,
an increase of 17.7% from revenues of $157.0 million for the first nine months
of 2001. EBITA was $21.9 million, a 15.5% decrease from EBITA of $25.9 million
in the comparable period of 2001. Net income for the nine months ended September
30, 2002 (after an impairment charge of $523,000, net of taxes, from the
adoption of SFAS 142) was $8.1 million or $0.47 per diluted share compared to
$8.9 million or $0.68 per diluted share for the nine months ended September 30,
2001. Results for the nine months ended September 30, 2001, excluding
amortization of goodwill would have been $10.8 million or $0.83 per diluted
share. The year to date results include severance payments of approximately
$550,000 associated with the reorganization initiatives in the Healthcare Group
and a $474,000 non-cash charge for performance-based stock options issued to
non-employee producers.

20

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
% %
2002 2001 CHANGE 2002 2001 CHANGE
---- ---- ------ ---- ---- ------

REVENUE
First year commissions and related fees $36,042 $22,021 63.7% $86,899 $78,432 10.8%
Renewal commissions and related fees 17,665 18,167 (2.8%) 72,247 60,854 18.7%
Consulting fees 8,215 4,255 93.1% 22,156 14,559 52.2%
Reimbursements 768 1,233 (37.7%) 3,440 3,123 10.2%
------ ------ ----- ------- ------- ----
Total 62,690 45,676 37.2% 184,742 156,968 17.7%

OPERATING EXPENSES
Commissions and fees 18,971 13,972 35.8% 59,208 53,998 9.6%
% of revenue 30.3% 30.6% 32.0% 34.4%
Reimbursable expenses 768 1,233 (37.7%) 3,440 3,123 10.2%
% of revenue 1.2% 2.7% 1.9% 2.0%
General and administrative 37,237 24,638 51.1% 100,195 73,930 35.5%
% of revenue 59.4% 53.9% 54.2% 47.1%
Amortization 2,163 2,887 6,091 8,626
------ ------ ------- -------
Operating income 3,551 2,946 20.5% 15,808 17,291 (8.6%)
% of revenue 5.7% 6.4% 8.6% 11.0%

Other income 58 64 192 311
Interest income 87 355 266 557
Interest expense (588) (1,561) (1,429) (4,501)
------ ------ ------- -------
Income before taxes 3,108 1,804 72.3% 14,837 13,658 8.6%
Income taxes 1,431 39 6,217 4,779
------ ------ ------- -------
Net income, before cumulative effect of
change in accounting, net of tax 1,677 1,765 (5.0%) 8,620 8,879 (2.9%)
Cumulative effect of change in
accounting principle - - 523 -
------ ------ ------- -------
Net Income $ 1,677 $ 1,765 (5.0%) $8,097 $8,879 (8.8%)
======= ======= ==== ====== ====== ====

PER COMMON SHARE - DILUTED
Earnings $ 0.10 $0.13 $ 0.47 $ 0.68
Weighted average shares 17,160,676 13,326,488 17,289,292 13,069,817

Quarter ended September 30, 2002 compared to quarter ended September 30, 2001

Revenue. Total revenue for the third quarter ended September 30, 2002 was $62.7
million, an increase of 37.2% from revenues of $45.7 million in third quarter
2001. First year commission revenue and consulting fees during third quarter
2002 were $44.3 million compared to $26.3 million in the third quarter of 2001.
First year commission revenue and consulting fees were favorably affected by
$2.8 million related to the recent acquisition of the Federal Policy Group,
which provides tax and legislative consulting services, whose results were not
included in 2001. First year commission revenue was higher in the Banking
Practice as a result of numerous cases closing in the community banking sector
of the practice. Revenue growth was also strong in the Healthcare Group which
benefited from the increased revenues generated from increased first year
commission and fee revenue. New business revenue includes $2.5 million received
pursuant to an Administrative Services Agreement and Bonus Forfeiture Agreement
with an insurance carrier with which a significant amount of inforce insurance
is in place (see Administrative Services Agreement and Bonus Forfeiture
Agreement below). Renewal revenues for the three months ended September 30, 2002
totaled $17.7 million compared to $18.2 million for the three months ended
September 30, 2001.

Commissions and fees expense. Commission and fee expense for the quarter ended
September 30, 2002 was $19.0 million or 30.3% of total revenue compared to $14.0
million or 30.6% of total revenue in third quarter 2001. The percentage paid in
commission expense is affected by the level of fee-based activity as compared to

21

revenue from product commissions and by the mix of business that comes from
employee consultants (who generally receive lower commissions) as opposed to
independent consultants in a given period. With the acquisition of Federal
Policy Group and the formation of our Human Capital Practice, we continue to
expand our fee-based revenue, which should favorably affect commissions expense
as a percentage of revenue over the long-term.

General and administrative expense. General and administrative expense for the
three months ended September 30, 2002 was $37.2 million or 59.4% of total
revenue compared to $24.6 million or 53.9% of total revenue for the three months
ended September 30, 2001. General and administrative expenses included $4.8
million of expenses related to Human Capital Practice and $1.6 million of
expenses related to the Federal Policy Group. These acquisitions were not
included in the three months ended September 30, 2001 results.

Amortization. Amortization expense for the quarter ended September 30, 2002 was
$2.2 million compared to $2.9 million in the prior year. The reduction is
primarily attributable to our adoption of SFAS 142 which eliminated the
amortization of goodwill. For the three months ended September 30, 2001,
amortization expense included $1.0 million attributed to goodwill amortization.
Excluding the goodwill amortization from the three months ended September 30,
2001 results, amortization expense for the three months ended September 30, 2002
increased from prior year due to recent acquisitions of Federal Policy Group,
Comiskey Kaufman and Hilgenberg in which inforce revenue and other identifiable
intangibles were acquired that are still subject to amortization.

Other income - For the three months ended September 30, 2002 and 2001, we
received rental income from a tenant who is subleasing office space from one of
our practices.

Interest expense - net. Net interest expense for the three months ended
September 30, 2002 was $501,000 compared to $1.2 million in 2001. Interest
expense was impacted by lower levels of debt in 2002 compared to 2001 and lower
current interest rates. Total debt at September 30, 2002 was $21.4 million
compared to $76.1 million at September 30, 2001. If the acquisition of
LongMiller is completed, interest expense would be expected to increase
significantly with the incurrence of approximately $396 million of additional
indebtedness (of which $305 million will be non-recourse to us).

Net income and earnings per share. Net income for the third quarter 2002 was
$1.7 million, or $0.10 per diluted common share versus net income of $1.8
million or $0.13 per diluted share for the same period last year. If no goodwill
amortization expense had been taken during the third quarter of 2001, net income
for that period would have been $2.7 million or $0.20 per diluted share. Our
effective tax rate for the three months ended September 30, 2002 was 46.0% as a
result of the change in our year-to-date income tax rate from 40.8% to 41.9%
during the quarter. In third quarter 2001, we received approval for a refund of
prior year's taxes of approximately $1.7 million. As a result of the refund, our
2001 effective tax rate was 35.0% and to adjust this rate, third quarter 2001
income tax expense was 2.2%. Earnings per share is based on 17.3 million diluted
shares outstanding for the quarter, which reflects our November 2001 secondary
offering and shares issued for acquisitions, as compared to 13.3 million diluted
shares outstanding for third quarter 2001.

22

Nine months ended September 30, 2002 compared to nine months ended September 30,
2001

Revenue. Total revenue for the nine months ended September 30, 2002 was $184.7
million, an increase of 17.7% from revenues of $157.0 million for the nine
months ended September 30, 2001. First year commission revenue and consulting
fees for the nine-month period ending September 30, 2002 was $109.1 million, an
increase of 17.3%, as compared to $93.0 million for the first nine months in
2001. Consulting fees increased with the February 2002 acquisition of the
Federal Policy Group, which generated $6.6 million of revenue in the period, and
from a $3.9 million increase in consulting revenue generated from Management
Science Associates ("MSA") which is included in our Healthcare Practice. New
business revenue in our Executive Benefits Practice was lower compared to year
to date 2001 due to proposed legislation related to the structure of deferred
compensation plans which has caused clients to delay implementing new deferred
compensation plans. However, this decrease was offset by the increase of revenue
from the community banking sector of our Banking Practice. New business revenue
includes $2.5 million received pursuant to an Administrative Services Agreement
and Bonus Forfeiture Agreement with an insurance carrier with which a
significant amount of inforce insurance is in place (see Administrative Services
Agreement and Bonus Forfeiture Agreement below). Renewal revenues were $72.2
million, up 18.7% from last year's comparable period as a result of renewals on
last year's first year business, acquisitions during the year and equivalent
persistency in our renewal block of business.

Commissions and fees expense. Commission and fee expense was $59.2 million, or
32.0% of total revenue for the nine months ended September 30, 2002, versus
$54.0 million, or 34.4% of total revenue for the nine months ended September 30,
2001. This reduction in the percentage of commission expense as a percentage of
revenue also reflects the increasing proportion of revenue from fee-based
consulting activity. Fee based consulting activity accounted for 18.7% of year
to date 2002 revenue compared to 13.3% of year to date 2001 revenue. If the
acquisition of LongMiller is completed, fee based revenue as a percentage of
total revenue would be expected to decline. Included in the nine months ended
September 30, 2002 commission expense is $474,000 of non-cash expense recognized
in the second quarter from performance-based stock options issued to
non-employee producers. Such expenses may be incurred in the future if certain
non-employee producers achieve specified targets.

General and administrative expense. General and administrative expense for the
nine months ended September 30, 2002 was $100.2 million or 54.2% of total
revenue compared to $73.9 million or 47.1% of total revenue for the nine months
ended September 30, 2001. The increase can be attributed to the expanded
staffing of sales consultants and support services company-wide and expenses
associated with recent acquisitions. General and administrative expenses also
include $7.0 million of general and administrative expense for Human Capital
Practice since May 2002 and $550,000 of severance costs related to
reorganization initiatives in the Healthcare Group that occurred in second
quarter 2002.

Amortization. Amortization expense for the nine months ended September 30, 2002
was $6.1 million compared to $8.6 million in the prior year period. The
reduction in amortization expense is as a result of the January 2002 adoption of
SFAS 142, which eliminated the amortization of goodwill. For the nine months
ended September 30, 2001, amortization expense included $3.0 million pre-tax
attributed to goodwill amortization.

Other income. During the first nine months of 2002, we received $201,000 rental
income from a tenant. During the first nine months of 2001, we received $191,000
of life insurance proceeds as the result of the death of one of our employees,
and rental income from a tenant of $192,000.

Interest expense - net. Net interest expense for the nine months ended September
30, 2002 was $1.2 million compared to $3.9 million in 2001. Interest expense
decreased primarily due to a lower outstanding debt balance. Total debt at
September 30, 2002 was $21.4 million compared to $76.1 million at September 30,
2001. If the acquisition of LongMiller is completed, interest expense would be
expected to increase significantly with the incurrence of approximately $396
million of additional indebtedness (of which $305 million will be non-recourse
to us).

Income taxes. Income taxes for the nine months ended September 30, 2002 were
$6.2 million at an effective tax rate of 41.9% compared to $4.8 million at an
effective tax rate of 35.0% for the nine months ended September

23

30, 2001. The 2001 effective tax rate was affected by a tax refund notification
received during the third quarter 2001 which reduced the overall tax rate. The
2002 effective tax rate is reflective of the expected tax rate in future
periods.

Net income and earnings per share. Net income, after an impairment charge of
$523,000 net of taxes from the adoption of SFAS 142, for the nine months ended
September 30, 2002 was $8.1 million, or $0.47 per diluted common share versus
net income of $8.9 million or $0.68 per diluted share for the same period last
year. If no goodwill amortization expense had been taken for the first nine
months of 2001, net income would have been $10.8 million or $0.83 per diluted
share. The weighted average number of shares outstanding increased to 17.3
million shares for the nine months ended September 30, 2002 from 13.1 million
shares for the nine months ended September 30, 2001.

ACQUISITIONS

On September 25, 2002, we entered into an agreement to acquire Long, Miller and
Associates, LLC ("LongMiller"). LongMiller, located in Greensboro, North
Carolina, specializes in bank-owned life insurance portfolio services. If
completed, this acquisition is expected to enhance our capabilities by coupling
LongMiller's product offerings and personnel with our current Banking Practice's
extensive distribution channel. We intend to finance this acquisition, with a
purchase price of approximately $416 million, through the issuance of
approximately $305 million of non-recourse debt secured by commission and
related payments from inforce policies sold by LongMiller, a draw down of an
estimated $91 million on our existing credit facility and the issuance of $20
million of our common stock which will be based on the average closing price on
the 20 trading days preceding the date of the agreement. Upon completion of the
acquisition, the results of LongMiller would be included in our Banking Practice
results, which is expected to be in the fourth quarter of 2002, although we
cannot assure you that it will be completed in the fourth quarter or at all. We
have committed and/or paid between approximately $1.0 to $2.0 million to various
regulatory agencies and financing and investment companies for work related to
the LongMiller acquisition. Of these amounts, approximately $768,000 has been
capitalized in the September 30, 2002 balance sheet. If this acquisition is not
completed, these costs would be expensed in the period the acquisition agreement
is terminated.

From time to time we are involved in negotiations relating to the acquisition of
companies in our industry or related industries. Some of these negotiations
could involve companies whose acquisition would be highly material to our
results of operations and financial condition. In addition, we could incur
substantial costs in connection with negotiating such transactions, even if the
transactions are not completed.

ADMINISTRATIVE SERVICES AGREEMENT AND BONUS FORFEITURE AGREEMENT

On September 25, 2002, we entered into an Administrative Services Agreement and
Bonus Forfeiture Agreement with an affiliate of AUSA Holding, Inc., one of our
principal shareholders. During the third quarter of 2002, we received $2.5
million for services rendered prior to and through September 30, 2002, pursuant
to this agreement. Under the terms of this agreement, we expect to continue to
receive between approximately $500,000 and $1.25 million annually from the
carrier for a period of 30 years, depending upon certain conditions. This
revenue, net of amounts provided for chargebacks, will be recognized on a
monthly basis beginning in October 2002. The amounts received are subject to
chargeback (reimbursement of a portion of amounts received), if any policies
under this agreement are surrendered or if there is a section 1035 exchange. Any
chargeback amounts would be deducted from the next scheduled payment.

24

FORMATION OF HUMAN CAPITAL PRACTICE

On May 16, 2002, we announced the formation of our Human Capital Practice. The
new practice includes our existing Rewards and Performance Group and ten former
partners ("partners") and 74 support staff from Arthur Andersen LLP's
("Andersen's") Human Capital Practice. Prior to hiring, the partners and
Andersen mutually terminated their partnership interest and association with
each other free of all restrictive provisions under the Andersen Partnership
Agreement and under any agreements relating to the employment with Andersen. We
believe any successor liability is mitigated by hiring each new employee in a
conventional employer/employee relationship.

The former Andersen partners received full recourse and interest bearing loans
in the amount of $8.4 million. Of these loans, $1.2 million have a term of two
years and the remaining $7.2 million have a term of six and one-half years. As
long as the partner is employed on the hiring anniversary date for the two year
loans and each December 31st for the six and one-half year loans, a portion of
the loans will be forgiven at each date. These loans are being amortized into
the Human Capital Practice financial results as general and administrative
expense and are classified as other assets on the September 30, 2002 balance
sheet. Assuming all partners continue to be employed by us throughout the terms
of the loans, the amounts amortized into operating expense for the following
fiscal years would be:

2002 $ 988
2003 1,693
2004 1,348
2005 1,101
2006 1,101
2007 and thereafter 2,202

In addition, support staff received $602,000 of sign-on bonuses at the time of
their employment. The support staff will retain the bonus payments if they are
employed on May 16, 2003. If they voluntarily leave before this date, they must
repay a pro-rata portion of their bonus. The sign-on bonuses are being amortized
into the Human Capital Practice results over the first twelve months of
employment.

In connection with the formation of the Human Capital Practice, the asset
purchase agreement for Rewards and Performance Group (formerly Rich,
Florin/Solutions, Inc.) was amended. One-half of the original contingent
consideration (approximately $3.8 million) will be paid in March 2003 through
March 2005 regardless of performance of the practice and the other half is
contingent upon the results of the Human Capital Practice. These amounts are
included in the September 30, 2002 consolidated balance sheet. In addition, the
previous owners of Rewards and Performance Group will participate in the Human
Capital Practice Long Term Incentive Plan. Any payments under this plan will be
recorded as expense in the year earned.

25

The tables that follow present the operating results of our six operating
segments for the three and nine months ended September 30, 2002 and 2001.

EXECUTIVE BENEFITS PRACTICE (FORMERLY
COMPENSATION RESOURCE GROUP)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
---- ---- ---- ----

Revenue
First year commissions and related fees $6,183 $3,323 $25,681 $29,369
Renewal commissions and related fees 9,481 11,690 44,228 36,985
Reimbursements 45 44 176 248
-------------------------------------------------------
Total 15,709 15,057 70,085 66,602
Commissions and fees expense 7,624 6,916 33,348 33,469
% of revenue 48.5% 45.9% 47.6% 50.3%
Reimbursable expenses 45 44 176 248
General and administrative expense 9,589 6,237 27,245 20,532
% of revenue 61.0% 41.4% 38.9% 30.8%
Amortization 1,144 1,569 3,155 4,083
-------------------------------------------------------
Operating (loss)/income ($2,693) $291 $ 6,161 $ 8,270
% of revenue (17.1%) 1.9% 8.8% 12.4%
=======================================================

Total revenue for the quarter ended September 30, 2002 increased 4.3% from the
third quarter 2001. This reflects the acquisitions of Comiskey Kaufman, Inc.
(acquired April 2002) Lyons Compensation and Benefits, LLC (acquired August
2001) and Coates Kenney (acquired December 2001). These acquisitions contributed
approximately $1.5 million to third quarter 2002 revenue. However, the current
economic conditions and proposed legislation related to the structure of
deferred compensation plans have caused clients to delay implementing new
deferred compensation plans. We may continue to experience revenue declines in
future periods due to the economy and the proposed legislation.

Commission expense in the third quarter of 2002 was higher due to a greater
percentage of the first year revenue generated by independent producers than in
third quarter of 2001. Operating expense in the third quarter of 2002 increased
from the comparable period due to the acquisitions and the hiring of consultants
and support staff. These higher operating expenses are expected to continue in
future periods.

Total revenue increased 5.2% from $66.6 million for the nine months ended
September 30, 2001 to $70.1 million for the nine months ended September 30,
2002. First year revenue for the nine months ended September 30, 2002 decreased
on a comparative basis because of significant production in first quarter of
2001 that was not repeated this year. First year revenue has also been
negatively impacted by the proposed legislation related to structure of deferred
compensation plans. These acquisitions contributed $5.9 million to the nine
months ended September 30, 2002 revenue. Renewal revenue also increased due to
higher than anticipated premium payments on inforce business and additional
renewals from 2001 new business. General and administrative expense increased
for the nine months ended September 30, 2002 over 2001 due to the acquisitions
of the above-mentioned companies and additional hirings. Nine months ended
September 30, 2002 amortization expense decreased compared to the nine months
ended September 30, 2001 primarily due to the elimination of goodwill
amortization as of January 1, 2001.

26

BANKING PRACTICE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
---- ---- ---- ----

Revenue
First year commissions and related fees $20,158 $12,251 $37,402 $34,037
Renewal commissions and related fees 5,794 5,046 20,616 19,576
Reimbursements 19 21 70 88
-------------------------------------------------------
Total 25,971 17,318 58,088 53,701
Commissions and fees expense 10,274 6,330 23,117 18,403
% of revenue 40.0% 36.7% 39.8% 34.3%
Reimbursable expenses 19 21 70 88
General and administrative expense 8,283 6,320 22,135 18,971
% of revenue 31.9% 36.5% 38.1% 35.3%
Amortization 400 261 1,164 1,452
-------------------------------------------------------
Operating income $ 6,995 $ 4,386 $11,602 $14,787
% of revenue 26.9% 25.3% 20.0% 27.5%
=======================================================

Total first year commission revenue increased 64.5% to $20.2 million and total
revenue increased 50.0% to $25.9 million for the third quarter ended September
30, 2002 compared to the third quarter ended September 30, 2001. These increases
reflect significant sales growth in the community bank market, and include only
limited contribution from the super-regional and money-center bank market, which
have been more adversely affected by the current interest rate environment and
economy. General and administrative expenses for the third quarter of 2002 were
$8.3 million, or 31.9% or revenue compared to $6.3 million or 36.5% of revenue
for the comparable period in 2001. General and administrative expense increased
as a result of the acquisition of Hilgenberg and the investments in staffing of
sales consultants and support staff.

Total first year commission revenue increased 9.9% to $37.4 million, and total
revenue increased 8.2% to $58.0 million during the nine months ending September
30, 2002 compared to the prior year. Commission expense in the nine months
ending September 30, 2002 was $23.1 million, or 39.8% of revenue, compared to
$18.4 million or 34.3% of revenue in the same period in 2001. Commission expense
as a percentage of revenue increased due to the mix of business. General and
administrative expenses for the nine months ending September 30, 2002 were $22.1
million, or 38.1% of revenue, compared to $18.9 million or 35.3% of revenue for
the comparable period in 2001, due to the acquisition of Hilgenberg, and
investments in staffing of sales consultants and support staff to service
increased sales volumes.

27

HEALTHCARE GROUP
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
---- ---- ---- ----

Revenue
First year commissions and related fees $7,134 $5,891 $20,542 $14,445
Renewal commissions and related fees 2,168 1,402 6,511 4,264
Reimbursements 292 697 2,002 1,388
-------------------------------------------------------
Total 9,594 7,990 29,055 20,097
Commissions and fees expense 1,073 726 2,743 2,126
% of revenue 11.2% 9.1% 9.4% 10.6%
Reimbursable expenses 292 697 2,002 1,388
General and administrative expense 5,782 6,004 17,887 15,229
% of revenue 60.3% 75.1% 61.6% 75.8%
Amortization 452 597 1,356 1,785
-------------------------------------------------------
Operating (loss)/income $1,995 ($ 34) $5,067 ($ 431)
% of revenue 20.8% -0.4% 17.4% -2.1%
=======================================================

Healthcare Group revenues for the three month period ended September 30, 2002
benefited from the increased revenues generated from increased first year
commission and fee revenue. During 2002, Healthcare Group started billing for
clients' recordkeeping services, which contributed $179,000 to revenue for the
three months ended September 30, 2002. Renewal commissions were $2.2 million, a
54.6% increase from the comparable period in 2001, which reflected an increase
in premium payments made during the period as well as the additional renewals
from the prior year's new business. Reimbursements for the three months ended
September 30, 2002 have declined from the prior year due to staff reductions of
employees who, in the prior year, would have accounted for a large portion of
traveling costs that were billable to clients. Commission expense as a
percentage of revenue increased as a larger proportion of Healthcare revenue was
generated by first year commission revenue than the three months ended September
30, 2001. General and administrative expense for the three months ended
September 30, 2002 decreased compared to the three months ended September 30,
2001 due to the practice's continuing efforts to contain costs.

Total revenue increased 44.6% for the nine month period ended September 30,
2002. Revenue continues to be favorably impacted by the acquisition of MSA.
Consulting fees for the Healthcare Group have also increased considerably during
the period. Revenue from recordkeeping services contributed $491,000 to revenue
for the nine months ended September 30, 2002. Reimbursements increased from the
nine months ended September 30, 2001 as MSA is included for the entire nine
months of 2002 compared to three months for 2001. Commission expense as a
percent of revenue has decreased to 9.4% of revenue for the nine months ended
September 30, 2002 as compared to 10.6% of revenue in the first nine months of
2001, which reflects the increase in consulting fees, in which no commissions
are paid to consultants. Severance expense of approximately $550,000 was
incurred during the year associated with the downsizing of existing staff levels
of the Healthcare Group. Operating income for the nine months ended September
30, 2002 was $5.1 million, the highest in any nine month period since acquiring
the Healthcare Group, which is a result of the factors discussed above.

28

HUMAN CAPITAL PRACTICE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
---- ---- ---- ----

Revenue
Consulting fees $2,797 $2,139 $7,451 $6,607
Reimbursements 34 68 136 262
------------------------------------------------------
Total 2,831 2,207 7,587 6,869
Reimbursable expenses 34 68 136 262
General and administrative expense 6,002 1,358 11,303 3,916
% of revenue 212.0% 61.6% 149.0% 57.0%
Amortization - 106 - 260
------------------------------------------------------
Operating (loss)/income ($3,205) $675 ($3,852) $2,431
% of revenue (113.3%) 30.5% (50.1%) 35.4%
======================================================

In May 2002, the Human Capital Practice was formed by combining our existing
Rewards and Performance Group with the addition of 10 partners and 74 employees
from the Andersen Human Capital Practice. The three month and nine month results
ended September 30, 2002 include $4.8 million and $7.0 million, respectively, of
operating expenses related to this additional practice. The Human Capital
Practice results reflect difficulties related to the start-up of a new practice
in the current challenging economic climate and minimal revenue compared to the
general and administrative expense incurred.

The results prior to May 16, 2002 only included the operating results of our
Rewards and Performance Group. The former Rewards and Performance Group has a
significant concentration of information technology clients and has been
adversely affected by weakness in this sector of the economy.

29

PEARL MEYER AND PARTNERS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
---- ---- ---- ----

Revenue
Consulting fees $2,638 $2,116 $8,116 $7,952
Reimbursements 378 403 1,056 1,137
-----------------------------------------------------
Total 3,016 2,519 9,172 9,089
Reimbursable expenses 378 403 1,056 1,137
General and administrative expense 2,215 2,299 6,964 6,359
% of revenue 73.4% 91.2% 75.9% 70.0%
Amortization - 307 - 883
-----------------------------------------------------
Operating (loss)/income $423 ($490) $1,152 $710
% of revenue 14.0% (19.4%) 12.6% 7.8%
=====================================================

Total consulting revenue increased 19.7% to $3.0 million for the three months
ended September 30, 2002 compared to $2.5 million for the three months ended
September 30, 2001. Pearl Meyer & Partners experienced some mild business
interruption at the end of the three months ended September 30, 2001 and lost
approximately two weeks of billings. General and administrative expense
increased from $6.4 million for the nine months ended September 30, 2001 to $7.0
million for the nine months ended September 30, 2002 due to additional
depreciation for new information systems, increased compensation costs, and a
higher headcount than in 2001. Amortization expense for the nine months ended
September 30, 2002 decreased compared to the nine months ended September 30,
2001 due to the elimination of goodwill amortization as of January 1, 2002.
Operating income of $1.2 million for the nine months ended September 30, 2002
decreased compared to the adjusted $1.6 million (before amortization) for the
nine months ended September 30, 2001 due to the slow economy. However, the
practice is beginning to experience more sales activity as a result of
engagements in its areas of expertise of corporate governance and executive
compensation.

FEDERAL POLICY GROUP
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2002 2002
---- ----

Revenue
Consulting fees $2,780 $6,590
---------------------------------
Total 2,780 6,590
General and administrative expense 1,558 3,562
% of revenue 56.0% 54.1%
Amortization 125 290
---------------------------------
Operating income $1,097 $2,738
% of revenue 39.5% 41.5%
=================================

Federal Policy Group was acquired on February 25, 2002. Federal Policy Group is
a consulting practice representing Fortune 500 companies, trade associations,
and other businesses before Congress, the Treasury Department, and other federal
agencies on legislative and regulatory policy matters. Revenue for the three
months ended September 30, 2002 was $2.8 million with operating income of $1.1
million or 39.5% of revenue. Federal Policy Group continues to experience strong
demand for its services as a result of increased legislative activity.

30

Results Attributable to Acquisitions

Our operating results are significantly influenced by the contributions of our
acquired businesses. By definition, we consider any business not appearing in
four full quarters of operating results as being from acquisitions. After that,
they become part of existing business. Non-material acquisitions are not
included in the acquisition column. An analysis of our operating results,
separating acquisitions from existing businesses for the periods indicated is as
follows:

THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 2002 SEPTEMBER 30, 2001
------------------ ------------------
EXISTING ACQUISITIONS(1) COMBINED EXISTING ACQUISITIONS(2) COMBINED
-------- --------------- -------- -------- --------------- --------

Revenue
First year commissions and
consulting fees $41,477 $2,780 $44,257 $23,774 $2,502 $26,276
Renewal commissions and
related fees 17,665 - 17,665 15,159 3,008 18,167
Reimbursements 768 - 768 786 447 1,233
------------------------------------------ -----------------------------------------
Total 59,910 2,780 62,690 39,719 5,957 45,676
Commissions and fees expense 18,971 - 18,971 11,469 2,503 13,972
Reimbursable expenses 768 - 768 786 447 1,233
General and administrative expenses 35,679 1,558 37,237 21,108 3,530 24,638
------------------------------------------ -----------------------------------------
Operating income before 4,492 1,222 5,714 6,356 (523) 5,833
amortization
Amortization of intangibles 2,038 125 2,163 1,968 919 2,887
------------------------------------------ -----------------------------------------
Operating income/(loss) $ 2,455 $1,097 $ 3,551 $ 4,388 ($1,442) $ 2,946
========================================== =========================================

NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2002 SEPTEMBER 30, 2001
------------------ ------------------
EXISTING ACQUISITIONS(1) COMBINED EXISTING ACQUISITIONS(2) COMBINED
-------- --------------- -------- -------- --------------- --------

Revenue
First year commissions and
consulting fees $102,465 $6,590 $109,055 $63,399 $29,592 $92,991
Renewal commissions and
related fees 72,247 - 72,247 41,177 19,677 60,854
Reimbursements 3,440 - 3,440 1,738 1,385 3,123
------------------------------------------ -----------------------------------------
Total 178,152 6,590 184,742 106,314 50,654 156,968
Commissions and fees expense 59,208 - 59,208 30,233 23,765 53,998
Reimbursable expenses 3,440 - 3,440 1,738 1,385 3,123
General and administrative
expenses 96,633 3,562 100,195 57,744 16,186 73,930
------------------------------------------ -----------------------------------------
Operating income before 18,871 3,028 21,899 16,599 9,318 25,917
amortization
Amortization of intangibles 5,801 290 6,091 5,292 3,334 8,626
------------------------------------------ -----------------------------------------
Operating income $ 13,070 $2,738 $ 15,808 $11,307 $ 5,984 $17,291
========================================== =========================================

(1) Includes operations of Federal Policy Group since March 1, 2002.
(2) Includes the operations of the company formerly known as Compensation Resource Group since September 6, 2000 and
Pearl Meyer since June 21, 2001.

For the nine months ended September 30, 2002, approximately 3.6% of gross
revenue and 17.3% of operating income came from acquisitions, as defined above,
while 32.3% of gross revenue and 34.6% of operating income

31

were from acquisitions during the same period in 2001. We do not attribute a
great deal of significance to the above statistics for the following reasons:

o an acquisition's contribution to operating performance in any
given period is considerably dependent on the timing of the
transaction;

o an acquisition, by our definition for this purpose, is one
that is material to operations and has not yet appeared in
four quarters' operating results. As the value of these
acquisitions add to our existing business base, the relative
contribution of any subsequent acquisition may diminish; and

o acquisitions have made, and are expected to make, a
substantial contribution to our operating performance and
growth; however, the resources dedicated to our acquisition
program would have been available to make an impact on the
performance of the existing business had the acquisitions not
occurred.

32

QUARTERLY RESULTS

The previously reported quarterly information has been reclassified to reflect
the adoption of EITF 01-14. This reclassification had no effect on our
operating results.

The following table presents a summary of revenues and expenses for the most
recent eight calendar quarters. This information is not necessarily indicative
of results for any full year or for any subsequent period.

Our operating results can fluctuate considerably, especially when compared on a
consecutive quarterly basis. We have experienced and may continue to experience
large increases in revenue in the first and fourth quarters and our operating
results may be affected by a number of other factors, including:

o a significant portion of the financing for our bank-owned life
insurance products occurs in the fourth calendar quarter; and

o a significant portion of the deferred compensation plans,
marketed by our Executive Benefits Practice, is financed in
the first quarter. However, proposed legislation and economic
conditions may result in lower revenues in this line of
business.

(AS PREVIOUSLY REPORTED)
QUARTER ENDED
------------------------------------------------------------------------------------------------
SEPT JUN MAR DEC SEPT JUN MAR DEC
2002 2002 2002 2001 2001 2001 2001 2000
---- ---- ---- ---- ---- ---- ---- ----

Revenue $62,690 $53,635 $64,368 $77,264 $43,922 $43,468 $66,037 $57,457
% of annual (1) 24.7% 22.4% 28.1% 33.5% 19.1% 18.8% 28.6% 38.9%

Operating expenses 37,237 32,775 28,671 27,932 24,053 24,617 24,650 21,705
Amortization 2,163 2,097 1,831 2,934 2,887 2,940 2,799 2,540

Operating income 3,551 2,580 9,812 14,324 3,010 2,841 11,632 13,076
% of revenue 5.7% 4.8% 15.2% 18.5% 6.9% 6.5% 17.6% 22.8%

Other (expense)/income 58 - - (21) - (72) 191 1,001
Interest expense - net 501 368 294 3,224 1,206 1,447 1,291 1,587
Income taxes 1,431 846 3,940 3,946 39 422 4,318 4,151
------------------------------------------------------------------------------------------------
Income, before cumulative 1,677 1,366 5,578 7,133 1,765 900 6,214 8,339
effect in change in accounting
principle, net of tax

Cumulative effect of change in
accounting principle, net of tax - - 523 - - - - -
------------------------------------------------------------------------------------------------
Net Income $1,677 $1,366 $5,055 $7,133 $1,765 $900 $6,214 $8,339
================================================================================================

Per diluted common share $ 0.10 $ 0.08 $ 0.30 $ 0.48 $ 0.13 $ 0.07 $ 0.49 $ 0.65
================================================================================================

We expect that future quarterly fluctuations in our total revenue will
be mitigated, to some extent, by the addition of our Human Capital
Group, Pearl Meyer and Partners and Federal Policy Group whose
fee-based revenue tends to be more stable throughout the year. If the
acquisition of LongMiller is completed, fee based revenue as a
percentage of total revenue would be expected to decline. Our revenue
is difficult to forecast, and we believe that comparing our consecutive
quarterly results of operations is not necessarily meaningful, nor does
it indicate what results we will achieve for any subsequent period. Our
quarterly results can vary due to the timing of acquisitions and/or the
closing of large cases, which may not repeat in subsequent quarters. As
a result, past operating results are not reliable indicators of future
performance.

33

(ADJUSTED FOR ADOPTION OF EITF-01-14)
QUARTER ENDED
------------------------------------------------------------------------------------------------
SEPT JUN MAR DEC SEPT JUN MAR DEC
2002 2002 2002 2001 2001 2001 2001 2000
---- ---- ---- ---- ---- ---- ---- ----

Revenue $62,690 $54,949 $67,104 $79,916 $45,676 $44,453 $66,839 $58,113
% of annual (1) 23.7% 22.2% 28.3% 33.7% 19.3% 18.8% 28.2% 39.2%

Operating expenses 37,237 32,832 30,126 28,923 24,638 24,642 24,650 21,705
Amortization 2,163 2,097 1,831 2,934 2,887 2,940 2,799 2,540

Operating income 3,551 2,515 9,743 14,260 2,946 2,777 11,568 13,024
% of revenue 5.7% 4.6% 14.5% 17.8% 6.4% 6.2% 17.3% 22.4%

Other (expense)/income 58 65 69 43 64 (8) 255 1,054
Interest expense - net 501 368 294 3,224 1,206 1,447 1,291 1,587
Income taxes 1,431 846 3,940 3,946 39 422 4,318 4,151
------------------------------------------------------------------------------------------------
Income, before cumulative 1,677 1,366 5,578 7,133 1,765 900 6,214 8,339
effect in change in accounting
principle, net of tax

Cumulative effect of change in
accounting principle, net of tax - - 523 - - - - -
------------------------------------------------------------------------------------------------
Net Income $1,677 $1,366 $5,055 $7,133 $1,765 $900 $6,214 $8,339
================================================================================================

Per diluted common share $ 0.10 $ 0.08 $ 0.30 $ 0.48 $ 0.13 $0.07 $ 0.49 $ 0.65
================================================================================================

(1) % of trailing 12 months

We expect that future quarterly fluctuations in our total revenue will
be mitigated, to some extent, by the addition of our Human Capital
Group, Pearl Meyer and Partners and Federal Policy Group whose
fee-based revenue tends to be more stable throughout the year. If the
acquisition of LongMiller is completed, fee based revenue as a
percentage of total revenue would be expected to decline. Our revenue
is difficult to forecast, and we believe that comparing our consecutive
quarterly results of operations is not necessarily meaningful, nor does
it indicate what results we will achieve for any subsequent period. Our
quarterly results can vary due to the timing of acquisitions and/or the
closing of large cases, which may not repeat in subsequent quarters. As
a result, past operating results are not reliable indicators of future
performance.

34

LIQUIDITY AND CAPITAL RESOURCES

Selected Measures of Liquidity and Capital Resources

SEPTEMBER 30, DECEMBER 31,
2002 2001 INCREASE
---- ---- --------

Cash and cash equivalents.................................... $14,517 $10,207 $4,310
Working capital.............................................. $17,525 $6,295 $11,230
Current ratio - to one....................................... 1.47 1.11 -
Shareholders' equity per common share (1).................... $12.58 $11.87 $ 0.71
Debt to total capitalization (2)............................. 9.2% 3.5% -

(1) total shareholders' equity divided by actual shares outstanding
(2) current debt plus long term debt divided by current debt plus long term
debt plus stockholders' equity

In order to complete the acquisition of LongMiller, we will need to incur
approximately $396 million in additional debt. Of this amount, it is expected
that approximately $305 million will be represented by non-recourse debt to be
incurred by a wholly-owned, special purpose subsidiary and secured by certain
commission and related payments associated with policies sold by LongMiller. The
remaining $91 million would be drawn under our revolving credit facility.

In addition to our tangible balance sheet assets and liabilities, we have an
on-going renewal revenue stream, estimated to be $664.1 million over the next
ten years. This on-going renewal revenue stream reflects current conditions and
is not necessarily indicative of the revenue that may actually be achieved in
the future and we cannot assure you that commissions under these policies will
be received. See "Estimated Future Gross Renewal Revenue" below.

As a service organization with historically strong operating cash flow, we
believe we have little need to maintain substantial cash balances. To the extent
we have net cash from operating activities, we use it to fund capital
expenditures and small acquisitions. We expect large cash outlays and future
acquisitions will be financed primarily through externally available funds.
However, we can offer no assurance such funds will be available and, if so, on
terms acceptable to us.

Summarizing our cash flow, comparatively, for the nine months ended September
30, 2002 and 2001:

2002 2001
---- ----

Cash flows provided by/(used in):
Operations............................................................... $13,639 $ 18,225
Investing................................................................ (21,547) (30,995)
Financing................................................................ 12,218 11,827

Cash Flows from Operating Activities

Our cash flow from operations for the nine months ended September 30, 2002,
compared with the same nine-month period in 2001, was as follows:

Decrease
2002 2001 In Cash
---- ---- -------

Net income plus non-cash expenses $18,332 $ 19,715 ($1,383)
Net decreases in operating assets and liabilities (4,693) (1,490) (3,203)
------- -------- ------
Cash flow from operating activities $13,639 $ 18,225 ($4,586)
======= ======== ======

Cash provided by operating activities for the first nine months of 2002 reflect
the $8.4 million paid for sign-on loans to the former Andersen partners who
joined us to form the Human Capital Practice and also reflects the $7.0 million
of related general and administrative expense from May 16, 2002 offset by $2.0
million of revenues as a result of the continued development of the practice.
The non-cash expenses mentioned above

35

include depreciation of equipment and leasehold improvements, amortization of
intangibles, impairment charge for adoption of SFAS 142, and charge for
performance-based stock options issued to non-employee producers. We have
committed and/or paid between approximately $1.0 to $2.0 million to various
regulatory agencies and financing and investment companies for work related to
the LongMiller acquisition. Of these amounts, approximately $768,000 (See
discussion below of $310,000 of this amount) has been capitalized in the
September 30, 2002 balance sheet. These costs would be expensed if the
acquisition is not successfully completed.

Cash Used in Investing Activities

The Federal Policy Group, Comiskey Kaufman, and Hilgenberg acquisitions
accounted for $10.3 million of cash used in investing activities for the
purchase of businesses. Contingent consideration payouts of $5.9 million related
to the acquisitions of National Institute for Community Banking, Rewards and
Performance and The Wamberg Organization. We used $5.0 million for the purchase
of equipment. We have incurred and capitalized approximately $310,000 of costs
related to the pending acquisition of LongMiller. If this acquisition is
completed, these costs will be included in the purchase price allocation. If for
any reason, this pending acquisition is not completed, these costs will be
expensed in the period the acquisition agreement is terminated.

Generally, a substantial amount of the purchase price of our acquisitions is
paid in cash and financed from available credit lines and to a lesser extent
additional equity due to our desire to avoid diluting our existing shareholders.
However, we can offer no assurances such will be the case.

Cash Flows from Financing Activities

In May 2002, we amended our December 28, 1999 Credit Agreement to increase the
amount available under the credit facility to $125.0 million. Any outstanding
debt on December 31, 2002 will convert from the revolving credit facility to
term debt and will be paid off over five years under the term facility
agreement. We had $110.0 million available under our credit lines at September
30, 2002. Assuming we complete the acquisition of LongMiller, we expect to have
approximately $19 million available under our credit line.

The restrictive covenants under the loan agreement provide for the maintenance
of a minimum ratio of fixed charges, a maximum allowable leverage ratio, a
minimum amount of stockholders' equity and a maximum ratio of debt to
capitalization. We were in compliance with all restrictive covenants as of
September 30, 2002.

We believe that our cash flow from operations will continue to provide
sufficient funds to service our debt obligations. However, as our business
grows, our working capital and capital expenditure requirements will also
continue to increase. There can be no assurance that the net cash flows from
operations will be sufficient to meet our anticipated requirements or that we
will not require additional debt or equity financing. We may continue to issue
stock to finance future acquisitions.

The following table provides information about our debt obligations as of
September 30, 2002. The table presents principal cash flows and related interest
rates by expected maturity dates totaling $21.4 million.

Expected maturity Fixed rate Variable rate (1) (2)
----------------- ---------- ---------------------
Amount Rate Amount Rate

2002 $ 271 10% $ -
2003 1,154 10% 3,000 4.75%
2004 1,274 10% 3,000 4.75%
2005 1,407 10% 3,000 4.75%
2006 1,553 10% 3,000 4.75%
Thereafter 691 10% 3,000 4.75%
------ -------
Total $6,350 $15,000
====== =======

(1) Assumes outstanding at year end and terms out per credit agreement
(2) Rate as of September 30, 2002 which is current prime rate.
Prime rate changed to 4.25% as of November 7, 2002.

36

Estimated Future Gross Renewal Revenue

The following table represents the estimated gross renewal revenue associated
with the business owned life insurance policies owned by our clients, as of
September 30, 2002. The projected gross renewal revenue is not adjusted for
mortality, lapse or other factors that may impair realization and has not been
discounted to reflect present value. These projected gross revenues reflect
current conditions and are not necessarily indicative of the revenue that may
actually be achieved in the future and we cannot assure you that commissions
under these policies will be received.

COMPENSATION BANKING HEALTHCARE
RESOURCE GROUP PRACTICE GROUP TOTAL
-------------- -------- ----- -----

2003 $ 53,229 $ 35,722 $ 6,183 $ 95,134
2004 46,554 28,308 5,748 80,610
2005 38,609 26,909 5,358 70,875
2006 33,527 27,507 5,036 66,070
2007 29,632 26,555 4,714 60,902
2008 27,500 27,102 4,120 58,722
2009 27,053 27,656 3,453 58,162
2010 26,392 28,363 2,793 57,548
2011 26,412 29,264 2,128 57,803
2012 26,631 30,199 1,412 58,242
------------------------------------------------------------
Total $335,538 $287,585 $40,946 $664,069
======== ======== ======= ========
September 30,
2001 $323,347 $266,916 $42,047 $632,310
======== ======== ======= ========

At September 30, 2002, our ten-year gross renewal projection amounted to $664.1
million. This balance represents a 5.0% increase in our residual book of
business over the September 30, 2001 balance.

Ten-year inforce revenues net of commission expense are $447.8 million and
$417.7 million at September 30, 2002 and 2001, respectively.

Human Capital Practice, Pearl Meyer and Partners, and Federal Policy Group
generate fee-based revenues and do not produce renewal revenues.

Intangible Assets and Renewal Revenue

Intangible assets arise as a direct result of our acquisition program and said
acquisitions have been an important contribution to our past and expected future
growth. In most of our acquisitions, we acquire very little in the way of
tangible assets, and therefore a substantial portion of the purchase price is
typically allocated to intangible assets. Two important elements of our
intangible assets affect our cash flow:

o the present value of inforce revenue is the net discounted
cash flow from the book of business of those companies having
future renewal revenue at the time we acquired them; and

o a potential future tax benefit over the next fifteen years.
The amortization of approximately $156.2 million of our gross
intangible assets is expected to be tax deductible.

37

Intangible assets, net of amortization, arising from our purchased businesses
consist of the following:

SEPTEMBER 30, DECEMBER 31,
2002 2001
---- ----

Present value of inforce revenue $ 82,861 $ 83,243
Goodwill 112,304 103,768
Non-compete agreements 3,019 717
Other intangibles 29 -
-------- --------
$198,213 $187,728
======== ========
Total assets 70.4% 69.5%
Stockholders' equity 93.5% 95.7%

The amounts allocated to inforce revenue are determined using the discounted
cash flow of future commission payments adjusted for expected persistency,
mortality and associated costs. The balance of the excess purchased price over
the net tangible assets and identifiable intangibles is allocated to goodwill.
The inforce revenue is amortized over its period of duration, which is generally
thirty years. Many factors outside our control determine the persistency of our
inforce business and we cannot be sure that the value we allocate will
ultimately be realized.

Non-compete agreements are amortized over the periods of the agreements.

On June 27, 2001, FASB issued SFAS 141, Business Combinations. The new rules
outlined in this new standard affect the allocations between goodwill and other
intangible assets.

On June 27, 2001, the FASB issued SFAS 142, Goodwill and Other Intangible
Assets. Under this new rule, effective with the year beginning January 1, 2002,
goodwill is no longer to be amortized but will be subject to annual tests for
impairment. The process for goodwill impairment determination is a two-step
method.

o Step 1 - Compares the fair value of the reporting unit with
its carrying value, including goodwill. If the carrying amount
exceeds its fair value, impairment may exist.

o Step 2 - Compares the implied fair value of the reporting unit
goodwill with the carrying amount of that goodwill. If the
carrying amount exceeds the implied fair value, an impairment
loss shall be recognized.

We have adopted SFAS 142. An impairment charge of $892,000 ($523,000 after-tax)
is reflected as the cumulative effect of a change in accounting principle in the
first quarter of 2002.

On January 1, 2002, we adopted SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS 144 supersedes SFAS 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of and
the accounting and reporting requirements of APB No. 30, Reporting the Results
of Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions
for the disposal of a segment of a business. SFAS 144 removes goodwill from
its scope and it establishes a primary asset approach to determine the cash flow
estimation period for determining potential impairment of a group of assets. The
adoption of this statement did not have a material impact on our condensed
consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At September 30, 2002, we had total outstanding indebtedness of $21.4 million,
or approximately 7.1% of total market value capitalization. Of the outstanding
debt, $6.4 million was subject to fixed rates of 10.0% at September 30, 2002.
The remaining $15.0 million of debt was borrowed under our revolver, at the
prime rate (4.75%). If any of the revolver is still outstanding at December 31,
2002, this amount will convert into term debt payable in equal quarterly
payments over the next five years.

38

ITEM 4. CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-15. Based upon, and as of the date
of that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures are effective, in all
material respects, in timely alerting them to material information relating to
our company (and its consolidated subsidiaries) required to be included in the
periodic reports we are required to file and submit to the SEC under the
Exchange Act.

There have been no significant changes to our internal controls or in other
factors that could significantly affect these internal controls subsequent to
the date the internal controls were not recently evaluated. There were no
significant deficiencies or material weaknesses identified in the evaluation
and, therefore, no corrective actions were taken.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On July 25, 2000, Constellation Energy Group, Inc. ("Constellation") and related
entities filed a civil action against us in the U.S. District Court for the
District of Maryland. On September 14, 2001, Constellation amended its complaint
and added a life insurance company as a defendant. Constellation claims that we
failed to take proper action in connection with the administration of an
employee benefit life insurance program under which policies were issued by this
insurance company. On July 19, 2002, an agreement was reached for a complete
settlement of this litigation; however, the definitive settlement documents have
not yet been finalized. While the settlement terms are confidential, we regard
the outcome as favorable and believe such terms will not have a material adverse
impact on our financial condition or results of operations.

On February 2, 2001, an action was commenced in the Superior Court of Maricopa
County, Arizona by Ms. Kunkel against various defendants including our
Healthcare Group. Ms. Kunkel alleges that her deceased husband was entitled to a
life insurance policy in the face amount of $525,000 to be issued by the
defendant insurance company under a split dollar life insurance plan sponsored
by his defendant employer which was administered by our Healthcare Group.
According to the complaint, Dr. Kunkel died before the initial premium was paid
by his employer and before the policy was issued. On September 13, 2002, an
agreement was reached for a complete settlement of this litigation. While the
settlement terms are confidential, we regard the outcome as favorable and it
does not have a material adverse impact on our financial condition or results of
operations.

We are occasionally subject to lawsuits and claims arising out of the normal
conduct of our business. Management does not expect the outcome of pending
claims to have a material adverse effect on the business, financial condition or
results of operations.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) The list of exhibits required by this Item 6(a) appears on the
Exhibit Index attached hereto.
(b) Reports in Form 8-K.

On September 26, 2002, we filed an 8-K which includes the press release
related to the acquisition of LongMiller and Associates, L.L.C.

39

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

CLARK/BARDES, INC.

Date November 14, 2002 /s/ W.T. WAMBERG
---------------------- -----------------------------------------------
W.T. Wamberg
President and Chief Executive Officer

Date November 14, 2002 /s/ THOMAS M. PYRA
---------------------- -----------------------------------------------
Thomas M. Pyra
Chief Financial Officer and Chief
Operating Officer (Principal Financial Officer)

CERTIFICATIONS
- --------------

I, W.T. Wamberg, certify that:

1. I have reviewed this quarterly report on Form 10-Q of
Clark/Bardes, Inc.;

2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;

3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:

a) Designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) Presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date.

5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
functions):

40

1. all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and

2. any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.

Date: November 14, 2002 /s/ W.T. Wamberg
----------------- -----------------------

Title: President and Chief Executive Officer
---------------------------------------

I, Thomas M. Pyra, certify that:

1. I have reviewed this quarterly report on Form 10-Q of
Clark/Bardes, Inc.;

2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or
omit to state a material fact necessary to make the
statements made, in light of the circumstances under
which such statements were made, not misleading with
respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and
other financial information included in this
quarterly report, fairly present in all material
respects the financial condition, results of
operations and cash flows of the registrant as of,
and for, the periods presented in this quarterly
report;

4. The registrant's other certifying officers and I are
responsible for establishing and maintaining
disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:

a. Designed such disclosure controls and
procedures to ensure that material
information relating to the registrant,
including its consolidated subsidiaries, is
made known to us by others within those
entities, particularly during the period in
which this quarterly report is being
prepared;

b. Evaluated the effectiveness of the
registrant's disclosure controls and
procedures as of a date within 90 days prior
to the filing date of this quarterly report
(the "Evaluation Date"); and

c. Presented in this quarterly report our
conclusions about the effectiveness of the
disclosure controls and procedures based on
our evaluation as of the Evaluation Date.

5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to
the registrant's auditors and the audit committee of
registrant's board of directors (or persons
performing the equivalent functions):

41

a. all significant deficiencies in the design
or operation of internal controls which
could adversely affect the registrant's
ability to record, process, summarize and
report financial data and have identified
for the registrant's auditors any material
weaknesses in internal controls; and

b. any fraud, whether or not material, that
involves management or other employees who
have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not
there were significant changes in internal controls
or in other factors that could significantly affect
internal controls subsequent to the date of our most
recent evaluation, including any corrective actions
with regard to significant deficiencies and material
weaknesses.

Date: November 14, 2002 /s/ Thomas M. Pyra
----------------- -------------------------

Title: Chief Financial Officer and Chief
-----------------------------------
Operating Officer
-----------------

42

EXHIBIT INDEX

2.1 Membership Interest Purchase Agreement, dated as of September 25, 2002,
by and among Clark/Bardes, Inc., Clark/Bardes Consulting, Inc., Long,
Miller & Associates, LLC and certain other parties named therein.

3.1 Certificate of Incorporation of Clark/Bardes, Inc. (incorporated herein
by reference to Exhibit 3.1 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799, filed with the SEC on July 12, 1998).

3.2 Certificate of Amendment of Certificate of Incorporation of
Clark/Bardes, Inc. (incorporated herein by reference to Exhibit 3.3 to
Amendment No.1 to the Clark/Bardes' Registration Statement on Form S-1,
File No. 333-56799), filed with the SEC on July 27, 1998).

3.3 Certificate of Amendment of Certificate of Incorporation of
Clark/Bardes, Inc. (incorporated herein by reference to Exhibit 5 of
Clark/Bardes' Registration Statement on Form 8-A, filed with the SEC on
February 28, 2002).

3.4 Bylaws of Clark/Bardes, Inc. (incorporated herein by reference to
Exhibit 3.2 of Clark/Bardes' Registration Statement on Form S-1, File
No. 333-56799, filed with the SEC on July 12, 1998).

3.5 Certificate of Designation (incorporated herein by reference to Exhibit
3.4 of Clark/Bardes' Registration Statement on Form S-1, File No.
333-56799).

3.6 Certification of Amendment of the Certification of Incorporation of
Clark/Bardes, Inc. (incorporated herein by reference to Exhibit 3.6 of
Clark/Bardes' Quarterly Report on Form 10-Q, File No. 000-24769, filed
with the SEC on August 14, 2002).

4.1 Specimen Certificate for shares of Common Stock, par value $.01 per
share, of Clark/Bardes Holdings, Inc. (incorporated herein by
reference to Exhibit 4.1 of Clark/Bardes' Amendment No. 1 to the
Registration Statement on Form S-1, File No. 333-56799, filed with the
SEC on July 27, 1998).

4.2 Rights Agreement, dated as of July 10, 1998, by and between
Clark/Bardes Holdings, Inc. and The Bank of New York (incorporated
herein by reference to Exhibit 4.4 of Clark/Bardes' Quarterly Report on
Form 10-Q, File No. 000-24769, filed with the SEC on November 16,
1998).

10.1 Bonus Forfeiture Agreement, dated as of September 25, 2002, among Life
Investors Insurance Company of America, Transamerica Life Insurance
Company and Clark/Bardes Consulting, Inc.

10.2 Administrative Services Agreement, dated as of September 25, 2002,
among Life Investors Insurance Company of America, Transamerica Life
Insurance Company and Clark/Bardes Consulting, Inc.

43