<PAGE>
===============================================================================



                                    FORM 10-Q
                                ----------------

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

(MARK ONE)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934


FOR THE QUARTERLY PERIOD ENDED                SEPTEMBER 30, 2001
                               -----------------------------------------------

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934


FOR THE TRANSITION PERIOD FROM
                               -----------------------------------------------


COMMISSION FILE NUMBER                            0-30035
                       -------------------------------------------------------


                                   EXULT, INC.
             ------------------------------------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


         DELAWARE                        8742                   33-0831076
-------------------------------   ---------------------     -------------------
(STATE OR OTHER JURISDICTION OF     (PRIMARY STANDARD        (I.R.S. EMPLOYER
        INCORPORATION                  INDUSTRIAL           IDENTIFICATION NO.)
       OR ORGANIZATION)           CLASSIFICATION NUMBER)

                            4 PARK PLAZA, SUITE 1000
                            IRVINE, CALIFORNIA 92614
                                 (949) 250-8002
     -----------------------------------------------------------------------
     (ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                  OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

                                 NOT APPLICABLE
------------------------------------------------------------------------------
                    (FORMER NAME, FORMER ADDRESS AND FORMER
                   FISCAL YEAR, IF CHANGED SINCE LAST REPORT)

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
    -----            -----

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

    INDICATE THE NUMBER OF SHARES OUTSTANDING AND EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.

       CLASS                              OUTSTANDING AT NOVEMBER 2, 2001
       -----                              -------------------------------
     COMMON STOCK                                   102,993,129


===============================================================================



<PAGE>

                         PART I. FINANCIAL INFORMATION.

ITEM 1.  FINANCIAL STATEMENTS.

                                   EXULT, INC.

                           CONSOLIDATED BALANCE SHEETS
                 (amounts in thousands except per share amounts)


<TABLE>
<CAPTION>

                                                                DECEMBER 31, 2000   SEPTEMBER 30, 2001
                                                                -----------------   ------------------
                                                                                      (unaudited)
<S>                                                             <C>                <C>
                            ASSETS
Current Assets:
  Cash and cash equivalents.................................    $         94,890   $       178,763
  Investments...............................................               5,000             2,710
  Accounts receivable.......................................              17,713            21,370
  Prepaid expenses and other current assets.................               8,182            15,734
                                                                ----------------   ---------------
         Total Current Assets...............................             125,785           218,577
Property and equipment, net.................................              24,945            35,014
Intangibles assets, net.....................................              36,447            30,142
Other assets................................................              17,004            15,498
                                                                ----------------   ---------------
         Total Assets.......................................    $        204,181   $       299,231
                                                                ================   ===============

             LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Accounts payable..........................................    $          3,475   $         8,825
  Accrued liabilities.......................................              24,858            38,908
  Current portion of long-term obligations..................               4,419             5,795
                                                                ----------------   ---------------
         Total Current Liabilities                                        32,752            53,528
                                                                ----------------   ---------------

Commitments and Contingencies

Stockholders' Equity:
  Common stock, $0.0001 par value;
    Authorized -- 500,000 shares;
    Issued and outstanding -- 90,956 at December 31, 2000
      and 102,956 at September 30, 2001 (unaudited).........                   9                10
  Additional paid-in capital................................             284,393           416,686
  Deferred compensation.....................................              (2,757)           (1,901)
  Cumulative translation adjustments........................                  --               103
  Accumulated deficit.......................................            (110,216)         (169,195)
                                                                ----------------   ---------------
         Total Stockholders' Equity.........................             171,429           245,703
                                                                ----------------   ---------------
         Total Liabilities and Stockholders' Equity.........    $        204,181   $       299,231
                                                                ================   ===============
</TABLE>
              The accompanying notes are an integral part of these
                          consolidated balance sheets.


                                       1
<PAGE>


                                   EXULT, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (amounts in thousands except per share amounts)
                                   (unaudited)
<TABLE>
<CAPTION>

                                                          THREE MONTHS ENDED --                       NINE MONTHS ENDED --
                                                    --------------------------------------   --------------------------------------
                                                    SEPTEMBER 30, 2000  SEPTEMBER 30, 2001   SEPTEMBER 30, 2000  SEPTEMBER 30, 2001
                                                    ------------------  ------------------   ------------------  ------------------
<S>                                                 <C>                 <C>                  <C>                 <C>
Revenue.........................................    $          20,878   $          75,332    $          34,627   $         183,114
Cost of revenue.................................               30,119              77,684               48,262             205,300
                                                    -----------------   -----------------    -----------------   -----------------
Gross loss......................................               (9,241)             (2,352)             (13,635)            (22,186)
                                                    -----------------   -----------------    -----------------   -----------------
Expenses:
  Product development...........................                1,902                 822                4,265               3,808
  Selling, general and administrative(1)........                5,650               6,861               22,278              26,765
  Depreciation and amortization.................                2,322               2,891                5,885               9,019
                                                    -----------------   -----------------    -----------------   -----------------
     Total expenses.............................                9,874              10,574               32,428              39,592
                                                    -----------------   -----------------    -----------------   -----------------
Loss from operations............................              (19,115)            (12,926)             (46,063)            (61,778)
  Interest income, net..........................                1,475               1,055                3,719               2,799
                                                    -----------------   -----------------    -----------------   -----------------
Net loss........................................    $         (17,640)  $         (11,871)   $         (42,344)  $         (58,979)
                                                    =================   =================    =================   =================

Net loss per common share:
  Basic and diluted.............................    $           (0.21)  $           (0.12)   $           (0.98)  $           (0.63)
                                                    ==================  ==================   ==================  ==================

Weighted average number of common shares
  Outstanding:
    Basic and diluted...........................               84,932              99,497               43,295              94,323
                                                    =================   =================    =================   =================
</TABLE>

----------
(1) Includes $7,334 of business optimization costs for the nine months ended
    September 30, 2001.












              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       2
<PAGE>


                                   EXULT, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (amounts in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>

                                                                           NINE MONTHS ENDED --
                                                                 ---------------------------------------
                                                                 SEPTEMBER 30, 2000   SEPTEMBER 30, 2001
                                                                 ------------------   ------------------
<S>                                                              <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss.................................................      $         (42,344)   $         (58,979)
  Adjustments to reconcile net loss to net cash
    used in operating activities--
      Depreciation and amortization........................                  5,885               10,849
      Stock option charges.................................                     79                2,192
      Write-off of intangible assets.......................                     --                2,165
  Changes in operating assets and liabilities--
    Investments............................................                 (5,000)               2,290
    Receivables............................................                (16,859)              (3,657)
    Prepaid expenses and other current assets..............                 (5,664)              (7,552)
    Other assets...........................................                    (89)               1,506
    Accounts payable.......................................                  3,971                5,350
    Accrued liabilities....................................                 21,178               14,050
                                                                 -----------------    -----------------
        Net cash used in operating activities..............                (38,843)             (31,786)
                                                                 -----------------    -----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property, equipment and intangible assets....                (17,942)             (14,367)
                                                                 -----------------    -----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of preferred stock................                 71,128                   --
  Proceeds from issuance of common stock...................                 62,146              127,148
  Proceeds from exercise of stock options..................                    289                2,954
  Payments on long-term obligations........................                    (67)                (246)
                                                                 -----------------    -----------------
        Net cash provided by financing activities..........                133,496              129,856
                                                                 -----------------    -----------------

EFFECT OF EXCHANGE RATE CHANGES ON CASH....................                     --                  170
                                                                 -----------------    -----------------

Net increase in cash and cash equivalents..................                 76,711               83,873
Cash and cash equivalents, beginning of period.............                 39,199               94,890
                                                                 -----------------    -----------------
Cash and cash equivalents, end of period...................      $         115,910    $         178,763
                                                                 =================    =================

SUPPLEMENTAL CASH FLOW INFORMATION:
  Cash paid during the period for:
    Interest...............................................      $              29    $              60
                                                                 =================    =================
    Income taxes...........................................      $              18    $             168
                                                                 =================    =================

SUMMARY OF NON-CASH FINANCING ACTIVITIES:
  Common stock warrants and options issued for services....      $              79    $               4
                                                                 =================    =================
  Acquisition of equipment through capital lease...........      $             243    $           1,621
                                                                 =================    =================

</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       3
<PAGE>


                                   EXULT, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

    The unaudited consolidated financial statements of Exult, Inc. and
subsidiaries ("Exult" or the "Company") have been prepared by Exult's management
and reflect all adjustments that, in the opinion of management, are necessary
for a fair presentation of the interim periods presented. The results of
operations for the three and nine months ended September 30, 2001 are not
necessarily indicative of the results to be expected for any subsequent periods
or for the entire year ending December 31, 2001. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted under the Securities and Exchange Commission's rules and regulations. A
consolidated statement of comprehensive loss has not been presented because the
components of comprehensive loss are not material.

    These unaudited consolidated financial statements and notes included herein
should be read in conjunction with Exult's audited consolidated financial
statements and notes for the year ended December 31, 2000 which were included in
our Annual Report on Form 10-K filed with the Securities and Exchange
Commission. Certain amounts in the 2000 financial statements have been
reclassifed to conform with the 2001 presentation.

Segment Information and Concentration of Revenue/Credit Risk

    Management has determined that the Company operates within a single
operating segment. For the three months ended September 30, 2000 and 2001, 79%
and 82%, respectively, of the Company's revenue has been derived from within the
United States with the balance being derived primarily from within the United
Kingdom. For the nine months ended September 30, 2000 and 2001, 81% and 78%,
respectively, of the Company's revenue has been derived from within the United
States with the balance being derived primarily from within the United Kingdom.

    During the three months ended September 30, 2000, the Company's three
process management clients at that time accounted for approximately 78%, 5% and
5% of revenue. During the nine months ended September 30, 2000, the same three
process management clients accounted for approximately 55%, 11% and 10% of
revenue. During the latter half of 2000, the Company added two additional
process management clients. For the three and nine months ended September 30,
2001, two process management clients, the Company's largest client in the 2000
periods and a new client added during the latter half of 2000, accounted for
approximately 43% and 40%, respectively, of revenue in the three-month period
and 48% and 38%, respectively, of revenue in the nine-month period. No other
client accounted for more than 10% of revenue in the 2000 and 2001 periods. The
Company believes that the resulting concentration of credit risk in its
receivables, with respect to the limited client base, is substantially mitigated
by the credit evaluation process. To date, bad debt write-offs have not been
significant.

Recent Accounting Pronouncements

    In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and other intangible assets and is effective for fiscal years beginning
after December 15, 2001, with early adoption permitted in certain instances for
entities with fiscal years beginning after March 15, 2001. The Company does not
expect that adoption of SFAS No. 142 will have a material impact on its
consolidated financial position or results of operations.

2.       CERTAIN CAPITAL TRANSACTIONS

    In February 2000, the Company issued 6,885,480 shares of Series D
Convertible Preferred Stock in a private placement to institutional investors
for net consideration of approximately $59,970,000. In addition, BP
International Limited exercised preemptive rights to purchase 385,805 shares of
Series C Preferred Stock for net consideration of approximately $3,966,000.

    In April 2000, BP International Limited exercised certain warrants to
acquire 667,844 shares of Series C Convertible Preferred Stock and 3,339,220
shares of Common Stock for net consideration of approximately $7,192,000 and
$5,243,000, respectively.


                                       4
<PAGE>


                                   EXULT, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

    In June 2000, Exult completed its initial public offering of its Common
Stock issuing 6,000,000 shares. In July 2000, Exult issued an additional 300,000
shares of Common Stock in connection with the underwriters' exercise of their
over-allotment option. The Company received net consideration, after the
underwriting discount and offering costs, of approximately $56,669,000 for the
issuance of the 6,300,000 shares. Concurrent with the consummation of the
initial public offering, all of the outstanding shares of the Company's
Preferred Stock were converted into 65,484,786 shares of Common Stock.

    On October 12, 2000, Exult and Bank of America signed a non-binding
Memorandum of Understanding providing the framework for a broad business
relationship, including the provision of business process management services to
Bank of America by Exult. The business relationship and process management
services transaction were subject to ongoing negotiations and the Memorandum of
Understanding established a 60-day time period to reach a definitive agreement.
Upon executing the Memorandum of Understanding, Bank of America acquired
5,000,000 investment units, each unit consisting of one share of Exult Common
Stock and a warrant to buy one additional share of Exult Common Stock. Each
warrant is exercisable for three years at $11.00 per share. The purchase price
for the 5,000,000 units was $55,000,000, of which $11,000,000 was paid in cash
and the remainder in the form of a promissory note that was later repaid in
prepaid rent and intangible assets. The intangible assets are being amortized as
a reduction of revenue over the life of the outsourcing agreement. In connection
with the issuance of the warrants, the Company incurred a charge of $29,900,000
during the fourth quarter of 2000.

    In June 2001, one of the Company's third-party vendors purchased 1,538,461
shares of the Company's Common Stock for $20,000,000 in cash. In certain
circumstances, the third-party vendor may be required by the Company to purchase
for cash up to an additional $30,000,000 of the Company's Common Stock in
installments over the next four years. The per share purchase price for future
installments, if any, is derived from a formula designed to approximate the fair
market value of a share of Common Stock for a 30-day period ending each date the
third-party vendor is notified by the Company the Company will require a
purchase of its Common Stock by the vendor.

    In August 2001, the Company completed a public offering of its Common Stock
issuing 8,000,000 shares generating net consideration, after the underwriting
discount and estimated offering costs, of approximately $100,317,000.

    In September 2001, another of the Company's third-party vendors purchased
504,200 shares of the Company's Common Stock for $6,000,000 in cash.

3.       BUSINESS OPTIMIZATION COSTS

    Included in selling, general and administrative expense for the nine months
ended September 30, 2001, are $3,419,000 of severance costs (including non-cash
option acceleration charges of $2,189,000), certain wind-up costs totaling
$1,750,000 (including severance costs of $1,000,000) associated with the
consolidation of a secondary processing center and a $2,165,000 non-cash charge
relating to the write-off of a research database that the Company has determined
is no longer a strategic component of its business. In connection with the
severance costs and the consolidation of the processing center, the Company
plans to terminate 122 employees. All of these business optimization costs were
incurred during the quarter ended June 30, 2001.


4.       INCOME TAXES

    The Company did not record a tax provision for any of the three-month and
nine-month periods ended September 30, 2000 or 2001, as it had incurred only net
operating losses as of these dates. A full valuation allowance is provided
against the tax benefit generated by the net operating losses because of the
uncertainty of realizing the deferred tax assets associated therewith.

5.       NET LOSS PER SHARE

    The net loss per share, basic and diluted, for the three-month and
nine-month periods ended September 30, 2000 and 2001, was computed using the
weighted average number of shares of Common Stock outstanding during the
respective periods. The impact of all outstanding shares of Preferred Stock
convertible into Common Stock, if any during the respective periods, warrants to
purchase Common Stock or Preferred Stock convertible into Common Stock, and
stock options to purchase Common Stock were excluded from the respective
computations as their impact is antidilutive.

                                       5
<PAGE>





ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS.

    This report contains forward-looking statements that are based on our
current expectations, assumptions, estimates and projections about our company
and our industry. When used in this report, the words "may," "will," "should,"
"predict," "continue," "plans," "expects," "anticipates," "estimates," "intends"
and similar expressions are intended to identify forward-looking statements.
These statements include, but are not limited to, statements under the captions
"Business Overview," "Risk Factors," "Results of Operations" and elsewhere in
this report concerning, among other things, our goals and strategies, the
anticipated scope and results of our business operations, and our ability to:

    o   complete development of our service delivery infrastructure;
    o   obtain new comprehensive process management contracts;
    o   successfully implement our comprehensive Exult eHR(SM) solutions for our
        existing clients and scale our service offering across a broad client
        base;
    o   establish new client service centers;
    o   increase revenue, control expenditures, recognize economies of scale and
        achieve profitability; and
    o   expand our sales and marketing capabilities and
        our technology and general operating infrastructure.

    These forward-looking statements are subject to risks and uncertainties that
could cause actual results to differ materially from those projected. Exult has
not yet proven its business model and must invest substantial resources to build
its service capabilities. It is not certain that the Exult eHR solution will
deliver the results anticipated. The market in which Exult operates is
competitive and other service providers may be more effective at selling or
delivering human resources process management services. These and other risks
and uncertainties are described in this report under the heading "Risk Factors"
and in other filings made from time to time by Exult with the Securities and
Exchange Commission. The cautionary statements made in this report should be
read as being applicable to all related forward-looking statements wherever they
appear in this report. These statements are only predictions. We cannot
guarantee future results, levels of activity, performance or achievements. We
assume no obligation to publicly update or revise these forward-looking
statements for any reason, or to update the reasons actual results could differ
materially from those anticipated in these forward-looking statements, even if
new information becomes available in the future.


                                BUSINESS OVERVIEW

    Our primary source of revenue is fees we earn for providing our HR business
process management services under long-term contracts. We also receive
additional revenue from our consulting services. We recognize revenue for our
services as the services are performed. Some of the services that we are
obligated to provide to our clients are provided by third-party vendors. We may
continue to use these vendors, hire replacement vendors, or provide some of
these services directly; in any case, we are responsible for the delivery and
acceptability of these services. We include in revenue all charges for services
that we are contractually obligated to provide to our clients, whether we
provide these services directly using our own personnel or through third-party
vendors. We pay the third-party vendors for their services, and such costs are
included in our cost of revenue. In many cases our initial cost of paying these
vendors is equal to our revenue attributable to their services. In order to
realize a profit from revenue received in connection with these third-party
vendor contracts we must reduce these vendor costs by improving efficiencies,
obtaining more favorable pricing, or performing the services ourselves at a
lower cost.

    To date, we have typically generated leads for potential process management
clients through our management, existing consulting relationships, our board of
directors, third-party consultants, contact with key executives at Global 500
corporations or inquiries received directly from such companies. After initial
discussions with and qualification of the potential client, we typically enter
into a letter of intent with the prospective client which establishes a
framework for due diligence and contract negotiations.

    Our contracts are generally structured so that we receive a fee that is no
greater than our client's historical cost of operating the functions assumed by
us. For some services, we charge fixed fees that are designed to be less than
the client's historical costs. For other services, after we achieve a minimum
cost reduction and recover certain amounts, we share further savings with our
clients in negotiated gain sharing arrangements.

    Once we have signed a contract with a client, we transition its HR processes
to our facilities and control. After we have transitioned a client's processes,
we work to transform these processes in order to increase efficiencies and
reduce costs. Typically the costs we incur during the transition period for the
services provided and the transitioning of the client's processes have exceeded
the

                                       6
<PAGE>

revenue received from the client during the transition period. During the
transformation period, we seek to reduce our costs sufficiently to permit us to
recover the excess costs incurred during the transition period and to realize a
profit for the contract period.

    We incurred a net loss of $10.7 million in 1999, exclusive of a non-cash
warrant charge of $4.5 million, and $64.9 million in 2000, exclusive of a
non-cash warrant charge of $29.9 million, and expect to incur a net loss in 2001
and potentially in future years. In the next two years, we anticipate making
large expenditures to develop our client service capabilities, to expand our
sales and marketing capabilities, and to fund the development and expansion of
our technology and general operating infrastructures. To the extent that revenue
does not increase at a rate commensurate with our increasing costs and
expenditures, our future operating results and liquidity could be materially and
adversely affected.

                                  RISK FACTORS

WE HAVE A LIMITED OPERATING HISTORY AND UNPROVEN BUSINESS MODEL.

    We entered into our first process management contract in December 1999. With
the addition of International Paper Company in October 2001, we have six clients
under contract for our HR business process management services. We are in the
early stages of transition for International Paper and are still transitioning
some HR processes for other clients while working on developing our delivery
capabilities and transforming processes we have taken over from those clients.
Although we are ahead of our planned rate of client acquisition and overall
transition, our business model is unproven. Our success depends on our ability
to develop and implement a high quality, cost-effective service offering,
operate it profitably, produce satisfactory results for our clients and attract
new clients. While we have met our development objectives to date and we believe
our current clients have perceived our services as beneficial, we have not been
in operation long enough to judge whether we can accomplish these objectives.
Accordingly, our revenue and income potential and future operating results are
uncertain.

WE CURRENTLY DEPEND ON A SMALL NUMBER OF CLIENTS FOR SUBSTANTIALLY ALL OF OUR
REVENUE. IF ANY OF THESE CLIENTS WERE TO SUBSTANTIALLY REDUCE OR STOP USING OUR
SERVICES, OR IF WE EXPERIENCE SIGNIFICANT, REPEATED PERFORMANCE FAILURES IN
PROVIDING SERVICES TO THESE CLIENTS, OUR REPUTATION AND FUTURE REVENUES WOULD BE
SERIOUSLY IMPAIRED.

    Bank of America Corporation and BP p.l.c. are the first clients for which we
have implemented a comprehensive HR process management solution, and we
anticipate revenue from each of these contracts will represent a substantial
portion of our revenue through 2001 and possibly in future periods. In the first
nine months of fiscal 2001 these two customers accounted for approximately 85.7%
of our revenues. Our contracts with these clients are still relatively new and
we are continuing to develop our service offering for these clients. Our
contract with International Paper is still in early stages of transition. We
believe our ability to secure future clients and revenues will be largely
dependent upon our ability to perform and achieve the contracted service levels
and cost savings for these and other early clients. Each of our process
management contracts can be terminated for material breach, significant or
repeated performance failures or in certain instances for convenience upon
required notice and payment of specified early termination penalties. In
addition, Bank of America has the right to terminate its agreement with us if
our current Chief Executive Officer or our current Chief Operating Officer
ceases to be employed by us (other than due to non-performance, death or
disability) within one year after specified contract milestones are met. The
early termination penalties may not cover our termination costs and are not
intended to replace profits we might have earned. If any of clients were to
substantially reduce or stop using our services, or if we experience
significant, repeated performance failures, our reputation and future revenues
would be seriously impaired. We expect to face similar risks with International
Paper and other significant clients until our business model and service
offering are more firmly established.

OUR CLIENT CONTRACTS MAY NOT YIELD THE RESULTS WE EXPECT.

    We may from time to time provide estimates of revenues we expect to receive
from our significant contracts. These estimates are subject to reduction based
upon a number of factors, including those discussed above and as a result of a
reduction in contract scope due to client downsizing or partial termination,
refusal of some of the clients' third-party vendors to perform their services
within the scope of our contract, client retention of specific functions that
were expected to be transferred to us and other circumstances within the
client's organization. In addition, our receipt of revenue under any particular
contract may be delayed if transition of the client's processes to our
infrastructure takes longer than anticipated. While our contracts with our
clients may contemplate further expansion, this may not occur, and if it does
occur, significant additional expenditures by us may be required to fund such
expansion. In addition, our process management contracts generally permit our
clients to impose financial penalties against us for specified material
performance failures.


                                       7
<PAGE>

    A significant part of our revenue is attributable to services we offer to
our clients through third-party vendors that provide specialized services, such
as benefits administration and relocation services. We select some of these
vendors and assume others from relationships established by our clients before
contracting with us. These vendors may act as subcontractors or vendors to us or
provide services directly to our clients under our management; in either case,
we are responsible for the delivery and acceptability of these services and
errors or omissions by our vendors could cause us to have liability to our
clients in excess of the limits of liability the vendors negotiate with us. If
our clients are not satisfied with the services provided by these third-party
vendors, they may be entitled to recover penalties or to terminate their
agreements with us, which could seriously harm our business. In many cases our
initial cost of paying these vendors is equal to our revenue attributable to
their services. In order to realize a profit from revenue received in connection
with these third-party vendor contracts we must reduce these vendor costs by
improving efficiencies, obtaining more favorable pricing, or performing the
services ourselves at a lower cost. We plan to achieve these efficiencies and
cost reductions through vendor management and consolidation, but this may
involve delay as existing contracts run their course and we attempt to
renegotiate with or replace these vendors. At the conclusion of these
third-party contracts we must negotiate new third-party contracts, or provide
these services ourselves, at the same or more favorable rates or our operating
results could be seriously harmed because we may not be able to adjust our
contracts with our clients to offset an increase in the cost of these
specialized services.

WE MIGHT NOT BE ABLE TO ACHIEVE THE COST SAVINGS REQUIRED TO BECOME PROFITABLE
UNDER OUR CONTRACTS.

    We provide many of our services for fixed fees that are generally equal to
or less than our clients' historical costs to provide for themselves the
services we contract to deliver. Additionally, our contracts generally require a
percentage reduction of this fixed fee after a specified period of time,
irrespective of our cost of providing these services. As a result, our
profitability will depend on our ability to provide services cost-effectively.
Achieving the efficiency we need to operate profitably depends upon our ability
to develop our process operations and our Exult eHR solution into a standardized
management system that can be operated from our client service centers and
extended to multiple clients with limited client-specific adaptation and
modification. The actual cost reductions we are able to achieve will vary by
client for a variety of reasons, including the scope of services we agree to
provide, the existing state of our clients' HR departments and processes, and
our ability to standardize, centralize, and simplify their processes,
notwithstanding the complexity of their existing systems and potential
resistance by some parts of the client organization to change. If we
miscalculate the resources or time we need to perform under any of our
contracts, the costs of providing our services could exceed the fees we receive
from our clients, and we would lose money.

OUR EXULT SERVICE DELIVERY MODEL(SM) IS EVOLVING AND REQUIRES
ONGOING DEVELOPMENT.

    We are still developing our service delivery infrastructure, and our ability
to continue to deliver and expand our broad process management solution depends
upon continued success in assembling and managing our own systems and
capabilities and third-party vendors into an integrated and efficient delivery
platform. Our clients use disparate information systems and operating methods,
and transitioning their processes to our operating platforms requires
significant technology and process integration. We often must adapt or develop
new systems and processes to accommodate various clients' needs. Clients'
employees may access and utilize our web-enabled Exult eHR solution and systems
through interfaces that require significant development and integration of many
independent programs and complex functions, as well as ongoing revision,
adaptation and maintenance. If we fail to develop a client's service delivery
infrastructure in accordance with the specifications and delivery milestones
agreed upon, or if we are unable to complete development of scalable systems and
achieve the functionality we expect, our ability to deliver our services and
achieve our business objectives in general could be seriously impeded.

WE MUST ANTICIPATE AND CONFORM TO THE NEW AND EVOLVING MARKET IN WHICH WE
OPERATE.

    Our business model is based on integrated management of a variety of client
HR and finance processes. Based on client reaction to date, we believe there is
significant market demand for this service, but our ability to satisfy this
demand depends upon our ability to anticipate market developments. If we are
unable to react quickly to changes in the market, if the market fails to develop
in the ways we expect, or if our services do not achieve additional market
acceptance, then we are unlikely to maintain our leadership position or become
or remain profitable. Our ability to be successful in this regard may be
impaired because the market is new.

CAPACITY CONSTRAINTS AND THE LENGTH OF OUR NEW CLIENT SALES AND INTEGRATION
CYCLES MAY LIMIT OUR REVENUE GROWTH.

    We expect most of our future revenue growth in 2002 and beyond to come from
new client engagements. However, because we are a new company and are still
creating the components of our service offering, we plan to limit the number of
additional client engagements we accept over the near term. This strategy may
negatively affect our revenue growth until we have developed our services to the
point that they can be extended more rapidly across a greater number of clients.


                                       8

<PAGE>

    Our client contracts involve significant commitments and cannot be made
without a lengthy, mutual due diligence process during which we identify the
potential client's service needs and costs, and our ability to meet those needs
and provide specified cost savings. While we may receive some fees for
conducting due diligence, we will not recover all our costs from conducting the
due diligence unless it results in a client engagement. We must devote
significant management time and other resources to each due diligence process
over a period of four to six months or more, and we can conduct at most only a
few of these due diligence undertakings at one time. This lengthy due diligence
process limits our revenue growth, and we have invested significant time in some
potential client relationships that have not resulted in contracts. It is
possible that any potential client due diligence process could result in a
decision by us or the potential client not to enter into a contract after we
have made significant investments of time and resources.

    After a new client contract is signed, we typically convert the client's HR
processes to our systems and infrastructure in stages. This transition period
can take from six months to over one year and may involve unanticipated
difficulties and delays. We cannot realize the full efficiencies of providing
services to the client through our infrastructure until this transition is
complete. Therefore, any increase in our earnings that could be expected from
our agreements can be delayed for at least several months after the contract is
signed, and it could take a significant amount of time for our agreements to
contribute significantly to profits or cash flow. We attempt to negotiate
long-term contracts in order to give us time to complete the transition and earn
a profit, but if implementation of our service model is delayed, or if we do not
meet our service commitments under any particular contract and the client
terminates our engagement early as a result, we might experience no return on
our substantial investment of time and resources in that client.

WE EXPECT TO INCUR SIGNIFICANT NET OPERATING LOSSES AND WE MAY NEED TO RAISE
ADDITIONAL CAPITAL.

    Since our formation, we have not had a profitable quarter. We incurred a net
loss of $64.9 million, exclusive of a non-cash warrant charge of $29.9 million,
for the year ended December 31, 2000, and a net loss of $59.0 million for the
nine months ended September 30, 2001. For the year ended December 31, 2000 and
the nine-month period ended September 30, 2001, we used cash of $60.7 million
and $31.8 million, respectively, in operating activities and $23.8 million and
$14.4 million, respectively, in investing activities. Expansion of our
infrastructure and service capacity, acquiring new client contracts and
transitioning their services requires significant capital investment. We may
also need cash to make acquisitions and develop new service offerings and
technologies. As a result, we expect to incur net losses in 2001 and potentially
in future years, and we will need to generate significant revenues to achieve
profitability. While we do not enter into contracts for which we expect to incur
a loss, and although we estimate and model each of our client contracts to be
individually profitable, due to our rapid growth, the expense of creating our
company, and other factors, we cannot be certain that we will ever operate
profitably, or that we can sustain or increase profitability on a quarterly or
annual basis in the future.

    We anticipate rapid growth and until our operating income covers our cash
needs we may need to raise additional funds through public or private debt or
equity financings in order to address unanticipated operating issues, finance
acquisitions, new client contracts with capital investment requirements, and
other strategic opportunities, and maintain adequate cash balances to satisfy
the expectations of prospective clients. We expect our current funds to satisfy
our working capital needs for the next 12 months. We are unable to predict our
working capital requirements beyond 12 months because our capital needs will
vary depending upon obtaining new client contracts or expansion of relationships
with existing clients, business opportunities and potential acquisitions, among
other factors. If we are required to raise additional funds through the issuance
of equity securities, the percentage ownership of our existing stockholders
would be reduced. Further, such equity securities may have rights, preferences
or privileges senior to those of our Common Stock. We cannot be certain that we
will be able to raise additional funds on favorable terms, or at all. If we are
unable to obtain additional funds, we may be unable to fund our operations or
strategic initiatives.


                                       9
<PAGE>


TO SUCCEED WE MUST HIRE, ASSIMILATE AND RETAIN KEY MANAGEMENT PERSONNEL AND
LARGE NUMBERS OF NEW EMPLOYEES, OPEN NEW CLIENT SERVICE CENTERS, ASSIMILATE OUR
CLIENTS' PERSONNEL AND SYSTEMS AND EXPAND OUR OWN SYSTEMS AND CONTROLS.

    To achieve sustainable profitability, we must extend our service model
across many client organizations and gain critical mass in the size and breadth
of our operations. Our ability to achieve rapid growth depends upon the
following essential elements:

    o   Current markets for skilled employees are competitive, and we must be
        able to hire, train and retain key management personnel and large
        numbers of human resources specialists, web and Internet technologists
        and programmers, business development and process management specialists
        and technical and customer support personnel.

    o   We currently operate three large-scale client service centers, in North
        Carolina, Scotland and Texas, and we will develop a fourth in Tennessee
        in connection with our contract with International Paper. These centers
        are designed to handle our existing client demands and our near-term
        anticipated growth, but we must open new client service centers in new
        geographic locations to handle significant additional longer-term growth
        in our business. We must devote substantial financial and management
        resources to launch and operate these centers successfully, and we may
        not select appropriate locations for these centers, open them in time to
        meet our client service commitments or manage them profitably.

    o   As we assume responsibility for the existing HR departments of our
        clients, we must be able to assimilate HR personnel from these clients
        and integrate disparate systems, procedures, controls and
        infrastructures.

    o   We will need to improve our financial and management controls, reporting
        systems and operating systems to accommodate growth. If we do not manage
        growth effectively, our ability to perform under our contracts may be
        jeopardized and our reputation may be harmed.

OUR QUARTERLY REVENUES AND OPERATING RESULTS ARE VOLATILE AND MAY CAUSE OUR
STOCK PRICE TO FLUCTUATE.

    Our quarterly operating results have varied in the past and are likely to
vary significantly in the future. It is possible that in some future quarter or
quarters our operating results will be below the expectations of public market
analysts or investors. If so, the market price of our Common Stock may decline
significantly. Factors that may cause our results to fluctuate include:

    o   the condition of the market for our HR services and our ability to
        obtain new client contracts;

    o   our ability to continue to execute successfully on client contracts;

    o   the length of the sales and integration cycle for our new clients;

    o   cancellations or reductions in the scope of our contracts;

    o   delays in transitioning various client processes to our infrastructure;

    o   our ability to develop and implement additional service offerings and
        technologies;

    o   the introduction of comprehensive HR services by new and emerging
        competitors;

    o   changes in our pricing policies or those of our competitors;

    o   our ability to manage costs, including personnel costs, support services
        costs and third-party vendor costs; and

    o   the timing and cost of anticipated openings or expansions of client
        service centers.

    We have in the past acquired assets and hired personnel from our clients and
issued securities in connection with new contract signings. We expect to
continue these practices in the future; although we intend to minimize or avoid
the issuance of securities in connection with future new contract signings.
Client asset acquisitions and securities issuances may result in amortization
expense. In addition, rationalizing headcount following transition of client
processes to our systems may result in severance expense. As our business
evolves we may from time to time incur "business optimization costs" relating to
the implementation of new organization structures, technologies, processes and
other changes in our business. These expenses will reduce our reported earnings
in the period
                                       10

<PAGE>

in which they are recorded; however, we expect that the implementation of the
underlying initiatives will enhance profitability in future periods.

WE COULD EXPERIENCE DAMAGES, SERVICE INTERRUPTIONS OR FAILURES AT OUR CLIENT
SERVICE CENTERS OR IN OUR COMPUTER AND TELECOMMUNICATIONS SYSTEMS.

    Our business could be interrupted by damage to or disruption of our client
service centers, computer and telecommunications equipment and software systems
from fire, power loss, hardware or software malfunctions, penetration by
computer hackers, computer viruses, natural disasters and other causes. Our
clients' businesses may be harmed by any system or equipment failure we
experience. As a result of any of the foregoing, our relationship with our
clients may be adversely affected, we may lose clients, our ability to attract
new clients may be adversely affected and we could be exposed to liability. We
cannot be certain that we will be able to route calls and other operations from
an affected center to another in the event service is disrupted. In addition, in
the event of widespread damage or failures at our facilities, we cannot
guarantee that the disaster recovery plans we have in place will protect our
business.

WE ARE SUBJECT TO RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS.

    Our business strategy requires us to expand internationally as we broaden
the geographic scope of services we deliver to our clients from United States
and United Kingdom operations to foreign operations and as we take on additional
large, multinational clients. We will face risks in doing business abroad that
include the following:

    o   changing regulatory requirements;

    o   legal uncertainty regarding foreign laws, tariffs and other trade
        barriers;

    o   political instability;

    o   international currency issues, including fluctuations in currency
        exchange rates;

    o   cultural differences;

    o   designing and operating web sites and other service delivery components
        in foreign languages; and

    o   differing technology standards and Internet regulations that may affect
        access to and operation of our web sites and our clients' web sites.

    In the future, we expect to use overseas vendors to assist in our business,
including to provide services to our clients overseas and to take advantage of
lower overseas labor costs for some support functions. It may be difficult for
us to manage overseas vendors and enforce our rights against them in any
disputes, and replacing overseas vendors may involve delay and expense. Use of
overseas vendors will involve reduction in domestic headcount, and it may be
difficult and costly to replace these personnel, particularly in technical
disciplines, if we need to repatriate these operations.

WE DEPEND ON OUR SENIOR MANAGEMENT TEAM, A NUMBER OF MEMBERS OF WHICH HAVE
RECENTLY JOINED US, AND IF THEY ARE UNABLE OR UNWILLING TO CONTINUE IN THEIR
PRESENT POSITIONS, THESE EXECUTIVES WOULD BE DIFFICULT TO REPLACE AND OUR
BUSINESS COULD BE HARMED.

    We believe that our success is dependent upon our senior management team and
our senior executives' leadership skills. The loss of any of these individuals
or an inability to attract, retain and maintain qualified personnel could
adversely effect us. A number of our senior management, including our Chief
Financial Officer and Chief Operating Officer, joined us in 2000 or 2001. Due to
the competitive nature of our industry, we may not be able to retain all of our
senior managers. Each of our senior executive's employment is "at will," which
means that the executive's employment with us may be terminated by either us or
the executive at any time, for any reason without cause or advance notice. If
one or more members of our senior management team were unable or unwilling to
continue in their present positions, these executives would be difficult to
replace and our business could be harmed.


                                       11
<PAGE>


THE MARKET FOR OUR SERVICES AND OUR REVENUE GROWTH DEPENDS ON OUR ABILITY TO USE
THE INTERNET AS A MEANS OF DELIVERING HUMAN RESOURCES SERVICES.

    We rely on the Internet as a mechanism for delivering our services to our
clients and achieving efficiencies in our service model, and this reliance
exposes us to various risks.

    o   We use public networks to transmit and store extremely confidential
        information about our clients and their employees, such as compensation,
        medical information and social security numbers. We may be required to
        expend significant capital and other resources to address security
        breaches. We cannot be certain that our security measures will be
        adequate and security breaches could disrupt our operations, damage our
        reputation and expose us to litigation and possible liability.

    o   Our target clients may not be receptive to human resources services
        delivered over the Internet because of concerns over transaction
        security, user privacy, the reliability and quality of Internet service
        and other reasons. In addition, growth in Internet traffic may cause
        performance and reliability to decline. Interruptions in Internet
        service and infrastructure delays could interfere with our ability to
        use the Internet to support our Exult eHR service, which would impair
        our revenue growth and results of operations.

    o   Laws and regulations may be adopted relating to Internet user privacy,
        pricing, usage fees and taxes, content, distribution and characteristics
        and quality of products and services. This could decrease the popularity
        or impede the expansion of the Internet and decrease demand for our
        services. Moreover, the applicability of existing laws to the Internet
        is uncertain with regard to many important issues, including property
        ownership, intellectual property, export of encryption technology, libel
        and personal privacy. The application of laws and regulations from
        jurisdictions whose laws do not currently apply to our business, or the
        application of existing laws and regulations to the Internet and other
        online services, could also harm our business.

WE MUST KEEP OUR COMPUTING AND COMMUNICATIONS INFRASTRUCTURE ON PACE WITH
CHANGING TECHNOLOGIES.

    Our success depends on our sophisticated computer, Internet and
telecommunications systems. We have invested significantly in our technological
infrastructure and anticipate that it will be necessary to continue to do so in
the future to remain competitive. These technologies are evolving rapidly and
are characterized by short product life cycles, which require us to anticipate
technological changes and developments. Our success in delivering services
cost-effectively and creating processes that are consistent with HR best
practices for our clients depends, in part, upon our ability to adapt our
processes to incorporate new and improved software applications, communications
systems and other technologies and devices. If we fail to adapt to technological
developments, our clients may experience service implementation delays or our
services may become non-competitive or obsolete.

WE RELY ON THIRD-PARTY VENDORS FOR SOFTWARE. IF THEIR PRODUCTS ARE NOT AVAILABLE
OR ARE INADEQUATE, OUR BUSINESS COULD BE SERIOUSLY HARMED.

    Our service delivery capability incorporates and relies on software owned by
third parties that we license directly or use through existing license
arrangements between our clients and the vendor. If these vendors change or fail
to maintain a product that we are using, or if these agreements are terminated
or not renewed, we might have to delay or discontinue our services until
equivalent technology can be found, licensed and installed.

THE MARKETS WE SERVE ARE HIGHLY COMPETITIVE AND OUR COMPETITORS MAY HAVE MUCH
GREATER RESOURCES TO COMMIT TO GROWTH, NEW TECHNOLOGY AND MARKETING.

    Our current and potential competitors include in-house HR departments of
large multinational corporations, as well as other third parties that provide
discrete or combined HR and information technology functions, including
consulting and process outsourcing divisions of Big Five accounting firms and
other consulting firms, information technology outsourcing companies and
transaction processing companies such as benefits administrators. In addition,
we expect that the predicted growth of the HR outsourcing market will attract
other consulting firms, transaction processing companies and outsourcers and
motivate competitors to assume responsibility for broad integration of HR
processes.

                                       12

<PAGE>


    Several of our competitors have substantially greater financial, technical
and marketing resources, larger customer bases, greater name recognition and
more established relationships with their customers and key product and service
suppliers than we do. Our competitors may be able to:

    o   develop and expand their delivery infrastructure and service offerings
        more quickly;

    o   adapt better to new or emerging technologies and changing client needs;

    o   take advantage of acquisitions and other opportunities more readily;

    o   devote greater resources to the marketing and sale of their services;
        and

    o   adopt more aggressive pricing policies.

    Some of our competitors may also be able or willing to provide clients with
additional benefits at lower overall costs. In addition, we believe there will
be future consolidation in our market, which could increase competition in ways
that may be adverse to us.

WE OPERATE IN A COMPLEX REGULATORY ENVIRONMENT, AND FAILURE TO COMPLY WITH
APPLICABLE LAWS AND REGULATIONS COULD ADVERSELY AFFECT OUR BUSINESS.

    Corporate human resources operations are subject to a number of laws and
regulations, including those applicable to payroll practices, benefits
administration, employment practices and data privacy. Because our clients have
employees in states across the United States and in various countries around the
world, we must perform our services in compliance with the legal and regulatory
requirements of multiple jurisdictions. Some of these laws and regulations may
be difficult to ascertain or interpret, may change, and may be inconsistent with
our business practices. Violation of laws and regulations could subject us to
fines and penalties, damage our reputation, constitute breach of our client
contracts and impair our ability to do business in various jurisdictions or
according to our established processes.

    The European Commission's Directive on Data Privacy limits transfer of
personal data outside the European Union. In order to receive personal data
about our clients' European employees and fulfill our service commitments, we
have elected to comply with the Safe Harbor Principles established by the United
States Department of Commerce, in collaboration with the European Commission, to
provide "adequate protection" for personal data about European Union residents.
Because we process HR data, we are required by the Safe Harbor Principles to
submit to the jurisdiction of the European Union Data Protection Authorities
(DPAs). Specifically, we must cooperate with the DPAs in the investigation and
resolution of complaints brought under the Safe Harbor Principles by European
citizens and comply with any corrective advice and remedial or compensatory
measures they dictate. In addition, operation under the Safe Harbor Principles
subjects us to the jurisdiction of the Federal Trade Commission. If we fail to
process personal data in accordance with these principles, we could be subject
to legal penalties under the Federal Trade Commission Act and foreign privacy
laws. We could also lose our ability to move personal data from the European
Union to the United States, which would significantly impair our ability to
fulfill our contractual commitments to our clients. We expect to have to comply
with similar laws of other foreign jurisdictions in which we do business in the
future.

WE MAY UNDERTAKE ACQUISITIONS WHICH MAY LIMIT OUR ABILITY TO MANAGE AND MAINTAIN
OUR BUSINESS, MAY RESULT IN ADVERSE ACCOUNTING TREATMENT AND MAY BE DIFFICULT TO
INTEGRATE INTO OUR BUSINESS.

    We expect to pursue acquisitions under appropriate circumstances. We cannot
provide any assurance that we will be able to complete any acquisitions, or that
any acquisitions we may complete will enhance our business. Any acquisition we
do complete could subject us to a number of risks, including:

    o   diversion of our management's attention;

    o   amortization of intangible assets adversely affecting our reported
        results of operations;

    o   inability to integrate the acquired company and its employees into our
        organization effectively, and to retain key personnel of the acquired
        business;

    o   inability to retain the acquired company's customers; and


                                       13

<PAGE>

    o   exposure to legal claims for activities of the acquired business prior
        to acquisition.

    Client satisfaction or performance problems with an acquired business also
could affect our reputation as a whole. In addition, any acquired business could
significantly underperform relative to our expectations.

WE MUST PROTECT OUR INTELLECTUAL PROPERTY AND AVOID INFRINGING UPON THE
INTELLECTUAL PROPERTY RIGHTS OF OTHERS.

    We may not be able to detect or deter unauthorized use of our intellectual
property. If third parties infringe upon or misappropriate our trade secrets,
copyrights, trademarks, service marks, trade names or proprietary information,
our business could be seriously harmed. In addition, although we believe that
our proprietary rights do not infringe upon the intellectual property rights of
others, other parties may assert that we have violated their intellectual
property rights. These claims, even if not true, could result in significant
legal and other costs and may be a distraction to management. In addition,
protection of intellectual property in many foreign countries is weaker and less
reliable than in the United States. If our business expands into foreign
countries, risks associated with protecting our intellectual property will
increase.

OUR EXECUTIVE OFFICERS, DIRECTORS AND THEIR AFFILIATES CONTROL THE COMPANY.

    Our executive officers, directors and their respective affiliates
beneficially own approximately 55% of our outstanding Common Stock. As a result,
these stockholders, acting together, have the ability to control matters
requiring stockholder approval, including the election of directors and mergers,
consolidations and sales of all or substantially all of our assets. These
stockholders may have interests that differ from other investors and they may
approve actions that other investors vote against or reject actions that other
investors have voted to approve. In addition, this concentration of ownership
may also have the effect of preventing, discouraging or deferring a change in
control of Exult, which, in turn, could depress the market price of our Common
Stock.

OUR STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE.

    The price at which our Common Stock trades has fluctuated significantly and
is likely to continue to be highly volatile. From our IPO in June 2000 through
September 30, 2001, the sales price of our stock price, as reported on the
Nasdaq National Market, has ranged from a low of $7.00 to a high of $19.85. We
are a relatively new company with no record of profits, and we utilize the
Internet and a technology infrastructure to deliver our services. The share
prices for other companies with similar characteristics have at times increased
to levels that bore no relationship to their operating performance, and at other
times have declined dramatically, even without apparent changes in their
business.

    In addition, the stock market in general has from time to time experienced
significant price and volume fluctuations that have affected the market prices
for companies like ours. In the past, this kind of market price volatility has
often resulted in securities class action litigation against companies
comparable to ours. Securities litigation could result in substantial costs and
divert our management's attention and resources.

SUBSTANTIAL SALES OF OUR COMMON STOCK BY OUR EXISTING INVESTORS COULD CAUSE OUR
STOCK PRICE TO DECLINE.

    As of October 12, 2001, of our 102,967,650 outstanding shares, only
14,300,000 have been sold publicly by the Company, and our stockholders have
sold only a relatively small number of privately issued shares. Substantially
all of our outstanding shares are available for sale in the public market,
subject in some cases to compliance with the volume and other limitations of
Rule 144.

    The majority of our outstanding shares are in the hands of their original
purchasers. These investors may seek to sell their shares, and sales of large
numbers of shares in the same time period could cause the market price of our
Common Stock to decline significantly. These sales also might make it more
difficult for us to sell securities in the future at a time and price that we
deem appropriate.


                                       14
<PAGE>


OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD DETER A TAKEOVER EFFORT.

    Provisions of our certificate of incorporation and bylaws, including those
that provide for a classified board of directors, authorized but unissued shares
of common and preferred stock and notice requirements for stockholder meetings,
and Delaware law regarding the ability to conduct specific types of mergers
within specified time periods, could make it more difficult for a third party to
acquire us, even if doing so would provide our stockholders with a premium to
the market price of their Common Stock. A classified board of directors may
inhibit acquisitions in general, and a tender offer not endorsed by our board of
directors in particular, since only one-third of our directors are reelected
annually, thereby requiring two annual meetings before a majority of our
directors could be replaced. The authorization of undesignated preferred stock
gives our board of directors the ability to issue preferred stock with voting or
other rights or preferences that could impede the success of any attempt to
change control of the company. If a change in control or change in management is
delayed or prevented, the market price of our Common Stock could decline.

                                       15

<PAGE>



                              RESULTS OF OPERATIONS

    Because of the rapidly evolving nature of our business and our limited
operating history, we believe that period to period comparisons of our operating
results, including our revenue, gross loss and expenses as a percentage of
revenue, should not be relied upon as an indication of our future performance.
The following table sets forth statement of operations data expressed as a
percentage of revenue for the periods indicated:

         <TABLE>
         <CAPTION>
                                                             THREE MONTHS ENDED --                  NINE MONTHS ENDED --
                                                          -------------------------------     --------------------------------
                                                          SEPTEMBER 30,     SEPTEMBER 30,     SEPTEMBER 30,      SEPTEMBER 30,
                                                             2000              2001                2000               2001
                                                          -------------     -------------     -------------      -------------

         <S>                                               <C>                 <C>                <C>                 <C>
         Revenue.......................................     100.0%              100.0%             100.0%              100.0%
         Cost of revenue...............................     144.3               103.1              139.4               112.1
                                                          -------           ---------          ---------           ---------
         Gross loss....................................     (44.3)               (3.1)             (39.4)              (12.1)
                                                          -------           ---------          ---------           ---------
         Expenses:
           Product development.........................       9.1                 1.1               12.3                 2.1
           Selling, general and administrative(1)......      27.1                 9.1               64.3                14.6
           Depreciation and amortization...............      11.1                 3.9               17.0                 4.9
                                                          -------           ---------          ---------           ---------
              Total expenses...........................      47.3                14.1               93.6                21.6
                                                          -------           ---------          ---------           ---------
         Loss from operations..........................     (91.6)              (17.2)            (133.0)              (33.7)
         Interest income, net..........................       7.1                 1.4               10.7                 1.5
                                                          -------           ---------          ---------           ---------
         Net loss......................................     (84.5)%             (15.8)%           (122.3)%             (32.2)%
                                                          =======           =========          =========           =========
         </TABLE>

         (1)  Includes $7.3 million of business optimization costs in the
              nine-month period ended September 30, 2001. Excluding such costs,
              selling, general and administrative expense was 10.6% of revenue.

THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 2001

    REVENUE. Revenue for the three months ended September 30, 2001 was $75.3
million as compared to $20.9 million for the three-month period ended September
30, 2000. In January 2000, we began to generate revenue under our process
management contracts and for the three-month period ended September 30, 2000,
revenue from our first three process management clients was $18.4 million, or
88.3% of revenue. We added two new process management clients during the latter
half of 2000, from whom we began to generate significant revenue in 2001. Thus,
for the three months ended September 30, 2001, revenue from our then five
process management clients was $70.6 million, or 93.7% of revenue. The balance
of revenue for the September 2001 and 2000 three-month periods was derived
primarily from consulting clients. As our process management business expands,
we expect the relative contribution of revenue derived from consulting clients
to continue to decrease.

    The revenue increase for the three months ended September 30, 2001
principally resulted from the continued transition of service responsibility to
Exult under our initial three process management contracts, as well as revenue
generated from the addition of the two new process management clients. For the
three months ended September 30, 2001 and 2000, one process management client
accounted for 43.0% and 77.7%, respectively, of revenue. A second process
management client accounted for 40.4% of revenue in the 2001 period and no
revenue in the 2000 period. For the three months ended September 30, 2001 and
2000, no other client accounted for more than 10.0% of revenue.

    COST OF REVENUE. Cost of revenue for the three months ended September 30,
2001 and 2000, was $77.7 million, or 103.1% of revenue, and $30.1 million, or
144.3% of revenue, respectively. Cost of revenue consists primarily of expenses
associated with third-party vendors that we manage who provide services for our
clients within the scope of our contracts, compensation and benefits paid to our
employees who are directly involved in providing our services, computer and
communications equipment costs and services, and facilities costs. The increase
in cost of revenue for the three months ended September 30, 2001 principally
resulted from the continued transition of service responsibility to Exult under
our initial five process management contracts and the continuing expansion of
our infrastructure and service capacity. We operated one client service center
during the first six months of 2000, opened a second in the latter half of 2000
and began operating our third center during the first quarter of 2001. We have
incurred, and may continue to incur, negative gross margins as we continue to
transition and transform our clients' HR processes.

    PRODUCT DEVELOPMENT EXPENSE. Product development expense for the three
months ended September 30, 2001 and 2000, was $822,000, or 1.1% of revenue, and
$1.9 million, or 9.1% of revenue, respectively. Product development expense
consists primarily of consultant costs and the compensation of our employees who
are directly associated with the development of our product features and

                                       16
<PAGE>

Internet software and capabilities. During the quarter ended September 30, 2001,
we capitalized $1.0 million of related expenditures resulting in a total product
development effort of $1.8 million for the period. Similarly in the 2000 period,
we capitalized $847,000 of related expenditures resulting in a total product
development effort of $2.7 million for that period. The $929,000 decrease in the
overall product development effort was primarily related the deployment of
personnel and other resources to direct client activities.

    SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for the three months ended September 30, 2001 and 2000,
was $6.9 million, or 9.1% of revenue, and $5.7 million, or 27.1% of revenue,
respectively. Selling, general and administrative expense generally consists of
compensation for employees engaged in marketing, promoting and selling our
services, and for management and administrative personnel. Selling, general and
administrative expense also includes third-party consulting and marketing
expenditures, as well as facilities and office costs, and legal, accounting and
recruiting fees and expenses. Selling, general and administrative expense
increased in amount for the three months ended September 30, 2001 as compared to
the 2000 period primarily as the result of increased due diligence and sales
expense associated with increased contracting activity, as well as, the ongoing
build of our sales and administrative infrastructure since the 2000 period;
however, these costs grew at a slower rate than our overall revenue growth and
decreased as a percentage of revenue.

    DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense
for the three months ended September 30, 2001 and 2000, was $2.9 million, or
3.9% of revenue, and $2.3 million, or 11.1% of revenue, respectively. Included
in the 2001 and 2000 amounts was $2.1 million and $1.0 million, respectively, of
depreciation and amortization expense from property and equipment. Also included
in the 2001 and 2000 amounts was intangible asset amortization of $546,000 and
$1.1 million, respectively, and $285,000 and $285,000, respectively, of deferred
compensation amortization. The increase in depreciation and amortization from
property and equipment reflects the continuing build out of our infrastructure
and service delivery capabilities.

    INTEREST INCOME, NET. Interest income, net for the three months ended
September 30, 2001 and 2000 consisted of interest income of $1.3 million and
$2.2 million, respectively, partially offset by interest expense of $216,000 and
$685,000, respectively. Interest income is generated primarily from short-term
investing of cash in excess of current requirements. The decrease in interest
income in the 2001 period as compared to the 2000 period is principally the
result of lower interest rates in the 2001 period. Interest expense is
associated with certain capitalized leases and the debt incurred to purchase the
Gunn Partners, Inc. assets in November 1999.

    INCOME TAXES. We have incurred losses since we were founded in 1998,
resulting in federal and state net operating loss carryforwards which expire
beginning in 2020 and 2008, respectively. A full valuation allowance has been
provided against the tax benefit generated by the net operating losses because
of the uncertainty of realizing the deferred tax assets.

    NET LOSS. The foregoing resulted in a net loss for the three-month periods
ended September 30, 2001 and 2000, of $11.9 million, or $0.12 per basic and
diluted share, and $17.6 million, or $0.21 per basic and diluted share,
respectively. We expect to continue to incur losses at least through the first
half of 2002.

NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 2001

    REVENUE. Revenue for the nine months ended September 30, 2001 was $183.1
million as compared to $34.6 million for the nine-month period ended September
30, 2000. In January 2000, we began to generate revenue under our process
management contracts and for the nine-month period ended September 30, 2000
revenue from our first three process management clients was $26.3 million, or
76.0% of revenue. We added two new process management clients during the latter
half of 2000, from whom we began to generate significant revenue in 2001. Thus,
for the nine months ended September 30, 2001, revenue from our then five process
management clients was $170.2 million, or 92.9% of revenue. The balance of
revenue for the September 2000 and 2001 nine-month periods was derived primarily
from consulting clients. As our process management business expands, we expect
the relative contribution of revenue derived from consulting clients to continue
to decrease.

    The revenue increase for the nine months ended September 30, 2001
principally resulted from the continued transition of service responsibility to
Exult under our initial three process management contracts, as well as revenue
generated from the addition of two new process management clients. For the nine
months ended September 30, 2001 and 2000, one process management client
accounted for 47.7% and 55.4%, respectively, of revenue. A second process
management client accounted for 38.0% of revenue in the 2001 period and no
revenue in the 2000 period. For the nine months ended September 30, 2001, no
other client accounted for more than 10.0% of revenue.

    COST OF REVENUE. Cost of revenue for the nine months ended September 30,
2001 and 2000, was $205.3 million, or 112.1% of revenue, and $48.3 million, or
139.4% of revenue, respectively. Cost of revenue consists primarily of expenses
associated with third-


                                       17

<PAGE>

party vendors that we manage who provide services for our clients within the
scope of our contracts, compensation and benefits paid to our employees who are
directly involved in providing our services, computer and communications
equipment costs and services, and facilities costs. The increase in cost of
revenue for the nine months ended September 30, 2001 principally resulted from
the continued transition of service responsibility to Exult under our five
process management contracts and the continuing expansion of our infrastructure
and service capacity. We operated one client service center during the first six
months of 2000, opened a second in the latter half of 2000 and began operating
our third center during the first quarter of 2001. We have incurred, and may
continue to incur, negative gross margins as we continue to transition and
transform our clients' HR processes.

    PRODUCT DEVELOPMENT EXPENSE. Product development expense for the nine months
ended September 30, 2001 and 2000, was $3.8 million, or 2.1% of revenue, and
$4.3 million, or 12.3% of revenue, respectively. Product development expense
consists primarily of consultant costs and the compensation of our employees who
are directly associated with the development of our product features and
Internet software and capabilities. During the nine months ended September 30,
2001, we capitalized $2.4 million of related expenditures resulting in a total
product development effort of $6.2 million for the period. Similarly in the 2000
period, we capitalized $847,000 of related expenditures resulting in a total
product development effort of $5.1 million for that period. The $1.1 million
increase in the overall product development effort was primarily related to the
hiring of consultants and employees.

    SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for the nine months ended September 30, 2001 and 2000,
was $26.8 million, or 14.6% of revenue, and $22.3 million, or 64.3% of revenue,
respectively. Selling, general and administrative expense generally consists of
compensation for employees engaged in marketing, promoting and selling our
services, and for management and administrative personnel. Selling, general and
administrative expense also includes third-party consulting and marketing
expenditures, as well as facilities and office costs, and legal, accounting and
recruiting fees and expenses. Also included in selling, general and
administrative expense for the nine months ended September 30, 2001, were
business optimization costs which consist of severance charges of $3.4 million
(including non-cash option acceleration charges of $2.2 million), certain
wind-up costs resulting in a $1.7 million charge (including severance costs of
$1.0 million) associated with the consolidation of a secondary processing center
into our primary operating centers and a $2.2 million non-cash charge arising
from the write-off of an intangible asset acquired from Gunn Partners, Inc. We
call these charges "business optimization costs" because they reflect our
pursuit of enhanced efficiency and profitability as our operating scale
increases and our business progresses toward operational maturity. We may incur
similar business optimization costs from time to time as we implement new
organization structures, technologies, processes and other changes in our
business.

    Exclusive of the business optimization costs, selling, general and
administrative expense for the nine months ended September 30, 2001 was $19.4
million, or 10.6% of revenue. After excluding these charges, the decrease in
both amount and as a percentage of revenue for the nine months ended September
30, 2001 primarily resulted from the deployment of personnel and other resources
to direct client activities, at which time the costs associated with such
employees were included in cost of revenue.

    DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense
for the nine months ended September 30, 2001 and 2000, was $9.0 million, or 4.9%
of revenue, and $5.9 million, or 17.0% of revenue, respectively. Included in the
2001 and 2000 amounts was $5.8 million and $1.8 million, respectively, of
depreciation and amortization expense from property and equipment. Also included
in the 2001 and 2000 amounts was intangible asset amortization of $2.4 million
and $3.2 million, respectively, and $856,000 and $885,000, respectively, of
deferred compensation amortization. The increase in depreciation and
amortization from property and equipment reflects the continuing build out of
our infrastructure and service delivery capabilities.

    INTEREST INCOME, NET. Interest income, net for the nine months ended
September 30, 2001 and 2000 consisted of interest income of $3.4 million and
$4.8 million, respectively, partially offset by interest expense of $594,000 and
$1.1 million, respectively. Interest income is generated primarily from
short-term investing of cash in excess of current requirements. The decrease in
interest income in the 2001 period as compared to the 2000 period is principally
the result of lower interest rates in the 2001 period. Interest expense is
associated with certain capitalized leases and the debt incurred to purchase the
Gunn Partners, Inc. assets in November 1999.

    INCOME TAXES. We have incurred losses since we were founded in 1998,
resulting in federal and state net operating loss carryforwards which expire
beginning in 2020 and 2008, respectively. A full valuation allowance has been
provided against the tax benefit generated by the net operating losses because
of the uncertainty of realizing the deferred tax assets.

    NET LOSS. The foregoing resulted in a net loss for the nine-month periods
ended September 30, 2001 and 2000, of $59.0 million, or $0.63 per basic and
diluted share, and $42.3 million, or $0.98 per basic and diluted share,
respectively. For the nine months ended September 30, 2001, the net loss,
exclusive of the $7.3 million of business optimization costs discussed in the
selling, general and administrative expense section above, was $51.6 million, or
$0.55 per basic and diluted share. For the nine months ended September


                                       18

<PAGE>

30, 2000, the loss per basic and diluted share, assuming the conversion of all
of the then outstanding shares of Preferred Stock, was $0.55. We expect to
continue to incur losses until at least the first half of 2002.

LIQUIDITY AND CAPITAL RESOURCES

    Since our inception in October 1998, we have financed our operations
primarily with equity contributions including private placement sales of our
capital stock for consideration of approximately $1.0 million in 1998, $55.1
million in 1999, $161.3 million in 2000 and $26.0 million in the nine months
ended September 30, 2001; the net proceeds from our June 2000 initial public
offering plus the August 2001 follow-on public offering of $157.0 million; and,
to a lesser extent, by cash generated from our business and the exercise of
stock options and warrants. The $161.3 million from equity contributions in 2000
included non-cash items of $29.9 million from warrants issued in connection with
the sale of Common Stock and $44.0 million of indebtedness owed to us that was
subsequently satisfied with prepaid rent and an intangible asset in connection
with one of our business process management contracts. The intangible asset is
being amortized as a reduction of revenue over the life of the contract.

    Net cash used in operating activities was $31.8 million and $38.8 million
for the nine months ended September 30, 2001 and 2000, respectively. We obtained
our first three process management contracts in December 1999 and January 2000
and began generating revenue from these contracts during the first quarter of
2000. We obtained two additional process management contracts during the second
half of 2000 and began generating revenue from both of these agreements by the
first quarter of 2001. During the nine-month periods ended September 30, 2001
and 2000, we continued using operating cash to pursue additional business
opportunities and the development of our corporate infrastructure. We also
expended operating cash in support of revenue generated by our process
management contracts and to fund the transition and transformation costs
associated with these process management contracts. Cash used in investing
activities was $14.4 million in the 2001 period and $17.9 million in the 2000
period and was used to construct and expand our client service centers and our
internal systems. We generated $126.3 million and $129.1 million in cash from
financing activities during the nine months ended September 30, 2001 and 2000,
respectively, primarily from private placements of our equity securities and the
August 2001 and June 2000 public offerings of our Common Stock. During the nine
months ended September 30, 2001 and 2000, we also generated $3.8 million and
$4.5 million, respectively, in cash primarily from the exercise of stock options
and purchases of Common Stock under our employee stock purchase plan.

    We expect to generate negative operating cash flow for at least the
remainder of 2001 as we continue to incur losses from operations. We also expect
to continue our investments in property and equipment to support the expansion
and renovation of our facilities, including our existing client service centers,
and to purchase related computer and other equipment necessary to support our
client contracts and growth. We believe that our current cash on hand will be
sufficient to satisfy our working capital requirements for at least the next 12
months. In addition, from time to time in the ordinary course of business, we
evaluate potential acquisitions of related businesses, assets, services and
technologies. Such acquisitions, if completed, may require significant cash
expenditures.

RECENT ACCOUNTING PRONOUNCEMENTS

    In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and other intangible assets and is effective for fiscal years beginning
after December 15, 2001, with early adoption permitted in certain instances for
entities with fiscal years beginning after March 15, 2001. The Company does not
expect that adoption of SFAS No. 142 will have a material impact on its
consolidated financial position or results of operations.


                                       19
<PAGE>


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

    Not applicable.






                                       20
<PAGE>


                           PART II. OTHER INFORMATION.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.

(c)      On September 26, 2001, we sold 504,200 shares of Common Stock to
         SmartForce for an aggregate purchase price of $5,999,980 in cash. This
         transaction was exempt from registration under the Securities Act of
         1933 pursuant to Section 4(2) thereof.

         During the period from July 1, 2001 through September 30, 2001, we
         issued an aggregate of 663,565 shares of Common Stock to fifty-one
         current and former employees for an aggregate purchase price of
         $1,333,791 upon the exercise of stock options. Also during the same
         period, we sold 11,943 shares of Common Stock to SSI (U.S.) Inc. for an
         aggregate purchase price of $18,750 upon exercise of a warrant. These
         transactions were exempt from registration under the Securities Act of
         1933 pursuant to Section 4(2) thereof (for the warrant transaction) and
         Rule 701 thereunder (for the option transactions).


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

(a)      Exhibits.

         The following Exhibits are incorporated herein by reference.

         EXHIBIT
         NUMBER                                 DESCRIPTION
         -------                                -----------
           2.1*     Asset Purchase Agreement by and among Exult, Inc., Gunn
                    Partners, Inc., the shareholders of Gunn Partners, Inc. and
                    Michael Gibson dated as of November 22, 1999.
           3.1*     Fourth Amended and Restated Certificate of Incorporation of
                    Exult, Inc.
           3.2*     Amended and Restated Bylaws of Exult, Inc.
         10.32**    Addendum 1 to Master Services Agreement between Exult, Inc.
                    and Bank of America Corporation dated as of March 15, 2001.
         10.33**    Addendum 2 to Master Services Agreement between Exult, Inc.
                    and Bank of America Corporation dated as of September 10,
                    2001.
----------
*    Previously filed with the Company's Registration Statement on Form S-1
     Registration No. 333-31754, and incorporated herein by reference.

**   Confidential treatment is being sought with respect to certain portions of
     this agreement. Such portions have been omitted from this filing and filed
     separately with the Securities and Exchange Commission.


(b)      Reports on Form 8-K.

         None.

                                       21
<PAGE>


                                   SIGNATURES

    Pursuant to the requirements of the Securities Act of 1934, as amended, the
undersigned has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 13th day of November, 2001.

                                 EXULT, INC.

                                 By:  /s/          JAMES C. MADDEN, V
                                      ----------------------------------------
                                                James C. Madden, V
                                      Chief Executive Officer, President, and
                                               Chairman of the Board
                                           (principal executive officer)


                                 By:  /s/           MICHAEL F. HENN
                                      ----------------------------------------
                                                  Michael F. Henn
                                      Executive Vice President, Treasurer and
                                              Chief Financial Officer
                                           (principal financial officer)



                                       22
<PAGE>


                                  EXHIBIT INDEX


EXHIBIT
NUMBER                                       DESCRIPTION
--------                                     ------------
  2.1*           Asset Purchase Agreement by and among Exult, Inc., Gunn
                 Partners, Inc., the shareholders of Gunn Partners, Inc. and
                 Michael Gibson dated as of November 22, 1999.
  3.1*           Fourth Amended and Restated Certificate of Incorporation of
                 Exult, Inc.
  3.2*           Amended and Restated Bylaws of Exult, Inc.
10.32**          Addendum 1 to Master Services Agreement between Exult, Inc. and
                 Bank of America Corporation dated as of March 15, 2001.
10.33**          Addendum 2 to Master Services Agreement between Exult, Inc. and
                 Bank of America Corporation dated as of September 10, 2001.
----------
*    Previously filed with the Company's Registration Statement on Form S-1
     Registration No. 333-31754, and incorporated herein by reference.

**   Confidential treatment is being sought with respect to certain portions of
     this agreement. Such portions have been omitted from this filing and filed
     separately with the Securities and Exchange Commission.


                                       23