SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





**Form
      10-K**





**ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(** d **)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**





**For
      the fiscal year ended December 31, 2005**





Commission
      file number: 001-31256





**Clark,
      Inc.**


(Exact
      name of Registrant as specified in its charter)





**Delaware**
            **52-2103926**(State
                of incorporation or organization)
            (I.R.S.
                Employer Identification No.)**102
                South Wynstone Park Drive****North
                Barrington, Illinois**
            **60010**(Address
                of principal executive offices)
            (Zip
                code)





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





Securities
      Registered Pursuant to Section 12(b) of the Act:





**Title
                of Securities**
            **Exchange
                on which Registered****Common
                Stock, par value $.01 per share**
              **Junior
                Participating Preferred Stock, Series A, Purchase Rights par value,
                $.01
                per share**
            **New
                York Stock Exchange**





Securities
      Registered Pursuant to Section 12(g) of the Act:


None





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.


Yes  ̈  No x





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Exchange Act.


Yes  ̈  No x





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  ̈





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K.  ̈





Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Exchange Act Rule 12b-2).


Yes x  No  ̈





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes  ̈  No x





The
      aggregate market value of the voting common stock of the Registrant held by
      non-affiliates of the Registrant as of June 30, 2005 (based upon the closing
      price of $14.33 per share) was approximately $202.4 million.





As
      of
      December 31, 2005, the registrant had outstanding 17,509,321 shares of common
      stock.





**DOCUMENTS
      INCORPORATED BY REFERENCE**


The
      definitive proxy statement for the 2006 annual meeting is incorporated into
      Part
      III of this Form 10-K by reference.





Table
          of Contents


**TABLE
      OF CONTENTS**





**PAGE**FORWARD-LOOKING
                STATEMENTS
            3**PART
                I**ITEM
                1.
            BUSINESS
            4ITEM
                1A.
            RISK
                FACTORS
            10ITEM
                1B.
            UNRESOLVED
                STAFF COMMENTS
            15ITEM
                2.
            PROPERTIES
            15ITEM
                3.
            LEGAL
                PROCEEDINGS
            15ITEM
                4.
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            16**PART
                II**ITEM
                5.
            MARKET
                FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND
                ISSUER
                PURCHASES OF EQUITY SECURITIES
            16ITEM
                6.
            SELECTED
                FINANCIAL DATA
            17ITEM
                7.
            MANAGEMENT'S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
              AND
                RESULTS OF OPERATIONS
            18ITEM
                7A.
            QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
            32ITEM
                8.
            FINANCIAL
                STATEMENTS AND SUPPLEMENTARY DATA
            32ITEM
                9.
            CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
              ACCOUNTING
                AND FINANCIAL DISCLOSURE
            32ITEM
                9A.
            CONTROLS
                AND PROCEDURES
            33ITEM
                9B.
            OTHER
                INFORMATION
            35**PART
                III**ITEM
                10.
            DIRECTORS
                AND EXECUTIVE OFFICERS OF THE REGISTRANT
            35ITEM
                11.
            EXECUTIVE
                COMPENSATION
            35ITEM
                12.
            SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                STOCKHOLDER MATTERS
            35ITEM
                13.
            CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS
            35ITEM
                14.
            PRINCIPAL
                ACCOUNTANT FEES AND SERVICES
            35**PART
                IV**ITEM
                15.
            EXHIBITS
                AND FINANCIAL STATEMENT
                SCHEDULES
            36SIGNATURES
            62




Table
          of Contents




**FORWARD-LOOKING
      STATEMENTS**





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





Ÿ
            changes
                in tax laws;





Ÿ
            other
                federal and state laws and
                regulations;





Ÿ
            general
                economic conditions;





Ÿ
            competitive
                factors and pricing pressures;





Ÿ
            our
                dependence on services of key
                personnel;





Ÿ
            our
                dependence on persistency of existing
                business;





Ÿ
            our
                ability to achieve our earnings
                projections;





Ÿ
            risks
                associated with acquisitions;





Ÿ
            significant
                intangible assets;





Ÿ
            our
                dependence on a select group of insurance companies;





Ÿ
            supplemental
                compensation arrangements with certain insurance companies;
                and





Ÿ
            our
                dependence on information processing systems and risk of errors or
                omissions.








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


3
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          of Contents


**PART
      I**





**ITEM
      1. BUSINESS**





***Overview***





Founded
      in 1967, Clark, Inc. is
      a
      national firm dedicated to helping companies keep their best people through
      integrated compensation, benefits, and funding solutions .
      We
      design, market, and administer compensation and benefit programs for companies
      supplementing and securing employee benefits and provide executive compensation
      and related consulting services to U.S. corporations, banks, and healthcare
      organizations. We have approximately 4,000 clients that use our customized
      programs to supplement and secure benefits for their executives, key employees
      and other professionals, and to offset the costs of employee benefit
      liabilities. Our clients also rely on our consultants to structure their
      compensation programs. We were one of the first organizations to offer
      business-owned and bank-owned life insurance programs.





A
      majority of our revenues result from commissions paid by insurance companies
      that underwrite the insurance policies used to finance our clients' benefit
      programs. As a result of a series of acquisitions, we have expanded our service
      offerings to become a value-added provider of a wide range of employee
      compensation and benefit consulting services. Our primary sources of revenue
      are: (1) commissions and other compensation paid by insurance companies
      issuing the policies underlying our benefit programs, (2) program design
      and administrative service fees paid by our clients, (3) executive compensation,
      benefit, and consulting fees, and (4) legislative liaison and related advisory
      services.





We
      are
      headquartered at 102 S. Wynstone Park Drive, North Barrington, Illinois 60010
      and maintain offices nationwide. Our
      Internet address is www.clarkconsulting.com .
      We
      post, by means of a hyperlink to the SEC’s website, the following filings as
      soon as reasonably practicable after they are electronically filed with or
      furnished to the SEC: our annual report on Form 10-K, our quarterly reports
      on
      Form 10-Q, our current reports on Form 8-K and any amendments to those reports
      filed or furnished to the SEC. All such filings are on our web site and
      available free of charge. Information related to our corporate governance can
      also be found under “corporate governance” in the “investors” section of our
      website.





***Our
      products and services***





We
      provide executive compensation and benefit consulting services as well as
      evaluate, design, implement, and administer a diverse array of compensation
      and
      benefit programs for executives, key employees, and other professionals.
      Typically, in selling, designing, and implementing executive compensation and
      benefit programs, we:





·
            evaluate
                a client's existing compensation and benefit programs and the
                effectiveness of those programs in meeting that client's organizational
                needs;





·
            design
                or improve the compensation and benefit
                programs;





·
            compare
                financing alternatives for the programs and present the financial
                strengths of each to the client;





·
            arrange
                for the placement of the insurance coverage or other instruments
                which
                will finance the underlying programs;
                and





·
            provide
                the enrollment, reporting, and ongoing administrative services associated
                with the programs.





Most
      of
      our benefit programs are financed by business-owned life insurance and other
      financial products. Business-owned life insurance refers to life insurance
      policies purchased and owned by a business on the lives of a select group of
      employees. The business pays the premiums on, and is the owner and beneficiary
      of, such policies. Business-owned life insurance programs are used primarily
      to
      offset a client's cost of providing executive benefits and to supplement and
      secure benefits for executives, key employees, and other professionals. The
      cash
      flow characteristics of business-owned life insurance policies are designed
      to
      closely match the long-term cash flow requirements of a client's employee
      benefit liabilities. Additionally, the cash value of the business-owned life
      insurance policies grows on a tax-deferred basis and the policies' death
      benefits are received tax free, providing an attractive return to the
      client.





We
      maintain strategic relationships with insurance companies such as AEGON, AXA,
      Great-West Life, Mass Mutual, New York Life, ING, Prudential, Clarica, and
      West
      Coast Life, in which both parties are committed to developing and delivering
      creative products with high client value. We work closely with clients to design
      customized products that meet the specific organizational needs of the client
      and with insurance companies to develop unique policy features and competitive
      pricing.


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Set
      forth
      below is a description of our principal benefit plan solutions, consulting
      services, financing products, and administrative services.





***Benefit
      plan solutions***





*Deferred
      Income Plans.* Deferred
      income plans allow executives to defer a portion of their current income on
      a
      tax-deferred basis. The deferred income, and earnings thereon, in a properly
      designed and administered deferred income plan grow on a tax-deferred basis
      until distributions are made to the executive, usually at retirement.
      Corporations often purchase life insurance to create an asset in order to offset
      the costs of the liability created by a deferred income plan. Deferred income
      plans can be structured in a variety of ways, including: traditional deferred
      income plans, which credit the deferred income amount with a fixed rate of
      interest and use fixed yield life insurance products to offset the costs of
      the
      company's liability, or variable deferred income plans, which credit the
      deferred income amount with interest based on bond or equity indices and use
      variable yield life insurance products to offset the costs of the corporation’s
      liability. In an effort to provide additional security for executives, many
      corporations will create a trust to hold the related insurance
      policies.





*Supplemental
      Executive Retirement Plans.* Supplemental executive retirement plans are specifically designed to supplement
      the dollar limitation on benefits paid from qualified pension plans. The maximum
      dollar amount of compensation that can be used to determine the pension benefits
      payable to an executive from a qualified plan was $210 thousand in 2005 ($220
      thousand in 2006). Accordingly, non-qualified plans such as supplemental
      executive retirement plans, which are not subject to the same stringent rules,
      have increased in popularity. Many supplemental executive retirement plans
      are
      funded with the same insurance products and strategies used to fund deferred
      income plans.





*Supplemental
      Offset Plans.* Supplemental
      offset plans are designed to supplement an executive's retirement income by
      restoring benefits previously limited by legislative changes. Supplemental
      offset plans are funded with insurance policies using a technique commonly
      known
      as "split dollar." Ownership rights to an individual policy are shared between
      the corporation and the executive. The corporation and the executive share
      in
      the insurance policy's increasing cash value and death benefit. The corporation
      pays the premiums and recovers these expenditures from its share of the policy's
      proceeds. The executive's interest in such policy is targeted to equal the
      present value of the retirement benefits due at the time of such executive's
      retirement. P rovisions
      under the Sarbanes-Oxley Act of 2002 have created uncertainty as to whether
      certain split dollar policies may be used with respect to certain executives.
      The split-dollar regulations from September 2003 and the Sarbanes-Oxley Act
      of
      2002 have significantly reduced the amount of revenue generated from new split
      dollar arrangements and may further reduce revenue from existing split dollar
      arrangements.





*Group
      Term Carve Out Plans.* Currently,
      a corporation can provide its employees with a group term life insurance policy
      death benefit of up to $50 thousand on a tax-free basis. The cost of providing
      a
      death benefit in excess of $50 thousand is taxed to the employee as ordinary
      income. Group term carve out plans allow companies to provide portable coverage
      in a customized program of amounts greater than $50 thousand that are taxed
      at
      lower rates. The purpose of group term carve out plans is to provide a greater
      amount of insurance and post-retirement death benefit to the employee at a
      competitive overall cost.





*Disability
      Income Plan.* Many
      companies provide group disability income insurance for their employees. In
      many
      cases, these plans have limits that may not be sufficient to provide reasonable
      income replacement for executives in the event of a disability. Group disability
      insurance plans marketed by our Executive Benefits Practice and Healthcare
      Group
      supplement the group plans currently in place, and provide additional income
      for
      executives in the event of a disability.





*ExecuFLEX
      Program.* Our
      Healthcare Group provides a total compensation planning approach to the
      not-for-profit healthcare market through its “ExecuFLEX” program. The program
      includes a base level of benefits, such as medical, dental, vision, long-term
      disability, long-term care, and group term life insurance. In addition,
      participants are provided an allowance made up of company contributions and
      voluntary personal deferrals. The flex allowance is used to supplement base
      coverage and to add to the employees' retirement funding. The ExecuFLEX program
      is designed to provide maximum flexibility to the participants at a minimal
      cost
      to the organization. The success of ExecuFLEX has led us to offer the program
      to
      companies serviced by our other operating segments as well as additional market
      segments within the healthcare industry.





***Consulting
      services***





Pearl
      Meyer & Partners, one of the nation’s leading executive compensation
      consulting firms, serves board compensation committees as outside advisors
      and
      assists companies in the creation and implementation of compensation programs
      for executives, directors, and employees.


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In
      2002,
      we formed our Human Capital Practice. The practice was formed by combining
      our
      Rewards and Performance Group and ten former partners and 74 support staff
      from
      Arthur Andersen LLP’s (“Andersen”) Human Capital Practice. The Human Capital
      Practice provided compensation benefits and human resources consulting services
      and products to major companies. As of October 1, 2003, we reorganized the
      executive compensation consulting practices. As part of this reorganization,
      some of the operations and employees of Human Capital Practice were transferred
      to Pearl Meyer & Partners. The remaining business of Human Capital Practice,
      in 2004, consisted of actuarial/retirement plan and investment advisory
      services. Effective January 1, 2005, the remaining Human Capital Practice was
      merged into the Executive Benefits Practice. We increased the size of our
      investment consulting group with the acquisition of Stratford Advisory Group
      in
      October, 2005.





With
      the
      acquisition of the Federal Policy Group (“FPG”) in 2002, we were able to expand
      our services to include a variety of legislative and regulatory strategic
      services. FPG develops and implements strategies to pursue legislative changes;
      anticipate and respond to proposed legislative initiatives; help shape
      administrative regulations and rulings; and raise the visibility of our clients
      through testimony before Congress and other avenues. Federal Policy Group
      clients include Fortune 500 companies, trade associations, and other
      businesses.





Our
      Healthcare Group and Banking Practice have developed compensation consulting
      programs in base salary, incentives, deferred compensation, and other
      compensation design plans. Approximately 50% of the Healthcare Group’s revenue
      is generated by consulting fees.





***Financing
      products***





*Business-Owned
      Life Insurance.* Business-owned
      life insurance is life insurance purchased and owned by an employer on the
      lives
      of a group of its employees. The insurance is used to fund the cost of the
      employee benefit obligations of the employer. The insurance is typically held
      by
      the employer as a general asset and is not directly linked to the employee
      benefits.  Business-owned life insurance is marketed to mid-sized and large
      corporations and healthcare institutions.





*Bank-Owned
      Life Insurance* .
      When
      utilized by banks, business-owned life insurance (as discussed above) is
      referred to as bank-owned life insurance. We market these programs to large
      banks, as well as to regional and community banks.





***Administrative
      services***





As
      of
      December 31, 2005, we administered approximately 376 thousand policies for
      approximately 2,650 clients. As of the same date, the insurance policies
      underlying our employee benefit programs represented a total of approximately
      $182 billion of inforce insurance coverage.





The
      following table presents the number of clients, policies administered, and
      inforce coverage as of December 31, 2005:





**Executive
                Benefits Practice**
            
            **Banking
                Practice**
            
            **Healthcare
                Group**
            
            **Total****Clients**
            350
            
            2,000
            
            300
            
            2,650**Policies
                administered**
            77,000
            
            285,000
            
            14,000
            
            376,000**Inforce
                coverage**
            $45
                billion
            
            $133
                billion
            
            $4
                billion
            
            $182
                billion





We
      also
      provided consulting services to an additional 1,350 clients in
      2005.





We
      generate fee-based revenues by providing administrative services to our clients.
      We approach administrative services with a strategy focused on servicing our
      clients' unique requirements and needs through customized, value-added services
      and intensive support in order to create brand and client loyalty and lower
      sensitivity to price.





We
      offer
      customized enrollment and administrative services for our employee benefit
      programs. In an effort to provide a high level of personalized services, each
      client is assigned an account team comprised of specialists who are responsible
      for servicing the needs of that client. The administrative services provided
      by
      each of our practices’ account specialists include coordinating and managing the
      enrollment process; distributing communication materials; monitoring financial,
      tax and regulatory changes; providing liability reports and periodic benefit
      statements to participants; performing annual reviews, and reporting the
      historical and projected cash flow and earnings impact of the plans. Actuarial,
      financial, and insurance experts support each practice’s account specialists. We
      enter into administrative agreements with many clients, in most cases for a
      term
      of five to ten years.


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***Our
      business segments***





In
      2005,
      w e
      operated through five operating segments: (1) Executive Benefits Practice,
      (2) Banking Practice, (3) Healthcare Group, (4) Pearl Meyer &
Partners, and (5) Federal Policy Group. Through these five segments, we design,
      market, and administer compensation and benefit programs for companies
      supplementing and securing employee benefits and provide executive compensation
      and related consulting and legislative strategic services to U.S. corporations,
      banks, and healthcare organizations. Our five operating segments operate as
      independent and autonomous business units with a central corporate staff
      responsible for finance, strategic planning, human resources, and company-wide
      policies. Each segment has its own client base as well as its own marketing,
      administration, and management.





In
      August
      2005, we announced our intent to combine our Executive Benefits Practice,
      Banking Practice ,
      and
      Insurance Company Practice into one practice that will serve those markets.
      The
      new practice will be reported as a single reporting segment in our consolidated
      financial statements effective January 1, 2006. The purpose of this combination
      is to be able to leverage the expertise of our top producers across a wider
      customer base, and improve our level of client service by streamlining
      operations and sharing a broader set of best practices.





*Executive
      Benefits Practice*





The
      Executive Benefits Practice (“EBP”) focuses on the designing, marketing,
      implementation, administration, and sales of COLI to finance non-qualified
      benefit plans for companies of all sizes, including Fortune 1000 companies,
      which can benefit from our products and services. The large corporate
      marketplace in which EBP does business requires a significant degree of
      customization. EBP
      has
      struggled in recent years as a result of the United States legislative
      environment, which most directly affects this segment of our
      business.





*Banking
      Practice*





The
      Banking Practice (“BP”) offers compensation consulting, executive and director
      benefits programs, and bank-owned life insurance to the bank market. BP provides
      programs to approximately 2,100 banks, including 43 of the top 50 largest banks
      in the United States.  In addition to compensation and benefit programs,
      this group also performs incentive consulting and works with banks in the design
      of ownership succession programs.





*Healthcare
      Group*





The
      Healthcare Group (“HG”) employs a comprehensive benefits approach that
      encompasses a variety of insurance products, ranging from traditional life
      insurance policies to disability and long-term care coverage. The healthcare
      industry has experienced a great deal of contraction with changes in our
      national healthcare regulations and compensation structure.





*Pearl
      Meyer & Partners*





Pearl
      Meyer & Partners (“PM&P”) is focused predominantly on executive
      compensation consulting and retention programs for Fortune 1000
      corporations. It is one of the largest executive compensation consulting
      organizations in the United States. Pearl Meyer and Steve Hall, president of
      Pearl Meyer & Partners, announced their resignations in late August 2005.
      Effective August 30, 2005, Joe Rich replaced Steve Hall as president of Pearl
      Meyer & Partners. Subsequently, several client facing professionals have
      also resigned. As a result of the voluntary resignations, there were seven
      involuntary terminations of certain Pearl Meyer & Partners’ employees in
      October. These developments are expected to reduce future revenue
      opportunities.





*Federal
      Policy Group*





Federal
      Policy Group (“FPG”) focuses on a variety of legislative and regulatory
      strategic services. FPG develops and implements strategies to pursue legislative
      changes; anticipates and responds to proposed legislative initiatives; helps
      shape administrative regulations and rulings; and raises the visibility of
      our
      clients through testimony before Congress and other avenues. FPG’s clients
      include Fortune 500 companies, trade associations, and other
      businesses.





***Distribution***





We
      market
      employee benefit programs and related administrative and consulting services
      through employee producers as well as through producers in independently
      operated sales offices located throughout the United States. As of
      December 31, 2005, we marketed our programs and services through 140
      employees and 25 independent producers.


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Our
      independent producers enter into exclusive agency agreements with us to market
      programs and services on our behalf. Each agreement defines the duties of the
      producer to solicit and sell covered business in an exclusive geographic
      territory, the commission splits between the producer and us, and includes
      a
      confidentiality agreement and operating standards. We pay a substantial portion
      (usually from 50% to 65%) of the revenue generated by the independent producers
      as commissions. All of our independent producers are responsible for their
      own
      operating expenses. Most of our segments generate a significant portion of
      their
      sales revenue through employees and we bear the administrative expense of the
      employees in exchange for lower commission expense. Over the last several years,
      our sales force has shifted to more employees from independent
      producers.





Many
      of
      our products have a securities component and must be sold through a licensed
      broker/dealer. Clark Securities, Inc. (“CSI”) is used by our producers for
      distributing these securities-related products. CSI currently distributes
      insurance, annuities, and mutual funds for our products. CSI had 285 registered
      representatives at December 31, 2005, and is licensed to operate in all
      50 states and the District of Columbia. By having our own broker/dealer, we
      are able to control costs and sensitive customer information more effectively
      than if we used an outside broker/dealer.





Our
      producers are supported by a design and analysis department in each insurance
      related segment. The primary responsibility of the design and analysis
      department is to design customized compensation and benefit programs that will
      effectively reduce the costs of a client's employee benefit and compensation
      liabilities. The design analyst works with the producer to identify the needs
      of
      a prospective client and investigates the availability and pricing of products
      that are compatible with that client's needs. Finally, the analyst develops
      the
      financial projections necessary to evaluate the benefit costs and cost
      recoveries for the prospective client, together with an analysis of financing
      alternatives to assist the client in making a decision.





We
      recognize the importance of attracting and retaining qualified, productive
      sales
      professionals. We actively recruit and develop new sales professionals in order
      to add to our distribution capacity. Further, our acquisition strategy focuses
      on retaining the productive sales professionals of the entity being
      acquired.





***Marketing
      support***





We
      have
      established marketing departments in each practice. Each marketing department's
      primary focus is to support the sales efforts of their operation through
      integrated marketing communications strategies. The marketing departments
      develop and track leads for consultants through various channels including
      advertising, public relations, trade shows, and direct mail. Additionally,
      the
      marketing function provides collateral materials, business communication, brand
      support, survey research and distribution. We distribute external newsletters
      and other program update pieces to clients and prospects throughout the year
      and
      sponsor conferences and meetings featuring our industry experts. Public
      relations and corporate marketing functions coordinate the publication of
      articles, white papers, and briefs written by our consultants and ensure that
      our representatives are positioned as thought leaders and industry experts
      in
      national, local, and industry trade publications. These efforts have made us
      a
      clear leader in the executive compensation and benefits consulting
      industry.





Our
      distribution strategy seeks to leverage our relationships within our
      organization and among our business partners. We establish relationships with
      carriers and professional service providers that provide opportunities for
      cross-utilization of services. We have also developed strategic relationships
      with several professional service firms that are used as a referral source
      for
      our consultants. In addition, we have advisory boards of current and former
      industry leaders familiar with our products and services who provide
      introductions to prospective clients. We believe these relationships assist
      our
      consultants in gaining access to the appropriate personnel of prospective
      clients and more effectively establish relationships based on a position of
      trust.





***Industry
      background***





Over
      the
      past twenty years, as the result of legislative change and increased competition
      for executive talent, compensation and benefit programs have become more
      sophisticated and complex. In turn, the financing of these programs has also
      become increasingly complex. Corporations and banks now commonly use life
      insurance to offset the costs of employee benefit liabilities and several large
      insurers have committed significant resources to develop business-owned life
      insurance products for use in this market. The industry has shifted toward
      the
      use of variable life insurance, which contains equity investment features to
      meet these needs.





At
      the
      same time, the corporations, banks, and healthcare organizations that use these
      services have become more sophisticated and demanding. Clients now regularly
      perform extensive due diligence on the firms providing their compensation and
      benefit programs. Issues related to reputation and technological capabilities
      are now central to their decision-making process. In addition, the client's
      expectation regarding the level of administrative services to be provided and
      technological capabilities of a provider has risen substantially. For
      example,  community banks have been cnsolidating since the early 1990's.
      This consolidation gave bank executives a greater appreciation and need for
      expertise regarding the impact of consolidation on their compensation and
      benefit programs. This developed into a stronger demand by the community banking
      industry for expert advice in addressing estate and continuity planning. In
      addition, healthcare organizations have been faced with growing challenges
      to
      attract and retain executives. The tax status of healthcare providers, many
      of
      whom are not-for-profit healthcare organizations, requires tailored compensation
      and benefits programs that comply with the various not-for-profit compensation
      and benefit rules.


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Our
      products and services have also historically been affected both positively
      and
      negatively by legislative change. For example, prior legislation has increased
      the attractiveness of non-qualified benefit plans for highly-paid executives
      by
      limiting the amount of tax-deductible contributions to traditional pension
      plans. In contrast, tax legislation was enacted in 1996 that disallowed interest
      deductions on policy loans and essentially eliminated a financing technique
      for
      corporations known as “leveraged corporate-owned life insurance.” Final Treasury
      regulations have changed the manner in which split dollar arrangements will
      be
      taxed.  The new treatment will be, in certain respects, less attractive
      than the historical tax treatment of split dollar arrangements. Additionally,
      provisions under the Sarbanes-Oxley Act of 2002 have created uncertainty as
      to
      whether certain split dollar policies may be used with respect to certain
      executives.





On
      October 22, 2004, President Bush signed into law H.R. 4520, the “American Jobs
      Creation Act of 2004,” which included provisions affecting deferred compensation
      arrangements for taxable and tax-exempt employers. The legislation created
      new
      Section 409A of the Internal Revenue Code which applies to voluntary deferred
      compensation arrangements, supplemental executive retirement plans, stock
      appreciation rights (“SARs”) and certain other arrangements which have the
      effect of deferring compensation. Section 409A generally applies to compensation
      deferrals made after December 31, 2004. Among other things, Section 409A
      modifies the times at which distributions are permitted from nonqualified
      deferred compensation arrangements and requires that elections to defer
      compensation be made earlier than historical practice for many plans. The
      Treasury Department and the IRS issued their initial guidance regarding Section
      409A, Notice 2005-1, on December 20, 2004. This initial guidance provided for
      the transition to the new rules contained in Section 409A. Most existing
      deferred compensation programs will have to be modified in accordance with
      the
      new statute and regulations. In addition, comprehensive proposed Treasury
      Regulations addressing the applications of Section 409A were published in the
      Federal Register on October 4, 2005. These proposed regulations will become
      effective January 1, 2007. During the transition period, it is expected that
      plan sponsors will revise the structure of their current programs and formalize
      the changes into a compliant plan design by the end of 2006 in accordance with
      the deadline established by the proposed regulations. We believe that deferred
      compensation plans remain a valuable savings tool. However, because of the
      time
      and effort required by plan sponsors to come into compliance with the new rules
      and to communicate the required changes to participants, participant
      compensation deferrals may be reduced. As a result, our revenue from existing
      and new arrangements may be reduced during the transitional period. Beyond
      the
      transitional period, it is anticipated that participant deferrals will return
      to
      their prior level, although the long-term impact of the new rules remains
      uncertain at this time.





We
      believe that increasing product complexity, growing buyer sophistication, and
      the changing legislative landscape requires product development systems and
      personnel that are more sophisticated and cost intensive than most producers
      and
      producer groups are able to justify economically. We believe this will continue
      to drive consolidation in the industry as smaller firms respond in order to
      stay
      competitive.





***Employees***





As
      of
      December 31, 2005, we employed 931 people as follows:





Executive
                Benefits Practice
            259Banking
                Practice
            307Healthcare
                Group
            194Pearl
                Meyer & Partners
            82Federal
                Policy Group
            11Resource
                Center (Corporate) and Clark Securities, Inc.
            78Total
            931





The
      majority of our employees have college degrees, with several holding advanced
      degrees in law, accounting, finance, business administration, or actuarial
      science. Professional development is a highly valued industry characteristic,
      and insurance and financial planning designations, such as Chartered Life
      Underwriter, Fellow of the Life Management Institute, Fellow of the Society
      of
      Actuaries and Certified Financial Planner, are held by a large number of our
      employees. We actively encourage continuing education for employees through
      expense reimbursement and reward plans. Due to the specialized nature of the
      business, we often recruit experienced persons from insurance companies,
      consulting firms, and related industries.


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***Competition***





The
      executive compensation and benefit consulting market is highly competitive
      as
      the margins from this type of work are high. We compete with consulting firms,
      brokers, third party administrators, producer groups, and insurance companies.
      A
      number of our competitors offer attractive alternative programs. The primary
      competitors of our Executive Benefits Practice include Mullin Consulting, TBG
      Financial, and Westport Worldwide. The primary competitors of our Banking
      Practice include Charon Planning, Benmark, and Northwestern Mutual Life.
      Additionally, the banking industry is consolidating, which may reduce the number
      of potential bank clients. Primary competitors of our Healthcare Group and
      Pearl
      Meyer & Partners include Sullivan & Cotter, Towers Perrin, Fred Cook,
      and Mercer Consulting Group.





We
      compete for clients on the basis of reputation, client service, program and
      product offerings, and the ability to tailor our products and administrative
      services to the specific needs of a client. We believe that we are in a superior
      competitive position in most of the meaningful aspects of our business because
      of our track record, name recognition, quality of our personnel, established
      relationships, industry focus and expertise, and specialization. We do not
      consider our direct competitors to be our greatest competitive threat. Rather,
      we believe that our most serious competitive threat will likely come from large,
      diversified financial services organizations that are willing to expend
      significant resources to enter our markets and from larger competitors that
      pursue an acquisition or consolidation strategy similar to ours.





***Government
      regulation***





State
      governments extensively regulate our life insurance activities. We sell our
      insurance products in all 50 states and the District of Columbia through
      licensed insurance producers. Insurance laws vary from state to state. Each
      state has broad powers over licensing, payment of commissions, business
      practices, policy forms, and premium rates. While we have not encountered
      regulatory problems in the past, we cannot assure you that we will always be
      in
      compliance with all applicable regulatory requirements of each state.
      Additionally, we cannot be sure if we, our producers, or the insurance carriers
      underwriting the policies will encounter regulatory problems in the future,
      including any potential sanctions or penalties for operating in a state without
      all required licenses.





While
      the
      federal government does not directly regulate the marketing of most insurance
      products, securities, including variable life insurance, are subject to federal
      securities laws. As a result, our producers and entities with which we have
      administrative service agreements related to selling those products must be
      registered with the National Association of Securities Dealers. We market these
      financial products through CSI, a wholly owned subsidiary and a registered
      broker/dealer. While we have not had any regulatory problems in the past related
      to these products, we cannot assure you that we or the producers through whom
      we
      sell, will be in compliance at all times with all applicable regulatory
      requirements of each state.





As
      a
      result of issues arising in connection with the marketing by certain companies
      in the property and casualty insurance, health insurance, and group life
      insurance markets, various states have adopted laws and regulations during
      2005
      that among other things, impose new disclosure obligations on us with respect
      to
      the insurance and other financial products we market. These new laws and
      regulations are, in part, a response to the recent amendment to the Producer
      Licensing Model Act by the National Association of Insurance Commissioners.
      Other states may respond in a similar fashion during 2006. Depending on the
      specific requirements of such laws, if any, which are actually adopted by the
      states where we market insurance, there could be an adverse impact on our
      revenues.





Most
      aspects of our business are subject to regulation by the U.S. Federal and State
      regulatory agencies and securities exchanges. Aspects of our public disclosure,
      corporate governance principles, and internal control environment are subject
      to
      the Sarbanes-Oxley Act of 2002 and related regulations and rules of the SEC
      and
      the New York Stock Exchange, Inc. (the “NYSE”).








**ITEM
      1A. RISK FACTORS**





*You
      should carefully consider the risks described below together with the other
      information contained in this 10-K before making a decision to invest in our
      common stock. The risks described below are not the only risks we face.
      Additional risks and uncertainties of which we are unaware or currently believe
      may be immaterial may also impair our business operations. If any of the
      following risks actually occur, our business, financial condition, and operating
      results could be adversely affected.*


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***Risks
      related to our industry***





**We
      are substantially dependent on revenue generated by the sale of business-owned
      life insurance policies. Changes in Federal tax laws and regulations could
      materially and adversely affect our renewal income and ability to gain new
      business.**





Many
      of
      the compensation and benefit programs we design and implement for our clients
      are financed with business-owned life insurance. Business-owned life insurance
      programs have tax advantages associated with such products that are attractive
      to our current and prospective clients. Commission revenue from these products
      represented 66.6%, 69.1% and 72.4%, of our total revenues in 2005, 2004, and
      2003, respectively.





Provisions
      under the Sarbanes-Oxley Act of 2002 have created uncertainty as to whether
      certain split dollar policies may be used with respect to certain executives.
      The split-dollar regulations from September 2003 and the Sarbanes-Oxley Act
      of
      2002 have significantly reduced the amount of revenue generated from new split
      dollar arrangements and may further reduce revenue from existing split dollar
      arrangements in the near term.





On
      October 22, 2004, President Bush signed into law H.R. 4520, the “American Jobs
      Creation Act of 2004,” which included provisions affecting deferred compensation
      arrangements for taxable and tax-exempt employers. The legislation created
      new
      Section 409A of the Internal Revenue Code which applies to voluntary deferred
      compensation arrangements, supplemental executive retirement plans, stock
      appreciation rights (“SARs”) and certain other arrangements which have the
      effect of deferring compensation. Section 409A generally applies to compensation
      deferrals made after December 31, 2004. Among other things, Section 409A
      modifies the times at which distributions are permitted from nonqualified
      deferred compensation arrangements and requires that elections to defer
      compensation be made earlier than historical practice for many plans. The
      Treasury Department and the IRS issued their initial guidance regarding Section
      409A, Notice 2005-1, on December 20, 2004. This initial guidance provided for
      the transition to the new rules contained in Section 409A. In addition,
      comprehensive proposed Treasury Regulations addressing the application of
      Section 409A were published in the Federal Register on October 4, 2005. These
      proposed regulations will become effective January 1, 2007. Most existing
      deferred compensation programs will have to be modified in accordance with
      the
      new rules. During the transition period, it is expected that plan sponsors
      will
      revise the structure of their current programs and formalize the changes into
      a
      compliant plan design by the end of 2006 in accordance with the deadline
      established by the proposed regulations. We believe that deferred compensation
      plans remain a valuable savings tool. However, because of the time and effort
      required by plan sponsors to come into compliance with the new rules and to
      communicate the required changes to participants, participant compensation
      deferrals may be reduced. As a result, our revenue from existing and new
      arrangements may be reduced during the transitional period. Beyond the
      transitional period, it is anticipated that participant deferrals will return
      to
      their prior level, although the long-term impact of the new rules remains
      uncertain at this time.





There
      have been several recent congressional proposals to change the federal tax
      laws
      with respect to business-owned life insurance. On September 17, 2003, the Senate
      Finance Committee approved legislation proposed by Sen. Jeff Bingaman (D-NM)
      that would tax the death benefits taxpayers receive from certain policies on
      the
      lives of former employees. Following an intensive lobbying effort by the
      insurance industry, the Finance Committee on February 2, 2004, reconsidered
      the
      business-owned life insurance provision it had previously approved and, in
      its
      place, approved legislation that generally would tax the death benefits
      taxpayers receive from policies on the lives of employees or former employees
      only in cases where the insured person had not consented to being covered or
      in
      the case of a former employee, where the insured was not among the company’s
      highly-compensated employees at the time of policy issuance. This same provision
      was reintroduced on January 31, 2005, by Senate Finance Committee Chairman
      Charles Grassley (R-IA) and Senator Max Baucus (D-MT) as part of the National
      Employee Savings and Trust Equity Guarantee Act (S. 219) and was included in
      the
      pension bill, the Pension Security and Transparency Act of 2005 (S.1783),
      approved by the Senate on November 16, 2005. We believe that this most recent
      proposal, if enacted, would not have a material adverse effect on our revenue
      from the sale of business-owned life insurance policies. However, if Congress
      were to adopt legislation broadly limiting the tax-free payment of death
      benefits on such policies or otherwise adversely affecting the tax treatment
      of
      the policies, future revenue from the sale of business-owned life insurance
      policies could materially decline.





On
      November 1, 2005, the President’s Advisory Panel on Federal Tax Reform released
      the conclusions of its study on ways to reform the federal tax system. Among
      the
      panel’s recommendations is a proposal to tax currently, in certain instances,
      the increase in value (“inside buildup”) of life insurance policies. The tax
      reform panel’s recommendations are not binding on the President and it is
      unknown whether the President would include any proposal relating to life
      insurance inside buildup in any tax reform plan he may advance. The panel’s
      recommendation regarding inside buildup would be a fundamental change in the
      longstanding tax treatment of life insurance and has already encountered
      significant opposition from the life insurance industry, calling into question
      the prospects for any such proposal in Congress. However, if any such proposal
      were enacted and applied to business-owned life insurance, it could have a
      material adverse effect on our revenue from the sale of such
      insurance.


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**Our
      business is subject to fluctuations in interest rates, stock prices and general
      economic conditions.**





General
      economic conditions and market factors, such as changes in interest rates and
      stock prices, can affect our commission and fee income and the extent to which
      clients keep their policies inforce year after year. Equity returns and interest
      rates can have a significant effect on the sale and profitability of many
      employee benefit programs whether they are financed by life insurance or other
      financial instruments. For example, if interest rates increase, competing
      products could become attractive to potential purchasers of the programs we
      market. When interest rates are at historically low levels, our fixed income
      products become less attractive to potential purchasers. Further, a prolonged
      decrease in stock prices can have an effect on the sale and profitability of
      our
      clients’ programs that are linked to stock market indices. We cannot guarantee
      that we will be able to compete with alternative products if these market forces
      make our clients' programs unattractive.





**We
      are subject to regulation at the state level.**





State
      governments extensively regulate life insurance activities. We sell our
      insurance products in all 50 states through licensed insurance producers
      operating as independent agents as well as through our employees. States have
      broad powers over licensing, payments of commissions, business practices, policy
      forms, and premium rates. Insurance laws related to licensing, marketing
      activities, and the receipt of commissions varies from state to state. While
      we
      have not encountered significant regulatory problems in the past, we cannot
      assure you that we, or the producers through whom we sell, will be in compliance
      at all times with all applicable regulatory requirements of each
      state.





As
      a
      result of issues arising in connection with the marketing by certain companies
      in the property and casualty insurance, health insurance, and group life
      insurance markets, various states have adopted laws and regulations during
      2005
      that, among other things, impose new disclosure obligations on us with respect
      to the insurance and other financial products we market. These new laws and
      regulations are, in part, a response to the recent amendment to the Producer
      Licensing Model Act by the National Association of Insurance Commissioners.
      Other states may respond in similar fashion during 2006. Depending on the
      specific requirements of such laws, if any, which are actually adopted by the
      states where we market insurance, there could be an adverse impact on our
      revenues.





We
      have
      entered into a number of supplemental compensation arrangements with certain
      of
      the insurance carriers whose products we sell. The industry-wide usage of
      supplemental compensation arrangements between distributors and insurance
      carriers has come under scrutiny from regulatory and law enforcement
      authorities. For example, the Attorney General of the State of New York has
      commenced an investigation of certain practices in the insurance industry.
      While
      we believe that our arrangements are in each case appropriate and consistent
      with applicable law, there exists uncertainty as to whether regulatory
      authorities or industry participants will seek to alter many practices in the
      industry, including the terms under supplementary compensation arrangements
      between distributors and insurance companies. Any changes to such practices
      or
      terms could have a material adverse effect on our business, financial condition,
      and results of operations.





***Risks
      related to our company***





**We
      face strong competition.**





Our
      business is highly competitive. We compete with consulting firms, insurance
      brokers, third party administrators, producer groups, and insurance companies.
      A
      number of our competitors offer attractive alternative programs. The direct
      competitors of our Executive Benefits Practice include Mullin
      Consulting, TBG Financial, and Westport Worldwide. The competitors of our
      Banking Practice include Charon Planning, Benmark, and Northwestern Mutual
      Life.
      Additionally, the banking industry is consolidating, which may reduce the number
      of potential bank clients. Primary competitors of our Healthcare Group and
      Pearl
      Meyer & Partners include Sullivan & Cotter, Towers Perrin, Fred Cook,
      and Mercer Consulting Group.





We
      may
      also face competition from large, diversified financial services firms willing
      and able to expend the resources to enter our markets and from large direct
      competitors that choose to pursue an acquisition or consolidation strategy
      similar to ours.


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**Our
      business depends on the renewal commissions we generate from the life insurance
      policies underlying our clients' compensation and benefit
      programs.**





We
      derive
      a substantial portion of our revenue from the renewal commissions we earn on
      the
      business-owned life insurance policies and other financial instruments that
      underlie our clients' compensation and benefit programs. We earn these annual
      commissions so long as the underlying policies remain in existence. If a client
      chooses to cancel a policy, we will stop receiving any renewal commissions
      and
      fees on that policy. In addition, if a client delays or reduces the annual
      premiums it pays on the underlying policy due to a flexible premium structure
      or
      financial difficulties, our renewal commissions will be correspondingly delayed
      or reduced.





**Our
      quarterly operating results vary dramatically.**





Our
      operating results fluctuate considerably from quarter to quarter. We have
      experienced, and may continue to experience, large concentrations of revenue
      in
      the first and fourth quarters. Our operating results may be affected by a number
      of factors including: a significant portion of the funding for our bank-owned
      life insurance products occurs in the fourth calendar quarter, many deferred
      compensation plans marketed by our Executive Benefits Practice are financed
      in
      the first calendar quarter; and the timing of significant sales can have a
      material impact on our quarterly operating results.





Our
      revenue is difficult to forecast, and we believe that comparing our consecutive
      quarterly results of operations is not meaningful, nor does it indicate what
      results we will achieve for any subsequent period. In our business, past
      operating results are not consistently reliable indicators of future
      performance. Significant downward fluctuations in our quarterly operating
      results could result in a sharp decline in the trading price of our common
      stock. See further discussion about the quarterly operating results in Note
      23,
“Interim Financial Data (Unaudited)” to the Consolidated Financial Statements,
      which appear under Item 15 “Exhibits and Financial Statement
      Schedules.”





**We
      are dependent on our management team.**





Our
      performance depends largely on the performance of our executive officers and
      key
      employees. It is important to us to keep and motivate high quality personnel,
      especially our management, consultants, and program development teams. The
      loss
      of the services of any key employees could have a material adverse effect on
      our
      business, financial condition, and operating results. We cannot assure you
      that
      we will be successful in retaining our key personnel.





**We
      may not be able to successfully implement our acquisition strategy or integrate
      the businesses we acquire.**





Since
      September 1997, we have completed 29 acquisitions. At any point in time, we
      may also be considering several other potential acquisitions. Future
      acquisitions may require substantial expenditures that will be financed through
      cash from operations, or bank debt as well as future debt and/or equity
      offerings. We cannot assure you that funds will be available from banks or
      through the capital markets or that they will be available on terms acceptable
      to us. If funds are not available, we may be unable to fully implement our
      acquisition strategy.





Acquisitions
      involve numerous risks, including the diversion of our management's time and
      attention to the negotiation of the transaction and to the integration of the
      businesses acquired, the possible need to modify financial and other systems
      and
      add management resources, the potential loss of employees of the acquired
      businesses, the risks of entering new markets with which we have limited
      experience, and unforeseen difficulties in the acquired operations. An
      acquisition may not produce the revenue and profits we expect. Thus, an
      acquisition that fails to meet our expectations could have a material adverse
      effect on our business, financial condition, and operating results.





**A
      substantial portion of our total assets are represented by intangible
      assets.**





When
      we
      acquire a company, we normally acquire few tangible assets. Therefore,
      substantially the entire purchase price for the acquisition is allocated to
      intangible assets. The three primary components of our intangible assets are
      inforce revenue, goodwill, and non-compete agreements. The amount of purchase
      price allocated to inforce revenue is determined by discounting the cash flow
      of
      future commissions adjusted for expected persistency, mortality, and associated
      costs. The persistency of our inforce business is influenced by many factors
      outside of our control, and we cannot be sure that the value we have allocated
      will ultimately be realized. Non-compete
      agreements are amortized over the period of the agreements and other
      identifiable intangibles are amortized over their useful lives. The
      balance of the purchase price not allocated to identifiable intangible assets
      is
      classified as goodwill.


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If
      any
      component of our inforce revenue should become unrealizable, this could have
      a
      material adverse effect on our business, financial condition, and operating
      results. We cannot assure you that all of our inforce revenue will be realizable
      or that accounting regulatory bodies will not impose different amortization
      methods.





**A
      majority of our commission revenue is derived from policies written by a limited
      number of insurance companies.**





We
      depend
      on a select group of insurance companies to underwrite the insurance policies
      underlying the programs we sell. During 2005, 32 life insurance companies
      underwrote substantially all of the insurance policies underlying our clients'
      programs. Seven of these companies accounted for approximately 30.6% of our
      first year commission revenue in 2005, 55.3% in 2004, and 55.7% in 2003. If
      our
      relationship with any of these insurance companies, or their financial
      condition, were to significantly change for any reason, we could experience
      a
      disruption in our ability to provide products and services to our clients.
      Although we believe such disruption would only be short-term and that we would
      not experience any difficulties in securing replacement relationships with
      similar insurance companies, any long-term delays in doing so could affect
      our
      ability to provide competitive financing alternatives to our
      clients.





**Major
      stockholders have the ability to influence stockholder
      action.**





AEGON,
      Dimensional Fund Advisors, and Century Management owned approximately 13.1%,
      9.1%, and 8.6% respectively, of our outstanding common stock as of December
      31,
      2005. Tom Wamberg, our Chairman and Chief Executive Officer, owned approximately
      8.1% of our outstanding common stock as of December 31, 2005. As a result,
      these
      stockholders are able to exercise significant influence over all matters
      requiring stockholder approval, including the election of directors and approval
      of significant corporate transactions. This concentration of ownership may
      also
      have the effect of delaying, preventing, or deterring a change in control that
      may otherwise be beneficial to stockholders.





**We
      are subject to litigation which may have a negative impact on our business
      and
      reputation.**





From
      time
      to time, we are subject to lawsuits and other claims, which are being handled
      and defended in the ordinary course of business. While we are unable to predict
      the outcome of these matters, we do not believe, based upon currently available
      facts, that the ultimate resolution of any of such pending matters will have
      a
      material adverse effect on our overall financial condition, results of
      operations, or cash flows. However, adverse developments could negatively impact
      earnings in a particular future period. See Item 3, “Legal
      Proceedings.”





**Errors
      or omissions in the services we provide our clients may result in liabilities
      which could have a material adverse effect on our business and
      reputation.**





We
      market, design, and administer sophisticated financial products and we provide
      actuarial and other professional services in connection with marketing,
      designing, and administering these programs. Our clients rely upon the services
      and interpretations rendered by our employees. To the extent any services or
      interpretations provided by our employees prove to be inaccurate, we may be
      liable for the damages, and such liability, to the extent not covered by
      existing insurance, could have a material adverse effect on our business,
      financial condition, and results of operations.





**We
      are dependent on our information processing systems.**





Our
      ability to provide administrative services depends on our capacity to store,
      retrieve, process, and manage significant databases and expand and upgrade
      periodically our information processing capabilities. Interruption or loss
      of
      our information processing capabilities through loss of stored data, breakdown,
      or malfunctioning of computer equipment and software systems, telecommunications
      failure, or damage caused by fire, tornadoes, lightning, electrical power
      outage, or other disruption could have a material adverse effect on our
      business, financial condition, and results of operations. Although we have
      disaster recovery procedures in place and insurance to protect against such
      contingencies, we cannot assure you that such insurance or services will
      continue to be available at reasonable prices, cover all such losses or
      compensate us for the possible loss of clients occurring during any period
      that
      we are unable to provide services.


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***Risks
      related to our common stock***





**The
      issuance of additional common stock may dilute other
      stockholders.**





As
      of
      December 31, 2005, we had an aggregate of 18,349,401 shares of common stock
      authorized but unissued and not reserved for specific purposes. We may issue
      all
      of these shares without any action or approval by our stockholders. As of
      December 31, 2005, we had an aggregate of 2,703,791 unissued shares reserved
      for
      issuance under our employee and director incentive plans. We intend to continue
      to actively pursue acquisitions of competitors and related businesses and may
      issue shares of common stock in connection with those acquisitions. Any shares
      issued in connection with our acquisitions, the exercise of stock options,
      or
      otherwise, would dilute the percentage ownership held by existing
      stockholders.





**Existing
      stockholders can sell a substantial number of their shares in the public market
      which could depress our stock price.**





Sales
      of
      a substantial number of shares of our common stock in the open market, or the
      perception that such sales could occur, could adversely affect the trading
      price
      of our common stock. Mr. Wamberg held 1,411,680 shares as of December 31,
      2005, representing approximately 8.1% of the outstanding shares of common stock.
      Institutional investors (that individually hold in excess of 5% of our
      outstanding shares) cumulatively represent 7,281,833 shares or approximately
      41.6% of the outstanding shares of common stock. Mr. Wamberg had entered into
      a
      previously disclosed share sale program pursuant to Rule 10b5-1 under the
      Securities Exchange Act of 1934 that involves the sale of our shares that Mr.
      Wamberg had held in excess of one year. The plan expired by its term in
      September 2005. Any sales of our common stock by Mr. Wamberg or the other
      principal stockholders could adversely affect the trading price of our common
      stock.





**Delaware
      law and our charter documents could prevent an unsolicited
      takeover.**





Delaware
      law, as well as provisions of our certificate of incorporation and bylaws,
      could
      discourage unsolicited proposals to acquire us, even though such a proposal
      may
      be beneficial to stockholders. These provisions include a board of directors
      classified into three classes of directors with the directors of each class
      having staggered, three-year terms, our board's authority to issue shares of
      preferred stock without stockholder approval, and Delaware law restrictions
      on
      many business combinations and prohibitions on removing directors serving on
      a
      staggered board for any reason other than "for cause."





In
      addition, we have adopted a stockholder rights plan that could further
      discourage attempts to acquire control of us. These provisions of our
      certificate of incorporation, bylaws, and Delaware law could discourage tender
      offers or other transactions that might otherwise result in your receiving
      a
      premium over the market price for our common stock.





**ITEM
      1B. UNRESOLVED STAFF COMMENTS**





None





**ITEM
      2.****PROPERTIES**





As
      of
      December 31, 2005, we operated in the following leased offices throughout the
      United States:





**Practice**
            
            **Number
                of Offices**
            
            **Square
                Footage**Executive
                Benefits Practice
            
            
            10
            
            
            148,853Banking
                Practice
            
            
            13
            
            
            84,032Healthcare
                Group
            
            
            2
            
            
            77,533Pearl
                Meyer & Partners
            
            
            3
            
            
            45,243Federal
                Policy Group
            
            
            1
            
            
            4,832Resource
                Center
            
            
            1
            
            
            17,783Total
            
            
            30
            
            
            378,276








**ITEM
      3. LEGAL PROCEEDINGS**





From
      time
      to time, we are involved in various claims and lawsuits incidental to our
      business, including claims and lawsuits alleging breaches of contractual
      obligations under agreements with our employee consultants and independent
      producers.


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





No
      matters were submitted during the fourth quarter of the fiscal year covered
      by
      this Form 10-K to a vote of our security holders, through the solicitation
      of
      proxies or otherwise.








**PART
      II**





**ITEM
      5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
      STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY
      SECURITIES**





Effective
      June 9, 2003, our common stock began trading on the New York Stock Exchange
      under the symbol “CLK.” From March 7, 2002 through June 8, 2003, our common
      stock was traded on the New York Stock Exchange under the symbol “CBC.” Prior to
      that, our common stock was traded on the NASDAQ National Market under the symbol
      “CLKB.”





The
      following table sets forth, for the periods indicated, the high and low closing
      prices for our common stock, as reported on the New York Stock Exchange for
      the
      two most recent fiscal years.





**High**
            
            **Low****Year
                ended December 31, 2004:**First
                Quarter
            
            $
            20.70
            
            $
            16.47Second
                Quarter
            
            
            20.30
            
            
            16.51Third
                Quarter
            
            
            18.83
            
            
            12.41Fourth
                Quarter
            
            
            16.65
            
            
            12.91**Year
                ended December 31, 2005:**First
                Quarter
            
            $
            18.31
            
            $
            12.19Second
                Quarter
            
            
            17.05
            
            
            12.80Third
                Quarter
            
            
            16.83
            
            
            13.79Fourth
                Quarter
            
            
            16.63
            
            
            12.67





The
      closing price of our common stock on February 15, 2006, as reported on the
      New
      York Stock Exchange, was $11.92 per share. As of February 15, 2006, we had
      17,535,128 outstanding shares of common stock. As of January 31, 2006, we had
      approximately 410 stockholders of record, which does not include shares held
      in
      securities position listings.





***Dividend
      Policy***





On
      February 1, 2006, the Board of Directors authorized us to pay a dividend of
      $0.06 per share (approximately $1.1 million) to all stockholders of record
      as of
      March 1, 2006, payable on April 1, 2006.





We
      paid a
      dividend of $0.06 per common share on April 1, July 1, October 1, 2005, and
      January 1, 2006 to stockholders of record as of March 1, June 1, September
      1,
      and December 1, 2005, respectively. We intend to pay a similar dividend each
      quarter, assuming we have adequate capital availability, that we continue to
      be
      permitted to pay dividends under our senior credit facility, and that cash
      dividends continue to be in the best interests of our stockholders and us. We
      can
      provide no assurance that we will pay cash dividends for any future period
      or
      that our current cash dividend will remain at the current level.





***Equity
      Compensation Plan Information***





Information
      regarding our equity compensation plans, including both stockholder approved
      plans and non-stockholder approved plans, is set forth in the section entitled
      “Executive Compensation - Equity Compensation Plan Information” in our Proxy
      Statement, to be filed within 120 days after our fiscal year end of
      December 31, 2005, which information is incorporated herein by
      reference.


16
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***Issuer
      Purchases of Equity Securities***





The
      following table sets forth information in connection with purchases made by,
      or
      on behalf of, us or any affiliated purchaser of ours, of shares of our common
      stock during the quarterly period ended December 31, 2005.





**Period**
            **Total
                Number of**
              **Shares****Purchased****(1)(2)**
            **Average
                Price Paid per****Share**
            **Total
                Number of Shares**
              **Purchased
                as Part of Publicly**
              **Announced****Plans
                or Programs**
            **Maximum
                Number (or Approximate Dollar Value)**
              **of
                Shares that May Yet Be Purchased**
              **Under
                the Plans or****Programs****(2)**October
                1, 2005 through
              October
                31, 2005
            100,000
            $15.87
            100,000
            $14.0
                millionNovember
                1, 2005 through
              November
                30, 2005
            -
            
            -
            $14.0
                millionDecember
                1, 2005 through
              December
                31, 2005
            -
            
            -
            $14.0
                million





(1)
            In
                January 2003, our Board of Directors authorized the purchase of up
                to 400
                thousand shares of our common stock to, among other things, fulfill
                our
                obligations under our Employee Stock Purchase Plan. The Employee
                Stock
                Purchase Plan consisted of two semi-annual offerings of common stock
                beginning on each January 1 and July 1 in each of the years 2003
                and 2004
                and terminating on June 30 and December 31 of each such year. For
                each of
                the years 2005 and 2006, the Employee Stock Purchase Plan will consist
                of
                four quarterly offerings of common stock beginning on the first day
                of
                January, April, July and October and terminating on March 31, June
                30,
                September 30, and December 31 of each such year. The maximum number
                of
                shares issued in any of the semi-annual and quarterly offerings is
                50
                thousand and 25 thousand,
                respectively.





(2)
            On
                January 25, 2005, our Board of Directors authorized us to expand
                our
                existing stock repurchase program to a total of $15 million of our
                outstanding common stock, from the previously authorized level of
                $10
                million. On May 27, 2005, our Board of Directors authorized us to
                repurchase up to $35 million of our common stock, an increase of
                $20
                million from the previously authorized level of $15 million. On August
                1,
                2005, we executed an agreement with a broker-dealer to repurchase
                shares
                of our stock in the market pursuant to SEC rule 10b5-1. On October
                31,
                2005, we terminated the August 1, 2005
                agreement.





**ITEM
      6. SELECTED FINANCIAL DATA**





*(Dollars
      in thousands except share and per share amounts)*





The
      following historical information should be read in conjunction with information
      included elsewhere herein, including the consolidated financial statements,
      the
      notes thereto, and Item 7, “Management's Discussion and Analysis of Financial
      Condition and Results of Operations.” The results of operations presented below
      are not necessarily indicative of the results of operations that may be achieved
      in the future.


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**2005****(1)(6)**
            
            **2004****(8)**
            
            **2003****(2)(3)**
            
            **2002****(4)**
            
            **2001****(5)(7)****Consolidated
                Statements of Income**
              **Total
                Revenue**
            
            $
            273,806
            
            $
            315,582
            
            $
            325,929
            
            $
            278,586
            
            $
            236,884**Operating****Expenses**Commissions
                and fees
            
            
            53,024
            
            
            74,292
            
            
            88,615
            
            
            90,273
            
            
            84,002Other
                operating expenses
            
            
            183,693
            
            
            188,352
            
            
            192,836
            
            
            154,600
            
            
            121,331**Operating****Income**
            
            $
            37,089
            
            $
            52,938
            
            $
            44,478
            
            $
            33,713
            
            $
            31,551**Net
                Income**
            
            $
            10,609
            
            $
            18,160
            
            $
            12,682
            
            $
            17,328
            
            $
            16,012**Basic
                Earnings per Common Share**
            
            $
            0.59
            
            $
            0.98
            
            $
            0.69
            
            $
            1.03
            
            $
            1.22**Diluted
                Earnings per Common Share**
            
            $
            0.58
            
            $
            0.97
            
            $
            0.68
            
            $
            0.99
            
            $
            1.18**Total
                Assets**
            
            $
            674,513
            
            $
            701,293
            
            $
            699,303
            
            $
            734,675
            
            $
            269,931**Long-Term
                Debt**
            
            $
            285,294
            
            $
            309,622
            
            $
            335,968
            
            $
            396,038
            
            $
            6,079**Cash
                Dividends Declared per Common Share**
            
            $
            0.24
            
            
            -
            
            
            -
            
            
            -
            
            
            -




(1)
            Includes
                the results of operations subsequent to the date of acquisition of
                the
                following:BancPlan
                LLC as of May 3, 2005Stratford
                Advisory Group, Inc. as of October 4, 2005MedEx
                as of December 29, 2005(2)
            Includes
                the results of operations subsequent to the date of acquisition of
                the
                following:Executive
                Benefits Solutions LLC as of September 30, 2003Blackwood
                Planning Corporation as of October 7, 2003(3)
            In
                2003, we received $1.5 million from the favorable settlement of a
                lawsuit
                and we incurred operating expense of $7.5 million in connection with
                the
                reorganization of the Human Capital Practice.(4)
            Includes
                the results of operations subsequent to the date of acquisition of
                the
                following:Federal
                Policy Group as of February 25, 2002Hilgenberg
                and Associates as of April 25, 2002Comiskey
                Kaufman as of April 26, 2002LongMiller
                & Associates, LLC as of November 26, 2002(5)
            Includes
                the results of operations subsequent to the date of acquisition of
                the
                following:Rich
                Florin/Solutions, Inc. (f.d.b.a. Executive Alliance) as of March
                12,
                2001Partners
                First as of March 23, 2001Management
                Science Associates, Inc. as of July 24, 2001Lyons
                Compensation & Benefits, LLC as of August 31, 2001Coates
                Kenney as of December 26, 2001(6)
            In
                2005, we received $1.6 million of net life insurance proceeds following
                the death of an executive in the Healthcare Group.(7)
            In
                2001, we incurred operating expense of $2.1 million in connection
                with the
                write-down of assets acquired from Insurance Alliances
                Group.(8)
            In
                2004, we incurred other expense of $1.5 million associated with a
                prospective securitization financing that was terminated.




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





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





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


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***Overview***





We
      design, market, and administer compensation and benefit programs for companies
      supplementing and securing employee benefits and provide executive compensation
      and related consulting services to U.S. corporations, banks, and healthcare
      organizations. A
      majority of our revenues result from commissions paid by insurance companies
      that underwrite the insurance policies used to finance our clients’ benefit
      programs. Most of our clients’ benefit programs are financed by business-owned
      life insurance and other financial products. We pay commissions to employees
      and
      independent producers based upon a percentage of our commission revenue. We
      work
      closely with clients to design customized products that meet the specific
      organizational needs of the client and with insurance companies to develop
      unique policy features and competitive pricing.





A
      significant portion of our growth has been acquisition related. Business-owned
      life insurance programs have tax advantages associated with the products that
      are attractive to our clients. A portion of our product offerings are interest
      rate sensitive. Changes in tax and legislative laws can have an affect on our
      business. We have been expanding our compensation consulting practices to
      diversify our product offerings. The largest component of our general and
      administrative expenses is salary and other employee related costs.





***Recent
      Developments***





*Clark
      Benson, LLC*





On
      January 27, 2006, we announced the formation of Clark Benson, LLC
      (“Clark Benson”), a limited liability company and a subsidiary of Clark
      Consulting, Inc. Clark Benson will concentrate on financial planning, wealth
      transfer, and employee benefits and will be headed by James M. Benson. Mr.
      Benson has a 25% ownership stake in Clark Benson and acquisition and working
      capital will be provided by Clark Consulting. Our intention is that Clark Benson
      will pursue its business plan through a combination of acquisitions of, or
      affiliations with, existing entities engaged in this type of business. While
      it
      is not possible to predict how many acquisitions or affiliations Clark Benson
      will complete in 2006 that will generate revenue, it is expected that 2006
      start
      up costs of $2 million to $3 million will be incurred.





*Additional
      Board Members*





On
      February 1, 2006, James M. Benson was appointed to our Board of Directors.
      Mr.
      Benson fills a recently created Class III Board seat. Mr. Benson will be
      eligible for re-election as a Class III director at the Company’s 2007 Annual
      Meeting of Stockholders. The Board of Directors does not plan to appoint Mr.
      Benson to serve on any committees of the Board of Directors since Mr. Benson
      is
      not an independent director.




On
      January 18, 2006, Robert E. Long, Jr., was appointed to our Board of Directors.
      Mr. Long fills a recently created Class II Board seat. Mr. Long will be eligible
      for re-election as a Class II director at the Company’s 2006 Annual Meeting of
      Stockholders. The Board of Directors does not plan to appoint Mr. Long to serve
      on any committees of the Board of Directors since Mr. Long is not an independent
      director.





*Proxy
      Disclosure*





On
      January 27,
      2006,
      the Securities and Exchange Commission released a proposal that would revamp
      the
      current disclosure requirements for executive compensation, related-party
      transactions, director independence, and other corporate governance matters.
      The
      purpose of the proposal is to provide shareholders with more comprehensive
      information on how a company compensates its directors and certain executive
      officers. It is anticipated that these requirements may become effective for
      the
      2007 proxy season. If these proposed rules are enacted, it may lead to more
      engagements for the Pearl Meyer & Partners practice.





*Supplemental
      Compensation Agreement Amendment*





On
      February 27, 2006, we amended a supplemental compensation agreement with one
      of
      our insurance carriers. The contract has been extended from September 30, 2008
      through September 30, 2011. In exchange for a longer term arrangement, the
      percentage used to calculate future payments based on our inforce block of
      business was reduced. We expect that revenue based on our inforce block of
      business will be approximately $1 million less in 2006 when compared to 2005.
      However, there are additional opportunities to earn revenue should we meet
      certain production targets for new business.





*Yield
      Curve*





In
      2005,
      the flattening yield curve proved challenging to our sales force for closing
      new
      insurance cases in the Banking market. In early 2006, the yield curve has become
      inverted which makes our existing fixed rate insurance products even less
      attractive.


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***Critical
      Accounting Policies***





The
      preparation of financial statements in conformity with U.S. generally accepted
      accounting principles requires us to make estimates and assumptions that affect
      the reported amounts of assets and liabilities, the disclosure of contingent
      assets and liabilities at the date of the financial statements and the reported
      amounts of revenues and expenses during the reporting period. The Securities
      and
      Exchange Commission (“SEC”) has defined a company’s most critical accounting
      policies as those that are most important to the portrayal of its financial
      condition and the results of operations, and which require us to make difficult
      and subjective judgments, often as a result of the need to make estimates of
      matters that are inherently uncertain. Although we believe that our estimates
      and assumptions are reasonable, they are based upon information available when
      they are made. Actual results may differ significantly from these estimates
      under different assumptions and conditions.





**Revenue
      Sources and Recognition**





Our
      operating segments derive revenue primarily from:





·
            commissions
                and other compensation paid by insurance companies issuing the policies
                underlying our client’s benefit
                programs;





·
            program
                design and administrative service fees paid by our
                clients;





·
            executive
                compensation and benefit related consulting fees;
                and





·
            fees
                for legislative liaison and related advisory
                services.





Our
      commission revenue is typically recurring, paid annually, and extends for a
      period of twenty years or more after the sale. Commissions are paid by insurance
      companies and vary by policy and by program and represent percentage of the
      premium or the cash surrender value of the insurance policies underlying the
      program.





*First
      Year Commissions and Consulting Fees* .
      First
      year commissions and consulting fees are derived from three principal sources:
      (a) the commission we earn when the client first purchases the policies, which
      revenue is recognized at the time the application is substantially completed,
      the client is contractually committed to purchase the insurance policies and
      the
      premiums are paid (which is the effective date of the insurance policy) by
      the
      client, to the insurance company or, in certain instances, when cash is
      received; (b) fees for the services related to the enrollment and initial
      administration of the benefit programs and underlying policies; and (c)
      consulting fees.





Our
      first
      year commission revenue is frequently subject to chargeback, which means that
      insurance companies retain the right to recover commissions paid in the event
      policies prematurely terminate. The chargeback schedules differ by product
      and
      usually apply to first year commission only.





A
      typical
      chargeback schedule, based on a percent of first year commission, is as
      follows:





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





Given
      the
      homogenous nature of such cases and historical information about chargebacks,
      we
      believe we are able to accurately estimate the revenue earned. We currently
      maintain a chargeback allowance, which is monitored on a quarterly basis for
      adequacy. The chargeback allowance is calculated based on the average percentage
      rate of the last two years of chargebacks multiplied by the first year revenue
      for the trailing twelve months.





Consulting
      fee revenue consists of fees charged for services we perform in advising our
      clients on their executive compensation programs and related consulting
      services, retirement, benefit, people strategy, compensation surveys, and fees
      from legislative and regulatory policy matters. These fees are generally based
      on a rate per hour arrangement or a fixed monthly fee and are earned when the
      service is rendered.


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*Renewal
      Commission Revenue and Related Fees* .
      Renewal
      revenue is recognized on the date that the renewal premium is due or paid by
      the
      client to the insurance company depending on whether a policy is considered
      fixed or variable. Fixed renewal policies have predictable set premium amounts.
      Revenue on these policies is recognized on the premium due date. Variable
      renewal policy premiums can be based upon such items as value of underlying
      investments in the policy, cash surrender value of the policy, or mutual fund
      values. In some cases, we are able to obtain information directly from the
      carriers allowing us to reasonably and reliably estimate the expected renewal
      premiums. Revenue is recognized based upon these estimates at a policy’s renewal
      date. For those policies where we are unable to obtain information to reasonably
      estimate the expected renewal premiums, revenue is not recognized until the
      confirmation has been received from the insurance carrier that the client’s
      premium payment has been received. We are notified in advance if a client plans
      to surrender, so adjustments in subsequent periods due to cancellations are
      infrequent and minor. Revenue associated with policies to be surrendered is
      not
      recognized.





Administrative
      service fee revenue consists of fees we charge our clients for the
      administration of their benefit programs and is earned when services are
      rendered. These revenues are mainly included in our renewal commissions and
      related fees line on our consolidated statements of income.





*Supplemental
      Compensation Arrangements.* A
      portion
      of our revenue is derived from certain supplemental compensation arrangements
      with insurance carriers. These arrangements generate additional revenue with
      respect to primarily existing and, to a lesser extent, new blocks of business.
      Payments under such arrangements are typically based on the cash value (or
      fair
      value) of our existing in-force business with these carriers at specified dates
      of measurement and, to a much lesser extent, based on the value of new business
      generated. We realized approximately $11.1 million, $11.3 million and $10.3
      million in revenue under such arrangements for the years ended December 31,
      2005, 2004, and 2003, respectively.





We
      record
      revenue on a gross basis when we:





·
            act
                as the principal in the transaction by helping clients select the
                right
                product or service;





·
            take
                responsibility for the acceptability of the products and
                services;





·
            provide
                services through employees and exclusive independent
                producers;





·
            have
                latitude in establishing the price the customer will
                pay;





·
            have
                discretion in carrier selection with multiple
                carriers;





·
            have
                chargeback and credit risk; and/or





·
            are
                viewed by the client as the administrator of the program once the
                product
                is sold.





We
      record
      revenue on a net basis when we provide a lead on a case (in the capacity of
      a
      finder) and another company has control of the case and bears the credit risk
      (i.e., working directly with a client to determine the product and design of
      the
      plan).





***Intangible
      Assets***





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





The
      net
      present value of inforce revenue is typically amortized between 20 and 30 years
      (the expected average policy duration). The determination of the amortization
      schedule involves making certain assumptions related to persistency, expenses,
      and discount rates that are used in the calculation of the carrying value of
      inforce revenue. If any of these assumptions change or actual experience differs
      materially from the assumptions used, it could affect the carrying value of
      the
      inforce revenue.


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We
      are
      required to assess potential impairments of long-lived assets in accordance
      with
      Statement of Financial Accounting Standards (“SFAS”) No. 144, *Accounting
      for Impairment of Long-Lived Assets* ,
      if
      events or changes in circumstances indicate that the carrying amount of a
      long-lived asset may not be recoverable. In assessing the recoverability of
      goodwill in accordance with SFAS No. 142, *Goodwill
      and Other Intangible Assets* ,
      and the
      net present value of future cash flows from policies inforce, we must make
      assumptions regarding estimated future cash flows, mortality, lapse, and other
      factors to determine the fair value of the respective assets. If these estimates
      and related assumptions change in the future, we may be required to record
      impairment charges.





***Income
      Taxes***





Significant
      judgement is required in determining the provision for income taxes and related
      accruals, deferred tax assets and liabilities, and any valuation allowance
      recorded against the deferred tax assets. In the ordinary course of business,
      there are transactions and calculations where the ultimate tax outcome is
      uncertain. Additionally, our tax returns are subject to audit by federal and
      various state authorities. Although we believe our estimates are reasonable,
      no
      assurance can be given that the final tax outcome will not be materially
      different from that which is reflected in our historical income tax provisions
      and accruals. In assessing the realizability of deferred tax assets, we consider
      the likelihood that some portion or all of the deferred tax assets may not
      be
      realized. The ultimate realization of deferred tax assets is dependent upon
      the
      generation of future taxable income during the periods in which the temporary
      differences become deductible. We consider the scheduled reversal of deferred
      tax liabilities, projected future taxable income, and tax planning strategies
      in
      making this assessment.





***Restructuring
      Costs***





We
      make
      provisions for restructuring costs in accordance with SFAS No.146, *Accounting
      for Costs Associated with Exit or Disposal Activities* .
      To
      determine the amounts expensed in any period, we estimate the amounts we will
      receive in the future for subleasing office space that is no longer required
      for
      our existing operations. Should these estimates not reflect actual results
      in
      future periods, we adjust the provision through the income
      statement.








***Year
      ended December 31, 2005 compared to year ended December 31,
      2004***





*Financial
      Statement Overview.* **** Our
      revenue for the year ended December 31, 2005 was $273.8 million, compared to
      $315.6 million for the year ended December 31, 2004, a decrease of 13.2%. Our
      net income for 2005 was $10.6 million, compared to $18.2 million in 2004.
      Diluted earnings per share for 2005 were $0.58, compared to $0.97 for
      2004.





*Revenue.* Total
      revenues for the year ended December 31, 2005 were $273.8 million, a decrease
      of
      13.2% from revenues of $315.6 million for the year ended December 31, 2004.
      First year commission revenues for the year ended December 31, 2005 were $74.0
      million compared to $97.5 million for the year ended December 31, 2004. First
      year commission revenue for the year ended December 31, 2004 included $9.3
      million for a single large case. Banking Practice’s first year commission
      revenue for the year ended December 31, 2005, was impacted by a soft market
      for
      BOLI products and the historically low long-term interest rate environment.
      On
      September 29, 2005, the Treasury Department issued initial guidance regarding
      changes to nonqualified deferred compensation plans necessitated by the American
      Jobs Creation Act, passed in October 2004. The delay in this guidance created
      uncertainty in regards to amending existing plans and delayed the implementation
      of new plans for both the Executive Benefits Practice and Banking Practice.
      First year revenue in 2005 included approximately $1.2 million from commissions
      received in connection with the exchange of policies related to our deferred
      compensation plans. Total revenue for the years ended December 31, 2005 and
      2004, included approximately $11.1 million and $11.3 million, respectively,
      related to supplemental compensation arrangements. Renewal
      revenue for the year ended December 31, 2005, was $142.8 compared to $157.5
      million for the year ended December 31, 2004. The
      decrease in renewal revenue was expected and is primarily a result of changes
      in
      contract renewal commission rates that carriers pay on certain products as
      the
      policies age at both the Executive Benefits Practice and Banking Practice. Consulting
      fees for Pearl Meyer & Partners and Federal Policy Group as a percentage of
      total revenue increased to 15.6% for the year ended December 31, 2005 compared
      to 14.6% in the year ended December 31, 2004. For the year ended December 31,
      2005, executive compensation consulting services experienced an increase in
      demand over the prior year due to corporate focus on corporate governance and
      executive compensation.





*Commission
      and fee expense.* Commission
      and fee expense for the year ended December 31, 2005 was $53.0 million, or
      19.4%
      of total revenue, compared to $74.3 million, or 23.5% of total revenue, for
      the
      year ended December 31, 2004. The
      percentage paid in commission expense declined primarily due to an increasing
      percentage of sales by employee consultants who have a lower commission rate
      than independent producers and the mix of revenues. Renewal revenues generally
      have lower commissions than first year revenues. In addition, supplemental
      compensation arrangements and consulting revenues typically have no related
      commission expense.


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*General
      and administrative expense* .
      General
      and administrative expense for the year ended December 31, 2005 was $161.0
      million, or 58.8% of total revenue, compared to $164.3 million, or 52.1% of
      total revenue, for the year ended December 31, 2004. The decrease in general
      and
      administrative expenses was attributable to a decrease in bonus expense
      associated with weaker financial results in 2005 compared to 2004.





*Amortization.* Amortization
      expense decreased approximately $2.8 million to $15.4 million for the year
      ended
      December 31, 2005, from $18.2 million for the year ended December 31, 2004.
      The
      decline is based on the scheduled timing of amortization of our inforce revenue
      streams purchased in acquisitions.




*Other
      income (expense).* Other
      income for the year ended December 31, 2005 included $1.6 million of net life
      insurance proceeds following the death of an executive in our Healthcare
      Practice. This amount is not subject to taxation. The year ended December 31,
      2004 results included a $1.5 million write-off of costs associated with a
      prospective securitization financing that was abandoned.





*Interest
      expense.* Interest
      expense for the year ended December 31, 2005 was $22.0 million compared to
      $22.3
      million for the year ended December 31, 2004. The decrease relates to lower
      borrowing levels in 2005 compared to 2004 partially offset by higher interest
      rates.





*Income
      taxes* .
      Income
      taxes for the year ended December 31, 2005 were $6.6 million, an effective
      tax
      rate of 38.5%, compared to $11.2 million, an effective tax rate of 38.2%, for
      the year ended December 31, 2004. The
      effective tax rate for the year ended December 31, 2005 is impacted by the
      $1.6
      million of non-taxable life insurance proceeds received in the second quarter
      of
      2005. There
      were net adjustments of approximately $380 thousand reducing income tax expense
      for the year ended December 31, 2004 reflecting favorable revisions to our
      state
      income tax rate as a result of implementation of several strategies aimed at
      reducing state income taxes.





*Net
      income.* Net
      income for the year ended December 31, 2005 was $10.6 million, or $0.58 per
      diluted common share, versus net income of $18.2 million, or $0.97 per diluted
      share, for the year ended December 31, 2004.








***Year
      ended December 31, 2004 compared to year ended December 31,
      2003***





*Financial
      Statement Overview.* **** Our
      revenue for the year ended December 31, 2004 was $315.6 million, compared to
      $325.9 million for the year ended December 31, 2003, a decrease of 3.2%. Our
      net
      income for 2004 was $18.2 million, compared to $12.7 million in 2003. Diluted
      earnings per share for 2004 were $0.97, compared to $0.68 for 2003.





*Revenue.* Total
      revenues for the year ended December 31, 2004 were $315.6 million, a decrease
      of
      3.2% from revenues of $325.9 million for the year ended December 31, 2003.
      First
      year commission revenues for the year ended December 31, 2004 were $97.5 million
      compared to $113.3 million for the year ended December 31, 2003. First year
      revenue of the Banking Practice was $19.5 million less for the year ended
      December 31, 2004 when compared to the year ended December 31, 2003 due to
      clients’ efforts in mid 2003 to lock in interest rates prior to anticipated
      interest rate reductions in late 2003. Revenue for the years ended December
      31,
      2004 and 2003 included approximately $11.3 million and $10.3 million,
      respectively, related to supplemental compensation arrangements with insurance
      carriers. Renewal revenue for the year ended December 31, 2004, was $157.5
      compared to $159.1 million for the year ended December 31, 2003. The decrease
      in
      renewal revenue is primarily the result of over funding of certain corporate
      plans in 2004. Consulting fees for Pearl Meyer & Partners and Federal Policy
      Group as a percentage of total revenue increased to 14.6% for the year ended
      December 31, 2004 compared to 12.0% in the year ended December 31, 2003. For
      the
      year ended December 31, 2004, consulting services experienced an increase in
      demand over the prior year due to corporate focus on corporate governance and
      executive compensation.





*Commission
      and fee expense.* Commission
      and fee expense for the year ended December 31, 2004 was $74.3 million, or
      23.5%
      of total revenue, compared to $88.6 million, or 27.2% of total revenue, for
      the
      year ended December 31, 2003. The amount paid in commission expense (both in
      dollar terms and as a percent of revenue) declined primarily due to an
      increasing percentage of sales by employee consultants who have a lower
      commission rate than independent producers. In the second half of 2003, Banking
      Practice acquired two of its former independent producer organizations. Some
      of
      the commission savings from sales by employees is spent in the form of increased
      operating expenses. Independent producers cover their operating expenses out
      of
      their commissions. Also impacting the commission percentage to revenue is the
      higher amounts of supplemental compensation arrangement revenues and consulting
      revenues that have no related commission expense.


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*General
      and administrative expense* .
      General
      and administrative expense for the year ended December 31, 2004 was $164.3
      million, or 52.1% of total revenue, compared to $158.9 million, or 48.8% of
      total revenue, for the year ended December 31, 2003. The increase in general
      and
      administrative expenses was attributable to expenditures associated with
      Sarbanes-Oxley compliance ($1.6 million) and approximately $1.1 million of
      legal
      fees associated with the MacDonald litigation. The MacDonald litigation was
      settled with no cash being exchanged during the year ended December 31, 2004.
      Also contributing to the increase was approximately $6.9 million of additional
      bonus expense associated with the improved 2004 operating results versus
      2003.





*Amortization.* Amortization
      expense decreased approximately $3.4 million to $18.2 million for the year
      ended
      December 31, 2004, from $21.6 million for the year ended December 31, 2003.
      For
      year ended December 31, 2003, there were costs of approximately $550 thousand
      relating to an adjustment to the purchase accounting for the LongMiller
      acquisition. The remaining decline is based on the scheduled timing of
      amortization of our inforce revenue streams purchased in
      acquisitions.





*Other
      operating expenses.* The
      year
      ended December 31, 2003 results included a $1.5 million favorable settlement
      of
      litigation that reduced operating expenses.





*Human
      Capital Practice reorganization.* In
      the
      fourth quarter of 2003, we reorganized our executive compensation consulting
      practices. As part of the reorganization, some of the operations and employees
      of the Human Capital Practice were transferred to the Pearl Meyer & Partners
      practice. In addition, several partners and staff members were terminated which
      resulted in exiting certain activities of the Human Capital Practice and
      creating unused leased office space in numerous cities. We recorded a charge
      of
      $7.5 million in the fourth quarter of 2003 relating to the reorganization,
      of
      which $3.3 million remained on the consolidated balance sheet as of December
      31,
      2004. During the year ended December 31, 2004, we recorded a net decrease to
      expense of approximately $200 thousand relating to the Human Capital Practice
      reorganization.





*Other
      income (expense).* Other
      income (expense) for the year ended December 31, 2004, includes a $1.5 million
      write-off of costs associated with a prospective securitization financing that
      was terminated in 2004.





*Interest
      expense.* Interest
      expense for the year ended December 31, 2004 was $22.3 million compared to
      $24.3
      million for the year ended December 31, 2003. The decrease relates to lower
      borrowing levels in 2004 compared to 2003.





*Income
      taxes* .
      Income
      taxes for the year ended December 31, 2004 were $11.2 million, an effective
      tax
      rate of 38.2%, compared to $8.1 million, an effective tax rate of 38.9%, for
      the
      year ended December 31, 2003. There were net adjustments of approximately $380
      thousand reducing income tax expense for the year ended December 31, 2004
      reflecting favorable revisions to our state income tax rate as a result of
      implementation of several strategies aimed at reducing state income
      taxes.





*Net
      income.* Net
      income for the year ended December 31, 2004 was $18.2 million, or $0.97 per
      diluted common share, versus net income of $12.7 million, or $0.68 per diluted
      share, for the year ended December 31, 2003.





***Acquisition
      Strategy***





Our
      acquisition criteria focuses on the quality of management, future earnings,
      and
      the strategic fit with our company, as well as the growth potential of the
      target company. In several of our acquisitions, we also acquire the financial
      value embedded in a book of recurring renewal business that is expected to
      be
      realized for many years after the acquisition takes place. Historically, our
      future renewal revenue stream has been the source of collateral for our line
      of
      credit, which we frequently use for acquisitions. As we acquire more businesses
      that do not have this attribute, this may limit our future borrowing
      availability. We typically structure a majority of the purchase price in cash.
      We generally acquire little in the way of tangible assets, thus creating a
      substantial amount of intangible assets on our balance sheet. The companies
      we
      acquire are frequently privately owned and structured as subchapter S
      corporations and the acquisitions are usually effected through a purchase of
      assets with the income taxed directly to the stockholders of the
      target.





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


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          of Contents





***Human
      Capital Practice Reorganization***





In
      the
      fourth quarter of 2003, we reorganized our executive compensation consulting
      practices. As part of the reorganization, some of the operations and employees
      of the Human Capital Practice were transferred to the Pearl Meyer & Partners
      Practice. In addition, four partners and six staff members were terminated
      which
      resulted in exiting certain activities of the practice and creating unused
      leased office space in numerous cities. We recorded a charge of $7.5 million
      in
      the fourth quarter of 2003 relating to the reorganization of which $2.7 million
      remains on the consolidated balance sheet as of December 31, 2005. The remaining
      business of the Human Capital Practice in 2004 consisted of actuarial/retirement
      plan and investment advisory services. Effective January 1, 2005, the Human
      Capital Practice was merged into the Executive Benefits Practice.





***Supplemental
      Compensation Arrangements***





A
      portion
      of our revenue is derived from certain supplemental compensation arrangements
      with insurance carriers. These arrangements generate additional revenue with
      respect to primarily existing and, to a lesser extent, new blocks of business.
      Payments under such arrangements are typically based on the cash value (or
      fair
      value) of our existing in-force business with these carriers at specified dates
      of measurement and, to a much lesser extent, based on the value of new business
      generated. We realized approximately $11.1 million, $11.3 million and $10.3
      million in revenue under such arrangements for the twelve months ended December
      31, 2005, 2004, and 2003, respectively. Future payment amounts would be
      negatively impacted by potential future surrenders of the inforce business
      or
      non-renewal of the agreements and positively impacted by asset growth of these
      contracts.





***Segment
      Results***





The
      following analysis depicts the results of each of our operating segments on
      a
      stand-alone basis. The practices are allocated a charge to cover centralized
      Resource Center expenditures in the areas of property and casualty insurance,
      human resources, marketing, and information technology.





***Executive
      Benefits Practice***





**Operating
                Results**
              **Year
                Ended December 31,****2005**
            
            
            
            **2004**
            
            
            
            **2003****Total
                Revenue**
            
            $
            59,126
            
            
            
            
            $
            81,477
            
            
            
            
            $
            78,528**Operating
                Expenses**Commissions
                and fees
            
            
            18,372
            
            
            
            
            
            29,250
            
            
            
            
            
            29,406Other
                operating expenses
            
            
            41,332
            
            
            
            
            
            44,898
            
            
            
            
            
            57,864**Operating
                Income (Loss)**
            
            $
            (578
            )
            
            
            
            $
            7,329
            
            
            
            
            $
            (8,742
            )*%
                of revenue*
            
            
            *(1.0*
            *)%*
            
            
            
            
            *9.0*
            *%*
            
            
            
            
            *(11.1*
            *)%*





In
      August
      2005, we announced our intent to combine our Executive Benefits Practice,
      Banking Practice ,
      and
      Insurance Company Practice into one practice that will serve those markets.
      The
      new practice will be reported as a single reporting segment in our consolidated
      financial statements effective January 1, 2006. The purpose of this combination
      is to be able to leverage the expertise of our top producers across a wider
      customer base, and improve our level of client service by streamlining
      operations and sharing a broader set of best practices.





Total
      revenue for the year ended December 31, 2005 was $59.1 million compared to
      $81.5
      million for the year ended December 31, 2004, a decrease of 27.4%. First year
      commission revenue for the year ended December 31, 2005 was $15.8 million
      compared to $26.2 million for the year ended December 31, 2004. On
      September 29, 2005, the Treasury Department issued initial guidance regarding
      changes to nonqualified deferred compensation plans necessitated by the American
      Jobs Creation Act, passed in October 2004. The delay in receiving guidance
      created uncertainty in regards to amending existing plans and delayed the
      implementation of new plans. Consulting revenue (included in first year revenue)
      decreased 14.2% due to a significant decline in the number of consultants. First
      year 2004 revenue for the year ended December 31, 2004 included $8.6 million
      for
      one large case. Renewal revenue for the year ended December 31, 2005 was $36.1
      million compared to $46.5 million for the year ended December 31, 2004. The
      decrease in renewal revenue is primarily the result of the timing of premium
      payments from certain clients, some of which were delayed pending Treasury
      Department guidance mentioned above, and changes in contract renewal rates
      that
      carriers pay on certain cases as the policies age. Commission expense as a
      percentage of total revenue decreased to 31.1% for the year ended December
      31,
      2005, from 35.9% for the year ended December 31, 2004, due to the decreased
      revenue resulting in lower tiered payouts to producers. General and
      administrative expense for the year ended December 31, 2005 was $38.2 million
      compared to $41.1 million for the year ended December 31, 2004. The decrease
      is
      primarily a result of weaker financial results than 2004 generating less bonus
      expense.


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Total
      revenue for the year ended December 31, 2004 was $81.5 million compared to
      $78.5
      million for the year ended December 31, 2003. First year commission revenue
      for
      the year ended December 31, 2004, was $26.2 million compared to $21.5 million
      for the year ended December 31, 2003. First year revenue for the year ended
      December 31, 2004 included $8.6 million for one large case. Renewal revenue
      for
      the year ended December 31, 2004, was $46.5 million compared to $48.2 million
      for the year ended December 31, 2003. The increase in first year revenues was
      partially offset by decreases in renewal revenues relating to the loss of three
      large clients ($2.3 million) and over funding of certain corporate plans.
      Commission expense as a percentage of total revenue declined to 35.9% for the
      year ended December 31, 2004, from 37.4% for the year ended December 31, 2003,
      due to the mix of sales by employee consultants who are paid a lower commission
      and the mix between first year versus renewal revenue. General and
      administrative expense for the year ended December 31, 2004, was lower than
      the
      year ended December 31, 2003, due mainly to lower headcount (272 for 2004 and
      300 for 2003) and facility costs despite a charge of approximately $1.1 million
      for legal costs associated with the MacDonald settlement in June of
      2004.





***Banking
      Practice*** ****





**Operating
                Results**
              **Year
                Ended December 31,****2005**
            
            
            
            **2004**
            
            
            
            **2003****Total
                Revenue**
            
            $
            123,101
            
            
            
            
            $
            145,249
            
            
            
            
            $
            165,839**Operating
                Expenses**Commissions
                and fees
            
            
            28,934
            
            
            
            
            
            40,969
            
            
            
            
            
            55,016Other
                operating expenses
            
            
            55,830
            
            
            
            
            
            57,177
            
            
            
            
            
            55,602**Operating
                Income**
            
            $
            38,337
            
            
            
            
            $
            47,103
            
            
            
            
            $
            55,221*%
                of revenue*
            
            
            *31.1*
            *%*
            
            
            
            
            *32.4*
            *%*
            
            
            
            
            *33.3*
            *%*





In
      August
      2005, we announced our intent to combine our Executive Benefits Practice,
      Banking Practice ,
      and
      Insurance Company Practice into one practice that will serve those markets.
      The
      new practice will be reported as a single reporting segment in our consolidated
      financial statements effective January 1, 2006. The purpose of this combination
      is to be able to leverage the expertise of our top producers across a wider
      customer base, and improve our level of client service by streamlining
      operations and sharing a broader set of best practices.





Total
      revenue decreased 15.2% to $123.1 million for the year ended December 31, 2005,
      from $145.2 million for the year ended December 31, 2004. First year revenues
      for the year ended December 31, 2005 were $28.8 million compared to $46.8
      million for the year ended December 31, 2004. First
      year revenue was impacted by a soft market for BOLI products and the
      historically low long-term interest rate environment. On September 29, 2005,
      the
      Treasury Department issued initial guidance regarding changes to nonqualified
      deferred compensation plans necessitated by the American Jobs Creation Act,
      passed in October 2004. The delay in receiving guidance created uncertainty
      in
      regards to amending existing plans and delayed the implementation of new plans.
      Total revenue for the years ended December 31, 2005 and 2004 included
      approximately $6.2 million and $6.6 million, respectively, related to
      supplemental compensation arrangements. Renewal revenue for the years ended
      December 31, 2005 and 2004, was $94.3 million and $98.4 million, respectively.
      The decrease in renewal revenue is a result of the changes in contract renewal
      commission rates that carriers pay on certain products as policies age and
      the
      mix of products. Commission expense for the year ended December 31, 2005 was
      $28.9 million, or 23.5% of revenue, compared to $41.0 million, or 28.2% of
      revenue, for the year ended December 31, 2004. The commission expense as a
      percentage of revenue continues to decrease due to the lower first year revenue
      and significant reduction in independent producer commission expense. General
      and administrative expenses for the year ended December 31, 2005 was $45.4
      million, compared to $44.9 million for the year ended December 31, 2004. These
      expenses increased primarily as a result of costs associated with the BancPlan
      acquisition in May of 2005. Amortization expense for the years ended December
      31, 2005 and 2004 was $10.5 million and $12.3 million, respectively. The
      decrease is based on the timing of scheduled amortization of our acquired
      inforce revenue.


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 Table
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Total
      revenue decreased 12.4% to $145.2 million for the year ended December 31, 2004,
      from $165.8 million for the year ended December 31, 2003. First year revenues
      for the year ended December 31, 2004 were impacted by a soft market for BOLI
      products, historically low interest rates, and sales force turnover that
      occurred in the second quarter of 2004. Total revenue for the years ended
      December 31, 2004 and 2003 included approximately $6.6 million and $4.7 million,
      respectively, related to supplemental compensation arrangements. Renewal revenue
      for the years ended December 31, 2004 and December 31, 2003, was $98.4 million
      and $99.5 million, respectively. Commission expense for the year ended December
      31, 2004, was $41.0 million, or 28.2% of revenue, compared to $55.0 million,
      or
      33.2% of revenue, for the same period in 2003. The commission expense as a
      percentage of revenue continues to decrease as a result of a higher percentage
      of first year revenue produced by employee consultants versus independent
      producers and the mix between first year revenues and renewal revenues. In
      addition, we do not pay commission expense on the revenue associated with the
      supplemental compensation arrangements. In the second half of 2003, Banking
      Practice acquired two of its former independent producer organizations. General
      and administrative expense for the year ended December 31, 2004, was $44.9
      million, or 30.9% of revenue, compared to $40.4 million, or 24.3% of revenue,
      for the comparable period in 2003. We terminated seventeen Banking Practice
      employees, representing roughly 6% of the Practice’s employees, or 2% of our
      employees, in September of 2004. The actions resulted in $230 thousand of
      severance costs. The higher percentage of general and administrative expenses
      to
      revenue reflects increased operating expenses relating to former independent
      producers and the lower revenue base. Amortization expense for the year ended
      December 31, 2004 and 2003, was $12.3 million and $15.2 million, respectively.
      The decrease is based on the timing of scheduled amortization of our inforce
      revenue and a $550 thousand adjustment to the purchase accounting for the
      LongMiller acquisition in the third quarter of 2003.





***Healthcare
      Group***





**Operating
                Results**
              **Year
                Ended December 31,****2005**
            
            
            
            **2004**
            
            
            
            **2003****Total
                Revenue**
            
            $
            38,048
            
            
            
            
            $
            35,684
            
            
            
            
            $
            36,100**Operating
                Expenses**Commissions
                and fees
            
            
            4,862
            
            
            
            
            
            4,073
            
            
            
            
            
            4,193Other
                operating expenses
            
            
            28,729
            
            
            
            
            
            27,197
            
            
            
            
            
            27,060**Operating
                Income**
            
            $
            4,457
            
            
            
            
            $
            4,414
            
            
            
            
            $
            4,847*%
                of revenue*
            
            
            *11.7*
            *%*
            
            
            
            
            *12.4*
            *%*
            
            
            
            
            *13.4*
            *%*





Total
      revenue for the year ended December 31, 2005 was $38.0 million compared to
      $35.7
      million for the year ended December 31, 2004. First year revenue for the year
      ended December 31, 2005, was $2.6 million higher than the prior year due to
      growth in consulting fee revenue from several services. Renewal revenue for
      the
      year ended December 31, 2005 was $10.1 million compared to $10.4 million for
      the
      year ended December 31, 2004. Commission expense for the year ended December
      31,
      2005 was $4.9 million compared to $4.1 million. The increase in commission
      expense is a result of increased marketing bonuses on higher revenue. General
      and administrative expenses for the year ended December 31, 2005 were $27.5
      million compared to $25.7 million for the year ended December 31, 2004. The
      increase is due to a $445 thousand write off of obsolete software, additional
      expenses from higher consultant headcount and costs associated with performance
      based bonuses.





Healthcare
      Group revenues were slightly lower (1.2%) for the year ended December 31, 2004,
      compared to December 31, 2003. First year commission revenue for the year ended
      December 31, 2004, was lower by $3.3 million than December 31, 2003 due to
      a
      lower number of new implementation projects and lower add-on commissions as
      a
      result of split dollar regulations and clients electing to split consulting
      engagements from the company who sells the funding solution. However, consulting
      fee revenue (included in first year revenue) increased over December 31, 2003
      by
      $1.7 million due to growth in several services. Renewal revenue for the year
      ended December 31, 2004 was approximately $10.4 million compared to $9.1 million
      for the year ended December 31, 2003. General and administrative expenses
      remained flat due to cost containment efforts.


27
 Table
          of Contents





***Pearl
      Meyer & Partners***





**Operating
                Results**
              **Year
                Ended December 31,****2005**
            
            
            
            **2004**
            
            
            
            **2003****Total
                Revenue**
            
            $
            34,124
            
            
            
            
            $
            33,111
            
            
            
            
            $
            26,871**Operating
                Expenses**
            
            
            29,402
            
            
            
            
            
            27,682
            
            
            
            
            
            25,773**Operating
                Income**
            
            $
            4,722
            
            
            
            
            $
            5,429
            
            
            
            
            $
            1,098*%
                of revenue*
            
            
            *13.8*
            *%*
            
            
            
            
            *16.4*
            *%*
            
            
            
            
            *4.1*
            *%*





Pearl
      Meyer and Steve Hall, president of Pearl Meyer and Partners, announced their
      resignations in late August, 2005. Effective August 30, 2005, Joe Rich replaced
      Steve Hall as president of Pearl Meyer and Partners. Subsequently, several
      client facing professionals resigned. As a result of the voluntary resignations,
      there were seven involuntary terminations of certain Pearl Meyer and Partners’
employees in October, 2005. The costs associated with these terminations were
      approximately $200 thousand, which were recorded in the fourth quarter of 2005.
      Estimated annual cost savings related to the voluntary terminations are $3.4
      million and $1.4 million for the involuntary terminations. As a result, 2006
      revenues, operating expenses, and operating income are expected to be lower
      than
      2005.





Consulting
      revenue increased 3.1% to $34.1 million for the year ended December 31, 2005,
      compared to $33.1 million for the year ended December 31, 2004. Practice
      performance through the first nine months of 2005 was improved over the same
      timeframe as 2004. Fourth quarter 2005 performance was weaker than fourth
      quarter 2004 due to the factors mentioned above. Operating expenses for the
      year
      ended December 31, 2005 were $29.4 million compared to $27.7 million for the
      year ended December 31, 2004. The increase is due to the additional expenses
      from higher headcounts during the first nine months of 2005 compared to first
      nine months of 2004.





Total
      consulting revenue increased 23.2% to $33.1 million for the year ended December
      31, 2004, compared to $26.9 million for the year ended December 31, 2003. The
      practice continued to experience more sales activity as a result of additional
      engagements in its areas of expertise of corporate governance and executive
      compensation due, in part, to increased public scrutiny of these areas.
      Operating expenses were $27.7 million for the year ended December 31, 2004,
      compared to $25.8 million for the year ended December 31, 2003 reflecting higher
      headcount (97 in 2004 and 83 in 2003).




***Federal
      Policy Group***





**Operating
                Results**
              **Year
                Ended December 31,****2005**
            
            
            
            **2004**
            
            
            
            **2003****Total
                Revenue**
            
            $
            12,147
            
            
            
            
            $
            15,707
            
            
            
            
            $
            14,855**Operating
                Expenses**
            
            
            9,623
            
            
            
            
            
            11,026
            
            
            
            
            
            8,257**Operating
                Income**
            
            $
            2,524
            
            
            
            
            $
            4,681
            
            
            
            
            $
            6,598*%
                of revenue*
            
            
            *20.8*
            *%*
            
            
            
            
            *29.8*
            *%*
            
            
            
            
            *44.4*
            *%*





Revenue
      for the year ended December 31, 2005 was $12.1 million compared to $15.7 million
      for the year ended December 31, 2004 due to a lower number of clients in 2005.
      Results for the years ended December 31, 2005 and 2004, included approximately
      $1.7 million and $3.0 million of revenue, respectively, from success fees.
      Operating expenses for the year ended December 31, 2005 were $9.6 million
      compared to $11.0 million. The reduction in 2005 expense compared to 2004 is
      a
      result of lower success fees generating less bonus expense and $100 thousand
      of
      2004 client expenses, which was billed back to the client and also included
      in
      revenue for 2004.





Revenue
      for the year ended December 31, 2004 was $15.7 million compared to $14.9 million
      for the year ended December 31, 2005. Results for the years ended December
      31,
      2004 and 2003, included approximately $3.0 million of revenue from success
      fees.
      Results for the year ended December 31, 2004 and 2003 included approximately
      $2.6 million and $1.6 million of revenue and approximately $551 thousand and
      $265 thousand of operating income, respectively, related to four employees
      hired
      during the second quarter of 2003.


28
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***Liquidity
      and Capital Resources***





*Selected
      Measures of Liquidity and Capital Resources*





**As
                of December 31,****2005**
            
            **2004**Cash
                and cash equivalents
            
            $
            5,077
            
            $
            23,199Working
                capital(1)
            
            $
            (9,837
            )
            $
            9,087Current
                ratio — to one
            
            
            0.85
            
            
            1.12Stockholders'
                equity per common share(2)
            
            $
            15.42
            
            $
            15.03Debt
                to total capitalization(3)
            
            
            53.1
            %
            
            54.2
            %





(1)
      Includes restricted cash and current portion of debt associated with
      asset-backed non-recourse notes.


(2)
      Total
      stockholders' equity divided by actual shares outstanding at
      year-end.


(3)
      Current debt plus long-term debt divided by current debt plus long-term debt
      plus stockholders' equity.





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





Below
      is
      a table summarizing our cash flow:





**Year
                Ended December 31,****2005**
            
            **2004**
            
            **2003**Cash
                flows from (used in):Operating
                activities
            
            $
            39,153
            
            $
            61,183
            
            $
            74,613Investing
                activities
            
            
            (26,347
            )
            
            (13,992
            )
            
            (13,585
            )Financing
                activities
            
            
            (30,928
            )
            
            (27,148
            )
            
            (72,138
            )





*Cash
      Flows from Operating Activities*





Our
      cash
      flows from operating activities for the years ended December 31, 2005, 2004,
      and
      2003 were as follows:





**Year
                Ended December 31,****2005**
            
            **2004**
            
            **2003**Net
                income plus non-cash expenses
            
            $
            34,361
            
            $
            53,889
            
            $
            47,011Changes
                in operating assets and liabilities
            
            
            4,792
            
            
            7,294
            
            
            27,602Cash
                flow from operating activities
            
            $
            39,153
            
            $
            61,183
            
            $
            74,613





Non-cash
      expenses include primarily depreciation of equipment and leasehold improvements,
      amortization of intangibles, and deferred tax expense. The 2005 increase in
      cash
      relating to changes in operating assets and liabilities relates primarily to
      the
      increased liability balances in our deferred compensation plans ($4.1
      million).





*Estimated
      Future Gross Renewal Revenue*





In
      addition to our tangible balance sheet assets and liabilities, we have an
      on-going non-securitized renewal revenue stream, estimated to be $765.8 million,
      on a gross basis, over the next ten years. This on-going renewal revenue stream
      reflects current conditions and is not necessarily indicative of the revenue
      that may actually be achieved in the future and we cannot assure you that
      commissions under these policies will be received.





The
      following tables represent the estimated gross renewal revenue associated with
      the business-owned life insurance policies owned by our clients as of December
      31, 2005. The projected gross revenues are not adjusted for mortality, lapse,
      or
      other factors that may impair realization, have not been discounted to reflect
      their net present value, and do not reflect the commission expense we must
      pay
      to consultants when we recognize the related revenue. We cannot assure you
      that
      commissions under these policies will be received. These projected gross
      revenues are based on the beliefs and assumptions of management and are not
      necessarily indicative of the revenue that may actually be realized in the
      future.


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*Non-securitized
      Gross Inforce Revenues* .
      The
      following table represents the estimated gross inforce revenue associated with
      business-owned life insurance policies owned by our clients as of December
      31,
      2005, not including estimated securitized inforce revenues, which are set forth
      in a separate table.





**Executive**
              **Benefits
                Practice**
            
            **Banking**
              **Practice**
            
            **Healthcare**
              **Group**
            
            **Total**2006
            
            $
            37,496
            
            $
            47,249
            
            $
            4,888
            
            $
            89,6332007
            
            
            35,193
            
            
            45,124
            
            
            4,694
            
            
            85,0112008
            
            
            30,491
            
            
            44,854
            
            
            4,323
            
            
            79,6682009
            
            
            28,128
            
            
            43,479
            
            
            3,946
            
            
            75,5532010
            
            
            22,820
            
            
            44,660
            
            
            3,632
            
            
            71,1122011
            
            
            21,624
            
            
            46,224
            
            
            3,246
            
            
            71,0942012
            
            
            20,834
            
            
            47,489
            
            
            2,767
            
            
            71,0902013
            
            
            21,430
            
            
            48,983
            
            
            2,209
            
            
            72,6222014
            
            
            21,857
            
            
            50,808
            
            
            1,774
            
            
            74,4392015
            
            
            21,989
            
            
            52,260
            
            
            1,363
            
            
            75,612Total
                December 31, 2005
            
            $
            261,862
            
            $
            471,130
            
            $
            32,842
            
            $
            765,834Total
                December 31, 2004
            
            $
            295,745
            
            $
            456,198
            
            $
            38,694
            
            $
            790,637








The
      10-year inforce revenues net of commission expense are $610.2 million as of
      December 31, 2005, as compared to $628.1 at December 31, 2004.





*Securitized
      Gross Inforce Revenues.* The
      following table represents the estimated gross renewal revenue associated with
      our securitized inforce bank-owned life insurance policies as of December 31,
      2005. These revenue streams are restricted for the specific purpose of paying
      off our asset-backed notes which were issued in connection with the acquisition
      of LongMiller in November 2002.





**Banking
                Practice**2006
            
            $
            45,9612007
            
            
            48,4542008
            
            
            50,9112009
            
            
            52,5902010
            
            
            54,4012011
            
            
            55,7182012
            
            
            57,7072013
            
            
            60,0172014
            
            
            62,1762015
            
            
            64,210Total
                December 31, 2005
            
            $
            552,145Total
                December 31, 2004
            
            $
            556,910





The
      10-year inforce revenue net of commission expense is $402.0 million and $403.0
      million, as of December 31, 2005 and 2004, respectively.





Pearl
      Meyer & Partners and Federal Policy Group generate fee-based revenues and do
      not produce inforce revenues.





*Cash
      Used in Investing Activities*





During
      the year ended December 31, 2005, $20.1 million of cash was used for the
      acquisition of the businesses including contingent consideration payments to
      prior owners of businesses we acquired and $6.2 million of cash was used for
      the
      purchases of fixed assets.





A
      substantial portion of the purchase price used to fund acquisitions has
      historically been paid in cash. This is primarily due to our desire to avoid
      diluting our existing stockholders. We expect acquisitions to continue to be
      financed primarily from available credit lines and possible additional equity.
      However, we can offer no assurances such will be the case.


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*Cash
      Flows Used in Financing Activities*





For
      the
      year ended December 31, 2005, approximately $30.9 million of cash was used
      for
      financing activities. We used approximately $19.2 million for the net repayment
      of borrowings, approximately $3.2 million for payment of dividends, and $13.9
      million for the repurchase of our stock.





As
      of
      December 31, 2005, there was restricted cash of approximately $7.8 million,
      a
      decrease of $4.2 million from December 31, 2004, which will be used to pay
      down
      the asset-backed notes issued to finance the acquisition of LongMiller. This
      cash is not available for general corporate purposes, but is solely to service
      securitization indebtedness incurred to finance the acquisition of
      LongMiller.





On
      August
      31, 2005, we added a participant bank to our senior credit facility ($10
      million) and one of the existing participants increased their commitment ($7
      million). As a result, the current amount available under this facility is
      $89
      million. As of December 31, 2005, there was $2.3 million outstanding on the
      facility. Our assets are pledged to the bank group as part of the credit
      facility except for cash flows from commissions to be received upon the renewals
      of specified inforce policies acquired in connection with the acquisition of
      LongMiller. In September 2004, we amended our credit agreement to allow for
      potential stock repurchases and dividend payments. The remaining provisions
      of
      the agreement remained substantively the same. Our credit facility
      expire s
      on
      December 31, 2006. We expect the credit facility to be renewed on substantially
      similar terms.





The
      restrictive covenants under the credit agreement provide for the maintenance
      of
      a minimum ratio of fixed charges, a maximum allowable leverage ratio, a minimum
      amount of net worth (stockholders’ equity), and a maximum ratio of debt to
      capitalization. We were in compliance with all restrictive covenants as of
      December 31, 2005.





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





***Off-Balance
      Sheet Arrangements and Other Contractual Obligations***





We
      do not
      have any material off-balance sheet arrangements that have, or are reasonably
      likely to have, a current or future effect on our financial condition, changes
      in financial condition, revenue or expenses, results of operations, liquidity,
      capital expenditures, or capital resources. Set forth below is a summary
      presentation of our contractual obligations as of December 31, 2005, which
      are expected to become due and payable during the periods
      specified.





**Payments
      Due by Period**


**Contractual
                Obligations**
            
            **Total**
            
            **Less
                Than**
              **1
                Year**
            
            **1-3
                Years**
            
            **3-5
                Years**
            
            **More
                Than**
              **5
                Years**Debt
                obligations
            
            $
            305,323
            
            $
            20,029
            
            $
            27,244
            
            $
            27,574
            
            $
            230,476Operating
                lease obligations
            
            
            42,558
            
            
            10,386
            
            
            17,504
            
            
            9,923
            
            
            4,745Contingent
                considerations for acquisitions
            
            
            11,803
            
            
            4,203
            
            
            4,600
            
            
            600
            
            
            2,400Total
            
            $
            359,684
            
            $
            34,618
            
            $
            49,348
            
            $
            38,097
            
            $
            237,621





We
      expect
      to make significant cash outlays in future years for interest, taxes, and
      deferred compensation arrangements. However, due to their variable nature,
      no
      amounts for these items have been included in the table above.





***Inflation***





Inflation
      has not had a material effect on our results of operations. Certain of our
      expenses, such as compensation, benefits, and capital equipment costs, are
      subject to normal inflationary pressures. However, the majority of our service
      and administrative agreements with clients, which generate fee income, have
      a
      cost of living adjustment tied to the consumer price index.


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 Table
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**ITEM
      7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**





At
      December 31, 2005, we had total outstanding indebtedness of $305.3 million,
      or
      approximately 131.6% of total market capitalization. Of our outstanding debt,
      $254.6 million was subject to an average fixed rate of 6.6% at December 31,
      2005. Of our outstanding debt, $3.4 million was subject to fixed rates of 10.0%
      at
      December 31, 2005. The amount outstanding on our three pooled trust preferred
      debt issues is $45.0 million as of December 31, 2005 (average interest rate
      of
      8.3% as of December 31, 2005).





On
      June
      3, 2005 and February 25, 2005, we entered into interest rate swaps with a total
      non-amortizing notional value of $12 million and $10 million, respectively,
      to
      hedge our LIBOR-based debt. The terms of the interest rate swaps as of December
      31, 2005 are as follows:





**Effective
                Date**
            
            **Maturity
                Date**
            
            **Notional
                Amount at December 31, 2005**
            
            **Fixed
                Rate to**
              **be
                Paid**
            
            **Variable
                Rate to be Received**
            
            **Fair
                Value as of**
              **December
                31, 2005**June
                3, 2005
            
            
            December
                31, 2009
            
            $
            12.0
                million
            
            
            4.05
            %
            
            LIBOR
            
            $
            314February
                25, 2005
            
            
            December
                31, 2009
            
            $
            10.0
                million
            
            
            4.31
            %
            
            LIBOR
            
            
            160May
                18, 2004
            
            
            March
                31, 2009
            
            $
            7.0
                million
            
            
            4.44
            %
            
            LIBOR
            
            
            65January
                7, 2003
            
            
            December
                31, 2007
            
            $
            11.2
                million
            
            
            2.85
            %
            
            LIBOR
            
            
            231**Total**
            
            
            
            
            $
            40.2
                million
            
            
            
            
            
            
            
            $
            770





On
      November 15, 2005, we entered into an interest rate swap with an initial
      notional amount of $4.8 million and an
      effective date of January 1, 2006, which increases $1.4 million each calendar
      quarter until December 31, 2007, and then remains at $16 million. The quarterly
      increase in the notional amount of this interest rate swap exactly offsets
      the
      amortizing notional amount of the January 7, 2003 interest rate swap. The
      purpose of this swap is to hedge our remaining trust preferred LIBOR-based
      variable rate debt.





We
      have
      exposure to changing interest rates and, as discussed in Note 13 “Financial
      Instruments” to the consolidated financial statements, will engage in hedging
      activities, from time to time, to mitigate this risk. The interest rate swaps
      we
      have entered into are used to hedge our interest rate exposure on the
      LIBOR-based variable rate debt outstanding at December 31, 2005. Interest on
      the
      remaining $4.8 million of unhedged debt at December 31, 2005, bears interest
      at
      three-month LIBOR plus a weighted average of 400 basis points. At our current
      borrowing level, a 1% change in the interest rate will have an effect of
      approximately $48 thousand on interest expense on an annual basis.








**ITEM
      8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
      DATA**





Our
      financial statements are included under Part IV of this Form 10-K.








**ITEM
      9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
      AND FINANCIAL DISCLOSURE**





None.


32
 Table
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**ITEM
      9A. CONTROLS AND PROCEDURES**





***Conclusion
      Regarding the Effectiveness of Controls and
      Procedures***





Under
      the
      supervision and with the participation of our management, including our chief
      executive officer and chief financial officer, we conducted an evaluation of
      our
      disclosure controls and procedures, as such term is defined under Rule 13a-15(e)
      promulgated under the Securities Exchange Act of 1934, as amended (the Exchange
      Act). Based on this evaluation, our chief executive officer and our chief
      financial officer concluded that our disclosure controls and procedures were
      effective as of the end of the period covered by this annual
      report.





***Management’s
      Report on Internal Control Over Financial Reporting***





Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting, as such term is defined in Exchange Act Rules
      13a-15(f). Under the supervision and with the participation of our management,
      including our chief executive officer and chief financial officer, we conducted
      an evaluation of the effectiveness of our internal control over financial
      reporting based on the framework in *Internal
      Control - Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway Commission. Based
      on our evaluation under the framework in *Internal
      Control - Integrated Framework,* our
      management concluded that our internal control over financial reporting was
      effective as of December 31, 2005. We reviewed the results of management’s
      assessment with the Audit Committee of our Board of Directors.





Management’s
      assessment of the effectiveness of our internal control over financial reporting
      as of December 31, 2005 has been audited by Ernst & Young LLP, an
      independent registered public accounting firm, as stated in their attestation
      report, which is included on the following page.





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 Table
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**Report
      of Independent Registered Public Accounting Firm on Internal Control over
      Financial Reporting**





**To
      the Board of Directors and Stockholders**


**Clark,
      Inc.**





We
      have
      audited management’s assessment, included in the accompanying Management’s
      Report on Internal Controls Over Financial Reporting, that Clark, Inc. and
      subsidiaries (the “Company”) maintained effective internal control over
      financial reporting as of December 31, 2005, based on criteria established
      in
      Internal Control—Integrated Framework ** issued
      by
      the Committee of Sponsoring Organizations of the Treadway Commission (the COSO
      criteria).  The Company’s management is responsible for maintaining
      effective internal control over financial reporting and for its assessment
      of
      the effectiveness of internal control over financial reporting.  Our
      responsibility is to express an opinion on management’s assessment and an
      opinion on the effectiveness of the Company’s internal control over financial
      reporting based on our audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States).  Those standards require that
      we plan and perform the audit to obtain reasonable assurance about whether
      effective internal control over financial reporting was maintained in all
      material respects.  Our audit included obtaining an understanding of
      internal control over financial reporting, evaluating management’s assessment,
      testing and evaluating the design and operating effectiveness of internal
      control, and performing such other procedures as we considered necessary in
      the
      circumstances.  We believe that our audit provides a reasonable basis for
      our opinion.





A
      company’s internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles.  A company’s internal
      control over financial reporting includes those policies and procedures that
      (1)
      pertain to the maintenance of records that, in reasonable detail, accurately
      and
      fairly reflect the transactions and dispositions of the assets of the company;
      (2) provide reasonable assurance that transactions are recorded as necessary
      to
      permit preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company are
      being made only in accordance with authorizations of management and directors
      of
      the company; and (3) provide reasonable assurance regarding prevention or timely
      detection of unauthorized acquisition, use, or disposition of the company’s
      assets that could have a material effect on the financial
      statements.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.





In
      our
      opinion, management’s assessment that the Company maintained effective internal
      control over financial reporting as of December 31, 2005, is fairly stated,
      in
      all material respects, based on the COSO criteria.  Also in our opinion,
      the Company maintained, in all material respects, effective internal control
      over financial reporting as of December 31, 2005, based on the COSO
      criteria.





We
      have
      also audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated financial statements as of
      and
      for the year ended December 31, 2005 of the Company and our report dated
      February 27, 2006 expressed an unqualified opinion thereon.





Ernst
      & Young LLP





Chicago,
      Illinois


February
      27, 2006


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 Table
          of Contents




**ITEM
      9B. OTHER INFORMATION**







On July
      26,
      2005, the Compensation Committee of the Board of Directors approved a Long
      Term
      Incentive Compensation Plan. The plan has two components: a Supplemental
      Executive Retirement Plan (“SERP”) and restricted stock awards. Annual
      contributions, as approved by the Board, will be made into a SERP account for
      each participant. The contributions began in 2005. On October 25, 2005, the
      Compensation Committee of the Board of Directors approved five participants
      in
      the plan. Each SERP contribution will be cliff-vested five years from the date
      of grant. Restricted stock is awarded based upon achievement of three-year
      performance targets for cumulative earnings per share for the period 2005
      through 2007 and will cliff-vest effective December 31, 2007. Restricted stock
      awards for 2006 and 2007 will be made as determined by the Compensation
      Committee with cliff vesting effective December 31, 2007. For the year ended
      December 31, 2005, there is approximately $70 thousand of expense included
      in
      the consolidated statement of income associated with this plan.





**PART
      III**





**ITEM
      10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
      REGISTRANT**





The
      information required by Item 10 regarding directors is incorporated by
      reference from the information under the captions “Election of Directors” and
“Continuing Directors” in our definitive Proxy Statement for the 2006 Annual
      Meeting of the Stockholders (the “2006 Proxy Statement”). The information
      required by Item 10 regarding audit committee and audit committee financial
      expert disclosures are incorporated by reference from the information under
      the
      caption “Committees-Composition and Meetings of the Board of
      Directors- *Audit
      Committee* ”
in
      the
      2006 Proxy Statement. Disclosure of delinquent filers pursuant to Item 405
      of Regulation S-K will be contained in the 2006 Proxy Statement under the
      caption “Section 16(a) Beneficial Ownership Reporting Compliance.” The
      information required by Item 10 regarding executive officers will be
      contained in the 2006 Proxy Statement under the caption “Our Executive
      Officers.”





We
      have
      adopted a code of business conduct and ethics, entitled “Clark Consulting Code
      of Ethics and Business Conduct” (the “Code of Ethics”) as required by the
      listing standards of the New York Stock Exchange and the rules of the SEC.
      This
      Code applies to all of our directors, officers, and employees. We have also
      adopted a corporate governance policy (the “Governance Policy”) and a charter
      for each of our Audit Committee, Compensation Committee and our Nominating
      and
      Corporate Governance Committee (collectively, the “Committee Charters”). We have
      posted the Code of Ethics, the Governance Policy, and each of the Committee
      Charters on our website at www.clarkconsulting.com under
“corporate governance” in the “investors” section of our website. We will post
      on our website any amendments to, or waivers from, our Code of Ethics applicable
      to any of our directors or executive officers. The foregoing information will
      also be available in print to any stockholder who requests such
      information.





**ITEM
      11. EXECUTIVE COMPENSATION**





The
      information required by Item 11 is hereby incorporated by reference from our
      2006 Proxy Statement under the captions “Summary Compensation Table,” “Option
      Grants in Last Fiscal Year,” “Aggregated Option Exercises and Year-End Values,”
“Compensation of Directors,” “Executive Officer Employment Agreements,”
“Compensation Committee Interlocks and Insider Participation,” “Report of the
      Compensation Committee” and “Performance Graph.”





**ITEM
      12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT AND RELATED STOCKHOLDER MATTERS**





The
      information required by Item 12 is hereby incorporated by reference from our
      2006 Proxy Statement under the caption “Ownership of Common Stock by Certain
      Beneficial Owners and Management” and under the caption “Equity Compensation
      Plan Information.”





**ITEM
      13. CERTAIN RELATIONSHIPS AND RELATED
      TRANSACTIONS**





The
      information required by Item 13 is hereby incorporated by reference from our
      2006 Proxy Statement under the caption “Certain Relationships and Related
      Transactions.”





**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND
      SERVICES**





The
      information required by Item 14 is hereby incorporated by reference from our
      2006 Proxy Statement under the caption “Principal Accounting Firm
      Fees.”


35
 Table
          of Contents





**PART
      IV**





**ITEM
      15. EXHIBITS AND FINANCIAL STATEMENT
      SCHEDULES**





(a)
      The
      following documents are filed as part of this report:





(1)
      Financial Statements





Reports
      of Independent Registered Public Accounting Firms


Consolidated
      Balance Sheets as of December 31, 2005 and 2004


Consolidated
      Statements of Income for the years ended December 31, 2005, 2004, and
      2003


Consolidated
      Statements of Stockholders’ Equity for the years ended December 31, 2005, 2004,
      and 2003


Consolidated
      Statements of Cash Flows for the years ended December 31, 2005, 2004, and
      2003


Notes
      to
      the Consolidated Financial Statements





(2)
      Financial Statement Schedules





None.





Schedules
      not listed above have been omitted because they are not required, are not
      applicable, are shown in the related financial statements or notes thereto
      or
      the amounts are immaterial.





(3)
      Exhibits





The
      information required by this Item 15(a)(3) is set forth in the Exhibit Index
      immediately following our notes to consolidated financial statements. The
      exhibits listed herein will be furnished upon written request to “Vice-President
      of Investor Relations” located at our corporate headquarters and payment of a
      reasonable fee that will be limited to our reasonable expense in furnishing
      such
      exhibits.


36
 Table
          of Contents





**CLARK,
      INC. AND SUBSIDIARIES**





**INDEX
      TO FINANCIAL STATEMENTS**





**Page**Reports
                of Independent Registered Public Accounting Firms
            38Consolidated
                Balance Sheets as of December 31, 2005 and
                2004
            40Consolidated
                Statements of Income for the years ended December
                31, 2005, 2004, and 2003
            41Consolidated
                Statements of Stockholders' Equity for the years
                ended December 31, 2005, 2004, and 2003
            42Consolidated
                Statements of Cash Flows for the years ended
                December 31, 2005, 2004, and 2003
            43Notes
                to Consolidated Financial Statements
            44


37
 Table
          of Contents




**Report
      of Independent Registered Public Accounting Firm on Financial
      Statements**







**To
      the Board of Directors and Stockholders**


**Clark,
      Inc.**





We
      have
      audited the accompanying consolidated balance sheet of Clark, Inc. and
      subsidiaries (the “Company”) as of December 31, 2005, and the related
      consolidated statements of income, stockholders’ equity, and cash flows for the
      year then ended.  These financial statements are the responsibility of the
      Company’s management.  Our responsibility is to express an opinion on these
      financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States).  Those standards require that
      we plan and perform the audit to obtain reasonable assurance about whether
      the
      financial statements are free of material misstatement.  An audit includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements.  An audit also includes assessing the accounting
      principles used and significant estimates made by management, as well as
      evaluating the overall financial statement presentation.  We believe that
      our audit provides a reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the consolidated financial position of Clark, Inc. and
      subsidiaries as of December 31, 2005, and the consolidated results of their
      operations and their cash flows for the year then ended, in conformity with
      U.S.
      generally accepted accounting principles.





We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the effectiveness of the Company’s internal
      control over financial reporting as of December 31, 2005, based on criteria
      established in Internal Control-Integrated Framework issued by the Committee
      of
      Sponsoring Organizations of the Treadway Commission and our report dated
      February 27, 2006 expressed an unqualified opinion thereon.





Ernst
      & Young LLP





Chicago,
      Illinois


February
      27, 2006


38
 Table
          of Contents





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Board of Directors and Stockholders of


Clark,
      Inc.


North
      Barrington, Illinois





We
      have
      audited the accompanying consolidated balance sheet of Clark, Inc. and
      subsidiaries (the “Company”) as of December 31, 2004, and the related
      consolidated statements of income, stockholders’ equity, and cash flows for each
      of the two years in the period ended December 31, 2004.  These financial
      statements are the responsibility of the Company’s management.  Our
      responsibility is to express an opinion on these financial statements based
      on
      our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States).  Those standards require that
      we plan and perform the audit to obtain reasonable assurance about whether
      the
      financial statements are free of material misstatement.  An audit includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements.  An audit also includes assessing the accounting
      principles used and significant estimates made by management, as well as
      evaluating the overall financial statement presentation.  We believe that
      our audits provide a reasonable basis for our opinion.





In
      our
      opinion, such consolidated financial statements present fairly, in all material
      respects, the financial position of Clark, Inc. and subsidiaries as of December
      31, 2004, and the results of their operations and their cash flows for each
      of
      the two years in the period ended December 31, 2004, in conformity with
      accounting principles generally accepted in the United States of
      America.





*DELOITTE
      & TOUCHE LLP*





Chicago,
      Illinois


March
      2,
      2005


39
 Table
          of Contents


**CLARK,
      INC. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


**As
      of December 31, 2005 and 2004**


**(Dollars
      in thousands except share and per share data)**




**December
                31,****2005**
            
            **2004****ASSETS****Current
                Assets**
              Cash
                and cash equivalents
            
            $
            5,077
            
            $
            23,199Restricted
                cash
            
            
            7,799
            
            
            12,020Accounts
                and notes receivable, net
            
            
            36,893
            
            
            44,388Prepaid
                income taxes
            
            
            3,845
            
            
            1,479Deferred
                tax assets
            
            
            -
            
            
            782Other
                current assets
            
            
            3,527
            
            
            2,445**Total
                Current Assets**
            
            
            57,141
            
            
            84,313**Intangible
                Assets, net**
            
            
            582,544
            
            
            584,246**Equipment
                and Leasehold Improvements, net******
            
            
            12,276
            
            
            12,140**Cash
                Surrender Value of Life Insurance**
            
            
            11,336
            
            
            8,111**Other
                Assets**
            
            
            11,216
            
            
            12,483**Total
                Assets**
            
            $
            674,513
            
            $
            701,293**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****Current
                Liabilities**
              Accounts
                payable
            
            $
            4,243
            
            $
            3,886Accrued
                liabilities
            
            
            40,051
            
            
            54,145Deferred
                revenue
            
            
            2,469
            
            
            2,268Deferred
                tax liabilities
            
            
            186
            
            
            -Recourse
                debt maturing within one year
            
            
            3,730
            
            
            1,295Non-recourse
                debt maturing within one year
            
            
            16,299
            
            
            13,632**Total
                Current Liabilities**
            
            
            66,978
            
            
            75,226**Trust
                Preferred Debt**
            
            
            45,000
            
            
            45,000**Long-Term
                Recourse Debt**
            
            
            1,998
            
            
            3,427**Long-Term
                Non-Recourse Debt**
            
            
            238,296
            
            
            261,195**Deferred
                Tax Liabilities**
            
            
            33,022
            
            
            24,752**Deferred
                Compensation**
            
            
            11,443
            
            
            8,215**Other
                Non-Current Liabilities**
            
            
            7,758
            
            
            9,292**Total
                Liabilities**
            
            
            404,495
            
            
            427,107**Stockholders'
                Equity**
              Preferred
                stock
              Authorized
                — 1,000,000 shares; $0.01 par value, none issued
            
            
            -
            
            
            -Common
                stock
              Authorized
                — 40,000,000 shares; $0.01 par value issued — 18,892,516in
              2005
                and 18,796,792 in 2004
            
            
            189
            
            
            188Paid
                in capital
            
            
            195,531
            
            
            193,849Retained
                earnings
            
            
            94,103
            
            
            87,803Other
                comprehensive income (loss)
            
            
            383
            
            
            (135
            )Deferred
                compensation, 181,418 shares in 2005 and 125,111 shares in
                2004
            
            
            2,746
            
            
            1,898Treasury
                stock, at cost, 1,383,195 shares in 2005 and 549,171 shares in
                2004
            
            
            (22,934
            )
            
            (9,417
            )**Total
                Stockholders' Equity**
            
            
            270,018
            
            
            274,186**Total
                Liabilities and Stockholders' Equity**
            
            $
            674,513
            
            $
            701,293


See
      accompanying notes to consolidated financial statements.


40
 Table
          of Contents


**CLARK,
      INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF INCOME**


**For
      the years ended December 31, 2005, 2004, and 2003**


**(Dollars
      in thousands except share and per share amounts)**








**Year
                Ended December 31,****2005**
            
            **2004**
            
            **2003****Revenue**First
                year commissions and consulting fees
            
            $
            123,894
            
            $
            151,988
            
            $
            160,503Renewal
                commissions and related fees
            
            
            142,832
            
            
            157,480
            
            
            159,082Reimbursable
                expenses
            
            
            7,080
            
            
            6,114
            
            
            6,344**Total
                Revenue**
            
            
            273,806
            
            
            315,582
            
            
            325,929**Operating
                Expenses**Commissions
                and fees
            
            
            53,024
            
            
            74,292
            
            
            88,615General
                and administrative
            
            
            161,034
            
            
            164,278
            
            
            158,923Reimbursable
                expenses
            
            
            7,080
            
            
            6,114
            
            
            6,344Amortization
            
            
            15,407
            
            
            18,158
            
            
            21,579Settlement
                of litigation
            
            
            -
            
            
            -
            
            
            (1,500
            )Human
                Capital Practice reorganization
            
            
            172
            
            
            (198
            )
            
            7,490**Total
                Operating Expenses**
            
            
            236,717
            
            
            262,644
            
            
            281,451**Operating
                Income**
            
            
            37,089
            
            
            52,938
            
            
            44,478**Other
                Income (Expense), net**
            
            
            1,617
            
            
            (1,499
            )
            
            302**Interest,
                net**
              Income
            
            
            523
            
            
            262
            
            
            281Expense
            
            
            (21,982
            )
            
            (22,319
            )
            
            (24,290
            )**Total
                Interest, net**
            
            
            (21,459
            )
            
            (22,057
            )
            
            (24,009
            )Income
                before taxes
            
            
            17,247
            
            
            29,382
            
            
            20,771Income
                taxes
            
            
            6,638
            
            
            11,222
            
            
            8,089**Net
                Income**
            
            $
            10,609
            
            $
            18,160
            
            $
            12,682Basic
                earnings per common share
            
            $
            0.59
            
            $
            0.98
            
            $
            0.69Weighted
                average shares outstanding - Basic
            
            
            18,107,163
            
            
            18,542,232
            
            
            18,338,963Diluted
                earnings per common share
            
            $
            0.58
            
            $
            0.97
            
            $
            0.68Weighted
                average shares outstanding - Diluted
            
            
            18,222,014
            
            
            18,805,518
            
            
            18,740,934Cash
                dividends:Paid
            
            $
            0.18
            
            
            -
            
            
            -Declared
            
            $
            0.24
            
            
            -
            
            
            -








See
      accompanying notes to consolidated financial statements.


41
 Table
          of Contents


**CLARK,
      INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS'
      EQUITY**


**For
      the years ended December 31, 2005, 2004, and 2003**


**(Dollars
      in thousands except share amounts)**





**Common
                Stock****Shares**
            
            **Amount**
            
            **Paid
                in****Capital**
            
            **Retained****Earnings**
            
            **Treasury****Stock**
            
            **Deferred
                Compensation****Stock**
            
            **Other
                Comprehensive****Income(Loss)**
            
            **Total**Balance
                at January 1, 2003
            
            
            18,060,518
            
            $
            181
            
            $
            185,339
            
            $
            56,961
            
            $
            (1,359
            )
            $
            -
            
            $
            -
            
            $
            241,122Issuance
                of common stock in connection with acquisitions
            
            
            289,542
            
            
            3
            
            
            3,682
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            3,685Non-employee
                compensation
            
            
            -
            
            
            -
            
            
            330
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            330Exercise
                of stock options - net ofredemptions
                and tax effect
            
            
            164,218
            
            
            2
            
            
            2,059
            
            
            -
            
            
            (73
            )
            
            -
            
            
            -
            
            
            1,988Issuance
                of stock to directors
            
            
            925
            
            
            -
            
            
            15
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            15Net
                activity related to employee stockpurchase
                plan
            
            
            -
            
            
            -
            
            
            (549
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (549
            )Purchase
                of company stock
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (760
            )
            
            -
            
            
            -
            
            
            (760
            )Change
                in value of interest rate swaps, netof
                tax
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (245
            )
            
            (245
            )Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            12,682
            
            
            -
            
            
            -
            
            
            -
            
            
            12,682Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            12,437Balance
                at December 31, 2003
            
            
            18,515,203
            
            
            186
            
            
            190,876
            
            
            69,643
            
            
            (2,192
            )
            
            -
            
            
            (245
            )
            
            258,268Issuance
                of common stock in connection with acquisitions
            
            
            62,918
            
            
            1
            
            
            1,096
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,097Deferred
                compensation stock
            
            
            125,111
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,898
            
            
            -
            
            
            1,898Exercise
                of stock options - net ofredemptions
                and tax effect
            
            
            153,500
            
            
            1
            
            
            1,687
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,688Net
                activity related to employee stockpurchase
                plan.
            
            
            -
            
            
            -
            
            
            190
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            190Purchase
                of company stock
            
            
            (484,000
            )
            
            -
            
            
            -
            
            
            -
            
            
            (7,225
            )
            
            -
            
            
            -
            
            
            (7,225
            )Change
                in value of interest rate swaps,net
                of tax
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            110
            
            
            110Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            18,160
            
            
            -
            
            
            -
            
            
            -
            
            
            18,160Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            18,270Balance
                at December 31, 2004
            
            
            18,372,732
            
            
            188
            
            
            193,849
            
            
            87,803
            
            
            (9,417
            )
            
            1,898
            
            
            (135
            )
            
            274,186Issuance
                of common stock in connection with acquisitions
            
            
            31,624
            
            
            -
            
            
            538
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            538Employee
                benefit plans
            
            
            151,983
            
            
            1
            
            
            1,144
            
            
            -
            
            
            419
            
            
            848
            
            
            -
            
            
            2,412Purchase
                of company stock
            
            
            (865,600
            )
            
            -
            
            
            -
            
            
            -
            
            
            (13,936
            )
            
            -
            
            
            -
            
            
            (13,936
            )Change
                in value of interest rate swaps,net
                of tax
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            518
            
            
            518Dividends
                declared
            
            
            -
            
            
            -
            
            
            -
            
            
            (4,309
            )
            
            -
            
            
            -
            
            
            -
            
            
            (4,309
            )Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            10,609
            
            
            -
            
            
            -
            
            
            -
            
            
            10,609Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            11,127Balance
                at December 31, 2005
            
            
            17,690,739
            
            $
            189
            
            $
            195,531
            
            $
            94,103
            
            $
            (22,934
            )
            $
            2,746
            
            $
            383
            
            $
            270,018





See
      accompanying notes to consolidated financial statements.


42
 Table
          of Contents


**CLARK,
      INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**For
      the years ended December 31, 2005, 2004, and 2003**


**(Dollars
      in thousands)**


**Year
                Ended December 31,****2005**
            
            **2004**
            
            **2003****Operating
                Activities**
              Net
                income
            
            $
            10,609
            
            $
            18,160
            
            $
            12,682Adjustments
                to reconcile net income to cashprovided
                by operating activitiesDepreciation
                and amortization
            
            
            20,801
            
            
            23,822
            
            
            27,257Write
                off of securitization financing costs
            
            
            -
            
            
            1,503
            
            
            -Non-employee
                stock compensation
            
            
            -
            
            
            -
            
            
            345Deferred
                taxes
            
            
            2,240
            
            
            10,159
            
            
            6,131Loss
                on disposal of assets
            
            
            711
            
            
            245
            
            
            596Changes
                in operating assets and liabilities (excluding
              the
                effects of acquisitions)
              Accounts
                receivable
            
            
            7,495
            
            
            3,090
            
            
            18,002Other
                current assets
            
            
            (1,082
            )
            
            704
            
            
            (305
            )Other
                assets
            
            
            (1,188
            )
            
            (1,186
            )
            
            818Accounts
                payable
            
            
            357
            
            
            (4,243
            )
            
            (334
            )Income
                taxes
            
            
            4,204
            
            
            1,452
            
            
            322Accrued
                liabilities
            
            
            (9,027
            )
            
            2,936
            
            
            (69
            )Deferred
                income
            
            
            201
            
            
            288
            
            
            (369
            )Other
                non-current liabilities
            
            
            (244
            )
            
            703
            
            
            6,753Deferred
                compensation
            
            
            4,076
            
            
            3,550
            
            
            2,784Net
                cash provided by operating activities
            
            
            39,153
            
            
            61,183
            
            
            74,613**Investing
                Activities**
              Purchase
                of businesses, net of cash acquired
            
            
            (20,142
            )
            
            (9,227
            )
            
            (9,162
            )Purchases
                of equipment
            
            
            (6,205
            )
            
            (4,765
            )
            
            (4,423
            )Cash
                used in investing activities
            
            
            (26,347
            )
            
            (13,992
            )
            
            (13,585
            )**Financing
                Activities**
              Proceeds
                from borrowings
            
            
            2,300
            
            
            70,210
            
            
            39,500Repayment
                of borrowings
            
            
            (21,526
            )
            
            (98,182
            )
            
            (105,692
            )Dividends
                paid
            
            
            (3,232
            )
            
            -
            
            
            -Debt
                financing costs
            
            
            -
            
            
            (628
            )
            
            (1,413
            )Cash
                restricted for the repayment of non-recourse notes
            
            
            4,221
            
            
            6,946
            
            
            (4,901
            )Employee
                benefit plans
            
            
            1,245
            
            
            1,730
            
            
            368Repurchase
                of company stock
            
            
            (13,936
            )
            
            (7,224
            )
            
            -Cash
                (used in) provided by financing activities
            
            
            (30,928
            )
            
            (27,148
            )
            
            (72,138
            )**Net
                Increase (Decrease) in Cash and Cash Equivalents**
            
            
            (18,122
            )
            
            20,043
            
            
            (11,110
            )**Cash
                and Cash Equivalents at Beginning of the Year**
            
            
            23,199
            
            
            3,156
            
            
            14,266**Cash
                and Cash Equivalents at End of the Year**
            
            $
            5,077
            
            $
            23,199
            
            $
            3,156*Supplemental
                Disclosure for Cash Paid during the Period:*Interest
                paid
            
            $
            21,376
            
            $
            21,127
            
            $
            21,779Income
                taxes, net of refunds
            
            
            183
            
            $
            (389
            )
            $
            1,354*Supplemental
                Non-Cash Information:*Fair
                value of common stock issued in connection with
              acquisitions
                and acquisition contingent payouts
            
            $
            539
            
            $
            1,096
            
            $
            3,685


See
      accompanying notes to consolidated financial statements.




43
 Table
          of Contents


**CLARK,
      INC. AND SUBSIDIARIES**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**Year
      ended December 31, 2005**





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








**1.** **NATURE
      OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES**





*Basis
      of Presentation* —
The
      consolidated financial statements include the accounts of Clark, Inc. (the
      “Company”) and its wholly-owned subsidiaries. Through
      the Company’s five operating segments, Executive Benefits Practice, Banking
      Practice, Healthcare Group, Pearl Meyer & Partners, and Federal Policy
      Group, the Company designs, markets, and administers compensation and benefit
      programs for companies supplementing and securing employee benefits and provides
      executive compensation and related consulting services to U.S. corporations,
      banks, and healthcare organizations. The Company assists its clients in using
      customized life insurance products to finance their long-term benefit
      liabilities. In addition, the Company owns Clark Securities, Inc. (“CSI”), a
      registered broker/dealer through which it sells all its securities products
      and
      receives related commissions. All
      significant intercompany amounts and transactions have been eliminated in the
      accompanying consolidated financial statements.





*Use
      of Estimates* —
The
      preparation of financial statements in conformity with U.S. generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the amounts reported in the financial statements and accompanying notes.
      The Company bases its estimates on historical experience, actuarial and other
      valuations, and various other factors that are deemed to be reasonable under
      the
      circumstances, the results of which form the basis for making judgements about
      the carrying value of assets and liabilities that are not readily apparent
      from
      other sources. Some of these judgements can be subjective and complex and,
      consequently, actual results may differ from these estimates under different
      assumptions or conditions. While for any given assumption or estimate made
      by
      the Company’s management, there may be other assumptions and estimates that are
      reasonable, the Company believes that, given the current facts and
      circumstances, it is unlikely that applying any other such reasonable estimate
      or assumption would materially impact the financial statements. The Company
      uses
      estimates in its determination of allowances for accounts receivable and
      chargebacks, restructuring provisions, the net present value and amortization
      of
      inforce revenue acquired through acquisitions and various impairment analyses.
      Actual results could differ from those estimates.





*Revenue
      Recognition* —
First
      year commissions are recognized as revenue in the amount due or paid by the
      carrier at the time the policy application is substantially completed, the
      initial premium payment is paid (which is the effective date of the insurance
      policy), and the insured party is contractually committed to purchase the
      insurance policy or, in certain instances, when cash is received. Fees for
      program design and placement are recognized in a manner consistent with
      commissions. Renewal revenue is recognized on the date that the renewal premium
      is due or paid by the client to the insurance company depending on whether
      a
      policy is considered fixed or variable. Fixed renewal policies have predictable
      set premium amounts. Revenue on these policies is recognized on the premium
      due
      date. Variable renewal policy premiums can be based upon such items as value
      of
      underlying investments in the policy, cash surrender value of the policy, or
      mutual fund values. In some cases, the Company is able to obtain information
      directly from the carriers allowing the Company to reasonably and reliably
      estimate the expected renewal premiums. Revenue is recognized based upon these
      estimates at a policy’s renewal date. For those policies where the Company is
      unable to obtain information to reasonably estimate the expected renewal
      premiums, revenue is not recognized until the confirmation has been received
      from the insurance carrier that the client’s premium payment has been received.
      The Company is notified in advance if a client plans to surrender, so
      adjustments in subsequent periods due to cancellations are infrequent and minor.
      Revenue associated with policies to be surrendered is not recognized. Given
      the
      homogenous nature of such cases and historical information about chargebacks,
      the Company is able to accurately estimate the revenue earned. The Company
      currently maintains a chargeback allowance, which is monitored on a quarterly
      basis for adequacy. Service fees are received annually on the policy anniversary
      date. Fees related to future services to be provided are recognized as the
      services are rendered. The majority of fees under these agreements are billed
      annually at the beginning of the service period. The revenue is recognized
      on a
      straight-line basis over the service period. The services expected to be
      performed for the client are outlined in the servicing agreements. Consulting
      fee revenue consists of fees charged for services the Company performs in
      advising its clients. These fees are generally based on a rate per hour
      arrangement or a fixed monthly fee and are earned when the services are
      rendered.


44
 Table
          of Contents
 **CLARK,
          INC. AND SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


*Commissions
      and Fee Expense* —
      Commissions and fee expense comprise the portion of the total commission revenue
      that is earned by and paid to both employee and independent sales
      producers.





*Advertising* —
      Advertising and marketing costs are charged to segments when incurred. Total
      expenses for 2005, 2004, and 2003 were $3.5 million, $1.9 million, and $3.5
      million, respectively.





*Income
      Taxes* —
Income
      taxes are accounted for under the liability method. Deferred tax assets and
      liabilities are recognized for the estimated future tax consequences
      attributable to differences between the financial statement carrying amounts
      of
      existing assets and liabilities and their respective tax basis and operating
      loss carry forwards. Deferred tax assets and liabilities are measured using
      enacted tax rates in effect for the year in which those temporary differences
      are expected to be recovered or settled.




*Cash
      and Cash Equivalents* —
The
      Company considers all highly liquid instruments purchased with a maturity of
      three months or less to be cash equivalents. Cash in bank accounts, including
      restricted cash, aggregated approximately $12.9 million and $35.2 million at
      December 31, 2005 and 2004, respectively. The Company has not experienced any
      losses in such accounts and believes it is not exposed to any significant credit
      risk on cash and cash equivalents. At December 31, 2005 and 2004, the Company
      had restricted cash of $7.8 million and $12.0 million related to the
      asset-backed notes outstanding, respectively.





*Stock-Based
      Compensation* —
The
      Company applies Accounting Principles Board (“APB”) Opinion No. 25, *Accounting
      for Stock Issued to Employees* ,
      in
      accounting for its stock-based compensation plans for employees and directors
      as
      allowed under Statement of Financial Standards, SFAS No. 123, *Accounting
      for Stock-Based Compensation as Amended by SFAS No. 148, Accounting for
      Stock-Based Compensation - Transition and Disclosure - An Amendment of FASB
      Statement No. 123,* and
      provides the pro forma disclosures required by SFAS No. 123. The Company
      accounts for stock options granted to non-employees other than directors under
      the provisions of SFAS No. 123. The Company grants stock options at an exercise
      price equal to the quoted market price of its stock on the grant date. Since
      the
      stock options have no intrinsic value on the grant date, no compensation expense
      is recorded in connection with the stock option grants. Generally, stock options
      vest 25 percent on each anniversary of the grant date, are fully vested five
      years from the grant date and have a term of ten years. For purposes of
      calculating basic and diluted earnings per share, exercised stock options are
      considered outstanding. Under the treasury stock method, unexercised stock
      options with fair market values of the underlying stock greater than the stock
      options’ exercise prices are considered common stock equivalents for the
      purposes of calculating diluted earnings per share for periods when there are
      positive earnings and the incremental effect would be dilutive.





The
      pro
      forma information regarding net income and earnings per share, required by
      SFAS
      No. 123, has been determined as if the Company accounted for its stock-based
      compensation plans under the fair value method. The fair value of each option
      grant was estimated at the date of grant using the Black-Scholes option-pricing
      model with the following weighted average assumptions used for grants in 2005,
      2004, and 2003, respectively:





**2005**
            **2004**
            **2003**Dividend
                yield
            1.6%
            None
            NoneVolatility
            57.5%
            57.9%
            62.9%Risk-free
                interest rates
            3.8%
            3.6%
            5.2%Expected
                life (years)
            5
            5
            5





The
      estimated average fair values of options outstanding in 2005, 2004, and 2003
      were $9.59, $8.24, and $8.22, respectively. Had compensation cost for the
      Company’s stock-based compensation plans been determined in accordance with SFAS
      No. 123, as amended by SFAS No. 148, *Accounting
      for Stock-Based Compensation - Transition and Disclosure - An Amendment of
      FASB
      Statement No. 123* ,
      the
      Company’s net income and earnings per share would have been reduced to the pro
      forma amounts indicated below:


45
 Table
          of Contents
 **CLARK,
          INC. AND SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**





**Year
                Ended December 31,****2005**
            
            
            **2004**
            
            
            **2003****Net
                Income**
              As
                reported
            
            $
            10,609
            
            $
            18,160
            
            $
            12,682Add:
                stock-based employee compensation expense
              included
                in reported net income, net of related tax effect
            
            
            -
            
            
            -
            
            
            206Deduct:
                stock option compensation expense, net of tax
            
            
            (709
            
            
            (2,428
            )
            
            (1,799
            )Pro
                forma
            
            $
            9,900
            
            $
            15,732
            
            $
            11,089**Basic
                Earnings per Common Share**As
                reported
            
            $
            0.59
            
            $
            0.98
            
            $
            0.69Pro
                forma
            
            $
            0.55
            
            $
            0.85
            
            $
            0.60**Diluted
                Earnings per Common Share**As
                reported
            
            $
            0.58
            
            $
            0.97
            
            $
            0.68Pro
                forma
            
            $
            0.54
            
            $
            0.84
            
            $
            0.59





*Hedging
      Transactions* —
The
      Company does not enter into derivative transactions except to mitigate interest
      rate risk.  All
      derivative instruments are reported in the consolidated financial statements
      at
      fair value. Changes in the fair value of derivatives are recorded each period
      in
      earnings or other comprehensive income (loss), depending on whether the
      derivative is designated and effective as part of a hedged transaction, and
      on
      the type of hedge transaction. Gains or losses on derivative instruments
      reported in other comprehensive income (loss) are reclassified as earnings
      in
      the period in which earnings are affected by the underlying hedged item, and
      the
      ineffective portion of all hedges are recognized in earnings in the current
      period. In
      2005,
      2004 and 2003, the Company entered into interest rate swaps to match floating
      rate debt with fixed rate interest payments periodically for LIBOR-based
      debt.





*Goodwill* —  The
      Company has identifiable intangible assets representing the excess costs of
      acquired businesses over the fair values of the tangible net assets associated
      with the acquisition. Goodwill is the excess cost of net assets associated
      with
      an acquisition. Goodwill is tested annually for impairment or whenever changes
      in circumstances indicate impairment might exist.





*Other
      Identifiable Intangible Assets* —
The
      Company has identifiable intangible assets representing the excess costs of
      acquired businesses over the fair values of the tangible net assets associated
      with the acquisition. Non-compete agreements are amortized over the terms of
      the
      agreements. The net present value of inforce revenue is typically amortized
      between 20 and 30 years (the expected average policy duration). Annual
      amortization of net present value of inforce revenue is equal to the reduction
      in the present value of the adjusted revenue stream from the beginning of the
      year to the end of the year. Amortization expense related to identifiable
      intangible assets was $15.4 million in 2005, $18.2 million in 2004, and $21.6
      million in 2003. The Company’s policy is to review intangible and other
      long-lived assets for impairment on an annual basis or whenever changes in
      circumstances indicate that an impairment might exist. When any indicators
      are
      present, the estimated undiscounted cash flows are compared to the carrying
      amount of the assets. If the undiscounted cash flows are less than the carrying
      amount, an impairment loss is recorded. Any write-downs are treated as permanent
      reductions in the carrying amount of the asset.





*Equipment
      and Leasehold Improvements* —
      Equipment and leasehold improvements are carried at cost less accumulated
      depreciation. Depreciation expense is provided in amounts sufficient to relate
      the cost of assets to operations over the estimated service lives using straight
      line and accelerated methods. The Company depreciates furniture, equipment,
      and
      computer software over periods of three to seven years, while leasehold
      improvements are amortized over the lease period. The Company capitalizes costs
      associated with software developed or obtained for internal use when both the
      preliminary project stage is completed and management has committed to funding
      the project. Thereafter, all direct costs are capitalized. Capitalization of
      costs ceases no later than the point at which the project is substantially
      complete and ready for its intended purpose.





*Fair
      Value of Financial Instruments* —
The
      carrying amount of cash and cash equivalents, accounts and notes receivable,
      accounts payable, and other financial instruments approximate their fair values
      principally because of the short-term nature of these instruments. See Note
      13 *“* Financial
      Instruments *”* for
      additional information on financial instruments.


46
 Table
          of Contents
 **CLARK,
          INC. AND SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**





*Reclassifications* —
Certain
      2004 and 2003 amounts have been reclassified to conform to 2005
      presentation.





**2.** **RECENT
      ACCOUNTING PRONOUNCEMENTS**





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 123(R), *Shared-Based
      Payment* which
      supersedes Accounting Principle Board (“APB”) Opinion No. 25, *Accounting
      for Stock Issued to Employees,* and
      its
      related implementation guidance. SFAS No. 123(R) requires companies to recognize
      in the income statement the grant-date fair value of stock options and other
      equity-based compensation issued to employees. The requirements of SFAS 123(R)
      are effective as of the beginning of the first fiscal year beginning after
      June
      15, 2005. The Company will be required to adopt the provisions of SFAS 123(R)
      as
      of January 1, 2006. Under
      FAS 123R, the Company must determine the appropriate fair value model to be
      used for valuing share-based payments, the amortization method for compensation
      cost, and the transition method to be used at date of adoption. The permitted
      transition methods include either modified-retrospective or modified-prospective
      adoption. Under the modified-retrospective option, prior periods may be restated
      either as of the beginning of the year of adoption or for all periods presented.
      The modified-prospective method requires that compensation expense be recorded
      for all unvested stock options at the beginning of the first quarter of adoption
      of FAS 123R, while the modified-retrospective methods would record
      compensation expense for all unvested stock options beginning with the first
      period presented. The Company plans to adopt SFAS No. 123 (R) using the
      modified-prospective method. Adoption
      of SFAS 123(R) will have no impact on the historical financial statements
      included in this Annual Report on Form 10-K. The impact of adoption of SFAS
      No.
      123(R) cannot be predicted at this time because it will depend on levels of
      share-based payments granted in the future. However, had the Company adopted
      SFAS No. 123(R) in prior periods, the impact of that standard would have
      approximated the impact of SFAS No. 123(R) as described in the disclosure of
      pro
      forma net income and earnings per share in Note 1 to the consolidated financial
      statements.





**3.** **ACQUISITIONS**





Following
      is a description of the acquisitions made during 2005 and 2003. There were
      no
      acquisitions in 2004. The results of operations for each acquired entity have
      been included in the accompanying consolidated statements of income from the
      effective date of the respective acquisition.





*2005
      Acquisitions -* In
      2005,
      the Company acquired the following entities for an aggregate purchase price
      of
      approximately $10.1 million paid in cash and $1.1 million to be paid in 2008
      (includes expenses paid).





·
            BancPlan,
                LLC located in Red Wing, Minnesota, provides internet-based software
                products for consulting in the areas of strategic planning and board
                assessment for financial institutions, and is included in the Banking
                Practice segment. The purchase price was allocated to non-compete
                agreements (approximately $30 thousand) over a term of three years
                with
                the remaining purchase price (approximately $380 thousand) allocated
                to
                goodwill.





·
            Stratford
                Advisory Group, Inc. located in Chicago, Illinois, is an institutional
                investment consulting firm, and is included in the Executive Benefits
                Practice segment. The purchase price was allocated to non-compete
                agreements (approximately $500 thousand) over a term of five years
                with
                the remaining purchase price (approximately $5.2 million) allocated
                to
                goodwill.





·
            MedEx,
                located in Houston, Texas, provides medical stop loss insurance to
                employers with self-funded healthcare benefit programs, and is included
                in
                the Corporate segment. The purchase price was allocated to non-compete
                agreements (approximately $1 million) over a term of eight years
                with the
                remaining purchase price (approximately $4.1 million) allocated to
                goodwill.





The
      allocations of the purchase prices for the above acquisitions are preliminary,
      pending completion of a valuation. Upon completion of such valuations, the
      allocation of purchase prices will be finalized in accordance with SFAS No.
      141, *Business
      Combinations.*





Additional
      consideration of $3.6 million in cash is payable to the previous owner of MedEx
      if certain objectives are met over the eight years following the acquisition.
      If
      earned, these payments will be accounted for as additional
      goodwill.


47
 Table
          of Contents
 **CLARK,
          INC. AND SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


*2003
      Acquisitions* —
In
      2003, the Company acquired the following entities for an aggregate purchase
      price of $4.2 million paid in cash (includes expenses paid) and 44,298 shares
      of
      the Company’s common stock valued at $630 thousand:





·
            Executive
                Benefit Solutions, LLC, located in Memphis, Tennessee, specializes
                in
                providing strategic compensation, benefit, and bank-owned life insurance
                portfolio consulting services to banks in the Northeast, and is included
                in the Company’s Banking Practice
                segment;





·
            Blackwood
                Planning Corporation, located in West Palm Beach, Florida, specializes
                in
                providing strategic compensation, benefit, and bank-owned life insurance
                portfolio consulting services to banks in the Southeast, and is included
                in the Company’s Banking Practice segment;
                and





·
            Inforce
                revenue from the president of one of the Company’s practices, related to
                policies sold when the employee was a consultant prior to his employment
                by the Company as practice president, and is included in the Executive
                Benefits Practice segment.





Additional
      consideration of $14.4 million in cash would be payable to previous owners
      of
      Executive Benefit Solutions and Blackwood Planning Corporation if certain
      objectives are met over the three and one-half years following the acquisition.
      If earned, these payments will be accounted for as additional goodwill. As
      of
      December 31, 2005, additional consideration of $11.9 million was earned of
      which
      $3.6 million remains accrued in “accrued liabilities” on the consolidated
      balance sheet.





The
      net
      present value of inforce revenue ($980 thousand) was assigned to the Executive
      Benefits Practice segment. Goodwill ($1.7 million) was assigned to the Banking
      Practice segment. The remaining purchase price for the Executive Benefit
      Solutions and Blackwood Planning Corporation acquisitions was allocated to
      non-compete agreements, which were assigned to the Banking Practice segment,
      and
      have terms of six years.





**4.** **RESTRUCTURING**





In
      the
      fourth quarter of 2003, the Company reorganized its executive compensation
      consulting practices and recorded a charge of $7.5 million in the fourth quarter
      of 2003 relating to the reorganization, of which, $2.7 million remains accrued
      on the consolidated balance sheet as of December 31, 2005. Effective January
      1,
      2005, the Human Capital Practice was merged into Executive Benefits Practice.
      The components of the $7.5 million charge included $1.1 million for costs
      associated with employee terminations, $5.1 million for exit costs relating
      to
      the expected remaining future cash outlays associated with leases on vacated
      facilities until lease terminations, bonuses of $1.0 million related to
      renegotiations of certain bonus agreements to new arrangements necessary to
      facilitate the reorganization, and $300 thousand for impairment of
      assets.





The
      Company will continue to evaluate the remaining restructuring reserve as plans
      are being executed. As a result, there may be adjustments to the reserve in
      future periods. A summary of the activity in the reserve account during the
      year
      ended December 31, 2005 is as follows:





**Reserve
                Balance**
              **January
                1, 2005**
            
            **Cash**
              **Payments**
            
            **Adjustments**
            
            **Reserve
                Balance******
              **December
                31, 2005**Employee
                termination costs
            
            $
            325
            
            $
            -
            
            $
            -
            
            $
            325Lease
                costs
            
            
            2,946
            
            
            (718
            )
            
            172
            
            
            2,400Total
            
            $
            3,271
            
            $
            (718
            )
            $
            172
            
            $
            2,725





**5.** **ACCOUNTS
      RECEIVABLE**





Major
      categories of accounts receivable are as follows:





**As
                of December 31,****2005**
            
            **2004**Accounts
                receivable - trade
            
            $
            38,747
            
            $
            45,855Accounts
                receivable allowance
            
            
            (1,854
            )
            
            (1,467
            )$
            36,893
            
            $
            44,388





48
 Table
          of Contents
 **CLARK,
          INC. AND SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**





The
      rollforward of the accounts receivable allowance is as follows:





**As
                of December 31,****2005**
            
            **2004**
            
            **2003**Beginning
                balance
            
            $
            (1,467
            )
            $
            (1,296
            )
            $
            (1,089
            )Write
                offs
            
            
            661
            
            
            805
            
            
            999Expense
            
            
            (1,048
            )
            
            (976
            )
            
            (1,206
            )Ending
                balance
            
            $
            (1,854
            )
            $
            (1,467
            )
            $
            (1,296
            )





As
      of
      December 31, 2005 and 2004, there were approximately $671 thousand and $2.6
      million, respectively, of unbilled receivables included in accounts receivable
      on the consolidated balance sheets. These unbilled amounts, the majority of
      which relate to in-process consulting projects, are typically billed during
      the
      quarter immediately following the reporting period.





**6.** **GOODWILL
      AND OTHER INTANGIBLE ASSETS**





Changes
      in the carrying amount of goodwill between December 31, 2004 and December 31,
      2005 by reporting units are as follows:





**Balance**
              **December
                31, 2004**
            
            **Acquired
                During Period**
            
            **Earnouts/Other**
            
            **Balance**
              **December
                31, 2005**Executive
                Benefits Practice
            
            $
            21,855
            
            $
            5,233
            
            $
            343
            
            $
            27,431Banking
                Practice
            
            
            52,050
            
            
            381
            
            
            2,124
            
            
            54,555Healthcare
                Group
            
            
            14,076
            
            
            -
            
            
            -
            
            
            14,076Management
                Science Associates
            
            
            5,010
            
            
            -
            
            
            -
            
            
            5,010Pearl
                Meyer & Partners
            
            
            36,981
            
            
            -
            
            
            -
            
            
            36,981Federal
                Policy Group
            
            
            8,766
            
            
            -
            
            
            -
            
            
            8,766Corporate
            
            
            30
            
            
            4,090
            
            
            (30
            )
            
            4,090Total
            
            $
            138,768
            
            $
            9,704
            
            $
            2,437
            
            $
            150,909





Information
      regarding the Company’s other intangible assets follows:


**As
                  of December 31, 2005**
              
              **As
                  of December 31, 2004****Carrying
                  Amount**
              
              **Accumulated**
                **Amortization**
              
              **Net**
              
              **Carrying**
                **Amount**
              
              **Accumulated**
                **Amortization**
              
              **Net**Inforce
                  revenue
              
              $
              500,555
              
              $
              (74,691
              )
              $
              425,864
              
              $
              500,521
              
              $
              (60,877
              )
              $
              439,644Non-compete
                  agreements
              
              
              12,199
              
              
              (6,428
              )
              
              5,771
              
              
              10,669
              
              
              (4,835
              )
              
              5,834Total
              
              $
              512,754
              
              $
              (81,119
              )
              $
              431,635
              
              $
              511,190
              
              $
              (65,712
              )
              $
              445,478




For
      the
      past three years, the Company’s amortization of intangibles was comprised of the
      following:





**Year
                Ended December 31,****2005**
            
            **2004**
            
            **2003**Present
                value of future cash flows from inforce revenue
            
            $
            13,814
            
            $
            16,572
            
            $
            19,971Non-compete
                agreements
            
            
            1,593
            
            
            1,586
            
            
            1,608Total
            
            $
            15,407
            
            $
            18,158
            
            $
            21,579




49
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          of Contents
 **CLARK,
          INC. AND SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS -
          (Continued)**





The
      Company estimates that its amortization for 2006 through 2010 for all
      acquisitions consummated to date will be as follows:





**Inforce
                Revenue**
            
            **Non-Compete
                Agreements**
            
            **Total**2006
            
            $
            13,221
            
            $
            1,797
            
            $
            15,0182007
            
            
            12,858
            
            
            1,772
            
            
            14,6302008
            
            
            12,914
            
            
            1,276
            
            
            14,1902009
            
            
            12,987
            
            
            351
            
            
            13,3382010
            
            
            13,595
            
            
            200
            
            
            13,795





**7.** **CONTINGENT
      CONSIDERATION**





As
      a
      result of the Company’s acquisition program, it has approximately $11.8 million
      of contingent consideration potentially due to the former owners of its acquired
      entities, including $4.2 million that has been earned and is accrued on the
      consolidated balance sheet at December 31, 2005. If and when the acquired
      entities meet certain criteria negotiated at the time of the purchase these
      amounts are payable as additional consideration. A summary of the amounts
      payable if the criteria are met is as follows for acquisitions that were
      completed as of December 31, 2005:





**Potential
                Amount Payable In**
            
            **Cash**2006
            
            $
            4,2032007
            
            
            4,0002008
            
            
            -2009
            
            
            6002010
            
            
            6002011
                and later
            
            
            2,400$
            11,803


**8.** **EQUIPMENT
      AND LEASEHOLD IMPROVEMENTS**





Major
      classifications of equipment and leasehold improvements are as
      follows:





**As
                of December 31,****2005**
            
            **2004**Computer
                software, office furniture and equipment
            
            $
            24,234
            
            $
            22,957Capitalized
                software
            
            
            8,002
            
            
            6,379Leasehold
                improvements
            
            
            4,068
            
            
            3,37736,304
            
            
            32,713Accumulated
                depreciation and amortization
            
            
            (24,028
            )
            
            (20,573
            )$
            12,276
            
            $
            12,140




Depreciation
      expense was $5.4 million, $5.7 million, and $5.7 million for 2005, 2004, and
      2003, respectively.





**9.** **ACCRUED
      LIABILITIES**





Major
      categories of accrued liabilities are as follows:





**As
                of December 31,****2005**
            
            **2004**Bonuses
                payable
            
            $
            15,108
            
            $
            19,476Commissions
                payable
            
            
            5,680
            
            
            8,727Earnouts
                payable
            
            
            4,213
            
            
            10,400Other
            
            
            15,050
            
            
            15,542$
            40,051
            
            $
            54,145




50
 Table
          of Contents
 **CLARK,
          INC. AND SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS -
          (Continued)**


**10.** **TAXES**





Income
      tax expense from operations consists of the following components:





**Year
                Ended December 31,****2005**
            
            **2004**
            
            **2003**Current:Federal
            
            $
            (2,136
            )
            $
            940
            
            $
            1,396State
                and local
            
            
            328
            
            
            123
            
            
            371Deferred:Federal
            
            
            8,135
            
            
            9,726
            
            
            5,548State
                and local
            
            
            311
            
            
            433
            
            
            774$
            6,638
            
            $
            11,222
            
            $
            8,089





Total
      income taxes incurred consists of the following components:





**Year
                Ended December 31,****2005**
            
            **2004**
            
            **2003**Income
                tax expense from operations
            
            $
            6,638
            
            $
            11,222
            
            $
            8,089Income
                tax expense (benefit) in equity fromexercise
                of options
            
            
            (333
            )
            
            (149
            )
            
            (356
            )Income
                tax expense (benefit) in equity from interest rate swaps
            
            
            329
            
            
            7
            
            
            (63
            )Total
                income tax incurred
            
            $
            6,634
            
            $
            11,080
            
            $
            7,670





A
      reconciliation of the 2005, 2004, and 2003 income tax expense computed by
      applying the statutory rate to income before income taxes to the actual taxes
      is
      as follows:





**Year
                Ended December 31****,****2005**
            
            **2004**
            
            **2003**U.S.
                Federal statutory rate
            
            $
            6,036
            
            $
            10,284
            
            $
            7,062State
                income tax - net of federal benefit
            
            
            521
            
            
            996
            
            
            970Tax
                liability adjustment and prior year taxes
            
            
            210
            
            
            116
            
            
            (146
            )Non-taxable
              life insurance proceeds
            
            
            (565
            )
            
            -
            
            
            -Other
                - net
            
            
            436
            
            
            (174
            )
            
            203$
            6,638
            
            $
            11,222
            
            $
            8,089





Deferred
      income taxes reflect the net tax effects of temporary differences between the
      carrying amounts of assets and liabilities for financial reporting purposes
      and
      the amounts used for income tax purposes. Significant components of the
      Company's deferred tax liabilities and assets are as follows:





**As
                of December 31,****2005**
            
            **2004****Long-term:**
              Intangible
                assets
            
            $
            (37,821
            )
            $
            (28,776
            )Depreciation
            
            
            (855
            )
            
            (1,328
            )Accrued
                liabilities
            
            
            1,548
            
            
            1,679Reorganization
                costs
            
            
            1,107
            
            
            1,229Deferred
                compensation
            
            
            927
            
            
            1,582Net
                operating loss
            
            
            2,414
            
            
            1,023Long-term
                net deferred tax liabilities before allowance
            
            
            (32,680
            )
            
            (24,591
            )Valuation
                allowance
            
            
            (342
            )
            
            (161
            )**Total
                long-term net deferred tax liabilities**
            
            $
            (33,022
            )
            $
            (24,752
            )**Current:**Accrued
                liabilities
            
            $
            1,122
            
            $
            1,347Prepaid
                expenses
            
            
            (1,308
            )
            
            (814
            )Net
                operating loss
            
            
            -
            
            
            249**Total
                current net deferred tax assets (liabilities)**
            
            $
            (186
            )
            $
            782




51
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          of Contents
 **CLARK,
          INC. AND SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS -
          (Continued)**





In
      assessing the realizability of deferred tax assets, the Company considers the
      likelihood that some portion or all of the deferred tax assets may not be
      realized. The ultimate realization of deferred tax assets is dependent upon
      the
      generation of future taxable income during the periods in which the temporary
      differences become deductible. The Company considers the scheduled reversal
      of
      deferred tax liabilities, projected future taxable income, and tax planning
      strategies in making this assessment. Based upon the projected future reversal
      of existing taxable temporary differences over the periods with respect to
      which
      the deferred tax assets are deductible, the Company believes it is more likely
      than not that it will realize the vast majority of the benefits of deductible
      differences. The Company has $3.7 million of federal net operating loss carry
      forwards, of which, $2.2 million expires in 2020 and $1.5 million which expires
      in 2025. However, the Company is uncertain if it will benefit from certain
      state
      net operating losses. Accordingly, a valuation allowance of $342 thousand and
      $161 thousand, respectively, were deemed necessary as of December 31, 2005
      and
      2004.





The
      Internal Revenue Service has audited the Company’s federal income tax returns
      through the year ended December 31, 2003.





**11.** **LONG-TERM
      DEBT**





**As
                of December 31,****2005**
            
            **2004**Revolving
                credit loan payable to banks
            
            $
            2,300
            
            $
            -Notes
                payable to former stockholder of acquired business
            
            
            3,428
            
            
            4,722Asset-backed
                notes
            
            
            254,595
            
            
            274,827Trust
                preferred debt
            
            
            45,000
            
            
            45,000305,323
            
            
            324,549Less
                current maturities
            
            
            20,029
            
            
            14,927$
            285,294
            
            $
            309,622





Securitization
      — In order to finance the November, 2002 acquisition of LongMiller, the Company
      entered into a $305 million securitization of a majority of the inforce revenues
      of LongMiller. In connection with the securitization transactions, CBC Insurance
      Revenue Securitization, LLC, a wholly owned subsidiary of the Company (“CBC
      IRS”), issued $305 million aggregate principal amount of notes secured by
      insurance commission streams (the “Securitized Notes”) in a private placement
      (the “Securitization Transaction”). CBC IRS purchased such insurance commission
      streams from LongMiller. CBC IRS is a special purpose company that holds certain
      rights to commissions and other compensation arising from the sale of bank-owned
      or company-owned life insurance policies. While CBC IRS is included in the
      Company’s consolidated financial statements and has elected to be treated as a
      disregarded entity for federal income tax purposes, it is a separate legal
      entity. The assets held by CBC IRS are legally owned by CBC IRS and are not
      available to creditors of the Company, LongMiller, or the Company’s other
      subsidiaries. The securitization is broken into four traunches, each rated
      by
      Standard & Poors. The traunches consist of the A-1 and A-2 class totaling
      approximately $167 million and each rated “AAA”, the B-class traunch of $108
      million rated “A” and the C-class traunch of $30 million rated “BBB”. The
      weighted average interest cost over the 20-year life of the asset-backed notes
      is approximately seven percent. For the year ended December 31, 2005, the
      earnings before interest, taxes and amortization for CBC IRS was approximately
      $31.5 million, which is used to fulfill its obligation to the bondholders..
      The
      securitization is treated as debt and is included in the Banking Practice
      segment, and is non-recourse to the Company. Assuming the securitized notes
      amortize as expected, the securitization will provide residual cash flow to
      the
      Company of approximately five percent for the securitized inforce revenue in
      the
      initial years, and the Company’s total residual interest would equal
      approximately 28 percent of the total securitized inforce revenue over the
      life
      of the notes. Such residual cash flow to the Company (both in any year and
      in
      total) may be less than expected (or none) depending on the actual insurance
      commission streams from the policies underlying the securitization. The note
      agreement requires cash flow from the assets securitizing the notes to be held
      in a separate account. As of December 31, 2005, there was restricted cash of
      $7.8 million related to such requirements.





As
      a
      result of the surrender of a number of insurance policies by a single customer
      of the Company in December 2004, the Company will cease receiving commissions
      and related payments in respect of such surrendered insurance policies. The
      amount of commissions and related payments included in the Securitization
      transaction will be directed solely to the payment of principal and interest
      on
      the notes and related administration fees and expenses associated with the
      Securitization until such time as the Reserve Account established as part of
      the
      Securitization is replenished .


52
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          of Contents
 **CLARK,
          INC. AND SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**





*Credit
      Facility —* In
      November 2003, the Company amended and restated its December 28, 1999 Credit
      Agreement revising the amount available under the credit facility to $80.0
      million for a three year period ending December 31, 2006. In December 2003,
      a
      new participant bank was added to the facility increasing the facility amount
      to
      $90 million. The credit facility amount was reduced dollar for dollar by $18.0
      million of repayments in 2003 and 2004 on the term portion of the facility.
      In
      August 2005, the Company amended and restated its November 26, 2003 Credit
      Agreement Amendment to add a new participant bank and increase the commitment
      of
      another participant bank, increasing the facility amount to $89.0 million.
      The
      Company had $86.7 million available under its credit line at December 31, 2005.
      The credit facility expires on December 31, 2006. The Company expects the credit
      facility to be renewed on substantially similar terms. The Company’s assets are
      pledged to the bank group as part of the credit facility except for cash flows
      from commissions to be received upon the renewals of specified inforce policies
      acquired in connection with the acquisition of LongMiller. Interest on the
      revolver is based upon prime or LIBOR, plus a spread, at the Company’s option.
      Interest on the revolver is paid monthly for prime rate borrowings and at
      maturity of each LIBOR borrowing. The Company is obligated to pay a commitment
      fee based on the daily average of undrawn funds under the credit agreement.
      The
      fee is a minimum of .25% and a maximum of .60% based on the ratio of
      consolidated indebtedness to income before interest, taxes, depreciation and
      amortization for the most recent four quarters on a rolling quarterly
      basis.





The
      restrictive covenants under the credit facility provide for the maintenance
      of a
      minimum ratio of fixed charges, a maximum allowable leverage ratio, a minimum
      level of net worth (stockholders’ equity), and a maximum ratio of debt to
      capitalization. The Company was in compliance with all its restrictive covenants
      as of December 31, 2005. The Company’s restrictive covenants may limit its
      borrowing ability under its credit line.





*Trust
      Preferred Debt* —
In
      2003
      and 2004, the Company raised approximately $45 million from its participation
      in
      three pooled trust preferred transactions, in which it issued long-term
      subordinated debt securities with a floating rate based on three month LIBOR
      plus a weighted average spread of 400 basis points (weighted average interest
      rate of 8.3% as of December 31, 2005). The Company used the net proceeds to
      pay
      down its credit facility. The pooled trust preferred debt principal is payable
      in one payment due in 30 years from the issuance date with interest paid
      quarterly.





*Phynque,
      Inc. Notes —* In
      connection with the purchase of Phynque, Inc. d/b/a Management Compensation
      Group/Healthcare, the Company issued an $8.7 million promissory note payable
      in
      thirty-two equal quarterly installments of principal and interest at 10%. A
      portion of the promissory note is guaranteed personally by the Company’s
      Chairman and Chief Executive Officer.





At
      December 31, 2005, future payments under all debt arrangements are as
      follows:





2006
            
            $
            20,0292007
            
            
            13,9452008
            
            
            13,2992009
            
            
            13,3902010
            
            
            14,1842011
                and thereafter
            
            
            230,476$
            305,323





**12.
      STOCK REPURCHASE**





On
      January 25, 2005, the Company’s Board of Directors authorized expansion of its
      existing stock repurchase program to a total of $15 million of its outstanding
      common stock, from the previously authorized level of $10 million. On May 27,
      2005, the Company’s Board of Directors authorized expansion of its existing
      stock repurchase program to a total of $35 million of its common stock, from
      the
      previously authorized level of $15 million. During the years ended December
      31,
      2005 and 2004, the Company repurchased approximately 866 thousand shares for
      approximately $13.9 million and 484 thousand shares for approximately $7.2
      million, respectively.





**13** **.
      FINANCIAL INSTRUMENTS**





*Derivative
      Financial Instruments* .
      The
      Company has used derivatives only for hedging purposes to mitigate interest
      rate
      risk. The following is a summary of the Company’s risk management strategies and
      the effect of these strategies on its consolidated financial
      statements.


53
 Table
          of Contents
 **CLARK,
          INC. AND SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**





*Hedging
      Activities.* The
      Company has limited transactions that fall under the accounting rules of SFAS
      No. 133, *Accounting
      for Derivative Instruments and Hedging Activities* ,
      as
      amended by SFAS No. 137, SFAS No. 138 and SFAS No. 149. From time to time,
      the
      Company uses financial instruments, including interest rate swap agreements,
      to
      manage exposure to interest rates. During 2005, 2004, and 2003, the Company
      entered into several interest rate swaps to hedge its LIBOR-based debt. These
      swaps have been designated as cash flow hedges. As such, the changes in the
      fair
      value of the interest rate swaps are recorded in other comprehensive income
      (“OCI”) for the effective portion of the hedge, while the ineffective portion is
      recorded immediately in earnings.  Amounts are reclassified from OCI to
      earnings as the interest rate swaps effect earnings.  There
      have been no charges to earnings for ineffectiveness of interest rate hedges
      for
      the year ended December 31, 2005. The fair value of these interest rate swap
      agreements, based upon bank quotes, was an asset of approximately $770 thousand
      at December 31, 2005. The terms of these interest rate swaps are as follows
      (fair value in thousands):





**Effective
                Date**
            
            **Maturity
                Date**
            
            **Notional
                Amount at**
              **December
                31, 2005**
            
            **Fixed
                Rate**
              **to
                be Paid**
            
            **Variable
                Rate to be Received**
            
            **Fair
                Value as of**
              **December
                31, 2005**June
                3, 2005
            
            
            December
                31, 2009
            
            $
            12.0
                million
            
            
            4.05
            %
            
            LIBOR
            
            $
            314February
                25, 2005
            
            
            December
                31, 2009
            
            $
            10.0
                million
            
            
            4.31
            %
            
            LIBOR
            
            
            160May
                18, 2004
            
            
            March
                31, 2009
            
            $
            7.0
                million
            
            
            4.44
            %
            
            LIBOR
            
            
            65January
                7, 2003
            
            
            December
                31, 2007
            
            $
            11.2
                million
            
            
            2.85
            %
            
            LIBOR
            
            
            231Total
            
            
            
            
            $
            40.2
                million
            
            
            
            
            
            
            
            $
            770





The
      following methods and assumptions were used in estimating the fair value
      disclosures for financial instruments:





*Long-
      and Short-Term Debt.* The fair
      values of the long-term debt are estimated using discounted cash flow analysis,
      based on the Company’s current incremental borrowing rates for similar types of
      borrowing arrangements.





*Interest
      Rate Swaps.* The
      carrying amount of interest rate swaps is based upon confirmation from the
      counterparty.





The
      carrying amounts and fair values of the Company’s financial instruments at
      December 31, 2005 and 2004, are as follows:





**As
                of December 31,****2005**
            
            **2004****Carrying
                Amount**
            
            **Fair
                Value**
            
            **Carrying
                Amount**
            
            **Fair
                Value**Short-term
                debt
            
            $
            20,029
            
            $
            20,868
            
            $
            14,927
            
            $
            15,285Long-term
                debt
            
            
            285,294
            
            
            290,968
            
            
            309,622
            
            
            309,772Interest
                rate swaps
            
            
            (770
            )
            
            (770
            )
            
            40
            
            
            40





54
 Table
          of Contents
 **CLARK,
          INC. AND SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**





**14.** **EARNINGS
      PER SHARE**





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





**Year
                Ended December 31,****2005**
            
            **2004**
            
            **2003**Numerator
                for basic and diluted earnings per commonshare
            
            $
            10,609
            
            $
            18,160
            
            $
            12,682Basic
                earnings per common share -weighted
                average shares outstanding
            
            
            18,107,163
            
            
            18,542,232
            
            
            18,338,963Effect
                of dilutive securities:Stock
                options
            
            
            108,440
            
            
            204,837
            
            
            189,871Contingent
                shares earned not issued
            
            
            6,411
            
            
            58,449
            
            
            212,099Diluted
                earnings per share - weighted average sharesplus
                assumed conversions
            
            
            18,222,014
            
            
            18,805,518
            
            
            18,740,934Basic
                earnings per common share
            
            $
            0.59
            
            $
            0.98
            
            $
            0.69Diluted
                earnings per common share
            
            $
            0.58
            
            $
            0.97
            
            $
            0.68





For
      the
      years ended December 31, 2005, 2004, and 2003 there are approximately 885
      thousand, 959 thousand, and 868 thousand, respectively, of outstanding stock
      options which are not included in the computation of diluted earnings per share
      because the exercise prices of the options were greater than the average market
      prices of the Company’s common shares during the respective years. The range of
      exercise prices for these antidilutive stock options was between $15.51 and
      $27.49 at December 31, 2005, $16.63 and $27.49 at December 31, 2004, and $14.31
      and $30.30 at December 31, 2003.





**15.
      LIFE INSURANCE PROCEEDS**





For
      the
      year ended December 31, 2005, the Company received $1.6 million of net life
      insurance proceeds following the death of an executive in the Healthcare Group.
      The proceeds are not subject to taxation. This amount is included in other
      income (expense), net, in the consolidated statement of income for the year
      ended December 31, 2005.





**16.
      DIVIDENDS**





On
      February 1, 2006, the Board of Directors authorized a dividend of $0.06 per
      share (approximately $1.1 million) to all stockholders of record as of March
      1,
      2006, payable on April 1, 2006.





During
      each of its 2005 quarterly Board of Directors meetings, the Board authorized
      the
      Company to pay a quarterly dividend of $0.06 per share (approximately $1.1
      million). The dividends were paid on January 1, 2006, October 1, 2005, July
      1,
      2005, and April 1, 2005 to stockholders of record as of December 1, 2005,
      September 1, 2005, June 1, 2005, and March 1, 2005, respectively.





**17.** **BENEFIT
      PLANS**





*Incentive
      Stock Option Plan.* The
      Incentive Stock Option Plan provided certain employees options to purchase
      shares for $4.80 and $7.00 per share. 190,832 shares have been granted under
      this plan. No additional options may be granted under this program. The $4.80
      and $7.00 options became fully vested at the date of the Initial Public
      Offering. The options expire ten years from the grant date and are voided within
      90 days of the employee's termination or one year from date of
      death.


55
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          of Contents
 **CLARK,
          INC. AND SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**





*1998
      Stock Option Plan.* In 1998,
      the Board of Directors approved a stock option plan providing for certain
      employees, directors, and independent producers to purchase shares for fair
      market value at the time the option is granted. The Plan is administered by
      the
      Compensation Committee of non-employee directors who have full discretion to
      determine participation, vesting, and term of the option at the time of the
      grant providing that no option may have a term greater than ten years from
      the
      date of grant. A total of 2,000,000 shares are reserved for issuance under
      this
      plan. However, option grants which have been forfeited or cancelled may be
      reissued. The vesting period of the stock options is generally between three
      and
      five years. As of December 31, 2005, 2,109,664 options have been granted under
      this program and a total of 773,790 shares of the Company’s common stock remain
      available for grant.





*1998
      Non-Employee Director Stock Option Plan* .
      A total
      of 100,000 shares of the Company’s common stock have been reserved for issuance
      under its Non-Employee Director Plan, as amended by the Board of Directors
      in
      January 2000. However, option grants which have been forfeited or cancelled
      may
      be reissued. The Non-Employee Director Plan is administered by the compensation
      committee of the Board. Only nonqualified options may be granted and all of
      the
      Company’s non-employee directors participate in the plan. The plan provides for
      the automatic grant of stock options to purchase 10,000 shares of the Company’s
      common stock to each newly elected non-employee director on the first day of
      the
      month following their election. The plan also provides for the automatic grant
      of stock options to purchase 4,000 shares of the Company’s common stock to
      continuing non-employee directors on the first day of the month immediately
      following its annual stockholder meeting. The exercise price for stock options
      granted under the Non-Employee Director Plan is the fair market value of the
      Company’s common stock on the date of grant. The vesting period of the stock
      options is generally between one and three years. As
      of
      December 31, 2005, 98,110 options had been granted under the non-employee
      director plan and a total of 54,334 shares of the Company’ common stock remain
      available for grant.





*2002
      Stock Option Plan* .
      On
      April 30, 2002, the Board of Directors approved the Clark, Inc. 2002 Stock
      Option Plan (the “2002 Plan”). A total of 500,000 shares of the Company’s common
      stock have been reserved for issuance under the 2002 Plan. However, option
      grants which have been forfeited or cancelled may be reissued. The exercise
      price for stock options granted under the 2002 Plan is the fair market value
      of
      the Company’s common stock on the date of grant. The vesting period of the stock
      options is generally between three and five years. No option may have a term
      greater than ten years from the date of the grant. As of December 31, 2005,
      277,296 options had been granted under this plan and a total of 347,667 shares
      of the Company’s common stock remain available for grant.





*2003
      Stock Option Plan.* On
      January 28, 2003, the Board of Directors approved the Clark, Inc. 2003
      Stock Option Plan (the “2003 Plan”). A total of 2,000,000 shares of the
      Company’s common stock have been reserved for issuance under the 2003 Plan.
      However, option grants which have been forfeited or cancelled may be reissued.
      The exercise price for stock options granted under the 2003 Plan is the fair
      market value of the Company’s common stock on the date of grant. The vesting
      period of the stock options is generally between three and five years. No option
      may have a term greater than ten years from the date of the grant. As of
      December 31, 2005, 452,000 options had been granted under this plan and a total
      of 1,568,000 shares of the Company’s common stock remain available for
      grant.


56
 Table
          of Contents
 **CLARK,
          INC. AND SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS -
          (Continued)**





The
      following table summarizes the combined status of all of the Company’s stock
      option plans:





**Options**
            
            **Weighted
                Average**
              **Exercise
                Price****Outstanding
                at January 1, 2003**
            
            1,918,432
            
            $15.94Granted
            
            
            300,000
            
            
            14.33Exercised
            
            
            (167,998
            )
            
            10.17Forfeited
            
            
            (465,162
            )
            
            16.94**Outstanding
                at December 31, 2003**
            
            
            1,585,272
            
            
            15.41Granted
            
            
            330,000
            
            
            19.36Exercised
            
            
            (153,500
            )
            
            10.02Forfeited
            
            
            (323,636
            )
            
            20.39**Outstanding
                at December 31, 2004**
            
            
            1,438,136
            
            
            17.02Granted
            
            
            182,000
            
            
            15.03Exercised
            
            
            (64,100
            )
            
            11.02Forfeited
            
            
            (118,549
            )
            
            18.02**Outstanding
                at December 31, 2005**
            
            
            1,437,487
            
            
            16.82**Exercisable
                at December 31, 2005**
            
            
            1,308,077**Exercisable
                at December 31, 2004**
            
            
            1,194,587**Exercisable
                at December 31, 2003**
            
            
            868,148




The
      following table summarizes the stock options outstanding and exercisable as
      of
      December 31, 2005:


**Options
                    Outstanding**
                
                **Options-Exercisable****Range
                    of**
                  **Exercise
                    Prices**
                
                **Number**
                  **Outstanding**
                
                **Weighted
                    Average Remaining**
                  **Contractual
                    Life**
                  **(years)**
                
                **Weighted
                    Average**
                  **Exercise
                    Price**
                
                **Number**
                  **Exercisable**
                
                **Weighted
                    Average Exercise**
                  **Price**$4.80
                    - $7.00
                
                
                61,101
                
                
                1.2
                
                $
                5.70
                
                
                61,101
                
                $
                5.70$9.00
                
                
                95,916
                
                
                2.0
                
                
                9.00
                
                
                95,916
                
                
                9.00$9.94
                    - $11.50
                
                
                105,300
                
                
                4.6
                
                
                10.46
                
                
                86,900
                
                
                10.30$11.60
                    - $14.40
                
                
                193,200
                
                
                7.6
                
                
                13.70
                
                
                98,612
                
                
                13.30$14.75
                    - $15.96
                
                
                219,533
                
                
                6.7
                
                
                15.27
                
                
                219,533
                
                
                15.27$16.65
                    - $18.13
                
                
                138,102
                
                
                5.7
                
                
                17.17
                
                
                138,102
                
                
                17.17$18.49
                    - $19.70
                
                
                319,000
                
                
                7.7
                
                
                19.27
                
                
                303,000
                
                
                19.31$20.30
                    - $22.90
                
                
                100,335
                
                
                7.2
                
                
                21.72
                
                
                99,913
                
                
                21.72$23.24
                    - $25.28
                
                
                195,000
                
                
                6.0
                
                
                25.12
                
                
                195,000
                
                
                25.12$27.49
                
                
                10,000
                
                
                6.3
                
                
                27.49
                
                
                10,000
                
                
                27.491,437,487
                
                
                
                
                
                
                
                
                1,308,077


As
      of
      December 30, 2004, the Company had approximately 381 thousand unvested
      underwater (exercise price exceeds the current price) stock options. At the
      December 30, 2004 Board of Directors Compensation Committee meeting, the
      Compensation Committee approved fully vesting all underwater stock options
      ($15.85 or greater exercise price) as of December 30, 2004. No other
      modifications were made to the stock option plan except for the accelerated
      vesting. The Company decided to fully vest all underwater options, as there
      is
      no perceived value in these options to the employee, little retention
      ramifications, and to minimize the expense to the Company’s consolidated
      financial statements when it is required to adopt SFAS 123(R) as of January
      1,
      2006.





*401(k)
      Savings Plan.* The
      401(k) Savings Plan is a defined contribution profit sharing plan, qualifying
      under Section 401(k) of the Internal Revenue Code, covering substantially all
      eligible employees. At the Company’s discretion, it may contribute up to 100% of
      an eligible participant's contributions to the Plan, up to a maximum of 3%
      of
      the participants’ salary. The Company’s contributions to the Plan were $2.1
      million, $2.2 million, and $1.8 million for the years ended December 31, 2005,
      2004, and 2003, respectively. Effective January 1, 2006, the Company amended
      its
      401(k) Savings Plan and changed the company contribution. At the Company’s
      discretion, it may contribute up to 100% of an eligible participants’
contributions to the plan, on the first 3% of the participants’ salary and up to
      50% on the next 2% of the participants’ salary.





*Stock
      Purchase Plan.* On
      January 28, 2003, the Board of Directors adopted the amended and restated
      Employee Stock Purchase Plan (“ESPP”), under which a total of 400 thousand
      shares of common stock have been reserved for issuance. Any employee who has
      been employed for 30 days is eligible to participate in offerings under the
      Stock Purchase Plan.


57
 Table
          of Contents
 **CLARK,
          INC. AND SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**





The
      Stock
      Purchase Plan consists of two semi-annual offerings of common stock beginning
      on
      each January 1 and July 1 in each of the years 2003 and 2004 and terminating
      on
      June 30 and December 31 such year. On September 16, 2004, the Board of Directors
      approved an amendment to the amended and restated Employee Stock Purchase Plan
      effective January 1, 2005. For each of the years 2005 and 2006, the ESPP will
      consist of four quarterly offerings of common stock beginning on the first
      day
      of January, April, July and October and terminating on March 31, June 30,
      September 30, and December 31 of each such year. The maximum number of shares
      for each offering period, which could be issued, is 50 thousand for 2003 and
      50
      thousand plus the number of unissued shares from prior offerings for each period
      in 2004. The maximum number of shares for each offering period will be 25
      thousand plus the number of unissued shares from prior offerings for each period
      in 2005 and 2006. The price of the shares under each offering segment in 2003
      and 2004 is 85% of the lower of the closing market price on the day before
      the
      offering period begins or on the day the offering period ends. The price of
      the
      shares under each offering segment in 2005 and 2006 is 85% of the closing market
      price on the day the offering period ends.





The
      Company has, for the expired periods prior to December 31, 2005, determined
      that
      it will purchase the requisite shares on the open market or utilize shares
      purchased through the Company’s stock repurchase program and has not issued any
      additional shares to fulfill this obligation. Future fulfillment under this
      Plan
      may be made through open market purchases or unissued shares, at the Company’s
      discretion.





During
      2005, 2004, and 2003, the Company’s employees purchased 66 thousand, 62
      thousand, and 90 thousand shares, respectively of common stock at an average
      cost to employees of $12.69, $14.36, and $10.16 per share, respectively. The
      Company’s open market purchases of shares for the employees were made at an
      average cost of $13.82 per share during 2003. No purchases were made by the
      Company in 2004 and 2005 specifically for the ESPP.





*Deferred
      Compensation Plan.* Effective
      September 17, 2004, the Clark Deferred Compensation Plan (“Plan”) was amended
      whereby participants can no longer reallocate deferrals out of the Plan’s
      Company stock fund. If a participant receives a distribution from the Plan,
      the
      portion of the distribution related to deferrals allocated to Company stock
      will
      be paid in Company stock. Prior to the amendment, participants were able to
      reallocate amounts in the Company’s stock fund into other investment options and
      received their distributions in cash. As a result of the amendment,
      approximately $1.8 million that had been classified as a long-term liability
      was
      reclassified into the equity section.





*Key
      Executive Life Insurance.* The
      Company maintains key man life insurance policies of $50.0 million on its
      Chairman and Chief Executive Officer and policies ranging from $1.0 million
      to
      $25.0 million on certain other key executives. As part of the Company’s Chairman
      and Chief Executive Officer’s employment agreement, it agrees to use the
      proceeds from the key man life insurance to purchase from the Chairman’s estate
      up to $20 million of common stock at the closing price on the last trading
      day
      immediately preceding his death.





**18.** **COMMITMENTS**





*Leases* —
The
      Company conducts operations from leased office facilities. The Company expects
      that, in the normal course of business, leases that expire will be renewed
      or
      replaced by other leases; thus it is anticipated that future minimum lease
      commitments will not be materially less than the amount shown in the table
      below.





Rental
      expense for the years ended December 31, 2005, 2004, and, 2003 was $9.8 million,
      $9.4 million, and $16.7 million, respectively.





At
      December 31, 2005, approximate minimum rental commitments under all
      non-cancelable leases having terms in excess of a year are as
      follows:





2006
            
            $
            10,3862007
            
            
            9,6562008
            
            
            7,8482009
            
            
            5,5982010
            
            
            4,3252011
                and Thereafter
            
            
            4,745$
            42,558





58
 Table
          of Contents
 **CLARK,
          INC. AND SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**





**19.** **SUPPLEMENTAL
      COMPENSATION ARRANGEMENTS**





Revenue
      from supplemental compensation arrangements is determined primarily based on
      the
      size of the existing block of business on specific measurement dates as outlined
      in the various agreements. In addition, certain arrangements provide for the
      potential of additional compensation for the Company based on the volume of
      insurance placed with certain carriers. The Company realized approximately
      $11.1
      million, $11.3 million, and $10.3 million in revenue under such arrangements
      for
      the years ended December 31, 2005, 2004, and 2003, respectively. Potential
      surrenders will impact future revenues but not revenues that have been recorded
      in the Company’s financial statements.





**20.** **SEGMENTS
      AND RELATED INFORMATION**





The
      Company has five reportable segments:





·
            Executive
                Benefits Practice - markets, designs, implements, administers, and
                finances non-qualified benefit plans for companies of all sizes,
                including
                Fortune 1000 companies, and provides compensation, benefit, investment
                advisory, and human resource consulting
                services.





·
            Banking
                Practice - offers compensation consulting, executive and director
                benefit
                programs, and bank-owned life insurance to the bank
                market.





·
            Healthcare
                Group - provides specialized compensation and benefit services for
                large
                and medium sized not-for-profit healthcare
                organizations.





·
            Pearl
                Meyer & Partners - specializes in executive compensation and retention
                programs.





·
            Federal
                Policy Group - provides legislative and regulatory strategic
                services.





The
      segment information as of, and for the year ended December 31, 2003, for the
      Pearl Meyer & Partners segment reflect the results of, and information
      related to, the Rewards and Performance Group and certain Human Capital Practice
      employees, who were transferred to Pearl Meyer & Partners as of October 1,
      2003. The remaining Human Capital Practice was merged into Executive Benefits
      Practice as of January 1, 2005 and the segment information as of that date
      has
      been reclassified to reflect this transfer.





The
      five
      reportable segments operate as independent and autonomous business units with
      a
      corporate staff in North Barrington, Illinois responsible for finance, strategic
      planning, human resources, and company-wide policies . Each
      segment has its own  client  base
      as
      well as its own marketing, administration, and management.





In
      August
      2005, we announced our intent to combine our Executive Benefits Practice,
      Banking Practice ,
      and
      Insurance Company Practice (included in Corporate/CSI segment for the year
      ended
      December 31, 2005) into one practice that will serve those markets. The new
      practice will be reported as a single reporting segment in our consolidated
      financial statements effective January 1, 2006. The purpose of this combination
      is to be able to leverage the expertise of our top producers across a wider
      customer base, and improve our level of client service by streamlining
      operations and sharing a broader set of best practices.





The
      Company has disclosed income from operations as the primary measure of segment
      earnings (loss). This is the measure of profitability used by the Company’s
      chief operating decision-maker and the most consistent with the presentation
      of
      profitability reported within the consolidated financial statements. The
      accounting policies of the business segment reports are the same as those
      described in Note 1, “Nature of Operations and Summary of Significant Accounting
      Policies.”





The
      Company evaluates performance and allocates resources based on operating income
      before income taxes, interest, amortization, and corporate administrative
      expenses.


59
 Table
          of Contents
 **CLARK,
          INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS -
          (Continued)**


Segment
      information for the years ended December 31, 2005, 2004 and 2003, is as
      follows:




**For
                the Year Ended December 31,****2005**
            
            **2004**
            
            **2003****Revenues**Executive
                Benefits Practice
            
            $
            59,126
            
            $
            81,477
            
            $
            78,528Banking
                Practice
            
            
            123,101
            
            
            145,249
            
            
            165,839Healthcare
                Group
            
            
            38,048
            
            
            35,684
            
            
            36,100Pearl
                Meyer & Partners
            
            
            34,124
            
            
            33,111
            
            
            26,871Federal
                Policy Group
            
            
            12,147
            
            
            15,707
            
            
            14,855Total
                segments — reported
            
            
            266,546
            
            
            311,228
            
            
            322,193Corporate/CSI
            
            
            7,260
            
            
            4,354
            
            
            3,736Total
                consolidated — reported
            
            $
            273,806
            
            $
            315,582
            
            $
            325,929**Operating
                Income (Loss) and Income Before Taxes**
              Executive
                Benefits Practice
            
            $
            (578
            )
            $
            7,329
            
            $
            (8,742
            )Banking
                Practice
            
            
            38,337
            
            
            47,103
            
            
            55,221Healthcare
                Group
            
            
            4,457
            
            
            4,414
            
            
            4,847Pearl
                Meyer & Partners
            
            
            4,722
            
            
            5,429
            
            
            1,098Federal
                Policy Group
            
            
            2,524
            
            
            4,681
            
            
            6,598Total
                segments — reported
            
            
            49,462
            
            
            68,956
            
            
            59,022Corporate/CSI
            
            
            (12,373
            )
            
            (16,018
            )
            
            (14,544
            )Other
                income
            
            
            1,617
            
            
            (1,499
            )
            
            302Interest
                — net
            
            
            (21,459
            )
            
            (22,057
            )
            
            (24,009
            )Income
                before taxes
            
            $
            17,247
            
            $
            29,382
            
            $
            20,771**Depreciation
                and Amortization**
              Executive
                Benefits Practice
            
            $
            4,478
            
            $
            4,712
            
            $
            5,462Banking
                Practice
            
            
            12,063
            
            
            13,971
            
            
            16,784Healthcare
                Group
            
            
            2,072
            
            
            2,627
            
            
            2,945Pearl
                Meyer & Partners
            
            
            519
            
            
            637
            
            
            679Federal
                Policy Group
            
            
            401
            
            
            408
            
            
            403Total
                segments — reported
            
            
            19,533
            
            
            22,355
            
            
            26,273Corporate/CSI
            
            
            1,268
            
            
            1,467
            
            
            984Total
                consolidated — reported
            
            $
            20,801
            
            $
            23,822
            
            $
            27,257**Identifiable
                Assets**
              Executive
                Benefits Practice
            
            $
            80,298
            
            $
            80,040
            
            $
            78,149Banking
                Practice
            
            
            471,211
            
            
            487,784
            
            
            509,370Healthcare
                Group
            
            
            30,336
            
            
            31,032
            
            
            32,996Pearl
                Meyer & Partners
            
            
            48,100
            
            
            48,355
            
            
            47,362Federal
                Policy Group
            
            
            10,891
            
            
            12,018
            
            
            11,893Total
                segments — reported
            
            
            640,836
            
            
            659,229
            
            
            679,770Deferred
                tax assets
            
            
            -
            
            
            782
            
            
            253Corporate/CSI
            
            
            33,678
            
            
            41,282
            
            
            19,280Total
                consolidated — reported
            
            $
            674,513
            
            $
            701,293
            
            $
            699,303**Capital
                Expenditures**
              Executive
                Benefits Practice
            
            $
            2,780
            
            $
            1,721
            
            $
            1,165Banking
                Practice
            
            
            1,032
            
            
            1,355
            
            
            1,595Healthcare
                Group
            
            
            659
            
            
            658
            
            
            539Pearl
                Meyer & Partners
            
            
            1,270
            
            
            278
            
            
            95Federal
                Policy Group
            
            
            -
            
            
            6
            
            
            44Total
                segments — reported
            
            
            5,741
            
            
            4,018
            
            
            3,438Corporate/CSI
            
            
            464
            
            
            747
            
            
            985Total
                consolidated — reported
            
            $
            6,205
            
            $
            4,765
            
            $
            4,423




*Geographic
      Information* —
      Virtually all the Company’s revenue is derived from clients located in the
      United States.





*Major
      Customers and Clients* —
The
      Company generated in excess of 25% of its revenue in 2005 from 37 clients,
      in
      2004 from 29 clients and in 2003 from 37 clients. None of the clients
      individually accounted for more than 10% of consolidated revenue. Substantially
      all of the policies underlying the programs marketed by the Company are
      underwritten by 32 life insurance companies, of which seven accounted for
      approximately 30.6% of the Company’s first year revenue for the year ended
      December 31, 2005, 55.3% of its first year revenue for the year ended December
      31, 2004, and 55.7% for the year ended December 31, 2003.


60
 Table
          of Contents
 **CLARK,
          INC. AND SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS -
          (Continued)**


**21.** **RELATED
      PARTY TRANSACTIONS**





The
      Company leases 17,783 square feet of office space and hangar space for the
      corporate aircraft from entities owned by the Company’s Chairman and Chief
      Executive Officer, Tom Wamberg. Base rent is approximately $449 thousand
      annually. The office space lease expires on February 21, 2009.





The
      Company employs Mr. Wamberg’s stepson, Chuck French. Chuck is a consultant with
      the Executive Benefits Practice and does not report directly to Mr. Wamberg.
      Mr.
      French’s compensation is based exclusively on his revenue production. 
Jason French, Mr. Wamberg's stepson, was a consultant with Pearl Meyer &
Partners.  He was employed with the Company through October 2005 and did
      not report directly to Mr. Wamberg.





During
      the years ended December 31, 2005, 2004 and 2003, the Company received payments
      of approximately $2.5 million in each year pursuant to an Administrative
      Services Agreement and Bonus Forfeiture Agreement with an affiliate of AUSA
      Holding, Inc., one of its principal stockholders.





In
      2001,
      Mr. Wamberg invested $750 thousand in a company of which George Dalton, a member
      of the Company’s Board of Directors, is founder and majority
      stockholder.





The
      Company currently employs certain administrative staff who perform functions
      and
      services for Mr. Wamberg’s personal business, in addition to services for the
      Company. Mr. Wamberg reimburses the Company for the salary, benefits, and bonus
      for these individuals relating to their work on his personal
      business.





**22.** **LITIGATION
      AND CONTINGENCIES**





From
      time
      to time, the Company is involved in various claims and lawsuits incidental
      to
      its business ,
      including claims and lawsuits alleging breaches of contractual obligations
      under
      agreements with its employee consultants and independent producers. The
      following is a summary of the current significant legal proceedings pending
      against the Company.





***Independent
      Sales Producers’ Disputes***





In
      March
      2004, two of the Company’s independent sales producers exercised their
      termination rights under their agreement(s) with the Company. Included in the
      Company’s consolidated balance sheets is a receivable of approximately $1.4
      million from these two producers and a related salesperson with respect to
      certain chargeback commissions to be repaid to the Company from the surrender
      of
      policies in 2003. Upon termination, the producers disputed the chargeback and
      asserted other miscellaneous claims. The producers entered into an arbitration
      agreement with the Company, dated May 23, 2005, in order to resolve the dispute
      regarding chargebacks with an arbitration hearing scheduled for early 2006.
      While it is not possible to predict with certainty the outcome of the disputes,
      the Company does not believe resolution will have a material adverse effect
      on
      its financial position or results of operations.





**23.** **INTERIM
      FINANCIAL DATA (UNAUDITED)**





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





**QUARTER
                ENDED****Dec.**
              **2005**
            
            **Sept.**
              **2005**
            
            **June**
              **2005**
            
            **Mar.**
              **2005**
            
            **Dec.**
              **2004**
            
            **Sept.**
              **2004**
            
            **June**
              **2004**
            
            **Mar.**
              **2004****Total****Revenue**
            
            $
            77,506
            
            $
            60,906
            
            $
            68,446
            
            $
            66,948
            
            $
            93,690
            
            $
            66,692
            
            $
            70,549
            
            $
            84,651*%
                of annual*
            
            
            *28.3*
            *%*
            
            *22.2*
            *%*
            
            *25.0*
            *%*
            
            *24.5*
            *%*
            
            *29.7*
            *%*
            
            *21.1*
            *%*
            
            *22.4*
            *%*
            
            *26.8*
            *%***Total
                Operating Expenses**
            
            
            60,698
            
            
            55,329
            
            
            60,955
            
            
            59,735
            
            
            71,346
            
            
            58,474
            
            
            62,513
            
            
            70,311**Operating****Income**
            
            $
            16,808
            
            $
            5,577
            
            $
            7,491
            
            $
            7,213
            
            $
            22,344
            
            $
            8,218
            
            $
            8,036
            
            $
            14,340*%
                of revenue*
            
            
            *21.7*
            *%*
            
            *9.2*
            *%*
            
            *10.9*
            *%*
            
            *10.8*
            *%*
            
            *23.8*
            *%*
            
            *12.3*
            *%*
            
            *11.4*
            *%*
            
            *16.9*
            *%***Net
                Income**
            
            $
            6,478
            
            $
            157
            
            $
            2,872
            
            $
            1,102
            
            $
            10,575
            
            $
            1,509
            
            $
            1,661
            
            $
            4,415**Basic
                Earnings per common share**
            
            $
            0.37
            
            $
            0.01
            
            $
            0.16
            
            $
            0.06
            
            $
            0.57
            
            $
            0.08
            
            $
            0.09
            
            $
            0.24**Diluted
                Earnings per common share**
            
            $
            0.37
            
            $
            0.01
            
            $
            0.16
            
            $
            0.06
            
            $
            0.57
            
            $
            0.08
            
            $
            0.09
            
            $
            0.23







61
 Table
          of Contents


**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.





CLARK,
      INC.





By: /s/
      TOM WAMBERG


Tom
      Wamberg


*Chief
      Executive Officer*





Date:
      February 27, 2006





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant and in the
      capacities and on the dates indicated.





/s/
                TOM WAMBERG
            Chairman
                of the Board,
            February
                27, 2006Tom
                Wamberg
            Chief
                Executive Officer and Director/s/
                JEFFREY W. LEMAJEUR
            Chief
                Financial Officer and
            February
                27, 2006Jeffrey
                W. Lemajeur
            Chief
                Accounting Officer/s/
                THOMAS M. PYRA
            President,
                Chief Operating Officer and
            February
                27, 2006Thomas
                M. Pyra
            Director/s/
                RANDOLPH A. POHLMAN
            Director
            February
                27, 2006Randolph
                A. Pohlman/s/
                L. WILLIAM SEIDMAN
            Director
            February
                27, 2006L.
                William Seidman/s/
                GEORGE D. DALTON
            Director
            February
                27, 2006George
                D. Dalton/s/
                KENNETH A. GUENTHER
            Director
            February
                27, 2006Kenneth
                A. Guenther/s/
                RICHARD C. LAPPIN
            Director
            February
                27, 2006Richard
                C. Lappin/s/
                ROBERT E. LONG, JR.
            Director
            February
                27, 2006Robert
                E. Long, Jr./s/
                JAMES M. BENSON
            Director
            February
                27, 2006James
                M. Benson




62
 Table
          of Contents





**EXHIBIT
      INDEX**




**Exhibit
                No.**
            **Description**2.1
            Reorganization
                Agreement, dated as of July 30, 1998, by and among Clark/Bardes Holdings,
                Inc., Clark/Bardes, Inc. and the Predecessor Company (Incorporated
                herein
                by reference to Exhibit 2.1 of our Registration Statement on Form
                S-1,
                File No. 333-56799 filed with the SEC on July 12,
                1998).2.2
            Asset
                Purchase Agreement, dated April l5, 1999, by and among Clark/Bardes,
                Inc.,
                Clark/Bardes Holdings, Inc., Phynque, Inc., and certain stockholders
                of
                Phynque, Inc. (Incorporated herein by reference to Exhibit 2.1 of
                our
                Current Report on Form 8-K, File No. 000-24769, filed with the SEC
                on
                April 20, 1999).2.3
            Stock
                Purchase Agreement, dated June 21, 2000 by and among Clark/Bardes,
                Inc.
                and Clark/Bardes Holdings, Inc. as Purchasers and Pearl Meyer, Diane
                Posnak, Steven E. Hall, Rhonda C. Edelman, Claude E. Johnston and
                David E.
                Swinford as Stockholders (Incorporated herein by reference to Exhibit
                2.1
                of our Current Report on Form 8-K, File No. 000-24769, filed with
                the SEC
                on July 5, 2000).2.4
            Agreement
                of Merger and Plan of Reorganization, dated September 6, 2000, by
                and
                among Clark/Bardes Holdings, Inc., and Clark/Bardes Acquisition,
                Inc., and
                Compensation Resource Group, Inc. and William L. MacDonald, Sr.
                (Incorporated herein by reference to Exhibit 2.1 of our Current Report
                on
                Form 8-K, File No. 000-24769, filed with the SEC on September 11,
                2000).2.5
            Asset
                Purchase Agreement, dated March 12, 2001, by and among Clark/Bardes,
                Inc.,
                Clark/Bardes Holdings, Inc., Rich, Florin/Solutions, Inc., Rich,
                Florin/Solutions Trust and certain stockholders of Rich, Florin/Solutions,
                Inc. (Incorporated herein by reference to Exhibit 2.8 of our Registration
                Statement on Form S-3, File No. 333-72232, filed with the SEC on
                November
                2, 2001).2.6
            Asset
                Purchase Agreement, dated August 31, 2001, by and among Clark/Bardes
                Consulting, Inc., Clark/Bardes, Inc., Lyons Compensation & Benefits,
                LLC, and certain stockholders of Lyons Compensation & Benefits, LLC
                (Incorporated herein by reference to Exhibit 29 of our Registration
                Statement on Form S-3, File No. 333-72232, filed with the SEC on
                November
                2, 2001).2.7
            Membership
                Interests Purchase Agreement regarding FTPG LLC, dated February 25,
                2002,
                by and among Clark/Bardes, Inc., Clark/Bardes Consulting, Inc. and
                Pricewaterhouse Coopers LLP, Kenneth J. Kies, Patrick J. Raffaniello
                and
                FTPG LLC. (Incorporated herein by reference to Exhibit 2.10 of our
                Annual
                Report on Form 10-K, File No. 001-31256, filed with the SEC on March
                27,
                2002).3.1
            Certificate
                of Incorporation of Clark/Bardes, Inc. (Incorporated herein by reference
                to Exhibit 3.1 of our Registration Statement on Form S-1, File No.
                333-56799, filed with the SEC on July 12, 1998).3.2
            Certificate
                of Amendment of Certificate of Incorporation of Clark/Bardes, Inc.
                (Incorporated herein by reference to Exhibit 3.3 to Amendment No.1
                of our
                Registration Statement on Form S-1, File No. 333-56799), filed with
                the
                SEC on July 27, 1998).3.3
            Certificate
                of Amendment of Certificate of Incorporation of Clark/Bardes, Inc.
                (Incorporated herein by reference to Exhibit 5 of our Registration
                Statement on Form 8-A, filed with the SEC on February 28,
                2002).3.4
            Bylaws
                of Clark/Bardes, Inc. (Incorporated herein by reference to Exhibit
                3.2 of
                our Registration Statement on Form S-1, File No. 333-56799, filed
                with the
                SEC on July 12, 1998).3.5
            Certificate
                of Designation (Incorporated herein by reference to Exhibit 3.4 of
                our
                Registration Statement on Form S-1, File No. 333-56799, filed with
                the SEC
                on July 12, 1998).3.6
            Certification
                of Amendment of the Certification of Incorporation of Clark/Bardes,
                Inc.
                (Incorporated herein by reference to Exhibit 3.6 of our Quarterly
                report
                on Form10-Q, File No. 001-31256, filed with the SEC on August 14,
                2002).4.1
            Specimen
                Certificate for shares of common stock, par value $.01 per share,
                of
                Clark/ Bardes Holdings, Inc. (Incorporated herein by reference to
                Exhibit
                4.1 to Amendment No. 1 to our Registration Statement on Form S-1,
                File No.
                333-56799, filed with the SEC on July 27, 1998).4.2
            Rights
                Agreement, dated as of July 10, 1998, by and between Clark/Bardes
                Holdings, Inc. and The Bank of New York (Incorporated herein by reference
                to Exhibit 4.4 of our Quarterly Report on Form 10-Q, File No. 000-24769,
                filed with the SEC on November 16, 1998).10.1
            Clark/Bardes,
                Inc. 1998 Stock Option Plan (Incorporated herein by reference to
                Exhibit
                10.1 of our Registration Statement on Form S-1, File No. 333-56799,
                filed
                with the SEC on July 12, 1998).10.2
            Clark/Bardes
                Consulting, Inc. Execu-FLEX Benefit Plan, restated effective as of
                June 1,
                2001(Incorporated herein by reference to Exhibit 10.2 of our Annual
                Report
                on Form 10-K, File No. 001-31256, filed with the SEC on March 27,
                2002).(a)
            Amendment
                No. 1 to Clark/Bardes Consulting, Inc. Execu-FLEX Benefit Plan, effective
                as of January 1, 2002, (Incorporated herein by reference to Exhibit
                10.2
                of our Annual Report on Form 10-K, File No. 001-31256, filed with
                the SEC
                on March 27, 2002)..10.3
            Administration
                and Services Agreement, by and between Clark/Bardes, Inc. and Clark/Bardes
                Securities, Inc. (Incorporated herein by reference to Exhibit 10.3
                of our
                Registration Statement on Form S-1, File No. 333-56799, filed with
                the SEC
                on July 12, 1998).10.4
            Administration
                and Services Agreement, by and between Clark/Bardes, Inc. and
                Clark/Bardes, Inc. of Pennsylvania (Incorporated herein by reference
                to
                Exhibit 10.4 of our Registration Statement on Form S-1, File No.
                333-56799, filed with the SEC on July 12, 1998).10.5
            Letter
                of Agreement, dated July 24, 1998, to Great-West, Life Investors
                and
                Nationwide (Incorporated herein by reference to Exhibit 10.34 of
                our
                Registration Statement on Form S-1, File No. 333-56799, filed with
                the SEC
                on July 12, 1998).10.6
            Tax
                Indemnity Agreement by and between Clark/Bardes Holdings, Inc., Clark/
                Bardes, Inc. and certain former stockholders of the Predecessor Company
                (Incorporated herein by reference to Exhibit 10.28 of our Registration
                Statement on Form S-1, File No. 333-56799, filed with the SEC on
                July 12,
                1998).10.7
            Lease
                Agreement, dated April 24, 1998, by and between Northland Center
                Limited
                Partnership and Clark/Bardes, Inc. (Incorporated herein by reference
                to
                Exhibit 10.16 of our Registration Statement on Form S-1, File No.
                333-56799, filed with the SEC on July 12, 1998).10.8
            Sublease
                Agreement, dated as of September 1, 1999, between Clark/Bardes, Inc.
                and
                The Wamberg Organization (Incorporated herein by reference to Exhibit
                10.49 of our Quarterly Report on Form 10-Q, File No. 000-24769, filed
                with
                the SEC on November 12, 1999).10.9
            Amended
                and Restated Employee Stock Purchase Plan (Incorporated herein by
                reference to Exhibit 10.9 of our Annual Report on Form 10-K, File
                No.
                001-31256, filed with the SEC on March 2, 2005).10.10
            1998
                Non-Employee Director Stock Option Plan (Incorporated herein by reference
                to Exhibit 4.7 of our Registration Statement on Form S-8, File No.
                333-68163, filed with the SEC on December 1,
                1998).10.11
            Form
                of Clark/Bardes, Inc. 401(k) Savings Plan (Incorporated herein by
                reference to Exhibit 4.3 of our Registration Statement on Form S-8,
                File
                No. 333-68982, filed with the SEC on September 5,
                2001).10.12
            Employment
                Agreement dated February 1, 2004, by and between Clark, Inc. and
                Thomas M.
                Pyra. (Incorporated herein by reference to Exhibit 10.1 of our Quarterly
                Report on Form 10-Q, File No. 001-31256, filed with the SEC on May
                10,
                2004).(a)
            Amendment,
                dated April 26, 2005, to the Employment
                Agreement by and between Clark, Inc. and Thomas M.
                Pyra.*10.13
            Employment
                Agreement, dated as of September 1, 1999, by and between Clark/Bardes
                Holdings, Inc. and W.T. Wamberg (Incorporated herein by reference
                to
                Exhibit 10.48 of our Quarterly Report on Form 10-Q, File No. 000-24769,
                filed with the SEC on November 12, 1999).(a)
            First
                Amendment, dated March 6, 2002, to the Employment Agreement by and
                between
                Clark/Bardes Holdings, Inc. and W.T. Wamberg (Incorporated herein
                by
                reference to Exhibit 10.15 of our Annual Report on Form 10-K, File
                No.
                001-31256, filed with the SEC on March 27, 2002).(b)
            Second
                Amendment, dated May 1, 2003, to the Employment Agreement by and
                between
                Clark/Bardes Holdings, Inc., Clark/Bardes Consulting, Inc. and W.T.
                Wamberg (Incorporated herein by reference to Exhibit 10.1(b) of our
                Quarterly Report on Form 10-Q, File No. 001-31256, filed with the
                SEC on
                November 13, 2003).(c)
            Third
                Amendment, dated October 1, 2003, to the Employment Agreement by
                and
                between Clark/Bardes Holdings, Inc., Clark/Bardes Consulting, Inc.
                and
                W.T. Wamberg (Incorporated herein by reference to Exhibit 10.1(c)
                of our
                Quarterly Report on Form 10-Q, File No. 001-31256, filed with the
                SEC on
                November 13, 2003).10.14
            Employment
                Agreement dated as of July 1, 2004 by and between Clark, Inc. and
                James C.
                Bean. (Incorporated herein by reference to Exhibit 10.1 of our Quarterly
                Report on Form 10-Q, File No. 001-31256, filed with the SEC on August
                5,
                2004).10.15
            Second
                Amended and Restated Credit Agreement, dated as of November 26, 2003
                among
                Clark, Inc. as Borrower, Bank One Texas, NA, as Administrative Agent,
                Certain Financial Institutions as Lenders, and Bank One Capital Markets,
                Inc. as Lead Arranger and Sole Book Runner(Incorporated herein by
                reference to Exhibit 10.16 of our Annual Report on Form 10-K, File
                No.
                001-31256, filed with the SEC on March 2, 2005).(a)
            Amendment
                to Second Amended and Restated Credit
                Agreement, dated August 29,2005, among Clark, Inc. as Borrower, Chase
                Bank, NA as Syndicate Leader and Administrative Agent and Other Financial
                Institutions as Lenders.*10.16
            Clark/Bardes,
                Inc. 2002 Stock Option Plan (Incorporated herein by reference to
                Exhibit
                10.1 of our Quarterly Report on Form 10-Q, File No. 001-31256, filed
                with
                the SEC on August 14, 2002).10.17
            Membership
                Interest Purchase Agreement, dated as of September 25, 2002, by and
                among
                Clark/Bardes, Inc., Clark/Bardes Consulting, Inc., Long, Miller &
                Associates, LLC and certain other parties named therein (Incorporated
                herein by reference to Exhibit 2.1 of our Quarterly Report on Form
                10-Q,
                File No. 001-31256, filed with the SEC on November 14,
                2002).10.18
            Bonus
                Forfeiture Agreement, dated as of September 25, 2002, among Life
                Investors
                Insurance Company of America, Transamerica Life Insurance Company
                and
                Clark/Bardes Consulting, Inc. (Incorporated herein by reference to
                Exhibit
                10.1 of our Quarterly Report on Form 10-Q, File No. 001-31256, filed
                with
                the SEC on November 14, 2002).10.19
            Administrative
                Services Agreement, dated as of September 25, 2002, among Life Investors
                Insurance Company of America, Transamerica Life Insurance Company
                and
                Clark/Bardes Consulting, Inc. (Incorporated herein by reference to
                Exhibit
                10.2 of our Quarterly Report on Form 10-Q, File No. 001-31256, filed
                with
                the SEC on November 14, 2002).10.20
            Sale
                and Servicing Agreement, dated as of October 1, 2002, by and among
                CBC
                Insurance Revenue Securitization, LLC, Long, Miller & Associates, LLC,
                Clark/Bardes Consulting, Inc., BNY Midwest Trust Company and BNY
                Asset
                Solutions LLC (Incorporated herein by reference to Exhibit 10.23
                of our
                Annual Report on Form 10-K, File No. 001-31256, filed with the SEC
                on
                March 27, 2003).10.21
            Indenture,
                dated as of October 1, 2002, by and among CBC Insurance Revenue
                Securitization, LLC and BNY Midwest Trust Company (Incorporated herein
                by
                reference to Exhibit 10.24 of our Annual Report on Form 10-K, File
                No.
                001-31256, filed with the SEC on March 27, 2003).10.22
            Employment
                Agreement, dated July 16, 2004, between Clark, Inc. and Jeffrey W.
                Lemajeur (Incorporated herein by reference to Exhibit 10.2 of our
                Quarterly Report on Form 10-Q, File No. 001-31256, filed with the
                SEC on
                August 5, 2004).10.23
            Employment
                Agreement, dated March 21, 2003, between Clark/Bardes, Inc. and Leslie
                N.
                Brockhurst (Incorporated herein by reference to Exhibit 10.24 of
                our
                Annual Report on Form 10-K, File No. 001-31256, filed with the SEC
                on
                March 2, 2005).10.24
            Form
                of Non-Qualified Stock Option Agreement - 2002 Stock Option Plan
                (Incorporated herein by reference to Exhibit 10.1 of our Current
                Report on
                Form 8-K, File No. 001-31256, filed with the SEC on January 31,
                2005).10.25
            Form
                of Non-Qualified Stock Option Agreement - 2003 Stock Option Plan
                (Incorporated herein by reference to Exhibit 10.2 of our Current
                Report on
                Form 8-K, File No. 001-31256, filed with the SEC on January 31,
                2005).10.26
            Form
                of Incentive Stock Option Agreement - 2003 Stock Option Plan (Incorporated
                herein by reference to Exhibit 10.3 of our Current Report on Form
                8-K,
                File No. 001-31256, filed with the SEC on January 31,
                2005).10.27
            Limited
                Liability Company Agreement of Clark Benson, LLC (Incorporated herein
                by
                reference to Exhibit 10.1 of our Current Report on Form 8-K, File
                No.
                001-31256, filed with the SEC on January 27, 2006).10.28
            Employment
                Agreement, dated January 26, 2006 between Clark, Inc., Clark Consulting
                Inc., Clark Benson LLC and James M. Benson (Incorporated herein by
                reference to Exhibit 10.2 of our Current Report on Form 8-K, File
                No.
                001-31256, filed with the SEC on January 27, 2006).10.29
            Supplemental
                Executive Retirement Plan of the Clark,
                Inc. Long Term Incentive Compensation Plan.*10.30
            Clark,
                Inc. Performance Share Award
                Agreement.*16.1
            Letter
                of Deloitte & Touche LLP, dated June 16, 2005, to the Securities and
                Exchange Commission (Incorporated herein by reference to Exhibit
                16.1 of
                our Current Report on Form 8-K, File No. 001-31256, filed with the
                SEC on
                June 17, 2005).21.1
            Subsidiaries
                of the Registrant*23.1
            Consent
                of Ernst & Young LLP*23.2
            Consent
                of Deloitte and Touche
                LLP*31.1
            Certification
                of Chief Executive Officer pursuant to
                Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
            Certification
                of Chief Financial Officer pursuant to
                Section 302 of the Sarbanes-Oxley Act of 2002.*32.1
            Certification
                of Chief Executive Offer and Chief
                Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
                of
                2002.*





_______________


*filed
      herewith