FCGI First Consulting Grp (MM)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934

Filed by the Registrant þ

Filed by a Party other than the Registrant o

Check the appropriate box:
þ    Preliminary Proxy Statement
o     Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o    Definitive Proxy Statement
o    Definitive Additional Materials
o    Soliciting Material Pursuant to §240.14a-12

First Consulting Group, Inc.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

o     No fee required.

þ     Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

	(1)		Title of each class of securities to which transaction applies: Common Stock, par value $0.001 per share, of First Consulting Group, Inc.
	(2)		Aggregate number of securities to which transaction applies:

	(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): $ 13.00 per share of Common Stock
	(4)		Proposed maximum aggregate value of transaction: $ 379,380,521
	(5)		Total fee paid: $ 11,647

o		Fee paid previously with preliminary materials.
o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

	(1)		Amount Previously Paid:
	(2)		Form, Schedule or Registration Statement No.:
	(3)		Filing Party:
	(4)		Date Filed:

 

 

To Our Stockholders:

 

You are cordially invited to attend a special meeting of the stockholders of First Consulting Group, Inc., or FCG, to be held at [                                                  ] on [          ], at [          ] local time. At the special meeting, holders of our common stock as of the close of business on [          ] will be asked to consider and vote upon proposals to:

 

1. adopt the Agreement and Plan of Merger, dated as of October 30, 2007, by and among First Consulting Group, Inc., Computer Sciences Corporation, or CSC, and LB Acquisition Corp., a wholly-owned subsidiary of CSC, and

 

2. adjourn the special meeting, if necessary or appropriate, including to solicit additional proxies if there are not sufficient votes in favor of adoption of the merger agreement.

 

If the merger is completed, we will become a wholly-owned subsidiary of CSC and you will be entitled to receive $13.00 in cash, without interest, for each share of our common stock that you own.

 

After careful consideration, our board of directors unanimously approved the merger agreement and determined that the merger and the other transactions contemplated by the merger agreement are advisable, fair to and in the best interests of FCG and our stockholders. Our board of directors unanimously recommends that you vote “FOR” the adoption of the merger agreement and “FOR” the adjournment of the special meeting.

 

Your vote is very important.   We cannot complete the merger unless the holders of a majority of the outstanding shares of our common stock vote to adopt the merger agreement. The proposal to adjourn the special meeting will be approved if the shares voted in favor of the proposal exceed the shares voted against the proposal. The obligations of FCG and CSC to complete the merger are also subject to the satisfaction or waiver of several other conditions. We encourage you to read the accompanying proxy statement, including the annexes, in its entirety because it explains the proposed merger, the documents related to the merger and other related matters.

 

Whether or not you plan to attend the special meeting, please vote by completing and mailing to us the enclosed proxy card or by granting your proxy electronically over the Internet or by telephone, as soon as possible.   If your shares are held in an account at a brokerage firm, bank or other nominee, you should instruct your broker, bank or nominee how to vote your shares using the enclosed voting instruction form furnished by your broker, bank or nominee. If you do not vote or do not instruct your broker, bank or nominee how to vote, it will have the same effect as voting against the adoption of the merger agreement.

 

If you sign, date and mail your proxy and do not indicate how you want to vote, your proxy will be voted “FOR” the adoption of the merger agreement and “FOR” the proposal to adjourn the special meeting, provided that no proxy that is specifically marked “AGAINST” the proposal to adopt the merger agreement will be voted in favor of the adjournment proposal, unless it is specifically marked “FOR” the adjournment proposal.

 

I enthusiastically support this transaction and join the other members of our board of directors in recommending that you vote for the adoption of the merger agreement.

 

Sincerely,

Douglas G. Bergeron
Chairman of the Board of Directors

 

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the merger or the merger agreement, passed upon the merits or fairness of the merger or passed upon the adequacy or accuracy of the disclosure in the proxy statement. Any representation to the contrary is a criminal offense.

 

This proxy statement is dated [          ] and is first being mailed to stockholders on or about [          ].

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON [          ]

 

TO THE STOCKHOLDERS OF FIRST CONSULTING GROUP, INC.:

 

NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of First Consulting Group, Inc., or FCG, a Delaware corporation, will be convened on [          ] at [          ] local time, at [                                                                                                ] for the following purposes, as more fully described in the accompanying Proxy Statement and the merger agreement attached to it as Annex A :

 

1. To consider and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of October 30, 2007, by and among FCG, Computer Sciences Corporation, or CSC, and LB Acquisition Corp. Pursuant to the terms of the merger agreement, LB Acquisition Corp., a wholly-owned subsidiary of CSC, will merge with and into FCG with FCG continuing as the surviving corporation and becoming a wholly-owned subsidiary of CSC, and each outstanding share of FCG stock (other than shares as to which appraisal rights are properly demanded) will be converted into the right to receive $13.00 per share in cash, without interest;

 

2. To consider and vote upon a proposal to adjourn the special meeting, if necessary or appropriate, including to solicit additional proxies if there are not sufficient votes in favor of adoption of the merger agreement; and

 

3. To transact any other business as may properly come before the special meeting or any postponement or adjournment of the special meeting.

 

After careful consideration, our board of directors unanimously approved the merger agreement and determined that the merger and the other transactions contemplated by the merger agreement are advisable, fair to and in the best interests of FCG and its stockholders. Our board of directors unanimously recommends that you vote “FOR” the adoption of the merger agreement and “FOR” the proposal to adjourn the special meeting.

 

Only stockholders of record at the close of business on [          ] are entitled to notice of, and to vote at, the special meeting. Each share of our common stock is entitled to one vote on each matter to be voted upon at the special meeting. A complete list of our stockholders of record entitled to vote at the special meeting will be available for ten days prior to the special meeting at 111 West Ocean Boulevard, 4th Floor, Long Beach, California 90802 for inspection by stockholders during ordinary business hours for any purpose germane to the special meeting and will also be available at the special meeting.

 

Stockholders of FCG who do not vote in favor of adoption of the merger agreement are entitled to demand appraisal rights in connection with the merger if they meet certain conditions and comply with certain procedures under Section 262 of the General Corporation Law of the State of Delaware, which is attached to this proxy statement as Annex C .

 

By Order of the Board of Directors,

 

Michael A. Zuercher
Senior Vice President, Corporate — General
Counsel and Secretary

Long Beach, California

[          ]

 

 

 

 

TABLE OF CONTENTS

 

 

 

QUESTIONS AND ANSWERS ABOUT THE MERGER
AND THE SPECIAL MEETING

 

The following questions and answers briefly address some questions you may have regarding the special meeting and the proposed merger. These questions and answers may not address all questions that may be important to you as a stockholder of First Consulting Group, Inc. Please refer to the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to in this proxy statement. We encourage you to read this proxy statement, including the annexes, in its entirety because it explains the proposed merger, the documents related to the merger and other related matters. In this proxy statement, the terms “company,” “we,” “our,” “ours,” “us” and “FCG” refer to First Consulting Group, Inc. We refer to Computer Sciences Corporation as CSC, and LB Acquisition Corp. as Merger Sub.

 

 

	•	All outstanding options to purchase shares of our common stock held by our employees, officers, directors and other service providers, regardless of whether such options are vested or unvested, will become fully vested immediately prior to the completion of the merger, and at that time all outstanding options will be cancelled and the holder will be entitled to receive a cash payment, without interest and less any applicable withholding taxes, equal to the product of (i) the excess, if any, of $13.00 over the applicable per share exercise price, and (ii) the number of shares subject to the option; and
	•	All outstanding shares of restricted stock awards and stock bonus awards held by our employees, officers, directors and other service providers, regardless of whether such shares are vested or unvested, will become fully vested immediately prior to the completion of the merger, all restrictions on such shares will lapse, and such shares will be treated in the same manner as other outstanding shares of our common stock. Thus, each such share will be cancelled in exchange for $13.00 per share.

	•	approved the merger agreement and other transactions contemplated by the merger agreement; and
	•	determined that the merger and the other transactions contemplated in the merger agreement are advisable, fair to and in the best interests of us and our stockholders.

	•	our executive officers that have previously executed change in control agreements may be entitled to certain cash severance payments and continued benefits that will be triggered if they are terminated under certain circumstances during the period commencing one month prior to and ending 13 months following the completion of the merger;
	•	our executive officers that have previously executed change in control agreements will be entitled to their prorated target cash bonus for the bonus period in which the merger is completed if they are employed by us on the date of the completion of the merger or their employment is terminated by us without “Cause” (as defined on page 40) one month prior to the completion of the merger;
	•	our executive officers that do not have change in control agreements may be entitled to certain cash severance payments under our severance guidelines if their employment is terminated in connection

	•	all unvested options to purchase shares of our common stock held by our directors and executive officers will become fully vested immediately prior to the completion of the merger and be cancelled and the holder will be entitled to receive a cash payment, without interest and less any applicable withholding taxes, equal to the product of (i) the excess, if any, of $13.00 over the applicable per share exercise price, and (ii) the number of shares subject to the unvested portion of the option;
	•	all vested options to purchase shares of our common stock held by our directors and executive officers will be cancelled and the holder will be entitled to receive a cash payment, without interest and less any applicable withholding taxes, equal to the product of (i) the excess, if any, of $13.00 over the applicable per share exercise price and (ii) the number of shares subject to the vested portion of the option;
	•	all unvested shares of restricted stock awards and stock bonus awards held by our directors and executive officers will become fully vested immediately prior to the completion of the merger and all restrictions on such shares will lapse, and such shares will be cancelled in exchange for $13.00 per share in the same manner as all other outstanding shares of our common stock in the merger;
	•	all FCG contributions to the First Consulting Group, Inc. Supplemental Executive Retirement Plan will become fully vested immediately upon the completion of the merger; and
	•	our directors and officers will continue to be indemnified for acts and omissions occurring at or prior to the completion of the merger and will have the benefit of director and officer liability insurance for six years following completion of the merger.

	•	the adoption of the merger agreement by our stockholders;
	•	the absence of any statute, rule, regulation, order or injunction preventing the completion of the merger; and
	•	the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Act of 1976, as amended, and that any other material consent or approval under any other applicable antitrust or competition laws of any other applicable jurisdiction shall have been obtained.

	•	certain specified representations and warranties made by us in the merger agreement shall be true and correct in all material respects as of October 30, 2007 and when the merger is completed (except for those representations and warranties that expressly relate to an earlier date, which only need to be true and correct as of such earlier date);
	•	all other representations and warranties made by us in the merger agreement shall be true and correct as of October 30, 2007 and when the merger is completed (except for those representations and warranties that expressly relate to an earlier date, which only need to be true and correct as of such earlier date), except where the failure of such representations and warranties to be true and correct has not had, or would not reasonably be expected to have, a material adverse effect (as described in the section of this proxy statement entitled “The Merger Agreement — Representations and Warranties”) on us;
	•	the performance by us in all material respects of our obligations and covenants under the merger agreement;
	•	the receipt by CSC of a certificate signed by one of our executive officers certifying the satisfaction of the foregoing conditions; and
	•	the absence of a material adverse effect on our business since October 30, 2007.

	•	the representations and warranties made by CSC and Merger Sub in the merger agreement shall be true and correct in all material respects as of October 30, 2007 and when the merger is completed (except for those representations and warranties that expressly relate to an earlier date, which only need to be true and correct as of such earlier date);
	•	the performance by each of CSC and Merger Sub in all material respects of their obligations and covenants under the merger agreement; and

	•	our receipt of a certificate signed by an executive officer of CSC certifying the satisfaction of the foregoing conditions.

	•	initiate, solicit, or knowingly encourage any acquisition proposals;
	•	engage in any discussions or negotiations with respect to an acquisition proposal;
	•	cooperate with, assist in, participate in, or knowingly facilitate any inquiries, proposals or offers that could lead to an acquisition proposal;
	•	provide any non-public information to any person that would encourage, assist, or facilitate any acquisition proposals; or
	•	exempt any person or entity from any anti-takeover provision under applicable law or from our Rights Agreement adopted November 22, 1999.

	•	we have complied with the non-solicitation provisions above;
	•	our board of directors determines in good faith (after consultation with its financial advisors and outside legal counsel) that the acquisition proposal is, or could reasonably be expected to result in, a superior proposal;
	•	our board of directors determines in good faith (after consultation with its outside legal counsel) that it would be inconsistent with its fiduciary duties under applicable law not to take such actions;
	•	the potential acquirer has entered into a confidentiality agreement that contains terms that are no less restrictive than those contained in the confidentiality agreement between us and CSC (except such confidentiality agreement may permit the potential acquirer to convey confidentially an acquisition proposal to us and permit us to furnish non-public information to, and engage in discussions or negotiations with, such potential acquirer);
	•	we notify CSC before we enter into such a confidentiality agreement, and we provide the confidentiality agreement to CSC; and
	•	we provide to CSC any material non-public information provided to such potential acquirer which was not previously provided to CSC.

	•	if we receive an acquisition proposal or offer or indication by any person that it is considering making an acquisition proposal, along with its material terms;
	•	if we receive any request for non-public information relating to us other than requests for information in the ordinary course of business and unrelated to an acquisition proposal;
	•	if we receive any inquiry or request for discussions or negotiations regarding an acquisition proposal, along with its material terms;

	•	of the identity of any person that indicates that it is considering making an acquisition proposal; and
	•	if we decide to furnish non-public information to, or engage in discussions or negotiations with, a person making a bona fide, written acquisition proposal.

	•	in the case of a person who made a written acquisition proposal to us between January 30, 2007 and October 30, 2007, we may waive, amend or modify any such confidentiality or standstill agreement prior to November 29, 2007 in order to permit such person to convey confidentially an acquisition proposal to us and to permit us to furnish non-public information to, and engage in discussions or negotiations with, such person; or
	•	in the case of any other person, we may waive, amend or modify any such confidentiality or standstill agreement at any time before our stockholders adopt the merger agreement in order to permit such person to convey confidentially an acquisition proposal to us and to permit us to furnish non-public information to, and engage in discussions or negotiations with, such person.

	•	by either CSC or us if:

	—	the merger has not been completed by April 30, 2008 and such delay was not caused by a breach of the merger agreement by the terminating party;
	—	a majority of the outstanding shares of our common stock do not vote to adopt the merger agreement at the special stockholders meeting; or
	—	a court or other governmental entity has permanently restrained, enjoined or otherwise prohibited the merger; or

	•	by us if:

	—	we are not in material breach of the merger agreement, CSC or Merger Sub materially breaches the merger agreement, and such breach cannot be cured prior to the earlier of April 30, 2008 or 20 business days after receipt of notice from us; or
	—	we accept an unsolicited superior proposal and concurrently pay CSC a termination fee of $10,900,000; or

	•	by CSC if:

	—	they are in material breach of the merger agreement, we materially breach certain specified representations, warranties or covenants made by us in the merger agreement, and such breach cannot be cured prior to the earlier of April 30, 2008 or 20 business days after receipt of notice from CSC;
	—	they are in material breach of the merger agreement, we breach any other representations and warranties made by us in the merger agreement, and such breach is reasonably expected to have a

		material adverse effect on us and cannot be cured prior to the earlier of April 30, 2008 or 20 business days after receipt of notice from CSC;

	—	our board of directors withdraws, modifies or qualifies (or publicly proposes to do so), in a manner adverse to CSC, its recommendation that our stockholders vote in favor of the adoption of the merger agreement;
	—	our board of directors approves or recommends (or publicly proposes to do so) an acquisition proposal;
	—	a tender or exchange offer for 15% or more of our outstanding stock has been commenced and, within 10 business days, our board of directors does not publicly recommend that our stockholders not tender their shares in such offer; or
	—	we materially breach our covenants described under “The Merger Agreement — Covenants — No Solicitation of Acquisition Proposals and Standstill Waivers,” and such breach cannot be cured prior to the earlier of April 30, 2008 or 20 business days after receipt of notice from CSC; or

	•	by mutual written consent of us and CSC.

	•	CSC terminates the merger agreement because:

	—	our board of directors withdraws, modifies or qualifies (or publicly proposes to do so), in a manner adverse to CSC, its recommendation that our stockholders vote in favor of the adoption of the merger agreement;
	—	our board of directors approves or recommends (or publicly proposes to do so) an acquisition proposal;
	—	a tender or exchange offer for 15% or more of our outstanding stock has been commenced and, within 10 business days, our board of directors does not publicly recommend that our stockholders not tender their shares in such offer; or

	•	we terminate the merger agreement in order to accept an unsolicited superior proposal; or
	•	a third party acquisition proposal which would result in such third party acquiring beneficial ownership of at least 50% of our assets, equity interests, or businesses has become publicly announced or known and not publicly withdrawn prior to the termination of the merger agreement, and

	—	the merger agreement is terminated (a) by us or CSC because the merger has not been completed by April 30, 2008 or because a majority of the outstanding shares of our common stock do not vote to adopt the merger agreement at the special stockholders meeting, or (b) by CSC because we materially breach our covenants described under “The Merger Agreement — Covenants — No Solicitation of Acquisition Proposals and Standstill Waivers”; and
	—	within 12 months after such termination of the merger agreement, we enter into any definitive agreement with respect to, or we consummate, any acquisition proposal which would result in any third party acquiring beneficial ownership of at least 50% of our assets, equity interests or businesses.

	•	you must not vote in favor of the proposal to adopt the merger agreement;
	•	you must deliver a written demand to us for appraisal in compliance with the General Corporation Law of the State of Delaware before the vote on the proposal to adopt the merger agreement occurs at the special meeting; and

	•	you must hold your shares of record continuously from the time of making a written demand for appraisal through the completion of the merger; a stockholder who is the record holder of shares of our common stock on the date the written demand for appraisal is made, but who thereafter transfers those shares prior to the completion of the merger, will lose any right to appraisal in respect of those shares.

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This proxy statement contains “forward-looking statements” within the meaning of the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended. Statements other than statements of historical fact are forward-looking statements for purposes of federal and state securities laws, including projections of earnings, revenue or other financial items; statements regarding future economic conditions or performance; statements of belief; and statements of assumptions. Forward-looking statements may include the words “may,” “could,” “will,” “should,” “would,” “estimate,” “intend,” “continue,” “believe,” “expect,” “anticipate” or other similar words. These forward-looking statements, including, without limitation, those projections regarding the completion of the merger, government consents and approvals and the outcome of the contingencies such as legal proceedings, are necessarily estimates reflecting the best judgment of our management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties. Risks and uncertainties pertaining to the following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements:

 

 

You should not place any undue reliance on forward-looking statements and should consider the cautionary statements contained or referred to in this section in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We do not undertake any obligation to release publicly any revisions to any forward-looking statements contained herein to reflect events or circumstances that occur after the date of this proxy statement or to reflect the occurrence of unanticipated events, except as we are required to do by law.

 

FIRST CONSULTING GROUP, INC. SPECIAL MEETING

 

We are furnishing this proxy statement to our stockholders as part of the solicitation of proxies by our board of directors for use at the special meeting.

 

Date, Time and Place

 

We will hold the special meeting at [                    ] on [          ] at [          ] local time.

 

Purpose of the Special Meeting

 

At the special meeting, we are asking holders of record of our common stock on [          ], to consider and vote on the following proposals:

 

1. The adoption of the Agreement and Plan of Merger, dated as of October 30, 2007, by and among FCG, CSC and Merger Sub, a wholly-owned subsidiary of CSC. Pursuant to the terms of the merger agreement, Merger Sub will merge with and into FCG, with FCG continuing as the surviving corporation and becoming a wholly-owned subsidiary of CSC, and each outstanding share of FCG stock (other than shares as to which appraisal rights are properly demanded) will be converted into the right to receive $13.00 per share in cash, without interest;

 

2. The adjournment of the special meeting, if necessary or appropriate, including to solicit additional proxies if there are not sufficient votes in favor of adoption of the merger agreement; and

 

3. The transaction of any other business as may properly come before the special meeting or any postponement or adjournment of the special meeting.

 

Recommendation of Our Board of Directors

 

Our board of directors has determined that the terms of the merger agreement, the merger, and the other transactions contemplated by the merger agreement are advisable, fair to and in the best interests of our stockholders and has unanimously approved the merger agreement.

 

Our board of directors unanimously recommends that our stockholders vote “FOR” the adoption of the merger agreement and “FOR” the proposal to adjourn the special meeting. See “The Merger — Recommendation of Our Board of Directors; Our Reasons for the Merger.”

 

Stockholders Entitled to Vote; Record Date and Quorum

 

You may vote at the special meeting if you were a record holder of shares of our common stock at the close of business on [          ], the record date for the special meeting. For each share of our common stock that you owned on the record date, you are entitled to cast one vote on each matter voted upon at the special meeting. As of [          ], there were [          ] shares of our common stock outstanding and entitled to vote.

 

A quorum of stockholders is necessary to hold the special meeting. The required quorum for the transaction of business at the special meeting is the presence, either in person or represented by proxy, of the holders of a majority of the outstanding common stock entitled to vote at the special meeting. If a quorum is not present at the special meeting, we expect that the special meeting will be adjourned to solicit additional proxies. Abstentions and “broker non-votes,” discussed below, count as shares present for establishing a quorum.

 

Vote Required

 

You may vote “FOR” or “AGAINST,” or you may “ABSTAIN” from voting on, the proposal to adopt the merger agreement. Adoption of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of our common stock entitled to vote at the special meeting. Because the

vote on the proposal to adopt the merger agreement is based on the total number of shares outstanding, rather than the number of actual votes cast, abstentions and “broker non-votes” will have the same effect as voting against the adoption of the merger agreement. A “broker non-vote” occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting authority or has not received instructions from the beneficial owner of the shares. Brokers and other nominees will not have discretionary authority on the proposal to adopt the merger agreement.

 

The proposal to adjourn the special meeting will be approved if the votes cast in favor of the proposal by shares of common stock, present in person or represented by proxy and entitled to vote on the subject matter, exceed the votes cast against the proposal. Abstentions and broker non-votes will have no effect on the proposal to adjourn the special meeting.

 

A list of our stockholders will be available for review for any purpose germane to the special meeting at 111 West Ocean Boulevard, 4th Floor, Long Beach, California 90802 during regular business hours for a period of ten days before the special meeting and will also be available at the special meeting.

 

Shares Owned by Our Directors and Executive Officers

 

As of [          ], the record date for the special meeting, our directors and executive officers were entitled to vote approximately [          ] shares of common stock, or approximately [     ]% of our total common stock outstanding on that date. These numbers do not give effect to outstanding stock options which are not entitled to vote at the special meeting. We currently expect that each of our directors and executive officers will vote their shares in favor of the proposals to be presented at the special meeting.

 

Voting; Proxies

 

You may vote in person or by proxy at the special meeting.

 

Voting in Person

 

If you plan to attend the special meeting and wish to vote in person, you will be given a ballot at the special meeting. Please note, however, that if your shares are held in “street name,” which means your shares are held of record by a broker, bank or other nominee, and you wish to vote at the special meeting, you must bring to the special meeting a legal proxy from the record holder of the shares (your broker, bank or nominee) authorizing you to vote at the special meeting.

 

Voting by Proxy

 

If you do not wish to attend the special meeting you may submit your proxy by completing, dating, signing and returning the enclosed proxy card by mail or by granting a proxy by telephone or on the Internet. All shares represented by properly executed proxies received in time for the special meeting will be voted at the special meeting in the manner specified by the stockholders giving those proxies. Properly executed proxies that do not contain voting instructions will be voted “FOR” the proposal to adopt the merger agreement and “FOR” the proposal to adjourn the special meeting, provided that no proxy that is specifically marked “AGAINST” the proposal to adopt the merger agreement will be voted in favor of the adjournment proposal, unless it is specifically marked “FOR” the adjournment proposal.

 

Only shares affirmatively voted for the proposal to adopt the merger agreement and the proposal to adjourn the special meeting, and properly executed proxies that do not contain voting instructions, will be counted as votes “FOR” the proposals. Shares of our common stock held by persons who attend the special meeting but abstain from voting in person or by proxy, and shares of our stock for which we received proxies directing an abstention, will have the same effect as votes “AGAINST” the adoption of the merger agreement and will have no effect on the proposal to adjourn the special meeting. Shares represented by proxies that reflect a “broker non-vote” will be counted for purposes of determining whether a quorum exists, but those proxies will have the same effect as votes “AGAINST” the proposal to adopt the merger agreement and no effect on the adjournment proposal. A “broker non-vote” occurs when a nominee holding shares for a beneficial owner has not received instructions from the beneficial owner and does not have discretionary authority to vote the shares.

 

Adjournments

 

Although it is not currently expected, the special meeting may be adjourned for the purpose of, among other things, soliciting additional proxies. An adjournment may occur under any of the methods described below.

 

 

Revocation of Proxies

 

A stockholder of record may revoke a proxy at any time before it is voted by filing with our corporate secretary a duly executed revocation of proxy, by submitting a duly executed proxy to our corporate secretary dated later than that stockholder’s original proxy, by granting a proxy via Internet or by telephone following the date of that stockholder’s original proxy or by appearing at the special meeting and voting in person. A stockholder of record may revoke a proxy by any of these methods, regardless of the method used to deliver the stockholder’s previous proxy. Attendance at the special meeting without voting will not itself revoke a proxy. If your shares are held in street name, you must contact your broker, bank or nominee to revoke your proxy. If the special meeting is adjourned, stockholders can revoke their proxies for the special meeting at any time prior to their use at the special meeting as adjourned.

 

Solicitation of Proxies

 

We have retained The Altman Group to assist in the solicitation of proxies for the special meeting. We will bear the entire cost of our and The Altman Group’s solicitations, including the payment of a fee of approximately $12,500, plus reimbursement of reasonable out-of-pocket expenses. We may also employ our directors, officers and employees to solicit proxies by personal interview, mail, e-mail, telephone, facsimile or other means of communication. These persons will not be paid additional remuneration for their efforts. We or The Altman Group may also request brokers and other fiduciaries to forward proxy solicitation material to the beneficial owners of shares of our common stock that the brokers and fiduciaries hold of record. Upon request, we will reimburse them for their reasonable out-of-pocket expenses.

 

Appraisal Rights

 

Under applicable Delaware law, stockholders who do not wish to accept the consideration payable for their shares of common stock pursuant to the merger may seek judicial appraisal of the fair value of their shares by the Delaware Court of Chancery. Generally, in order to properly demand appraisal, a stockholder must:

 

 

Merely voting against, or failing to vote in favor of, the merger agreement will not preserve your right to appraisal under Delaware law. Also, because a submitted proxy not marked “against” or “abstain” will be voted “FOR” the proposal to adopt the merger agreement, the submission of a proxy not marked “against” or “abstain” will result in the waiver of appraisal rights. If you hold shares in the name of a broker, bank or other nominee, you must instruct your nominee to take the steps necessary to enable you to demand appraisal for your shares.

 

Annex C to this proxy statement contains the full text of Section 262 of the General Corporation Law of the State of Delaware, which relates to your right of appraisal. We encourage you to read these provisions carefully and in their entirety. If you or your nominee fails to follow all of the steps required by Section 262 of the General Corporation Law of the State of Delaware, you will lose your right of appraisal.

 

Other Business

 

We do not expect that any matter other than the proposal to adopt the merger agreement and, if necessary or appropriate, the proposal to adjourn the meeting will be brought before the special meeting. If, however, other matters are properly presented at the special meeting, the persons named as proxies will vote in accordance with their best judgment with respect to those matters.

 

 

PROPOSAL 1 — ADOPTION OF THE MERGER AGREEMENT

 

THE MERGER

 

This discussion of the merger does not purport to be complete and is qualified in its entirety by reference to the merger agreement, which is attached to this proxy statement as Annex A and which is incorporated by reference into this proxy statement. You should read the entire merger agreement carefully as it is the legal document that governs the merger.

 

Introduction

 

We are asking our stockholders to adopt the Agreement and Plan of Merger, dated as of October 30, 2007, by and among First Consulting Group, Inc. (which we refer to in this proxy statement as FCG), Computer Sciences Corporation (which we refer to in this proxy statement as CSC), and LB Acquisition Corp., a wholly-owned subsidiary of CSC. If we complete the merger, we will become a wholly-owned subsidiary of CSC, and our stockholders will have the right to receive $13.00 in cash, without interest and less any applicable withholding taxes, for each share of common stock that is outstanding immediately prior to the completion of the merger. Any withheld amounts will be treated for all purposes as having been paid to the holder of our common stock in respect of whose shares the withholding was made.

 

The Companies

 

First Consulting Group, Inc.

 

FCG is a leading provider of outsourcing, consulting, systems implementation and integration services and proprietary software products for healthcare, pharmaceutical, and other life sciences organizations throughout North America, Europe and Asia. Through combinations of onsite, offsite and offshore outsourced services, FCG provides low-cost, high-quality offerings to improve our clients’ performance. Our firm’s consulting and integration services and proprietary software products increase clients’ operational effectiveness with and through information technology, resulting in reduced costs, improved customer service, enhanced quality of patient care, and more rapid introduction of new pharmaceutical compounds. Founded in 1980, FCG has compiled a strong track record of client service and satisfaction and has grown to a firm with more than 2,500 associates. Our principal offices are located at 111 West Ocean Boulevard, 4th Floor, Long Beach, California 90802 and our telephone number is (562) 624-5200. Additional information about us is contained in our filings with the SEC. See “Where You Can Find More Information” on page 69.

 

Computer Sciences Corporation

 

Computer Sciences Corporation (which we refer to in this proxy statement as CSC) is one of the world’s leading information IT services companies. CSC’s mission is to provide customers in industry and government with solutions crafted to meet their specific challenges and enable them to profit from the advanced use of technology. With approximately 87,000 employees, CSC provides innovative solutions for customers around the world by applying leading technologies and CSC’s own advanced capabilities, which include systems design and integration, IT and business process outsourcing, applications software development, Web and application hosting, and management consulting. Headquartered in El Segundo, California, CSC reported revenue of $14.7 billion for the 12 months ended December 29, 2006. CSC’s common stock is listed on the New York Stock Exchange under the symbol “CSC”. CSC’s principal offices are located at 2100 East Grand Avenue, El Segundo, California 90245 and its telephone number is (310) 615-0311. For additional information about CSC and its business, see “Where You Can Find More Information” on page 69.

 

LB Acquisition Corp.

 

LB Acquisition Corp. (which we refer to in this proxy statement as Merger Sub), a Delaware corporation and a wholly-owned subsidiary of CSC, was organized solely for the purpose of entering into the merger agreement with FCG and completing the merger and has not conducted any business operations other than those incident to its formation and the transactions contemplated by the merger agreement. If the merger is

completed, Merger Sub will cease to exist following its merger with and into FCG. LB Acquisition Corp.’s mailing address is c/o Computer Sciences Corporation, 2100 East Grand Avenue, El Segundo, California 90245 and its telephone number is (310) 615-0311.

 

Background of the Merger

 

Our board of directors (which we refer to in this section as our board) and management, in their ongoing effort to maximize stockholder value, have periodically reviewed and assessed our business strategy, a variety of strategic alternatives (including the sale of some of our businesses, assets or the entire company, or the acquisition of businesses or assets), and the various trends and conditions impacting our businesses generally.

 

On April 6, 2005, a private equity firm (which we refer to in this proxy statement as Bidder A) sent us an unsolicited letter expressing an interest in acquiring us at a price of $7.25 per share of our common stock, subject to its completion of due diligence, receipt of financing, negotiation of a definitive agreement and other conditions. The closing price of our common stock on that day was $5.55 per share.

 

On April 11, 2005, a special meeting of our board was held to consider the proposal submitted by Bidder A. During the meeting, representatives of Latham & Watkins LLP, our outside legal counsel (who we refer to in this proxy statement as Latham & Watkins) advised our board of its fiduciary duties to our stockholders under Delaware law in connection with a sale of the company.

 

On April 28 and 29, 2005, our management met with Bidder A to discuss its proposal. During these meetings, Bidder A orally indicated that it would be willing to consider a higher price per share to acquire us than indicated in its April 6 letter.

 

Between April 29, 2005 and July 8, 2005, we had several discussions with Bidder A regarding its proposal.

 

On July 8, 2005, at a special meeting of a special committee of our board, Bidder A made a telephonic presentation of its acquisition proposal, which was preceded by its oral indication that it could pay up to $10.00 per share of our common stock. The closing price of our common stock on July 8, 2005 was $5.15 per share. Among other things, Bidder A’s offer required that we enter into exclusive negotiations with Bidder A, was conditioned on our ability to earn $0.10 per share in the fourth quarter of 2005 and provided that Bidder A could terminate discussions during its due diligence and receive reimbursement of its legal and other expenses incurred in the due diligence process. During the July 8 board meeting, our board discussed the significant conditions on Bidder A’s proposal and the price it was willing to pay. After consulting with our management and advisors and reviewing an evaluation of our business plan and prospects, we declined to enter into detailed due diligence or negotiations over a definitive agreement with Bidder A and our immediate discussions with Bidder A ended. We ultimately generated a net loss of $0.36 per share in the fourth quarter of 2005.

 

On November 4, 2005, Luther J. Nussbaum resigned as our Chairman of the Board and Chief Executive Officer and our board commenced a search, with the assistance of an outside search firm, to hire a new Chief Executive Officer.

 

On June 26, 2006, Larry R. Ferguson was appointed as our Chief Executive Officer. Following Mr. Ferguson’s appointment, our management undertook a comprehensive review of our business plan, focusing on, among other matters, the restructuring of our business units, cost rationalization efforts that had commenced in the fourth quarter of 2005 and leveraging our sales and marketing functions. Over the next several months, management and our board periodically discussed various strategic initiatives to improve our prospects and increase stockholder value.

 

In July 2006, a strategic company (who we refer to in this proxy statement as Bidder B) and another strategic company separately approached two of our board members inquiring about a potential acquisition of the company. Due to the need to stabilize our management team and our desire to reevaluate our business plan, prospects and strategic alternatives, we determined not to proceed with further discussions with either of these parties at that time.

On October 24, 2006, we had a regular meeting of our board to discuss, among other matters, our business strategy, opportunities and risks faced by us, and the state of the markets that we compete in. As a result of these efforts, the company completed a firm-wide restructuring of its business units that was effective January 2007.

 

In the first quarter of 2007, our management had discussions with representatives of William Blair regarding our competitive position within the industry, our business strategy, our historical financial performance and future prospects, the mergers and acquisitions market, preliminary potential valuations of the company and possible strategic alternatives (such as divestiture of business units, acquisition of complementary businesses, termination of unprofitable customer contracts, and a potential sale of the company).

 

On February 20, 2007, we had a regular meeting of our board to discuss, among other matters, a review of our business operations, including the competitive risks faced by each of our business units and strategic alternatives available to the company to enhance stockholder value. During the meeting, representatives of William Blair discussed with our board, among other things, the current state of the healthcare information technology and professional services markets, the state of the market for mergers and acquisitions, selected public company market statistics and valuations, alternatives regarding the further restructuring of our operations, preliminary potential valuations of the company, our historical financial performance and continuing as a standalone company under our business plan.

 

On March 9, 2007, we had a special telephonic meeting of our board during which we determined to engage William Blair as our financial advisor to assist us in continuing to explore and evaluate our strategic direction and alternatives, including a possible sale of the company. At the meeting, representatives of William Blair further discussed with our board the issues discussed at the February 20 board meeting, including the strategic alternatives available to the company. Our management then discussed various strategic alternatives available to the company, including a sale of the company, business restructurings, cost cutting measures and asset divestitures. Following this discussion, our board authorized management to continue exploring strategic alternatives, including contacting third parties which might be interested in acquiring the company.

 

On May 1, 2007, we had a regular meeting of our board to, among other things, discuss the status of the review of our strategic alternatives. Management reported to our board that William Blair, at the direction of management, had contacted various companies and private equity firms regarding their interest in pursuing a possible acquisition of the company, and that the company would enter into confidentiality agreements with certain of these parties. Management further reported to our board that it would continue to analyze its strategic alternatives for the company on a stand-alone basis.

 

Beginning in late April and early May 2007, through William Blair, we began contacting and engaging in preliminary discussions with third parties concerning a possible sale of the company. From that time, and continuing through June 2007, we contacted 18 potential strategic buyers and 56 potential financial buyers. The potential strategic buyers were identified, with input from William Blair, based upon the nature of their operations, financial condition and ability to complete a transaction. The potential financial buyers were identified, with input from William Blair, based upon their investment strategies and ability to complete a transaction. Following these initial contacts, we entered into confidentiality agreements with seven potential strategic buyers and 31 potential financial buyers. We sent each of these parties a confidential information memorandum regarding us and our business. We requested each of these parties to give us a preliminary indication of interest in acquiring us by June 21, 2007.

 

Between June 20 and June 21, 2007, three potential strategic buyers, including CSC and Bidder B, and four potential financial buyers, including Bidder A, delivered written, non-binding initial indications of interest in acquiring FCG. The initial indicated values that these potential buyers were willing to acquire us at ranged from $9.15 to $11.50 per share of our common stock. In its initial indication of interest, CSC’s initial indication of value ranged from $10.00 to $11.25 per share of our common stock. The closing price of our common stock on June 21, 2007 was $8.71 per share.

On June 25, 2007, at a special telephonic meeting of our board, our management reviewed the initial indications of interest received to date. Our board instructed management to meet with the six highest of the seven bidders and continue exploring the other strategic options available to the company, including remaining an independent standalone company.

 

On July 6, 2007, another potential strategic buyer delivered to William Blair a non-binding initial indication of interest in acquiring FCG for a price of between $11.50 and $12.00 per share of our common stock. The closing price of our common stock on July 6, 2007 was $9.15 per share.

 

From July 12 to July 31, 2007, we gave separate management presentations regarding our operations and business plans to the seven bidders with the highest indicated value. In addition to the management meetings, we provided these parties with access to an electronic due diligence data site containing a limited set of confidential information and documents relating to us and our business. Our management presentation to CSC occurred on July 25, 2007.

 

On July 27, 2007, we requested that each of the bidders submit a revised indication of interest in acquiring the company by August 15, 2007. Thereafter, we provided each of the parties with a draft proposed merger agreement and instructed each bidder to include its comments to the merger agreement in the form of a revised agreement with its revised indication of interest.

 

Over the next two weeks, five of the bidders, including CSC, notified us that they no longer wished to pursue a transaction with us.

 

On August 15, 2007, Bidder B submitted a written indication of interest to acquire us at a price of $11.00 per share of our common stock. The proposal did not include a revised merger agreement and was subject to specified assumptions and the completion of its due diligence investigation and certain other conditions.

 

Also on August 15, 2007, Bidder A submitted a written indication of interest to acquire us at a price range of $12.50 to $13.00 per share of our common stock, along with a revised merger agreement and non-binding commitment letters from lenders and other sources to finance a portion of the transaction. The proposal was subject to completion of its due diligence investigation, its receipt of binding financing commitments from its lenders and investors and certain other conditions. The closing price of our common stock on August 15, 2007 was $9.05 per share.

 

On August 20, 2007, we held a regular telephonic meeting of our board to discuss the revised indications of interest submitted by Bidder A and Bidder B. Representatives of Latham & Watkins advised our board of its fiduciary obligations in the context of a potential sale of the company. Our management then gave a presentation to our board on various potential strategic initiatives to increase stockholder value in addition to a potential sale of the company, including:

 

 

At the meeting, representatives of William Blair discussed with our Board a comprehensive update of the process used to solicit potential buyers and summarized the two proposals that Bidder A and Bidder B submitted on August 15. Representatives of Latham & Watkins also provided an overview of the material issues raised by the revised merger agreement submitted by Bidder A. At the end of the meeting, our board authorized management to continue discussions and negotiations with, and provide further confidential

information to, Bidder A and Bidder B. Following the meeting, representatives of William Blair contacted both Bidder A and Bidder B and informed each of them that our board decided to continue discussions and negotiations with them on a non-exclusive basis regarding a potential transaction.

 

From August 20, 2007 through October 30, 2007, our management facilitated the due diligence review being conducted by Bidders A and B, including participating in telephonic conference calls, attending meetings with each of Bidder A and Bidder B to discuss due diligence matters and providing additional confidential materials on our electronic due diligence data site.

 

On September 1, 2007, representatives from Latham & Watkins sent a revised draft of the proposed merger agreement to Bidder A’s legal counsel. From September 1, 2007 through October 30, 2007, representatives from Latham & Watkins negotiated with Bidder A’s legal counsel on several occasions in an attempt to finalize the terms of the merger agreement. These negotiations focused on, among other things, certainty of closing provisions, the circumstances under which our board could change or alter its recommendation of the transaction to our stockholders, and other provisions relating to deal protection. In addition, during this period our management and representatives of William Blair had numerous communications with Bidder A regarding various matters, including the price at which Bidder A was willing to pursue an acquisition of the company.

 

On September 12, 2007, we entered into an agreement to sell substantially all of our assets and rights relating to our Software Products business, which was completed the same day. We determined, after consultations with William Blair, that this divestiture was in the best interests of the company and would likely have a positive impact on our valuation in a possible sale of the company. We publicly announced this asset sale and its expected effect on our earnings on September 13, 2007.

 

On September 20, 2007, Bidder B’s legal counsel sent a revised draft of the merger agreement to Latham & Watkins. Over the next week and a half, representatives from Latham & Watkins negotiated with Bidder B’s legal counsel in an attempt to finalize the terms of the merger agreement. These negotiations focused on, among other things, certainty of closing, the structure of the transaction, provisions relating to deal protection and the actions that Bidder B must take to obtain antitrust approval of the transaction.

 

On October 2, 2007, Bidder A submitted a revised proposal to acquire us for $12.50 per share of our common stock. The proposal indicated that its due diligence review was complete. However, while the proposal did include subordinated debt commitment letters, it was not accompanied by commitment letters for a proposed $100 million senior debt financing, which was necessary to fund the acquisition. The closing price of our common stock on that day was $10.15 per share.

 

On October 4, 2007, Bidder B submitted a revised proposal to acquire us at a price range of $11.25 to $11.75 per share of our common stock. The proposal was subject to completion of its due diligence investigation, negotiation of the merger agreement, the approval of the transaction by its board of directors and certain other conditions. The closing price of our common stock on that day was $10.03 per share.

 

Later that day, representatives from Bidder B indicated to representatives of William Blair that the price range expressed earlier that day was its best and final offer. As instructed by our management, representatives of William Blair responded that this price was not the highest offer that we had received, and that the terms of its proposed merger agreement were less favorable to FCG than the merger agreement proposed by the other bidder. As a result, William Blair indicated that unless Bidder B was able to improve its offer, it would not be successful in its efforts to acquire us.

 

Between October 2 and October 5, 2007, Mr. Ferguson contacted members of our board to inform them of the receipt of the revised proposals.

 

On October 5, 2007, Bidder A delivered to us a non-binding term sheet outlining the terms of its new proposed senior debt financing arrangements. This term sheet was followed on October 10, 2007, by a draft of a commitment for the senior debt financing.

 

On October 9, 2007, representatives from CSC called a representative of William Blair and indicated that it was again interested in acquiring FCG and inquired as to whether we would entertain a proposal from CSC.

Representatives of William Blair indicated that the process was ongoing and that we would entertain a proposal from CSC, but informed CSC that it was behind in the process and would need to commit resources to complete its due diligence review quickly and submit an indication of interest as soon as possible.

 

On October 10, 2007, CSC orally indicated to William Blair that it was interested in pursuing an acquisition of FCG at a price between $12.50 and $12.75 per share of our common stock. The closing price of our common stock on that day was $10.16 per share. Later that evening, we provided CSC access to our electronic due diligence data site. From October 10 to October 30, 2007, we had periodic discussions with CSC regarding due diligence matters, and our management and representatives of William Blair had numerous telephonic and other communications with representatives of CSC regarding its interest in pursuing an acquisition of FCG and the price at which it would be willing to do so.

 

On October 13, 2007, Bidder A verbally indicated to representatives of William Blair that its bid was likely to decrease below $12.50 per share and possibly as low as $12.00 per share.

 

On October 16, 2007, we distributed a draft merger agreement to CSC.

 

On October 17, 2007, Bidder B contacted our management to express its continued interest in acquiring us in the price range of $11.25 to $11.75 per share of our common stock. Our management reiterated that that price was insufficient because we had received more favorable proposals from other bidders. Bidder B did not submit any future proposals.

 

Also on October 17, 2007, Bidder A submitted a revised proposal to acquire us for $12.25 per share of our common stock that would remain in effect until October 19, 2007. The proposal was subject to completion of certain due diligence matters and was accompanied by commitments to finance the transaction. The closing price of our common stock on that day was $9.97 per share. The next day, at our request, Bidder A extended the expiration date for this proposal to Sunday, October 21st at 3 p.m., Pacific Time. Following receipt of the proposal, at the direction of our management, representatives of William Blair contacted Bidder A and informed it that it needed to increase its bid and that our board was likely to have a negative reaction to the decrease in the offer price.

 

On October 19, 2007, Bidder A submitted a revised commitment letter for a portion of its debt financing, but otherwise indicated that its proposal from October 17th remained unchanged.

 

On October 20, 2007, CSC submitted a proposal to acquire us for $12.50 per share of our common stock, subject to completion of its due diligence review and the approval of the transaction by its board of directors. The proposal was accompanied by a revised draft merger agreement. CSC again reiterated its strong desire to complete the transaction. On October 21, 2007, CSC increased its bid to $12.75 per share of our common stock. The closing price of our common stock on October 19, 2007, the most recent day our stock traded, was $9.80 per share.

 

On October 21, 2007, Bidder A indicated that it could raise its offer price to $12.50 per share of our common stock, contingent upon us entering into exclusive negotiations with it through November 15, 2007. Bidder A informed us that its bid remained subject to completion of certain due diligence matters and that it would terminate discussions with us if we declined to enter into an exclusivity agreement. Between October 13 and October 21, 2007, Mr. Ferguson contacted members of our board to update them on the status of our negotiations with the potential buyers.

 

Also on October 21, 2007, our board held a special telephonic meeting to receive an update on the status of our negotiations with Bidder A, Bidder B and CSC. At the meeting,

 

 

 

Following these discussions, our board thoroughly considered and discussed the proposals submitted by Bidder A and CSC, including the conditional nature of Bidder A’s bid and its ultimatum that it would terminate discussions with us if we did not agree to enter into an exclusivity agreement. Following this discussion, our board determined that based on the higher potential price offered by CSC, it was in the best interests of our stockholders to provide CSC with additional time to finalize its due diligence review and not enter into an exclusivity agreement with Bidder A. Our board also discussed the risk associated with Bidder A’s statement that it would withdraw from the process and determined that, given the amount of time and resources expended by Bidder A throughout the process, it was unlikely to withdraw from the process entirely, but it might decrease its offer price further. Our board also determined that entry into exclusive negotiations with Bidder A was not warranted because of the conditional nature of its bid. Our board then instructed our management to proceed with its scheduled meeting with CSC’s Chief Executive Officer on the morning of October 22, 2007 in order to confirm CSC’s commitment to acquiring us.

 

Between October 21, 2007 and October 30, 2007, representatives from Latham & Watkins negotiated with CSC’s legal counsel in an attempt to finalize the terms of the merger agreement. These negotiations focused on, among other things, provisions relating to the termination of the merger agreement and deal protection.

 

On October 22, 2007, Mr. Ferguson and Thomas A. Watford, our Executive Vice President, Chief Operating Officer and Chief Financial Officer, met with Michael W. Laphen, the Chairman, President and Chief Executive Officer of CSC, and other CSC executives in Washington D.C. At this meeting, Mr. Laphen reaffirmed CSC’s strong commitment to acquire FCG.

 

Later that day, we informed Bidder A that our board had decided not to enter into exclusive negotiations with it. As a result, Bidder A verbally withdrew its offer to acquire us. However, on October 23, 2007, a representative of Bidder A called Mr. Ferguson to express Bidder A’s continued interest in acquiring FCG. Bidder A also inquired as to what price our board would be willing to accept a proposal to acquire us. Mr. Ferguson informed Bidder A that its previously withdrawn proposal was significantly less attractive with respect to contract terms and price than a proposal submitted by a competing bidder and that Bidder A should submit its best offer. On October 24, 2007 a representative of Bidder A also called Mr. Watford to reiterate its interest in acquiring FCG, and Mr. Watford responded that Bidder A should submit its best offer.

 

On October 29, 2007, after representatives of William Blair made several requests to CSC to submit its best and final offer, CSC increased its bid to $13.00 per share of our common stock.

 

Later that day, Bidder A submitted a revised proposal to acquire us for $12.50 per share of our common stock. Other than the increased purchase price, this proposal was substantially similar to its October 17 proposal, which contained certain conditional terms related to Bidder A’s ability to finance the transaction and the enforceability of its obligations under its proposed merger agreement. Bidder A stated that this was its best and final offer.

 

Later that day, our board held a special telephonic meeting with our management and representatives of William Blair and Latham & Watkins. Prior to the meeting, our board was provided substantially final drafts of the merger agreements for CSC and Bidder A, a memorandum describing the material terms of the merger agreement with CSC, a presentation that outlined the material differences between CSC’s draft merger agreement, Bidder A’s draft merger agreement. At this meeting,

 

 

 

At the conclusion of the meeting, our board directed our management to finalize the merger agreement with CSC.

 

On October 30, 2007, our board held a special telephonic meeting to consider the approval of the sale of the company to CSC. Prior to the meeting, our board was provided a final version of the merger agreement with CSC. At this meeting,

 

 

After discussion, our board unanimously determined it was advisable, fair to and the best interest of us and our stockholders to enter into the merger agreement and complete the merger on the terms and conditions set forth in the merger agreement with CSC. Our board resolved unanimously to approve the merger agreement and the other transactions contemplated by the merger agreement, and resolved unanimously to recommend that our stockholders vote to adopt the merger agreement.

 

The merger agreement was executed by the parties later that evening on October 30, 2007. The closing price of our common stock on that day was $9.98 per share.

 

On October 31, 2007, before the opening of trading on the U.S. public stock markets, we and CSC issued a joint press release announcing the execution of the merger agreement.

 

Recommendation of Our Board of Directors; Our Reasons for the Merger

 

Recommendation of Our Board of Directors

 

Our board of directors, by the unanimous vote of all directors:

 

 

Accordingly, our board of directors unanimously recommends that you vote “FOR” the adoption of the merger agreement.

 

Reasons for the Merger

 

In reaching its decision to approve the merger and the merger agreement and to recommend that our stockholders adopt the merger agreement, our board of directors consulted with management and its legal and

financial advisors. These consultations included discussions regarding our strategic business plan, the historical prices for FCG common stock, our past and current business operations and financial condition, our future prospects and the potential merger with CSC. The board of directors also consulted with William Blair as to the fairness, from a financial point of view, to our stockholders of the merger consideration, and with Latham & Watkins regarding the terms of the merger agreement and related matters.

 

Our board of directors considered a number of positive factors in its deliberations, including:

 

 

 

 

 

Our board of directors also considered potential drawbacks and risks relating to the merger, including the following:

 

 

Our board of directors also considered that certain of our directors and officers may have conflicts of interest in connection with the merger, as they may receive certain benefits that are different from, or in addition to, those of our other stockholders. See “— Interests of Our Directors and Executive Officers in the Merger.”

 

After taking into account all of the factors set forth above, as well as others, our board of directors unanimously agreed that the benefits of the merger outweighed the drawbacks and risks and that the transactions contemplated by the merger agreement, including the merger, were advisable, fair to, and in the best interests of us and our stockholders. Our board of directors has unanimously approved the merger agreement and recommended that our stockholders vote to adopt the merger agreement at the special meeting.

 

The foregoing discussion is not intended to be an exhaustive list of the material information and factors considered by our board of directors in its consideration of the merger. In view of the number and variety of

factors and the amount of information considered, our board of directors did not find it practicable to, and did not make specific assessments of, quantify or otherwise assign relative weights to, the specific factors considered in reaching its determination. In addition, our board of directors did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to its ultimate determination, and individual members of our board of directors may have given different weights to different factors. Our board of directors made its recommendation based on the totality of information presented to, and the investigation conducted by, the board of directors.

 

Opinion of William Blair & Company, L.L.C.

 

William Blair was retained to act as the financial advisor to the company to render certain investment banking services in connection with a potential business combination. As part of its engagement, the company requested William Blair to render an opinion as to whether the merger consideration of $13.00 per common share (which we refer to in this section as the Merger Consideration) to be received by the stockholders of the company (other than CSC, Merger Sub or any of their affiliates) was fair, from a financial point of view, to such stockholders. On October 30, 2007, William Blair delivered its oral opinion to our board of directors, which was subsequently confirmed in writing, to the effect that, as of that date and based upon and subject to the assumptions, qualifications and limitations stated in its written opinion, the Merger Consideration to be received by the stockholders (other than CSC, Merger Sub, any of their affiliates and stockholders who properly demand appraisal rights) was fair, from a financial point of view, to those stockholders.

 

William Blair provided its opinion for the benefit and use of our board of directors in connection with its consideration of the proposed merger. William Blair’s opinion was one of many factors taken into consideration by our board of directors in making its determination to recommend the approval and adoption of the merger agreement and the transactions contemplated by the merger agreement and should not be viewed as determinative of the views of our board of directors with respect to the proposed merger or the Merger Consideration. The terms of the merger agreement and the amount and form of the Merger Consideration, however, were determined through negotiations between the company and CSC, and were approved by our board of directors.

 

The full text of William Blair’s written opinion, dated October 30, 2007, is attached as Annex B to this proxy statement and incorporated into this document by reference. You are urged to read the opinion carefully and in its entirety to learn about the assumptions made, procedures followed, matters considered and limits on the scope of the review undertaken by William Blair in rendering its opinion. William Blair’s opinion was directed to our board of directors for its benefit and use in evaluating the fairness of the Merger Consideration and relates only to the fairness, from a financial point of view, of the Merger Consideration to be received by the stockholders (other than CSC, Merger Sub, any of their affiliates and stockholders who properly demand appraisal rights) in the proposed merger, does not address any other aspect of the proposed merger or any related transaction, and does not constitute a recommendation to any stockholder as to how that stockholder should vote with respect to adoption of the merger agreement. William Blair did not address the merits of the underlying decision by the company to engage in the proposed merger. The following summary of William Blair’s opinion is qualified in its entirety by reference to the full text of the opinion.

 

In connection with its opinion, William Blair examined or discussed, among other things:

 

 

 

William Blair also met and held discussions with members of our senior management concerning the foregoing, the past and current business operations and the financial condition and future prospects of the company, as well as the proposed merger; considered other matters that William Blair deemed relevant to its inquiry; and took into account the accepted financial and investment banking procedures and considerations that it deemed relevant. In connection with its engagement, William Blair was requested to approach, and held discussions with, a number of possible participants in a possible transaction and contacted and held discussions with those possible participants that were expressly approved by the company.

 

In rendering its opinion, William Blair assumed and relied, without any duty of independent verification, upon the accuracy and completeness of all the information examined by or otherwise reviewed or discussed with William Blair for purposes of the opinion including, without limitation, the Forecasts. William Blair was advised by the senior management of the company that the Forecasts were reasonably prepared on bases reflecting the best currently available estimates and judgments of the senior management of the company. William Blair assumed, with the company’s consent, that the Forecasts would be achieved in the amounts and at the times contemplated thereby and expressed no opinion with respect to the Forecasts or the estimates or judgments upon which they were based. William Blair also assumed, with the company’s consent, that all material assets and liabilities (contingent or otherwise) of the company were as set forth in the company’s financial statements or other information made available. William Blair did not make or obtain an independent valuation or appraisal of the assets, liabilities or solvency of the company. William Blair was not asked to consider, and the opinion does not address, the relative merits of the proposed merger as compared to any alternative business strategies that might exist for the company or the effect of any other transaction in which the company might engage. The opinion was based upon economic, market, financial and other conditions existing on, and other information disclosed to William Blair as of, October 30, 2007. It should be understood that, although subsequent developments may affect its opinion, William Blair does not have any obligation to update, revise or reaffirm its opinion. William Blair relied upon the fact that the company was advised by legal counsel as to all legal matters and assumed that all of that advice was accurate. William Blair further assumed that the proposed merger would be completed on the terms described in the merger agreement, without any waiver of any material terms or conditions.

 

The following is a summary of the material financial analyses performed and material factors considered by William Blair to arrive at its opinion. William Blair performed certain procedures, including each of the financial analyses described below, and reviewed with our board of directors the assumptions upon which such analyses were based, as well as other factors. Although the summary does not purport to describe all of the analyses performed or factors considered by William Blair in this regard, it does set forth those analyses and factors considered by William Blair to be material in arriving at its opinion. Certain of the summaries of financial analyses include information presented in tabular format. In order to fully understand the financial analyses used by William Blair, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Accordingly, the analyses listed in the tables and described below must be considered as a whole. Considering any portion of such analyses and of the factors considered, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying William Blair’s opinion. In performing its analyses, William Blair made numerous assumptions with respect to financial conditions and other matters, many of which are beyond the control of William Blair or the company. Any estimates contained in the analyses performed by William Blair are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by these analyses. In addition, estimates of the value of businesses or securities do

not purport to be appraisals or to reflect the prices at which such businesses or securities might actually be sold. Accordingly, these analyses and estimates are subject to substantial uncertainty.

 

Selected Public Company Analysis.   William Blair reviewed and compared certain financial information relating to the company to corresponding financial information, ratios and public market multiples for a selected group of publicly-traded outsourcing companies and information technology/consulting companies. The companies selected by William Blair were:

 

 

Among the information William Blair considered was the following: sales; earnings before interest, taxes, depreciation and amortization (commonly referred to as EBITDA); earnings before interest and taxes (commonly referred to as EBIT); and earnings per share (commonly referred to as EPS). William Blair considered the enterprise value as a multiple of sales, EBITDA and EBIT for each company for the last 12 months for which results were publicly available (commonly referred to as LTM); research analysts consensus estimates for 2007 and 2008 sales, EBITDA and EBIT; and the stock price as a multiple of LTM EPS and research analysts consensus EPS estimates for each company for the respective calendar year EPS estimates for 2007 and 2008. The operating results and the corresponding derived multiples for the company were based on the Forecasts, and for each of the selected public companies were based on each company’s most recent available publicly disclosed financial information, closing stock prices as of October 29, 2007 and consensus Wall Street analysts’ sales, EBITDA, EBIT and EPS estimates for calendar years 2007 and 2008. For the company’s LTM and 2007 estimated operating results, William Blair excluded the operating results of the recently divested Software Products business unit, the operating results from a large outsourcing contract which was lost, a non-recurring expense related to the write-off of in-process research and development and utilized a 42% tax rate. William Blair noted that it did not have access to internal forecasts for any of the selected public companies. The implied enterprise value of the company based on the terms of the proposed merger is based on the equity value implied by the aggregate Merger Consideration plus total debt, less cash and cash equivalents assumed to be held by the company at June 29, 2007, adjusted on an estimated after-tax basis for the sale of the Software Products business unit.

 

William Blair then compared the multiples implied for the company based on the terms of the proposed merger to the range of trading multiples for the selected public companies. Information regarding the range of multiples from William Blair’s analysis of selected publicly traded companies is set forth in the following table.

 

 

Although William Blair compared the trading multiples of the selected public companies to those implied for the company, none of the selected public companies is identical to the company. Accordingly, any analysis of the selected public companies necessarily involves complex considerations and judgments concerning the differences in financial and operating characteristics and other factors that would necessarily affect the analysis of trading multiples of the selected public companies.

 

Selected M&A Transactions Analysis.   William Blair performed an analysis of selected business combinations consisting of transactions announced and closed subsequent to January 1, 2004 and focused primarily on transactions including domestic outsourcing and information technology services/consulting companies with enterprise values below $1.0 billion. William Blair’s analysis was based solely on publicly available information regarding such transactions. The selected transactions were not intended to be representative of the entire range of possible transactions in the respective industries. The nine transactions examined were (target/acquirer (date completed)):

 

 

William Blair reviewed the consideration paid in the selected transactions as a multiple of sales, EBITDA, and EBIT of the target for the LTM period prior to the announcement of these transactions. William Blair compared the resulting range of transaction multiples of sales, EBITDA, and EBIT for the selected

transactions to the implied transaction multiples for such measures for the company. Information regarding the range of multiples from William Blair’s analysis of selected transactions is set forth in the following table:

 

 

Although William Blair analyzed the multiples implied by the selected transactions and compared them to the implied transaction multiples of the company, none of these transactions or associated companies is identical to the proposed merger or to the company. Accordingly, any analysis of the selected transactions necessarily involved complex considerations and judgments concerning the differences in financial and operating characteristics, parties involved and terms of the transactions and other factors that would necessarily affect the implied value of the company versus the values of the companies in the selected transactions.

 

Premiums Paid Analysis.   William Blair also reviewed data from 312 acquisitions of publicly traded domestic companies, in which 100% of the target’s equity was acquired, occurring since January 1, 2004 and with transaction equity values between $100.0 million and $500.0 million. Specifically, William Blair analyzed the acquisition price per share as a premium to the closing share price one day, one week, one month and 90 days prior to the target’s announcement of the transaction for all 312 transactions. William Blair compared the range of resulting per share stock price premiums for the reviewed transactions to (i) the premiums implied by the price per share in the proposed merger based on the company’s common share prices one day, one week, one month and 90 days prior to October 29, 2007 and (ii) the premiums implied by the price per share (excluding cash) in the proposed merger based on the company’s common share prices (excluding cash) one day, one week, one month and 90 days prior to October 29, 2007. Information regarding the premiums calculated from William Blair’s analysis of selected transactions is set forth in the following table:

 

 

 

 

General.   This summary is not a complete description of the analysis performed by William Blair but contains the material elements of the analysis. The preparation of an opinion regarding fairness is a complex process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances, and, therefore, such an opinion is not readily susceptible to partial analysis or summary description. The preparation of an opinion regarding fairness from a financial point of view does not involve a mathematical evaluation or weighing of the results of the individual analyses performed, but requires William Blair to exercise its professional judgment, based on its experience and expertise, in considering a wide variety of analyses taken as a whole. Each of the analyses conducted by William Blair was carried out in order to provide a different perspective on the financial terms of the proposed merger and add to the total mix of information available. The analyses were prepared solely

for the purpose of William Blair providing its opinion and do not purport to be appraisals or necessarily reflect the prices at which securities actually may be sold. William Blair did not form a conclusion as to whether any individual analysis, considered in isolation, supported or failed to support an opinion about the fairness of the consideration to be received by the stockholders (other than CSC, Merger Sub or any of their affiliates). Rather, in reaching its conclusion, William Blair considered the results of each analysis in light of each other analysis and ultimately reached its opinion based on the results of all analyses taken as a whole. William Blair did not place particular reliance or weight on any particular analysis, but instead concluded that its analyses, taken as a whole, supported its determination. Accordingly, notwithstanding the separate factors summarized above, William Blair believes that its analyses must be considered as a whole and that selecting portions of its analyses and the factors considered by it, without considering all analyses and factors, may create an incomplete view of the evaluation process underlying its opinion. No company or transaction used as a comparison in the above analyses is directly comparable to the company or the proposed merger. In performing its analyses, William Blair made numerous assumptions with respect to industry performance, business and economic conditions and other matters. The analyses performed by William Blair are not necessarily indicative of future actual values or future results, which may be significantly more or less favorable than suggested by such analyses.

 

William Blair has been engaged in the investment banking business since 1935. William Blair continually undertakes the valuation of investment securities in connection with public offerings, private placements, business combinations, estate and gift tax valuations and similar transactions. In the ordinary course of its business, William Blair may from time to time trade the securities of the company or CSC for its own account and for the accounts of customers, and accordingly may at any time hold a long or short position in such securities.

 

The company engaged William Blair based on its qualifications and expertise in providing financial advice to companies and its reputation as a nationally recognized investment banking firm. The company agreed to pay William Blair a fee of approximately $3.3 million, approximately $2.9 million of which is contingent upon completion of the proposed merger, which would be unlikely in the absence of a favorable opinion regarding fairness from a financial point of view. In addition, the company has agreed to reimburse William Blair for certain of its out-of-pocket expenses (including fees and expenses of its counsel) reasonably incurred by it in connection with its services and to indemnify William Blair against potential liabilities arising out of its engagement, including certain liabilities under United States federal securities laws.

 

Financial Projections

 

We provided certain potential acquirers, including CSC, Bidder A and Bidder B, with non-public business and financial information about us in conjunction with their due diligence review of us. We also provided our financial advisor, William Blair, with this information and other forecasts in connection with its financial analysis of the merger consideration, and William Blair considered these forecasts in preparing the financial analysis it presented to our board of directors. See “— Opinion of William Blair & Company, L.L.C.” We have included below the material financial projections that were provided to these parties in connection with our merger discussions, negotiations and due diligence.

 

The inclusion of this information should not be regarded as an indication that any recipient of this information considered, or now considers, these projections to be a reliable prediction of our future results. We did not prepare the projections with a view toward public disclosure or compliance with published guidelines of the Securities and Exchange Commission, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information or generally accepted accounting principles. Our independent registered public accounting firm has neither examined nor compiled the projections and, accordingly, does not express an opinion or any other form of assurance with respect thereto.

 

The projections included below are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those shown below and should be read with caution. See “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 15 of this proxy

statement. The projections are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and developments occurring since the date the projections were prepared. Although presented with numerical specificity, the projections are based upon a variety of estimates and hypothetical assumptions made by our management. Some or all of the assumptions may not be realized, and they are inherently subject to significant business, economic and competitive uncertainties and contingencies, all of which are difficult to predict and many of which are beyond our control, and such uncertainties and contingencies can generally be expected to increase with the passage of time from the dates of the projections. Accordingly, the assumptions made in preparing the projections might not prove accurate, and actual results might differ materially. In addition, the projections do not take into account any of the transactions contemplated by the merger agreement, including the merger, which might also cause actual results to differ materially.

 

For these reasons, the inclusion of the projections in this proxy statement should not be regarded as an indication that the projections will be an accurate prediction of future events, and they should not be relied on as such. No one has made, or makes, any representation regarding the information contained in the projections and we do not intend to update or otherwise revise the projections to reflect circumstances existing after the date when made or to reflect the occurrences of future events even if any or all of the assumptions are shown to be in error. You are cautioned not to rely on this information in making a decision whether to vote in favor of adoption of the merger agreement, thereby approving the merger.

 

The annual forecasts we provided to CSC, Bidder A, Bidder B and William Blair are summarized below (dollars in millions):

 

 

 

 

The annual forecasts above exclude (i) operating results from our Software Products business unit, which we divested on September 12, 2007, (ii) operating results from our outsourcing contract with the University of Pennsylvania Health System, which expired on March 31, 2007, (iii) a non-recurring expense of approximately $1.6 million relating to in-process software research and development expenses related to our acquisition of Zorch, Inc. on June 15, 2007, and (iv) the effects of any synergies that may occur relating to a merger with CSC or any other parties.

 

Interests of Our Directors and Executive Officers in the Merger

 

In considering the recommendation of our board of directors with respect to the merger agreement, you should be aware that our directors and executive officers may have interests in the merger and have arrangements that are different from, or in addition to, those of our stockholders generally. These interests are described below, and except as described below, our directors and executive officers have, to our knowledge, no material interest in the merger apart from those of our stockholders generally. Our board of directors was aware of these interests and considered them, among other matters, in reaching its decisions to approve the merger agreement and to recommend that our stockholders vote in favor of the adoption of the merger agreement.

 

Beneficial Ownership of our Stock

 

As of [          ], the record date for the special meeting, our directors and executive officers beneficially owned and were entitled to vote approximately [          ] shares of common stock, or approximately [     ]% of our total common stock outstanding on that date. These numbers do not give effect to outstanding stock options which are not entitled to vote at the special meeting. Our directors and executive officers will receive the same $13.00 per share for their shares of our common stock as our other stockholders.

 

Stock Options, Restricted Stock Awards and Stock Bonus Awards

 

Accelerated Equity Compensation.   All outstanding options held by our directors and officers, regardless of whether such options are vested or unvested, will become fully vested immediately prior to the completion of the merger and will be cashed out in the merger. For these purposes, “cashed out in the merger” means that the exercisable portion of the accelerated option will be cancelled in the merger in exchange for a cash payment equal to the product of (i) the excess, if any, of $13.00 over the applicable per share option exercise price and (ii) the number of shares of our common stock subject to such portion of the option at such time. All outstanding shares of restricted stock awards and stock bonus awards held by our directors and officers, regardless of whether such shares are vested or unvested, will become vested and all the restrictions on such shares will lapse, immediately prior to the completion of the merger. The accelerated restricted stock awards and stock bonus awards will be treated in the same manner as outstanding shares of our common stock. Thus, each share will be cancelled in exchange for $13.00 per share.

 

Vested Equity Compensation.   All vested stock options held by our directors and officers will be cashed out in the merger. For these purposes, “cashed out in the merger” means that the exercisable portion of the vested option will be cancelled in the merger in exchange for a cash payment equal to the product of (i) the excess, if any, of $13.00 over the applicable per share option exercise price, and (ii) the number of shares of our common stock subject to the exercisable portion of the option at such time. There are currently no vested shares of restricted stock awards and stock bonus awards held by our directors or officers.

 

Summary of Stock Options, Restricted Stock Awards and Stock Bonus Awards.   The following table presents our reasonable estimate of the benefits payable to our current executive officers and directors (as well as former directors and executive officers who served at any time since the beginning of the last fiscal year) in respect of stock options, restricted stock awards and stock bonus awards, assuming that the merger is completed on January 14, 2008. Amounts reflect holdings as of November 9, 2007, with vesting calculated through November 28, 2007. Excluded from the table are (i) stock options that have an exercise price greater than $13.00 which would not entitle the holder to receive any merger consideration in respect of such options,

(ii) any interest arising from the ownership of our common stock for which the owner receives only the benefits shared on a pro rata basis by all of our other stockholders, and (iii) our former directors and officers who do not have interests in the merger other than interests arising from the ownership of our common stock for which the owner receives only the benefits shared on a pro rata basis by all of our other stockholders. While we have made reasonable assumptions regarding the amounts payable, there can be no assurance that the individuals will receive the amounts reflected below, and any amounts payable will be made in accordance with the terms of the merger agreement.

 

 

 

 

Change in Control Agreements

 

We have entered into change in control agreements (which we refer to in this proxy statement as CIC Agreements) with certain of our executive officers (Larry R. Ferguson, Thomas A. Watford, Michael A. Zuercher, Philip Ockelmann, and Jan L. Blue). The merger will be considered a change in control, and the date on which the merger is completed will be considered the date of the change in control, for purposes of the CIC Agreements.

 

The terms and conditions of each CIC Agreement are substantially the same, except as otherwise described below. The CIC Agreements provide for a severance payment and benefits to the executive in the event of the termination of the executive’s employment by us without “Cause,” or by the executive officer for “Good Reason,” or by reason of the executive’s death or “Disability,” if such termination occurs within the period beginning one month before and ending 13 months after a change in control. Each such termination is referred to herein as a “Qualifying Termination.” In the event of a Qualifying Termination, the executive will receive:

 

 

 

In addition, if the executive is employed by FCG on the date of the change in control or is terminated by FCG without “Cause” within one month prior to the change in control, the executive will receive a prorated target bonus, in a cash lump sum, based on the executive’s target bonus in effect immediately prior to the change in control (or, if earlier, immediately prior to the executive’s termination of employment), and the portion of the applicable bonus period that precedes the change in control.

 

The CIC Agreement provides that the payments and executive outplacement assistance benefits to be made will be reduced to the extent necessary to prevent the payments and benefits to be made under the CIC Agreement (or other agreements and plans) from being “parachute payments” under Section 280G of the Internal Revenue Code.

 

The CIC Agreement generally defines “Cause” to mean (i) the executive’s willful theft or embezzlement of funds of FCG; (ii) the executive’s conviction of a felony or other criminal conviction for fraud, embezzlement, or other act of moral turpitude; (iii) the executive’s willful violation of any law or regulation applicable to FCG’s business, including any federal or state securities laws; or (iv) the executive’s willful and continued failure to perform substantially the executive’s duties and responsibilities with FCG (other than any such failure resulting from personal leave or incapacity due to injury, accident, illness, or physical or mental incapacity) consistent with the lawful directions of FCG after the executive has received a written demand for substantial performance from the board of directors.

 

For purposes of the CIC Agreements, “Good Reason” is generally defined to mean (i) a reduction in the executive’s annual rate of base salary or target cash bonus; (ii) the failure of FCG to make the executive eligible for any long term incentive compensation plan in which similarly situated executives are eligible; (iii) the failure of FCG to provide the executive with a package of welfare benefits that, taken as a whole, provide substantially similar benefits; (iv) a substantial diminution in the executive’s responsibilities or authority; or (v) a request that the executive relocate the executive’s principal worksite more than 35 miles, in each case as determined in effect immediately prior to the change in control (or, if earlier, immediately prior to the executive’s termination of employment). The executive must terminate employment for “Good Reason” not later than 30 days after the calendar year in which the “Good Reason” event occurs in order to receive the severance payment and benefits.

 

The CIC Agreements generally define “Disability” to mean (i) the executive’s inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of at least 12 months; or (ii) the executive’s receipt of income replacement benefits for at least three months under a FCG accident or health plan by reason of such an impairment.

 

The payments and benefits to be made to the executive under the CIC Agreements (other than the prorated target bonus) are conditioned on the executive’s execution and delivery of a general release of claims against FCG, its subsidiaries and its affiliates. The general release will not apply to the executive’s rights under the CIC Agreement or as a stockholder, or under any stock option or other stock award from FCG or any FCG employee benefit plan.

The following table presents our reasonable estimate of the benefits payable to the executives in respect of the CIC Agreements, assuming that the merger is completed on January 14, 2008 and there is a Qualifying Termination of each person under the CIC Agreements. While we have made reasonable assumptions regarding the amounts payable, there can be no assurance that in the event of a change in control and/or termination of employment, the individuals will receive the amounts reflected below, and any amounts payable will be made in accordance with the terms of the applicable CIC Agreement.

 

 

 

 

Severance Guidelines

 

We have general severance guidelines that are applicable to all of our U.S. employees, including our executive officers. Under these severance guidelines, members of our management executive committee, including our executive officers, that are terminated by us in conjunction with the merger due to a reorganization or position reclassification (other than for cause, performance or violation of our policies) are eligible to receive a lump sum severance payment equal to six months of base salary. In addition, outplacement assistance services are provided to such executive officers for two months. If these outplacement services are not used within 30 days of termination, then the benefit is forfeited. Executive officers covered under a CIC Agreement are not eligible to receive additional benefits under our severance guidelines.

The following table presents our reasonable estimate of the benefits payable to our executive officers in respect of our severance guidelines, assuming that the merger is completed on January 14, 2008 and there is a qualifying termination of each person. While we have made reasonable assumptions regarding the amounts payable, there can be no assurance that in the event of a change in control and/or termination of employment, the individuals will receive the amounts reflected below, and any amounts payable will be made in accordance with the terms of our severance guidelines.

 

 

 

 

Employment Agreement

 

In June 2006, in connection with his hiring as our new chief executive officer, we entered into an employee agreement with Mr. Ferguson which provides him with a lump sum cash severance payment equal to 100% of his then-current base salary in the event we terminate Mr. Ferguson’s employment under certain circumstances. However, these severance provisions are not applicable in the event Mr. Ferguson is terminated in connection with the merger and he is entitled to benefits under the terms of his CIC Agreement with us, which would be the case if the merger is completed.

 

Supplemental Executive Retirement Plan

 

Under our Supplemental Executive Retirement Plan (which we refer to in this section as our SERP), vice president or higher level employees, including our executive officers, are permitted to defer receipt of up to 50% of their base salary and 100% of their bonus. All SERP participants, including our executive officers, receive certain company contributions in an amount based on the employee’s level. Company contributions vest over five years as follows: 25% vesting after two years of service, 50% vesting after three years of service, 75% vesting after four years of service and 100% vesting after five years of service. SERP participants become fully vested in the company contributions upon death, total disability or a change in control of FCG. The merger will be considered a change in control, and the date on which the merger is completed will be considered the date of the change in control, for purposes of the SERP. The incremental value of benefits under our SERP, assuming that the merger is completed on January 14, 2008, for Mr. Ferguson is $5,087 and for Mr. Driscoll is $3,132. All of our other executive officers are fully vested in their company contributions to the SERP.

 

Indemnification and Insurance

 

The merger agreement provides for director and officer indemnification and insurance. We describe these provisions in “The Merger Agreement — Indemnification and Insurance” beginning on page 62.

Summary of Interests of our Directors and Officers

 

The following table presents a summary of our reasonable estimate of the benefits payable to our current executive officers and directors (as well as former directors and executive officers who served at any time since the beginning of the last fiscal year) as a result of the merger in respect of (i) stock options, restricted stock awards and stock bonus awards, (ii) the CIC Agreements and our severance guidelines, and (iii) incremental benefits under our SERP. Assumptions and details for each component are discussed above, including the assumption that the merger is completed on January 14, 2008 and there is a qualifying termination of each person.

 

Excluded from the table are (i) benefits previously accrued under our SERP, (ii) benefits provided to all employees, such as accrued vacation, (iii) benefits provided by third parties under our life and other insurance policies, (iv) any interest arising from the ownership of our common stock for which such individual receives only the benefits shared on a pro rata basis by all of our other stockholders, and (v) our former directors and officers who do not have any interest in the merger other than interests arising from the ownership of our common stock for which such individual receives only the benefits shared on a pro rata basis by all of our other stockholders. While we have made reasonable assumptions regarding the amounts payable, there can be no assurance that in the event of a change in control and/or termination of employment, the individuals will receive the amounts reflected below and any amounts payable will be made in accordance with the terms of the applicable agreement described above.