FIRST CONSULTING GROUP INC, S-1/A, 1998-02-04

FIRST CONSULTING GROUP INC
S-1/A, 1998-02-04
MANAGEMENT CONSULTING SERVICES

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 1998

REGISTRATION NO. 333-41121
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- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 2
TO
FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FIRST CONSULTING GROUP, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 8742 95-3539020
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) Number)
</TABLE>

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111 WEST OCEAN BOULEVARD
4TH FLOOR
LONG BEACH, CA 90802
(562) 624-5200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------

LUTHER J. NUSSBAUM
EXECUTIVE VICE PRESIDENT
FIRST CONSULTING GROUP, INC.
111 WEST OCEAN BOULEVARD
4TH FLOOR
LONG BEACH, CA 90802
(562) 624-5200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------

COPIES TO:

<TABLE>
<S> <C>
ALAN C. MENDELSON, Esq. BROOKS STOUGH, Esq.
PATRICK A. POHLEN, Esq. JEFFREY P. HIGGINS, Esq.
Cooley Godward LLP Gunderson Dettmer Stough Villeneuve
Five Palo Alto Square Franklin & Hachigian, LLP
3000 El Camino Real 155 Constitution Drive
Palo Alto, CA 94306-2155 Menlo Park, CA 94025
(650) 843-5000 (650) 321-2400
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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<PAGE>

SUBJECT TO COMPLETION, DATED FEBRUARY 4, 1998

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS

3,312,384 SHARES

[LOGO]

COMMON STOCK

Of the 3,312,384 shares of Common Stock offered hereby, 2,500,000 shares are
being sold by the Company and 812,384 shares are being sold by the Selling
Stockholders. The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders. See "Principal and Selling Stockholders."

Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
will be between $10.00 and $12.00 per share. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price. The Company has applied to have the Common Stock approved for quotation
on the Nasdaq National Market under the symbol FCGI.

----------------

THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
-------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
Total (3).................. $ $ $ $
</TABLE>

(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.

(2) Before deducting expenses payable by the Company estimated at $875,000.

(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 496,858 additional shares of Common Stock solely to cover
over-allotments, if any. If all such shares are purchased, the total Price
to Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."

----------------

The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1998, at the office of the agent of
Hambrecht & Quist LLC in New York, New York.

HAMBRECHT & QUIST

BANCAMERICA ROBERTSON STEPHENS

UBS SECURITIES

, 1998
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING BY ENTERING INTO STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."

--------------

First Consulting Group-Registered Trademark-, FCG-Registered Trademark-,
KITE-Registered Trademark- and the logo appearing on the front cover of this
Prospectus are registered trademarks of the Company. This Prospectus also
includes trademarks of companies other than the Company.

2
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS. THE COMMON STOCK OFFERED HEREBY INVOLVES
A HIGH DEGREE OF RISK. SEE "RISK FACTORS."

THE COMPANY

First Consulting Group, Inc. ("FCG" or the "Company") provides information
technology and other consulting services to payors, providers and other
healthcare organizations in North America and Europe. The Company provided its
services to over 360 clients in the year ended December 31, 1997. The Company's
services are designed to increase its clients' operations effectiveness in order
to reduce cost, improve customer service and enhance the quality of patient
care. The Company's services address the increasing need of its clients for
healthcare-specific information technology expertise to objectively evaluate,
select, implement and manage an optimal set of information systems and
infrastructures. The Company's consultants provide this expertise through
multi-disciplinary teams specifically formed to provide a unique solution for
each client. The Company believes that its success is attributable to its strong
relationships with industry leading clients, the healthcare, technology and
consulting expertise of the Company's consultants, and the depth and breadth of
its consulting services.

Pressure from employers, government agencies and consumers has caused payors
and providers to attempt to reduce cost, improve customer service and increase
the quality of patient care. Payors have utilized a variety of managed care and
risk-shifting mechanisms to control costs. Providers have responded by improving
their ability to manage reimbursement, administrative and care management
functions. Additionally, both payors and providers are consolidating into larger
entities such as integrated delivery networks ("IDNs") in order to reduce costs,
improve efficiency and provide patient care across a continuum. Many of the
existing information systems used by payor and provider organizations were
developed to serve a specific function or to operate within a single entity,
such as a health maintenance organization, hospital or physician group. New or
existing information systems must be installed or upgraded and integrated to
provide the financial, administrative and clinical data needed by healthcare
organizations. Additionally, these systems must also address the increasing
needs of users to have clinical decision support tools, integrated patient and
financial information, managed care contracting and information networking.

FCG's objective is to be a leading provider of information technology and
other consulting services to the healthcare industry. The Company's four
principal services are consulting, software implementation, network and
application integration and co-management services. The Company's consulting
services primarily consist of strategic planning, operations effectiveness,
procurement and contracting and other services. The Company also provides
implementation services for packaged software products, which include project
management, installation, interface programming, testing and training services.
The Company's network and application integration services include designing and
developing comprehensive system architectures, infrastructures, interfaces,
databases, applications and networks to address the need for information
integration and dissemination throughout a healthcare organization. The Company
also provides co-management services including interim staffing primarily for
senior-level information technology positions as well as support staff on a
temporary or permanent basis. The Company's services and consultants are
supported by internal research, training and a centralized information system
which provides real-time access to current industry and technology information
and project methodologies, experiences, models and tools. These programs include
the Company's Emerging Practices Group, Professional Development Programs,
Scottsdale Institute, Knowledge and Information Technology Exchange ("KITE") and
Practice Guilds.

The Company was incorporated in California in October 1980 and will be
reincorporated in Delaware prior to the effectiveness of this offering. The
Company's principal executive offices are located at 111 West Ocean Boulevard,
4th Floor, Long Beach, California 90802, and its telephone number is (562)
624-5200.

3
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THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company............ 2,500,000 shares
Common Stock offered by the Selling
Stockholders................................... 812,384 shares
Common Stock to be outstanding after the
offering....................................... 14,542,664 shares (1)
Use of proceeds................................ For working capital and general corporate
purposes
Proposed Nasdaq National Market symbol......... FCGI
</TABLE>

SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenue.................................................... $ 19,050 $ 30,046 $ 47,744 $ 65,822 $ 91,570
Cost of services............................................... 10,721 16,869 26,518 40,718 53,526
--------- --------- --------- --------- ---------
Gross profit................................................. 8,329 13,177 21,226 25,104 38,044
General and administrative expenses............................ 6,995 9,871 17,517 23,670 31,669
Compensation expenses related to stock issuances (2)........... -- -- 385 588 6,060
--------- --------- --------- --------- ---------
Income from operations....................................... 1,334 3,306 3,324 846 315
Interest income (expense), net................................. 46 (77) (36) 3 (68)
Other income, net.............................................. 77 32 18 44 119
--------- --------- --------- --------- ---------
Income before income taxes................................... 1,457 3,261 3,306 893 366
Provision for income taxes..................................... 591 1,577 1,423 500 1,900
--------- --------- --------- --------- ---------
Net income (loss)............................................ $ 866 $ 1,684 $ 1,883 $ 393 $ (1,534)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic and diluted net income (loss) per share (3)(4)........... $ 0.06 $ 0.15 $ 0.19 $ 0.04 $ (0.14)
Shares used in computing basic and diluted net income (loss)
per share.................................................... 13,894 11,178 9,761 11,118 11,134
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------
ACTUAL PRO FORMA (5) AS ADJUSTED(6)
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<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................................. $ 2,950 $ 2,950 $ 27,650
Total assets.......................................................... 34,425 34,425 59,125
Long-term debt........................................................ 262 262 262
Total stockholders' equity............................................ 5,462 15,427 40,127
</TABLE>

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(1) Based on the number of shares outstanding at December 31, 1997. Excludes
(i) 797,084 shares of Common Stock issuable upon the exercise of stock
options outstanding under the Company's 1997 Equity Incentive Plan with a
weighted average exercise price of $5.57 per share, (ii) 84,000 shares of
Common Stock issuable upon exercise of stock options outstanding under the
Company's 1997 Non-Employee Directors' Stock Option Plan with a weighted
average exercise price of $4.89 per share, and (iii) 148,316 shares of
Common Stock issuable upon the exercise of non-qualified stock options with
a weighted average exercise price of $5.42 per share. See "Capitalization,"
"Management--1997 Equity Incentive Plan," "--1997 Non-Employee Directors'
Stock Option Plan," and Note H of Notes to Financial Statements.
(2) In connection with the Company's Associate 401(k) and Stock Ownership Plan
("ASOP") and certain non-qualified stock options granted to the Company's
vice presidents, the Company recognized a non-recurring compensation expense
in its consolidated statements of operations. The primary component of this
expense relates to the fair market value of 568,000 shares allocated to the
Company's employees under the ASOP. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Notes H and I
of Notes to Financial Statements.
(3) Excluding compensation expenses related to stock issuances, basic and
diluted net income per share would be $0.22, $0.08 and $0.33, and net income
would be $2.1 million, $839,000 and $3.7 million for the years ended
December 31, 1995, 1996 and 1997, respectively.
(4) See Note A-9 of Notes to Financial Statements for an explanation of the
computation of basic and diluted net income (loss) per share.
(5) Reflects the elimination of the Company's obligation to repurchase shares
of Common Stock at either the fair market value of such shares as determined
by an independent valuation firm or the original issuance price plus a
growth factor relating to such shares. See Note A-12 of Notes to Financial
Statements.
(6) As adjusted to reflect the sale of 2,500,000 shares of Common Stock offered
by the Company hereby at an assumed initial public offering price of $11.00
per share and the receipt of the estimated net proceeds therefrom. See "Use
of Proceeds" and "Capitalization."
------------------------------

UNLESS OTHERWISE INDICATED, ALL INFORMATION INCLUDED IN THIS PROSPECTUS
ASSUMES: (I) A 4 FOR 1 STOCK SPLIT IN THE FORM OF A STOCK DIVIDEND TO BE
DISTRIBUTED TO THE COMPANY'S STOCKHOLDERS PRIOR TO EFFECTIVENESS OF THIS
OFFERING; (II) THE REINCORPORATION OF THE COMPANY IN THE STATE OF DELAWARE TO BE
EFFECTED PRIOR TO EFFECTIVENESS OF THIS OFFERING; (III) A CHANGE IN THE
COMPANY'S TAX ACCOUNTING METHOD FROM CASH TO ACCRUAL BASIS ACCOUNTING; (IV) THE
AMENDMENT OF THE COMPANY'S EXISTING AMENDED AND RESTATED RESTRICTED STOCK
AGREEMENTS TO REFLECT, AMONG OTHER THINGS, THE ELIMINATION OF THE COMPANY'S
OBLIGATION TO REPURCHASE SHARES OF COMMON STOCK; AND (V) NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION. AS USED IN THIS PROSPECTUS, UNLESS THE
CONTEXT OTHERWISE REQUIRES, THE TERMS "FIRST CONSULTING GROUP, INC.," "FCG" AND
"COMPANY" REFER TO THE COMPANY AND ITS SUBSIDIARIES. AS USED IN THIS PROSPECTUS,
UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM "COMMON STOCK" REFERS TO THE
COMMON STOCK OF THE COMPANY, PAR VALUE $.001.

4
<PAGE>
RISK FACTORS

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN
THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE
SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING RISK FACTORS
SHOULD BE CONSIDERED CAREFULLY IN ADDITION TO OTHER INFORMATION IN THIS
PROSPECTUS BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY. SEE
"SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 12 OF THIS
PROSPECTUS.

POTENTIAL INABILITY TO ATTRACT AND RETAIN EMPLOYEES. In order to provide and
expand its services, the Company will be required to retain existing personnel
and attract and retain a significant number of additional personnel with
expertise in addressing healthcare, information technology and consulting
issues. The Company has historically experienced rates of employee turnover
above industry averages as a result of its dependence on lateral hiring of its
consultants, the travel demands imposed on its consultants, and the loss of
employees to competitors, clients and others. The rate of turnover for the
Company's employees, including its vice presidents, in the years ended December
31, 1995, 1996 and 1997 was 32.3%, 30.3% and 21.2%, respectively. The turnover
rate of the Company's vice presidents in the years ended December 31, 1995, 1996
and 1997 was 6.8%, 2.6% and 6.6%, respectively. The Company's vice presidents
are instrumental in marketing the Company's services to new and existing
clients. Any prolonged continuation of or increase in general employee or vice
president turnover rates could have a material adverse effect on the Company's
business, financial condition and results of operations. Competition for such
personnel in the healthcare, information technology and consulting industries is
intense, and many of the companies with which the Company competes for qualified
personnel have substantially greater financial and other resources than the
Company. There can be no assurance that the Company will be able to recruit or
retain a sufficient number of qualified personnel to effectively serve existing
or new clients or to expand the Company's services. The failure to recruit and
retain a sufficient number of qualified personnel could impair the Company's
ability to maintain and expand its healthcare consulting and information
technology services and could have a material adverse effect on the Company's
business, financial condition and results of operations. Many of the Company's
consultants develop and maintain strong business relationships with the
Company's clients, and the Company depends on these relationships to generate
additional assignments with existing clients and engagements with new clients.
The loss of one or more such consultants could lead to erosion of the Company's
client base and a decrease in the Company's revenue. In addition, the decision
of one or more of the Company's consultants to join a competitor or otherwise
compete directly or indirectly with the Company may result in a loss of clients
and a corresponding loss of revenue or reduce the Company's ability to
successfully compete for additional assignments with existing clients and
engagements with new clients. A decision by a significant number of the
Company's consultants to compete directly with the Company would have a material
adverse affect on the Company's business, financial condition and results of
operations.

VARIABILITY OF QUARTERLY OPERATING RESULTS. A substantial portion of the
Company's expenses, particularly personnel and related costs, depreciation,
office rent and occupancy costs, are relatively fixed. Certain variable costs
are assignment-specific and are billed as incurred. The Company's quarterly
operating results may vary significantly in the future depending on a number of
factors, many of which are outside the control of the Company. These factors may
include: the reduction in size, delay in commencement, interruption or
termination of one or more significant engagements or assignments; fluctuations
in consultant hiring and utilization; the loss of personnel; the loss of one or
more significant clients; the unpredictability of engaging new clients and
additional assignments from existing clients; increased competition; write-offs
of client billings; consolidation of, and subsequent reduction in the number of,
healthcare providers; pricing pressure; the number, timing and contractual terms
of significant client engagements; market demand for the Company's services;
delays or increased expenses incurred in connection with existing assignments;
changes in pricing policies by the Company or its competitors; changes in the
Company's business strategies; variability in the number of business days within
a quarter; and international currency fluctuations. Due to the foregoing
factors, quarterly revenue and operating results are not predictable with any
significant degree of accuracy. In particular, the timing between initial client
contract and fulfillment of the criteria necessary for revenue recognition can
be lengthy and unpredictable, and revenue in any given quarter can be materially
adversely affected as a result of such

5
<PAGE>
unpredictability. Business practices of clients, such as deferring commitments
on new assignments until after the end of fiscal periods, could require the
Company to maintain a significant number of under-utilized consultants which
could have a material adverse effect on the Company's business, financial
condition and results of operations. During the second and third quarters of
1996, the Company experienced a significant decrease in the utilization of
billable personnel. This decrease in utilization was primarily attributable to
the increased hiring of consultants and a failure by the Company to assign
underutilized consultants located in the central United States to projects
outside such region. The Company believes that this failure to re-assign
underutilized consultants was attributable to certain incentive programs which
have since been discontinued. This decrease in utilization, as well as certain
infrastructure upgrades, resulted in a decrease in net income in the second and
third quarters of 1996. There can be no assurance that such a decrease in
utilization or net income will not occur in the future.

The Company has experienced and will continue to experience variability in
the number of billable days in any quarter. The Company typically experiences a
lower number of billable days in the second and fourth quarters of every year.
The Company requires attendance at an annual meeting of all of its employees in
the second quarter of every year and encourages its employees to take vacation
during the December holidays. Variability in the number of billable days may
also result from other factors such as vacation days, sick time, paid and unpaid
leave and holidays, all of which could produce variability in the Company's
revenue and costs. In the event of any downturn in potential clients' businesses
or the economy in general, planned utilization of the Company's services may be
deferred or canceled, which could have a material adverse effect on the
Company's business, financial condition and results of operations. Based on the
preceding factors, the Company may experience a shortfall in revenue or earnings
from expected levels or otherwise fail to meet expectations of securities
analysts or the market in general, which could have a material adverse effect on
the market price of the Common Stock. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Selected Quarterly Results of
Operations."

DEPENDENCE ON EXISTING CLIENT BASE; RISKS IN CLIENT ENGAGEMENTS. The
Company's success is dependent on obtaining additional engagements from its
existing client base. For the year ended December 31, 1997, a substantial
portion of the Company's revenue was derived from services provided to its
existing clients. Any material failure on the part of the Company to generate
additional revenues from its existing clients would have a material adverse
effect on the Company's business, financial condition and results of operations.

Many of the Company's engagements provide benefits to clients' businesses
which are difficult to quantify. The Company's failure to meet client
expectations in the performance of its services may damage the Company's
reputation in the healthcare industry and adversely affect its ability to
attract new clients. If a client is not satisfied with the Company's services,
the Company will generally expend additional human and other resources at its
own expense to ensure client satisfaction. Such expenditures will typically
result in a lower operating margin for such engagement and could have a material
adverse impact on the Company's business, financial condition and results of
operations. In addition, the Company's clients may generally terminate an
engagement at any time without penalty. A decision by a client to terminate an
engagement or withhold payment for the Company's services could have a material
adverse effect on the Company's business, financial condition and results of
operations.

Certain of the Company's services are billed on a fixed-price basis, and any
assignment delays or expenditures of time beyond that projected for the
assignment could result in write-offs of client billings which would adversely
affect the Company's profit margins on such engagements. Any significant amount
of such write-offs could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company may be
required to hire new consultants in anticipation of providing services for a new
client or engagement. There can be no assurance that, if the Company were unable
to secure such client or engagement or upon termination of such engagement, the
Company would be able to redeploy its consultants on a timely basis, or at all.
The Company's inability to redeploy consultants could have a material adverse
effect on employee utilization, billing rates and overall profit margins.

6
<PAGE>
The Company's services to its clients often involve the implementation and
integration of complex information systems and software programming, some of
which are critical to the clients' operations. In the course of providing its
services, the Company will often recommend the products of a particular software
or hardware vendor. If the recommended product does not perform as expected or
contains defects or if the Company implements a product requested by the client
which does not perform well, the Company's reputation could be damaged, and the
Company could be subject to liability for any damages caused by the provision of
its services. The Company's engagement letters with its clients attempt to limit
the Company's exposure to potential liability claims, but such provisions may
not be effective. A successful liability claim brought against the Company may
adversely affect the Company's reputation in the healthcare industry and could
have a material adverse effect on the Company's business, financial condition
and results of operations. Although the Company maintains liability insurance,
there can be no assurance that such insurance would provide adequate coverage
for successful claims against the Company.

UNPREDICTABLE MARKETING AND ENGAGEMENT CYCLES. The Company markets its
services primarily through ongoing client relationships. There can be no
assurance that the significant non-billable time and resources invested in
building client relationships will result in additional assignments from
existing clients. As part of building such relationships, the Company's
consultants typically expend substantial time and resources identifying
strategic or business issues and objectives, gathering information, preparing
engagement proposals and negotiating contracts. Any failure by the Company to
procure an engagement after expending significant non-billable time and
resources on marketing efforts could have a material adverse effect on the
Company's quarterly results as well as its business, financial condition and
results of operations. The delivery of consulting and information technology
services requires a significant commitment of resources by the Company and by
the client. The length of time required to complete an assignment may depend on
many factors outside the control of the Company, including the state of the
clients' existing information systems, changes or the anticipation of changes in
the regulatory environment affecting healthcare organizations, consolidation in
the healthcare industry in general, budgetary constraints and the client's
ability to commit the personnel and other resources necessary to complete
elements of the assignment for which the client is responsible. The failure of
the Company to deliver its services on a timely basis or within anticipated
budgets could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--Sales
and Marketing."

COMPETITION IN THE HEALTHCARE INFORMATION TECHNOLOGY INDUSTRY. The market
for healthcare information technology consulting is intensely competitive,
rapidly evolving and highly fragmented. The Company has competitors that provide
some or all of the services provided by the Company. The Company competes for
strategic consulting services and co-management services with international
consulting firms, regional and specialty consulting firms and the consulting
groups of international accounting firms such as KPMG Peat Marwick LLP, Ernst &
Young LLP, Deloitte & Touche LLP, Coopers & Lybrand L.L.P. and Andersen
Consulting. In its implementation and integration services, the Company competes
with information system vendors such as HBO & Company, Inc., Shared Medical
Systems Corporation and Integrated Systems Solution Corporation, a division of
International Business Machines Corporation; service groups of computer
equipment companies; systems integration companies such as Electronic Data
Systems Corporation, Perot Systems Corporation, CAP Gemini America, Inc. and
Computer Sciences Corporation; clients' internal information management
departments and other healthcare consulting firms such as DAOU Systems Inc.,
Superior Consultant Holdings Corporation and Diamond Technology Partners
Incorporated. Many of the Company's competitors have significantly greater
financial, human and marketing resources than the Company. As a result, such
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer demands, or to devote greater resources to the
development, promotion, sale and support of their products and services than the
Company. In addition, as healthcare organizations become larger and more
complex, the Company's larger competitors may be better able to serve the needs
of such organizations. There can be no assurance that the Company will be able
to attract and retain the personnel or to dedicate the financial resources
necessary to serve these resulting organizations.

7
<PAGE>
The Company believes that it competes primarily on the basis of the quality
of its services; however, its clients may become increasingly price-sensitive as
competitive pricing pressures increase. Large information technology companies
have, in the past, offered strategic planning services at a substantial discount
as an incentive to utilize their implementation services, and software and
hardware vendors may provide discounted implementation services for their
products. These competitors may in the future discount such services more
frequently or offer such services at no charge. There can be no assurance that
the Company will be able to compete for price-sensitive clients on the basis of
its current pricing or cost structure, or that the Company will be able to lower
its prices or costs in order to compete effectively. Furthermore, many of the
Company's competitors have long-standing business relationships with key
personnel at healthcare organizations which could prevent or delay the Company
from expanding its client base. There can be no assurance that the Company will
be able to compete effectively with current and future competitors or that
competitive pressures faced by the Company will not cause the Company's revenue
or operating margins to decline or otherwise materially adversely affect its
business, financial condition and results of operations. See "Business--
Competition."

POTENTIAL INABILITY TO MANAGE GROWTH. The Company currently is experiencing
a period of rapid growth which has placed, and will continue to place,
significant and increasing demands on the Company's management personnel and on
its operational, technical, financial, human and other resources. For the year
ended December 31, 1997, the Company's revenue increased to $91.6 million, or
39.1%, from $65.8 million for the year ended December 31, 1996. During this
period, the total number of the Company's employees increased from 462 to 591,
including an increase in the number of the Company's consultants from 348 to
457. This growth has resulted in new and increased responsibilities for
management personnel and has placed significant demands on the Company's
management, operating and financial systems. The Company will be required to
continue to develop and improve its operational, financial and other internal
systems in order to accommodate an increased number of employees, client
engagements and assignments and the increased size of the Company's operations,
workforce and facilities. There can be no assurance, however, that the Company
will be able to improve its operational, financial and other internal systems,
maintain the Company's corporate culture, attract and retain qualified
consultants or effectively manage an increasingly large and
geographically-dispersed workforce. Any failure to develop and improve the
Company's systems or to hire and retain qualified personnel to manage its
operations could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company has in the past
changed, and may in the future change, the organizational structure of its
services and business strategy. There can be no assurance that any such
reorganization would not result in operational inefficiencies and delays in
delivering the Company's services. Such inefficiencies and disruption in the
Company's business could have a material adverse effect on the Company's
business, financial condition and results of operations. Furthermore, any future
unexpected shortfall in revenue without a corresponding and timely reduction in
staffing and other expenses or redeployment of employees to other client
assignments, or any staffing increase that is unaccompanied by a corresponding
increase in the number of clients could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Business Strategy."

RISKS ASSOCIATED WITH CONSOLIDATION IN THE HEALTHCARE INDUSTRY. The Company
derives substantially all of its revenue from clients in the healthcare
industry. As a result, the Company's business, financial condition and results
of operations are influenced by conditions affecting this industry, particularly
current trends towards consolidation among healthcare organizations. Many
healthcare providers and payors are consolidating to create larger healthcare
organizations. Such consolidation may reduce the number of existing and
potential clients for the Company's services. In addition, these resulting
organizations could have greater bargaining power, which could erode the current
pricing structure for the Company's services. The reduction in the size of the
Company's target market or the failure of the Company to maintain adequate price
levels could have a material adverse effect on the Company's business, financial
condition and results of operations.

RISKS OF REGULATORY AND TECHNOLOGICAL CHANGE. The healthcare industry is
also subject to regulatory and technological changes that may affect the
procurement practices and operations of healthcare organizations.

8
<PAGE>
During the past several years, the healthcare industry has been subject to an
increase in governmental regulation and reform proposals. These reforms, if
enacted, could increase governmental involvement in the healthcare industry,
lower reimbursement rates or otherwise change the operating environment of the
Company's clients. Healthcare organizations may react to these proposals and the
uncertainty surrounding them by curtailing or deferring investments, including
those for the Company's services. The Company cannot predict with any certainty
what impact, if any, such legislative reforms could have on its business,
financial condition and results of operations. In addition, technological change
in the network and application markets has created high demand for consulting,
implementation and integration services in order to meet increasingly complex
information needs. If the pace of technological change were to diminish, the
Company's revenue could decrease as a result of decreased demand for its
services. Any material decrease in demand would have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business--Industry Background" and "--Business Strategy."

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. The Company intends to
expand its international consulting services, which will require a significant
amount of management's attention and the Company's human and financial
resources. The Company may establish additional international operations and
hire additional personnel. There can be no assurance that the Company will be
able to successfully recruit and retain the necessary number of highly skilled
consultants in each country in which it intends to conduct its operations. Any
inability to recruit and retain such employees could impair the Company's
ability to expand internationally and may have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
there can be no assurance that the Company will be able to establish
international market demand for its services. The Company's international
business may be subject to a variety of risks, including the difficulty of
tailoring its services to individual countries' healthcare market needs,
currency fluctuations, potentially longer payment cycles, potential difficulties
in collecting international accounts receivable, the enforcement of contractual
obligations and intellectual property rights, potentially adverse tax
consequences, increased costs associated with maintaining international
marketing efforts, costs of localizing services in international markets,
adverse changes in regulatory requirements and possible economic downturns
outside of the United States. There can be no assurance that such factors will
not have a material adverse effect on the Company's future international
operations and, consequently, on its business, financial condition and results
of operations. See "Business-- Business Strategy."

RISKS ASSOCIATED WITH ACQUISITIONS. The Company intends to grow, in part,
through acquisitions of complementary businesses or technologies and
professional practices with healthcare and information technology expertise. For
example, on January 13, 1998, the Company completed the acquisition of a small
healthcare consulting firm in the United Kingdom. All acquisitions involve a
number of risks that could materially adversely affect the Company's operating
results, including the diversion of management's attention, the assimilation of
acquired operations and personnel, the operating results of the acquired
business, the amortization of acquired intangible assets and the potential loss
of key employees. The Company's ability to expand successfully through
acquisitions depends on many factors, including the successful identification
and acquisition of technologies, businesses and personnel; management's ability
to integrate such technologies, businesses or personnel effectively; and
management's ability to maintain the corporate culture of the Company. There can
be no assurance that the Company will be successful in acquiring or integrating
such technologies, businesses or personnel, or that such acquisitions will
enhance the Company's business. Any failure by the Company to acquire or
successfully integrate desirable technologies, businesses or personnel could
have a material adverse effect on the Company's business, financial condition
and results of operations. Moreover, future acquisitions by the Company may
result in the issuances of equity securities which may be dilutive to existing
stockholders or the incurrence of indebtedness and amortization expenses related
to goodwill and other intangible assets which could adversely affect the
Company's business, financial condition and results of operations. See "Use of
Proceeds" and "Business--Business Strategy."

DEPENDENCE ON KEY EMPLOYEES. The Company's performance has depended and will
continue to depend upon the continued service of its senior management and
certain other key employees of the Company, including certain consulting and
technical personnel. The loss of the services of certain of these key employees

9
<PAGE>
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company has not entered into long-term
employment contracts with any of its employees and does not maintain key
employee life insurance. See "Business--Business Strategy," "--Service
Delivery," and "--Sales and Marketing."

LIMITED PROTECTION OF PROPRIETARY INFORMATION AND PROCEDURES. The Company's
ability to compete effectively depends on its ability to protect its proprietary
information, including its proprietary methodologies, research, tools, software
code and other information. The Company relies primarily on a combination of
copyright and trade secret laws and confidentiality procedures to protect its
intellectual property rights. The Company requests that its consultants and
employees sign confidentiality agreements and generally limits access to and
distribution of its research, methodologies and software codes. There can be no
assurance that the steps taken by the Company to protect its proprietary
information will be adequate to prevent its misappropriation. In addition, the
laws of certain countries do not protect or enforce proprietary rights to the
same extent as do the laws of the United States. The Company is currently
expanding the provision of its services to clients in targeted international
regions. There can be no assurance that the Company's proprietary information
will be protected to the same extent as provided under the laws of the United
States, if at all, in those countries in which the Company currently operates or
may operate in the future. The unauthorized use of the Company's intellectual
property could have a material adverse effect on the Company's business,
financial condition or results of operations. There can be no assurance that
third parties will not assert infringement claims against the Company in the
future or that any such claims will not result in protracted and costly
litigation, regardless of the merits of such claims. See "Business--Limited
Protection of Proprietary Information and Procedures."

CONTROL BY EXISTING STOCKHOLDERS AND MANAGEMENT. Upon completion of this
offering, the Company's existing stockholders will beneficially own
approximately 11,230,280 shares, or 77.2%, of the outstanding shares of Common
Stock (74.7% if the Underwriters' over-allotment option is exercised in full).
In particular, upon completion of this offering, James A. Reep, Chairman of the
Board, Chief Executive Officer and President of the Company, will own
approximately 19.8% of the outstanding shares of Common Stock (19.1% if the
Underwriters' over-allotment option is exercised in full). As a result, the
Company's existing stockholders, if acting together, will be able to exercise
control over or significantly influence matters requiring stockholder approval,
including the election of directors, mergers, consolidations and sales of all or
substantially all of the assets of the Company. This stockholder control may
delay or prevent transactions resulting in a change in control of the Company
unless the terms are approved by such stockholders. See "Principal and Selling
Stockholders."

BROAD MANAGEMENT DISCRETION OVER USE OF PROCEEDS. The primary purpose of
this offering is to increase the Company's equity capital. The anticipated net
proceeds to the Company from this offering have not been designated for any
specific purpose. Therefore, the Board of Directors of the Company will have
broad discretion with respect to the use of the net proceeds of this offering.
See "Use of Proceeds."

ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. Prior to
this offering, there has been no public market for the Common Stock, and there
can be no assurance that an active trading market will develop or be sustained.
The initial public offering price will be determined by negotiation between the
Company and the representatives of the Underwriters based on several factors,
including prevailing market and economic conditions, revenue and earnings of the
Company, market valuations of other companies engaged in activities similar to
the Company, estimates of the business potential and prospects of the Company,
the present state of the Company's business operations, the Company's management
and other factors deemed relevant. In addition, the stock market historically
has experienced volatility which has affected the market price of securities of
many companies and which has sometimes been unrelated to the operating
performance of such companies. The trading price of the Common Stock could also
be subject to significant fluctuations in response to variations in quarterly
results of operations, announcements of acquisitions by the Company or its
competitors, general trends in the industry and overall market conditions and
other factors. The market price may also be affected by movements in prices of
equity securities in general. Finally, although the Company has sought approval
for the Common Stock to be quoted on the Nasdaq National Market, there can be no
assurance that an active trading market will develop or be sustained subsequent
to this offering. See "Underwriting."

10
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of Common
Stock in the public market after the
offering hereby could adversely affect the market price of the Common Stock.
Upon completion of this offering, the Company will have outstanding 14,542,664
shares of Common Stock, assuming no exercise of the Underwriters' over-allotment
option, and no exercise of outstanding options granted under the Company's stock
option plans after December 31, 1997. Of such outstanding shares, the 3,312,384
shares sold in this offering will be available for immediate sale in the public
market. The holders of the remaining 11,230,280 shares have entered into
agreements ("Lock-Up Agreements") agreeing not to sell such shares for a period
of 540 days following the date of this Prospectus without the prior written
consent of Hambrecht & Quist LLC; provided, however, that at the end of the
first 180 day period following the date of this Prospectus, 10% of such shares
will become eligible for sale; at the end of the second 180 day period following
the date of this Prospectus, an additional 10% of such shares will become
eligible for sale; and the remaining shares will become eligible for sale 540
days after the date of this Prospectus. In addition, as of December 31, 1997,
there were options outstanding to purchase an aggregate of 1,029,400 shares of
Common Stock under the Company's stock option plans, none of which will be
eligible for sale within 180 days following the offering. Following this
offering, the Company intends to file a registration statement covering the
shares reserved for issuance under the Company's stock option plans and the
shares issued upon exercise of such options. See "Shares Eligible for Future
Sale."

ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND CERTAIN CHARTER PROVISIONS.
Certain provisions of Delaware law applicable to the Company could delay or make
more difficult a merger, tender offer or proxy contest involving the Company,
including Section 203 of the Delaware General Corporation Law, which prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years from the date the person
became an interested stockholder unless certain conditions are met. In addition,
the Board of Directors of the Company may issue shares of Preferred Stock
without stockholder approval on such terms as the Board of Directors may
determine. The rights of the holders of Common Stock will be subject to, and may
be adversely affected by, the rights of the holders of any Preferred Stock that
may be issued in the future. In addition, the Company's Certificate of
Incorporation and Bylaws provide for a classified board of directors, eliminate
the right of stockholders to act by written consent without a meeting, require
advanced stockholder notice to nominate directors and raise matters at the
annual stockholders meeting, eliminate cumulative voting in the election of
directors and allow for the removal of directors only for cause and with a
two-thirds vote of the Company's outstanding shares. All of the foregoing could
have the effect of delaying, deferring or preventing a change in control of the
Company and could limit the price that certain investors might be willing to pay
in the future for shares of Common Stock. See "Management--Board Composition"
and "Description of Capital Stock--Delaware Law and Certain Charter Provisions."

DILUTION; ABSENCE OF DIVIDENDS. The initial public offering price will be
substantially higher than the pro forma net tangible book value per share of
Common Stock. Assuming an initial public offering price of $11.00 per share,
investors purchasing shares of Common Stock in this offering will incur
immediate, substantial dilution of $8.24 per share in the pro forma net tangible
book value of Common Stock. Additional dilution will occur upon the exercise of
outstanding options. The Company has never declared or paid any cash dividends
and does not anticipate paying cash dividends in the foreseeable future. The
Company's revolving line of credit prohibits the Company from paying dividends
in cash, stock or other property. See "Dividend Policy" and "Dilution."

YEAR 2000. Many experts believe that the world's information systems are not
equipped to process the computer change-over to the year 2000, and that the
solution will require a large amount of time and resources. If these predictions
are accurate, the Company's clients may have to reallocate a significant portion
of their consulting and information systems budget away from the Company's
services to address this problem. Such reallocation could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company's current time and billing systems are not year 2000
compliant. The Company has purchased an upgrade to these systems that will
render them year 2000 compliant. The Company expects to begin deployment of this
upgrade by June 1998. There can be no assurance that such deployment will begin
as planned or, if begun, will be completed in a timely and cost-effective
manner.

11
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Prospectus contains forward-looking statements, including, without
limitation, statements containing the words "believes," "anticipates," "expects"
and words of similar import. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others: the importance of attracting and retaining personnel, variability
of operating results, potential inability to maintain business relationships,
significant investment of resources in marketing, competition in the healthcare
consulting and information technology industry, management of the Company's
growth, consolidation and cost pressures in the healthcare industry, regulatory
and technological change in the healthcare and information technology
industries, expansion into international consulting, integration of acquired
businesses and personnel, dependence on key employees, limited protection of
proprietary information, control by existing stockholders and management and
other factors referenced in this Prospectus. Certain of these factors are
discussed in more detail elsewhere in this Prospectus, including, without
limitation, under the captions "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." Given these uncertainties, prospective investors are
cautioned not to place undue reliance on such forward-looking statements. The
Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.

12
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered by the Company hereby at an assumed initial public offering
price of $11.00 per share are estimated to be $24,700,000 ($29,782,857 if the
Underwriters' over-allotment option is exercised in full) after deducting
underwriting discounts and estimated offering expenses payable by the Company.

The Company intends to use the net proceeds of this offering primarily for
working capital and general corporate purposes. The Company may apply an
undetermined portion of the net proceeds from this offering towards the
acquisition of complementary businesses or technologies and professional
practices with healthcare and information technology expertise. Pending
application of the net proceeds of the offering as described above, the Company
intends to invest such proceeds in short-term, investment-grade,
interest-bearing financial instruments.

The Company expects that its existing capital resources, including the net
proceeds of this offering and interest thereon and its borrowing capacity under
its existing credit facility, will be sufficient to satisfy the requirements of
its current and planned operations for at least the next twelve months. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

DIVIDEND POLICY

The Company has never paid a cash dividend on its capital stock and does not
anticipate paying any cash dividends in the foreseeable future. The Company's
revolving line of credit prohibits the Company from paying dividends in cash,
stock or other property. The Company has obtained a waiver of such dividend
restriction in order to effect a 4-for-1 stock split in the form of a stock
dividend to be distributed to the Company's stockholders prior to effectiveness
of this offering.

13
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of
December 31, 1997 (i) on an actual basis, (ii) on a pro forma basis to reflect
the elimination of the Company's obligation to repurchase shares of its Common
Stock, and (iii) as adjusted to give effect to the receipt by the Company of the
estimated net proceeds from the sale of the shares of Common Stock offered
hereby at an assumed initial public offering price of $11.00 per share, after
deducting the underwriting discounts and estimated offering expenses payable by
the Company. This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and the Notes thereto included elsewhere
in this Prospectus.

<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, less current portion.......................................... $ 262 $ 262 $ 262
Put obligation related to Common Stock........................................ 9,965 -- --
--------- ----------- -----------
Stockholders' equity (1):
Preferred stock, $.001 par value; 10,000,000 shares authorized; no shares
issued and outstanding, actual, pro forma and as adjusted................. -- -- --
Common stock, $.001 par value; 50,000,000 shares authorized; 12,042,664
shares issued and outstanding, actual and pro forma; 14,542,664 shares
issued and outstanding, as adjusted....................................... 12 12 15
Additional paid-in capital.................................................. 20,822 20,822 45,519
Retained earnings........................................................... 4,215 4,215 4,215
Deferred compensation (2)................................................... (3,635) (3,635) (3,635)
Unearned ASOP shares (3).................................................... (853) (853) (853)
Notes receivable--stockholders (4).......................................... (5,134) (5,134) (5,134)
Put obligations related to Common Stock (5)................................. (9,965) -- --
--------- ----------- -----------
Total stockholders' equity................................................ 5,462 15,427 40,127
--------- ----------- -----------
Total capitalization.................................................... $ 15,689 $ 15,689 $ 40,389
--------- ----------- -----------
--------- ----------- -----------
</TABLE>

- ------------------------

(1) Based on the number of shares outstanding at December 31, 1997. Excludes (i)
797,084 shares of Common Stock issuable upon exercise of stock options
outstanding under the Company's 1997 Equity Incentive Plan with a weighted
average exercise price of $5.57 per share, (ii) 84,000 shares of Common
Stock issuable upon exercise of stock options outstanding under the
Company's 1997 Non-Employee Directors' Stock Option Plan with a weighted
average exercise price of $4.89 per share, and (iii) 148,316 shares of
Common Stock issuable upon the exercise of non-qualified stock options with
a weighted average exercise price of $5.42 per share. See "Capitalization,"
"Management--1997 Equity Incentive Plan," "--1997 Non-Employee Directors'
Stock Option Plan," and Note H of Notes to Financial Statements.

(2) Reflects the unamortized balance of deferred compensation relating to the
grant of stock options at below market prices. See Notes A and H of Notes to
the Financial Statements.

(3) Reflects the original cost of unallocated shares held by the ASOP. See Note
I of Notes to the Financial Statements.

(4) Certain of the Company's stockholders have purchased shares of Common Stock
using promissory notes payable over a maximum of ten years. See "Certain
Transactions" and Note D of Notes to the Financial Statements.

(5) The actual amount reflects the obligation of the Company to repurchase
shares of Common Stock at either the fair market value of such shares as
determined by an independent valuation firm or the original issuance price
plus a growth factor relating to such shares. See Notes H and I of Notes to
the Financial Statements.

14
<PAGE>
DILUTION

As of December 31, 1997, the Company had a pro forma net tangible book value
of approximately $15.4 million, or $1.28 per share of Common Stock. Pro forma
net tangible book value per share represents the amount of total tangible assets
less total liabilities and excluding the obligation of the Company to repurchase
shares of its Common Stock, divided by the number of shares of Common Stock
outstanding. Without taking into account any other changes in the pro forma net
tangible book value after December 31, 1997 other than to give effect to the
receipt by the Company of the estimated net proceeds from the sale of the
2,500,000 shares of Common Stock offered by the Company hereby at an assumed
initial public offering price of $11.00 per share, the pro forma net tangible
book value of the Company as of December 31, 1997 would have been approximately
$40.1 million, or $2.76 per share. This represents an immediate increase in the
pro forma net tangible book value of $1.48 per share to existing stockholders
and an immediate dilution of $8.24 per share to new investors. The following
table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share......................... $ 11.00
Pro forma net tangible book value per share before the offering....... $ 1.28
Increase per share attributable to new investors (1).................. 1.48
---------
Pro forma net tangible book value per share after the offering.......... 2.76
---------
Dilution per share to new investors..................................... $ 8.24
---------
---------
</TABLE>

The following table summarizes, on a pro forma basis as of December 31,
1997, the differences between existing stockholders and the new investors with
respect to the number of shares of Common Stock purchased from the Company, the
total consideration paid and the average price per share paid:

<TABLE>
<CAPTION>
SHARES
PURCHASED (1) TOTAL CONSIDERATION
-------------------------- --------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders......................... 12,042,664 83% $ 20,834,000 43% $ 1.73
New investors................................. 2,500,000 17% 27,500,000 57% 11.00
-- --
------------ -------------
Total..................................... 14,542,664 100% 48,334,000 100%
-- --
-- --
------------ -------------
------------ -------------
</TABLE>

- ------------------------

15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company and Notes thereto included elsewhere in this Prospectus. The
consolidated statements of operations data for the years ended December 31,
1994, 1995, 1996 and 1997 and the consolidated balance sheet data at December
31, 1995, 1996 and 1997 are derived from the Company's consolidated financial
statements that have been audited by Grant Thornton LLP, independent certified
public accountants, included elsewhere in this Prospectus. The consolidated
balance sheet data as of December 31, 1994 is derived from the Company's audited
consolidated balance sheet not included in this Prospectus. The selected
financial data as of December 31, 1993 and for the year then ended is derived
from unaudited consolidated financial data not included in this Prospectus.

General and administrative expenses........................ 6,995 9,871 17,517 23,670 31,669
Compensation expenses related to stock issuances (1)....... -- -- 385 588 6,060
--------- --------- --------- --------- ---------
Income from operations................................... 1,334 3,306 3,324 846 315

Interest income (expense), net............................. 46 (77) (36) 3 (68)
Other income, net.......................................... 77 32 18 44 119
--------- --------- --------- --------- ---------
Income before income taxes............................... 1,457 3,261 3,306 893 366
Provision for income taxes................................. 591 1,577 1,423 500 1,900
--------- --------- --------- --------- ---------
Net income (loss)........................................ $ 866 $ 1,684 $ 1,883 $ 393 $ (1,534)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic and diluted net income (loss) per share (2)(3)....... $ 0.06 $ 0.15 $ 0.19 $ 0.04 $ (0.14)
Shares used in computing basic and diluted net income per
share.................................................... 13,894 11,178 9,761 11,118 11,134
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 1,675 $ 1,335 $ 2,075 $ 214 $ 2,950
Total assets............................................... 7,950 11,203 20,648 22,812 34,425
Long-term debt............................................. 643 1,550 3,362 2,692 262
Total stockholders' equity................................. 1,558 1,710 1,612 3,040 5,462
</TABLE>

- ------------------------------
(1) In connection with the ASOP and certain non-qualified stock options granted
to the Company's vice presidents, the Company recognized a non-recurring
compensation expense in its consolidated statement of operations. The
primary component of this expense relates to the fair market value of
568,000 shares allocated to the Company's employees under the ASOP. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Notes H and I of Notes to Financial Statements.
(2) Excluding compensation expenses relating to stock issuances, basic and
diluted net income per share would be $0.22, $0.08 and $0.33, and net income
would be $2.1 million, $839,000 and $3.7 million for the years ended
December 31, 1995, 1996 and 1997, respectively.
(3) See Note A-9 of Notes to Financial Statements for an explanation of the
computation of basic and diluted net income per share.

16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED CONSOLIDATED FINANCIAL DATA" AND THE CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO CONTAINED ELSEWHERE IN THIS PROSPECTUS. EXCEPT FOR THE
HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSION IN THIS PROSPECTUS
CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, SUCH AS STATEMENTS OF THE COMPANY'S PLANS, OBJECTIVES,
EXPECTATIONS AND INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS
SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS
WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE DISCUSSED HERE. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED IN "RISK FACTORS," AS
WELL AS THOSE DISCUSSED ELSEWHERE HEREIN. SEE "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS" ON PAGE 12 OF THIS PROSPECTUS.

OVERVIEW

FCG provides information technology and other consulting services to payors,
providers and other healthcare organizations in North America and Europe. The
Company provided its services to over 360 clients in the year ended December 31,
1997. The Company's services are designed to increase its clients' operations
effectiveness in order to reduce cost, improve customer service and enhance the
quality of patient care. The Company's services address the increasing need of
its clients for healthcare-specific information technology expertise to
objectively evaluate, select, implement and manage an optimal set of information
systems and infrastructures. The Company's consultants provide this expertise
through multi-disciplinary teams specifically formed to provide a unique
solution for each client. The Company believes that its success is attributable
to its strong relationships with industry-leading clients, the healthcare,
technology and consulting expertise of the Company's consultants, and the depth
and breadth of its consulting services.

The Company generates substantially all of its revenue from fees for
professional services. The Company typically bills for its services on an
hourly, fixed-fee or fixed-fee per month basis as specified by the agreement
with a particular client. The Company establishes standard hourly rates for each
level of consultant based on several factors including industry and
assignment-related experience, technical expertise, skills and knowledge. For
services billed on an hourly basis, fees are determined by multiplying the
amount of time expended on each assignment by the hourly rate for the
consultant(s) assigned to the engagement. Fixed fees are established on a
per-assignment or monthly basis and are based on several factors such as the
size, scope, complexity and duration of an assignment and the number of
consultants required to complete the assignment. Actual hourly or fixed fees for
an assignment may vary from the standard or historical rates charged by the
Company. For services billed on an hourly basis, the Company recognizes revenue
as services are performed. For services billed on a fixed fee basis, the Company
recognizes revenue using the percentage of completion method based on the amount
of time completed on each assignment versus the projected number of hours
required to complete such assignment. Revenue is recorded as incurred at
assignment rates net of unplanned adjustments for specific engagements.
Unplanned adjustments to revenue are booked at the time they are known. The
Company may obtain payment in advance of providing services. These advances are
recorded as deferred revenue and reflected as a liability on the Company's
balance sheet.

Cost of services primarily consists of the salaries, bonuses and related
benefits of consultants, subcontractor expenses, and the costs of the Company's
supplemental executive retirement plan. General and administrative expenses
primarily consist of the costs attributable to office space occupancy;
investments in the Company's information systems, research and practice support
and quality initiatives; salaries and expenses for executive management,
financial accounting and administrative personnel; recruiting fees and
professional development; and marketing, legal and other professional services.

In connection with the Company's Associate 401(k) and Stock Ownership Plan
("ASOP") and certain non-qualified stock options granted to the Company's vice
presidents, the Company recognizes a compensation expense on its consolidated
statement of operations. The non-recurring portion of this compensation expense
is reflected in the Company's consolidated statements of operations as
compensation expenses related to stock

17
<PAGE>

issuances and, for the year ended December 31, 1997, amounted to a non-cash
charge of $6.1 million. The non-recurring portion of this expense primarily
consists of (i) a compensation expense equal to the fair market value of a
one-time allocation of 568,000 shares of Common Stock to employees pursuant to a
modification of the ASOP; and (ii) a compensation expense equal to the excess of
the average fair market value of the allocated shares of the Common Stock under
the ASOP above the cost (plus interest) of shares of the Common Stock required
to match employee contributions. The non-recurring portion of the compensation
expense related to the ASOP is non-deductible for income tax reporting purposes.
Beginning in 1998, the Company plans to grant all stock options at the fair
market value and, in connection with the Company's ASOP, to match employee
401(k) contributions with shares of Common Stock based on the fair market value
of the shares at the time matching contributions are made.

The Company's most significant expenses are its human resource and related
salary and benefit expenses. Approximately 77% of the Company's employees are
consultants, and the salaries and benefits of such consultants are recognized in
the Company's cost of services. Non-billable employee salaries and benefits are
recognized as a component of general and administrative expenses. The Company's
cost of services as a percentage of revenue is directly related to its
consultant utilization, which is the ratio of total billable hours to available
hours in a given month. The Company manages consultant utilization by monitoring
assignment requirements and timetables, available and required skills, and
available consultant hours per week and per month. The number of consultants
staffed on an assignment will vary according to the size, complexity, duration
and demands of the assignment. Assignment terminations, completions and
scheduling delays may result in periods in which consultants are not optimally
utilized. An unanticipated termination of a significant assignment or an overall
lengthening of the sales cycle could result in a higher than expected number of
unassigned consultants and could cause the Company to experience lower margins.
In addition, the opening of new offices, expansion into new markets, and the
hiring of consultants in advance of client assignments have resulted and may
continue to result in periods of lower consultant utilization. During the second
and third quarters of 1996, the Company experienced a significant decrease in
the utilization of billable personnel. This decrease in utilization was
primarily attributable to the increased hiring of consultants and a failure by
the Company to assign underutilized consultants located in the central United
States to projects outside such region. The Company believes that this failure
to re-assign underutilized consultants was attributable to certain incentive
programs which have since been discontinued. This decrease in utilization, as
well as certain infrastructure upgrades, resulted in a decrease in net income in
the second and third quarters of 1996. There can be no assurance that such a
decrease in utilization or net income will not occur in the future.

The Company's effective tax rate has varied from period to period due to
differences between book and tax deductions associated with certain
non-deductible operating expenses, including certain compensation expenses
related to the ASOP.

COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND 1996

NET REVENUE. The Company's net revenue increased to $91.6 million, or
39.1%, for the year ended December 31, 1997 from $65.8 million for the year
ended December 31, 1996. This increase was primarily attributable to an increase
in revenue from the Company's implementation and integration services and an
increase in consultant utilization.

COST OF SERVICES. Cost of services increased to $53.5 million, or 31.5%,
for the year ended December 31, 1997 from $40.7 million for the year ended
December 31, 1996. The increase was primarily attributable to an increase in the
number of consultants. Cost of services as a percentage of revenue decreased to
58.5% for the year ended December 31, 1997 from 61.9% for the year ended
December 31, 1996. This decrease was primarily attributable to increased
utilization rates for the Company's consultants during the year ended December
31, 1997. The Company believes that the increase in utilization rates was
primarily attributable to the discontinuation of certain incentive programs and
the resulting reallocation of billable resources to projects across geographic
regions.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $31.7 million, or 33.8%, for the year ended December 31, 1997 from
$23.7 million for the year ended December 31, 1996. This

18
<PAGE>

increase was primarily attributable to the Company's relocation to a larger
corporate facility, expanded marketing initiatives, expansion into the United
Kingdom, and continued efforts to enhance and improve the Company's internal
infrastructure including upgrades to its management information systems. General
and administrative expenses as a percentage of revenue decreased to 34.6% for
the year ended December 31, 1997 from 36.0% for the year ended December 31,
1996.

COMPENSATION EXPENSES RELATED TO STOCK ISSUANCES. Compensation expenses
related to stock issuances increased to $6.1 million for the year ended December
31, 1997 from $588,000 for the year ended December 31, 1996. This increase was
primarily attributable to a one-time allocation of 568,000 shares of Common
Stock to employees pursuant to a modification of the ASOP and a non-recurring
compensation expense resulting from the difference between estimated average
fair market value and cost of the allocated ASOP shares.

COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995

NET REVENUE. The Company's net revenue increased to $65.8 million, or
37.9%, for the year ended December 31, 1996 from $47.7 million for the year
ended December 31, 1995. This increase was primarily attributable to an increase
in revenue from implementation and integration services and the expansion of
such services to IDNs and health plans.

COST OF SERVICES. Cost of services increased to $40.7 million, or 53.5%,
for the year ended December 31, 1996 from $26.5 million for the year ended
December 31, 1995. This increase was primarily attributable to an increase in
the number of consultants. Cost of services as a percentage of revenue increased
to 61.9% for the year ended December 31, 1996 from 55.5% for the year ended
December 31, 1995. This increase was primarily attributable to a significant
decrease in utilization rates for consultants located in the central United
States. The Company believes that this decrease in utilization was attributable
to certain incentive programs which have since been discontinued.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $23.7 million, or 35.1%, for the year ended December 31, 1996 from
$17.5 million for the year ended December 31, 1995. This increase was primarily
attributable to an increase in the number of non-billable employees and expenses
relating to the improvement of the Company's infrastructure. General and
administrative expenses as a percentage of revenue decreased to 36.0% for the
year ended December 31, 1996 from 36.7% for the year ended December 31, 1995.

COMPENSATION EXPENSES RELATED TO STOCK ISSUANCES. Compensation expenses
related to stock issuances increased to $588,000, or 52.7%, for the year ended
December 31, 1996 from $385,000 for the year ended December 31, 1995. This
increase was primarily attributable to stock options granted below fair market
value in 1996.

COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994

NET REVENUE. The Company's net revenue increased to $47.7 million, or
58.9%, for the year ended December 31, 1995 from $30.0 million for the year
ended December 31, 1994. This increase was primarily attributable to an increase
in the number of new assignments and consultants and an increase in the
Company's focus on working with IDNs and health plans.

COST OF SERVICES. Cost of services increased to $26.5 million, or 57.2%,
for the year ended December 31, 1995 from $16.9 million for the year ended
December 31, 1994. The increase was primarily attributable to an increase in the
number of consultants. Cost of services as a percentage of revenue remained
relatively constant at 55.5% for the year ended December 31, 1995 from 56.1% for
the year ended December 31, 1994.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $17.5 million, or 77.5%, for the year ended December 31, 1995 from
$9.9 million for the year ended December 31, 1994. This increase was primarily
attributable to an increase in the number of non-billable employees, increased
recruiting and training expenses, continued geographical expansion and
investments in internal information technology

19
<PAGE>
systems. General and administrative expenses as a percentage of revenue
increased to 36.7% for the year ended December 31, 1995 from 32.8% for the year
ended December 31, 1994.

COMPENSATION EXPENSES RELATED TO STOCK ISSUANCES. Compensation expenses
related to stock issuances was $385,000 for the year ended December 31, 1995.
There was no corresponding expense in the prior period. This expense was
primarily attributable to stock options granted below fair market value in 1995.

20
<PAGE>
SELECTED QUARTERLY RESULTS OF OPERATIONS

The following table sets forth certain unaudited statements of operations
data for the eight quarters ended December 31, 1997, as well as such data
expressed as a percentage of the Company's net revenue for the periods
indicated. This data has been derived from unaudited financial statements that,
in the opinion of the Company's management, include all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of such
information when read in conjunction with the Company's annual audited
consolidated financial statements and the notes thereto. The operating results
for any quarter are not necessarily indicative of the results for any future
period.

<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1996 1997 1997 1997 1997
--------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue............... $ 15,422 $ 15,440 $ 17,400 $ 17,560 $ 20,155 $ 21,673 $ 24,477 $ 25,265
Cost of services.......... 9,341 9,894 10,925 10,558 12,066 12,659 14,098 14,703
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit............ 6,081 5,546 6,475 7,002 8,089 9,014 10,379 10,562
General and administrative
expenses................ 5,305 5,552 6,806 6,007 6,752 7,404 8,648 8,865
Compensation expenses
related to stock
issuances............... 128 127 127 206 523 523 815 4,199
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from
operations.............. 648 (133) (458) 789 814 1,087 916 (2,502)
Interest income (expense),
net..................... 1 (11) (6) 19 (21) (27) (11) (9)
Other income, net......... 9 12 13 11 91 10 9 9
Provision (benefit) for
income taxes............ 369 (74) (254) 459 490 593 507 310
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)......... $ 289 $ (58) $ (197) $ 360 $ 394 $ 477 $ 407 $ (2,812)
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------

PERCENTAGE OF NET REVENUE
--------------------------------------------------------------------------------------
Net revenue............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of services.......... 60.6 64.1 62.8 60.1 59.9 58.4 57.6 58.2
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit............ 39.4 35.9 37.2 39.9 40.1 41.6 42.4 41.8
General and administrative
expenses................ 34.4 36.0 39.1 34.2 33.5 34.2 35.3 35.1
Compensation expenses
related to stock
issuances............... 0.8 0.8 0.8 1.2 2.6 2.4 3.3 16.6
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from
operations.............. 4.2 (0.9) (2.7) 4.5 4.0 5.0 3.8 (9.9)

Interest income (expense),
net..................... -- (0.1) -- 0.1 (0.1) (0.1) -- --
Other income, net......... 0.1 0.1 0.1 0.1 0.5 0.1 -- --
Provision (benefit) for
income taxes............ 2.4 (0.5) (1.5) 2.6 2.4 2.7 2.1 1.2
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)......... 1.9% (0.4)% (1.1)% 2.1% 2.0% 2.3% 1.7% (11.1)%
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>

21
<PAGE>
A substantial portion of the Company's expenses, particularly personnel and
related costs, depreciation, office rent and occupancy costs, are relatively
fixed. Certain variable costs are assignment-specific and are billed as
incurred. The Company's quarterly operating results may vary significantly in
the future depending on a number of factors, many of which are outside the
control of the Company. These factors may include: the reduction in size, delay
in commencement, interruption or termination of one or more significant
engagements or assignments; fluctuations in consultant hiring and utilization;
the loss of personnel; the loss of one or more significant clients; the
unpredictability of engaging new clients and additional assignments from
existing clients; increased competition; write-offs of client billings;
consolidation of, and subsequent reduction in the number of, healthcare
providers; pricing pressure; the number, timing and contractual terms of
significant client engagements; market demand for the Company's services; delays
or increased expenses incurred in connection with existing assignments; changes
in pricing policies by the Company or its competitors; changes in the Company's
business strategies; variability in the number of business days within a
quarter; and international currency fluctuations. Due to the foregoing factors,
quarterly revenue and operating results are not predictable with any significant
degree of accuracy. In particular, the timing between initial client contract
and fulfillment of the criteria necessary for revenue recognition can be lengthy
and unpredictable, and revenue in any given quarter can be materially adversely
affected as a result of such unpredictability. Business practices of clients,
such as deferring commitments on new assignments until after the end of fiscal
periods, could require the Company to maintain a significant number of
under-utilized consultants which could have a material adverse effect on the
Company's business, financial condition and results of operations. During the
second and third quarters of 1996, the Company experienced a significant
decrease in the utilization of billable personnel. Such underutilization was
primarily attributable to the increased hiring of consultants and a failure by
the Company to assign underutilized consultants located in the central United
States to projects outside such region. The Company believes that this failure
to re-assign underutilized consultants was attributable to certain incentive
programs which have since been discontinued. This decrease in utilization, as
well as certain infrastructure upgrades, resulted in a decrease in net income in
the second and third quarters of 1996. There can be no assurance that such a
decrease in utilization or net income will not occur in the future.

The Company has experienced and will continue to experience variability in
the number of billable days in any quarter. The Company typically experiences a
lower number of billable days in the second and fourth quarters of every year.
The Company requires attendance at an annual meeting of all of its employees in
the second quarter of every year and encourages its employees to take vacation
during the December holidays. Variability in the number of billable days may
also result from other factors such as vacation days, sick time, paid and unpaid
leave and holidays, all of which could produce variability in the Company's
revenue and costs. In the event of any downturn in potential clients' businesses
or the economy in general, planned utilization of the Company's services may be
deferred or canceled, which could have a material adverse effect on the
Company's business, financial condition and results of operations. Based on the
preceding factors, the Company may experience a shortfall in revenue or earnings
from expected levels or otherwise fail to meet expectations of securities
analysts or the market in general, which could have a material adverse effect on
the market price of the Common Stock. See "Risk Factors--Variability of
Quarterly Operating Results."

LIQUIDITY AND CAPITAL RESOURCES

During the year ended December 31, 1997, the Company generated cash flow
from operations of $8.0 million, of which approximately $2.5 million was
generated from depreciation of assets. The Company generated cash flow from
operations of $2.2 million and $779,000 for the years ended December 31, 1996
and 1995, respectively. During the year ended December 31, 1997, the Company
used cash flow of $3.4 million to purchase property and equipment. Purchase of
property and equipment has used cash flow of $3.6 million and $1.9 million for
the years ended December 31, 1996 and 1995, respectively. During the year ended
December 31, 1997 the Company used cash flow of $529,000 for financing
activities. Financing activities used cash flow of $439,000 and provided cash
flow of $1.9 million for the years ended December 31, 1996 and 1995,
respectively.

22
<PAGE>
The Company has a revolving line of credit which allows the Company to
borrow up to $6.0 million at an interest rate of the prevailing prime rate. The
revolving line of credit expires on December 1, 1998. There was a balance of
$2.0 million under the line of credit at December 31, 1997. The Company has two
term loan facilities ("Term Loan A" and "Term Loan B"). Term Loan A is a
$305,000 facility under which approximately $284,000 was outstanding as of
December 31, 1997. Term Loan A expires on July 1, 2003. Term Loan B is a $4.0
million facility under which approximately $674,000 was outstanding as of
December 31, 1997. A portion of the proceeds from Term Loan B were used to
finance the purchase of shares by the ASOP. Term Loan B expires on December 4,
2001. Term Loan A and Term Loan B bear interest at a rate per annum equal to the
prevailing prime rate plus 0.5%. All borrowings under the Company's credit
facilities are secured by the Company's accounts receivable and other rights to
payment, general intangibles and equipment. The line of credit agreement
provides that the Company must satisfy certain financial and other covenants
regarding tangible net worth, debt ratio and profitability, capital
expenditures, merger or transfer of assets, additional indebtedness, dividends,
distributions and pledge of assets.

As a result of this offering, the Company's tax accounting method will
change from cash to accrual basis accounting, requiring the Company to pay a
deferred tax liability of approximately $6.1 million as of December 31, 1997.
The Company expects this tax liability to be paid over a period not exceeding
four years.

Prior to the consummation of this offering, the existing stockholders of the
Company, including the ASOP, had the ability to require the Company to
repurchase their shares upon the occurrence of certain conditions which were
outside the control of the Company. As such, the Company historically reflected
the estimated obligations related to these repurchase obligations in its
financial statements. In connection with this offering and as of the date upon
which this offering is consummated, the Company will no longer be obligated to
repurchase any shares of its capital stock from stockholders of the Company.
Consequently, the Company does not anticipate any payment with respect to such
obligations.

The Company believes that its existing capital resources, including the net
proceeds of this offering and interest thereon and its borrowing capacity under
its existing credit facility, will be sufficient to satisfy the requirements of
its current and planned operations for at least the next twelve months.

In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), EARNINGS PER
SHARE, which supersedes APB Opinion 15. SFAS 128 replaces the presentation of
primary earnings per share ("EPS") with "Basic EPS" which includes no dilution
and is based on weighted average common shares outstanding for the period.
Companies with complex capital structures, including the Company, will also be
required to present "Diluted EPS" that reflects the potential dilution of
securities such as employee stock options to purchase Common Stock. The Company
has adopted SFAS 128; such adoption did not have a material effect on the
Company's net income (loss) per share.

23
<PAGE>
BUSINESS

OVERVIEW

FCG provides information technology and other consulting services to payors,
providers and other healthcare organizations in North America and Europe. The
Company provided its services to over 360 clients in the year ended December 31,
1997. The Company's services are designed to increase its clients' operations
effectiveness in order to reduce cost, improve customer service and enhance the
quality of patient care. The Company's services address the increasing need of
its clients for healthcare-specific information technology expertise to
objectively evaluate, select, implement and manage an optimal set of information
systems and infrastructures. The Company's consultants provide this expertise
through multi-disciplinary teams specifically formed to provide a unique
solution for each client. The Company believes that its success is attributable
to its strong relationships with industry leading clients, the healthcare,
technology and consulting expertise of the Company's consultants, and the depth
and breadth of its consulting services.

INDUSTRY BACKGROUND

The healthcare industry has undergone dramatic change in recent years.
Payors and providers are experiencing increased pressure from employers,
government agencies and consumers to reduce cost, improve customer service and
increase the quality of patient care. These market forces have caused payors to
utilize a variety of managed care mechanisms to control cost such as preferred
provider organizations, capitation, utilization review, guidelines of care and
demand management. In order to implement these mechanisms, payors have invested
in information systems that enable their personnel to more effectively manage
increasingly complex benefit structures, support care management and improve
customer service. In addition, payors have managed costs by shifting the
financial risk for care, administrative functions and responsibility for quality
initiatives to providers. In response to the shift of these responsibilities
from payors, providers have sought to improve their ability to manage
reimbursement, administrative and care management functions. Specifically,
providers have sought to improve their ability to administer an increasing
number of reimbursement methodologies, manage care delivery, measure cost,
manage administrative functions and track quality measures across patient
populations. The shift in financial risk for care and other responsibilities has
caused providers to upgrade their existing information systems and invest in new
information systems. Both payors and providers have invested and will continue
to invest in information systems to improve their financial, administrative and
clinical processes.

In order to reduce costs, improve efficiency, and provide care across a
continuum, providers such as hospitals, acute and ambulatory care centers,
physician practices and clinical laboratories are consolidating to form larger
healthcare organizations. Physicians are also forming larger group practices
and, in many cases, affiliating with practice management organizations that
assist them in managing their practices more efficiently. In certain markets,
institutional and physician providers are combining to form IDNs that provide a
broad spectrum of clinical services across a geographic region. Providers are
also combining with payors to more effectively reduce costs, manage care and
implement risk sharing programs. In addition, payors are consolidating with
other payors to achieve administrative efficiencies, increase geographic
coverage and better manage medical expenses.

Many of the existing information systems used by payor and provider
organizations were developed to serve a specific function and to operate within
a single entity, such as a hospital or physician group. The information systems
of these larger, consolidated organizations must connect and function across a
dispersed set of geographic locations, facilities and operations. New and
existing information systems must be installed or upgraded and integrated with
existing and new information technology platforms to provide financial,
administrative and clinical data to users within constituent organizations.
These new or upgraded systems must address increasing needs of users to have
clinical decision support tools, integrated patient and financial information,
managed care contracting and information networking. This trend has created
substantial and increasing demand for information technology and related
services. Industry sources project the market for healthcare

24
<PAGE>
information technology in the United States to be $17.3 billion in 1997 and
project the market to grow to $27.9 billion in 2002. Industry sources also
estimate the market for healthcare information services in the United States to
be $5.6 billion in 1997, growing to $11.6 billion in 2002.

Payor and provider organizations have found it increasingly difficult to
develop, implement and manage comprehensive information technology strategies
and systems. Many healthcare organizations lack the human and technical
resources necessary to effectively evaluate, select, implement and manage an
optimal set of information technology and communication systems, networks and
applications. Many of these organizations also lack the human resources
necessary to manage such implementations or to train other personnel within the
organization to maximize the value of the new system, network or application.
These same organizations often require a significant amount of administrative or
clinical process improvement which may be difficult to achieve using internal
resources. The Company believes that the increasing pressures on payors and
providers to decrease costs, improve customer service and enhance the quality of
patient care, combined with the complexity of a consolidating industry and the
lack of internal technical expertise, have created an opportunity for companies
specializing in providing comprehensive information technology solutions to
healthcare organizations.

FCG SOLUTION

FCG provides information technology and other consulting services to payors,
providers and other healthcare organizations. The Company's services are
designed to increase its clients' operations effectiveness in order to reduce
cost, improve customer service and enhance the quality of patient care.
Operations effectiveness offers a means to improve the financial, administrative
and clinical processes within a client organization. The Company's services
address the increasing need for healthcare-specific information technology
expertise to objectively evaluate, select, implement and manage an optimal set
of systems, networks and applications. The Company's services are provided by
the Company's 457 consultants, who collectively have extensive expertise in key
healthcare financial, administrative and clinical processes, information
technologies and applications. The Company provides this expertise to clients by
assembling multi-disciplinary teams which provide comprehensive services across
its four principal services: consulting, software implementation, network and
application integration and co-management services. The Company's services and
consultants are supported by internal research and a centralized information
system which provides real-time access to current industry and technology
information and project methodologies, experiences, models and tools. The
Company believes that its healthcare industry focus, information technology
expertise, experienced consultants, and research and practice support enable its
clients to reduce cost, improve customer service and enhance the quality of
patient care.

BUSINESS STRATEGY

The Company's objective is to be a leading provider of information
technology and other consulting services to the healthcare industry. Key
elements of the Company's strategy include:

RECRUIT AND RETAIN EXPERIENCED PROFESSIONALS. The Company seeks to recruit
and retain the most experienced healthcare, information technology and
consulting professionals. The Company recruits and retains these professionals
by offering a combination of a growing healthcare consulting practice, industry
leading clients, intellectually challenging client engagements and professional
interaction and growth. The Company supports its consultants through internal
research, training and a collaborative, professional environment designed to
promote teamwork. The Company believes that this environment encourages the
formation of new services and geographic expansion.

EXPAND RELATIONSHIPS WITH EXISTING CLIENTS. The Company generates a
substantial portion of its revenue from existing clients and client referrals
and markets its services primarily through its vice presidents. The Company's
vice presidents develop strong relationships with senior-level information
management and other decision-making personnel at leading healthcare
organizations and are therefore positioned to market additional strategic and
information technology consulting services to the Company's existing clients.
The Company

25
<PAGE>
maintains these relationships by successfully completing assignments and meeting
client expectations. In particular, the Company believes that by successfully
completing strategic plans for new and existing clients, its vice presidents
will have significant opportunities to offer other services to these clients,
including implementation and integration services. The Company has demonstrated
that this strategy leads to additional assignments with its existing clients and
referrals to new clients. In providing its services, the Company attains an
in-depth understanding of its client's processes and internal information
technology and business strategies. Through this understanding, the Company
plans to provide operations effectiveness services to a greater portion of its
client base. Operations effectiveness services involve assessing, designing and
improving financial, administrative and clinical processes.

DEVELOP STRONG RELATIONSHIPS WITH INDUSTRY LEADING CLIENTS. As the
healthcare industry continues to consolidate into a fewer number of larger
provider and payor organizations, the Company has developed and will continue to
develop strong relationships with IDNs, health plans and leading academic
medical centers. The Company focuses its business development efforts toward
these organizations due to the high demand for expertise in completing large,
enterprise-level information technology and operations effectiveness
engagements. The Company also believes that these healthcare organizations can
serve as references for new clients, including those in targeted geographic or
other markets.

EXPAND SERVICES OFFERED TO HEALTHCARE ORGANIZATIONS. The Company regularly
evaluates the technological trends, products and needs in the healthcare
industry and, based on such evaluations, expands its services to meet changing
information technology, financial, administrative and clinical needs. The
Company believes that a significant opportunity exists for companies that
provide highly specialized resources that enable healthcare organizations to
rapidly integrate new operations and technologies, manage information, and
design and reengineer processes. The Company intends to hire additional
professionals and to selectively pursue acquisitions that complement the
Company's existing core competencies in information technology planning,
integration and implementation, and enterprise-level operations effectiveness
consulting. The Company also expects to offer new services such as packaged
research regarding information technology applications and related processes.

EXPAND INTERNATIONALLY IN TARGETED REGIONS. The Company plans to expand its
service capabilities in targeted geographic regions such as the United Kingdom,
Ireland, Germany, Canada and Mexico. The Company believes there is a significant
demand for its services in these countries, particularly in the areas of
implementation and operations effectiveness. The Company plans to capitalize on
its significant, proven skills in packaged software implementation by continuing
to form strategic alliances with systems vendors in selected international
markets. The Company intends to expand internationally by recruiting experienced
consultants within a region and through the acquisition of complementary
professional practices in targeted geographic regions.

SERVICES

The Company provides information technology and other consulting services to
the healthcare industry. The Company's four principal services consist of
consulting, software implementation, network and application integration and
co-management services. The Company typically is engaged on an
assignment-by-assignment basis and assembles client teams from one or more
services to match the expertise and service offerings with the overall
objectives required by each client and engagement. Many client engagements
involve multiple assignments. The Company may assemble several client teams to
serve the needs of a single client. The Company provides its services at the
client site to senior-level management and other personnel within the client
organization.

CONSULTING SERVICES

The Company's consulting services primarily consist of strategic planning,
operations effectiveness, procurement and contracting, and other services.

26
<PAGE>
The Company's strategic planning services involve the development of
strategic plans for healthcare organizations encompassing one or more of the
following areas: the decision to purchase and implement large-scale clinical,
patient information or financial applications; the installation and integration
of comprehensive communications, network and other information technology
systems; systems and information architectures; and organizational and
governance structures for information technology departments. The Company
believes that its strategic planning services will continue to be the core of
the Company's business as it provides a foundation for the introduction of the
Company's other services to clients and allows the Company to develop
multi-level relationships with its clients. The Company typically provides its
strategic planning services on a fixed-fee basis.

The goal of each strategic plan is to enable the client to maximize the
value of its information technology investments and improve operations
effectiveness. To ensure that each plan addresses the strategic goals,
priorities and needs of the client, the Company's strategic planning process
involves the participation of several senior-level management personnel,
clinicians, physicians and other user groups within the client organization. The
Company collects information regarding the client's business strategies,
information technology applications and systems, the capabilities of the
client's in-house technical staff and the operational needs of user groups. The
Company then identifies several information and infrastructure needs which must
be addressed in order to implement the client's business strategies. The Company
also develops a series of prioritized recommendations or assignments to be
completed by the client during the next three to five years. These
recommendations may include such items as the installation of packaged software
applications or communication networks, or the use of clinical repositories or
outcomes systems. The strategic plan delivered to the client describes the
recommendations in detail and typically includes specific information technology
alternatives, internal staffing recommendations and implementation schedules and
budgets. The Company also assists the client in building consensus with respect
to a particular strategic objective or assignment.

The Company's operations effectiveness services enhance its clients'
performance through financial, administrative and clinical process improvement.
The Company believes that information technology is the most important element
in implementing a successful business process redesign. Through its historic
information technology expertise and its emerging enterprise-level operations
effectiveness services, the Company provides the full set of skills required to
address the increased pressures facing its clients to reduce cost, improve
customer service and improve and measure quality of patient care. These services
are closely integrated with the Company's implementation and integration
services to ensure that clients receive maximum benefit from new systems
installations.

The Company provides information technology procurement and contracting
services that assist its clients with rapidly identifying, selecting and
contracting for the optimal information technology applications, networks and
systems. The Company's procurement and contracting consultants operate
independently of hardware and software vendors and accordingly provide objective
assessments and recommendations with respect to information technology
alternatives and pricing. Using these services, a client can efficiently
identify and select an appropriate vendor-based alternative, balance competing
interests within the client organization and, in many instances, negotiate price
discounts and other terms which may be difficult to achieve without the
Company's involvement. The Company does not purchase and resell hardware or
software to its clients. The Company's procurement and contracting services
support the Company's strategic planning, implementation and integration
services by assisting clients in selecting and contracting with vendors who will
provide the applications, networks or systems to be installed at the client
site. The Company's procurement and contracting services are often provided as
part of a client's larger information technology, networking or operational
initiatives which may involve the provision of the Company's other services. The
Company typically provides its procurement and contracting services on a
per-hour basis.

The Company's consultants typically assess the technical capabilities,
specifications and design philosophy of existing products and assist clients in
all stages of procurement such as system requirement assessment and definition,
procurement planning and management, requests for proposals, vendor evaluation
and selection and contract negotiation. The Company's procurement and
contracting services include such areas as clinical,

27
<PAGE>
patient, financial and managed care systems, claims processing, outcomes
systems, local area networks, wide area networks, voice and video systems,
electronic messaging, call centers, Internet and web technologies and
telemedicine.

The Company also provides general information management consulting services
to its existing clients on an as-needed basis in connection with industry trends
and developments, product introductions or changing regulatory requirements. The
Company's general consulting services typically are provided directly to senior-
level client personnel and involve small-scale, short duration assignments that
are important in maintaining strong client relationships.

SOFTWARE IMPLEMENTATION SERVICES

The Company provides implementation services for packaged software products
utilized by healthcare organizations. These services include project management,
installation, interface programming, testing and training services. In providing
these services, the Company draws on proven methodologies and its extensive
expertise in healthcare processes and information technology to ensure that each
implementation is completed efficiently with minimal disruption to clients'
operations. The Company's implementation specialists emphasize administrative
and clinical process improvement and user training, including technical support
staff training, in each engagement. The Company typically provides its
implementation services on a fixed-fee per month or per-hour basis.

Through its implementation services, the Company believes that it enables
its clients to maximize the value of each application investment. The Company
typically assembles a dedicated, on-site, multi-disciplinary team of consultants
to perform each implementation engagement. This team determines implementation
schedules and budgets with the client. The Company's implementation specialists
may also provide project management, quality assurance or an interface mapping
and programming function through which the Company efficiently installs the
application and ensures that, once installed, the application will communicate
with other applications and networks used by the client. This interface mapping
and programming function often requires that the Company develop a considerable
amount of additional software code. Training of client personnel involves all
aspects of the complete system. The Company has extensive expertise in
implementing applications from vendors such as AMISYS Managed Care Systems,
Inc., Cerner Corporation, HBO & Company, IDX Systems Corp., Medic Computer
Systems, Inc., MedicaLogic, Inc., Meditech, Inc., PHAMIS Inc., PeopleSoft, Inc.
and Shared Medical Systems Corporation. The Company believes that its expertise
with and independence from application vendors provides clients with an
objective, reliable resource to implement these applications.

NETWORK AND APPLICATION INTEGRATION SERVICES

The Company designs and develops comprehensive system architectures,
infrastructures, interfaces, databases, applications and networks to address the
need for information integration and dissemination throughout a healthcare
organization. The Company's network and application integration services
emphasize scalable architectures and systems that can accommodate an increasing
array of functions and features to address a client's emerging information
needs. The Company often identifies specific technology and service alternatives
for each clinical and operational site within the client organization in the
course of each integration plan and engagement. The Company's integration
services typically involve the Company's procurement and contracting and
implementation services in order to assist the client in acquiring the needed
hardware and software and, in some cases, to install the acquired software as
part of the integration plan. The Company typically provides its network and
application integration services on a fixed fee, per-hour, or fixed-fee per
month basis as negotiated in individual client contracts.

The Company's network and application integration services are typically
provided to consolidated healthcare organizations, including IDNs and health
plans. Application integration assignments include the implementation of master
patient indices, computer-based patient record systems, managed care and medical
management systems, physician practice management systems, clinical decision
support and data repositories,

28
<PAGE>
and data warehouses. Network integration assignments include the development of
information, technology and communication architectures and Internet, intranet
and desktop messaging systems. Network and application integration engagements
involve planning, designing and managing the installation and implementation of
hardware and software technologies. These engagements also involve comprehensive
site visits and user interviews, application programming and training across
multiple levels of a client organization. Often the Company prepares a detailed
mapping of physical, technical and operational elements of the integrated
applications or networks.

CO-MANAGEMENT SERVICES

The Company provides interim staffing for healthcare organizations primarily
for senior-level information technology positions such as Chief Information
Officers, Directors of Information Systems and information technology department
managers. The Company also provides information technology department
outsourcing on a temporary or permanent basis as determined by the client. The
Company's co-management services emphasize the importance of existing management
and other information technology personnel. Accordingly, the Company's personnel
work with existing information technology staff to address strategic business,
information and technology needs. The Company typically provides its
co-management services on a fixed-fee per month basis.

SERVICE DELIVERY

The Company's services are provided by 457 consultants who collectively have
expertise in key healthcare financial, administrative and clinical processes,
information technologies and applications. The Company believes that its
healthcare industry focus, information technology expertise, experienced
consultants, and research and practice support enable its clients to reduce
cost, improve customer service and enhance the quality of patient care.

To ensure client satisfaction, the Company typically assigns a Client
Service Executive to each client team. The Client Service Executive's primary
responsibility is to establish and maintain long-term relationships with
clients. The Client Service Executive regularly communicates with the client to
ensure client satisfaction and is also responsible for billing decisions on each
assignment. For client engagements with multiple independent assignments, the
Company assigns a Delivery Service Executive to each assignment. A Delivery
Service Executive has specific technology, process or service line expertise and
is responsible for supervising the daily functions of the client team and for
ensuring that the team's progress is consistent with the client's objectives and
schedule. The Company measures every client's satisfaction through a client
satisfaction survey completed at the conclusion of each assignment.

The Company employs consultants whose individual expertise combines
healthcare, information technology and consulting skills. The Company's
consultants have developed healthcare-specific expertise in key areas such as
financial, administrative and clinical processes, care management, clinical
decision support, health plan operations, medical and utilization management,
outcomes and performance management, physician practice management, ambulatory
care and privacy and confidentiality protection. The Company's consultants also
have expertise in implementing, integrating and developing a wide range of
information technology and management systems. These systems include packaged
software applications, client/server and object-oriented computing technologies,
data repositories and data warehousing, electronic commerce and electronic data
imaging, networking, web technologies, telemedicine, document management,
security and disaster recovery. The Company has expanded its recruiting efforts
to ensure that it continues to attract and retain the breadth and depth of
skills and expertise necessary to compete successfully in the healthcare
consulting industry. The Company recruits and retains its consultants by
offering a combination of a growing healthcare consulting practice, industry
leading clients, intellectually challenging client engagements and professional
interaction and growth.

29
<PAGE>
RESEARCH AND PRACTICE SUPPORT

The Company's services and consultants are supported by internal research,
training and a centralized information system which provides real-time access to
current industry and technology information and project methodologies,
experiences, models and tools. The Company's principal research and practice
support initiatives include the Emerging Practices Group, Professional
Development Programs, Scottsdale Institute, KITE and Practice Guilds.

EMERGING PRACTICES GROUP. The Emerging Practices Group performs industry
research and collects, packages and distributes knowledge regarding emerging
trends in the healthcare industry. Examples of topics that the Emerging
Practices Group has researched are information management practices in emerging
IDNs, process design and redesign for cross continuum care management, impact of
government legislation, physician integration, Internet and intranet in
healthcare, and use of hand-held computing devices. The Company documents
research findings, conducts internal and client workshops on these topics, and
makes the research available for use in its client engagements.

PROFESSIONAL DEVELOPMENT AND INCENTIVE PROGRAMS. The Company has instituted
several professional development and incentive programs to encourage employee
retention and to provide support for the professional growth of all employees.
The Company provides training to its employees through an annual four-day
educational retreat, as well as ongoing classroom education, computer-based
training and external seminars. The Company has programs to educate all new
employees about the history, culture and practices of FCG. All employees are
required to establish an annual professional development plan for knowledge
acquisition, skill development, leadership assessment and training, project
management and relationship management. In addition to such programs, the
Company encourages equity participation by all employees. All vice presidents
must purchase a multiple of their annual salary in Common Stock through the 1994
Restricted Stock Plan, which provides for a ten-year vesting schedule of such
stock. See "Management--1994 Restricted Stock Plan and Agreements". All other
employees are eligible to participate in the ASOP, which matches 50% of employee
contributions with a contribution of Common Stock by the Company. See
"Management--Associate 401(k) and Stock Ownership Plan."

SCOTTSDALE INSTITUTE. The Company's Scottsdale Institute is a membership
organization composed of more than 30 healthcare organizations across the United
States, typically represented by their Chief Executive Officers, Chief Operating
Officers or Chief Information Officers. Membership is by invitation only. The
Scottsdale Institute provides its members with a cost-sharing vehicle for
information exchange, problem-solving and learning related to improving
operations effectiveness through information management. The Emerging Practices
Group performs guided research projects in collaboration with three to five of
the Scottsdale Institute's member organizations that share common
characteristics and information management needs. The Emerging Practices Group
delivers research reports and tools to member organizations in areas such as
management techniques, organizational models, benchmarking and best practices,
methodologies, plans, and vendor information. This research enables the Company
to develop practical, applied solutions to problems of leading healthcare
organizations and to anticipate service needs of the broader market.

KNOWLEDGE AND INFORMATION TECHNOLOGY EXCHANGE. The Company's personnel have
access to the Company's internal research and to current industry and technology
information and project methodologies, experiences, models and tools through
KITE. KITE currently houses over 5,000 documents that include industry
information, service methodologies and tools, benchmarks and best practice
information and other documentation to support the Company's services and
consultants. KITE is updated on a continuous basis with information resulting
from each engagement, by the Emerging Practices Group, and by the Practice
Guilds. The Company believes that this resource allows its consultants to
utilize engagement-specific information which improves the quality and content
of services delivered to clients while reducing cost of delivery.

PRACTICE GUILDS. The Company has created an internal Practice Guild
structure for purposes of information exchange, retention, and continuous
employee education. The Company has the following Practice Guilds:

30
<PAGE>
Clinical Informatics, Operations Effectiveness, Health Plans, Healthcare
Delivery, and Administrative Support. Each consultant in the Company is a member
of one or more Practice Guilds. The Practice Guilds share information concerning
best practices, tools, methodologies, and latest developments in area of
expertise. This information sharing is accomplished by a combination of periodic
meetings, e-mail, bulletin boards, teleconference, voicemail, and through KITE.
The Practice Guilds also provide an interest group for professionals to share
experiences and foster better working relationships and teamwork, which in turn
support client service and productivity.

CLIENTS

In 1997, the Company provided services to over 360 clients consisting of
providers, payors and other healthcare organizations in North America and
Europe. The Company's clients include leading IDNs, health plans, acute care
centers, academic medical centers and other organizations. A representative
listing of the Company's clients which, in the aggregate, accounted for 43% of
the Company's revenues in 1997, is provided below:
<TABLE>
<CAPTION>
ACUTE CARE CENTERS, PHYSICIAN
INTEGRATED DELIVERY NETWORKS ORGANIZATIONS AND CLINICS
- --------------------------------------- -------------------------------------------
Allina Health System Carle Clinic
<S> <C>
Atlantic Health System Children's Hospital (Boston)
Baylor Health Care System Children's Hospital (Columbus)
Catholic Healthcare West Lahey Hitchcock Clinic
Erlanger Health System MedPartners, Inc.
Henry Ford Health System Mount Sinai Medical Center (New York)
Inova Health Systems Northwest Hospital (Seattle)
Partner's Health Care System PhyCor/Straub Clinic and Hospital
Sentara Health Care System Rehabilitation Institute (Chicago)
Unity Health System St. Luke's Episcopal Hospital (Houston)

HEALTH PLANS ACADEMIC MEDICAL CENTERS
- --------------------------------------- -------------------------------------------
<S> <C>
Aetna Health Plans Loyola University Medical Center
Blue Cross Blue Shield (Michigan) Northwestern Memorial Hospital
Blue Cross Blue Shield (Tennessee) UCSF/Stanford Health Care
Great West Life University of Alabama Medical Center
Health Partners (Alabama) University of Massachusetts Medical Center
Humana HealthPlan University of Miami School of Medicine
Kaiser Permanente University of Missouri Hospitals and Clinic
Mercy Health System (Michigan) University of Pennsylvania Medical Center
University of Texas M.D. Anderson Cancer
PacifiCare Health Systems Center
Rocky Mountain Healthcare Corporation University Medical Center, Tucson
Sloans Lake Managed Care Vanderbilt University Medical Center
</TABLE>

On December 31, 1996, the Company entered into a collaborative agreement for
a period of three years with Premier, Inc. ("Premier"), a leading healthcare
industry association of approximately 2,000 hospitals and healthcare delivery
organizations. Under the agreement, the Company and Premier agree to collaborate
in marketing information management consulting services to Premier member
organizations. Premier members constitute approximately 33% of the nation's
non-federal government owned hospitals. The firm also has an exclusive agreement
with Voluntary Hospitals of America, Inc. ("VHA"), an association of
approximately 1,500 hospitals and healthcare delivery organizations. Under the
agreement, which terminates in May, 1998, the Company acts as the exclusive
consulting delivery arm for information management consulting services sold by

31
<PAGE>
VHA to its member organizations. These agreements provide the Company with
potential assignments, particularly with small and mid-sized healthcare provider
organizations.

SALES AND MARKETING

The Company generates a substantial portion of its revenue from existing
clients and client referrals and markets its services primarily through its vice
presidents. The Company's vice presidents develop strong relationships with
senior-level information management and other decision-making personnel at
leading healthcare organizations, and are therefore positioned to market
additional strategic and information technology consulting services to the
Company's existing clients. The Company maintains these relationships by
successfully completing assignments and meeting clients' expectations. In
particular, the Company believes that by successfully completing strategic plans
for new and existing clients, its vice presidents will have significant
opportunities to offer implementation and integration services to these clients.
The Company has demonstrated that this strategy leads to expanded opportunities
with its clients and referrals to new clients. In providing its services, the
Company attains an in-depth understanding of its client's processes and internal
information technology and business strategies. Through this understanding, the
Company plans to provide operations effectiveness services to a greater portion
of its client base. Operations effectiveness services involve assessing,
designing and improving financial, administrative and clinical process. The
Company's vice presidents and practice directors allocate a significant portion
of their time to business development and related activities. The Company also
employs six specialists who are responsible for new business development with
targeted clients.

The Company is frequently engaged to provide multiple services throughout
several phases of a client's information technology system lifecycle, including
planning, procurement and contracting, implementation, integration and
management. As a result of this involvement, the Company's personnel often
develop an in-depth understanding of the client's systems and capabilities and
develop strong relationships with personnel within the client organization.
These relationships provide the Company with significant opportunities to
undertake additional assignments for each client.

In addition to generating assignments from existing clients, the Company
attracts new clients through its targeted marketing activities. The Company's
marketing activities include public speaking, publishing, press releases and
trade show participation. The Company also maintains research reports and "white
papers" on its web site, along with other Company and industry information. The
Company's marketing staff produces a number of sales support tools including
presentations, article reprints, descriptions of the Company's services and case
studies.

INTERNATIONAL OPERATIONS

The Company has provided its consulting, implementation and integration
services to clients in Canada, Germany, Ireland, Mexico and the United Kingdom,
and maintains offices in Dublin, Ireland and London and Macclesfield, United
Kingdom. On January 13, 1998, the Company completed the acquisition of a small
healthcare consulting firm in the United Kingdom. The Company believes that
select international acquisitions will enhance its ability to effectively serve
clients in targeted international markets.

The Company intends to expand its international consulting services, which
will require a significant amount of management's attention and the Company's
human and financial resources. The Company may establish additional
international operations and hire additional personnel. There can be no
assurance that the Company will be able to successfully recruit and retain the
necessary number of highly skilled consultants in each country in which it
intends to conduct its operations. Any inability to recruit and retain such
employees could impair the Company's ability to expand internationally and may
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, there can be no assurance that the
Company will be able to establish international market demand for its services.
The Company's international business may be subject to a variety of risks,
including the difficulty of tailoring its services to individual

32
<PAGE>
countries' healthcare market needs, currency fluctuations, potentially longer
payment cycles, potential difficulties in collecting international accounts
receivable, the enforcement of contractual obligations and intellectual property
rights, potentially adverse tax consequences, increased costs associated with
maintaining international marketing efforts, costs of localizing services in
international markets, adverse changes in regulatory requirements and possible
economic downturns outside of the United States. There can be no assurance that
such factors will not have a material adverse effect on the Company's future
international operations and, consequently, on its business, financial condition
and results of operations.

COMPETITION

The market for healthcare information technology consulting is intensely
competitive, rapidly evolving and highly fragmented. The Company has competitors
that provide some or all of the services provided by the Company. The Company
competes for strategic consulting services and co-management services with
international consulting firms, regional and specialty consulting firms and the
consulting groups of international accounting firms such as KPMG Peat Marwick
LLP, Ernst & Young LLP, Deloitte & Touche LLP, Coopers & Lybrand L.L.P. and
Andersen Consulting. In its implementation and integration services, the Company
competes with information system vendors such as HBO & Company, Inc., Shared
Medical Systems Corporation and Integrated Systems Solution Corporation, a
division of International Business Machines Corporation; service groups of
computer equipment companies; systems integration companies such as Electronic
Data Systems Corporation, Perot Systems Corporation, CAP Gemini America, Inc.
and Computer Sciences Corporation; clients' internal information management
departments; and other healthcare consulting firms such as DAOU Systems, Inc.,
Superior Consultant Holdings Corporation and Diamond Technology Partners
Incorporated. Many of the Company's competitors have significantly greater
financial, human and marketing resources than the Company. As a result, such
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer demands, or to devote greater resources to the
development, promotion, sale and support of their products and services than the
Company. In addition, as healthcare organizations become larger and more
complex, the Company's larger competitors may be better able to serve the needs
of such organizations. There can be no assurance that the Company will be able
to attract and retain the personnel or to dedicate the financial resources
necessary to serve these resulting organizations.

The Company believes that it competes primarily on the basis of the quality
of its services; however, its clients may become increasingly price-sensitive as
competitive pricing pressures increase. Large information technology companies
have, in the past, offered strategic planning services at a substantial discount
as an incentive to utilize their implementation services, and software and
hardware vendors may provide discounted implementation services for their
products. These competitors may in the future discount such services more
frequently or offer such services at no charge. There can be no assurance that
the Company will be able to compete for price-sensitive clients on the basis of
its current pricing or cost structure, or that the Company will be able to lower
its prices or costs in order to compete effectively. Furthermore, many of the
Company's competitors have long-standing business relationships with key
personnel at healthcare organizations which could prevent or delay the Company
from expanding its client base. While the Company believes that it has been able
to compete successfully on the basis of the quality and range of its services
and the accumulated expertise of its consultants, there can be no assurance that
the Company will be able to compete effectively with current and future
competitors or that competitive pressures faced by the Company will not cause
the Company's revenue or operating margins to decline or otherwise materially
adversely affect its business, financial condition and results of operations.

LIMITED PROTECTION OF PROPRIETARY INFORMATION AND PROCEDURES

The Company's ability to compete effectively depends on its ability to
protect its proprietary information, including its proprietary methodologies,
research, tools, software code and other information. The Company relies
primarily on a combination of copyright and trade secret laws and
confidentiality procedures to protect its intellectual property rights. The
Company requests that its consultants and employees sign confidentiality

33
<PAGE>
agreements and generally limits access to and distribution of its research,
methodologies and software codes. There can be no assurance that the steps taken
by the Company to protect its proprietary information will be adequate to
prevent its misappropriation. In addition, the laws of certain countries do not
protect or enforce proprietary rights to the same extent as do the laws of the
United States. The unauthorized use of the Company's intellectual property could
have a material adverse effect on the Company's business, financial condition or
results of operations. The Company believes that its systems and procedures and
other proprietary rights do not infringe upon the proprietary rights of third
parties. There can be no assurance, that third parties will not assert
infringement claims against the Company in the future or that any such claims
will not result in protracted and costly litigation, regardless of the merits of
such claims.

EMPLOYEES

As of December 31, 1997, the Company had 591 employees, 49 of whom were vice
presidents. The Company's vice presidents are stockholders of the Company and
are responsible for new business development, client relationships, company
leadership, service delivery and the long-term strategy of the Company. The
Company believes that its relationship with its employees is good.

FACILITIES

The Company's headquarters is located in approximately 24,000 square feet of
leased office space in Long Beach, California. The Company also leases an
aggregate of approximately 83,000 square feet of office space in the following
cities: Oakland, California; Morristown, New Jersey; Bethesda and Baltimore,
Maryland; New York City, New York; Tampa, Florida; Detroit and Okemos, Michigan;
Houston and Dallas, Texas; Boston, Massachusetts; Pittsburgh, Pennsylvania;
Chicago, Illinois; Atlanta, Georgia; Seattle, Washington; Denver, Colorado;
Dublin, Ireland; and London and Macclesfield, United Kingdom. The Company
believes these facilities are adequate to meet its needs for the next twelve
months.

LEGAL PROCEEDINGS

From time to time, the Company may be involved in claims or litigation that
arise in the normal course of business. As of the date of this Prospectus, the
Company is not a party to any legal proceedings which, if decided adversely to
the Company, would have a material adverse effect on the Company's business,
financial condition or results of operations.

34
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company and their ages as of
December 31, 1997, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- --------------------------------------------------------------------------
<S> <C> <C>
James A. Reep....................... 46 Chairman of the Board, Chief Executive Officer and President
Steven Heck......................... 50 Executive Vice President, Practice and Director
Luther J. Nussbaum.................. 50 Executive Vice President, Worldwide Practice Support and Director
Thomas A. Reep...................... 42 Vice President, Finance and Chief Financial Officer
Richard N. Kramer................... 44 Vice President and Managing Director, East Region
Roy A. Ziegler...................... 35 Vice President and Managing Director, West Region
Don M. Tompkins..................... 54 Vice President and Managing Director, Implementation Services
Michael R. Gorsage.................. 46 Vice President and Managing Director, Network Integration Services
Frank I. Mueller.................... 49 Vice President and Managing Director, International
Erica L. Drazen..................... 51 Vice President and Managing Director, Emerging Practices
Roy W. Walters...................... 51 Vice President and Managing Director, Quality Improvement
Paula K. Cowan...................... 55 Vice President, Human Resources
Stanley R. Nelson (1)(2)............ 71 Director
Steven Lazarus (1).................. 66 Director
Stephen E. Olson (1)(2)............. 56 Director
Scott S. Parker..................... 62 Director
Jack O. Vance (2)................... 73 Director
</TABLE>

- ------------------------

(1) Member of Audit Committee

(2) Member of Compensation Committee

JAMES A. REEP co-founded the Company in 1980 and has served as Chairman of
the Board since December 1987 and Chief Executive Officer and President since
March 1991. Mr. Reep is a member of the Board of Directors of New Era of
Networks, Inc., which develops packaged solutions for application integration.
Mr. Reep also serves as a director of First Consulting Group (UK) Ltd., First
Consulting Group (Ireland) Ltd., and the Scottsdale Institute, subsidiaries of
the Company, and several non-profit organizations. From 1977 to 1980, Mr. Reep
was a consultant at Arthur Andersen. Mr. Reep is the brother of Thomas A. Reep,
Chief Financial Officer of the Company. Mr. Reep received a B.A. from California
State University, Long Beach and an M.B.A. from the University of Chicago.

STEVEN HECK has served the Company as Executive Vice President, Practice
since April 1995 and as a director since April 1997. Mr. Heck served as Vice
President, Practice from April 1991 to March 1995. From 1990 to 1991, Mr. Heck
served as Chief Information Officer of Evangelical Health Systems. Mr. Heck
served the Company as Vice President, Midwest Region from May 1987 to December
1989. Prior to joining the Company, Mr. Heck was the Managing Partner of the
Great Lakes Health Care Practice at Price Waterhouse LLP from 1985 to 1987.

LUTHER J. NUSSBAUM has served the Company as Executive Vice President,
Worldwide Practice Support since April 1995 and has been a director since
November 1997. Prior to joining the Company Mr. Nussbaum was the President of
Nussbaum & Associates, a strategic and information consulting firm, from 1993 to
1995. From 1989 to 1993, Mr. Nussbaum served as President and Chief Executive
Officer of Evernet Systems, Inc., a national network systems integration
company. From 1986 to 1989, Mr. Nussbaum was the President and Chief Operating
Officer of Ashton-Tate Corp., a microcomputer software development company. Mr.
Nussbaum serves as a director of First Consulting Group (UK) Ltd. and First
Consulting Group (Ireland) Ltd., subsidiaries of the Company, and four private
entrepreneurial companies. Mr. Nussbaum received a B.A. from Rhodes College and
an M.B.A. from Stanford University.

35
<PAGE>
THOMAS A. REEP has served the Company as Vice President, Finance and Chief
Financial Officer since May 1980. Prior to joining the Company, Mr. Reep was an
accountant with Ernst & Young from 1977 to 1980. Mr. Reep is a certified public
accountant in the State of California. Mr. Reep serves as a director of a
non-profit organization. Mr. Reep is the brother of James A. Reep, Chairman,
Chief Executive Officer and President of the Company. Mr. Reep received a B.S.
and an M.B.A. from California State University, Long Beach.

RICHARD N. KRAMER has served the Company as Vice President and Managing
Director, East Region since July 1995. Mr. Kramer served as Vice President, East
Region from January 1995 to June 1995. Prior to joining the Company, Mr. Kramer
was the National Partner for the Healthcare Information Technology Practice at
KPMG Peat Marwick LLP from 1994 to 1995 and served in other capacities from 1983
to 1993. Mr. Kramer received a B.A. from The Johns Hopkins University and an
M.B.A. from Columbia University Graduate School of Business.

ROY A. ZIEGLER has served the Company as Vice President and Managing
Director, West Region since January 1996. Mr. Ziegler served as Vice President
of Managed Care from November 1993 to December 1995. Prior to joining the
Company, Mr. Ziegler was the Practice Director of the Health Management
Initiative in the Pacific Region at Andersen Consulting from 1992 to 1993 and
served in other capacities from 1984 to 1991. Mr. Ziegler received a B.S. from
Pepperdine University.

DON M. TOMPKINS has served the Company as Vice President and Managing
Director, Implementation Services since January 1994. Mr. Tompkins served as
Vice President from April 1993 to December 1996. Prior to joining the Company,
Mr. Tompkins was a General Manager of Network Computing Tools for Texas
Instruments Incorporated from 1990 to 1996. Mr. Tompkins received a B.S. from
Chaminade University of Honolulu.

MICHAEL R. GORSAGE has served the Company as a Vice President and Managing
Director, Network Integration Services since May 1991. Prior to joining the
Company, Mr. Gorsage was the National Director of Communications Technologies
Consulting Services at Price Waterhouse LLP from 1989 to 1991 and served in
other capacities from 1984 to 1987. Mr. Gorsage received a B.S. from Northeast
Louisiana University and an M.B.A. from the University of Tampa.

FRANK I. MUELLER has served the Company as Vice President and Managing
Director, International since January 1997. Mr. Mueller served as Vice President
from January 1988 to December 1996 and joined the Company as a Practice Director
in November 1986. Prior to joining the Company, Mr. Mueller was the President of
Health Serv, a clinical decision support systems company, from 1981 to 1985. Mr.
Mueller received a B.A. from the University of Southern California and an M.A.
from California State University, Long Beach.

ERICA L. DRAZEN has served the Company as Vice President and Managing
Director, Emerging Practices since September 1995, and served as a director from
April 1997 to December 1997. Prior to joining the Company, Ms. Drazen was the
Vice President and Director of the Healthcare Information Systems Practice at
Arthur D. Little, Inc. from 1990 to 1995 and served in other capacities from
1969 to 1989. Ms. Drazen received a B.S. from Tufts University, an M.S. from
Massachusetts Institute of Technology and an Sc.D. from the Harvard School of
Public Health.

ROY W. WALTERS has served the Company as Vice President and Managing
Director, Quality Improvement since June 1996 and served as a director from
April 1997 to December 1997. Mr. Walters served as Vice President from March
1992 to May 1996. Prior to joining the Company, Mr. Walters was a consultant in
the Healthcare Group at Andersen Consulting from 1975 to February 1992. Mr.
Walters received a B.A. from Cornell University and an M.H.A. from Duke
University.

PAULA K. COWAN has served the Company as Vice President, Human Resources
since March 1996. Prior to joining the Company, Ms. Cowan was a consultant for
Meek and Associates, a strategic compensation and performance management
consulting firm, from 1992 to 1996 and served as Vice President of Human
Resources for Ashton-Tate Corp. from 1986 to 1992. Ms. Cowan received a B.A. and
an M.A. from California State University, Long Beach.

36
<PAGE>
STANLEY R. NELSON has served the Company as a director since April 1997.
From 1993 to August 1997, Mr. Nelson was the President of the Center for
Clinical Integration, Inc., the predecessor of the Scottsdale Institute, a
subsidiary of the Company. Since 1988, Mr. Nelson has been an independent
healthcare consultant to various organizations. Prior to 1988, Mr. Nelson served
as the President and Chief Executive Officer of the Henry Ford Healthcare Corp.
in Detroit, Michigan and, prior to that, the Abbott-Northwestern Hospital in
Minneapolis, Minnesota. Mr. Nelson currently serves as a director of the
Scottsdale Institute, a subsidiary of the Company. Mr. Nelson received a B.S.
and an M.H.A. from the University of Minnesota.

STEVEN LAZARUS has served the Company as a director since April 1997. Since
1986, Mr. Lazarus has served as a senior principal of various venture capital
funds associated with ARCH Venture, including President and Chief Executive
Officer of ARCH Development Corporation and Managing Director of ARCH Venture
Partners. From 1986 to 1994, Mr. Lazarus served as the Associate Dean of the
Graduate School of Business of the University of Chicago. He currently serves as
a director of Amgen Inc., a biotechnology company, Primark Corporation, an
information services company, Illinois Superconductor Corporation, which
develops radio frequency equipment for the wireless communication industry, and
New Era of Networks, Inc., which develops packaged solutions for application
integration. Mr. Lazarus received a B.A. from Dartmouth College and an M.B.A.
from the Harvard University Graduate School of Business.

STEPHEN E. OLSON has served the Company as a director since April 1997.
Since 1988, Mr. Olson has served as Chairman of the Board of The Olson Company,
a developer of landmark residential communities within urban environments. Since
1992, Mr. Olson has also served as Chairman of the Board of Flowline, Inc., a
high-technology company specializing in intelligent sensors and controls. Mr.
Olson serves as a director of several private companies. Mr. Olson received a
B.A. from the University of Redlands and an M.B.A. from Pepperdine University.

SCOTT S. PARKER has served the Company as a director since November 1997. He
has served as the President and Chief Executive Officer of Intermountain Health
Care since 1975. Mr. Parker serves as a director of First Security Corporation
MMI Companies, Inc., a community and commercial bank, and Questar Corporation, a
natural gas and energy services holding company. Mr. Parker received a B.A. from
the University of Utah and an M.H.A. from the University of Minnesota.

JACK O. VANCE has served the Company as a director since April 1997. Mr.
Vance is the Managing Director of Management Research, Inc., a management
consulting firm. From 1973 to 1989, Mr. Vance was the Managing Partner of the
Los Angeles office of McKinsey & Company and served on the Executive Committee
of the firm's Board of Directors from 1962 to 1989. Mr. Vance serves as a
director of International Rectifier Corporation, a supplier of power
semiconductor components, Semtech Corporation, a manufacturer of analog
semiconductor products, and several private companies. Mr. Vance received a B.S.
from the University of Louisville and an M.B.A. from the Wharton School of the
University of Pennsylvania.

BOARD COMPOSITION

The Company currently has authorized 8 directors. In accordance with the
terms of the Company's Certificate of Incorporation, the terms of office of the
Board of Directors will be divided into three classes: Class I, whose term will
expire at the annual meeting of stockholders to be held in 1999; Class II, whose
term will expire at the annual meeting of stockholders to be held in 2000; and
Class III, whose term will expire at the annual meeting of stockholders to be
held in 2001. The Class I directors are Stephen Olson and Steven Heck, the Class
II directors are Stanley R. Nelson, Luther J. Nussbaum and Jack O. Vance and the
Class III directors are Scott S. Parker, Steven Lazarus and James A. Reep. At
each annual meeting of stockholders after the initial classification, the
successors to directors whose term will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following election. In addition, the Company's Certificate of Incorporation
provides that the authorized number of directors may be changed only by
resolution of the Board of Directors. Any additional directorships resulting
from an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of one-third of
the

37
<PAGE>
directors. This classification of the Board of Directors may have the effect of
delaying or preventing changes in control or management of the Company. Although
directors of the Company may be removed for cause by the affirmative vote of the
holders of a majority of the Common Stock, the Company's Certificate of
Incorporation provides that holders of two-thirds of the Common Stock must vote
to approve the removal of a director without cause.

BOARD COMMITTEES

The Audit Committee of the Board of Directors reviews the internal
accounting procedures of the Company and consults with, and reviews the services
provided by, the Company's independent auditors. The Compensation Committee of
the Board of Directors reviews and recommends to the Board of Directors the
compensation and benefits of all officers of the Company and reviews general
policy relating to compensation and benefits of employees of the Company. The
Compensation Committee also administers the issuance of stock options and other
awards under the Company's stock plans.

DIRECTOR COMPENSATION

The Company currently provides annual cash compensation in the amount of
$10,000 to directors for services in such capacity. Directors are also
reimbursed for certain expenses in connection with attendance at Board of
Directors and committee meetings. Directors receive automatic grants of
nonstatutory stock options under the 1997 Non-Employee Directors' Stock Option
Plan and are eligible for grants of nonstatutory stock options under the 1997
Equity Incentive Plan. Currently, each non-employee director is required to
purchase and hold shares with an aggregate fair market value equal to the annual
fees paid to the directors under the Non-Employee Director Restricted Stock
Plan. See "--1997 Equity Incentive Plan," "--1997 Non-Employee Directors' Stock
Option Plan," and "--Non-Employee Director Restricted Stock Plan and
Agreements."

EXECUTIVE COMPENSATION

The following table sets forth certain information for the year ended
December 31, 1997, regarding the compensation of the Company's Chief Executive
Officer and each of the four most highly compensated executive officers of the
Company whose salary and bonus for such year were in excess of $100,000 on an
annualized basis (the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
---------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- --------------------------------------------------------------------------- ---------- ---------- -------------
<S> <C> <C> <C>
James A. Reep
Chief Executive Officer and President.................................... $ 370,000 $ 120,435 $ 47,634(2)(3)
Steven Heck
Executive Vice President, Practice....................................... 335,000 109,043 171,425(3)(4)
Luther J. Nussbaum
Executive Vice President, Worldwide Practice Support..................... 315,000 127,533 49,009(3)
Don M. Tompkins
Vice President and Managing Director, Implementation Services............ 315,000 110,250 57,328(3)
Richard W. Kramer
Vice President and Managing Director, East Region........................ 315,000 99,225 44,560(3)
Roy A. Ziegler
Vice President and Managing Director, West Region........................ 315,000 99,725 51,111(3)
</TABLE>

- ------------------------

(1) In accordance with Securities and Exchange Commission (the "Commission")
rules, other annual compensation in the form of perquisites and other
personal benefits has been omitted where the aggregate amount

38
<PAGE>
of such perquisites and other personal benefits constitutes less than the
lesser of $50,000 or 10% of the total annual salary and bonus for the Named
Executive Officer for the fiscal year.

(2) Reflects a premium of $28,674 paid by the Company for a life insurance
policy of which Mr. Reep is the beneficiary.

(3) Includes imputed interest on interest-free loans by the Company to each of
the Named Executive Officers (except Mr. Reep) for the purchase of shares of
Common Stock under the 1994 Restricted Stock Plan, as amended; supplemental
executive retirement plan contributions made on behalf of each of the Named
Executive Officers (except Mr. Reep); and an allocation of 1,000 shares to
each of the Named Executive Officers' accounts under the ASOP at an
aggregate valuation of $7,443 per Named Executive Officer. Also includes the
Company's 50% matching contribution of Common Stock under the ASOP for the
account of Messrs. Reep, Heck, Nussbaum, Tompkins, Kramer and Ziegler with
an estimated valuation of $11,517, $11,347, $11,517, $10,620, $11,202 and
$11,517, respectively. See "Certain Transactions," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and
"Management--Associate 401(k) and Stock Ownership Plan" and "--Supplemental
Executive Retirement Plan.".

(4) Includes $90,700 in relocation expenses paid by the Company.

OPTION GRANTS IN LAST FISCAL YEAR

There were no stock options granted to Named Executive Officers for the year
ended December 31, 1997.

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR

The following table sets forth for each of the Named Executive Officers the
shares acquired and the value realized on each exercise of stock options during
the fiscal year ended December 31, 1997. No Named Executive Officer held options
at December 31, 1997.

<TABLE>
<CAPTION>
SHARES
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED ($) (1)
- ------------------------------------------------------------------------------------- ----------- --------------
<S> <C> <C>
James A. Reep........................................................................ -- --
Steven Heck.......................................................................... 47,272 493,047
Luther J. Nussbaum................................................................... -- --
Don M. Tompkins...................................................................... -- --
Richard N. Kramer.................................................................... 123,920 1,292,486
Roy A. Ziegler....................................................................... -- --
</TABLE>

- ------------------------

(1) Value realized is based on an assumed initial public offering price of
$11.00 per share of Common Stock, although at the time of grant the fair
market value of the Common Stock was determined by the Board of Directors to
be $4.76 per share. Amounts reflected are based on the assumed value minus
the exercise price multiplied by the number of shares acquired on exercise
and do not indicate that the optionee sold such stock.

1997 EQUITY INCENTIVE PLAN

The Company's 1997 Equity Incentive Plan (the "Incentive Plan") was adopted
by the Board of Directors on August 22, 1997, and was approved by the Company's
stockholders on January 15, 1998. There are currently 1,600,000 shares of Common
Stock authorized for issuance under the Incentive Plan. The Incentive Plan
provides for the grant of incentive stock options to employees (including
officers and employee-directors) and nonstatutory stock options, restricted
stock purchase awards, stock appreciation rights and stock bonuses ("stock
awards") to employees, directors and consultants. Incentive stock options
granted under the Incentive Plan are intended to qualify as "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"). Nonstatutory stock options granted under the Incentive
Plan are intended

39
<PAGE>
not to qualify as incentive stock options under the Code. The Incentive Plan is
administered by the Board of Directors or a committee appointed by the Board
which determines recipients and types of stock awards to be granted, including
the exercise price, number of shares subject to the stock award and the
exercisability thereof.

The term of the stock options granted under the Incentive Plan generally may
not exceed 10 years. The exercise price of options granted under the Incentive
Plan is determined by the Board of Directors, provided that the exercise price
for an incentive stock option cannot be less than 100% of the fair market value
of the Common Stock on the date of the option grant, and the exercise price for
a nonstatutory stock option cannot be less than 85% of the fair market value of
the Common Stock on the date of the option grant. Options granted under the
Incentive Plan vest at a rate of 20% on the first anniversary of the option
grant and 1/60th every month thereafter. No stock option may be transferred by
the optionee other than by will or the laws of descent or distribution, provided
that a nonstatutory stock option granted after the Company becomes publicly
traded may be transferable if so provided in the option agreement, and provided
further that an optionee may designate a beneficiary who may exercise the option
following the optionee's death. Generally, an optionee whose employment or other
service relationship with the Company and its affiliates terminates for any
reason (other than by death or permanent and total disability) may exercise his
or her option in the three-month period following such termination (unless such
option expires sooner by its terms). Options generally may be exercised for up
to 18 months or 12 months after an optionee's employment or other service
relationship with the Company and its affiliates terminates due to death or
disability, respectively (unless such options expire sooner by their terms).

No incentive stock option may be granted to any person who, at the time of
the grant, owns (or is deemed to own) stock representing more than 10% of the
total combined voting power of all classes of stock of the Company or any of the
affiliates of the Company, unless the option exercise price is at least 110% of
the fair market value of the stock subject to the option on the date of grant,
and the term of the option does not exceed five years from the date of grant.
The aggregate fair market value, determined at the time of grant, of the shares
of Common Stock with respect to which incentive stock options are exercisable
for the first time by an optionee during any calendar year (under all such plans
of the Company and its affiliates) may not exceed $100,000. The options, or
portions thereof, which exceed this limit are treated as nonstatutory stock
options. Shares subject to stock awards that have expired or otherwise
terminated without having been exercised in full (or vested in the case of
restricted stock awards) shall again become available for the grant of awards
under the Incentive Plan. The Board of Directors has the authority to reprice
outstanding options and to offer optionees the opportunity to replace
outstanding options with new options for the same or a different number of
shares.

Stock awards granted under the Incentive Plan may be granted pursuant to a
repurchase option in favor of the Company in accordance with a vesting schedule
and at a price determined by the Board of Directors. Restricted stock purchases
must be at a price equal to at least 85% of the stock's fair market value on the
award date, but stock bonuses may be awarded in consideration of past services
without a purchase payment. Rights under a stock bonus or restricted stock bonus
agreement are transferable only upon the terms and conditions set forth in the
stock award agreement and the stock awarded pursuant to such an agreement
remains subject to the agreement.

Upon a Change in Control of the Company (as defined below), the surviving or
acquiring corporation may assume outstanding stock awards under the Incentive
Plan or substitute similar stock awards. If it does so, but the holder's service
is either voluntarily terminated with good reason or is involuntarily terminated
without cause (as defined in the Incentive Plan) within one month before, or 13
months after, the Change in Control, both the vesting and the exercisability of
the holder's stock award will accelerate. If the surviving or acquiring
corporation refuses to assume or to substitute for outstanding stock awards,
then (1) both the vesting and exercisability of stock awards held by persons
still serving the Company or an affiliate (whether as an employee, director or
consultant) will accelerate before a Change in Control, and (2) all stock awards
will terminate if not exercised after such acceleration but before a Change in
Control in which there is a surviving or acquiring corporation. "Change in
Control" means a dissolution, liquidation, or sale of all or substantially all
of the Company's assets, a merger or consolidation in which the Company is not
the surviving corporation, a reverse merger in which the Company is the
surviving corporation but the shares of Common Stock outstanding

40
<PAGE>
immediately before the merger are converted by virtue of the merger into other
property, or the date that at least 50% of the Board is not composed of the
incumbent Board on August 22, 1997, as well as directors whose election or
nomination was approved by a vote of at least 50% of that incumbent Board.

As of December 31, 1997, no shares of Common Stock had been issued upon the
exercise of options granted under the Incentive Plan, options to purchase
945,400 shares of Common Stock at a weighted average exercise price of $5.55
were outstanding and 654,600 shares remained available for future grant. The
Incentive Plan will terminate on August 21, 2007 unless terminated earlier by
the Board of Directors. As of December 31, 1997, no stock bonuses or restricted
stock awards have been granted under the Incentive Plan.

1997 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

The Board of Directors adopted the 1997 Non-Employee Directors' Stock Option
Plan (the "Director Option Plan") on August 22, 1997, and the stockholders
approved the Director Option Plan on January 15, 1998. The Director Option Plan
provides for the automatic grant to non-employee directors of the Company of
options to purchase shares of Common Stock. The Director Option Plan is
administered by the Board, unless the Board delegates administration to a
committee. An aggregate of 200,000 shares of Common Stock has been reserved for
issuance under the Director Option Plan, subject to adjustment in the event of
certain capital changes.

On August 22, 1997, each non-employee director was automatically granted an
option for 20,000 shares, 1/5 of which will vest on August 21, 1998 and 1/60 of
which will vest each month thereafter. Each person who is first elected as a
non-employee director after August 22, 1997 will automatically receive an option
for 4,000 shares, which will vest at the rate of 1/12 each month. In addition,
on January 1, 1998 and each January 1 thereafter, each non-employee director
will automatically receive an option for 4,000 shares, which will also vest at
the rate of 1/12 each month. If the non-employee director continues to serve the
Company or an affiliate, whether in the capacity of a director, an employee or a
consultant, the option will continue to vest and be exercisable. If the
optionee's service is either voluntarily terminated with good reason or is
involuntarily terminated without cause (as defined in the Director Option Plan)
upon a Change in Control (as defined below), both the vesting and exercisability
of the options will accelerate.

The option is not transferable except by will, by the laws of descent and
distribution, pursuant to a domestic relations order or to the spouse, children,
lineal ancestors and lineal descendants of the optionee (or to a trust or
limited liability company or partnership created solely for the benefit of the
optionee and the foregoing persons). Although the option is exercisable during
the lifetime of the optionee only by the optionee or a permitted transferee, the
optionee may designate a third party who, in the event of the death of the
optionee, will be entitled to exercise the option. Options granted under the
Director Option Plan expire 10 years after the date of grant and have an
exercise price equal to 100% of the fair market value of the Common Stock on the
date of grant. If the optionee's service to the Company or an affiliate
terminates, vesting will stop but the optionee may exercise the option (to the
extent it remains exercisable) for 18 months if termination is due to death, or
for 12 months in all other circumstances.

Upon a Change in Control of the Company, the surviving or acquiring
corporation may assume outstanding options under the Director Option Plan or
substitute similar options. If it does so but the optionee's service is either
voluntarily terminated with good reason or is involuntarily terminated without
cause (as defined in the Director Option Plan) within one month before, or 13
months after, the Change in Control, both the vesting and the exercisability of
the optionee's option will accelerate. If the surviving or acquiring corporation
refuses to assume or to substitute for outstanding options, then (1) both the
vesting and exercisability of options held by optionees still serving the
Company or an affiliate will accelerate, and (2) all options will terminate if
not exercised after such acceleration but before the Change in Control where
there is a surviving or acquiring corporation.

As of December 31, 1997, no shares of Common Stock had been issued upon the
exercise of options granted under the Director Option Plan, options to purchase
84,000 shares of Common Stock at a weighted average exercise price of $4.89 per
share were outstanding and 116,000 shares remained available for future grant.
The Director Option Plan will terminate on August 21, 2007 unless terminated
earlier by the Board of Directors.

41
<PAGE>
1994 RESTRICTED STOCK PLAN AND AGREEMENTS

On December 15, 1997 the Board of Directors adopted an amendment to the 1994
Restricted Stock Plan (as amended, the "1994 Plan") and form of Restricted Stock
Agreement ("RSA"). The stockholders approved the 1994 Plan and RSAs on January
15, 1998. The 1994 Plan provides a mechanism for the purchase and sale of Common
Stock by its vice presidents. The 1994 Plan is administered by the Company's
Board of Directors or a committee appointed by the Board.

Under the 1994 Plan, the Company has entered into RSAs with each of its vice
presidents. The 1994 Plan and RSAs provide that each person, upon becoming a
vice president of the Company, must purchase and hold a specific minimum number
of shares of Common Stock. Vice presidents at Levels I and II are required to
purchase and hold that number of shares equal to one times the vice president's
base salary divided by the then-current fair market value of the Common Stock.
Vice presidents at Levels III and IV are required to purchase and hold that
number of shares equal to two times the vice president's base salary divided by
the then-current fair market value of the Common Stock. Prior to the completion
of this offering, the fair market value of the Common Stock is determined by
reference to a report prepared for the Company by an independent valuation firm.
After the consummation of this offering, the fair market value of the Common
Stock will be determined by reference to the closing selling price of the Common
Stock on the Nasdaq National Market.

Shares purchased under the RSAs are subject to a 10-year vesting period
beginning the date upon which an individual becomes a vice president and
continuing upon the completion of each year of service for such vice president.
Automatic acceleration of such vesting occurs upon death or permanent disability
of a vice president and upon certain changes in ownership of the Company.
Partial acceleration of vesting may also occur upon the vice president attaining
the age of 59. Shares purchased after consummation of this offering are fully
vested upon purchase.

Under the terms of the RSAs, the Company retains a repurchase right with
respect to unvested shares, unless such termination is due to death, disability
or changes in control of the Company. Pursuant to this right, the Company may
repurchase unvested shares at the original issuance price plus a growth factor.
The growth factor is equal to the average interest rate compounded quarterly
which the Company pays to a commercial lending institution in a calendar quarter
(the "Growth Factor"). In the event the Company has no borrowings for a
particular quarter, then the Growth Factor shall be the prime rate on the first
day of the quarter, as announced in the Wall Street Journal or if the Wall
Street Journal discontinues such announcements, then it shall be the prime rate
as announced by Bank of America. Shares acquired under RSAs which a vice
president needs in order to satisfy minimum shareholding requirements or which
are encumbered are nontransferable, with the exception of transfers for certain
estate planning and charitable gift purposes. In addition, the RSAs provide
that, under certain circumstances and upon attaining a certain age, a vice
president may sell a portion, but not all, of his or her shares to other vice
presidents or to the Company. The Company may also repurchase vested shares from
a departing vice president if he or she competes with the Company and/or profits
from the sale of Common Stock within six months of such competition. Upon
completion of this offering, a vice president may sell unencumbered shares of
Common Stock on the public market, subject to the continued satisfaction of the
minimum shareholding requirements. Vice presidents pay the purchase price of the
shares by means of non-recourse and recourse non-interest bearing promissory
notes.

The RSAs also contain non-competition and non-solicitation provisions which
apply generally to the vice president's employment with the Company and which
continue to bind the vice president even after repurchase of all shares by the
Company; provided, however, that such provisions may be superseded by an
employment agreement entered into between the Company and the vice president.

NON-EMPLOYEE DIRECTOR RESTRICTED STOCK PLAN AND AGREEMENTS

On August 22, 1997, the Board of Directors adopted the Non-Employee Director
Restricted Stock Plan (the "Director Stock Plan") and form of Non-Employee
Director Restricted Stock Agreement ("Director RSA"). The stockholders approved
the Director Stock Plan and Director RSA on January 15, 1998. The Director Stock
Plan is administered by the Company's Board of Directors or a committee
appointed by the Board of Directors.

42
<PAGE>
The Company has entered into Director RSAs with each of its non-employee
directors. The Director RSAs provide that each person, upon becoming a
non-employee director of the Company, must purchase a minimum number of shares
of Common Stock. Currently, each non-employee director is required to purchase
and continue to hold shares of Common Stock with an aggregate fair market value
equal to $10,000, the current annual cash compensation payable for services as a
non-employee director. Common Stock purchased under the Director RSAs is fully
vested upon purchase.

Under the terms of the Director RSAs, prior to effectiveness of this
offering, the Company retains a repurchase right with respect to all Common
Stock upon the termination of a non-employee director's service with the
Company. Pursuant to such right, the Company may repurchase all shares of Common
Stock at the then-current market value. Common Stock acquired under Director
RSAs is nontransferable, with the exception of transfers for certain
estate-planning and charitable gift purposes. In addition, the Director RSAs
provide that under certain circumstances, a non-employee director may sell a
portion, but not all, of his or her Common Stock to other non-employee
directors, officer/stockholders of the Company or to the Company. The Company
may pay the purchase price either entirely in cash or a combination of cash and
a promissory note. All other purchasers must pay cash for the purchase price.
Upon effectiveness of this offering, a non-employee director may sell
unencumbered Common Stock in the public market, subject to the continued
satisfaction of the minimum shareholding requirements.

ASSOCIATE 401(K) AND STOCK OWNERSHIP PLAN

The Associate 401(k) and Stock Ownership Plan (the "ASOP"), as amended, was
adopted effective December 1, 1995. The ASOP covers all employees of the Company
and affiliates of the Company designated by the Company's Board of Directors,
excluding any union employees unless their coverage is bargained for, and
excluding non-resident aliens without U.S. source earned income. ASOP
participation commences automatically for newly eligible employees on semiannual
entry dates.

Under the ASOP, participants may elect to reduce their current compensation
by up to the lesser of 15% of such compensation or the statutorily prescribed
annual limit ($9,500 in 1997) and have the amount of such reduction contributed
to the ASOP. In addition, the Company may make contributions to the ASOP on
behalf of participants. Company contributions may be matching contributions
allocated based on each participant's compensation reduction contributions,
discretionary profit sharing contributions allocated based on each participant's
compensation, or "first share contributions" allocated to some or all
participants on a per capita basis.

The ASOP is intended to qualify under Section 401 of the Internal Revenue
Code of 1986, as amended, so that contributions by employees or by the Company
to the ASOP, and income earned thereon are not taxable until withdrawn and so
that contributions by the Company, if any, will be deductible by the Company
when made. Participants become vested in Company contributions under two graded
vesting schedules, so that matching and first share contributions are fully
vested after five years of service and profit sharing contributions are fully
vested after seven years of service. The ASOP is a leveraged employee stock
ownership plan. The ASOP borrowed $4.0 million from a third-party financial
institution (the "ASOP Loan") to purchase 1,429,848 shares of Common Stock in
1995. The shares of Common Stock so purchased were placed in a suspense account
under the ASOP from which they are released and allocated to participants
accounts' as the ASOP Loan is repaid. Any or all Company contributions may be
used to repay the ASOP Loan.

In 1996, the Company made matching contributions and first share
contributions to the ASOP sufficient to provide a 50% matching contribution and
a first share contribution of 200 shares of Common Stock for each participant
who was employed by the Company on January 1, 1996 or became employed by the
Company thereafter. In 1997, the Company will make a matching contributions and
per capita contributions sufficient to provide (i) a 50% matching contribution
and (ii) a per capita contribution of 1,000 shares of Common Stock to be
allocated to the account of each participant who is employed by the Company on
November 26, 1997. All 1996 and 1997 Company contributions were used to repay
the ASOP Loan.

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<PAGE>
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

On January 1, 1994 the Company adopted the Supplemental Executive Retirement
Plan (the "SERP"). The SERP was amended on January 1, 1996. The SERP is
administered by the Board of Directors or a committee appointed by the Board of
Directors.

Participants in the SERP are those executive officers at the vice president
or higher level of seniority who are eligible to participate in the 1994 Plan
and who are selected by the Board of Directors or a committee appointed by the
Board of Directors to participate. The Board of Directors or a committee
appointed by the Board of Directors may also designate other officers for
participation in the compensation reduction portion of the SERP. Participation
is conditioned on the submission of a completed enrollment form. SERP
participation terminates when a participant ceases to be a stockholder of the
Company, provided that a former stockholder who continues as an officer may
continue to participate in the compensation reduction portion of the SERP.

Participants may make fully vested compensation reduction contributions to
the SERP, subject to a maximum deferral of 10% of annual base salary. The
Company may make a voluntary contribution for any year in an amount determined
by the Board to the account of SERP participants (the "FCG Contribution"). FCG
Contributions vest 10% for each year of service (with up to 5 years service
credit for participants who were vice presidents on January 1, 1994), provided
that FCG Contributions fully vest upon a Change in Control of the Company or
upon a participant's death, disability or attainment of age 65.

Compensation reduction contributions and FCG Contributions are contributed
to an irrevocable grantor trust, under which accounts are maintained for each
participant, and are invested in investment subaccounts of variable universal
life insurance policies. A participant's SERP account is distributed to the
participant (or his or her beneficiaries) upon the participant's death,
disability or termination of employment, in forms and at times that vary based
on the event triggering the distribution and elections made by the participant.
The Company has the right to terminate the SERP at any time.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company's Bylaws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by Delaware law. The Company is also
empowered under its Bylaws to enter into indemnification contracts with its
directors and officers and to purchase insurance on behalf of any person it is
required or permitted to indemnify. Pursuant to this provision, the Company
expects to enter into indemnification agreements with each of its directors and
executive officers.

The Company has obtained officer and director liability insurance with
respect to liabilities arising out of certain matters, including matters arising
under the Securities Act. In addition, the Company's Certificate of
Incorporation provides that, to the fullest extent permitted by Delaware law,
the Company's directors will not be liable for monetary damages for breach of
the directors' fiduciary duty of care to the Company and its stockholders. This
provision in the Certificate of Incorporation does not eliminate the duty of
care, and in appropriate circumstances, equitable remedies such as an injunction
or other forms of non-monetary relief would remain available under Delaware law.
Under current Delaware law, a director's liability to the Company or its
stockholders may not be limited with respect to any breach of the director's
duty of loyalty to the Company or its stockholders, for acts or omissions not in
good faith or involving intentional misconduct, for knowing violations of law,
for any transaction from which the director derived an improper personal
benefit, for improper transactions between the director and the Company and for
improper distributions to stockholders and loans to directors and officers. This
provision also does not affect a director's responsibilities under any other
laws such as the federal securities laws or state or federal environmental laws.

There is no pending litigation or proceeding involving a director or officer
of the Company as to which indemnification is being sought, nor is the Company
aware of any pending or threatened litigation that may result in claims for
indemnification by any director or officer.

44
<PAGE>
CERTAIN TRANSACTIONS

The Company and its vice presidents have entered into certain agreements
relating to the issuance of the Company's securities. Under the provisions of
the 1994 Plan, the Company's vice presidents have entered into RSAs that require
each vice president to purchase a minimum number of shares of Common Stock.
Shares of Common Stock are purchased under the RSAs at a price per share equal
to the then-prevailing market value for shares of Common Stock as determined by
an independent valuation firm. On and prior to July 30, 1997, the Company also
provided certain of its vice presidents with non-qualified stock options to
purchase shares of Common Stock based on the number of shares purchased under
the RSAs. These options were granted with exercise prices below the
then-prevailing market value for shares of Common Stock as determined by an
independent valuation firm. In connection with the RSAs and stock option
agreements entered into between the Company and its vice presidents the Company
has, from time to time, made certain loans to its vice presidents equal to the
following: (i) the aggregate purchase price for shares of Common Stock purchased
by a vice president under the 1994 Plan; (ii) the aggregate exercise price for
stock options exercised by a vice president in connection with the 1994 Plan;
and (iii) the aggregate amount of medicare and income taxes payable by a vice
president as a result of the exercise of stock options granted in connection
with the 1994 Plan. The promissory notes evidencing such loans are generally
non-recourse, non-interest bearing, and have a stated term of ten years. The
Company records a compensation expense and the Company's vice presidents
recognize income on the imputed interest attributable to these notes. Shares of
Common Stock purchased under the RSAs or pursuant to the exercise of stock
options, for which purchase or exercise a loan was granted, are pledged as
security for the outstanding principal amounts of the loans. Upon the
consummation of this offering, each vice president is required to pledge that
number of shares having a market value equal to 120% of the amount remaining due
under the loans. The RSAs require the Company's vice presidents to repay the
outstanding principal amounts of such loans at the greater of (i) one-tenth
(1/10) of the face amount of such loans, and (ii) one-half ( 1/2) of the vice
presidents' net after tax annual bonus. The Company's vice presidents may repay
the outstanding principal amounts in advance without penalty. As of December 31,
1997, all of the outstanding options under these arrangements have been
exercised and the outstanding aggregate principal amount under these loans
equaled approximately $9.3 million. In the future, the Company plans to grant
all stock options at market value and to match employee 401(k) contributions
with shares of Common Stock based on the market value of the shares at the time
of grant.

The Company has an ongoing, non-contractual business relationship with First
Ticket Travel, whose sole proprietor is Fatima Reep, the wife of James A. Reep,
Chairman of the Board, Chief Executive Officer and President of the Company. For
the year ended December 31, 1997, the Company has purchased travel services from
First Ticket Travel in the amount of approximately $124,000.

The Company entered into a consulting agreement with Stanley R. Nelson on
September 1, 1997. The agreement provides that Mr. Nelson will be paid up to a
maximum of $11,115 per month, for consulting services related to the
administration of and strategic planning for the Scottsdale Institute.

The Company intends to enter into indemnification agreements with its
directors and officers for the indemnification of and advancement of expenses to
such persons to the full extent permitted by law. The Company also intends to
execute such agreements with its future directors and officers.

The Company believes that the foregoing transactions were in its best
interest. As a matter of policy the transactions were, and all future
transactions between the Company and any of its officers, directors or principal
stockholders will be, approved by a majority of the independent and
disinterested members of the Board of Directors, will be on terms no less
favorable to the Company than could be obtained from unaffiliated third parties
and will be in connection with bona fide business purposes of the Company.

45
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of December 31, 1997, and as adjusted to reflect
the sale of Common Stock offered hereby by: (i) each stockholder who is known by
the Company to own beneficially more than 5% of Common Stock; (ii) each Named
Executive Officer of the Company; (iii) each director of the Company; (iv) each
stockholder of the Company who is selling shares of Common Stock in this
offering ("Selling Stockholder"); and (v) all directors and executive officers
of the Company as a group. Unless otherwise indicated, to the knowledge of the
Company, all persons listed below have sole voting and investment power with
respect to their shares of Common Stock, except to the extent authority is
shared by spouses under applicable law.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE NUMBER OF OWNED AFTER THE
OFFERING (1) SHARES OFFERING (1)
----------------------- BEING -----------------------
5% STOCKHOLDERS, NAMED EXECUTIVE OFFICERS AND DIRECTORS NUMBER PERCENT OFFERED NUMBER PERCENT
- ----------------------------------------------------------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
James A. Reep (2).......................................... 3,200,000 26.6% 320,000 2,880,000 19.8%
FCG Enterprises, Inc. Associate 401(k) and Stock Ownership
Plan (3)................................................. 1,589,544 13.2 -- 1,589,544 10.9
Brent A. Hanson (4)........................................ 1,020,000 8.5 102,000 918,000 6.3
Thomas A. Reep (5)......................................... 722,072 6.0 64,000 658,072 4.5
Frank I. Mueller........................................... 335,440 2.8 33,544 301,896 2.1
Roy A. Ziegler (6)......................................... 230,684 1.9 -- 230,684 1.6
Steven Heck (7)............................................ 213,756 1.8 21,376 192,380 1.3
Richard N. Kramer (8)...................................... 185,880 1.5 18,588 167,292 1.2
Luther J. Nussbaum (9)..................................... 150,132 1.2 15,012 135,120 *
Stanley R. Nelson.......................................... 2,100 * -- 2,100 *
Steven Lazarus............................................. 2,100 * -- 2,100 *
Stephen E. Olson........................................... 2,100 * -- 2,100 *
Jack O. Vance.............................................. 2,100 * -- 2,100 *
Scott S. Parker............................................ 1,344 * -- 1,344 *
All executive officers and directors as a group (17
persons) (3)(10)......................................... 5,712,640 47.4 502,964 5,209,676 35.8

OTHER SELLING STOCKHOLDERS
- -----------------------------------------------------------
G. Brian May............................................... 383,984 3.2 38,400 345,584 2.4
Raeford A. Bell (11)....................................... 301,584 2.5 30,160 271,424 1.9
Pamela J. Garrison (12).................................... 286,864 2.4 28,688 258,176 1.8
James E. D'Itri (13)....................................... 265,088 2.2 26,508 238,580 1.6
Patricia A. Lowery......................................... 256,000 2.1 25,600 230,400 1.6
Joseph M. Casper (14)...................................... 197,576 1.6 19,756 177,820 1.2
Don M. Tompkins (15)....................................... 168,264 1.4 16,828 151,436 1.0
Mark S. Gross (16)......................................... 148,672 1.2 10,000 138,672 *
Louis F. Nicholson......................................... 146,552 1.2 14,656 131,896 *
Michael R. Gorsage (17).................................... 136,160 1.1 13,616 122,544 *
Bruce G. Lemon (18)........................................ 75,836 * 5,004 70,832 *
Michael T. Krouse (19)..................................... 72,264 * 4,648 67,616 *
Daniel S. Herman (20)...................................... 72,260 * 4,000 68,260 *
</TABLE>

- ------------------------

* Represents beneficial ownership of less than 1% of the outstanding shares of
Common Stock.

(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Except as indicated by footnote, and subject to

46
<PAGE>
community property laws where applicable, the Company believes, based on
information furnished by such persons, that the persons named in the table
above have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them. Percentage of beneficial
ownership is based on 12,042,664 shares of Common Stock outstanding as of
December 31, 1997 and 14,542,664 shares of Common Stock outstanding after
completion of this offering. Certain shares are subject to repurchase at
the original issuance price plus a growth factor. The growth factor is
equal to the average interest rate compounded quarterly which the Company
pays to a commercial lending institution in a calendar quarter (the "Growth
Factor"). In the event the Company has no borrowings for a particular
quarter, then the Growth Factor shall be the prime rate on the first day of
the quarter, as announced in the Wall Street Journal or if the Wall Street
Journal discontinues such announcements, then it shall be the prime rate as
announced by Bank of America.

(2) The business address of the named stockholder is c/o First Consulting
Group, Inc., 111 West Ocean Blvd., 4th Floor, Long Beach, CA 90802. Of the
shares held, 2,880,000 are held by the Reep Family LLC of which Mr. Reep is
the Managing Member, and 320,000 are held by The Reep Family Inter Vivos
Trust, a Revocable Trust, dated October 12, 1993, of which Mr. Reep is a
trustee.

(3) The business address of the named stockholder is c/o First Consulting
Group, Inc., 111 West Ocean Blvd., 4th Floor, Long Beach, CA 90802. The
shares are held by Union Bank as trustee of the ASOP. The Company allocates
shares of Common Stock as matching contributions to certain of its
executive officers. These executive officers have the right to acquire the
fair market value of the stock allocated to their respective accounts upon
termination of employment. Such stockholder also has the right to vote such
shares of Common Stock allocated under the ASOP with respect to the
approval or disapproval of any Company merger or consolidation,
recapitalization, reclassification, liquidation, dissolution, sale of
substantially all assets of a trade or business, or such similar
transaction. Of the shares held by the ASOP, 9,180 shares have been
allocated to the accounts of the following named executive officers: Steven
Heck (1,520 shares), Richard N. Kramer (1,500 shares), Frank I. Mueller
(1,540 shares), James A. Reep (1,540 shares), Thomas A. Reep (1,540 shares)
and Roy A. Ziegler (1,540 shares). All other executive officers as a group
have been allocated a total of 9,280 shares.

(4) The business address of the named stockholder is c/o First Consulting
Group, Inc., 6903 Rockledge Drive, Suite 920, Bethesda, MD 20817. The
shares are held by The Brent A. Hanson Inter Vivos Trust dated March 24,
1995, of which Mr. Hanson is trustee.

(5) The business address of the named stockholder is c/o First Consulting
Group, Inc., 111 West Ocean Blvd., 4th Floor, Long Beach, CA 90802. The
shares are held by The Reep Family Inter Vivos Trust, dated May 27, 1992,
of which Mr. Reep and his wife, Patricia A. Reep, are trustees. Of the
shares held, 82,072 are unvested shares as of March 1, 1998. Of such
unvested shares, 41,036 are subject to repurchase by the Company at a price
equal to $2.38 per share plus the Growth Factor and 41,036 shares are
subject to repurchase by the Company at a price equal to $4.76 per share
plus the Growth Factor.

(6) Of the shares held, 138,411 are unvested shares as of March 1, 1998. Of
such unvested shares, 33,994 are subject to repurchase by the Company at a
price equal to $0.44 per share plus the Growth Factor, 27,629 are subject
to repurchase by the Company at a price equal to $0.53 per share plus the
Growth Factor, 51,192 are subject to repurchase by the Company at a price
equal to $0.57 per share plus the Growth Factor, and 25,596 are subject to
repurchase by the Company at a price equal to $2.80 per share plus the
Growth Factor.

(7) Of the shares held, 21,376 are unvested shares as of March 1, 1998. Of such
unvested shares, 8,000 are subject to repurchase by the Company at a price
equal to $0.22 per share plus the Growth Factor, 6,285 are subject to
repurchase by the Company at a price equal to $0.53 per share plus the
Growth Factor, 4,727 are subject to repurchase by the Company at a price
equal to $0.57 per share plus the Growth Factor and 2,364 are subject to
repurchase by the Company at a price equal to $2.80 per share plus the
Growth Factor.

47
<PAGE>
(8) Of the shares held, 130,116 are unvested as of March 1, 1998. Of such
unvested shares, 86,744 are subject to repurchase by the Company at a price
equal to $0.57 per share plus the Growth Factor and 43,372 are subject to
repurchase by the Company at a price equal to $2.80 per share plus the
Growth Factor.

(9) The shares are held by The Nussbaum Family Trust, a Revocable Living Trust
dated March 2, 1992, of which Mr. Nussbaum is a trustee. Of the shares
held, 105,093 are unvested shares as of March 1, 1998. Of such unvested
shares, 70,062 are subject to repurchase by the Company at a price equal to
$0.57 per share plus the Growth Factor and 35,031 are subject to repurchase
by the Company at a price equal to $2.80 per share plus the Growth Factor.

(10) Of the shares held, 848,887 are unvested shares as of March 1, 1998. In
general, such unvested shares are subject to repurchase by the Company at a
price equal to the original purchase price plus the Growth Factor.

(11) Of the shares held, 30,159 are unvested shares as of March 1, 1998. Of such
unvested shares, 16,000 are subject to repurchase by the Company at a price
equal to $0.14 per share plus the Growth Factor, 8,000 are subject to
repurchase by the Company at a price equal to $0.17 per share plus the
Growth Factor, 3,159 are subject to repurchase by the Company at a price
equal to $0.53 per share plus the Growth Factor, 2,000 are subject to
repurchase by the Company at a price equal to $0.57 per share plus the
Growth Factor and 1,000 are subject to repurchase by the Company at a price
equal to $2.80 per share plus the Growth Factor.

(12) The shares are held by the Steven Scott Levin and Pamela Jane Garrison
Revocable Trust of 1993 of which Ms. Garrison is a trustee. Of the shares
held, 86,060 are unvested as of March 1, 1998. Of such unvested shares,
48,000 are subject to repurchase by the Company at a price equal to $0.14
per share plus the Growth Factor, 24,000 are subject to repurchase by the
Company at a price equal to $0.17 per share plus the Growth Factor, 5,060
are subject to repurchase by the Company at a price equal to $0.53 per
share plus the Growth Factor, 6,000 are subject to repurchase by the
Company at a price equal to $0.57 per share plus the Growth Factor and
3,000 are subject to repurchase by the Company at a price equal to $2.80
per share plus the Growth Factor.

(13) Of the shares held, 159,053 are unvested shares as of March 1, 1998. Of
such unvested shares, 144,000 are subject to repurchase by the Company at a
price equal to $0.14 per share plus the Growth Factor, 14,400 are subject
to repurchase by the Company at a price equal to $0.44 per share plus the
Growth Factor and 653 are subject to repurchase by the Company at a price
equal to $0.53 per share plus the Growth Factor.

(14) Of the shares held, 138,306 are unvested shares as of March 1, 1998. Of
such unvested shares, 53,380 are subject to repurchase by the Company at a
price equal to $0.57 per share plus the Growth Factor, 29,118 are subject
to repurchase by the Company at a price equal to $2.38 per share plus the
Growth Factor, 26,690 are subject to repurchase by the Company at a price
equal to $2.80 per share plus the Growth Factor and 29,118 are subject to
repurchase by the Company at a price equal to $4.76 per share plus the
Growth Factor.

(15) Of the shares held, 84,132 are unvested shares as of March 1, 1998. Of such
unvested shares, 9,504 are subject to repurchase by the Company at a price
equal to $0.53 per share plus the Growth Factor, 49,752 are subject to
repurchase by the Company at a price equal to $0.57 per share plus the
Growth Factor and 24,876 are subject to repurchase by the Company at a
price equal to $2.80 per share plus the Growth Factor.

(16) Of the shares held, 104,073 are unvested shares as of March 1, 1998. Of the
unvested shares, 64,367 are subject to repurchase by the Company at a price
equal to $0.57 per share plus the Growth Factor, 13,001 are subject to
repurchase by the Company at a price equal to $1.13 per share plus the
Growth Factor, 13,704 are subject to repurchase by the Company at a price
equal to $2.80 per share plus the Growth Factor and 13,001 are subject to
repurchase by the Company at a price equal to $2.83 per share plus the
Growth Factor.

(17) Of the shares held, 40,848 are unvested shares as of March 1, 1998. Of such
unvested shares, 24,000 are subject to repurchase by the Company at a price
equal to $0.22 per share plus the Growth Factor, 4,800 are subject to
repurchase by the Company at a price equal to $0.44 per share plus the
Growth Factor, 8,448 are

48
<PAGE>
subject to repurchase by the Company at a price equal to $0.53 per share
plus the Growth Factor, 2,400 are subject to repurchase by the Company at a
price equal to $0.57 per share plus the Growth Factor and 1,200 are subject
to repurchase by the Company at a price equal to $2.80 per share plus the
Growth Factor.

(18) The shares are held by the Bruce G. Lemon Inter Vivos Trust dated April 20,
1994, of which Mr. Lemon is a trustee. Of the shares held, 53,086 are
unvested shares as of March 1, 1998. Of such unvested shares, 23,352 are
subject to repurchase by the Company at a price equal to $0.57 per share
plus the Growth Factor, 11,676 are subject to repurchase by the Company at
a price equal to $2.80 per share plus the Growth Factor and 18,058 are
subject to repurchase by the Company at a price equal to $7.44 per share
plus the Growth Factor.

(19) Of the shares held, 50,586 are unvested shares as of March 1, 1998. Of the
unvested shares, 21,684 are subject to repurchase by the Company at a price
equal to $0.57 per share plus the Growth Factor, 10,842 are subject to
repurchase by the Company at a price equal to $2.80 per share plus the
Growth Factor and 18,060 are subject to repurchase by the Company at a
price equal to $7.44 per share plus the Growth Factor.

(20) Of the shares held, 50,584 are unvested shares as of March 1, 1998. Of the
unvested shares, 21,684 are subject to repurchase by the Company at a price
equal to $0.57 per share plus the Growth Factor, 10,842 are subject to
repurchase by the Company at a price equal to $2.80 per share plus the
Growth Factor and 18,058 are subject to repurchase by the Company at a
price equal to $7.44 per share plus the Growth Factor.

49
<PAGE>
DESCRIPTION OF CAPITAL STOCK

Upon completion of this offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock, $.001 par value, and
10,000,000 shares of Preferred Stock, $.001 par value.

COMMON STOCK

As of December 31, 1997, there were 12,042,664 shares of Common Stock
outstanding held of record by 51 stockholders. The holders of Common Stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of the stockholders. The holders of Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, holders of the Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities. Holders of Common Stock have no preemptive rights and no right to
convert their Common Stock into any other securities. There are no redemption or
sinking fund provisions applicable to the Common Stock. All outstanding shares
of Common Stock are, and all shares of Common Stock to be outstanding upon
completion of this offering will be, fully-paid and nonassessable.

PREFERRED STOCK

The Board of Directors has the authority, without further action by the
stockholders, to issue up to 10,000,000 shares of Preferred Stock, $.001 par
value, in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences, sinking fund terms and the
number of shares constituting any series or the designation of such series,
without any further vote or action by stockholders. The issuance of Preferred
Stock could adversely affect the voting power of holders of Common Stock and the
likelihood that such holders will receive dividend payments and payments upon
liquidation and could have the effect of delaying, deferring or preventing a
change in control of the Company. The Company has no present plan to issue any
shares of Preferred Stock.

DELAWARE LAW AND CERTAIN CHARTER PROVISIONS

The Company is subject to the provisions of Section 203 of the Delaware Law,
an anti-takeover law. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. For purposes of Section 203, a
"business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder, and an
"interested stockholder" is a person who, together with affiliates and
employees, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.

The Company's Certificate of Incorporation and Bylaws also require that,
effective upon the closing of this offering, any action required or permitted to
be taken by stockholders of the Company must be effected at a duly called annual
or special meeting of the stockholders and may not be effected by a consent in
writing. In addition, special meetings of the stockholders of the Company may be
called only by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer of the Company or by any person or persons holding shares
representing at least 10% of the outstanding capital stock. The Company's
Certificate of Incorporation also provides for a classified Board and specifies
that the authorized number of directors may be changed only by resolution of the
Board of Directors. These provisions may have the effect of deterring hostile
takeovers or delaying changes in control or management of the Company. See
"Management--Board Composition."

TRANSFER AGENT AND REGISTRAR

American Stock Transfer & Trust Company has been appointed as the transfer
agent and registrar for the Common Stock.

50
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect the market price of the Common Stock
prevailing from time to time. Furthermore, since only a limited number of shares
will be available for sale shortly after this offering because of certain
contractual and legal restrictions on resale described below, sales of
substantial amounts of Common Stock in the public market after the restrictions
lapse could adversely affect the prevailing market price and the ability of the
Company to raise equity capital in the future.

Upon completion of this offering, based on the number of shares outstanding
as of December 31, 1997, the Company will have outstanding an aggregate of
14,542,664 shares of Common Stock assuming (i) the issuance by the Company of
2,500,000 shares of Common Stock offered hereby and (ii) no exercise of the
Underwriters' over-allotment option to purchase 496,858 shares of Common Stock.
Of these shares, 3,312,384 shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, except for
shares held by "affiliates" of the Company as that term is defined in Rule 144
under the Securities Act (whose sales would be subject to certain limitations
and restrictions described below) and the regulations promulgated thereunder.

The remaining 11,230,280 shares held by officers, directors, employees,
consultants and other stockholders of the Company were sold by the Company in
reliance on exemptions from registration requirements of the Securities Act and
are "restricted securities" within the meaning of Rule 144 under the Securities
Act. Restricted securities may be sold in the public market only if registered
or if they qualify for an exemption from registration under Rules 144 or 701
promulgated under the Securities Act, which rules are summarized below. Subject
to the provisions of Rules 144 and 701 as well as the vesting requirements of
the RSAs, additional shares may be available for sale in the public market
pursuant to the terms of lock-up agreements as follows: (i) no restricted
securities will be eligible for immediate sale on the effective date of this
offering; (ii) 1,123,028 restricted securities will be eligible for sale 180
days after the date of this Prospectus upon expiration of the lock-up
agreements; (iii) an additional 1,123,028 restricted securities will be eligible
for sale 360 days after the date of this Prospectus upon expiration of the
lock-up agreements; and (iv) an additional 8,984,224 restricted securities will
be eligible for sale 540 days after the date of this Prospectus upon expiration
of the lock-up agreements. Each of the Company's vice presidents is required to
purchase and maintain a minimum number of shares of Common Stock. In addition,
shares of Common Stock held for a period longer than one (1) year after receipt
of payments in respect of installment loans used to purchase such restricted
securities become eligible for sale under Rule 144 upon the expiration of the
Company's right of repurchase with respect of such shares.

The stockholders of the Company have agreed with the representatives of the
Underwriters for a period of 540 days after the date of this Prospectus, that
they will not, directly or indirectly, offer, sell, contract to sell or grant
any option to sell or otherwise dispose of, directly or indirectly, any shares
of Common Stock or securities convertible into or exchangeable for, or any
rights to purchase or acquire, Common Stock, without the prior written consent
of Hambrecht & Quist LLC; provided, however, that at the end of the first
180-day period following the date of this Prospectus, 10% of such shares will
become eligible for sale; at the end of the second 180-day period following the
date of this Prospectus an additional 10% of such shares will become eligible
for sale; and the remaining shares will become eligible for sale 540 days after
the date of this Prospectus. Hambrecht & Quist LLC, in its sole discretion and
at any time without notice, may release all or any portion of the securities
subject to the 540-day lock-up agreement. The Company has agreed that it will
not, without the prior written consent of Hambrecht & Quist LLC, offer, sell or
otherwise dispose of any shares of Common Stock, options to acquire shares of
Common Stock or securities exchangeable for or convertible into shares of Common
Stock during the 180-day period following the date of this Prospectus, except
that the Company may issue shares upon the exercise of options granted prior to
the date hereof, and may grant additional options under its stock option plans,
provided that, without the prior written consent of Hambrecht & Quist LLC, such
additional options shall not be exercisable during such 180-day period.

51
<PAGE>
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, an affiliate of the Company, or person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
that were not acquired from the Company or an affiliate of the Company within
the previous one year, will be entitled to sell in any three-month period a
number of shares that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock (approximately 145,426 shares immediately
after this offering) or (ii) the average weekly trading volume of Common Stock
in the Nasdaq National Market during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the Commission.
Sales pursuant to Rule 144 are subject to certain requirements relating to
manner of sale, notice and availability of current public information about the
Company. A person (or person whose shares are aggregated) who is not deemed to
have been an affiliate of the Company at any time during the 90 days immediately
preceding the sale and who beneficially owns restricted securities is entitled
to sell such shares pursuant to Rule 144(k) without regard to the limitations
described above; provided that at least two years have elapsed since the later
of the date the shares were acquired from the Company or from an affiliate of
the Company.

As of December 31, 1997, there were options outstanding to purchase an
aggregate of 1,029,400 shares of Common Stock under the Company's stock option
plans, none of which will be eligible for sale within 180 days following the
offering. An employee, officer or director of or consultant to the Company who
purchased or was awarded shares or options to purchase shares pursuant to a
written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701 under the Securities Act, which permits affiliates and
non-affiliates to sell their Rule 701 shares without having to comply with Rule
144's holding period restrictions, in each case commencing 90 days after the
date of this Prospectus. In addition, non-affiliates may sell Rule 701 shares
without complying with public information, volume and notice provisions of Rule
144.

The Company intends to file a registration statement under the Securities
Act to register shares of Common Stock reserved for issuance under the Incentive
Plan, the Director Option Plan, the 1994 Plan and the Director Stock Plan, thus
permitting the resale of such shares by non-affiliates in the public market
without restriction under the Securities Act. Such registration statement will
become effective immediately upon filing.

52
<PAGE>
UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their representatives,
Hambrecht & Quist LLC, BancAmerica Robertson Stephens and UBS Securities LLC
(the "Representatives"), have severally agreed to purchase from the Company and
the Selling Stockholders the following respective number of shares of Common
Stock:

<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ---------------------------------------------------------------------------------- ----------
<S> <C>
Hambrecht & Quist LLC.............................................................
BancAmerica Robertson Stephens....................................................
UBS Securities LLC................................................................
----------
Total...........................................................................
----------
----------
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company, its counsel and independent
auditors. The nature of the Underwriters' obligation is such that they are
committed to purchase all shares of Common Stock offered hereby if any of such
shares are purchased.

The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow and such dealers may reallow a
concession not in excess of $ per share to certain other dealers. After the
initial public offering of the shares, the offering price and other selling
terms may be changed by the Representatives. The Representatives have informed
the Company that the Underwriters do not intend to confirm sales to accounts
over which they exercise discretionary authority.

The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 496,858
additional shares of Common Stock at the initial public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise this option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of Common Stock to be purchased by it shown in the
above table bears to the total number of shares of Common Stock offered hereby.
The Company will be obligated, pursuant to the option, to sell shares to the
Underwriters to the extent the option is exercised. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of shares of Common Stock offered hereby.

The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.

The existing stockholders of the Company, who will own in the aggregate
11,230,280 shares of Common Stock after the offering, have agreed that they will
not, without the prior written consent of Hambrecht & Quist LLC, offer, sell or
otherwise dispose of any shares of Common Stock, options to acquire shares of
Common Stock or securities exchangeable for or convertible into shares of Common
Stock owned by them during the 540-day period following the date of this
Prospectus; provided, however, that at the end of the first 180-day period
following the date of this Prospectus, 10% of such shares will become eligible
for sale; at the end of the second 180-day period following the date of this
Prospectus, an additional 10% of such shares will become eligible for

53
<PAGE>
sale; and the remaining shares will become eligible for sale 540 days after the
date of this Prospectus. The Company has agreed that it will not, without the
prior written consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose
of any shares of Common Stock, options to acquire shares of Common Stock or
securities exchangeable for or convertible into shares of Common Stock during
the 180-day period following the date of this Prospectus, except that the
Company may issue shares upon the exercise of options granted prior to the date
hereof, and may grant additional options under its stock option plans, provided
that, without the prior written consent of Hambrecht & Quist LLC, such
additional options shall not be exercisable during such 180-day period.

Prior to the offering, there has been no public market for the Common Stock.
The initial public offering price for the Common Stock will be determined by
negotiation between the Company and the Representatives. Among the factors to be
considered in determining the initial public offering price are prevailing
market and economic conditions, revenue and earnings of the Company, market
valuations of other companies engaged in activities similar to the Company,
estimates of the business potential and prospects of the Company, the present
state of the Company's business operations, the Company's management and other
factors deemed relevant. The estimated initial public offering price range set
forth on the cover of this preliminary prospectus is subject to change as a
result of market conditions and other factors.

Certain persons participating in this offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the Underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when shares of Common Stock sold by the syndicate member are purchased
in syndicate covering transactions. Such transactions may be effected on the
Nasdaq National Market, in the over-the-counter market, or otherwise. Such
stabilizing, if commenced, may be discontinued at any time.

LEGAL MATTERS

The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Cooley Godward LLP, Palo Alto, California.
Certain legal matters in connection with the offering will be passed upon for
the Underwriters by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP, Menlo Park, California.

EXPERTS

The financial statements of FCG Enterprises, Inc. d.b.a. First Consulting
Group as of December 31, 1997 and 1996, and for each of the three years in the
period ended December 31, 1997 appearing in this Prospectus and Registration
Statement have been audited by Grant Thornton LLP, independent certified public
accountants, as set forth in their report thereon appearing elsewhere herein,
and are included in reliance upon such report given on the authority of such
firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

A Registration Statement on Form S-1, including amendments thereto, relating
to the Common Stock offered hereby has been filed by the Company with the
Commission. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
summaries of such contracts and documents. All material elements of such
contracts or documents required to be disclosed in this Prospectus are
disclosed. Potential investors are encouraged to refer to the copy of such
contract or document filed as an exhibit to the Registration Statement.

54
<PAGE>
For further information with respect to the Company and the Common Stock offered
hereby, reference is made to such Registration Statement, exhibits and
schedules. A copy of the Registration Statement may be inspected by anyone
without charge at the public reference facilities maintained by the Commission
at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and copies
of all or any part thereof may be obtained from the Commission upon payment of
certain fees prescribed by the Commission. The Commission maintains a World Wide
Web site that contains reports, proxy and information statements and other
information filed electronically with the Commission. The address of the site is
http://www.sec.gov.

55
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS......................................................... F-2

FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS.............................................................................. F-3

CONSOLIDATED STATEMENTS OF OPERATIONS.................................................................... F-4

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY................................................ F-5

CONSOLIDATED STATEMENTS OF CASH FLOWS.................................................................... F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................................................... F-7
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
FCG Enterprises, Inc.

We have audited the accompanying consolidated balance sheets of FCG
Enterprises, Inc. and its subsidiaries (d.b.a. First Consulting Group) as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
FCG Enterprises, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.

Los Angeles, California
January 17, 1998, except for Note K
as to which the date is
, 1998.

- --------------------------------------------------------------------------------

The foregoing report is in the form that will be signed upon completion of the
4-for-1 stock split described in Note K to the financial statements.

/s/ GRANT THORNTON LLP

Los Angeles, California
January 17, 1998

F-2
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997
----------------------
ACTUAL 1996
PRO FORMA --------- ---------
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.............................................................. $ 2,950 $ 2,950 $ 214
Accounts receivable, less allowance of $500 and $83 in 1997 and 1996, respectively..... 11,846 11,846 7,803
Work in process........................................................................ 8,030 8,030 7,117
Prepaid expenses....................................................................... 821 821 1,067
Income tax receivables................................................................. 1,114 1,114 --
Current portion of notes receivable--stockholders...................................... 328 328 184
----------- --------- ---------
Total current assets................................................................. 25,089 25,089 16,385
Notes receivable--stockholders (Note D).................................................. 1,368 1,368 454
Property and equipment
Furniture, equipment, and leasehold improvements....................................... 1,874 1,874 1,040
Information systems equipment.......................................................... 9,040 9,040 6,565
----------- --------- ---------
10,914 10,914 7,605
Less accumulated depreciation and amortization........................................... 5,641 5,641 3,286
----------- --------- ---------
5,273 5,273 4,319
Other assets
Executive Benefit Trust (Note G)....................................................... 2,506 2,506 1,264
Other.................................................................................. 189 189 390
----------- --------- ---------
2,695 2,695 1,654
----------- --------- ---------
Total assets......................................................................... $ 34,425 $ 34,425 $ 22,812
----------- --------- ---------
----------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Line of credit......................................................................... $ 2,000 $ 2,000 $ --
Current portion of long-term debt (Note B)............................................. 871 871 670
Accounts payable....................................................................... 735 735 1,646
Accrued liabilities.................................................................... 2,219 2,219 931
Accrued vacation....................................................................... 1,923 1,923 1,368
Deferred revenue....................................................................... 391 391 --
Customer advances...................................................................... 1,965 1,965 --
Deferred income taxes (Note C)......................................................... 5,679 5,679 4,218
----------- --------- ---------
Total current liabilities............................................................ 15,783 15,783 8,833
Non-current liabilities
Long-term debt, net of current portion (Note B)........................................ 262 262 2,692
Supplemental executive retirement plan (Note G)........................................ 2,506 2,506 1,264
Deferred income taxes (Note C)......................................................... 447 447 140
Other.................................................................................. -- -- 185
----------- --------- ---------
3,215 3,215 4,281
Commitments and contingencies (Notes E and G)............................................ -- -- --
Put obligation related to ASOP and capital stock (Notes H and I)......................... -- 9,965 6,658
Stockholders' equity
Preferred Stock, $.001 par value; 10,000,000 shares authorized, no shares issued and
outstanding.......................................................................... -- -- --
Common Stock, $.001 par value; 50,000,000 shares authorized, 12,042,664 and 10,696,120
shares issued and outstanding at December 31, 1997 and 1996, respectively............ 12 12 11
Additional paid-in capital............................................................. 20,822 20,822 11,539
Retained earnings...................................................................... 4,215 4,215 5,749
Deferred compensation--stock incentive agreements (Notes A and H)...................... (3,635) (3,635) (2,333)
Unearned ASOP shares (Note I).......................................................... (853) (853) (3,225)
Notes receivable--stockholders (Note D)................................................ (5,134) (5,134) (2,043)
Put obligation related to ASOP and capital stock (Notes H and I)....................... -- (9,965) (6,658)
----------- --------- ---------
Total stockholders' equity........................................................... 15,427 5,462 3,040
----------- --------- ---------
Total liabilities and stockholders' equity........................................... $ 34,425 $ 34,425 $ 22,812
----------- --------- ---------
----------- --------- ---------
</TABLE>

The accompanying notes are an integral part of these statements.

F-3
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net revenue...................................................................... $ 91,570 $ 65,822 $ 47,744
Cost of services................................................................. 53,526 40,718 26,518
--------- --------- ---------
Gross profit................................................................. 38,044 25,104 21,226

General and administrative expenses.............................................. 31,669 23,670 17,517

Compensation expenses related to stock issuances (Note H)........................ 6,060 588 385
--------- --------- ---------
Income from operations....................................................... 315 846 3,324
--------- --------- ---------
Other income
Interest income................................................................ 245 245 172
Interest expense............................................................... (313) (242) (208)
Other income, net.............................................................. 119 44 18
--------- --------- ---------
Income before income taxes................................................... 366 893 3,306

Provision for income taxes....................................................... 1,900 500 1,423
--------- --------- ---------
Net income (loss)............................................................ $ (1,534) $ 393 $ 1,883
--------- --------- ---------
--------- --------- ---------
Basic and diluted net income (loss) per share.................................... $ (0.14) $ 0.04 $ 0.19
--------- --------- ---------
--------- --------- ---------
Shares used in computing per share amounts....................................... 11,134 11,118 9,761
</TABLE>

The accompanying notes are an integral part of these statements.

F-4
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK UNEARNED
---------------------- RETAINED DEFERRED ASOP
SHARES AMOUNT EARNINGS COMPENSATION SHARES
----------- --------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995.................................. 7,428 $ 967 $ 3,473 $ -- $ --
Redemption of Common Stock................................ (216) (80) -- -- --
Issuance of Common Stock.................................. 52 30 -- -- --
Stock issued under stock option agreement--compensation... -- 76 -- -- --
Issuance of Common Stock under the Associate 401(k) and
Stock Ownership Plan.................................... 1,432 4,000 -- -- (4,000)
Issuance of Common Stock under the Restricted Stock
Agreements.............................................. 1,372 3,625 -- (1,978) --
Increase of put obligation................................ -- -- -- -- --
Compensation recognized under the Restricted Stock
Agreements.............................................. -- -- -- 385 --
Net income................................................ -- -- 1,883 -- --
----------- --------- ----------- ------- -----------
Balance, December 31, 1995................................ 10,068 8,618 5,356 (1,593) (4,000)
Redemption of Common Stock................................ (28) (40) -- -- --
Issuance of Common Stock under the Restricted Stock
Agreements.............................................. 560 1,953 -- (1,048) --
Compensation recognized under the Restricted Stock
Agreements.............................................. -- -- -- 308 --
Capital stock released under the Associate 401(k) and
Stock Ownership Plan.................................... -- 272 -- -- 775
Interest income on stockholders' notes receivable......... -- -- -- -- --
Issuance of new Common Stock to Associate 401(k) and Stock
Ownership Plan.......................................... 96 362 -- -- --
Increase of put obligation................................ -- -- -- -- --
Excess income tax benefits attributable to exercised stock
options................................................. -- 385 -- -- --
Net income................................................ -- -- 393 -- --
----------- --------- ----------- ------- -----------
Balance, December 31, 1996................................ 10,696 11,550 5,749 (2,333) (3,225)
Redemption of Common Stock................................ (64) (305) -- -- --
Issuance of Common Stock under the Restricted Stock
Agreements.............................................. 1,347 4,899 -- (1,847) --
Compensation recognized under the Restricted Stock
Agreements.............................................. -- -- -- 545 --
Common Stock released under the Associate 401(k) and Stock
Ownership Plan.......................................... -- 3,725 -- -- 2,677
Issuance of Common Stock to Associate 401(k) and Stock
Ownership Plan.......................................... 64 305 -- -- (305)
Interest income on stockholders' notes receivable......... -- -- -- -- --
Issuance of new Common Stock to associates in the
Associate 401(k) and Stock Ownership Plan............... -- 265 -- -- --
Increase of put obligation................................ -- -- -- -- --
Excess income tax benefits attributable to exercised stock
options................................................. -- 395 -- -- --
Net income................................................ -- -- (1,534) -- --
----------- --------- ----------- ------- -----------
Balance, December 31, 1997................................ 12,043 $ 20,834 $ 4,215 $ (3,635) $ (853)
----------- --------- ----------- ------- -----------
----------- --------- ----------- ------- -----------

<CAPTION>
NOTES
RECEIVABLE-- PUT
STOCKHOLDERS OBLIGATION TOTAL
-------------- ----------- ---------
<S> <C> <C> <C>
Balance, January 1, 1995.................................. $ -- $ (2,730) $ 1,710
Redemption of Common Stock................................ -- -- (80)
Issuance of Common Stock.................................. -- -- 30
Stock issued under stock option agreement--compensation... -- -- 76
Issuance of Common Stock under the Associate 401(k) and
Stock Ownership Plan.................................... -- -- --
Issuance of Common Stock under the Restricted Stock
Agreements.............................................. (1,469) -- 178
Increase of put obligation................................ -- (2,570) (2,570)
Compensation recognized under the Restricted Stock
Agreements.............................................. -- -- 385
Net income................................................ -- -- 1,883
------- ----------- ---------
Balance, December 31, 1995................................ (1,469) (5,300) 1,612
Redemption of Common Stock................................ -- -- (40)
Issuance of Common Stock under the Restricted Stock
Agreements.............................................. (481) -- 424
Compensation recognized under the Restricted Stock
Agreements.............................................. -- -- 308
Capital stock released under the Associate 401(k) and
Stock Ownership Plan.................................... -- -- 1,047
Interest income on stockholders' notes receivable......... (93) -- (93)
Issuance of new Common Stock to Associate 401(k) and Stock
Ownership Plan.......................................... -- -- 362
Increase of put obligation................................ -- (1,358) (1,358)
Excess income tax benefits attributable to exercised stock
options................................................. -- -- 385
Net income................................................ -- -- 393
------- ----------- ---------
Balance, December 31, 1996................................ (2,043) (6,658) 3,040
Redemption of Common Stock................................ -- -- (305)
Issuance of Common Stock under the Restricted Stock
Agreements.............................................. (2,825) -- 227
Compensation recognized under the Restricted Stock
Agreements.............................................. -- -- 545
Common Stock released under the Associate 401(k) and Stock
Ownership Plan.......................................... -- -- 6,402
Issuance of Common Stock to Associate 401(k) and Stock
Ownership Plan.......................................... -- -- --
Interest income on stockholders' notes receivable......... (266) -- (266)
Issuance of new Common Stock to associates in the
Associate 401(k) and Stock Ownership Plan............... -- -- 265
Increase of put obligation................................ -- (3,307) (3,307)
Excess income tax benefits attributable to exercised stock
options................................................. -- -- 395
Net income................................................ -- -- (1,534)
------- ----------- ---------
Balance, December 31, 1997................................ $ (5,134) $ (9,965) $ 5,462
------- ----------- ---------
------- ----------- ---------
</TABLE>

The accompanying notes are an integral part of this statement.

F-5
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................................... $ (1,534) $ 393 $ 1,883
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................. 2,453 1,739 767
Provision for bad debts................................................... 417 83 84
Deferred income taxes..................................................... 1,769 498 1,727
Loss (gain) on sale of assets............................................. 16 5 (13)
Compensation from stock issuances......................................... 8,093 1,830 385
Interest income on notes receivable--stockholders......................... (266) (93) --
Change in assets and liabilities:
Accounts receivable....................................................... (4,460) 5,154 (6,084)
Work in process........................................................... (913) (6,448) --
Prepaid expenses.......................................................... 246 -- (721)
Income taxes receivables.................................................. (1,114) (185) --
Other assets.............................................................. 201 (271) (39)
Accounts payable.......................................................... (911) (752) 1,756
Accrued liabilities....................................................... 1,288 (877) 385
Accrued vacation.......................................................... 555 1,369 334
Customer advances......................................................... 1,965 -- --
Deferred revenue.......................................................... 391 -- --
Other..................................................................... (186) (235) 315
----------- --------- ---------
Net cash provided by operating activities............................... 8,010 2,210 779
----------- --------- ---------
Cash flows from investing activities:
Issuance of notes receivable................................................ (2,554) (709) (153)
Payments on notes receivable................................................ 1,232 648 177
Purchase of property and equipment.......................................... (3,423) (3,571) (1,928)
----------- --------- ---------
Net cash used in investing activities................................... (4,745) (3,632) (1,904)
Cash flows from financing activities:
Net borrowings on line of credit............................................ 2,000 -- --
Proceeds from issuance of long-term debt.................................... 147 -- 4,000
Principal payments on long-term debt........................................ (2,681) (670) (2,160)
Proceeds from issuance of Common Stock...................................... 5 271 106
Common Stock repurchase..................................................... -- (40) (80)
----------- --------- ---------
Net cash provided by (used in) financing activities..................... (529) (439) 1,866
----------- --------- ---------
Net change in cash and cash equivalents................................. 2,736 (1,861) 741
Cash and cash equivalents at beginning of period.............................. 214 2,075 1,334
----------- --------- ---------
Cash and cash equivalents at end of period.................................... $ 2,950 $ 214 $ 2,075
----------- --------- ---------
----------- --------- ---------
Cash paid during the period for:
Interest.................................................................... $ 313 $ 328 $ 202
Income taxes................................................................ $ 87 $ 33 $ 539
</TABLE>

The accompanying notes are an integral part of these statements.

F-6
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

FCG Enterprises, Inc. and its subsidiaries, d.b.a. First Consulting Group
(the "Company"), is a leading provider of information technology and other
consulting services for healthcare providers, payors, and other healthcare
organizations. The Company's services are designed to assist its clients in
increasing operations effectiveness by reducing cost, improving customer service
and enhancing the quality of patient care. The Company provides this expertise
to clients by assembling multi-disciplinary teams which provide comprehensive
services across its four principal services: consulting, software
implementation, network and application integration and co-management services.
The Company's services and consultants are supported by internal research and a
centralized information system which provides real-time access to current
industry and technology information, project methodologies, experiences and
tools.

1. PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of FCG
Enterprises, Inc. and its wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated.

2. CASH AND CASH EQUIVALENTS

The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.

3. PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation and amortization are
provided on a straight-line basis in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives. Leasehold
improvements are amortized over the lives of the respective leases or the
service lives of the improvements, whichever is shorter.

4. WORK IN PROCESS

Work in process represents the recognized net revenue for services performed
that had not been billed to clients at the balance sheet date. Such amounts are
billed as project requisites are met.

5. INCOME TAXES

The Company accounts for income taxes on the liability method under which
deferred tax liabilities (assets) are determined based on the differences
between the financial statement and tax bases of assets and liabilities as
measured by the enacted tax rates which will be in effect when these differences
reverse. Deferred tax expense (benefit) is equal to the change in the deferred
tax liability (asset) from the beginning to the end of the year. A current tax
asset or liability is recognized for the estimated taxes refundable or payable
for the current year.

6. PUT OBLIGATIONS

Currently the existing stockholders of the Company, including the Associate
401(k) and Stock Ownership Plan ("ASOP"), have the ability to require the
Company to repurchase their shares upon the occurrence of certain conditions,
which are outside the control of the Company (see Notes H and I). As such, the
Company reflects estimated obligations related to these repurchase commitments
outside of equity in the accompanying financial statements.

F-7
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
7. REVENUE RECOGNITION

The Company generates substantially all of its revenue from fees for
professional services. The Company typically bills for its services on an
hourly, fixed-fee or fixed-fee per month basis. For services billed on an hourly
basis, the Company recognizes revenue as services are performed. For services
billed on a fixed-fee or fixed-fee per month basis, the Company recognizes
revenue using the percentage of completion method. Revenue is recorded as
incurred at assignment rates net of any adjustments due to specific engagement
situations.

8. STOCK-BASED COMPENSATION

The Company accounts for stock-based employee compensation as prescribed by
APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and has adopted
the disclosure provisions of Statement of Financial Accounting Standards 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION ("SFAS 123"). SFAS 123 requires pro
forma disclosures of net income and net income per share as if the fair value
based method of accounting for stock-based awards had been applied. Under the
fair value based method, compensation cost is recorded based on the value of the
award at the grant date and is recognized over the service period. The adoption
of SFAS 123 disclosure provisions has no effect on either the Company's
financial condition or its results of operations.

9. BASIC AND DILUTED NET INCOME (LOSS) PER SHARE

Net income (loss) per share is calculated in accordance with Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE ("SFAS 128"), which
superseded APB Opinion No. 15. Net income (loss) per share for all periods
presented has been restated to reflect the adoption of SFAS 128. Basic net
income (loss) per share is based upon the weighted average number of common
shares outstanding. Diluted net income (loss) per share is based on the
assumption that all convertible shares and stock options were converted or
exercised. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning
of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase common stock at the average market price during
the period. ASOP shares that have not been committed to be released are not
treated as outstanding when determining the weighted average number of shares
for either basic or diluted net income (loss) per share. Pursuant to Securities
and Exchange Commission Staff Accounting Bulletin No. 83, common and common
equivalent shares issued below the initial public offering price during the
twelve months immediately preceding the initial public offering filing date
(using the treasury stock method) have been included in the calculation of
weighted average number of shares in computing both basic and diluted net income
(loss) per share as if they were outstanding for all periods presented.

10. CREDIT RISKS

Financial instruments that subject the Company to concentrations of credit
risks consist primarily of billed and unbilled accounts receivable. The
Company's clients are primarily involved in the healthcare industry.
Concentrations of credit risk with respect to billed and unbilled accounts
receivable are limited due to the Company's credit evaluation process and the
nature of its clients. Historically, the Company has not incurred significant
credit-related losses.

11. FAIR VALUE OF FINANCIAL INSTRUMENTS

Management believes the fair value of financial instruments approximates
their carrying amounts. The carrying value of cash and cash equivalents
approximates their estimated fair values. Management believes the

F-8
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
fair values of notes payable and stockholders' notes receivable approximate
their carrying values based on current rates for instruments with similar
characteristics.

12. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

The Company is in the process of modifying its stock agreements such that,
upon the effectiveness of the proposed initial public offering, the Company will
no longer have the obligation to repurchase shares of Common Stock from the
current stockholders. A pro forma unaudited consolidated balance sheet as of
December 31, 1997 has been presented to reflect this change.

13. DEFERRED COMPENSATION--STOCK INCENTIVE AGREEMENTS

In accordance with APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, the Company records a charge to deferred compensation when it grants
options or sells stock to officers or employees at an exercise price which is
less than the fair market value of such shares. Amounts recorded as deferred
compensation are amortized over the appropriate service period based upon the
vesting schedule for such grants (generally ten years).

14. USE OF ESTIMATES

In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

15. NEW ACCOUNTING PRONOUNCEMENTS

In 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 130 ("SFAS 130"), REPORTING COMPREHENSIVE
INCOME, which prescribes standards for reporting comprehensive income and its
components. Comprehensive income consists of net income or loss for the current
period and other comprehensive income (income, expenses, gains and losses that
currently bypass the income statement and are reported directly in a separate
component of equity). SFAS 130 is effective for financial statements issued for
periods beginning after December 15, 1997. The Company has determined that the
adoption of SFAS 130 will not have a material effect on the Company's financial
statements.

In 1997, the FASB issued Statement of Financial Accounting Standards No. 131
("SFAS 131"), DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, which applies only to publicly held business entities. A reportable
segment, referred to as an operating segment, is component of an entity about
which separate financial information is produced internally, that is evaluated
by the chief operation decision-maker to assess performance and allocate
resources. SFAS 131 is effective for financial statements issued for periods
beginning after December 15, 1997.

16. RECLASSIFICATIONS

Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform to the 1997 presentation.

NOTE B--NOTES PAYABLE

The Company has a $6,000,000 revolving line of credit available through
December 1, 1998, at the bank's prevailing prime rate. The balance outstanding
on this line of credit was $2,000,000 and zero at December 31,

F-9
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE B--NOTES PAYABLE (CONTINUED)
1997 and 1996, respectively. Borrowings on the line are collaterized by all of
the Company's deposit accounts, accounts receivable and equipment. Under the
line of credit agreement, the Company is required to pay a fee equal to 0.25%
per annum on the average daily unused balance and maintain selected financial
ratios.

Long-term debt is summarized as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Note payable to bank....................................................... $ 958 $ 3,333
Other note payable......................................................... 175 29
--------- ---------
1,133 3,362
Less current portion....................................................... 871 670
--------- ---------
Non-current portion........................................................ $ 262 $ 2,692
--------- ---------
--------- ---------
</TABLE>

The note payable to bank is collateralized by all deposit accounts, accounts
receivable, and equipment of the Company and by unreleased ASOP shares (see Note
I). The Note bears interest at the bank's prime rate (8.5% and 8.25% at December
31, 1997 and 1996, respectively) plus 0.5%. The note is payable in monthly
installments of $56,000 ($672,000 annually) plus interest with the last
installment due December 2001.

NOTE C--INCOME TAXES

The provision for income taxes consists of the following (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal.............................................................................. $ 131 $ 2 $ (288)
State................................................................................ -- -- (16)
--------- --- ---------
Total current...................................................................... 131 2 (304)
Deferred............................................................................... 1,769 498 1,727
--------- --- ---------
Provision for income taxes............................................................. $ 1,900 $ 500 $ 1,423
--------- --- ---------
--------- --- ---------
</TABLE>

F-10
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE C--INCOME TAXES (CONTINUED)
Temporary differences consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Deferred tax assets
Current
Net operating loss............................................................... $ 72 $ 96 $ 23
Contributions.................................................................... 74 72 22
Bad debts........................................................................ 205 18 --
Other............................................................................ (14) -- --
--------- --------- ---------
Total current deferred tax assets.............................................. 337 186 45
Non-current........................................................................
Supplemental executive retirement plan contributions............................. 720 506 273
Stock based compensation......................................................... -- 104 181
Other............................................................................ 205 61 97
--------- --------- ---------
Total non-current deferred tax assets.......................................... 925 671 551
--------- --------- ---------
Total deferred tax assets.................................................... 1,262 857 596
--------- --------- ---------
Deferred tax liabilities
Current--Accrual to cash basis adjustment.......................................... 6,016 4,404 4,456
Non-current--Stock based compensation 1,372 811 --
--------- --------- ---------
Total deferred tax liabilities 7,388 5,215 4,456
--------- --------- ---------
Total net deferred tax liabilities......................................... $ 6,126 $ 4,358 $ 3,860
--------- --------- ---------
--------- --------- ---------
</TABLE>

As a result of the following items, the total provision for income taxes was
different from the amount computed by applying the statutory U.S. federal income
tax rate to earnings before income taxes:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Federal income tax at statutory rate........................................... 35.0% 35.0% 35.0%
Changes due to:
State franchise tax, net of federal income tax benefit....................... 6.0 6.1 6.1
Meals and entertainment...................................................... 44.2 7.1 3.0
ASOP......................................................................... 435.5 12.5 --
Other........................................................................ (1.7) (4.7) (1.1)
----- --- ---
519.0% 56.0% 43.0%
----- --- ---
----- --- ---
</TABLE>

For tax reporting purposes, the Company had historically elected to be taxed
under the cash basis of reporting as opposed to the accrual method used for
financial reporting purposes. As a result of such election, a deferred tax
liability of $6,016,000 and $4,404,000 exists at December 31, 1997 and 1996,
respectively. As a result of the proposed initial public offering of Common
Stock, the Company is required to change its tax reporting to the accrual basis
to be consistent with financial reporting purposes. As a result of this change,
the

F-11
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE C--INCOME TAXES (CONTINUED)
deferred tax liability resulting from the use of cash basis reporting for income
taxes will become payable over a period not exceeding four years.

NOTE D--NOTES RECEIVABLE--STOCKHOLDERS

Notes receivable from stockholders consist primarily of loans provided to
participants of the restricted stock bonus and non-qualified stock option
agreements (see Note H). The Company allows participants to exchange notes for
the purchase of shares of Common Stock and the exercise of stock options. Notes
received in exchange for Common Stock have been classified as a reduction of
stockholders' equity. In addition, the Company also provides participants with
notes to cover associated taxes related to the exercise of stock options. Notes
are generally non-recourse and non-interest bearing and have been discounted
using imputed annual interest rates from 5.77% to 6.36%. Such notes are payable
over a ten-year term.

Participants are required to pay, each year, the greater of 10% of the
outstanding amounts or 50% of the after tax amount of any annual bonus received
by them to repay outstanding amounts of the notes. Stockholders' notes
receivable received in exchange for Common Stock were $5,134,000 and $2,043,000,
as of December 31, 1997 and 1996, respectively. Stockholders' notes receivable
related to advances to associates for payment of taxes associated with stock
option exercises were $1,679,000 and $454,000 as of December 31, 1997 and 1996,
respectively.

NOTE E--COMMITMENTS AND CONTINGENCIES

The Company leases its office facilities, certain office space and living
accommodations for consultants on short-term projects under operating leases
which expire at various dates through 2002. At December 31, 1997, the Company
was obligated under non-cancelable operating leases with future minimum rentals
as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- -------------------------------------------------------------------------------------
<S> <C>
1998.............................................................................. $ 1,620
1999.............................................................................. 1,297
2000.............................................................................. 969
2001.............................................................................. 716
2002.............................................................................. 543
---------
$ 5,145
---------
---------
</TABLE>

Rent expense aggregated $2,624,000, $1,703,000 and $1,241,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.

The Company is involved in various legal actions arising in the normal
course of business. Management is of the opinion that the outcome of these
matters will not have a material adverse effect on the Company's financial
position or results of operation.

F-12
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE F--STOCK OPTIONS

A summary of stock option transactions is as follows:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE PER OPTIONS
SHARE OUTSTANDING
------------------- -----------
<S> <C> <C>
Balance at January 1, 1995........................................................ -- --
Options granted................................................................. $ 0.57 1,279,440
Options exercised............................................................... 0.57 (733,088)
-----------
Balance at December 31, 1995...................................................... 0.57 546,432
Options granted................................................................. 1.13 366,168
Options exercised............................................................... 0.94 (193,928)
Options canceled................................................................ 0.57 (22,224)
-----------
Balance at December 31, 1996...................................................... 0.76 696,448
Options granted................................................................. 5.05 1,244,576
Options exercised............................................................... 1.15 (822,424)
Options canceled................................................................ 1.13 (89,200)
-----------
Balance at December 31, 1997...................................................... $ 5.49 1,029,400
-----------
-----------
</TABLE>

None of the options outstanding at December 31, 1997 are exercisable. As of
December 31, 1997, option prices ranged from $4.76 to $7.44 and had a remaining
weighted average life of 9.73 years.

Adjusted pro forma information regarding net income is required by SFAS 123,
and has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using the "minimal value" method for
option pricing with the following weighted average assumptions: risk-free
interest rate of 6%; dividend yield of 0%; and a remaining weighted average life
of the option of two to five years. For purposes of adjusted pro forma
disclosures, the estimated fair value of the options is not materially different
from the intrinsic value of the options. As such, the pro forma impact on
reported results for the years ended December 31, 1997, 1996 and 1995 was not
significant and has not been presented herein. The weighted average fair value
of options granted during the year ended December 31, 1997, 1996 and 1995 was
$1.60, $2.79 and $1.13, respectively.

For the year ended December 31, 1997, 1996 and 1995, compensation expense
recognized in income for stock-based employee compensation related to the grant
of options was $278,415, $215,000 and $385,000, respectively.

NOTE G--PROFIT-SHARING PLAN AND SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

PROFIT-SHARING PLAN

The Company had a discretionary profit-sharing plan covering substantially
all employees. Contributions were determined by the Board of Directors and were
limited to the maximum amount deductible for federal income tax purposes.
Discretionary contributions to the profit-sharing plan were $150,000 for the
year ended December 31, 1995. Effective January 1, 1996, this plan was merged
into the ASOP (see Note I).

F-13
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE G--PROFIT-SHARING PLAN AND SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(CONTINUED)
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

Participants may make fully vested compensation reduction contributions to
the SERP, subject to a maximum deferral of 10% of annual base salary. The
Company may make a voluntary "FCG Contribution" for any year in an amount
determined by the Board to the account of SERP participants. FCG Contributions
vest 10% for each year of service (with up to 5 years service credit for
participants who were vice presidents on January 1, 1994), provided that FCG
Contributions fully vest upon a Change in Control of the Company or upon a
participant's death, disability or attainment of age 65. Company contributions
to the SERP were $493,000, $372,000 and $301,000 for the years ended December
31, 1997, 1996, and 1995, respectively.

The contributions to the SERP are invested by the Company in Variable Life
Insurance Contracts. Management believes that the participants' account balance,
cash surrender value of life insurance and death benefits will be sufficient to
satisfy the Company's obligations under the SERP.

NOTE H--STOCK INCENTIVE AGREEMENTS

1994 RESTRICTED STOCK PLAN AND AGREEMENTS

On December 15, 1997, the Board of Directors adopted an amendment to the
1994 Restricted Stock Plan (as amended the "1994 Plan") and form of Restricted
Stock Agreement ("RSA"). The stockholders approved the 1994 Plan and RSAs on
January 15, 1998. The 1994 Plan provides a mechanism for the purchase and sale
of Common Stock by its vice presidents. The 1994 Plan is administered by the
Company's Board of Directors or a committee appointed by the Board.

Under the 1994 Plan, the Company has entered into RSAs with each of its vice
presidents. The 1994 Plan and RSAs provide that each person, upon becoming a
vice president of the Company, must purchase and hold a specific minimum number
of shares of Common Stock. Vice presidents at Levels I and II are required to
purchase and hold that number of shares equal to one times the vice president's
base salary divided by the then-current fair value of the Common Stock. Vice
presidents at Levels III and IV are required to purchase and hold that number of
shares equal to two times the vice president's base salary divided by the
then-current fair value of the Common Stock. Prior to the completion of this
offering, the fair value of the Common Stock is determined by reference to a
report prepared for the Company by an independent valuation firm.

Shares purchased under the RSAs are subject to a 10-year vesting period
beginning the date upon which an individual becomes a vice president and vest
annually upon the completion of each year of service. Automatic

F-14
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE H--STOCK INCENTIVE AGREEMENTS (CONTINUED)
acceleration of vesting occurs upon death or permanent disability of a vice
president and upon certain changes in ownership of the Company. Partial
acceleration of vesting may also occur once the vice president attains the age
of 59. Shares purchased after consummation of this offering are fully vested
upon purchase.

Under the terms of the RSAs, the Company retains a repurchase right with
respect to unvested shares, unless such termination is due to debt, disability
or changes in control of the Company. Pursuant to this right, the Company may
repurchase unvested shares at the original issuance price plus a growth factor.
The growth factor is equal to the average interest rate compounded quarterly
which the Company pays to a commercial lending institution in a calendar quarter
(the "Growth Factor"). In the event the Company has no borrowings for a
particular quarter, then the Growth Factor shall be the prime rate on the first
day of the quarter, as announced in the Wall Street Journal or if the Wall
Street Journal discontinues such announcements, then it shall be the prime rate
as announced by Bank of America. Shares acquired under RSAs are nontransferable,
with the exception of transfers for certain estate planning and charitable gift
purposes. In addition, the RSAs provide that, under certain circumstances and
upon attaining a certain age, a vice president may sell a portion, but not all,
of his or her shares to other vice presidents or to the Company. The Company may
also repurchase vested shares from a departing vice president if he or she
competes with the Company and/or profits from the sale of Common Stock within
six months of such competition. Upon completion of this offering, a vice
president may also sell unencumbered shares of Common Stock on the public
market, subject to continuing to satisfy the minimum shareholding requirements.
Vice presidents pay the purchase price of the shares by means of non-recourse
and recourse non-interest bearing promissory notes.

The Company maintains life insurance coverage for the purpose of redeeming
stock of its vice president stockholders through the SERP in the event of a vice
president's death (see Note G). For most vice presidents, the insured benefit is
equal to the current market value of the vice president's shareholdings. The
Company is also the beneficiary of a split-dollar life insurance policy on its
principal stockholder that is intended to partially fund the repurchase of the
principal stockholder's stock upon death. The Company also maintains long-term
disability insurance policies on the principal stockholder to help fund the
purchase of stock upon permanent disability of the stockholder.

NON-QUALIFIED STOCK OPTION AGREEMENT

Effective January 1, 1996, and restated January 1, 1997, the Company
executed and adopted a non-qualified stock option agreement for certain
officers. The principal terms of the agreement provide that for each share of
stock purchased at fair market value, the stockholder is granted one exercisable
stock option which allows the stockholder to purchase additional shares at a
price below the fair market value of the Common Stock. During 1997 and 1996,
215,176 and 366,168 shares, respectively, were granted under the provisions of
the agreement and stockholders exercised options on 822,424 and 193,928 shares
of Common Stock, respectively. Deferred compensation of $512,000 and $737,000
was recorded for the years ended December 31, 1997 and 1996, respectively,
related to the granting of options under this agreement. Compensation expense
related to the amortization of the deferred compensation on these options
approximated $145,000 and $79,000 for the years ended December 31, 1997 and
1996, respectively.

F-15
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE H--STOCK INCENTIVE AGREEMENTS (CONTINUED)
Effective December 19, 1995, the Company executed and adopted a
non-qualified stock option agreement for certain vice presidents. The principal
terms of the agreement provided that for each share of stock purchased at fair
market value of the Common Stock, the stockholder was granted two exercisable
stock options which allow the stockholder to purchase additional shares at
approximately 20% of the fair market value of the Common Stock. During 1995,
1,279,440 stock options were granted under the provisions of the agreement and
vice presidents exercised options for 733,008 shares of Common Stock.
Compensation expense related to these options approximated $134,000, $136,000
and $385,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
The agreements also provide that the Company will make non-recourse loans
available for the purchase of stock, the exercise of stock options and
associated taxes (see Note D).

OTHER EQUITY PLANS

On August 22, 1997, the Board adopted an equity incentive plan and
non-employee directors' stock option plan, which was approved by the
shareholders on January 15, 1998. The principal terms of the equity incentive
plan allow the Company to grant either stock options, stock bonuses or stock
appreciation rights to acquire up to 1,600,000 shares of Common Stock. The stock
awards vest over a ten-year term from the date of grant. Under the plan, the
Company granted employees 945,400 options to purchase Common Stock at an
exercise price equal to the market price of Common Stock on the date of grant.
As of December 31, 1997, none of these options were exercisable. The Company had
no stock appreciation rights issued or outstanding for the year ended December
31, 1997.

The non-employee directors' stock option plan allows the Company to grant
options under such plan for up to 200,000 shares of Common Stock. Under the
plan, the Company granted 84,000 options on August 22, 1997, to purchase Common
Stock at an exercise price equal to the market price of the Common Stock on date
of grant. These options vest over a ten-year term from date of grant.

NOTE I--ASSOCIATE 401(k) AND STOCK OWNERSHIP PLAN

The ASOP, as amended, was adopted effective December 1, 1995. The ASOP
covers all employees of the Company and affiliates of the Company designated by
the Company's Board of Directors, excluding any union employees unless their
coverage is bargained for, and excluding non-resident aliens without U.S. source
earned income. ASOP participation commences automatically for newly eligible
employees on semiannual entry dates.

F-16
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE I--ASSOCIATE 401(k) AND STOCK OWNERSHIP PLAN (CONTINUED)
borrowed $4.0 million from a third-party financial institution (the "ASOP Loan")
to purchase 1,429,848 shares of Common Stock in 1995. The shares of Common Stock
so purchased were placed in a suspense account under the ASOP from which they
are released and allocated to participants accounts' as the ASOP Loan is repaid.
Any or all Company contributions may be used to repay the ASOP Loan.

The Company accounts for its ASOP in accordance with Statement of Position
93-6, EMPLOYERS' ACCOUNTING FOR EMPLOYEE STOCK OWNERSHIP PLANS. Accordingly, the
Company reports in its Statement of Financial Position the debt of the ASOP and
unearned ASOP shares, which is the original cost basis of the ASOP shares
pledged as collateral for the debt. As shares are committed to be released, the
Company credits unearned ASOP shares based on the cost of the shares to the
ASOP. The Company records compensation expense based on the fair market value of
the shares committed to be released. The difference between the fair value of
shares committed to be released and the cost of those shares to the ASOP is
either charged or credited to stockholders' equity accounts, as applicable.
Compensation expense for the 401(k) match and the ASOP was approximately $2.4
million and $1.8 million for the years ended December 31, 1997 and 1996,
respectively. No compensation expense related to the ASOP was recognized in 1995
as the plan was adopted on December 1, 1995 and none of the shares had been
committed to be released. Prior to the adoption of the ASOP, the Company
sponsored a profit-sharing plan which included a 401(k) provision with
essentially the same provisions as the current ASOP. The Company's matching
contributions to the 401(k) provision under the previous profit sharing plan was
$560,000 during 1995.

In 1996, the Company made matching contributions and first share
contributions to the ASOP sufficient to provide a 50% matching contribution and
a first share contribution of 200 shares of Company stock for each participant
who was employed by the Company on January 1, 1996 or became employed by the
Company thereafter. In consideration for employees allowing the Company to make
a plan modification to the current ASOP plan, the Company committed to release
1,000 shares of Common Stock to each participant in the ASOP as of November 26,
1997 (568,000 shares in the aggregate). This commitment resulted in a charge to
compensation expense of approximately $4.2 million in the fourth quarter of
1997. Such amount is included in compensation expenses related to stock
issuances in the accompanying financial statements. The committed shares will be
released to participant accounts to the extent that shares distributed to an
individual do not exceed certain Internal Revenue Service section limitations.

The ASOP shares were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Allocated shares.................................... 1,301,712 372,780 --
Unreleased shares................................... 287,832 1,152,764 1,429,848
------------ ------------ ------------
Total ASOP shares............................... 1,589,544 1,525,544 1,429,848

Fair market value of unreleased shares.............. $ 2,520,000 $ 7,258,000 $ 4,039,000
</TABLE>

Upon the cessation of employment of an employee, the Company pays the
employee the fair market value of the shares of Common Stock previously
allocated to such employee under the ASOP. The fair market value of Common Stock
is determined by an independent valuation firm. The ultimate funding of this
obligation rests with the Company. Accordingly, the Company has recorded the
potential future obligation to repurchase such securities outside of permanent
equity (see also Note H). Subsequent to the Company's closing of its anticipated

F-17
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE I--ASSOCIATE 401(k) AND STOCK OWNERSHIP PLAN (CONTINUED)
initial public offering, shares of Common Stock held by the ASOP are expected to
be tradable on an established exchange and recording of such amounts outside of
permanent equity will no longer be required (see Note A-11).

NOTE J--CONCENTRATION OF CREDIT RISK

The Company maintains its cash balances in a financial institution located
in Long Beach, California. These balances are insured by the Federal Deposit
Insurance Corporation up to $100,000. At December 31, 1997, the Company had
balances in excess of the insured amount of approximately $3,940,000. The
Company has not experienced any losses in such account and believes it is not
exposed to any significant credit risk on its cash and cash equivalents. The
Company has concentrations of credit risk related to accounts receivable and
revenues. At December 31, 1997, accounts receivable associated with five clients
represented approximately 30% of the accounts receivable balance. Also, for the
year ended December 31, 1997, approximately 15% of total net revenue was
attributable to five clients.

NOTE K--SUBSEQUENT EVENT

The Board of Directors authorized management of the Company to file a
registration statement with the Securities and Exchange Commission permitting
the Company to sell up to 2,996,858 shares of Common Stock to the public (the
"Offering"). In connection with the Offering, the Board of Directors will
approve a four-for-one stock split in the form of a stock dividend covering all
of the Company's capital stock and options. All share and per share amounts
included in the accompanying financial statements have been adjusted to reflect
the stock split. In conjunction with the Offering, the Board of Directors
authorized, subject to shareholder approval, the reincorporation of the Company
into Delaware.

F-18
<PAGE>
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER
OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

--------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary................................... 3
Risk Factors......................................... 5
Special Note Regarding Forward-Looking Statements.... 12
Use of Proceeds...................................... 13
Dividend Policy...................................... 13
Capitalization....................................... 14
Dilution............................................. 15
Selected Consolidated Financial Data................. 16
Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 17
Business............................................. 24
Management........................................... 35
Certain Transactions................................. 45
Principal and Selling Stockholders................... 46
Description Of Capital Stock......................... 50
Shares Eligible For Future Sale...................... 51
Underwriting......................................... 53
Legal Matters........................................ 54
Experts.............................................. 54
Additional Information............................... 54
Index To Financial Statements........................ F-1
</TABLE>

--------------

UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

3,312,384 SHARES

[LOGO]

COMMON STOCK

--------------

PROSPECTUS
--------------

HAMBRECHT & QUIST

BANCAMERICA ROBERTSON STEPHENS

UBS SECURITIES

, 1998

- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, all of which are to be paid by the
registrant in connection with the distribution of the Common Stock being
registered. All amounts are estimated, except the SEC Registration Fee, the NASD
Filing Fee and the Nasdaq National Market Filing Fee:

<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee.............................................................. $ 15,151
NASD Filing Fee................................................................... 5,500
Nasdaq National Market Filing Fee................................................. 24,046
Blue Sky Fees and Expenses........................................................ 5,000
Accounting Fees................................................................... 200,000
Legal Fees and Expenses........................................................... 450,000
Transfer Agent and Registrar Fees................................................. 3,000
Printing and Engraving............................................................ 150,000
Miscellaneous..................................................................... 22,303
----------
Total......................................................................... $ 875,000
----------
----------
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Registrant's Certificate of Incorporation provides that directors of the
Registrant shall not be personally liable to the Registrant or its stockholders
for monetary damages for breach of fiduciary duty as a director, to the fullest
extent permitted by the Delaware General Corporation Law. The Registrant's
Bylaws provide for indemnification of officers and directors to the full extent
and in the manner permitted by Delaware law. Section 145 of the Delaware General
Corporation Law makes provision for such indemnification in terms sufficiently
broad to cover officers and directors under certain circumstances for
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act").

The Registrant intends to enter into indemnification agreements with each
director and certain officers which provide indemnification under certain
circumstances for acts and omissions which may not be covered by any directors'
and officers' liability insurance.

The form of Underwriting Agreement, filed as Exhibit 1.1 to the Registration
Statement, provides for indemnification of the Registrant and its controlling
persons against certain liabilities under the Securities Act.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since January 1, 1995, the Company has sold and issued the following
unregistered securities:

(1) On December 14, 1995, the Company issued 1,429,848 shares of Common
Stock to the Associate 401(k) and Stock Ownership Plan at a price of $2.80 per
share.

(2) From January 1, 1995 to December 31, 1995, the Company issued 639,720
shares of Common Stock to officers of the Company at a price of $2.80 per share
and 52,800 shares of Common Stock to officers of the Company at a price of $0.57
per share. During this time, officers exercised options to purchase 733,008
shares of Common Stock at a weighted average price of $0.57 per share.

(3) From January 1, 1996 to December 31, 1996, the Company issued 366,168
shares of Common Stock to officers of the Company at a price of $2.83 per share.
During this time, officers exercised options to purchase 193,928 shares of
Common Stock at a weighted average exercise price of $0.94 per share.

II-1
<PAGE>
(4) From January 1, 1997 to December 31, 1997, the Company issued to
officers and directors of the Company 786,316 shares of Common Stock at a price
of $4.76 per share, 99,316 shares of Common Stock at a price of $5.50 per share
and 467,412 shares of Common Stock at a price of $7.44 per share. During this
time, officers exercised options to purchase 822,424 shares of Common Stock at a
weighted average exercise price of $1.15 per share.

The sales and issuances of securities in the transactions described in
paragraphs (3) and (4) and the exercise of stock options referred to in
paragraph (2) above were deemed to be exempt from registration under the
Securities Act by virtue of Rule 701 promulgated thereunder in that they were
offered and sold either pursuant to a written compensatory benefit plan or
pursuant to a written contract relating to compensation, as provided by Rule
701.

The sales and issuances of securities in the transactions described in
paragraphs (1) and (2) above were deemed to be exempt from registration under
the Securities Act by virtue of Section 4(2). The purchasers in each case
represented their intention to acquire the securities for investment only and
not with a view to the distribution thereof. Appropriate legends are affixed to
the stock certificates issued in such transactions. Similar legends were imposed
in connection with any subsequent sales of any such securities. All recipients
either received adequate information about the Registrant or had access, through
employment or other relationships, to such information.

II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<TABLE>
<CAPTION>
<S> <C>
1.1 Form of Underwriting Agreement.
3.1* Certificate of Incorporation of the Registrant.
3.3* Bylaws of the Registrant.
4.1* Specimen Common Stock Certificate.
5.1* Opinion of Cooley Godward LLP.
10.1* 1997 Equity Incentive Plan.
10.1.1* Form of Incentive Stock Option between the Registrant and its employees, directors, and consultants.
10.1.2* Form of Non-Statutory Stock Option between the Registrant and its employees, directors, and consultants.
10.1.3* Form of Non-Statutory Stock Option (United Kingdom) between the Registrant and its United Kingdom
resident employees, directors, and consultants.
10.1.4* Form of 1997 Equity Incentive Plan Notice of Exercise between the Registrant and its employees,
directors, and consultants.
10.2* 1997 Non-Employee Directors' Stock Option Plan.
10.2.1* Form of Non-Statutory Stock Option (Initial Option-Continuing Non-Employee Directors) between the
Registrant its continuing non-employee directors.
10.2.2* Form of Non-Statutory Stock Option (Initial Option-New Non-Employee Directors) between the Registrant
and its non-employee directors.
10.2.3* Form of Non-Statutory Stock Option (Annual Option) between the Registrant and its non-employee
directors.
10.2.4* Form of 1997 Non-Employee Directors' Stock Option Plan Notice of Exercise between the Registrant and its
non-employee directors.
10.3* 1994 Restricted Stock Plan, as amended.
10.3.1* Form of Amended and Restated Restricted Stock Agreement between the Registrant and its executive
officers.
10.3.2* Form of Loan and Pledge Agreement between the Registrant and its vice presidents.
10.3.3* Form of Secured Promissory Note (Non-Recourse) between the Registrant and its vice presidents.
10.4* Second Amended and Restated Associate 401(k) and Stock Ownership Plan.
10.5* First Amendment to the Second Amended and Restated Associate 401(k) and Stock Ownership Plan.
10.6* 1997 Non-Employee Director Restricted Stock Plan.
10.6.1* Form of Restricted Stock Agreement between the Registrant and its non-employee directors.
10.7* Supplemental Executive Retirement Plan.
10.8* Form of Indemnity Agreement between the Registrant and its directors and executive officers.
10.9* Lease, dated as of October 3, 1996, between the Registrant and Landmark Square Associates, L.P. for the
Registrant's principal executive offices in Long Beach, CA.
10.10* Credit Agreement between the Registrant and Wells Fargo Bank, dated December 18, 1997.
11.1* Statement re computation of per share earnings.
21.1* Subsidiaries of the Registrant.
23.1 Consent of Grant Thornton LLP, Certified Public Accountants.
23.2* Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1* Power of Attorney.
27.1* Financial Data Schedule.
</TABLE>

- ------------------------

* Previously filed.

II-3
<PAGE>
(b) Financial Statement Schedules

Schedules are omitted because they are not applicable, or because the
information is included in the Financial Statements or the Notes thereto.

ITEM 17. UNDERTAKINGS

A. The Registrant hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

B. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

C. The Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, First Consulting
Group, Inc. has duly caused this Amendment No. 2 to the Registration Statement
to be signed on its behalf, by the undersigned, thereunto duly authorized, in
the City of Long Beach, County of Los Angeles, State of California, on February
4, 1997.

<TABLE>
<S> <C> <C>
FIRST CONSULTING GROUP, INC.

By: *
-----------------------------------------
James A. Reep
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND
PRESIDENT
</TABLE>

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------- ---------------------------- ------------------
<C> <C> <S> <C>

* Chairman, Chief Executive
- ---------------------------------- Officer and President
James A. Reep (PRINCIPAL EXECUTIVE February 4, 1997
OFFICER)

/s/ THOMAS A. REEP Chief Financial Officer and
- ---------------------------------- Vice President (PRINCIPAL
Thomas A. Reep FINANCIAL AND ACCOUNTING February 4, 1997
OFFICER)

*
- ---------------------------------- Director February 4, 1997
Steven Heck

*
- ---------------------------------- Director February 4, 1997
Steven Lazarus

*
- ---------------------------------- Director February 4, 1997
Stanley R. Nelson

/s/ LUTHER J. NUSSBAUM
- ---------------------------------- Director February 4, 1997
Luther J. Nussbaum

*
- ---------------------------------- Director February 4, 1997
Stephen E. Olson
</TABLE>

II-5
<PAGE>

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------- ---------------------------- ------------------
<C> <C> <S> <C>
*
- ---------------------------------- Director February 4, 1997
Scott S. Parker

*
- ---------------------------------- Director February 4, 1997
Jack O. Vance

/s/ LUTHER J. NUSSBAUM
- ----------------------------------
Luther J. Nussbaum
ATTORNEY-IN-FACT
</TABLE>

II-6
<PAGE>
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1* Certificate of Incorporation of the Registrant.
3.3* Bylaws of the Registrant.
4.1* Specimen Common Stock Certificate.
5.1* Opinion of Cooley Godward LLP.
10.1* 1997 Equity Incentive Plan.
10.1.1* Form of Incentive Stock Option between the Registrant and its employees, directors, and consultants.
10.1.2* Form of Non-Statutory Stock Option between the Registrant and its employees, directors, and consultants.
10.1.3* Form of Non-Statutory Stock Option (United Kingdom) between the Registrant and its United Kingdom
resident employees, directors, and consultants.
10.1.4* Form of 1997 Equity Incentive Plan Notice of Exercise between the Registrant and its employees,
directors, and consultants.
10.2* 1997 Non-Employee Directors' Stock Option Plan.
10.2.1* Form of Non-Statutory Stock Option (Initial Option-Continuing Non-Employee Directors) between the
Registrant its continuing non-employee directors.
10.2.2* Form of Non-Statutory Stock Option (Initial Option-New Non-Employee Directors) between the Registrant
and its non-employee directors.
10.2.3* Form of Non-Statutory Stock Option (Annual Option) between the Registrant and its non-employee
directors.
10.2.4* Form of 1997 Non-Employee Directors' Stock Option Plan Notice of Exercise between the Registrant and its
non-employee directors.
10.3* 1994 Restricted Stock Plan, as amended.
10.3.1* Form of Amended and Restated Restricted Stock Agreement between the Registrant and its executive
officers.
10.3.2* Form of Loan and Pledge Agreement between the Registrant and its vice presidents.
10.3.3* Form of Secured Promissory Note (Non-Recourse) between the Registrant and its vice presidents.
10.4* Second Amended and Restated Associate 401(k) and Stock Ownership Plan.
10.5* First Amendment to the Second Amended and Restated Associate 401(k) and Stock Ownership Plan.
10.6* 1997 Non-Employee Director Restricted Stock Plan.
10.6.1* Form of Restricted Stock Agreement between the Registrant and its non-employee directors.
10.7* Supplemental Executive Retirement Plan.
10.8* Form of Indemnity Agreement between the Registrant and its directors and executive officers.
10.9* Lease, dated as of October 3, 1996, between the Registrant and Landmark Square Associates, L.P. for the
Registrant's principal executive offices in Long Beach, CA.
10.10* Credit Agreement between the Registrant and Wells Fargo Bank, dated December 18, 1997.
11.1* Statement re computation of per share earnings.
21.1* Subsidiaries of the Registrant.
23.1 Consent of Grant Thornton LLP, Certified Public Accountants.
23.2* Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1* Power of Attorney.
27.1* Financial Data Schedule.
</TABLE>

- ------------------------

* Previously filed.

<PAGE>

FIRST CONSULTING GROUP, INC.

3,312,384 SHARES(1)

COMMON STOCK

UNDERWRITING AGREEMENT

February __, 1998

HAMBRECHT & QUIST LLC
BANCAMERICA ROBERTSON STEPHENS
UBS SECURITIES
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104

Ladies and Gentlemen:

First Consulting Group, Inc., a Delaware corporation (herein called the
"Company"), proposes to issue and sell 2,500,000 shares of its authorized but
unissued Common Stock, $0.001 par value (herein called the "Common Stock"),
and the stockholders of the Company named in Schedule II hereto (herein
collectively called the "Selling Securityholders", which term shall include,
except where otherwise noted, those stockholders named as Affiliated Selling
Securityholders in Schedule II hereto, herein collectively called the
"Affiliated Selling Securityholders") propose to sell an aggregate of 812,384
shares of Common Stock of the Company (said 3,312,384 shares of Common Stock
being herein called the "Underwritten Stock"). The Company proposes to grant
to the Underwriters (as hereinafter defined) an option to purchase up to
496,858 additional shares of Common Stock (herein called the "Option Stock"
and together with the Underwritten Stock herein referred to as the "Stock").
The Common Stock is more fully described in the Registration Statement and
the Prospectus hereinafter mentioned.

The Company and the Selling Securityholders severally hereby confirm the
agreements made with respect to the purchase of the Stock by the several
underwriters, for whom you are acting, named in Schedule I hereto (herein
collectively called the "Underwriters," which term shall also include any
underwriter purchasing Stock pursuant to Section 3(b) hereof). You represent
and warrant that you have been authorized by each of the other Underwriters
to enter into this Agreement on its behalf and to act for it in the manner
herein provided.

1. REGISTRATION STATEMENT. The Company has filed with the Securities
and Exchange Commission (herein called the "Commission") a registration
statement on Form S-1 (Registration No. 333-41121), including the related
preliminary prospectus, for the registration under the Securities Act of
1933, as amended (herein called the "Securities Act") of the Stock. Copies
of such registration statement and of each amendment thereto, if any,
including the related preliminary prospectus (meeting the requirements of
Rule 430A of the rules and regulations of the Commission) heretofore filed by
the Company with the Commission have been delivered to you.

The term "Registration Statement" as used in this agreement shall mean
such registration statement, including all exhibits and financial statements,
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, in the form in which it became effective,
and any registration

- -----------------
(1) Plus an option to purchase from the Company up to 496,858 additional
shares to cover over-allotments.

<PAGE>

statement filed pursuant to Rule 462(b) of the rules and regulations of the
Commission with respect to the Stock (herein called a "Rule 462(b)
Registration Statement"), and, in the event of any amendment thereto after
the effective date of such registration statement (herein called the
"Effective Date"), shall also mean (from and after the effectiveness of such
amendment) such registration statement as so amended (including any Rule
462(b) Registration Statement). The term "Prospectus" as used in this
Agreement shall mean the prospectus relating to the Stock first filed with
the Commission pursuant to Rule 424(b) and Rule 430A (or if no such filing is
required, as included in the Registration Statement) and, in the event of any
supplement or amendment to such prospectus after the Effective Date, shall
also mean (from and after the filing with the Commission of such supplement
or the effectiveness of such amendment) such prospectus as so supplemented or
amended. The term "Preliminary Prospectus" as used in this Agreement shall
mean each preliminary prospectus included in such registration statement
prior to the time it becomes effective.

The Registration Statement has been declared effective under the
Securities Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. The Company has caused to be
delivered to you copies of each Preliminary Prospectus and has consented to
the use of such copies for the purposes permitted by the Securities Act.

2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SECURITYHOLDERS.

(a) The Company hereby represents and warrants as follows:

(i) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has full
corporate power and authority to own or lease properties and conduct
business as described in the Registration Statement and the Prospectus
and as currently being conducted, and is duly qualified as a foreign
corporation and in good standing in all jurisdictions in which the
character of the property owned or leased or the nature of the business
transacted by it makes qualification necessary (except where the failure
to be so qualified would not have a material adverse effect on the
business, properties, financial condition or results of operations of
the Company and its subsidiaries, taken as a whole (a "Material Adverse
Effect")).

(ii) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there has not been any
materially adverse change in the business, properties, financial
condition or results of operations of the Company and its subsidiaries,
taken as a whole, whether or not arising from transactions in the
ordinary course of business, other than as set forth in the Registration
Statement and the Prospectus, and since such dates, except in the
ordinary course of business, neither the Company nor any of its
subsidiaries has entered into any material transaction not referred to
in the Registration Statement and the Prospectus.

(iii) Other than FCG (UK), FCG (Ireland), the Scottsdale
Informatics Institute, and Greenhalgh and Company, none of which are
Significant Subsidiaries as defined in Rule 405 promulgated under the
Securities Act, the Company does not own, directly or indirectly, any
capital stock or other equity interest of any corporation or have any
direct equity or ownership interest in any other business, whether
organized as a corporation, partnership, joint venture or otherwise.

(iv) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus relating to the
proposed offering of the Stock nor instituted or threatened instituting
proceedings for that purpose. The Registration Statement and the
Prospectus comply, and on the Closing Date (as hereinafter defined) and
any later date on which Option Stock is to be purchased, the Prospectus
will comply, in all material respects, with the provisions of the
Securities Act and, as applicable, the Securities Exchange Act of 1934,
as amended (herein called the "Exchange Act"), and the rules and
regulations of the Commission thereunder. On the Effective Date, the
Registration Statement did not contain any untrue statement of a
material fact and did not omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading; and, on the Effective

2
<PAGE>

Date, the Prospectus did not and, on the Closing Date and any later date
on which Option Stock is to be purchased, will not contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that none of the representations and warranties in this
subparagraph (iv) shall apply to statements in, or omissions from, the
"Underwriting" section of the Registration Statement or the Prospectus
made in reliance upon and in conformity with information herein or
otherwise furnished in writing to the Company by or on behalf of the
Underwriters for use in the Registration Statement or the Prospectus.

(v) The Company's authorized, issued and outstanding
capitalization as of December 31, 1997 is as set forth under the caption
"Capitalization" in the Prospectus. The Stock is duly and validly
authorized, and, when issued and sold to the Underwriters and upon
delivery of and payment for such shares of the Stock as provided herein,
will be duly and validly issued, fully paid and nonassessable, and the
several underwriters will receive good and marketable title thereto,
free and clear of all liens, encumbrances, equities, security interests
and claims whatsoever. The capital stock conforms in all material
respects to the description thereof contained in the Prospectus. No
further approval or authority of the stockholders or the Board of
Directors of the Company will be required for the issuance and sale of
the Stock by the Company as contemplated herein or to the knowledge of
the Company for the transfer and sale of the Stock to be sold by the
Selling Securityholders. The shares of capital stock outstanding prior
to the issuance of the Underwritten Stock and, if any, the Option Stock
have been duly authorized and are validly issued, fully paid and
nonassessable.

(vi) Prior to the Closing Date, the Stock to be issued and sold
under this Agreement will be authorized for listing and duly admitted
for trading on the Nasdaq National Market (herein called "NNM") upon
official notice of issuance of the Stock.

(vii) Except as disclosed in the Registration Statement, and
except for stock options and shares of Common Stock granted or purchased
pursuant to the equity incentive plans disclosed in the Registration
Statement in the ordinary course of business after December 31, 1997
("Option Plans"), the Company does not have outstanding any options or
warrants to purchase, or any preemptive rights, or other rights to
subscribe or to purchase or rights of co-sale, any securities or
obligations convertible or exercisable into, or any contracts or
commitments to issue or sell or register for sale, shares of its capital
stock or any such options, warrants, rights, convertible securities,
exercisable securities or obligations.

(viii) Grant Thornton LLP, who have certified the consolidated
financial statements included in the Registration Statement, have
represented to the Company that they are, and the Company has no reason
to believe that such representation is incorrect, independent public
accountants as required by the Securities Act and the rules and
regulations of the Commission thereunder.

(ix) The consolidated financial statements of the Company and
its subsidiaries, together with related notes and schedules as set forth
in the Registration Statement ("Financial Statements"), present fairly
the financial position and the results of operations of the Company and
its subsidiaries, at the indicated dates and for the indicated periods.
The Financial Statements have been prepared in accordance with generally
accepted accounting principles, consistently applied throughout the
periods involved, and all adjustments necessary for a fair presentation
of results for such periods have been made. The selected and summary
financial data contained in the Registration Statement and the financial
information set forth under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" present
fairly the information shown therein and have been compiled on a basis
consistent with the Financial Statements. Other than as set forth in
the Financial Statements, the Company and its subsidiaries have no
material liabilities, contingent or otherwise, other than liabilities
incurred in the ordinary course of business and described in the
Registration Statement.

(x) The Company has filed all required tax returns and has paid
or is contesting in good faith all taxes shown thereon as due, and there
is no tax deficiency that has been or might be asserted against the

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<PAGE>

Company that will or might have a Material Adverse Effect, and all tax
liabilities are adequately provided for in the Financial Statements of
the Company as of the date hereof.

(xi) The Company is not in violation or default under any provision
of its Certificate of Incorporation or bylaws as of the Closing Date and
any later date upon which the Option Stock is purchased, or any indenture,
license, mortgage, lease, franchise, permit, deed of trust or other
agreement or instrument to which the Company is a party or by which the
Company or any of its properties is bound or may be affected, except where
such violation or default would not have a Material Adverse Effect.

(xii) The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the
Company and is a valid and binding agreement on the part of the Company,
enforceable in accordance with its terms, except as rights to indemnity and
contribution hereunder may be limited by applicable laws and except as the
enforcement hereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors'
rights generally, or by general equitable principles. The execution and
performance of this Agreement and the consummation of the transactions
herein contemplated, including, but not limited to, the issuance and sale
of the Stock by the Company and the sale of the Stock by the Selling
Securityholders do not and will not: (i) conflict with, or result in a
breach of, or violation of, any of the terms or provisions of, or
constitute, either by itself or upon notice or the passage of time or both,
a default under, any indenture, license, mortgage, lease, franchise,
permit, deed of trust or other agreement or instrument to which the Company
is a party or by which the Company or any of its properties is bound or may
be affected, except where such breach, violation or default would not have
a Material Adverse Effect, (ii) violate any of the provisions of the
Certificate of Incorporation or Bylaws of the Company in effect as of the
Closing Date and any later date upon which the Option Stock is purchased,
(iii) violate any order, judgment, statute, rule or regulation applicable
to the Company or of any regulatory, administrative or governmental body or
agency having jurisdiction over the Company or any of its properties or
assets, or (iv) result in the creation or imposition of any lien, charge
or encumbrance upon any assets or properties of the Company.

(xiii) Any consent, approval, authorization, order, registration,
filing, qualification, license or permit of or with any court or any
public, governmental or regulatory agency or body having jurisdiction over
the Company or any of its properties or assets which is required for the
execution, delivery and performance of this Agreement or the consummation
of the transactions contemplated hereby, including the issuance, sale and
delivery of the Stock to be issued, sold and delivered by the Company
hereunder, have been obtained, including the registration of the Stock
under the Securities Act, listing of the shares on the NNM and such
consents, approvals, authorizations, orders, registrations, filings,
qualifications, licenses and permits as may be required under state
securities or Blue Sky laws in connection with the purchase and
distribution of the Stock by the Underwriters.

(xiv) There is no pending or, to the Company's knowledge, threatened
action, suit, claim or proceeding against the Company or any of its
officers or any of its properties, assets or rights before any court or
governmental agency or body or otherwise which (i) might have a Material
Adverse Effect, (ii) might prevent consummation of the transactions
contemplated hereby or (iii) is required to be disclosed in the
Registration Statement and not otherwise disclosed; and there are no
contracts or documents of the Company that are required to be described in
the Prospectus or to be filed as exhibits to the Registration Statement
which have not been fairly and accurately described in all material
respects in the Prospectus and filed as exhibits to the Registration
Statement. The contracts so described in the Prospectus are in full force
and effect on the date hereof, and neither the Company nor, to the
Company's knowledge, any other party is in breach of or default under any
of such contracts.

(xv) Other than as set forth in the Registration Statement, no claim
is pending or, to the Company's knowledge, threatened to the effect that
the present or past operations of the Company infringe upon or conflict
with the rights of others with respect to any licenses, patents, patent
rights, patent applications, trademarks, trademark applications, trade
names, copyrights, trade secrets, drawings,

4
<PAGE>

schematics, applications, technology, know-how and other tangible and
intangible proprietary information or material ("Intellectual Property")
which would impair the ability of the Company to conduct its businesses
as currently conducted; no claim is pending or, to the Company's
knowledge, threatened regarding the Company's ownership or other
interest in, or rights under, any Intellectual Property which is
necessary in any respect to permit the Company to conduct its businesses
as currently conducted; and, no claim is pending or, to the Company's
knowledge, threatened to the effect that any Intellectual Property owned
by or licensed to the Company is invalid or unenforceable. Except as
disclosed in the Prospectus, the Company owns, or is licensed or
otherwise has sufficient rights to, all Intellectual Property used or
proposed to be used in the business of the Company as currently
conducted. Except as otherwise disclosed in the Prospectus, no
contract, agreement or understanding between the Company and any other
party exists which would impede or prevent in any respect the continued
use by the Company of the entire right, title and interest of the
Company in and to any Intellectual Property used in the business of the
Company as currently conducted.

(xvi) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Stock.

(xvii) Except as described in the Prospectus, no holder of
securities of the Company has any rights to the registration of securities
of the Company because of the filing of the Registration Statement or
otherwise in connection with the sale of the Stock contemplated hereby.
There are no registration rights with respect to the sale and issuance of
the Stock.

(xviii) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, and the rules and regulations
thereunder.

(xix) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075, Florida Statutes.

(b) Each of the Selling Securityholders, severally and not jointly, hereby
represents and warrants as follows:

(i) Such Selling Securityholder has good and marketable title to all
the shares of Stock to be sold by such Selling Securityholder hereunder,
free and clear of all liens, encumbrances, equities, security interests and
claims whatsoever, with full right and authority to deliver the same
hereunder, subject, in the case of each Selling Securityholder, to the
rights of , as custodian (herein called the "Custodian"), and
that upon the delivery of and payment for such shares of the Stock
hereunder, the several Underwriters will receive good and marketable title
thereto, free and clear of all liens, encumbrances, equities, security
interests and claims whatsoever.

(ii) Certificates in negotiable form for the shares of the Stock to
be sold by such Selling Securityholder have been placed in custody under a
Custody Agreement for delivery under this Agreement with the Custodian;
such Selling Securityholder specifically agrees that the shares of the
Stock represented by the certificates so held in custody for such Selling
Securityholder are subject to the interests of the several Underwriters and
the Company, that the arrangements made by such Selling Securityholder for
such custody, including the Power of Attorney provided for in such Custody
Agreement, are to that extent irrevocable, and that the obligations of such
Selling Securityholder shall not be terminated by any act of such Selling
Securityholder or by operation of law, whether by the death or incapacity
of such Selling Securityholder (or, in the case of a Selling Securityholder
that is not an individual, the dissolution or liquidation of such Selling
Securityholder) or the occurrence of any other event; if any such death,
incapacity, dissolution, liquidation or other such event should occur
before the delivery of such shares of the Stock hereunder, certificates for
such shares of the Stock shall be delivered by the Custodian in accordance
with the terms and conditions of this Agreement as if such death,
incapacity, dissolution,

5
<PAGE>

liquidation or other event had not occurred, regardless of whether the
Custodian shall have received notice of such death, incapacity,
dissolution, liquidation or other event.

(c) Each of the Affiliated Selling Securityholders, severally and not
jointly, hereby represents and warrants that such Affiliated Selling
Securityholder has reviewed the Registration Statement and Prospectus and,
although such Affiliated Selling Securityholder has not independently
verified the accuracy or completeness of all the information contained
therein, nothing has come to the attention of such Affiliated Selling
Securityholder that would lead such Affiliated Selling Securityholder to
believe that on the Effective Date, the Registration Statement contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading; and, on the Effective Date the Prospectus contained
and, on the Closing Date and any later date on which Option Stock is to be
purchased, contains any untrue statement of a material fact or omitted or
omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.

3. PURCHASE OF THE STOCK BY THE UNDERWRITERS.

(a) On the basis of the representations and warranties and subject to
the terms and conditions herein set forth, the Company agrees to issue and
sell 2,500,000 shares of the Underwritten Stock to the several Underwriters,
each Selling Securityholder agrees to sell to the several Underwriters the
number of shares of the Underwritten Stock set forth in Schedule II opposite
the name of such Selling Securityholder, and each of the Underwriters agrees
to purchase from the Company and the Selling Securityholders the respective
aggregate number of shares of Underwritten Stock set forth opposite its name
in Schedule I. The price at which such shares of Underwritten Stock shall be
sold by the Company and the Selling Securityholders and purchased by the
several Underwriters shall be $___ per share. The obligation of each
Underwriter to the Company and each of the Selling Securityholders shall be
to purchase from the Company and the Selling Securityholders that number of
shares of the Underwritten Stock which represents the same proportion of the
total number of shares of the Underwritten Stock to be sold by each of the
Company and the Selling Securityholders pursuant to this Agreement as the
number of shares of the Underwritten Stock set forth opposite the name of
such Underwriter in Schedule I hereto represents of the total number of
shares of the Underwritten Stock to be purchased by all Underwriters pursuant
to this Agreement, as adjusted by Hambrecht & Quist LLC in such manner as
Hambrecht & Quist LLC deems advisable to avoid fractional shares. In making
this Agreement, each Underwriter is contracting severally and not jointly;
except as provided in paragraphs (b) and (c) of this Section 3, the agreement
of each Underwriter is to purchase only the respective number of shares of
the Underwritten Stock specified in Schedule I.

(b) If for any reason one or more of the Underwriters shall fail or
refuse (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Sections 8 or 9 hereof) to purchase
and pay for the number of shares of the Stock agreed to be purchased by such
Underwriter or Underwriters, the Company or the Selling Securityholders shall
immediately give notice thereof to you, and the non-defaulting Underwriters
shall have the right within 24 hours after the receipt by you of such notice
to purchase, or procure one or more other Underwriters to purchase, in such
proportions as may be agreed upon between you and such purchasing Underwriter
or Underwriters and upon the terms herein set forth, all or any part of the
shares of the Stock which such defaulting Underwriter or Underwriters agreed
to purchase. If the non-defaulting Underwriters fail so to make such
arrangements with respect to all such shares and portion, the number of
shares of the Stock which each non-defaulting Underwriter is otherwise
obligated to purchase under this Agreement shall be automatically increased
on a pro rata basis to absorb the remaining shares and portion which the
defaulting Underwriter or Underwriters agreed to purchase; PROVIDED, HOWEVER,
that the non-defaulting Underwriters shall not be obligated to purchase the
shares and portion which the defaulting Underwriter or Underwriters agreed to
purchase if the aggregate number of such shares of the Stock exceeds 10% of
the total number of shares of the Stock which all Underwriters agreed to
purchase hereunder. If the total number of shares of the Stock which the
defaulting Underwriter or Underwriters agreed to purchase shall not be
purchased or absorbed in accordance with the two preceding sentences, the
Company and the Selling Securityholders shall have the right, within 24 hours
next succeeding the 24-hour period above referred to, to make arrangements
with other underwriters or purchasers satisfactory to you for purchase of
such shares and portion on the terms herein set forth. In any such case,
either you or the Company and the Selling Securityholders shall have the
right to postpone the Closing Date determined as

6
<PAGE>

provided in Section 5 hereof for not more than seven business days after the
date originally fixed as the Closing Date pursuant to said Section 5 in order
that any necessary changes in the Registration Statement, the Prospectus or
any other documents or arrangements may be made. If neither the
non-defaulting Underwriters nor the Company and the Selling Securityholders
shall make arrangements within the 24-hour periods stated above for the
purchase of all the shares of the Stock which the defaulting Underwriter or
Underwriters agreed to purchase hereunder, this Agreement shall be terminated
without further act or deed and without any liability on the part of the
Company or the Selling Securityholders to any non-defaulting Underwriter and
without any liability on the part of any non-defaulting Underwriter to the
Company or the Selling Securityholders. Nothing in this paragraph (b), and no
action taken hereunder, shall relieve any defaulting Underwriter from
liability in respect of any default of such Underwriter under this Agreement.

(c) On the basis of the representations, warranties and covenants
herein contained, and subject to the terms and conditions herein set forth,
the Company grants an option to the several Underwriters to purchase,
severally and not jointly, up to 496,858 shares in the aggregate of the
Option Stock from the Company at the same price per share as the Underwriters
shall pay for the Underwritten Stock. Said option may be exercised only to
cover over-allotments in the sale of the Underwritten Stock by the
Underwriters and may be exercised in whole or in part at any time (but not
more than once) on or before the thirtieth day after the date of this
Agreement upon written or telegraphic notice by you to the Company setting
forth the aggregate number of shares of the Option Stock as to which the
several Underwriters are exercising the option. Delivery of certificates for
the shares of Option Stock, and payment therefor, shall be made as provided
in Section 5 hereof. The number of shares of the Option Stock to be
purchased by each Underwriter shall be the same percentage of the total
number of shares of the Option Stock to be purchased by the several
Underwriters as such Underwriter is purchasing of the Underwritten Stock, as
adjusted by Hambrecht & Quist LLC in such manner as Hambrecht & Quist LLC
deems advisable to avoid fractional shares.

4. OFFERING BY UNDERWRITERS.

(a) The terms of the initial public offering by the Underwriters of the
Stock to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the initial public offering and increase or decrease the
concessions and discounts to dealers as they may determine.

(b) The information set forth in the last paragraph on the front cover
page and under "Underwriting" in the Registration Statement, any Preliminary
Prospectus and the Prospectus relating to the Stock filed by the Company
(insofar as such information relates to the Underwriters) constitutes the
only information furnished by the Underwriters to the Company for inclusion
in the Registration Statement, any Preliminary Prospectus, and the
Prospectus, and you on behalf of the respective Underwriters represent and
warrant to the Company that the statements made therein are correct.

5. DELIVERY OF AND PAYMENT FOR THE STOCK.

(a) Delivery of certificates for the shares of the Underwritten Stock
and the Option Stock (if the option granted by Section 3(c) hereof shall have
been exercised not later than 7:00 A.M., San Francisco time, on the date two
business days preceding the Closing Date), and payment therefor, shall be
made at the office of Cooley Godward LLP, Five Palo Alto Square, 3000 El
Camino Real, Palo Alto, CA 94306, at 7:00 a.m., California time, on the
fourth business day after the date of this Agreement, or at such time on such
other day, not later than seven full business days after such fourth business
day, as shall be agreed upon in writing by the Company, the Selling
Securityholders and you. The date and hour of such delivery and payment
(which may be postponed as provided in Section 3(b) hereof) are herein called
the Closing Date.

(b) If the option granted by Section 3(c) hereof shall be exercised
after 7:00 a.m., San Francisco time, on the date two business days preceding
the Closing Date, delivery of certificates for the shares of Option Stock,
and payment therefor, shall be made at the office of Cooley Godward LLP, Five
Palo Alto Square, 3000 El Camino Real, Palo Alto, CA 94306, at 7:00 a.m.,
California time, on the third business day after the exercise of such option.

7
<PAGE>

(c) Payment for the Stock purchased from the Company shall be made to
the Company or its order, and payment for the Stock purchased from the
Selling Securityholders shall be made to the Custodian, for the account of
the Selling Securityholders, in each case by one or more certified or
official bank check or checks in same day funds. Such payment shall be made
upon delivery of certificates for the Stock to you for the respective
accounts of the several Underwriters against receipt therefor signed by you.
Certificates for the Stock to be delivered to you shall be registered in such
name or names and shall be in such denominations as you may request at least
one business day before the Closing Date, in the case of Underwritten Stock,
and at least one business day prior to the purchase thereof, in the case of
the Option Stock. Such certificates will be made available to the
Underwriters for inspection, checking and packaging at the offices of
[ ] on the business day prior to the Closing Date or, in the case
of the Option Stock, by 3:00 p.m., New York time, on the business day
preceding the date of purchase.

It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
and the Selling Securityholders for shares to be purchased by any Underwriter
whose check shall not have been received by you on the Closing Date or any
later date on which Option Stock is purchased for the account of such
Underwriter. Any such payment by you shall not relieve such Underwriter from
any of its obligations hereunder.

6. FURTHER AGREEMENTS OF THE COMPANY. The Company covenants and agrees
as follows:

(a) The Company will (i) prepare and timely file with the Commission
under Rule 424(b) a Prospectus containing information previously omitted at
the time of effectiveness of the Registration Statement in reliance on Rule
430A and (ii) not file any amendment to the Registration Statement or
supplement to the Prospectus of which you shall not previously have been
advised and furnished with a copy or to which you shall have reasonably
objected in writing or which is not in compliance with the Securities Act or
the rules and regulations of the Commission.

(b) The Company will promptly notify Hambrecht & Quist LLC in the event
of (i) the request by the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional
information, (ii) the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement, (iii) the institution or
notice of intended institution of any action or proceeding for that purpose,
(iv) the receipt by the Company of any notification with respect to the
suspension of the qualification of the Stock for sale in any jurisdiction, or
(v) the receipt by it of notice of the initiation or threatening of any
proceeding for such purpose. The Company will make every reasonable effort
to prevent the issuance of such a stop order and, if such an order shall at
any time be issued, to obtain the withdrawal thereof at the earliest possible
moment.

(c) The Company will (i) on or before the Closing Date, deliver to you
a signed copy of the Registration Statement as originally filed and of each
amendment thereto filed prior to the time the Registration Statement becomes
effective and, promptly upon the filing thereof, a signed copy of each
post-effective amendment, if any, to the Registration Statement (together
with, in each case, all exhibits thereto unless previously furnished to you)
and will also deliver to you, for distribution to the Underwriters, a
sufficient number of additional conformed copies of each of the foregoing
(but without exhibits) so that one copy of each may be distributed to each
Underwriter, (ii) as promptly as possible deliver to you and send to the
several Underwriters, at such office or offices as you may designate, as many
copies of the Prospectus as you may reasonably request, and (iii) thereafter
from time to time during the period in which a prospectus is required by law
to be delivered by an Underwriter or dealer, likewise send to the
Underwriters as many additional copies of the Prospectus and as many copies
of any supplement to the Prospectus and of any amended prospectus, filed by
the Company with the Commission, as you may reasonably request for the
purposes contemplated by the Securities Act.

(d) If at any time during the period in which a prospectus is required
by law to be delivered by an Underwriter or dealer any event relating to or
affecting the Company, or of which the Company shall be advised in writing by
you, shall occur as a result of which it is necessary, in the opinion of
counsel for the Company or of counsel for the Underwriters, to supplement or
amend the Prospectus in order to make the Prospectus not misleading in the
light of the circumstances existing at the time it is delivered to a
purchaser of the Stock, the

8
<PAGE>

Company will forthwith prepare and file with the Commission a supplement to
the Prospectus or an amended prospectus so that the Prospectus as so
supplemented or amended will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the time
such Prospectus is delivered to such purchaser, not misleading. If, after
the initial public offering of the Stock by the Underwriters and during such
period, the Underwriters shall propose to vary the terms of offering thereof
by reason of changes in general market conditions or otherwise, you will
advise the Company in writing of the proposed variation, and, if in the
opinion either of counsel for the Company or of counsel for the Underwriters
such proposed variation requires that the Prospectus be supplemented or
amended, the Company will forthwith prepare and file with the Commission a
supplement to the Prospectus or an amended prospectus setting forth such
variation. The Company authorizes the Underwriters and all dealers to whom
any of the Stock may be sold by the several Underwriters to use the
Prospectus, as from time to time amended or supplemented, in connection with
the sale of the Stock in accordance with the applicable provisions of the
Securities Act and the applicable rules and regulations thereunder for such
period.

(e) Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any post-effective amendment
to the Registration Statement and any supplement to the Prospectus or any
amended prospectus proposed to be filed.

(f) The Company will cooperate, when and as requested by you, in the
qualification of the Stock for offer and sale under the securities or blue
sky laws of such jurisdictions as you may reasonably designate and, during
the period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, in keeping such qualifications in good standing under
said securities or blue sky laws; PROVIDED, HOWEVER, that the Company shall
not be obligated to file any general consent to service of process or to
qualify as a foreign corporation in any jurisdiction in which it is not so
qualified. The Company will, from time to time, prepare and file such
statements, reports, and other documents as are or may be required to
continue such qualifications in effect for so long a period as you may
reasonably request for distribution of the Stock.

(g) During a period of five years commencing with the date hereof, the
Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to stockholders
of the Company and of all information, documents and reports filed with the
Commission.

(h) Not later than the 45th day following the end of the fiscal quarter
first occurring after the first anniversary of the Effective Date, the
Company will make generally available to its security holders an earnings
statement in accordance with Section 11(a) of the Securities Act and Rule 158
thereunder.

(i) The Company agrees to pay all costs and expenses incident to the
performance of the obligations of the Company and Selling Securityholders
under this Agreement, including all costs and expenses incident to (i) the
preparation, printing and filing with the Commission and the National
Association of Securities Dealers, Inc. ("NASD") of the Registration
Statement, any Preliminary Prospectus and the Prospectus, (ii) the furnishing
to the Underwriters of copies of any Preliminary Prospectus and of the
several documents required by paragraph (c) of this Section 6 to be so
furnished, (iii) the printing of this Agreement and related documents
delivered to the Underwriters, (iv) the preparation, printing and filing of
all supplements and amendments to the Prospectus referred to in paragraph (d)
of this Section 6, (v) the furnishing to you and the Underwriters of the
reports and information referred to in paragraph (g) of this Section 6 and
(vi) the printing and issuance of stock certificates, including the transfer
agent's fees. The Selling Securityholders will pay any transfer taxes
incident to the transfer to the Underwriters of the shares of Stock being
sold by the Selling Securityholders.

(j) The Company agrees to reimburse you, for the account of the several
Underwriters, for blue sky fees and related disbursements (including
reasonable fees of counsel and disbursements and cost of printing blue sky
memoranda for the Underwriters) paid by or for the account of the
Underwriters or their counsel in qualifying the Stock under state securities
or blue sky laws and in the review of the offering by the NASD.

(k) The provisions of paragraphs (i) and (j) of this Section are
intended to relieve the Underwriters from the payment of the expenses and
costs which the Company hereby agrees to pay and shall not affect any

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<PAGE>

agreement which the Company and the Selling Securityholders may make, or may
have made, for the sharing of any such expenses and costs.

(l) The Company hereby agrees that, without the prior written consent
of Hambrecht & Quist LLC on behalf of the Underwriters, the Company will not,
for a period of 180 days following the commencement of the public offering of
the Stock by the Underwriters, directly or indirectly, (i) sell, offer,
contract to sell, make any short sale, pledge, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of any shares of Common
Stock or any securities convertible into or exchangeable or exercisable for
or any rights to purchase or acquire Common Stock or (ii) enter into any swap
or other agreement that transfers, in whole or in part, any of the economic
consequences or ownership of Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise. The foregoing sentence
shall not apply to (A) the Stock to be sold to the Underwriters pursuant to
this Agreement, (B) Common Stock, options to purchase Common Stock or other
equity incentives granted under the Option Plans, or (C) capital stock issued
in connection with acquisitions entered into by the Company as contemplated
in the Registration Statement, provided that the Company shall notify
Hambrecht & Quist LLC of such proposed acquisition at least five (5) business
days prior to entering into a legally binding letter of intent or definitive
agreement with respect to such acquisitions.

(m) If at any time during the 25-day period after the Registration
Statement becomes effective any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price for the Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after
written notice from you advising the Company to the effect set forth above,
forthwith prepare, consult with you concerning the substance of, and
disseminate a press release or other public statement, reasonably
satisfactory to you, responding to or commenting on such rumor, publication
or event.

7. INDEMNIFICATION AND CONTRIBUTION.

(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person (including each partner or officer thereof) who controls any
Underwriter within the meaning of Section 15 of the Securities Act from and
against any and all losses, claims, damages or liabilities, joint or several,
to which such indemnified parties or any of them may become subject under the
Securities Act, the Exchange Act or the common law or otherwise, and the
Company agrees to reimburse each such Underwriter and each person (including
each partner or officer thereof) who controls any Underwriter within the
meaning of Section 15 of the Securities Act for any legal or other expenses
(including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties,
in each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement), or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus
or the Prospectus (as amended or as supplemented if the Company shall have
filed with the Commission any amendment thereof or supplement thereto) or the
omission or alleged omission to state therein a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; PROVIDED, HOWEVER, that (1) the
indemnity agreement of the Company contained in this paragraph (a) shall not
apply to any such losses, claims, damages, liabilities or expenses if such
statement or omission was made in reliance upon and in conformity with
information furnished as herein stated or otherwise furnished in writing to
the Company by or on behalf of any Underwriter for use in any Preliminary
Prospectus or the Registration Statement or the Prospectus or any such
amendment thereof or supplement thereto, and (2) the indemnity agreement
contained in this paragraph (a) with respect to any Preliminary Prospectus
shall not inure to the benefit of any Underwriter from whom the person
asserting any such losses, claims, damages, liabilities or expenses purchased
the Stock which is the subject thereof (or to the benefit of any person
controlling such Underwriter) if at or prior to the written confirmation of
the sale of such Stock a copy of the Prospectus (or the Prospectus as amended
or supplemented) was not sent or delivered to such person and the untrue
statement or omission of a material fact contained in such Preliminary
Prospectus was corrected in the Prospectus (or the Prospectus as amended or
supplemented) unless the failure is the result of

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<PAGE>

noncompliance by the Company with paragraph (c) of Section 6 hereof. The
indemnity agreements of the Company contained in this paragraph (a) and the
representations and warranties of the Company contained in Section 2 hereof
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery of and payment for the Stock.

(b) Subject to the provisions of paragraph (g) of this Section 7, the
Selling Securityholders severally and not jointly agree to indemnify and hold
harmless each Underwriter and each person (including each partner or officer
thereof) who controls any Underwriter within the meaning of Section 15 of the
Securities Act from and against any and all losses, claims, damages or
liabilities, joint or several, to which such indemnified parties or any of
them may become subject under the Securities Act, the Exchange Act or the
common law or otherwise, and the Selling Securityholders severally and not
jointly agree to reimburse each such Underwriter and each person (including
each partner or officer thereof) who controls any Underwriter within the
meaning of Section 15 of the Securities Act for any legal or other expenses
(including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties,
in each case arising out of or based upon (i) information pertaining to such
Selling Securityholder furnished by or on behalf of such Selling
Securityholder expressly for use in any Preliminary Prospectus or the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto, (ii) facts that would constitute a breach of any
representation or warranty of such Selling Securityholder set forth in
Section 2(b) hereof, or (iii) in the case of an Affiliated Selling
Securityholder, facts that would constitute a breach of any representation or
warranty of such Affiliated Selling Securityholder set forth in Section 2(c)
hereof. The indemnity agreements of the Selling Securityholders contained in
this paragraph (b) and the representations and warranties of the Selling
Securityholders contained in Section 2 hereof shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any indemnified party and shall survive the delivery of and payment for the
Stock.

(c) Each Underwriter severally agrees to indemnify and hold harmless the
Company, each of its officers who signs the Registration Statement on his own
behalf or pursuant to a power of attorney, each of its directors, each other
Underwriter and each person (including each partner or officer thereof) who
controls the Company or any such other Underwriter within the meaning of
Section 15 of the Securities Act, and the Selling Securityholders from and
against any and all losses, claims, damages or liabilities, joint or several, to
which such indemnified parties or any of them may become subject under the
Securities Act, the Exchange Act, or the common law or otherwise and to
reimburse each of them for any legal or other expenses (including, except as
otherwise hereinafter provided, reasonable fees and disbursements of counsel)
incurred by the respective indemnified parties

11
<PAGE>

in connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties,
in each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement) or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading or (ii) any untrue statement or alleged
untrue statement of a material fact contained in the Prospectus (as amended
or as supplemented if the Company shall have filed with the Commission any
amendment thereof or supplement thereto) or the omission or alleged omission
to state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, if such statement or omission was made in reliance upon and in
conformity with information furnished as herein stated or otherwise furnished
in writing to the Company by or on behalf of such indemnifying Underwriter
for use in the Registration Statement or the Prospectus or any such amendment
thereof or supplement thereto. The indemnity agreement of each Underwriter
contained in this paragraph (c) shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the Stock.

(d) Each party indemnified under the provisions of paragraphs (a), (b) and
(c) of this Section 7 agrees that, upon the service of a summons or other
initial legal process upon it in any action or suit instituted against it or
upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (herein called the "Notice") of
such service or notification to the party or parties from whom indemnification
may be sought hereunder. No indemnification provided for in such paragraphs
shall be available to any party who shall fail so to give the Notice if the
party to whom such Notice was not given was unaware of the action, suit,
investigation, inquiry or proceeding to which the Notice would have related and
was prejudiced by the failure to give the Notice, but the omission so to notify
such indemnifying party or parties of any such service or notification shall not
relieve such indemnifying party or parties from any liability which it or they
may have to the indemnified party for contribution or otherwise than on account
of such indemnity agreement. Any indemnifying party shall be entitled at its
own expense to participate in the defense of any action, suit or proceeding
against, or investigation or inquiry of, an indemnified party. Any indemnifying
party shall be entitled, if it so elects within a reasonable time after receipt
of the Notice by giving written notice (herein called the "Notice of Defense")
to the indemnified party, to assume (alone or in conjunction with any other
indemnifying party or parties) the entire defense of such action, suit,
investigation, inquiry or proceeding, in which event such defense shall be
conducted, at the expense of the indemnifying party or parties, by counsel
chosen by such indemnifying party or parties and reasonably satisfactory to the
indemnified party or parties; PROVIDED, HOWEVER, that (i) if the indemnified
party or parties reasonably determine that there may be a conflict between the
positions of the indemnifying party or parties and of the indemnified party or
parties in conducting the defense of such action, suit, investigation, inquiry
or proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then counsel for the indemnified party or parties
shall be entitled to conduct the defense to the extent reasonably determined by
such counsel to be necessary to protect the interests of the indemnified party
or parties and (ii) in any event, the indemnified party or parties shall be
entitled to have counsel chosen by such indemnified party or parties participate
in, but not conduct, the defense. If, within a reasonable time after receipt of
the Notice, an indemnifying party gives a Notice of Defense and the counsel
chosen by the indemnifying party or parties is reasonably satisfactory to the
indemnified party or parties, the indemnifying party or parties will not be
liable under paragraphs (a) through (c) of this Section 7 for any legal or other
expenses subsequently incurred by the indemnified party or parties in connection
with the defense of the action, suit, investigation, inquiry or proceeding,
except that (A) the indemnifying party or parties shall bear the legal and other
expenses incurred in connection with the conduct of the defense as referred to
in clause (i) of the proviso to the preceding sentence and (B) the indemnifying
party or parties shall bear such other expenses as it or they have authorized to
be incurred by the indemnified party or parties. If, within a reasonable time
after receipt of the Notice, no Notice of Defense has been given, the
indemnifying party or parties shall be responsible for any legal or other
expenses incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding.

12
<PAGE>

(e) If the indemnification provided for in this Section 7 is unavailable
or insufficient to hold harmless an indemnified party under paragraph (a), (b)
or (c) of this Section 7, then each indemnifying party, in lieu of indemnifying
such indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of the losses, claims, damages or liabilities
referred to in paragraph (a), (b) or (c) of this Section 7 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party from the offering of the Stock or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each indemnifying party in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Selling Securityholders on the one hand and the Underwriters on
the other shall be deemed to be in the same respective proportions as the total
net proceeds from the offering of the Stock received by the Company and the
Selling Securityholders and the total underwriting discount received by the
Underwriters, as set forth in the table on the cover page of the Prospectus,
bear to the aggregate public offering price of the Stock. Relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by each indemnifying party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission.

The parties agree that it would not be just and equitable if contributions
pursuant to this paragraph (e) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the equitable
considerations referred to in the first sentence of this paragraph (e). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities, or actions in respect thereof, referred to in the first sentence
of this paragraph (e) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigation,
preparing to defend or defending against any action or claim which is the
subject of this paragraph (e). Notwithstanding the provisions of this paragraph
(e), no Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Stock purchased by such Underwriter. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this paragraph (e) to contribute are several in proportion to
their respective underwriting obligations and not joint.

Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (d) of this Section 7).

(f) Neither the Company nor the Selling Securityholders will, without the
prior written consent of each Underwriter, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not such Underwriter or any person who controls such Underwriter within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act is
a party to such claim, action, suit or proceeding) unless such settlement,
compromise or consent includes an unconditional release of such Underwriter and
each such controlling person from all liability arising out of such claim,
action, suit or proceeding.

(g) The liability of each Selling Securityholder under such Selling
Securityholder's representations and warranties contained in paragraphs (b)
and (c) of Section 2 hereof and under the indemnity and reimbursement
agreements contained in the provisions of this Section 7 and Section 11
hereof shall be limited to an amount equal to the initial public offering
price of the stock sold by such Selling Securityholder to the Underwriters.
In addition, no Selling Securityholder shall be liable under the indemnity
and reimbursement agreements of Sections 7 and 11 hereof unless and until the
Underwriters have made written demand on the Company for payment under such
Sections which shall not have been paid or agreed to be paid by the Company
within 45 days after receipt by the Company of such demand. A copy of such
demand, when made to the Company, shall be provided to the Attorney-in-Fact
for the Selling Securityholders. The

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<PAGE>

Company and the Selling Securityholders may agree, as among themselves and
without limiting the rights of the Underwriters under this Agreement, as to
the respective amounts of such liability for which they each shall be
responsible.

8. TERMINATION. This Agreement may be terminated by you at any time
prior to the Closing Date by giving written notice to the Company and the
Selling Securityholders if after the date of this Agreement trading in the
Common Stock shall have been suspended, or if there shall have occurred (i)
the engagement in hostilities or an escalation of major hostilities by the
United States or the declaration of war or a national emergency by the United
States on or after the date hereof, (ii) any outbreak of hostilities or other
national or international calamity or crisis or change in economic or
political conditions if the effect of such outbreak, calamity, crisis or
change in economic or political conditions in the financial markets of the
United States would, in the Underwriters' reasonable judgment, make the
offering or delivery of the Stock impracticable, (iii) suspension of trading
in securities generally or a material adverse decline in value of securities
generally on the New York Stock Exchange, the American Stock Exchange, or The
Nasdaq Stock Market, or limitations on prices (other than limitations on
hours or numbers of days of trading) for securities on either such exchange
or system, (iv) the enactment, publication, decree or other promulgation of
any federal or state statute, regulation, rule or order of, or commencement
of any proceeding or investigation by, any court, legislative body, agency or
other governmental authority which in the Underwriters' reasonable opinion
materially and adversely affects or will materially or adversely affect the
business or operations of the Company, (v) declaration of a banking
moratorium by either federal or New York State authorities or (vi) the taking
of any action by any federal, state or local government or agency in respect
of its monetary or fiscal affairs which in the Underwriters' reasonable
opinion has a material adverse effect on the securities markets in the United
States. If this Agreement shall be terminated pursuant to this Section 8,
there shall be no liability of the Company or the Selling Securityholders to
the Underwriters and no liability of the Underwriters to the Company or the
Selling Securityholders; PROVIDED, HOWEVER, that in the event of any such
termination the Company and the Selling Securityholders agree to indemnify
and hold harmless the Underwriters from all costs or expenses incident to the
performance of the obligations of the Company and the Selling Securityholders
under this Agreement, including all costs and expenses referred to in
paragraphs (i) and (j) of Section 6 hereof.

9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Stock shall be subject to
the performance by the Company and by the Selling Securityholders of all
their respective obligations to be performed hereunder at or prior to the
Closing Date or any later date on which Option Stock is to be purchased, as
the case may be, and to the following further conditions:

(a) The Registration Statement shall have become effective; and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings therefor shall be pending or threatened by the Commission.

(b) The legality and sufficiency of the sale of the Stock hereunder and
the validity and form of the certificates representing the Stock, all
corporate proceedings and other legal matters incident to the foregoing, and
the form of the Registration Statement and of the Prospectus (except as to
the financial statements contained therein), shall have been approved at or
prior to the Closing Date by Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP, counsel for the Underwriters.

(c) You shall have received from Cooley Godward LLP, counsel for the
Company and the Selling Securityholders, an opinion addressed to the
Underwriters and dated the Closing Date, covering the matters set forth in
Annex A hereto, and if Option Stock is purchased at any date after the
Closing Date, an additional opinion from such counsel, addressed to the
Underwriters and dated such later date, confirming that the statements
expressed as of the Closing Date in such opinion remain valid as of such
later date.

(d) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true
and correct and neither the Registration Statement nor the Prospectus omitted
to state any material fact required to be stated therein or necessary in
order to make the statements therein, respectively, not misleading, (ii)
since the Effective Date, no event has occurred which should have been set
forth in a supplement or amendment to the Prospectus which has not been set
forth in such a supplement or amendment,

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<PAGE>

(iii) since the respective dates as of which information is given in the
Registration Statement in the form in which it originally became effective
and the Prospectus contained therein, there has not been any material adverse
change or any development involving a prospective material adverse change in
or affecting the business, properties, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole, whether or
not arising from transactions in the ordinary course of business, and, since
such dates, except in the ordinary course of business, neither the Company
nor any of its subsidiaries has entered into any material transaction not
referred to in the Registration Statement in the form in which it originally
became effective and the Prospectus contained therein, (iv) neither the
Company nor any of its subsidiaries has any material contingent obligations
which are not disclosed in the Registration Statement and the Prospectus, (v)
there are not any pending or known threatened legal proceedings to which the
Company or any of its subsidiaries is a party or of which property of the
Company or any of its subsidiaries is the subject which are material and
which are not disclosed in the Registration Statement and the Prospectus,
(vi) there are not any franchises, contracts, leases or other documents which
are required to be filed as exhibits to the Registration Statement which have
not been filed as required, (vii) the representations and warranties of the
Company herein are true and correct in all material respects as of the
Closing Date or any later date on which Option Stock is to be purchased, as
the case may be, and (viii) there has not been any material change in the
market for securities in general or in political, financial or economic
conditions from those reasonably foreseeable as to render it impracticable in
your reasonable judgment to make a public offering of the Stock, or a
material adverse change in market levels for securities in general (or those
of companies in particular) or financial or economic conditions which render
it inadvisable to proceed.

(e) You shall have received on the Closing Date and on any later date
on which Option Stock is purchased a certificate, dated the Closing Date or
such later date, as the case may be, and signed by the President and the
Chief Financial Officer of the Company, stating that the respective signers
of said certificate have carefully examined the Registration Statement in the
form in which it originally became effective and the Prospectus contained
therein and any supplements or amendments thereto, and that the statements
included in clauses (i) through (vii) of paragraph (d) of this Section 9 are
true and correct.

(f) You shall have received from Grant Thornton LLP, a letter or
letters, addressed to the Underwriters and dated the Closing Date and any
later date on which Option Stock is purchased, confirming that they are
independent public accountants with respect to the Company within the meaning
of the Securities Act and the applicable published rules and regulations
thereunder and, based upon the procedures described in such letter delivered
to you concurrently with the execution of this Agreement (herein called the
"Original Letter"), but carried out to a date not more than three business
days prior to the Closing Date or such later date on which Option Stock is
purchased (i) confirming, to the extent true, that the statements and
conclusions set forth in the Original Letter are accurate as of the Closing
Date or such later date, as the case may be, and (ii) setting forth any
revisions and additions to the statements and conclusions set forth in the
Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of the Original Letter or to
reflect the availability of more recent financial statements, data or
information. The letters shall not disclose any change, or any development
involving a prospective change, in or affecting the business or properties of
the Company or any of its subsidiaries which, in your sole judgment, makes it
impractical or inadvisable to proceed with the public offering of the Stock
or the purchase of the Option Stock as contemplated by the Prospectus.

(g) You shall have received from Grant Thornton LLP a letter stating
that their review of the Company's system of internal accounting controls, to
the extent they deemed necessary in establishing the scope of their
examination of the Company's financial statements as at December 31, 1997,
did not disclose any weakness in internal controls that they considered to be
material weaknesses.

(h) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several
jurisdictions, or other evidence satisfactory to you, of the qualification
referred to in paragraph (f) of Section 6 hereof.

(i) Prior to the Closing Date, the Stock to be issued and sold by the
Company and the Selling Securityholders shall have been duly authorized for
listing by the NNM upon official notice of issuance.

15
<PAGE>

(j) On or prior to the Closing Date, you shall have received from all
directors, officers and stockholders, agreements, in form reasonably
satisfactory to Hambrecht & Quist LLC, stating that without the prior written
consent of Hambrecht & Quist LLC on behalf of the Underwriters, such person
or entity will not, directly or indirectly, sell, contract to sell, make any
short sale, pledge, offer, sell any option or contract to purchase, purchase
any option or contract to sell, grant any option right or warrant to
purchase, or otherwise dispose of, except as a Selling Securityholder, any
shares of Common Stock, options to acquire shares of Common Stock or
securities exercisable or exchangeable for or convertible into shares of
Common Stock of the Company which he, she or it now owns or hereafter may
own, for a period commencing as of the day on which the Registration
Statement shall become effective by order of the Commission (the "Effective
Date") and ending on the date which is one hundred eighty (180) days after
the date of the final prospectus for the public offering of the Stock by the
Underwriters (the "Initial Period"). After the expiration of the Initial
Period, ten percent (10%) of the Shares owned by the undersigned shall be
released from the terms of this agreement at the expiration of the Initial
Period; after the expiration of a three hundred sixty (360) day period after
the Effective Date, an additional ten percent (10%) of the Shares owned by
the undersigned shall be released from the terms of these agreements at the
expiration of a three hundred sixty (360) day period after the date of the
final prospectus for the public offering of the Stock by the Underwriters;
and after the expiration of a five hundred forty (540) day period after the
Effective Date, any remaining Shares owned by the undersigned shall be
released from the terms of these agreements; provided, however, that the
foregoing shall not prohibit (i) transfers by gift, distributions by a
partnership to its partners or other transfers for no consideration, (ii) any
pledge by a stockholder of Common Stock, or (iii) any sale by a stockholder
to an affiliate so long as, in any instance, such transferees and pledgees
agree to enter into a lock-up agreement with terms identical to the terms of
these agreements.

All the agreements, opinions, certificates and letters mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP, counsel for the Underwriters, shall be satisfied that they
comply in form and scope.

In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company. Any such termination shall be without liability of the Company or
the Selling Securityholders to the Underwriters and without liability of the
Underwriters to the Company or the Selling Securityholders; PROVIDED,
HOWEVER, that (i) in the event of such termination, the Company and the
Selling Securityholders agree to indemnify and hold harmless the Underwriters
from all costs or expenses incident to the performance of the obligations of
the Company and the Selling Securityholders under this Agreement, including
all costs and expenses referred to in paragraphs (i) and (j) of Section 6
hereof, and (ii) if this Agreement is terminated by you because of any
refusal, inability or failure on the part of the Company or the Selling
Securityholders to perform any agreement herein, to fulfill any of the
conditions herein, or to comply with any provision hereof other than by
reason of a default by any of the Underwriters, the Company will reimburse
the Underwriters severally upon demand for all out-of-pocket expenses
(including reasonable fees and disbursements of counsel) that shall have been
incurred by them in connection with the transactions contemplated hereby.

10. CONDITIONS OF THE OBLIGATION OF THE COMPANY AND THE SELLING
SECURITYHOLDERS. The obligation of the Company and the Selling
Securityholders to deliver the Stock shall be subject to the conditions that
(a) the Registration Statement shall have become effective and (b) no stop
order suspending the effectiveness thereof shall be in effect and no
proceedings therefor shall be pending or threatened by the Commission.

In case either of the conditions specified in this Section 10 shall not
be fulfilled, this Agreement may be terminated by the Company and the Selling
Securityholders by giving notice to you. Any such termination shall be
without liability of the Company and the Selling Securityholders to the
Underwriters and without liability of the Underwriters to the Company or the
Selling Securityholders; PROVIDED, HOWEVER, that in the event of any such
termination the Company and the Selling Securityholders jointly and severally
agree to indemnify and hold harmless the Underwriters from all costs or
expenses incident to the performance of the obligations of the Company and
the Selling Securityholders under this Agreement, including all costs and
expenses referred to in paragraphs (i) and (j) of Section 6 hereof.

11. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their other
obligations under Section 7 of this Agreement,

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<PAGE>

the Company agrees to reimburse on a quarterly basis the Underwriters for all
reasonable legal and other expenses incurred in connection with investigating
or defending any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged
statement or omission, described in paragraph (a) of Section 7 of this
Agreement, notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the obligations under this Section 11 and the
possibility that such payments might later be held to be improper; provided,
however, that (i) to the extent any such payment is ultimately held to be
improper, the persons receiving such payments shall promptly refund them and
(ii) such persons shall provide to the Company, upon request, reasonable
assurances of their ability to effect any refund, when and if due.

12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall
inure to the benefit of the Company, the Selling Securityholders and the
several Underwriters and, with respect to the provisions of Section 7 hereof,
the several parties (in addition to the Company, the Selling Securityholders
and the several Underwriters) indemnified under the provisions of said
Section 7, and their respective personal representatives, successors and
assigns. Nothing in this Agreement is intended or shall be construed to give
to any other person, firm or corporation any legal or equitable remedy or
claim under or in respect of this Agreement or any provision herein
contained. The term "successors and assigns" as herein used shall not
include any purchaser, as such purchaser, of any of the Stock from any of the
several Underwriters.

13. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters,
shall be mailed, telegraphed or delivered to Hambrecht & Quist LLC, One Bush
Street, San Francisco, California 94104; and if to the Company, shall be
mailed, telegraphed or delivered to it at its office, 111 W. Ocean Boulevard,
4th Floor, Long Beach, CA 90802, Attention: Chairman and Chief Executive
Officer; and if to the Selling Securityholders, shall be mailed, telegraphed
or delivered to the Selling Securityholders in care of the Corporate
Secretary, 111 W. Ocean Boulevard, 4th Floor, Long Beach, CA 90802. All
notices given by telegraph shall be promptly confirmed by letter.

14. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties
and covenants in this Agreement shall remain in full force and effect
regardless of (a) any termination of this Agreement, (b) any investigation
made by or on behalf of any Underwriter or controlling person thereof, or by
or on behalf of the Company or the Selling Securityholders or their
respective directors or officers, and (c) delivery and payment for the Stock
under this Agreement; provided, however, that if this Agreement is terminated
prior to the Closing Date, the provisions of paragraphs (l) and (m) of
Section 6 hereof shall be of no further force or effect.

This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

This Agreement shall be governed by, and construed in accordance with,
the laws of the State of California.

Please sign and return to the Company and to the Selling Securityholders
in care of the Company the enclosed duplicates of this letter, whereupon this
letter will become a binding agreement among the Company, the Selling
Securityholders and the several Underwriters in accordance with its terms.

Very truly yours,

FIRST CONSULTING GROUP, INC.

By:
-------------------------------------
James A. Reep
Chairman and Chief Executive Officer

17
<PAGE>

SELLING SECURITYHOLDERS:
[List Names]

By:
-------------------------------------
[Attorney-in-Fact]

The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.

HAMBRECHT & QUIST LLC
BANCAMERICA ROBERTSON, STEPHENS
UBS SECURITIES
By: Hambrecht & Quist LLC

By:
----------------------------
[Name]
Managing Director

Acting on behalf of the several Underwriters,
including themselves, named in Schedule I hereto.

18
<PAGE>

SCHEDULE I

UNDERWRITERS

NUMBER OF
SHARES
UNDERWRITERS TO BE PURCHASED
------------ ---------------

Hambrecht & Quist, LLC............................
BancAmerica Robertson Stephens....................
UBS Securities....................................

--------
Total:
--------
--------

<PAGE>

SCHEDULE II

SELLING SECURITYHOLDERS

NUMBER OF
NAME AND ADDRESS SHARES
OF SELLING SECURITYHOLDERS TO BE SOLD
-------------------------- ----------

--------
Total:...................................
--------
--------

AFFILIATED
SELLING SECURITYHOLDERS

NUMBER OF
NAME AND ADDRESS OF SHARES
AFFILIATED SELLING SECURITYHOLDERS TO BE SOLD
---------------------------------- ----------

--------
Total:...................................
--------
--------

<PAGE>
CONSENT OF GRANT THORNTON LLP

EXHIBIT 23.1

We have issued our report dated January 17, 1998 (except for Note K, as to which
the date is , 1998), accompanying the consolidated financial statements
of FCG Enterprises, Inc. and subsidiaries (d.b.a. First Consulting Group)
contained in the Registration Statement and Prospectus. We consent to the use of
the aforementioned report in the Registration Statement and Prospectus, and to
the use of our name as it appears under the captions "Experts" and "Selected
Consolidated Financial Data".

Los Angeles, California
, 1998

- --------------------------------------------------------------------------------

The above consent is in the form that will be signed upon completion of the
4-for-1 stock split described in Note K to the financial statements.

/s/ GRANT THORNTON LLP

Los Angeles, California
February 4, 1998