Company Overview
----------------

     For more than 75 years,  LAWGIBB Group has built a reputation as one of the
world's  leading  engineering,  environmental  and  design  consulting  services
companies.  Providing expertise in a wide array of multi-disciplinary  technical
and business services, LAWGIBB serves the industrial,  commercial and government
market sectors throughout the world.

                                    [IMAGE]
          Lawgibb's Worldwide Corporate Headquarters, Atlanta, Georgia

Global Expanse with Local Presence
----------------------------------

     Headquartered  in Atlanta,  the Company's global network of more than 4,000
professionals provides the technical depth and geographic diversity that enables
LAWGIBB to serve clients  worldwide  while  maintaining a strong local presence.
With  specialists  in  more  than 30  scientific  and  engineering  disciplines,
LAWGIBB's  staff works from 100 local  offices in 30  countries.  The  Company's
projects have spanned over 160 countries.

Leading Edge Solutions to Clients' Multi-Faceted Concerns
---------------------------------------------------------

     Working side-by side with clients, LAWGIBB's professionals combine seasoned
leadership  with innovative  technologies to solve complex  problems and resolve
pressing issues. The Company's mission is to create  full-service  solutions for
its clients that save time,  reduce  costs,  and add significant  value to their
operations.  On each  engagement,  LAWGIBB's  experts strive to address clients'
concerns by converting  challenges into  opportunities for success and obstacles
into competitive advantages. 

                                    [IMAGE]


4
<PAGE>


Corporate Expertise
-------------------

Our Product is Our People
-------------------------

     At the nucleus of LAWGIBB is the  braintrust  that fuels our business:  our
people. It is only through our people, who are the foundation of our Company and
the fundamental source of our corporate  expertise,  that we are able to deliver
excellent  quality  services  on-time and  on-budget to clients  throughout  the
world.

     A guiding  principle of LAWGIBB - intrinsic to every facet of our Company -
is to provide our staff with ongoing extensive  technical and business training.
The  Company's  programs  are  aimed at  continuously  improving  expertise  and
refining talent in order to address our clients' dynamic needs.

                                    [IMAGE]
                               R. Scott Steedman
                            Director of Engineering
                            LAWGIBB - International

     "LAWGIBB  is far more  than a  collection  of  disciplines.  Our  technical
     product  is  paramount;  yet we are a people  business  - indeed,  our sole
     product is the  intellectual  capital of our  employees.  it is the ebb and
     flow of  knowledge,  shared  among our  people  and  across  many  national
     borders,  that  drives a unique  neural  network  supplementing  the formal
     systems,  and igniting a synergy whose result is ingenuity and excellence."

Delivering Clients Systematic Quality With Assurance
----------------------------------------------------

     Unique to the  industry,  LAWGIBB  created a  worldwide  quality  assurance
initiative  to deliver  to  clients  consistently  superior  service.  Named the
Quality  Assurance   Program,   this  systematic   process  of  applying  highly
specialized  functions and procedures  provides clients confidence and assurance
that they receive high quality  performance on their  engagements.  The basis of
the program entails having experienced and highly trained personnel, a worldwide
computer  network,  and  senior  technical  review  of all  reports,  proposals,
analyses, and test data.

     An  important  element of this  initiative  is our  Principal  Professional
Certification   Program.   this  rigorous  and  comprehensive  process  involves
technical  and business  training for selected  outstanding  professionals  with
specific  qualifications  in  education,  experience,  and  registration.  These
individuals  undergo a stringent  series of  examinations  and scrutiny prior to
achieving Principal status.

     The success of these programs is truly a testament to LAWGIBB's  dedication
to its  employees  and  commitment  to fostering  and  maintaining  long-lasting
relationships with clients.

                                    [IMAGE]
                             W. Charles Greer, Jr.
                            Director of Engineering
                                 LAWGIBB - USA

     "Our success is based on the ability of our people to divide  problems into
     basic  components  and apply our  extensive  technical  experience to these
     issues,   while  keeping  the  overall   problem  in  the  proper  business
     perspective.  This process  provides our clients with sound  solutions from
     both the technical and business viewpoints."

5
<PAGE>
Service Areas
-------------

LAWGIBB Service Areas and Industries Served
-------------------------------------------

     LAWGIBB's  corporate mission to provide clients with technically  advances,
cost-effective  solutions has earned the Company a distinguished reputation in a
highly  competitive  marketplace.  In order to  provide  clients  with  superior
quality  service in nearly any  location,  LAWGIBB has  categorized  its service
areas into six major groups:  Engineered  Construction,  Environmental Services,
Facilities Engineering,  Industrial Services, Transportation Services, and Water
Engineering.  The breadth of our design expertise spans all service areas of our
business from multi-story buildings to pipelines.

The primary industries served by LAWGIBB throughout the world include:

Chemical/Petroleum Manufacturing
Commercial Retail & Wholesalers
Education & Healthcare
Financial & Insurance Institutions
Food, beverage, & Tobacco
Telecommunications
Hospitality & Entertainment
Mining
Public Sector Works
Primary Metals Manufacturing
Pulp/Paper & Forest Products
Rubber, Plastics, & Glass
Power & Utilities
Real Estate & Rental Leasing
Strategic Alliances
Transportation

                                    [IMAGE]


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Engineered Construction
     building with confidence
-----------------------------

     LAWGIBB  provides   construction   engineering   services  with  knowledge,
experience,  and advanced data-gathering capability that is uniquely oriented to
our client.

     Modern  construction  requires not only an understanding of the fundamental
properties  of  construction  materials and advanced  technologies,  but also of
partnerships  with other engineers,  archtechts,  contractors,  and owners. As a
provider  of new and unique  engineering  solutions  for  efficient,  economical
construction,  LAWGIBB's engineers and technicians are a value-added part of any
construction team.

     LAWGIBB's  services  span all  phases  of the  project  process,  including
preliminary  engineering,   design,   constructability  analysis,  peer  review,
construction testing and inspection, certified inspection, materials engineering
and design, and laboratory testing.

     Our strengths  lie in the expertise of the engineers and  geologists in our
local  offices,  backed by  networks  of  experts  who  consult at top levels to
provide  value  engineering  in  areas  such as  failure  analysis,  litigation,
construction  management,  and worldwide  construction.  Using  state-of-the-art
tools and systems, LAWGIBB's professionals meet project objectives by delivering
expert services in a cost-effective, timely, and accurate manner.

                                    [IMAGE]

                          INTEGRITY FROM THE GROUND UP
     LAWGIBB's geotechnical engineering,  hydrological studies, and construction
     materials  testing services are helping to make the Tennessee NFL Stadium a
     rock-solid venue.  "We've utilized LAWGOBB for over two years now," says Ed
     Coon,  Vice President of Hellmuth,  Obata + Kassabaum's  Sports  Facilities
     Group.  "They've  provided  services  in a very  thorough,  efficient,  and
     professional manner. We highly recommend their services."

                                    [IMAGE]

                            BUILDING FOR OUR FUTURE
     New, environmentally sustainable dams and hydropower stations such as those
     provided by the  Lesotho  Highlands  Water  Project  will supply  water and
     provide power, flood control and recreational facilities,  while minimizing
     adverse environmental impact. At 185 meters high, the Katse arch dam is the
     highest in Africa - and is a project  designed and  supervised by a LAWGIBB
     joint venture.

                                    [IMAGE]

                                BRIDGING THE GAP
     LAWGIBB and the  California  Department of  Transportation  (Caltrans)  are
     working  closely on this $4.5 billion  program,  one of the world's largest
     bridge and seismic retrofit projects,  which entails inspection and testing
     of more than 2,200 bridges in California.  "LAWGIBB's specialized technical
     expertise is not available  through the civil system;  their  professionals
     provide  the  skills  necessary  for this  important  project,"  says  Phil
     Stolarski, Caltrans' Structural Materials Branch Chief.

7
<PAGE>
Environmental Services
     protection and remediation
-------------------------------

     LAWGIBB  helps  clinets  gain  competitive  advantage  through  appropriate
environmental compliance, assessment, and risk management strategies.

     Environmental,  health and safety risks must be identified,  analyzed,  and
managed just as any other business risk. The wide range of effects  business may
have on the environment-from  waste release,  worker safety, and loss-of-habitat
concerns to remediation and regulatory  compliance  issues-means most businesses
must plan to deal with the possible impact of their activities.

     Few  companies  deliver  the vast  range of  environmental  expertise  that
LAWGIBB brings to every project. Through our diverse geographic coverage coupled
with our ability to deliver services from concept to closure, LAWGIBB uses sound
engineering and science to help guide environmental management decisions.

     From  environment-friendly  design to careful remediation,  from meticulous
property assessment to process  engineering for public safety,  LAWGIBB's proven
track record of developing and implementing  creative solutions that satisfy our
clients' economic,  operational and regulatory  requirements has put our firm at
the forefront of the environmental services field.


                                    [IMAGE]

                                CLEARING THE WAY
     LAWGIBB's  regulatory  assistance  and  technical  support  enabled  Mansur
     Industries  to  introduce  SystemOne,  a new  line  of  patented  recycling
     industrial parts washers which could  revolutionize the vehicle maintenance
     industry.

                                    [IMAGE]

                               BOTTOM LINE VALUE
     Through air modeling and the innovative design/construction methods used to
     build a recovered-water VOC system, LAWGIBB saved Olin Corporation $800,000
     in  capital  costs,  as  well  as  $140,000   annually  in  operations  and
     maintenance.


                                    [IMAGE]

                                BALANCE RESTORED
     Land  contamination on the UK's Ministry of Defence sites is being addresed
     worldwide as sites are assessed and cleaned up prior to disposal. LAWGIBB's
     teams  identify  potential  contamination,  and  remediation is prioritized
     according the the risk to public health and the environment.

8
<PAGE>

Facilities Engineering
     managing life cycle cost
-----------------------------

     Optimizing building design and system performace,  while managing costs and
reducing risks, can pay long-term  economic dividends by increasing the value of
property over time.

     New regulations  and increased  maintenance  required by aging  structures,
environmental  hazards,  and  a  competitive   marketplace,   offer  significant
challenges to those who acquire,  own, or manage property.  LAWGIBB's facilities
experts enable clients to enhance their real estate investments through services
that help extend the life of  building  components  and  systems.  

     From  roofing  systems  to  underground  storage  tanks and  everything  in
between,  our facilities  engineering team provides property owners and managers
with a  comprehensive  resource of technical  specialists  to control  operating
expenses  and  optimize  building  design  and  system  performance.   LAWGIBB's
engineers,  architects,  and environmental  professionals assist the real estate
industry in dealing with the  complexities  of owning or managing  buildings and
facilities.

     Primary  facilities  engineering  services  involve  expertise  related  to
architecture   and  structural   systems,   building   exteriors,   roofing  and
waterproofing,  pavements,  construction  materials,  mechanical  and electrical
systems, plumbing,  asbestos and lead-containing materials,  indoor air quality,
forensic  studies  and  expert  testimony,  information  management,  and  other
technical services required for successful asset management.

                                    [IMAGE]

                               VALUE ENGINEERING
     "LAWGIBB  recommended we use a roof management program called ROOFER," says
     Walt Petters, Director of Project Management for Brevard County (FL) Public
     Schools.  "The data they  gathered  qualified us for over $500,000 in power
     company rebates,  and convinced the school board to allocate $30 million to
     put new roofs on 29 schools. We couldn't be more pleased."

                                    [IMAGE]

                              AWARD-WINNING DESIGN
     LAWGIBB's  unique  design for the UK's  Falkland  Islands  Memorial  Chapel
     triumphed  over  73  other  entries  to win a  RIBA/RFAC  competition.  The
     building  will serve as both a national  memorial  to those who fell in the
     Falklands conflict and an assembly hall for Pangbourne College.

9
<PAGE>
Industrial Services
     ensuring operations reliability
------------------------------------

     Operational  and  regulatory  compliance  issues could cost our  industrial
clients   millions   each  year  in  production   shutdowns  and   unanticipated
expenditures.

     Success in  manufacturing  requires that  production and utility  equipment
perform  at  capacity,  without  shutdowns  due to  failure  or safety  hazards.
LAWGIBB's industrial services  professionals provide our clients with both peace
of  mind  and  a  dependable   production   environment  through  what  we  call
"Reliability  Technology for the 21st  Century." This is a detailed  methodology
that LAWGIBB's  engineers and technicians use to assess,  analyze,  and maintain
any physical asset in its operating context.

                                    [IMAGE]

                        THE POWER TO BUY WITH CONFIDENCE
     LAWGIBB's exacting technical investigations, including identifying existing
     problems  and  recommending  remedial  measures,  enabled a client to begin
     acquisition negotiations for a major power station in Turkey.

     Our  industrial  services  solutions  allow our clients to utilize the full
production capacity and useful service life of their assets. LAWGIBB's analysis,
testing, and evaluation services provide valuable data that can alert clients to
potential problems.  Our process consulting ensures that advanced technology and
service dependability are built right into the design; and predictive/preventive
maintenance programs allow costly physical assets to operate at peak efficiency.

     In short, we help our clients maximize the functional  reliability of their
processes,  equipment,  and worker safety programs.  Even better, by doing so we
help significantly increase their operational profitability.

                                    [IMAGE]

                                THROUGH THE FIRE
     Due to LAWGIBB's efforts,  Eco-Pak's steel shipping containers can take the
     heat...and any of the grueling tests required to manufacture safe packaging
     for  nuclear  material  transport.  To comply  with  stringent  NRC and DOT
     regulations,  Eco-Pak Specialty  packaging  utilizes LAWGIBB for metallurgy
     consulting,   material  selection,  and  testing  services.  "We've  always
     received  work  of high  integrity  from  LAWGIBB,"  says  William  Arnold,
     president. "We use them for all our engineering needs."

10
<PAGE>
Transportation Services
     spanning the globe
-----------------------

     LAWGIBB's  transportation  expertise  spans all modes of travel  worldwide,
identifying existing and future demands and developing solutions to problems.

     LAWGIBB's team provides consulting and construction  services for all types
of  transportation  projects.  We provide  planning,  strategies  and solutions,
identify funding sources, and assist clients from the onset of a project through
completion.

     Our  worldwide  rail team has planned and  designed  high speed,  mainline,
metro and light rail projects, providing a full range of financial and technical
advice.  LAWGIBB's  highways  team has  provided  expert  design and  consulting
services for  thousands of miles of road and hundreds of bridges  worldwide.  In
addition,  sophisticated  computer  modeling and  information  management  tools
enable our airport  specialists  to forecast  human  traffic  through  gates and
terminals, and our highway experts to better predict the costs and challenges of
building new roads.

     Our goal is to successfully  integrate  transportation  and  communication,
people and services,  to provide  first-rate  solutions.  Across the spectrum of
transportation  services,  LAWGIBB's experts offer the diversity and flexibility
of  service  required  to help our  clients  meet their  needs  today and in the
future.

                                    [IMAGE]

                             GETTING THERE FOR LESS
     LAWGIBB won the appointment as lead engineer for London Underground Limited
     and the borough of Croydon's light rail scheme,  providing the client major
     cost saving improvements in the value engineering phase.

                                    [IMAGE]

                          MORE INFORMATION, LESS COST
     A sophisticated  geographic  information  system  computer  application for
     Georgia Department of Transportation was developed by LAWGIBB, allowing the
     client to optimize  placement  of  transportation  corridors  with  minimum
     environmental  impact and cnstruction  costs,  reducing  evaluation time by
     60%, and substantially reducing project time and cost.

                                    [IMAGE]

                          BETTER SAFETY DOWN THE ROAD
     LAWGIBB is  assisting  the  Federal  Highway  Administration  (FHWA) with a
     20-year  study of  in-service  pavements  intended to develop new  pavement
     design and maintenance technologies,  resulting in improved, longer-lasting
     road systems.

11
<PAGE>

Water Engineering
     cost-effective solutions
-----------------------------

     LawGIBB is  experienced  in many aspects of water  resources and wastewater
systems,  supporting  projects  ranging from small rural  developments to master
plans for large water infrastructures.

     Throughout  the world,  the  demand for clean  water  often  competes  with
economic growth and development.  At LawGibb, our experienced teams help clients
develop balanced,  cost-effective water engineering and environmental  solutions
for a wide range of issues.

     Our experts offer broad-based services such as water resources  management,
water quality studies,  stormwater drainage analysis and permitting,  wastewater
surveys,  water reclamation schemes,  industrial/municipal  wastewater treatment
works, sludge disposal, incinerators, and sea outfalls.

     In response to the global drive towards  modernization  of water management
and  privatization of utilities,  LAWGIBB has developed a team of experts with a
particular focus upon economics, institutional studies, and regulatory advice.

                                    [IMAGE]

                             FACILITATING PROGRESS
     "LAWGIBB  has been a  tremendous  asset to our Company in the  execution of
     water projects," says Ed Matta of Puerto Rico's Dick Construction  Company.
     "Their deft  integration  of the permitting  process into our  design/build
     project  delivery method is excellent.  They've helped us maintain  project
     schedules within a constantly changing environment.

                                    [IMAGE]

                        CLEAN WATER, CLEANER ENVIRONMENT
     From 1994 to 2005,  the population of Antalya in Turkey will have increased
     by as much as 84%.  LAWGIBB's team is overseeing the construction  involved
     in upgrading the existing water supply,  sewerage, and stormwater drainiage
     systems,  a  wastewater  treatment  plant,  and a deep  marine  outfall for
     treated effluent.

                                    [IMAGE]

                  CREATING AN ENVIRONMENTALLY SOUND THEME PARK
     Located  outside  Cape  Town,  Century  City  is one of the  largest  urban
     developments  in South Africa,  which  includes the Ratanga  Junction theme
     park,  pictured  here.  LAWGIBB is  responsible  for the design and project
     management   of  a   multi-function   wetland  for  water   treatment   and
     conservation, canals, stormwatersystems,  bridges, structures for the theme
     park, and treatment of effluent.

12
<PAGE>


                                                                   EXHIBIT 13.01


SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
                                     1998          1997          1996          1995            1994
----------------------------------------------------------------------------------------------------
<S>                                <C>           <C>           <C>           <C>            <C>
INCOME STATEMENT DATA:
   Gross Fees                      $311,162      $310,791      $323,179      $368,417       $361,653

   Net Fees                        $274,920      $277,701      $286,282      $314,873       $314,102

   Net Income (Loss)               $  8,422      $  4,081      $  1,910      $ (2,266)      $(11,464)

   Earnings (Loss) Per Share:
      Basic                        $   3.71      $   1.77      $   1.00      $  (1.19)      $  (5.32)

      Diluted                      $   2.82      $   1.60      $   1.00      $  (1.19)      $  (5.32)

   Cash Dividends Per Share        $     --      $     --      $     --      $     --       $   0.26

BALANCE SHEET DATA:
   Working Capital                 $ 39,060      $ 32,415      $ 28,459      $ 30,384       $ 28,895

   Total Assets                    $150,911      $145,768      $138,697      $148,304       $155,612

   Long Term Liabilities           $ 54,056      $ 54,935      $ 50,303      $ 59,915       $ 58,807

   Shareholders' Equity            $ 29,042      $ 19,341      $ 17,590      $ 15,825       $ 19,375
----------------------------------------------------------------------------------------------------
</TABLE>

                                   GROSS FEES
                                    [GRAPH]


                                OPERATING INCOME
                                    [GRAPH]


                                   NET INCOME
                                    [GRAPH]


                            YEAR END STOCK VALUATION
                                    [GRAPH]

* Beginning in 1995, Year-End Stock Valuation represents the fair market value
for purposes of, and in compliance with, the requirements of the Law Companies
Group, Inc. 401(k) Savings Plan. These values are the fair market values of Law
Stock for purposes of the 401(k) Savings Plan only, until such time as another
appraisal is requested or as required by the 401(k) Savings Plan.


14
<PAGE>



MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

The following is management's discussion and analysis of certain significant
factors that have affected the results of operations and financial condition of
Law Companies Group, Inc. (the "Company") for the periods indicated. The Company
measures its operating performance on the basis of net fees, since a substantial
portion of gross fees are a pass-through to clients as costs of subcontractors
and other project-specific outside services. The following table sets forth the
percentage of net fees represented by certain items reflected in the Company's
consolidated statements of operations and the percentage increase (decrease) in
the underlying dollar amounts of each of these items from the prior year. This
discussion should be read in conjunction with the Company's consolidated
financial statements and accompanying notes.

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                               Year to Year Dollar
                                     Year Ended December 31,                   Increase (Decrease)
                                  1998         1997         1996       1998 vs. 1997      1997 vs. 1996
                                  ----         ----         ----       -------------      -------------

<S>                              <C>          <C>          <C>         <C>                <C>
Net Fees                         100.0%       100.0%       100.0%             (1.0%)            (3.0%)

Gross Profit                      58.6%        58.2%        59.3%             (0.3%)            (4.8%)

Indirect Costs and Expenses       51.7%        53.2%        55.2%             (3.8%)            (6.5%)

Operating Income                   6.9%         5.0%         4.1%             37.8%             18.2%

Net Income                         3.1%         1.5%         0.7%            106.4%            113.7%
</TABLE>

COMPARISON OF 1998 AND 1997 - Continuing the positive trends established in
previous years, the Company recorded significant improvements in operating
income, income before income taxes and equity investments, and net income as
compared to 1997. Additionally, the volume of gross fees for 1998 also reflected
an improvement over the prior year. All primary margin measurements: gross
profit, indirect costs and expenses, operating income, and net income improved
as a percentage of net fees compared to 1997.

Consolidated gross fees for 1998 increased by 0.1% to $311.2 million from $310.8
million in 1997. For U.S. Operations, gross fees for the year increased by 0.2%
as compared to 1997 to $208.4 million. For International Operations, gross fees
were flat compared to 1997 at $102.8 million. Consolidated net fees for 1998
decreased 1.0% to $274.9 million from $277.7 million in 1997. Net fees for the
U.S. operations decreased to $179.3 million in 1998, or 1.1%, from $181.3
million in 1997. The International Group's net fees decreased to $95.6 million
for 1998 from $96.4 million in 1997. The International Group's net fees in pound
sterling for 1998 were adversely affected by the continuing effects of the hold
on government expenditures which surrounded the 1997 United Kingdom general
election. Also contributing to these decreases was a minor strengthening of the
value of the U.S. dollar as compared to the pound sterling. The average value of
the dollar increased by 1.2% in 1998 as compared to 1997.

The consolidated gross profit margin increased to 58.6% in 1998 from 58.2% for
1997. The U.S. Group's gross profit margin decreased slightly from 64.6% for the
year ended 1997 to 64.3% for the year ended 1998, primarily due to increased
labor costs. The International Group's gross profit margin improved from 46.2%
in 1997 to 47.7% in 1998. This improvement was primarily attributable to
improvements in job related expenses. Consolidated indirect costs and expenses
were $142.2 million in 1998 compared to $147.8 million in 1997. This decrease of
$5.6 million, or 3.8%, is attributable to the continued positive impact of the
Company's cost reduction initiatives.

Interest expense increased from $4.0 million in 1997 to $4.4 million in 1998,
primarily as a result of higher average outstanding bank debt as compared to
1997. Lower interest rates in the Company's re-negotiated credit facilities
contributed to partially offset these increases. During 1998 and 1997, the
Company expensed $0.1 million and $1.5 million, respectively, related to the
amortization of costs associated with re-negotiating and securing its credit
facilities. This $1.4 million decrease is directly attributable to the lower
level of fees and the 3-year term associated with the 1998 facility versus the
1997 facility renegotiation.


                                                                              15
<PAGE>



MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

In 1998, the Company recorded net income of $8.4 million compared to $4.1
million in 1997. A portion of this improvement was related to the decrease in
the effective tax rate from 49.8% in 1997 to 43.8% in 1998. Earnings per common
share for 1998 were $3.71 per common share - basic ($2.77 per common share -
diluted) compared to $1.77 per common share - basic ($1.60 per common share -
diluted) in 1997.

COMPARISON OF 1997 AND 1996 - Consolidated gross fees for 1997 decreased by 3.8%
to $310.8 million from $323.2 million in 1996. Consolidated net fees for 1997
decreased 3.0% to $277.7 million from $286.3 million in 1996. Net fees for the
U.S. operations decreased to $181.3 million in 1997, or 4.8%, from $190.4
million in 1996. These decreases were largely the result of two factors. First,
having emerged from losses in 1994 and 1995, the Company placed its primary
focus during 1996 on cost structure and competitiveness which adversely affected
fee growth. Second, the lack of environmental regulatory pressure softened the
demand in the environmental markets and resulted in increased competition. These
decreases were partly mitigated by the Company's efforts to improve its business
development initiatives during the year, to return net fees to 1996 levels, and
grow fees in subsequent periods.

The International Group's net fees increased to $96.4 million for 1997 from
$95.9 million in 1996. This small increase was largely the result of a weaker
U.S. dollar when compared to the pound sterling. The average value of the dollar
decreased by 4.8% in 1997 when compared to 1996. The International Group's net
fees in pound sterling for 1997 were negatively affected by a hold on government
expenditures surrounding the United Kingdom general election.

The consolidated gross profit margin decreased to 58.2% in 1997 from 59.3% for
1996. The U.S. Group's gross profit margin decreased slightly from 64.9% for the
year ended 1996 to 64.6% for the year ended 1997. The small decrease in margin
reflects competitive pressures, beginning in 1996, faced in the markets served
by the U.S. Group. The International Group's gross profit margin decreased from
48.2% in 1996 to 46.2% in 1997. This decrease was due to project performance
issues and increased competitive pressures in several of the International
Group's markets as well as an increase in direct job-related expenses, which
produces a smaller profit margin.

Consolidated indirect costs and expenses were $147.8 million in 1997 compared to
$158.1 million in 1996. This decrease of $10.3 million, or 6.5%, was
attributable to the continued positive impact of the Company's cost reduction
and labor utilization initiatives. These initiatives were designed to maximize
efficiency and profitability, to effect substantive change in the culture of the
Company, and to improve labor utilization. In 1997, the Company also advanced
its efforts to lower real estate and office occupancy costs. Reductions in
corporate overhead functions, primarily departmental re-alignment, position
elimination, and attrition were also a contributing factor to the overall
decrease in indirect expenses. Additionally, in the first quarter of 1997, the
U.S. Group curtailed its defined benefit pension plan. As a result, the Company
recognized a gain on curtailment of $1.8 million. This gain was a direct
reduction of other indirect costs and expenses.

Interest expense decreased from $4.7 million in 1996 to $4.0 million in 1997.
This decrease was primarily due to lower average outstanding bank debt and lower
interest rates in the Company's re-negotiated credit facilities in 1997 compared
to 1996. During 1997 and 1996, the Company expensed $1.5 million and $2.6
million, respectively, related to the amortization of costs associated with
re-negotiating and securing its credit facilities. This $1.1 million decrease
was directly attributable to the lower level of fees associated with the 1997
facility renegotiation versus the 1996 facility renegotiation.

In 1997, the Company recorded net income of $4.1 million compared to $1.9
million in 1996. Earnings per common share for 1997 were $1.77 per common share
- basic ($1.60 per common share - diluted) compared to $1.00 per common share
(basic and diluted) in 1996.


16
<PAGE>



MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------


FINANCIAL CONDITION
The increase in cash provided by operations from $3.8 million in 1997 to $6.4
million in 1998 was primarily the result of the increase in net income from $4.1
million in 1997 to $8.4 million in 1998. Depreciation has been reduced as the
Company has taken a more deliberate approach to capital expenditures over the
prior two years. The components of working capital, which used $4.9 million in
1997, used cash of $6.6 million in 1998.

Capital expenditures for 1998 were $6.8 million, which represents a decrease of
$1.4 million from 1997. Total capital expenditures were in line with the
Company's 1998 capital expenditures plan. In order to continue to enhance
productivity and potentially increase earnings, the Company has continued, and
will continue, its capital spending programs, particularly for computer and
other technology-related equipment. The Company believes that the limit of
capital spending imposed by its 1998 credit facility of $7.0 million per year is
sufficient to meet foreseeable requirements. The Company has no other material
commitments for purchases of additional equipment.

The Company reported debt and short-term borrowings of $48.1 million at December
31, 1998, compared to $45.6 million at the end of 1997. Debt and short-term
borrowings as a percentage of total capitalization amounted to 55% at December
31, 1998 compared to 61% at December 31, 1997.

On January 15, 1998, the Company refinanced its credit facilities into one
credit facility with a global bank. See Note 4 to the Consolidated Financial
Statements. The 1998 credit facility bears a three-year term and two one-year
extension options, the first of which was exercised concurrent with the
amendment of the facility in September, 1998. The credit facility contains
certain restrictions which, among other things, limit capital expenditures;
require minimum earnings before interest, taxes, depreciation and amortization;
and specify achievement of certain leverage and fixed charge. In addition, cash
dividends on common stock are prohibited. The repurchase of shares for cash or
notes is restricted and payments on existing or future notes payable to
shareholders are permitted, subject to certain limitations. The 1998 Facility is
secured by substantially all of the assets of the Company's United States and
United Kingdom operating subsidiaries.

On May 6, 1997, the shareholders of the Company authorized and approved a
transaction between the Company and Virgil R. Williams and James M. Williams,
Jr., each a director of the Company (collectively, the "Investors"), pursuant to
which the Company sold to the Investors (including, in the case of James M.
Williams, a family partnership that he controls) a combination of Preferred
Stock, Common Stock warrants, and options to purchase shares of Common Stock
(the "Options"). The Options are eligible to be exercised in various quantities
and at various prices through December 31, 2006. On June 25, 1998, Virgil R.
Williams and the James M. Williams Family Partnership exercised options to
purchase an aggregate of 175,000 shares of the Company's Common Stock at an
exercise price of $16.50 per share. The proceeds of $2.9 million received by the
Company were invested in initiatives to further reduce real estate and insurance
costs as well as fund improvements in technology and increased sales and
marketing activities.

While the Company anticipates continuing capital requirements to support growth,
expansion of services, and capital expenditures, the Company believes that its
cash provided by operations and borrowings available under the bank credit
facility will be sufficient to meet its requirements for the foreseeable future.

MARKET RISKS - The Company is exposed to various types of market risks in the
normal course of business, including the impact of interest rate changes and
foreign currency exchange rate fluctuations. In order to manage interest rate
risk relative to its credit facility, the Company employs an interest rate swap
agreement. Based on the Company's debt profile at December 31, 1998 and December
31, 1997, a 1% increase in market interest rates would have increased interest
expense and decreased income before income taxes by approximately $150,000 and
$280,000, respectively. The company does not hold derivative instruments for
trading purposes. As part of its foreign exchange risk management strategy, the
Company occasionally borrows funds in the appropriate local currency where debt
financing is required to support foreign operating activities, resulting in a
reduction in exchange rate risk. The Company typically does not employ
derivative instruments for purposes of managing foreign currency exchange rate
risk and as a result, could be exposed to the risk that certain revenue and cost
transactions originated in foreign



                                                                              17

<PAGE>
currencies may be realized at different exchange rates than those which had been
in effect historically. The primary foreign currencies in which the company has
exchange rate risk are pound sterling, South African rand, and the euro. Due to
the historical stability of these currencies, (and, in the case of the euro, the
related currencies which underlie the value of the euro itself), combined with
the steps that the Company has taken to manage foreign exchange risk, the
Company does not believe that these risks represent a material exposure to its
financial position or results of operations.

Year-2000 - The Company recognizes the need to address potential problems in
both information technology and non-information technology systems which could
result in improper handling of the date change to the year 2000. As the
Company's core business services are engineering and environmental science
professional consulting services, delivery of these services is not critically
dependent on any mainframe, mini-computer or personal computer-based systems or
software applications. Where computer systems and software applications are used
to support the delivery of services to clients, these systems and applications
are largely personal computer-based and are not considered likely to experience
year-2000 related problems. For certain applications which are used to support
administrative operations of the Company and certain systems and applications
used to support the Company's international operations, year-2000 readiness
projects are currently in the process of being implemented. These projects are
expected to be completed in mid-1999.

The Company expects to spend a total of approximately $150,000 to address known
year-2000 issues, with approximately $35,000 of the total spent to date.
Additionally, the Company does not anticipate a material adverse effect on the
Company's business, results of operations, or financial condition associated
with any currently identified or anticipated year-2000 readiness issue,
inclusive of internal systems and software applications and those systems of
other parties with whom the Company does business. As part of the Company's
contingency plan to address year-2000 matters, a centralized task force has been
established to coordinate identification, evaluation, and implementation of any
year-2000 contingency plans or future compliance requirements. This task force
is evaluating all of its major external providers of essential goods and
services for year-2000 readiness. Based on the critical nature of any good or
service, the task force is developing a contingency plan regardless of the
reported year-2000 readiness of the provider or industry. The Company expects
all phases to be substantially complete by mid-1999.

While the Company is taking steps that it believes to be reasonable and prudent
to assess the year-2000 readiness of third parties with whom the Company does
business, the failure of any of these third parties to correct a material
year-2000 problem could result in an interruption in, or a failure of, certain
normal business activities or operations. Due to the general uncertainty
inherent in the year-2000 problem, resulting in part from the uncertainty of the
year-2000 readiness of third party suppliers and customers, the Company is
unable to determine at this time whether the consequences of year-2000 failures
will have a material impact on the Company's results of operations, liquidity,
or financial condition. Readers are cautioned that forward-looking statements
contained in the year-2000 update should be read in conjunction with the
Company's disclosures under the heading: "Forward Looking Statements", which
follow this section.

FORWARD LOOKING STATEMENTS - This Annual Report contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 which represent the Company's expectations or beliefs. These statements
by their nature involve substantial risks and uncertainties, certain of which
are beyond the Company's control. The Company cautions that various factors,
including, but not limited to, the factors described in the Company's filings
with the Securities and Exchange Commission (the "Commission"), the uncertain
timing of awards and contracts, increasing competition by foreign and domestic
competitors as well as the impact of year-2000 issues and general economic and
regulatory conditions in each of the geographic regions served by the Company
and industry trends, and other risks could cause actual results or outcomes to
differ materially from those expressed in any forward-looking statements.


18
<PAGE>
CONSOLIDATED BALANCE SHEETS
Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
        AT DECEMBER 31,                                                              1998            1997
-----------------------------------------------------------------------------------------------------------
<S>                                                                               <C>             <C>
ASSETS
        Cash and Cash Equivalents                                                 $  11,022       $   9,527
        Billed Fees Receivable                                                       55,346          56,808
        Unbilled Work in Progress                                                    31,464          32,105
        Other Receivables                                                             1,579           2,199
        Deferred Income Taxes                                                         3,074              --
        Prepaid Expenses                                                              4,388           3,268
                                                                                  ---------       ---------
           Current Assets                                                           106,873         103,907
        Property and Equipment, net                                                  23,442          23,506
        Equity Investments                                                            1,587           1,361
        Intangible Assets                                                            13,250          13,775
        Other Assets                                                                  5,759           3,219
                                                                                  ---------       ---------
           Total Assets                                                           $ 150,911       $ 145,768
                                                                                  =========       =========

-----------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
        Short-Term Borrowings                                                     $     902       $     904
        Accounts Payable                                                             15,858          17,887
        Billings in Excess of Costs and Fees Earned on Contracts in Progress         13,805          15,168
        Accrued Payroll and Other Employee Benefits                                   7,127           5,990
        Accrued Professional Liability Reserve                                        3,518           3,504
        Other Accrued Expenses                                                       16,745          21,339
        Income Taxes Payable                                                          4,638           3,768
        Current Portion of Long-Term Debt                                             5,220           2,231
        Deferred Income Taxes                                                            --             701
                                                                                  ---------       ---------
           Current Liabilities                                                       67,813          71,492

        Long-Term Debt                                                               41,979          42,483
        Deferred Income Taxes                                                         1,983           1,528
        Minority Interest in Equity of Subsidiaries                                     208           1,060

        Cumulative Convertible Redeemable Preferred Stock -
           956,613 Shares Issued and Outstanding                                      9,886           9,864

        Common Stock - $1 par value, 10,000,000 shares authorized,
           2,045,870 and 1,872,000 shares issued and outstanding                      2,046           1,872
        Additional Paid-In Capital                                                   18,046          14,957
        Retained Earnings                                                            15,931           8,855
        Accumulated Other Comprehensive Income                                       (6,981)         (6,343)
                                                                                  ---------       ---------
           Total Shareholders' Equity                                                29,042          19,341
                                                                                  ---------       ---------
           Total Liabilities and Shareholders' Equity                             $ 150,911       $ 145,768
                                                                                  =========       =========
</TABLE>

See Accompanying Notes.


                                                                              19
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Law Companies Group, Inc. (Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
          YEAR ENDED DECEMBER 31,                            1998            1997            1996
---------------------------------------------------------------------------------------------------
<S>                                                        <C>             <C>             <C>
         Gross Fees                                        $311,162        $310,791        $323,179
         Less: Cost of Outside Services                      36,242          33,090          36,897
                                                           --------        --------        --------
         Net Fees                                           274,920         277,701         286,282

         Direct Costs and Expenses:
            Payroll                                          81,160          81,613          83,109
            Job-Related Expenses                             32,591          34,450          33,402
                                                           --------        --------        --------
         Gross Profit                                       161,169         161,638         169,771

         Indirect Costs and Expenses:
            Payroll                                          62,474          60,604          61,527
            Other Expenses                                   79,688          87,240          96,570
                                                           --------        --------        --------
         Operating Income                                    19,007          13,794          11,674

         Other Income (Expense):
            Interest Expense                                 (4,365)         (3,995)         (4,715)
            Deferred Financing Costs                           (141)         (1,539)         (2,553)
            Other Income (Expense)                              197            (198)             12
                                                           --------        --------        --------
         Income Before Income Taxes
            and Equity Investments                           14,698           8,062           4,418
         Income Tax Provision                                (6,432)         (4,012)         (2,615)
         Equity Investments                                     156              31             107
                                                           --------        --------        --------
         Net Income                                           8,422           4,081           1,910
         Less: Preferred Stock Dividend and Accretion        (1,128)           (742)             --
                                                           --------        --------        --------
         Net Income Available to Common Shareholders       $  7,294        $  3,339        $  1,910
                                                           ========        ========        ========

         Earnings Per Common Share - Basic                 $   3.71        $   1.77        $   1.00
                                                           ========        ========        ========

         Earnings per Common Share - Diluted               $   2.77        $   1.60        $   1.00
                                                           ========        ========        ========

RECONCILIATION OF COMPREHENSIVE INCOME

         Net Income                                        $  8,422        $  4,081        $  1,910
         Other Comprehensive Income:
            Foreign Currency Translation Adjustment            (638)         (1,282)           (376)
                                                           --------        --------        --------
         Comprehensive Income                              $  7,784        $  2,799        $  1,534
                                                           ========        ========        ========
</TABLE>

See Accompanying Notes.


20
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Law Companies Group, Inc. (Dollars in thousands, except share amounts)

<TABLE>
<CAPTION>
              Year Ended December 31,                                1998           1997           1996
--------------------------------------------------------------------------------------------------------
<S>                                                                <C>                <C>        <C>
Class A Common Stock
              Balance at Beginning of Year                         $    --        $    --        $ 1,533
              Conversion of 1,533,106 Shares of Class A Stock
                 To Common Stock                                        --             --         (1,533)
                                                                   -------        -------        -------
              Balance at End of Year                                    --             --             --

Common Stock
              Balance at Beginning of Year                           1,872          1,905            361
              Conversion of 1,533,106 Shares of Class A Stock
                 To Common Stock                                        --             --          1,533
              Issuance of Common Stock                                  21             --             19
              Repurchase and Retirement of Common Stock                (22)           (33)            (8)
              Exercise of Options to Purchase Common Stock             175             --             --
                                                                   -------        -------        -------
              Balance at End of Year                                 2,046          1,872          1,905

Additional Paid-In Capital
              Balance at Beginning of Year                          14,957         15,063         14,823
              Issuance of Common Stock                                 558             --            300
              Repurchase and Retirement of Common Stock               (182)          (256)           (60)
              Exercise of Options to Purchase Common Stock           2,713             --             --
              Issuance of Common Stock Warrants                         --            150             --
                                                                   -------        -------        -------
              Balance at End of Year                                18,046         14,957         15,063

Retained Earnings
              Balance at Beginning of Year                           8,855          5,683          3,794
              Net Income                                             8,422          4,081          1,910
              Preferred Stock Dividends                               (800)          (521)            --
              Preferred Stock Accretion                               (327)          (221)            --
              Repurchase and Retirement of Common Stock               (219)          (167)           (21)
                                                                   -------        -------        -------
              Balance at End of Year                                15,931          8,855          5,683

Accumulated Other Comprehensive Income
              Balance at Beginning of Year                          (6,343)        (5,061)        (4,685)
              Foreign Currency Translation Adjustment                 (638)        (1,282)          (376)
                                                                   -------        -------        -------
              Balance at End of Year                                (6,981)        (6,343)        (5,061)

                                                                   -------        -------        -------
Total Shareholders' Equity                                         $29,042        $19,341        $17,590
                                                                   =======        =======        =======
</TABLE>

See Accompanying Notes.


                                                                              21

<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Law Companies Group, Inc. (Dollars in thousands)

<TABLE>
<CAPTION>
           Year Ended December 31,                                       1998           1997          1996
-----------------------------------------------------------------------------------------------------------
<S>                                                                    <C>            <C>           <C>
Operating Activities:
          Net Income                                                   $ 8,422        $ 4,081       $ 1,910
          Adjustments to Reconcile Net Income to
             Net Cash Provided by Operating Activities:
                Depreciation and Amortization                            6,724          6,782         7,744
                Financing Costs Amortization                               141          1,539         2,553
                Provision for Losses on Receivables                        731            172           683
                Deferred Income Taxes                                   (3,320)        (4,034)       (3,169)
                Provision for Losses on Claims                             219             --           919
                Undistributed Earnings From
                   Equity Investments                                     (156)           (31)         (107)

                Loss (Gain) on Disposal of Property and Equipment          205            228          (161)
          Changes in Operating Working Capital Assets and
             Liabilities, net of Effects of Business Acquisitions       (6,599)        (4,932)        4,587
                                                                       -------        -------       -------
          Net Cash Provided by Operating Activities                      6,367          3,805        14,959

Investing Activities:
          Business Acquisitions, net of Cash Acquired                     (187)          (415)           --
          Purchases of Property and Equipment                           (6,635)        (7,793)       (3,992)
          Proceeds from Disposal of Property and Equipment                 120            227           494
          Other, net                                                    (1,903)           236          (195)
                                                                       -------        -------       -------
          Net Cash Used in Investing Activities                         (8,605)        (7,745)       (3,693)

Financing Activities:
          Net Proceeds (Payments) on Short-Term Borrowings                 182            606          (855)
          Net Proceeds (Payments) on Revolving Line of
             Credit and Long-Term Borrowings                             2,701            (46)       (6,573)
          Deferred Financing and Preferred Stock Issuance Costs           (369)        (3,602)         (921)
          Issuance of Cumulative Convertible Redeemable
             Preferred Stock                                                --          9,850            --
          Issuance of Common Stock and Warrants                             --            150           319
          Repurchase and Retirement of Shares                             (423)          (456)          (89)
          Preferred Dividends Paid                                        (800)          (521)           --
          Exercise of Options to Purchase Common Stock                   2,888             --            --
                                                                       -------        -------       -------
          Net Cash Provided by (Used in) Financing Activities            4,179          5,981        (8,119)

          Effect of Exchange Rate Changes on Cash                         (446)          (611)           37
                                                                       -------        -------       -------
          Increase in Cash and Cash Equivalents                          1,495          1,430         3,184
          Cash and Cash Equivalents at Beginning of Year                 9,527          8,097         4,913
                                                                       -------        -------       -------
          Cash and Cash Equivalents at End of Year                     $11,022        $ 9,527       $ 8,097
                                                                       =======        =======       =======
</TABLE>

See Accompanying Notes.


22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996,  Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

1. Accounting Policies

DESCRIPTION OF BUSINESS - Law Companies Group, Inc. and its subsidiaries
(collectively, the "Company") provide comprehensive environmental and
specialized engineering consulting services to governmental, commercial and
industrial entities. During 1998, 1997, and 1996, the Company derived
approximately 5%, 8%, and 10%, respectively, of gross fees from various agencies
of the United States Government.

BASIS OF PRESENTATION - The consolidated financial statements include the
accounts of Law Companies Group, Inc. and its subsidiaries. All significant
intercompany accounts and transactions are eliminated.

USE OF ESTIMATES - The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

REVENUE RECOGNITION - In general, the Company recognizes revenues at the time
services are performed. On cost-reimbursable contracts, revenue is recognized as
costs are incurred, and includes applicable fees earned through the date
services are provided. On fixed-price contracts, revenues are recorded using the
percentage-of-completion method of accounting by relating contract costs
incurred to date to total estimated contract costs at completion. Contract costs
include both direct and indirect costs. Contract losses are provided for in
their entirety in the period they become known, without regard to the
percentage-of-completion. Some of the Company's contracts with the U.S. federal
government, as well as certain contracts with commercial clients, provide that
contract costs (including indirect costs) are subject to audit and adjustment.
For all such contracts, revenues have been recorded based upon those amounts
expected to be realized upon final settlement.

DERIVATIVES - The Company has entered into an interest rate swap agreement to
synthetically manage the interest rate characteristics of its outstanding debt
and to partially limit the Company's exposure to rising interest rates. Amounts
to be received or paid as a result of this agreement are accrued and recognized
as an adjustment to interest expense related to the designated debt. Gains and
losses on terminations of interest rate swap agreements would be deferred as an
adjustment to the carrying amount of the outstanding debt and amortized as an
adjustment to interest expense related to the debt over the remaining term of
the original contract life of the terminated swap agreement. In the event of the
early extinguishment of a designated debt obligation, any realized or unrealized
gain or loss from the swap would be recognized in income coincident with the
extinguishment gain or loss.

RECEIVABLES AND UNBILLED WORK IN PROGRESS - Unbilled work in progress represents
amounts earned under contracts in progress, but not yet billable under the terms
of those contracts. These amounts become billable according to the contract
terms which usually consider the passage of time, achievement of certain
milestones, or completion of the project. Included in accounts receivable at
December 31, 1998 and 1997 were contract retentions totaling $765 and $537,
respectively. Substantially all unbilled receivables are billed and collected in
the subsequent fiscal year. Billed fees receivable, net, at December 31, 1998 of
$55,346 and at December 31, 1997 of $56,808 were net of allowances for doubtful
accounts of $4,223 and $3,747, respectively.

CASH EQUIVALENTS - The Company considers all highly liquid investments with
maturities of three months or less when purchased to be cash equivalents.



                                                                              23

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996,  Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Depreciation
and amortization are provided over estimated useful lives using both
straight-line and accelerated methods. Useful lives range as follows: buildings
40 years; equipment 3-6 years; furniture and fixtures 5-10 years; automobiles
3-6 years; and leasehold improvements utilizing the shorter of the lease term or
the remaining useful life of the asset. Depreciation expense was $5,316, $6,243,
and $7,165 in 1998, 1997, and 1996, respectively.

INCOME TAXES - The liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the tax rates and laws that will be in effect when the
differences are expected to reverse.

INTANGIBLE ASSETS - Goodwill, representing amounts paid in excess of the fair
values of the net assets acquired in acquisition transactions, is amortized
using the straight-line method over periods of 10-40 years. If facts and
circumstances indicate that the goodwill or other intangible assets may be
impaired, the Company's policy is to compare the carrying amount for those
assets to the undiscounted cash flows associated with those assets in order to
determine if a write-down to fair market value is required.

OTHER ASSETS - Included in Other Assets are other intangible assets, primarily
debt financing costs and trademarks which are amortized on a straight-line basis
over the terms of the related agreement. Accumulated amortization approximated
$959 and $1,603 at December 31, 1998 and 1997, respectively. Additionally,
certain long-term prepaid expenses and prepaid pension costs also are
represented in the balances at December 31, 1998.

FOREIGN CURRENCY TRANSLATION - The functional currency for most foreign
operations is the local currency. The cumulative effects of translating the
balance sheet accounts from the functional currency into the U.S. dollar at
current exchange rates are included in Foreign Currency Translation Adjustment
in Shareholders' Equity. For all operations, gains or losses from remeasuring
foreign currency transactions into the functional currency are included in
income.

COMMON STOCK RESERVED - The Company has reserved 1,574,541 shares of common
stock for issuance relative to employee stock option plans, other stock option
plans, convertible securities, and common stock warrants.

STOCK BASED COMPENSATION - The Company grants to employees stock options for a
fixed number of shares with an exercise price equal to the fair value of the
shares at the date of grant. The Company has elected to account for stock option
grants in accordance with APB Opinion No. 25, Accounting for Stock Issued to
Employees, and, accordingly, recognizes no compensation expense for the stock
option grants. (See Note 7.)

EARNINGS PER COMMON SHARE - In 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings per Share (SFAS 128). SFAS 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants, and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where appropriate, restated to conform to
the SFAS 128 requirements. (See Note 10.)

RECENT PRONOUNCEMENT - In June 1998, the Financial Accounting Standards Board
issued Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which is required to be adopted in years beginning after June 15,
1999. Because of the Company's minimal use of derivatives, management does not
anticipate that the adoption of the new Statement will have a material effect on
earnings or the financial position of the Company.


24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996,  Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

2.  PROPERTY AND EQUIPMENT

Property and Equipment are presented at cost less accumulated depreciation and
are detailed as follows:

<TABLE>
<CAPTION>
                                                    1998           1997
                                                  --------       --------
         <S>                                      <C>            <C>
         Land and Buildings                       $ 12,398       $ 12,094
         Equipment                                  38,773         36,507
         Furniture and Fixtures                     12,074         12,386
         Automobiles                                 2,606          3,088
         Leasehold Improvements                      2,316          3,526
                                                  --------       --------
                                                    68,167         67,601

         Less: Accumulated Depreciation            (44,725)       (44,095)
                                                  --------       --------
            Total Net Property and Equipment      $ 23,442       $ 23,506
                                                  ========       ========
</TABLE>

3. CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK

On March 14, 1997, the Board of Directors approved an agreement to issue to an
investor $10 million of 8% Cumulative Redeemable Preferred Stock (redeemable on
or after the seventh anniversary of issuance), together with separate warrants
exercisable for a period of 12 years and representing approximately 33% of the
Common Stock outstanding as of the date of issuance. The warrants had an
exercise price of $10.45 per share until June 30, 1998 after which the price
will range from $0.01 to $10.45 based upon the Company's performance against
stipulated net income benchmarks. In addition, the agreement included options to
acquire up to 900,000 shares of Common Stock at a price of $16.50 per share from
July 1, 1997 through June 30, 1998, increasing on July 1 of each year thereafter
to $20.00, $24.50, $29.00, and $33.00 through December 31, 2006. As of December
31, 1998, as a result of the exercise of 175,000 options and the subsequent
cancellation, per the terms of the agreement, of an additional 140,972 options,
there were options remaining to acquire up to 584,028 shares of Common Stock.

The Preferred Stock is entitled to voting rights equal to the number of common
shares represented by the warrants. The Preferred Stock may vote on all matters
except as expressly provided in the Company's bylaws and articles of
incorporation and under applicable law. The Preferred Stock is entitled to elect
Preferred Directors representing one less than a majority of the Company's Board
of Directors. The liquidation preference of each preferred share is its original
issue price of approximately $10.45 per share, totalling $10 million. The value
assigned to the options and warrants of $150 and the costs of issuance of $2,149
are being accreted/amortized over the period to redemption, reducing the net
income available to common shareholders.


                                                                              25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996,  Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

4. DEBT

Debt obligations consist of the following at December 31:

<TABLE>
<CAPTION>
                                                                                         1998         1997
                                                                                       -------      -------
         <S>                                                                           <C>          <C>
         Revolving Lines of Credit:
            United States (Average interest rate of 7.5% at December 31, 1998)         $28,700      $26,586
            International (Average interest rate of 8.3% at December 31, 1998)           4,342        1,796
         Notes Payable to former shareholders, interest at prime,  8.0%, and 8.5%       12,868       12,868
         Note Payable, interest at 7.5%                                                     --        1,526
         Various Notes Payable, interest at rates ranging from
            5.4% to 17.5% due in installments through the year 2002                      1,289        1,938
                                                                                       -------      -------
         Total Lines of Credit and Notes Payable                                        47,199       44,714
            Less: Current Portion                                                        5,220        2,231
                                                                                       -------      -------
         Total Long-Term Debt                                                          $41,979      $42,483
                                                                                       =======      =======
</TABLE>

On January 15, 1998, the Company refinanced its credit facilities into one
credit facility with a global bank. The 1998 Facility bears a three-year term
and two one-year extension options, the first of which was exercised concurrent
with the amendment of the facility in September, 1998. The credit facility
contains certain restrictions which, among other things, limit capital
expenditures; require minimum earnings before interest, taxes, depreciation and
amortization; and specify achievement of certain leverage and fixed charge
ratios. In addition, cash dividends on common stock are prohibited. The
repurchase of shares for cash or notes is restricted and payments on existing or
future notes payable to shareholders are permitted, subject to certain
limitations. The 1998 Facility is secured by substantially all of the assets of
the Company's United States and United Kingdom operating subsidiaries.

CREDIT FACILITY

<TABLE>
<CAPTION>
                                              MAXIMUM
             NATURE                          AMOUNT (C)                   INTEREST RATE                          EXPIRATION DATE
             ------                          ----------                   -------------                          ---------------
<S>                                       <C>               <C>                                                  <C>
Revolving Line of Credit (A)                    $40,000     Base less 0.25% to Base and LIBOR + 1.5% to 2.0%     January 15, 2002
Letters of Credit sub-facility                  $ 3,000     1.25% to 1.5% Per Annum                              January 15, 2002
Revolving Line of Credit and
   Overdraft Facility                     (pound)11,000     Base + 1.5% to 2.0% and LIBOR + 1.5% to 2.0%         January 15, 2002
Letters of Credit sub-facility            (pound)11,000     1.75% Per Annum                                      January 15, 2002
Capital Expenditure Facility (B)                $ 7,992     Base - 0.25% + 0% and LIBOR + 1.5% to 2.0%           January 15, 2002
Capital Expenditure Facility (B)          (pound) 2,400     LIBOR + 1.5% to 2.0%                                 January 15, 2002
</TABLE>

(A)      The total revolving facility will be reduced by $10,000 on January 1,
         2000 and by an additional $5,000 on January 1, 2001.
(B)      The capital expenditure dollar facility has an initial availability of
         $2,664, increasing to $5,328 on January 15, 1999, and $7,992 on January
         15, 2000. The capital expenditure pounds sterling facility has an
         initial availability of (pound)800, increasing to(pound)1,600 on
         January 15, 1999, and(pound)2,400 on January 15, 2000.
(C)      Amounts available under the revolving credit facility will be subject
         to a borrowing base limitation based upon the Company's earnings before
         interest, taxes, depreciation, and amortization measured on a monthly
         basis. Borrowings under the capital expenditure facilities are
         repayable quarterly over a five-year period.


26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996,  Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Interest payments totaled $5,366, $4,236, and $5,212 in 1998, 1997, and 1996,
respectively. The weighted average interest rate on short-term borrowings ($902
of short-term borrowings denominated in South African rand ) approximated 24.0%
in 1998. Future maturities of long-term debt are as follows:

<TABLE>
         <S>                                         <C>
               1999                                  $ 5,220
               2000                                    4,279
               2001                                    6,316
               2002                                   30,654
               2003                                      730
         Thereafter                                       --
                                                     -------
                                                     $47,199
                                                     =======
</TABLE>

In January 1998, the Company entered into an interest rate swap agreement
effectively to fix the LIBOR rate on $20,000 of variable rate borrowings at
5.86% per annum until January 2003. At December 31, 1998, the Company had
provided guarantees of $2,419 under United States letters of credit and $8,642
under international bonds, guarantees, and indemnities.

5. LEASES

The Company leases certain office space, equipment, automobiles, and furniture
under noncancellable operating leases. The following is a schedule of future
minimum lease payments required under those leases which have initial or
remaining noncancellable terms of one year or more:

<TABLE>
         <S>                                               <C>
               1999                                        $13,077
               2000                                         10,157
               2001                                          7,788
               2002                                          5,076
               2003                                          5,232
         Thereafter                                         26,710
                                                           -------
                                                           $68,040
                                                           =======
</TABLE>

Rent expense, net of income from subleases, aggregated $14,803, $17,307, and
$17,079 in 1998, 1997, and 1996, respectively.


                                                                              27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996,  Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

6. BENEFIT PLANS

PENSION PLANS
The Company has a noncontributory, defined benefit pension plan covering
substantially all of its United States employees over the age of 21. The
benefits are based on each eligible employee's years of service and compensation
during the last ten years of employment. A curtailment in the plan, which was
effective March 28, 1997, ceased benefit accruals to vested participants on that
date. As a result, the Company recognized a gain on curtailment of $1,816 in the
first quarter of 1997.

The Company's funding policy is to contribute amounts annually to the plan
sufficient to meet minimum funding requirements as set forth in the Employee
Retirement Income Security Act of 1974, plus additional amounts, if any, as may
be determined to be appropriate by the Company's Board of Directors.

During 1998, the Company adopted SFAS No. 132 - Employers' Discussions about
Pensions and Other Postretirement Benefits. Adoption of this standard requires
expanded disclosures regarding the roll-forward of the changes in benefit
obligation and the changes in plan assets. These disclosures are reflected in
the tables which follow.

Net periodic pension costs consist of the following components for the years
ended December 31:

<TABLE>
<CAPTION>
                                                       1998          1997          1996
                                                     -------       -------       -------
         <S>                                         <C>           <C>           <C>
         Service Cost                                $    --       $   560       $ 2,898
         Interest Cost                                 2,687         2,635         2,859
         Actual Return on Plan Assets                 (3,639)       (2,845)       (4,511)
         Net Amortization and Deferral                  (160)            2         2,656
                                                     -------       -------       -------
            Net Periodic Pension (Benefit) Cost      $(1,112)      $   352       $ 3,902
                                                     =======       =======       =======
</TABLE>


28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996,  Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

The following table sets forth the funded status and net liability recognized
for the plan:

<TABLE>
<CAPTION>
                                                                  1998           1997
                                                                -------        -------
         <S>                                                    <C>            <C>
         Change in Benefit Obligation
            Benefit Obligation at Beginning of Year             $35,669        $41,099
            Service Cost                                             --            560
            Interest Cost                                         2,687          2,635
            Amendments                                               --        (11,362)
            Actuarial Gain (Loss)                                 1,467          2,779
            Benefits Paid                                          (142)           (42)
                                                                -------        -------
            Benefit Obligation at End of Year                   $39,681        $35,669

         Change in Plan Assets
            Fair Value of Plan Assets at Beginning of Year      $34,926        $27,319
            Actual Return on Plan Assets                          5,169          4,075
            Employer Contributions                                  813          3,573
            Benefits Paid                                          (399)           (42)
                                                                -------        -------
            Fair Value of Plan Assets at End of Year            $40,509        $34,925
                                                                -------        -------

            Funded Status                                       $   828        $  (744)
            Unrecognized Actuarial Gain                           1,253          1,059
            Unrecognized Prior Service Cost                          --             --
            Unrecognized Transition Asset                          (480)          (639)
                                                                -------        -------
            Net Amount Recognized                               $ 1,601        $  (324)
                                                                =======        =======

         Amounts Recognized in the Balance Sheet
            Consist of:
            Prepaid Benefit Cost                                $ 1,601        $    --
            Accrued Benefit Liability                                --           (324)
            Intangible Asset                                         --             --
            Accumulated Other Comprehensive Income                   --             --
                                                                -------        -------
            Net Amount Recognized                               $ 1,601        $  (324)
                                                                =======        =======
</TABLE>


                                                                              29

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996,  Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Actuarial assumptions used to determine net periodic pension costs are as
follows for the years ended December 31:

<TABLE>
<CAPTION>
                                                                1998          1997          1996
                                                               -----         -----         -----
         <S>                                                   <C>           <C>           <C>
         Weighted Average Discount Rate                         7.25%         7.25%         7.80%
         Rate of Increase in Future Compensation Levels
            Pre-Curtailment                                     4.00%         4.00%         4.00%
            Post-Curtailment                                    0.00%         0.00%          N/A
         Expected Long-Term Rate of Return
            on Plan Assets                                     10.00%        10.00%        10.00%
</TABLE>

The Company periodically revises the actuarial assumptions used for calculation
of net periodic pension cost and the projected benefit obligation to better
reflect current economic and market conditions. Effective January 1, 1997, the
Company revised the weighted average discount rate assumption. The net effect of
this change in assumption, as indicated above, was to increase net periodic
pension cost by $454 in 1997.

The Company also has a defined contribution savings plan which qualifies under
section 401(k) of the Internal Revenue Code, covering substantially all United
States employees, in which Company stock was one of several elective investment
options. As of May 10, 1996, the Board of Directors of the Company decided to
terminate the option of Company Common Stock under the Plan, whether as employee
contributions or as Company matching contributions. Consistent with that
decision, employees are allowed to trade out of (but not into) shares of the
Company's Common Stock held in their individual 401(k) accounts, in accordance
with Plan provisions. Employees may transfer funds out of this option quarterly
(transfers out are limited to 25% per quarter of the employee's balance if the
employee's balance in this option is greater than $5), resulting in the sale or
repurchase of stock by the Company. At December 31, 1998, the Plan holds 60,615
shares of the Company's stock with a value of $1,312.

The Company's international subsidiaries have defined contribution pension plans
covering substantially all full-time employees over the age of 21. Eligible
employees can elect contributory or noncontributory status, with contributions
related to compensation. Expenses related to these plans aggregated $1,680 in
1998, $1,699 in 1997, and $1,782 in 1996.

EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)

Effective January 1, 1991, the Company's shareholders approved the establishment
of an ESOP, to provide substantially all of the Company's full-time United
States employees an additional opportunity to share in the ownership of the
Company's Common Stock. The ESOP is intended to be a "qualified" stock bonus
plan, as defined in the Internal Revenue Code. Contributions to the ESOP's trust
fund are discretionary based upon the operating performance of the Company and
will be used to purchase shares of Common Stock (see Note 7). The Company
reserves the right to amend, modify, or terminate the Plan, but in no event will
any portion of the contributions made revert to the Company. No contributions
were made for 1998, 1997, or 1996.


30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996,  Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

7. SHAREHOLDERS' EQUITY

STOCK OPTION PLAN
The Company is authorized under the 1990 Stock Option Plan (the "Plan"), as
amended, to issue up to 500,000 shares of Common Stock to key employees. All
options granted have 10 year terms and vest and become fully exercisable at a
rate of 20% per year for five years of continued employment. The option price
per share and the date of exercise are determined by the Compensation Committee
of the Board of Directors at the time of grant. However, the option price per
share may not be less than the fair market value of the Company's Common Stock
on the grant date, with the options expiring ten years or less from the grant
date. At December 31, 1998, options to acquire 57,500, 500, 20,000, 7,500,
75,000, 201,000, 7,000, 10,000, and 78,000 shares of the Company's Common Stock
at $17.80, $29.63, $26.31, $16.91, $11.64, $12.61, $14.33, $14.82, and $19.54
per share, respectively, were outstanding under this Plan. At that date, options
to acquire 152,600 shares were exercisable.

The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related Interpretations,
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
Accounting for Stock-Based Compensation (SFAS 123), requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.

Pro forma information regarding net income and earnings per share 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 a Minimum Value
option pricing model with the following weighted-average assumptions for 1998,
1997, and 1996, respectively: risk-free interest rates of 5.6%, 5.7%, and 6.4%;
dividend yields of 0%; and a weighted-average expected life of the option of 7.6
years.

Option valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because the Company's employee
stock options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows.

<TABLE>
<CAPTION>
                                                        1998           1997           1996
                                                       ------         ------         ------
         <S>                                           <C>            <C>            <C>
         Pro Forma Net Income Available to Common
          Shareholders                                 $6,877         $3,043         $1,768
         Pro Forma Earnings Per Common Share
            Basic                                      $ 3.49         $ 1.61         $ 0.93
            Diluted                                    $ 2.63         $ 1.48         $ 0.93
</TABLE>

Because SFAS 123 is applicable only to options granted subsequent to December
31, 1994, its pro forma effect will not be fully reflected until December 31,
1999.


                                                                              31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996,  Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

A summary of the Company's stock option activity, and related information for
the years ended December 31 follows:

<TABLE>
<CAPTION>
                                                               1998             1997             1996
                                                             --------         --------         --------
         <S>                                                 <C>              <C>              <C>
         Outstanding  - Beginning of Year                     398,000          330,750          274,500
         Granted                                               89,000          228,000          136,500
         Exercised                                                 --               --               --
         Cancelled                                             30,500          160,750           80,250
         Outstanding - End of Year                            456,500          398,000          330,750

         Exercisable -  End of Year                           152,600           98,600          177,250
         Weighted Average Fair Value of Options Granted
            During the Year                                  $   6.20         $   4.16         $   5.08

         Weighted Average Exercise Price:
            Outstanding - Beginning of Year                  $  14.27         $  17.61         $  20.20
            Granted                                          $  19.01         $  12.66         $  14.01
            Exercised                                        $     --         $     --         $     --
            Cancelled                                        $  16.42         $  18.86         $  20.33
            Outstanding - End of Year                        $  15.05         $  14.27         $  17.61
            Exercisable - End of Year                        $  16.33         $  18.77         $  19.50
</TABLE>

Exercise prices for options outstanding as of December 31, 1998 ranged from
$11.64 to $29.63. The weighted-average remaining contractual life of those
options is 7.5 years.

SHARE REPURCHASES

As described in Note 6, Company Common Stock was previously an investment option
in the Company's 401(k) plan. In accordance with plan provisions, 20,913 and
33,422 shares were repurchased during 1998 and 1997 for $408 and $456,
respectively, related to transfers out of this investment option.


32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996,  Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------


8. INCOME TAXES - The federal, state, and foreign components of the provision
for income taxes are as follows at December 31:

<TABLE>
<CAPTION>
                                          1998          1997          1996
                                         ------        ------        ------
         <S>                             <C>           <C>           <C>
         CURRENT INCOME TAXES:
            Federal                      $7,390        $5,796        $3,243
            State                         1,677         1,156           478
            Foreign                         685         1,094         2,063
                                         ------        ------        ------
         Total Current                    9,752         8,046         5,784
         DEFERRED INCOME TAXES:
            Federal                      (3,709)       (3,533)       (2,513)
            State                          (695)         (643)         (472)
            Foreign                       1,084           142          (184)
                                         ------        ------        ------
         Total Deferred                  (3,320)       (4,034)       (3,169)
                                         ------        ------        ------
         PROVISION FOR INCOME TAXES      $6,432        $4,012        $2,615
                                         ======        ======        ======
</TABLE>

The foreign provision for income taxes is based on pre-tax earnings from foreign
operations of $4,367 in 1998, $3,112 in 1997, and $5,005 in 1996.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows at December 31:

<TABLE>
<CAPTION>
                                                                     1998           1997
                                                                   -------        -------
         <S>                                                       <C>            <C>
         DEFERRED TAX LIABILITIES:
            Cash Basis of Accounting for Income Tax Purposes       $    --        $ 4,501
            Software Capitalization                                  2,281          2,238
            Mark to Market Accounting for Accounts Receivable        1,030          1,224
            Other - net                                              3,101          1,893
                                                                   -------        -------
         Total Deferred Tax Liabilities                              6,412          9,856
         DEFERRED TAX ASSETS:
            Depreciation                                             2,221          1,499
            Employee Benefits                                          780            953
            Non-Deductible Reserves                                  2,902          3,545
            Loss Carry-Forwards                                      5,660          5,808
            Other - net                                                188            218
                                                                   -------        -------
                                                                    11,751         12,023
         Valuation Allowance for Deferred Tax Assets                (4,248)        (4,396)
                                                                   -------        -------
         Total Deferred Tax Assets                                   7,503          7,627
                                                                   -------        -------
         Net Deferred Tax Assets (Liabilities)                     $ 1,091        $(2,229)
                                                                   =======        =======
</TABLE>


                                                                              33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996,  Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

Prior to 1995, certain of the Company's subsidiaries filed their federal income
tax returns on the cash basis of accounting. Effective January 1, 1995, these
subsidiaries changed their method of accounting from the cash to the accrual
method for federal income tax purposes. Accordingly, previously deferred income
of approximately $47 million at January 1, 1995 was included in taxable income
over a four year period beginning in 1995.

Because the Company plans to continue to finance foreign expansion and operating
requirements by reinvestment of undistributed earnings of its foreign
subsidiaries, United States income taxes have not been provided on such
earnings. The amount of undistributed earnings which are considered to be
indefinitely reinvested is approximately $21,122 at December 31, 1998.

A reconciliation of the statutory U.S. income tax rate to the Company's
effective income tax rate is as follows:

<TABLE>
<CAPTION>
                                                             1998          1997          1996
                                                             ----          ----          ----
         <S>                                                 <C>           <C>           <C>
         Statutory U.S. Income Tax Rate                      34.0%         34.0%         34.0%
         State Taxes, net of Federal Benefit                  4.4%          4.2%          0.1%
         Income Tax in Jurisdictions Other than 34.0%         3.6%          2.4%         (4.5%)
         Permanent Differences Between
            Book and Taxable Income                           3.0%         13.0%         21.7%
         Losses for Which No Benefit is Recognized             --            --           8.5%
         Other                                               (1.2%)        (3.8%)        (0.6%)
                                                             ----          ----          ----
         Effective Income Tax Rate                           43.8%         49.8%         59.2%
</TABLE>

At December 31, 1998 the Company had $951 of operating loss carryforwards
related to foreign subsidiaries; $939 can be carried forward indefinitely. The
remaining $12 will expire in 2002. The Company has $3,152 of capital loss
carryforwards in foreign jurisdictions that can be carried forward indefinitely.
A valuation allowance has been provided for deferred tax assets related to loss
carryforwards and other reserves. The valuation allowance as of January 1, 1997
and 1996 was $3,007 and $2,332, respectively. Income tax payments amounted to
$8,639, $9,236, and $4,906 in 1998, 1997, and 1996, respectively.

9. CONSOLIDATED STATEMENTS OF CASH FLOWS

The changes in operating working capital as shown in the Consolidated Statements
of Cash Flows includes:

<TABLE>
<CAPTION>
                                                                        1998          1997          1996
                                                                      -------       -------       -------
         <S>                                                          <C>           <C>           <C>
         Decrease (Increase) in:
                           Billed Fees Receivable                          44        (1,190)        1,473
                           Unbilled Work in Progress                      433        (2,408)        2,734
                           Other Current Assets                          (824)         (714)        2,322
         Increase (Decrease) in:
                           Accounts Payable and Accrued Expenses       (5,025)       (1,568)       (6,686)
                           Billings in Excess of Costs and Fees
                              Earned on Contracts in Progress          (1,227)          948         4,744
                                                                      -------       -------       -------
         Changes in Operating Working Capital Assets and
            Liabilities, net of Effects of Business Acquisitions      $(6,599)      $(4,932)      $ 4,587
                                                                      =======       =======       =======
</TABLE>


34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996,  Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

10. EARNINGS PER COMMON SHARE

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

<TABLE>
<CAPTION>
                                                                         1998          1997         1996
                                                                       -------       -------       ------
         <S>                                                           <C>           <C>           <C>
         NUMERATOR:
            Net Income                                                 $ 8,422       $ 4,081       $1,910
              Preferred stock dividends and accretion                   (1,128)         (742)          --
                                                                       -------       -------       ------
            Numerator for basic earnings per common share -
                Income available to common shareholders                  7,294         3,339        1,910
            Effect of Dilutive Securities:
                 Preferred stock dividends and accretion                 1,128           742           --
                                                                       -------       -------       ------

              Numerator for diluted earnings per common share -
                 Income available to common shareholders               $ 8,422       $ 4,081       $1,910

         DENOMINATOR:
              Denominator for basic earnings per common share -
                Weighted-average shares                                  1,968         1,892        1,907
              Effect of dilutive securities:
                Employee Stock Options                                      93            22           --
                Cumulative Convertible Redeemable Preferred Stock
                    And Associated Common Stock Warrants                   957           638           --
                Other Stock Options                                         29            --           --
                                                                       -------       -------       ------
              Dilutive potential common shares                           1,079           660           --
                                                                       -------       -------       ------
              Denominator for diluted earnings per common
                  share - Adjusted weighted-average shares               3,047         2,552        1,907
                                                                       =======       =======       ======

         Basic earnings per common share                               $  3.71       $  1.77       $ 1.00
                                                                       =======       =======       ======

         Diluted earnings per common share                             $  2.77       $  1.60       $ 1.00
                                                                       =======       =======       ======
</TABLE>

11. COMPREHENSIVE INCOME

During 1998, the Company adopted Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income (SFAS 130). SFAS 130 establishes new rules
for the reporting and display of comprehensive income and its components;
however, the adoption of SFAS 130 had no impact on the Company's net income or
shareholders' equity. SFAS 130 requires foreign currency translation adjustments
or other adjustments, if any, which prior to adoption were reported separately
in shareholders' equity to be included in other comprehensive income. The new
disclosures required by SFAS 130 are recorded on the Statement of Operations in
the section entitled Reconciliation of Comprehensive Income.


                                                                              35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996,  Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

12. COMMITMENTS AND CONTINGENCIES

The Company is a party to a number of lawsuits and claims arising in the
ordinary course of its business. While the ultimate results of lawsuits or other
proceedings against the Company cannot be predicted with certainty, management
does not believe the ultimate costs of such actions, if any, in excess of
amounts provided in the consolidated financial statements will have a material
effect on the Company's consolidated financial position or results of
operations.

Beginning August 1, 1995, the holders of preferred stock of a wholly-owned
subsidiary issued in connection with the 1994 acquisition of HKS (the Company's
South African subsidiary) have had the option to require the Company to redeem
their shares at any time at a price equal to the appraised value per share as of
the preceding year-end.

13. SPECIAL CHARGES TO OPERATIONS

During 1998, 1997, and 1996, the Company recorded a $1,347, $2,126, and $410
charge, respectively, against operations to cover severance and related benefits
costs, early termination of leases and expected sublease shortfalls, disposition
of leasehold improvements and selected real estate, office relocation costs, and
other corporate charges related to its cost reduction initiatives. The majority
of these charges were paid in cash during the year in which they were recorded.
Any accrual amounts related primarily to severance liabilities were not material
as of December 31, 1998, 1997, and 1996.

14. FINANCIAL INSTRUMENTS

The Company's financial instruments at December 31, 1998 and 1997 consist
primarily of cash and cash equivalents and loans payable. Due to the short
maturities of the cash and cash equivalents, carrying amounts approximate the
respective fair values. The carrying amount for loans payable approximates fair
market value since the interest rates on these instruments are reset
periodically. Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash
investments and trade accounts receivable. Concentrations of credit risk with
respect to trade accounts receivable are limited due to the large number of
entities comprising the Company's customer base. The Company performs ongoing
credit evaluations of its customers' financial condition.

At December 31, 1998, the fair value of the Company's interest rate swap
agreement was ($552). There is no carrying amount associated with this
instrument.

15. BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION

During 1998, the Company adopted Statement of Financial Accounting Standards 131
(SFAS 131). SFAS 131 requires companies to disclose certain information on
operating segments in agreement with how those segments are managed. The
Company's operations are conducted principally in the United States and Europe.
Accordingly, the Company considers its operating segments to be defined as
United States Operations and International Operations. For financial reporting
purposes, International results are presented separately for operations in the
United Kingdom, Europe, Africa and other countries. The net fees for each
segment as described in the table below correspond directly to the net revenues
attributable to the geographic areas which are represented by these segments.
The table which follows represents combined disclosure for both business segment
and geographic area information.


36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996,  Law Companies Group, Inc.
(Dollars in thousands, except share and per share amounts)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                   1998          1997        1996
                                                                 --------      --------      ------
         <S>                                                     <C>           <C>           <C>
         NET FEES
            United States Operations                             $179,315      $181,331      $190,401
            International Operations    United Kingdom             45,629        51,181        53,430
                                        Europe - Other             22,799        19,769        20,171
                                        Africa                     22,347        20,087        17,018
                                        Other                       4,830         5,333         5,262
                                                                 --------      --------      --------
            Total                                                $274,920      $277,701      $286,282
                                                                 ========      ========      ========
         OPERATING INCOME
            United States Operations                             $ 13,632      $  9,361      $  4,797
            International Operations    United Kingdom              1,696         1,499         4,019
                                        Europe - Other                848           579         1,517
                                        Africa                      2,260         1,914         1,166
                                        Other                         571           441           175
                                                                 --------      --------      --------
            Total                                                $ 19,007      $ 13,794      $ 11,674
                                                                 ========      ========      ========
         IDENTIFIABLE ASSETS
            United States Operations                             $ 84,801      $ 79,393      $ 72,530
            International Operations    United Kingdom             41,326        38,791        43,374
                                        Europe - Other              4,875         2,987         2,756
                                        Africa                     15,636        19,388        15,420
                                        Other                       4,273         5,209         4,617
                                                                 --------      --------      --------
            Total                                                $150,911      $145,768      $138,697
                                                                 ========      ========      ========
         DEPRECIATION AND AMORTIZATION
            United States Operations                             $  4,562      $  4,895      $  5,822
            International Operations    United Kingdom                920           923           996
                                        Europe - Other                459           356           376
                                        Africa                        686           512           452
                                        Other                          97            96            98
                                                                 --------      --------      --------
            Total                                                $  6,724      $  6,782      $  7,744
                                                                 ========      ========      ========
         LONG LIVED ASSETS
            United States Operations                             $ 24,163      $ 21,674      $ 19,030
            International Operations    United Kingdom             13,529        13,263        14,445
                                        Europe - Other              1,596         1,021           918
                                        Africa                      3,351         4,122         3,503
                                        Other                       1,399         1,781         1,538
                                                                 --------      --------      --------
            Total                                                $ 44,038      $ 41,861      $ 39,434
                                                                 ========      ========      ========
         CAPITAL EXPENDITURES
            United States Operations                             $  5,446      $  5,998      $  2,313
            International Operations    United Kingdom                616           951           790
                                        Europe - Other                307           367           298
                                        Africa                        388           793           513
                                        Other                          65            99            78
                                                                 --------      --------      --------
            Total                                                $  6,822      $  8,208      $  3,992
                                                                 ========      ========      ========
</TABLE>


                                                                              37

<PAGE>
REPORT OF INDEPENDENT AUDITORS
--------------------------------------------------------------------------------

The Board of Directors and Shareholders
Law Companies Group, Inc.

We have audited the accompanying consolidated balance sheets of Law Companies
Group, Inc. as of December 31, 1998 and 1997, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Law Companies
Group, Inc. at December 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.


/s/  Ernst & Young LLP

Atlanta, Georgia
March 16, 1999


--------------------------------------------------------------------------------
COMMON STOCK OUTSTANDING

There currently is no established trading market for shares of the Company's
Common Stock, and although substantially all of the outstanding shares have been
registered under applicable securities laws, no assurance can be given that a
liquid market will develop in the future or that quotations for the Common Stock
will be available. Additionally, the Company does not maintain stock price
information from transactions involving purchases and sales of outstanding
shares of Common Stock. The Company did not pay any dividends on its Common
Stock during the fiscal years ended December 31, 1998 or 1997. Further, the
Company's existing credit facility with Bank of America prohibits the payment of
cash dividends on the Company's Common Stock. As of December 31, 1998, there
were 1,460 holders of the Company's common stock.



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