<PAGE>

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                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                 FORM 10-K/A2

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

                  For the fiscal year ended December 31, 1998

                                      OR

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

                          Commission File No. 0-28830

                            The Metzler Group, Inc.
            (Exact name of Registrant as specified in its charter)

              Delaware                                 36-4094854
   (State or other jurisdiction of                  (I.R.S. Employer
   incorporation or organization)                  Identification No.)

               615 North Wabash Avenue, Chicago, Illinois 60611
         (Address of principal executive offices, including zip code)

                                (312) 573-5600
             (Registrant's telephone number, including area code)

       Securities registered pursuant to Section 12(b) of the Act: None

          Securities registered pursuant to Section 12(g) of the Act:

                   Common Stock, par value $0.001 per share
                                Title of Class

  Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [_]

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

  As of March 31, 1999, 42,118,124 shares of the Registrants common stock, par
value $.001 per share ("Common Stock"), were outstanding. The aggregate market
value of shares of Common Stock held by non-affiliates, based upon the closing
sale price of the stock on the Nasdaq National Market on March 31, 1999, was
approximately $1,299,320,000.

  The Registrant's Proxy Statement for the Annual Meeting of Stockholders
scheduled to be held May 19, 1999 is incorporated by reference into Part III
of this Annual Report on Form 10-K.

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                               Explanatory Note

  The purpose of this amendment is to amend our Annual Report on Form 10-K for
the period ended December 31, 1998, (the "Original Filing") to provide
additional disclosures in response to comments received from the Securities
and Exchange Commission (the "SEC").

  This report continues to speak as of the date of the Original Filing and we
have not updated the disclosure in this report to speak to any later date.
While this report primarily relates to the historical period covered, events
may have taken place since the date of the Original Filing that might have
been reflected in this report if they had taken place prior to the Original
Filing. Any items in the Original Filing not expressly changed hereby shall be
as set forth in the Original Filing. All information contained in this
amendment and the Original Filing is subject to updating and supplementing as
provided in the Company's periodic reports filed with the SEC.

                                    PART I

Item 1--Business

General

  The Metzler Group, Inc. ("We" or the "Company") is a provider of consulting
services to energy-based and other network and regulated industries. The
Company offers a wide range of consulting services designed to assist our
clients as they face changing regulations, increasing competition and evolving
technology. Our clients include the 50 largest investor-owned utilities, the
20 largest gas distribution companies and the 12 largest local exchange
telecommunications companies in the United States, as well as other Fortune
100 companies. Our services include: (1) management consulting; (2)
information technology; and (3) litigation support. Since our initial public
offering in October 1996, we have increased the scope and size of our service
offerings through a series of acquisitions and internal growth. We have also
expanded our base of non-utility energy clients and established a presence in
Europe, Asia and Australia.

  We believe that our experience, reputation, industry focus and broad range
of services will enable us to compete effectively in the consulting
marketplace. Our growth strategy is to:

  --Continue to build a complementary spectrum of consulting services;
  --Leverage vertical focus to capitalize on current industry dynamics;
  --Leverage existing relationships and expand our client base in both
   domestic and international markets;
  --Continue to recruit and retain highly skilled professionals; and
  --Continue to acquire consulting companies that provide complementary
   services or geographic presence.

  At December 31, 1998, we had five principal operating subsidiaries: LECG,
Inc. ("LECG"), Metzler & Associates, Inc. ("Metzler & Associates"), Peterson
Consulting, L.L.C. ("Peterson"), Reed Consulting Group, Inc. ("Reed"), and
Resource Management International, Inc. ("RMI"). On February 7, 1999, we
acquired our sixth principal operating subsidiary, Strategic Decisions Group.
Our executive office is located at 615 North Wabash Avenue, Chicago, Illinois
60611. Our telephone number is (312) 573-5600.

Marketing and Sales

  We market our services directly to mid-level and senior executives using a
variety of business development and marketing techniques to communicate
directly with current and prospective clients, including on-site
presentations, industry seminars and industry-specific articles and other
publications.

                                       2
<PAGE>

  A significant portion of new business arises from prior client engagements.
In addition, we expect to leverage the client relationships of firms we have
acquired by cross-selling existing services. Clients frequently expand the
scope of engagements during delivery to include follow-on complementary
activities. Also, our on-site presence affords us the opportunity to become
aware of, and to help define, additional project opportunities as they are
identified by the client. The strong client relationships arising out of many
engagements often facilitate our ability to market additional capabilities to
clients in the future.

Human Resources

  As of December 31, 1998, we had approximately 1,500 employees. Our success
depends in large part on attracting, retaining and motivating talented,
creative and experienced professionals at all levels. In connection with our
hiring efforts, we employ internal recruiters, retain executive search firms
and utilize personal and business contacts to recruit professionals with
significant utility industry or consulting experience. Our consultants are
drawn from utility and related industries, including engineering, construction
and telecommunications, and from accounting and other consulting
organizations. We promote loyalty and continuity of our consultants by
offering packages of base and incentive compensation and benefits that we
believe are significantly more attractive than those offered by the consulting
industry in general.

  We derive our revenues almost exclusively from services performed by our
professional consultants. Our future performance will continue to depend in
large part upon our ability to attract and retain highly-skilled professionals
possessing appropriate skills and senior academics with superior professional
reputations. Qualified professional consultants are in great demand and are
likely to remain a limited resource for the foreseeable future. We may not be
able to retain a substantial majority of our existing or future consultants
for the long term. The loss of the services of, or the failure to recruit, a
significant number of consultants could adversely affect our ability to secure
and complete engagements and could have an adverse effect on our business.

  In addition to the employees discussed above, we supplement our consultants
on certain engagements with independent contractors, many of whom are former
employees. We believe that the practice of retaining independent contractors
on a per-engagement basis provides us with greater flexibility in adjusting
professional personnel levels in response to changes in demand for our
services.

Competition

  We compete in the worldwide market for consulting services, although our
principal market is North America, which accounted for over 95% of our
revenues in 1998 and 1997. The market for consulting services is intensely
competitive, highly fragmented and subject to rapid change. The market
includes a large number of participants from a variety of market segments,
including general management, information technology, and marketing consulting
firms, as well as the consulting practices of national accounting firms, and
other local, regional, national and international firms. Many of these
companies are national and international in scope and have greater personnel,
financial, technical and marketing resources than we do. We believe that our
experience, reputation, industry focus and broad range of services will enable
us to compete effectively in the consulting marketplace.

Item 2--Facilities

  Our headquarters are currently located in a 15,000 square foot building in
Chicago, Illinois which we own. In addition to our headquarters, we lease
office space in 41 cities. Additional space may be required as our business
expands geographically, but we believe we will be able to obtain suitable
space as needed.

                                       3
<PAGE>

  We have principal offices in the following locations:

<TABLE>
<CAPTION>
                     Domestic                                   International
   ----------------------------------------------          -----------------------
   <S>                        <C>                          <C>
   Albany, NY                 New York City, NY            Brussels, Belgium
   Austin, TX                 Oakbrook, IL                 Buenos Aires, Argentina
   Boston, MA                 Orlando, FL                  Copenhagen, Denmark
   Cambridge, MA              Philadelphia, PA             London, England
   Chicago, IL                Phoenix, AZ                  Manila, Philippines
   Clearwater, FL             Pittsburgh, PA               Melbourne, Australia
   Colorado Springs, CO       Portland, OR                 Sydney, Australia
   College Station, TX        Princeton, NJ                Toronto, Canada
   Dallas, TX                 Richardson, TX               Toulouse, France
   Emeryville, CA             Sacramento, CA               Wellington, New Zealand
   Evanston, IL               Salt Lake City, UT
   Fairfield, CT              San Francisco, CA
   Houston, TX                Springfield, IL
   Los Angeles, CA            Tampa, FL
   Menlo Park, CA             Washington, DC
                              Westbury, NY
</TABLE>

Item 3--Legal Proceedings

  As of December 31, 1998, Peterson was a defendant in a lawsuit filed January
1996, in the United States District Court for the Southern District of Florida
by National Council on Compensation Insurance ("NCCI") against Peterson, its
former subsidiary Insurance Data Resources, Inc. ("IDR") and certain of their
officers and former directors. The lawsuit alleges, among other things, that
IDR violated certain copyrights and other intellectual property of NCCI.
NCCI's claims focus on whether certain codes, formulae and classification
explanations (the "Classification System")--which are necessary for licensed
workers compensation insurance rating organizations to conduct their
business--are protected by copyright laws. NCCI seeks to hold Peterson liable
as IDR's sole shareholder for unspecified damages and injunctive relief
against the use of the Classification System. We no longer own IDR, but
continue to have certain rights of indemnification against the former members
of Peterson and the purchaser of IDR. The parties to the lawsuit agreed in
principle to settle the dispute. The agreement would release all defendants,
including Peterson, without any payments to NCCI, but is subject to the
negotiation and execution of a definitive agreement. Although no assurances
can be given, we do not believe this lawsuit will have a material adverse
affect on our business.

  In addition, from time to time, we are party to various other lawsuits. We
do not believe that any of our current lawsuits are material.

                                       4
<PAGE>

                                    Part II

Item 7--Management's Discussion and Analysis of Financial Condition and
Results of Operations

  Statements included in the Management's Discussion and Analysis of Financial
Condition and Results of Operations which are not historical in nature, are
intended to be, and are hereby identified as, "forward-looking statements" for
purposes of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934, as amended by Public Law 104-6. When used in this section, the
words "anticipate," "believe," "intend," "estimate," and "expect" and similar
expressions as they relate to the Company or its management are intended to
identify such forward-looking statements. The Company cautions readers that
forward-looking statements, including without limitation, those relating to
the Company's future business prospects, revenues, working capital, liquidity,
and income, are subject to certain risks and uncertainties that could cause
actual results to differ materially from those indicated in the forward
looking statements, due to several important factors herein identified, among
others, and other risks and factors identified from time to time in the
Company's reports with the SEC.

  This Management's Discussion and Analysis of Financial Condition and Results
of Operations relates to the Consolidated Financial Statements included in
this annual report on Form 10-K.

Overview

  We are a nationwide provider of consulting services to energy based and
other network and regulated industries. We offer a wide range of consulting
services designed to assist our clients as they face changing regulation,
increasing competition and evolving technology. The Company's services
include: (1) management consulting; (2) information technology; and (3)
litigation support.

  We derive substantially all of our revenues from fees for professional
services. Over the last three years, the substantial majority of our revenues
have been generated under standard hourly or daily rates billed on a time-and-
expenses basis. Our clients are typically invoiced on a monthly basis with
revenue recognized as the services are provided.

  Our most significant expenses are project personnel costs, which consist of
consultant salaries and benefits, and travel-related direct project expenses.
We typically employ our project personnel on a full-time basis, although we
supplement our project personnel through the use of independent contractors.
We retain contractors for specific client engagements on a task-specific, per
diem basis during the period their expertise or skills are required. We
believe that retaining contractors on a per-engagement basis provides us with
greater flexibility in adjusting project personnel levels in response to
changes in demand for our services.

Acquisitions

  As part of our growth strategy, we expect to continue to pursue
complementary acquisitions to expand our geographic reach, expand the breadth
and depth of our service offerings and enhance our consultant base. In
furtherance of this growth strategy, we acquired thirteen consulting firms
during 1997 and 1998 that were accounted for as pooling of interests. The
following summarizes the pooling of interests acquisitions that we have made
since our initial public offering through the end of 1998:

  RMI. As of July 31, 1997, we acquired substantially all of the common stock
of Resource Management International, Inc. in exchange for 3.2 million shares
of our common stock (valued at approximately $75.3 million) and acquired the
remaining minority interest in exchange for cash. In connection with the
acquisition of RMI, we acquired assets and assumed liabilities with book
values of $13.9 million and $11.1 million, respectively. RMI, based in
Sacramento, California, is a provider of consulting services to gas, water,
and electric utilities, with operations in the western and eastern United
States and international marketplace. RMI's broad range of engineering,
technical and economic regulatory services complemented our management
consulting and information technology services.

                                       5
<PAGE>

  Reed. As of August 15, 1997, we acquired substantially all of the common
stock of Reed Consulting Group, Inc. in exchange for 0.8 million shares of our
common stock (valued at approximately $17.6 million) and acquired the
remaining minority interest in exchange for cash. In connection with the
acquisition of Reed, we acquired assets and assumed liabilities with book
values of $2.5 million and $2.5 million, respectively. Reed, based in the
Boston, Massachusetts area, provides strategic planning, operations management
and economic and regulatory services to electric and natural gas utilities.
Reed's operations expanded our services and client base in the northeast
United States and internationally.

  Other 1997 Acquisitions. During 1997, the Company completed three additional
transactions (collectively, the "1997 Acquisitions"), for which the Company
issued 0.7 million shares in the aggregate (valued at approximately $18.5
million). These transactions were accounted for as poolings of interests. The
stockholders' equity and the operations of these businesses were not
significant, individually or in the aggregate, in relation to those of the
Company. As such, the Company recorded the combinations by restating
stockholders' equity as of the date of each acquisition without restating
prior period financial statements. The consolidated financial statements for
1997 reflect the results of operations of Burgess Consulting, Inc. beginning
on January 1, 1997 and the results of operations of Sterling Consulting Group,
Inc. and Reed-Stowe & Co., Inc. beginning on December 1, 1997. The Company
acquired assets of $.6 million and assumed liabilities of $.9 million, in the
aggregate, in connection with the 1997 Acquisitions.

  LECG. As of August 19, 1998, we acquired substantially all of the common
stock of LECG, Inc. in exchange for 7.3 million shares of our common stock
(valued at approximately $228.9 million) and acquired the remaining minority
interest in exchange for cash. In connection with the acquisition of LECG, we
acquired assets and assumed liabilities with book values of $49.8 million and
$17.4 million, respectively. LECG, based in the San Francisco, California
area, is a provider of economic consulting and litigation support services.
LECG's operations further increased our economic and regulatory expertise and
expanded our presence in the telecommunications industry.

  Peterson. As of August 31, 1998, we acquired substantially all of the common
stock of Peterson Worldwide, LLC in exchange for 5.6 million shares of our
common stock (valued at approximately $156.7 million) and acquired the
remaining minority interest in exchange for cash. In connection with the
acquisition of Peterson, we acquired assets and assumed liabilities with book
values of $34.8 million and $24.7 million, respectively. Peterson, based in
the Chicago, Illinois area, is a provider of information management services.
Peterson's operations expanded our service offerings in the area of
information technology.

  Other 1998 Acquisitions. During 1998, the Company completed six additional
transactions (collectively, the "1998 Acquisitions"), for which the Company
issued 1.2 million shares in the aggregate (valued at approximately $35.3
million). These transactions were accounted for as poolings of interests. The
stockholders' equity and the operations of these businesses were not
significant, individually or in the aggregate, in relation to those of the
Company. As such, the Company recorded the combinations by restating
stockholders' equity as of the date of each acquisition without restating
prior period financial statements. The consolidated financial statements for
1998 reflect the results of operations of American Corporate Resources, Inc.,
AUC Management Consultants, Inc., and Hydrologic Consultants, Inc. beginning
on April 3, 1998; the results of operations of Vision Trust, Inc. beginning on
June 1, 1998; and the results of operations of Saraswati Systems Corporation,
Inc. and Applied Health Outcomes, Inc. beginning on September 1, 1998. The
Company acquired assets of $1.9 million and assumed liabilities of $1.4
million, in the aggregate, in connection with the 1998 Acquisitions.

  The LEGG and Peterson acquisitions are the largest we have made to date and
we are in the process of integrating these companies, including their
accounting and billing functions, into our operations. An inability to
effectively integrate these or any companies acquired in the future may
adversely affect our ability to bid successfully on engagements and to grow
our business. Performance problems or dissatisfied clients at one

                                       6
<PAGE>

company could have an adverse effect on our reputation as a whole. If our
reputation were damaged, this could make it more difficult to market our
services or to acquire additional companies in the future. In addition,
acquired companies may not operate profitably.

  Acquisitions also involve a number of additional risks, including, among
others, the following:

  --Diversion of management's attention;
  --Potential loss of key clients or personnel;
  --Risks associated with unanticipated assumed liabilities and problems; and
  --Risks of managing businesses or entering markets in which we have limited
   or no direct expertise.

  We expect to continue to acquire companies as an element of our growth
strategy. Acquisitions involve certain risks that could cause our actual
growth to differ from our expectations. For example

  --We may not be able to continue to identify suitable acquisition
   candidates or to acquire additional consulting firms on favorable terms.
  --We compete with other companies to acquire consulting firms. We cannot
   predict whether this competition will increase. If competition does
   increase, there may be fewer suitable consulting firms available to be
   acquired and the price for suitable acquisitions may increase.
  --We may not be able to integrate the operations (accounting and billing
   functions, for example) of businesses we acquire to realize the economic,
   operational and other benefits we anticipate.
  --We may not be able to successfully integrate acquired businesses in a
   timely manner or we may incur substantial costs, delays or other
   operational or financial problems during the integration process.
  --It may be difficult to integrate a business with personnel who have
   different business backgrounds and corporate cultures.

Results of Operations

  The following table sets forth, for the periods indicated, selected
statement of operations data as a percentage of revenues:

<TABLE>
<CAPTION>
                                                               Years Ended
                                                              December 31,
                                                            -------------------
                                                            1998   1997   1996
                                                            -----  -----  -----
   <S>                                                      <C>    <C>    <C>
   Revenues................................................ 100.0% 100.0% 100.0%
   Cost of services........................................  57.8   58.5   58.9
                                                            -----  -----  -----
   Gross profit............................................  42.2   41.5   41.1
   General and administrative expenses.....................  22.8   27.5   31.0
   Merger-related costs....................................   4.8    0.7    --
                                                            -----  -----  -----
   Operating income........................................  14.6   13.3   10.1
   Other expense (income), net.............................  (1.0)  (0.7)   0.1
                                                            -----  -----  -----
   Income before income tax expense........................  15.6   14.0   10.0
   Income tax expense......................................   9.6    4.6    0.0
                                                            -----  -----  -----
   Net income..............................................   6.0%   9.4%  10.0%
                                                            =====  =====  =====
</TABLE>

1998 Compared to 1997

  Revenues. Revenues increased $70.1 million, or 35.6%, to $266.9 million in
1998 from $196.8 million in 1997 due to continued strong demand for management
consulting services, increased selling and business development efforts and
immaterial acquisitions. Selling and business development efforts in support
of the Company's strategy to expand the client base and leverage existing
client relationships resulted in $57.2 million

                                       7
<PAGE>

of the incremental $70.1 million 1998 revenues. Engagements with new clients
and an increase in the average size of client engagements contributed $40.4
million and $16.8 million of that total, respectively.

  During 1998 and 1997, the Company made acquisitions consistent with its
strategy of acquiring consulting companies that provide complementary services
or broaden the Company's geographic presence. The 1998 Acquisitions had pre-
acquisition revenues of $7.1 million and $13.6 million for the years ended
December 31, 1998 and 1997, respectively, which were not included in the
Company's consolidated results of operations. The 1997 Acquisitions had pre-
acquisition revenues of $6.3 million in 1997, which were not included in the
Company's consolidated results of operations. Including the pre-acquisition
revenue of the 1998 and 1997 acquisitions, the revenue increase would have
been $57.2 million to $274.0 million for the year ended December 31, 1998 from
$216.8 million in 1997.

  Gross Profit. Gross profit consists of revenues less cost of services, which
includes consultant salaries, benefits and travel-related direct project
expenses. Gross profit increased $30.9 million, or 37.8%, to $112.6 million in
1998 from $81.7 million in 1997. Higher 1998 revenues contributed $29.1
million, or 94% of the increase in gross profit. The remaining $1.8 million of
the increase in gross profit reflects an increase in gross profit as a
percentage of revenues to 42.2% in 1998 from 41.5% in 1997. The increase in
the 1998 gross profit margin was the result of increased utilization of the
Company's professional consultants coupled with higher average billing rates.

  General and Administrative Expenses. General and administrative expenses
include salaries and benefits of management and support personnel, facilities
costs, training, direct selling, outside professional fees and all other
corporate support costs. General and administrative expenses for the year
ended December 31, 1998 increased $6.7 million, or 12.4%, to $60.9 million,
which represented 23% of revenues, compared to $54.2 million, or 28% of
revenues, in the comparable 1997 period. The increase in general and
administrative costs was primarily due to $3.3 million increase in facilities
expenses, $1.8 million increase in administrative salaries, and $1.3 million
increase in incentive compensation. However, these expenses increased at a
slower rate than the Company's revenues and overall volume of business,
resulting in a 5% decrease in general and administrative expenses as a percent
of revenue. This improvement is attributable to increased efficiencies in
certain support functions (i.e., human resources, benefits administration and
accounting), improved economies of scale and the closing of certain duplicate
facilities at the beginning of 1998.

  Merger-Related Costs. Merger-related costs increased $11.5 million to $12.8
million in 1998 from $1.3 million in 1997. During 1998, the Company incurred
merger-related costs of $12.8 million related to the acquisitions of LECG and
Peterson, which were accounted for as pooling of interests. These costs
include legal, accounting and other transaction related fees and expenses, as
well as accruals to consolidate certain facilities. In the prior year period,
the Company incurred legal, accounting and other transaction related fees and
expenses of $1.3 million related to the acquisitions of RMI and Reed, which
were accounted for as pooling of interests. The increased direct transaction
related costs in 1998 were the result of the greater size and complexity of
the 1998 transactions.

  Other Income, Net. Other income, net includes interest expense, interest
income and other non-operating income and expenses. For the fiscal year ended
December 31, 1998, other income, net increased $1.4 million to $2.7 million
versus $1.3 million for 1997. This increase is largely the result of higher
interest income due to larger average cash balances outstanding during the
period. The larger average cash balance in 1998 was largely the result of
$86.4 million in net proceeds from two secondary offerings of the Company's
common stock supplemented by $21.5 million of operating cash flows and $10.6
million of cash inflow primarily from employee stock option exercises. These
sources of cash were partially offset by $14.0 million of capital spending,
$18.9 million of cash used to acquire certain minority interests in business
combinations, $8.1 million of payments to retire pre-existing short-term debt
of acquired companies, and $6.1 million in payments of pre-acquisition
undistributed earnings of purchased companies.

                                       8
<PAGE>

  Income Tax Expense. Income tax expense increased $16.3 million to $25.4
million in 1998 from $9.1 million in 1997. The Company's effective income tax
rate was 61.2% for the year ended December 31, 1998. The effective rate for
this period would have been 39.4%, excluding the effect of the one-time, non-
cash charge to income tax expense of $7.2 million related to the conversion of
Peterson from the modified cash basis to the accrual basis of accounting for
tax purposes and the effect of certain merger-related expenses resulting from
the acquisitions of LECG and Peterson that are not tax deductible. The
Company's effective income tax rate was 33% for the year ended December 31,
1997. The effective rate would have been 38.2%, including federal and certain
state income taxes that would have been required had all the Company's
subsidiaries been taxable entities during this period.

  Net Income. Net Income decreased approximately $2.3 million, or 12.5%, to
$16.1 million in 1998 from $18.4 million in 1997. Higher 1998 revenues
resulted in a $30.9 million increase in gross profits over the prior year.
However, the higher level of 1998 gross profits was offset by a $6.7 million
increase in general and administrative expenses, a $11.5 million increase in
merger-related costs, and a $16.3 million increase in income tax expense. An
increase in other income in 1998 of $1.4 million accounted for the remainder
of the change in net income between the periods.

1997 Compared to 1996

  Revenues. Revenues increased $44.9 million, or 30% in 1997 to $196.8 million
compared to $151.9 in 1996. The growth in revenues was primarily due to
increased selling and business development efforts to generate new client
engagements and increased demand for management consulting services in the
Company's principal target industry segments. Selling and business development
efforts in support of the Company's strategy to expand the client base and
leverage existing client relationships resulted in $44.5 million of
incremental $44.9 million 1997 revenues. Engagements with new clients and an
increase in the average size of client engagements contributed $11.3 million
and $33.2 million of that total, respectively. The 1997 acquisitions had pre-
acquisition revenues of $6.3 million in 1997 and $6.7 million in 1996, which
were not included in the Company's consolidated results of operations.
Including the pre-acquisition revenue of the 1997 acquisitions, the revenue
increase would have been $44.5 million to $203.1 million for the year ended
December 31, 1997 from $158.6 million in 1996.

  Gross Profit. Gross profit increased $19.2 million, or 31% in 1997 to $81.7
million from $62.5 in 1996. Higher 1997 revenues contributed $18.5 million, or
96% of the increase in gross profit. The remaining $0.7 million, or 4% of the
increase in gross profit reflects an increase in gross profit as a percentage
of revenues to 42% in 1997 from 41% in 1996. The gross profit percentage was
largely unchanged and average utilization rates for full-time personnel and a
similar proportion of subcontracted labor were consistent in both periods.

  General and Administrative Expenses. General and administrative expenses
increased $7.2 million, or 15% to $54.2 million in 1997 from $47.0 million in
1996. As a percentage of revenues, general and administrative expenses
decreased to 28% in 1997 from 31% in 1996. The decrease in general and
administrative expenses as a percentage of revenue is attributable to
economies of scale on certain fixed costs over the higher 1997 revenue base.
The Company's facilities and administrative support expenses increased at a
slower rate than the Company's revenues and business volume.

  Other Income, Net. Other income, net increased $1.6 million for 1997 to $1.3
million, as opposed to other expense, net of $0.3 million in 1996. During
1997, the Company recognized a one-time gain of $0.9 million. This gain was
related to the expiration of an option agreement entered into in 1993, whereby
an independent third party had purchased an option to buy all of the assets of
LECG at a formula price based on a multiple of earnings and equity. The
Company received $1.0 million for granting this option, which was deferred on
the balance sheet, net of applicable expenses. During 1997, the option
agreement expired and the Company recognized the $0.9 million net gain as
other income. The remainder of the increase is the result of higher interest
income due to larger average cash balances during the period and a reduction
in interest expense. The higher average cash balance in 1997 was largely the
result of $37.2 million in net proceeds from the initial public offering of
the Company's common stock on October 4, 1996 supplemented by $17.5 million of
operating cash

                                       9
<PAGE>

flows. These sources of cash were partially offset by $8.8 million of capital
spending, $10.2 million of cash used to acquire certain minority interests in
business combinations, and $10.1 million in payments of pre-acquisition
undistributed earnings of purchased companies.

  Income Tax Expense. Income tax expense increased $9.1 million to $9.1
million in 1997 from $0.0 million in 1996. The Company's effective income tax
rate was 33% for 1997 and 0.1% for 1996. The effective tax rate would have
been approximately 39% for both periods had all of the Company's subsidiaries
been taxable entities during these periods.

  Net Income. Net Income increased approximately $3.3 million, or 21%, to
$18.4 million in 1997 from $15.2 million in 1996. Higher 1997 revenues
primarily resulted in a $19.2 million increase in gross profits over the prior
year. However, the higher level of 1997 gross profits was offset by a $7.2
million increase in general and administrative expenses, a $1.3 million
increase in merger-related costs, and a $9.1 million increase in income tax
expense. An increase in other income in 1997 of $1.6 million accounts for the
remainder of the change in net income between the periods.

Unaudited Quarterly Results

  The following table sets forth certain unaudited quarterly operating
information. These data have been prepared on the same basis as the audited
financial statements contained elsewhere in this Form 10-K and include all
normal recurring adjustments necessary for the fair presentation of the
information for the periods presented, when read in conjunction with the
Company's Consolidated Financial Statements and related Notes thereto. Results
for any previous fiscal quarter are not necessarily indicative of results for
the full year or for any future quarter.

<TABLE>
<CAPTION>
                                                  Quarters Ended
                          ----------------------------------------------------------------------
                           Mar.     June     Sept.    Dec.     Mar.     June     Sept.    Dec.
                            31,      30,      30,      31,      31,      30,      30,      31,
                           1997     1997     1997     1997     1998     1998     1998     1998
                          -------  -------  -------  -------  -------  -------  -------  -------
                                                  (In thousands)
<S>                       <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
Revenues................  $44,011  $48,121  $49,964  $54,684  $60,809  $64,863  $68,311  $72,894
Cost of services........   26,776   28,293   28,145   31,909   36,023   37,015   39,320   41,964
                          -------  -------  -------  -------  -------  -------  -------  -------
Gross profit............   17,235   19,828   21,819   22,775   24,786   27,848   28,991   30,930
General and
 administrative
 expenses...............   12,043   13,145   13,991   14,971   15,887   17,747   13,304   13,955
Merger-related costs....      --       --     1,312      --       --       --    12,778      --
                          -------  -------  -------  -------  -------  -------  -------  -------
Operating income........    5,192    6,683    6,516    7,804    8,899   10,101    2,909   16,975
Other income, net.......     (146)    (981)    (105)     (73)    (550)    (790)    (538)    (773)
                          -------  -------  -------  -------  -------  -------  -------  -------
Income before income tax
 expense................    5,338    7,664    6,621    7,877    9,449   10,891    3,447   17,748
Income tax expense......    1,152    1,552    1,492    4,885    3,791    4,233   10,420    6,968
                          -------  -------  -------  -------  -------  -------  -------  -------
Net income (loss).......  $ 4,186  $ 6,112  $ 5,129  $ 2,992  $ 5,658  $ 6,658  $(6,973) $10,780
                          =======  =======  =======  =======  =======  =======  =======  =======
</TABLE>

  Revenues and operating results fluctuate from quarter to quarter as a result
of a number of factors, including the significance of client engagements
commenced and completed during a quarter, the number of business days in a
quarter and employee hiring and utilization rates. The timing of revenues
varies from quarter to quarter due to factors such as the Company's sales
cycle, the ability of clients to terminate engagements without penalty, the
size and scope of assignments and general economic conditions. Because a
significant percentage of the Company's expenses are relatively fixed, a
variation in the number of client assignments or the timing of the initiation
or the completion of client assignments can cause significant variations in
operating results from quarter to quarter. Furthermore, the Company has on
occasion experienced a seasonal pattern in its operating results, with a
smaller proportion of the Company's revenues and lower operating income
occurring in the fourth quarter of the year or a smaller sequential growth
rate than in other quarters.

                                      10
<PAGE>

Liquidity and Capital Resources

  Net cash provided by operating activities was $21.5 million for the year
ended December 31, 1998. During the year, the primary sources of cash provided
by operating activities were net income of $16.1 million and non-cash
depreciation of $5.1 million. The higher volume of business in 1998 resulted
in increases in both current assets and current liabilities for the year.
While operating cash flow was negatively affected by the $25.5 million
increase in accounts receivable and prepaid expenses and other assets, this
was more than offset by the positive impact of the $22.7 million increase in
current liabilities and other non-cash adjustments during the period of $1.1
million for the increase in the provision for bad debts and $2.0 million
increase in deferred income taxes.

  The current year investing activities used net cash flows of $14.0 million,
principally to support growth in personnel and services. These investments
included leasehold improvements, furniture and equipment for new leased
facilities, additional computer and related equipment for provision of
information management consulting services by Peterson, and the purchase and
related improvements of the Company's corporate headquarters in Chicago.

  Financing activities provided net cash flows of $66.3 for the 1998 fiscal
year. In March 1998 and again in November 1998, the Company sold 1.5 million
shares of common stock in secondary offerings, raising approximately $35.6
million and $50.8 million, respectively, net of related offering costs. The
Company received an additional $10.6 million from transactions related to
stock option exercises, the employee stock purchase plan, and notes receivable
from stockholders. Cash flows used by financing activities included $18.9
million for the purchase of certain minority interests of LECG and Peterson
and included $8.1 million for the repayment of short-term debt and $6.1
million in payments of pre-acquisition, undistributed income to former
stockholders of acquired companies. The $8.1 million repayments of short-term
debt represent pre-payment in full of the balances outstanding at the end of
the previous year. This debt was pre-paid because the Company had significant
available cash balances and the cost of borrowing exceeded the potential
interest earnings on short-term investments of cash balances. The Company
repaid $3.6 million of debt outstanding pursuant to a term loan and $3.3
million of debt outstanding against two lines of credit both of which were
collateralized by the accounts receivable of Peterson, and $1.1 million of
debt outstanding under two lines of credit that had been guaranteed by
officers of certain subsidiaries. See Note 7 "Short-Term and Long-Term Debt"
of the accompanying Notes to Consolidated Financial Statements for additional
details. The $6.1 million in payments of pre-acquisition, undistributed income
to former stockholders of acquired companies represent the $5.4 million
attributable to the operations of LECG prior to the date of the termination of
its S-corporation election effective December 19, 1997 and $0.7 million
attributable to the operations of Peterson prior to the date of the election
of C-corporation status effective August 14, 1998. These amounts were
distributed to the former shareholders and members of LECG and Peterson,
respectively, in a manner consistent with past practice and consistent with
their relative ownership interests. See Note 2 "Summary of Significant
Accounting Policies--Income Taxes" of the accompanying Notes to Consolidated
Financial Statements for additional details. The Company maintains line of
credit agreements in the aggregate amount of $14.0 million expiring through
July 1999. Of this total, $6.2 million is available to secure commercial and
standby letters of credit. At December 31, 1998, the Company had letters of
credit of $1.7 million outstanding. The letters of credit expire at various
dates through 1999.

  As of December 31, 1998, the Company had no significant commitments for
capital expenditures, except for those related to rental expense under
operating leases. The Company leases its office facilities and certain
equipment under operating lease arrangements which expire at various dates
through 2008 with renewal options of two to five years. The Company leases
office facilities under noncancelable operating leases which include fixed or
minimum payments plus, in some cases, scheduled base rent increases over the
term of the lease and additional rents based on the Consumer Price Index.
Certain leases provide for monthly payments of real estate taxes, insurance
and other operating expenses applicable to the property. The total amount of
the base rent payments is being charged to expense as incurred. In addition,
the Company leases equipment under noncancelable operating leases. Rent
expense for operating leases entered into by the Company and charged to
operations amounted to $10.0 million for 1998, $9.8 million for 1997, and $7.2
million for 1996. Future minimum annual lease payments, for the years
subsequent to 1998 and in the aggregate, are as follows:

                                      11
<PAGE>

<TABLE>
<CAPTION>
      Year Ending                                                       Amount
      December 31,                                                    (millions)
      ------------                                                    ----------
      <S>                                                             <C>
      1999...........................................................    $9.8
      2000...........................................................     8.6
      2001...........................................................     8.1
      2002...........................................................     5.2
      2003...........................................................     3.1
      Thereafter.....................................................     5.5
                                                                        -----
                                                                        $40.3
                                                                        =====
</TABLE>

  As of December 31, 1998, the Company had approximately $119.7 million in
cash and cash equivalents, resulting principally from cash flows from
operations and the various public stock offerings during the previous three
years. The Company believes that current cash and cash equivalents and future
cash flows from operations will provide adequate cash to fund anticipated
short-term and long-term cash needs for normal operations, including
commitments related to rental expenses under operating leases. As of December
31, 1998, the Company had no long-term debt and no commitments for material
capital expenditures, nor would the Company anticipate that existing
operations would require such financing or commitments in the normal course of
business. In the event that the Company were to make significant cash
expenditures in the future for major acquisitions or
other non-operating activities, the Company would seek additional debt or
equity financing, as appropriate. The Company had no plans or intentions for
such expenditures as of December 31, 1998.

Year 2000 Compliance

  In 1998 the Company began assessing the impact that the turn of the century
will have on its internal computer systems. The company has developed an
overall plan to evaluate and correct all date-related computer system issues
by the second half of 1999. This evaluation and correction process has already
been completed on a number of the company's most critical systems. The company
is also in the process of communication with significant suppliers to
ascertain the status of their year 2000 compliance programs.

  The total cost of any modifications and upgrades to date has not been
material and the total costs to become year 2000 compliant are expected to be
less than $.1 million. These costs are expensed as incurred and do not include
the cost of scheduled replacement of software and hardware.

  Although the Company believes it is unlikely, it is possible the Company
could experience an adverse impact that could be material to the results of
operations or the financial position of the company as a result of potential
failure by major customers or suppliers, or a delay in the Company's efforts
to address year 2000 issues. In addition, if suppliers of necessary
telecommunications, energy and transportation needs fail to provide their
services, such failure could have an adverse impact on the results of
operations or financial position of the company.

  The Company expects to establish contingency plans, in the event all systems
and critical suppliers have not been made year 2000 compliant, during 1999.

Item 7A--Quantitative and Qualitative Disclosures About Market Risks

  The Company's primary exposure to market risks relates to changes in
interest rates associated with its investment portfolio included in cash
equivalents on the consolidated balance sheet. The Company's general
investment policy is to limit the risk of principal loss by limiting market
and credit risks. As of December 31, 1998, the Company's investments were
primarily limited to fully collateralized, double-A or Triple-A rated
securities with maturity dates of 90 days or less. If interest rates average
25 basis points less in 1999, then they did in 1998, the Company's interest
income would be decreased by $.3 million. This amount is determined by
considering the impact of this hypothetical interest rate on the Company's
investment portfolio at December 31, 1998. The Company does not expect any
loss with respect to its investment portfolio. The Company does not

                                      12
<PAGE>

currently have any long-term debt, interest rate derivatives, forward exchange
agreements, firmly committed foreign currency sales transactions, or
derivative commodity instruments.

  The Company operates in foreign countries which exposes it to market risk
associated with foreign currency exchange rate fluctuations; however, such
risk is immaterial at this time to the Company's consolidated financial
statements.

Item 8--Consolidated Financial Statements and Supplemental Data

  The Consolidated Financial Statements of the Company are annexed to the
report as pages F-1 through F-14. An index to such materials appears on page
F-1.

                                   Part III

Item 10--Directors and Executive Officers of the Registrant

  As of December 31, 1998, the directors and executive officers of the Company
were as follows:

  Robert P. Maher, 49, has served as one of our directors since April 1991. He
has served as Chief Executive Officer and President since January 1996 and as
Chairman of the Board since June 1996. From August 1990 to December 1995, Mr.
Maher held various positions with us and our affiliates, most recently as a
Senior Vice President of Metzler & Associates, Inc. working primarily in the
information technology area. From 1988 to August 1990, he organized and
directed information technology engagements for the regulated segment of the
communications industry practice as a principal with the consulting practice
of Ernst & Young LLP.

  James F. Hillman, 41, joined us in April 1996 and has served as our Chief
Financial Officer and Treasurer since June 1996. From July 1988 to March 1996,
he was employed by Ameritech Corporation, most recently as the Chief Financial
Officer of Ameritech Monitoring Services, Inc.

  Barry S. Cain, 56, has served as our Vice President and Chief Administrative
Officer since September 1997 and as a director since May 1998. Mr. Cain joined
us from his position as a member of the law firm of Sachnoff & Weaver, Ltd.,
where he was co-chairman of the firm's Business Group and a member of its
board of directors. Prior to joining us, Mr. Cain served as our outside
general counsel since inception.

  Stephen J. Denari, 46, has served as our Vice President--Corporate
Development since July 1997. Prior to joining us, Mr. Denari served as a turn-
around specialist for a variety of companies, including Harley Davidson, DBMS,
Inc., American Capital Enterprises, and First National Entertainment. Mr.
Denari has also assisted us since 1990 in various specialized projects for our
clients.

  Charles A. Demirjian, 34, has served as our General Counsel, Vice President
and Secretary since September 1997. Mr. Demirjian joined us from his position
as a member of the law firm of Sachnoff & Weaver, Ltd. Prior to joining
Sachnoff & Weaver, Ltd. in March 1996, Mr. Demirjian was an associate with the
law firm of Neal Gerber & Eisenberg.

  Peter B. Pond, 54, has served as one of our directors since November 1996.
He has served as the Midwest Head of Investment Banking for Donaldson, Lufkin
& Jenrette Securities Corporation since June 1991. Mr. Pond is a director of
Maximus, Inc., a provider of program management and consulting services to
state, county and local government health and human services agencies.

  Mitchell H. Saranow, 53, has served as one of our directors since November
1996. Mr. Saranow has served as Chairman of The Saranow Group L.L.C. and its
affiliated companies since October 1984. He founded Fluid Management, L.P. in
April 1987 and served as Chairman and Chief Executive Officer until January
1997. He presently also serves as a director of Lawson Products, Inc., a
distributor of expendable maintenance, repair and replacement products, and as
Chairman of Elf Machinery, L.L.C., an affiliate of The Saranow Group.

                                      13
<PAGE>

  James R. Thompson, 62, has served as one of our directors since August 1998.
Governor Thompson was named Chairman of the Chicago law firm of Winston &
Strawn in January 1993. He joined the firm in January 1991 as Chairman of the
Executive committee after serving four terms as Governor of the State of
Illinois from 1977 until January 1991. Prior to his terms as Governor, he
served as U.S. Attorney for the Northern District of Illinois from 1971 to
1975. Governor Thompson served as the Chief of the Department of Law
Enforcement and Public Protection in the Office of the Attorney General of
Illinois, as an Associate Professor at Northwestern University School of Law,
and as an Assistant State's Attorney of Cook County. He is a former Chairman
of the President's Intelligence Oversight Board. Governor Thompson is
currently a member of the Boards of Directors of Union Pacific Resources,
Inc., the Chicago Board of Trade, Metal Management, Inc., Prime Retail, Inc.,
American National Can Co., Jefferson Smurfit Group, plc, Prime Group Realty
Trust, FMC Corporation, and Hollinger International. He serves on the Board of
the Chicago Historical Society, the Art Institute of Chicago, the Museum of
Contemporary Art, the Lyric Opera and the Illinois Math & Science Academy
Foundation.

  Officers of the Company are elected annually for a term of one year. Our
board is divided into three classes with staggered terms. Directors in each
class are elected to serve for three year terms. As of December 31, 1998, the
terms of Messrs. Thompson and Cain as directors continued until the annual
meeting of stockholders to be held in 2001, the terms of Messrs. Saranow and
Pond as directors continued until the annual meeting of stockholders to be
held in 2000 and the term of Mr. Maher as a director continued until the
annual meeting of stockholders to be held in 1999.

               COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

  Section 16(a) of the Securities Exchange Act requires our directors and
executive officers, and any persons who own more than ten percent of our
common stock, to file with the SEC initial reports of ownership and reports of
changes in ownership of common stock. Such persons are required by SEC
regulations to send us copies of all Section 16(a) forms they file.

  To our knowledge, based solely on review of the copies of such reports sent
to us and written representations that no other reports were required, during
the year ended December 31, 1998, all such Section 16(a) filing requirements
were complied with, except that Governor Thompson inadvertently filed his
Initial Statement of Beneficial Ownership on Form 3 late, filing it with the
Statement of Changes in Beneficial Ownership on Form 5 filed by our other
directors and executive officers in February 1999.

Item 13--Certain Relationships and Related Transactions

  In April 1999, Mr. Maher, the Company's Chairman and Chief Executive Officer
at that time, borrowed $2.7 million from the Company at an interest rate equal
to 5.75% so that he could exercise his then-vested options. Mr. Maher
exercised all 112,500 of his then-vested options at an exercise price of
$24.00 per share.

  In April 1999, Mr. Cain and Mr. Demirjian, respectively the Company's Chief
Administrative Officer and the Company's General Counsel at that time, each
borrowed $425,063 from the Company to exercise all 18,750 of their then-vested
options at an exercise price of $22.67 per share. The notes which evidence
these borrowings are full recourse, are due on or before the third anniversary
date and bear interest at a rate equal to 5.75%, payable annually. The notes
were accompanied by pledge agreements which pledge the exercised option shares
as collateral security for repayment of the notes, which shares are currently
held by the Company.

  Peter B. Pond, one of the Company's directors, is a principal of Donaldson,
Lufkin & Jenrette Securities Corporation. DLJ sometimes provides and in the
past has provided the Company with investment banking services. DLJ served as
the lead manager in the Company's secondary offerings that were completed in
March 1998 and November 1998. In connection with these offerings, the
underwriting syndicates, of which DLJ was a part, received underwriting fees
equal to approximately $5.0 million. In addition, DLJ served as an advisor on
certain transactions last year and was paid fees of approximately $3.8 million
for these services.

                                      14
<PAGE>

                                    Part IV

Item 14--Exhibits, Financial Statements and Reports on Form 8-K

  (a) The consolidated financial statements filed as part of this report are
listed in the accompanying Index to Consolidated Financial Statements. The
financial statement schedule filed as part of this report is listed below.

  (b) On September 3, 1998, the Company filed with the Securities and Exchange
Commission, an interim report on Form 8-K dated August 19, 1998 showing the
condensed consolidated financial statements of LECG, Inc. as of December 31,
1997 and June 30, 1998 and the Company's Proforma Combined Balance Sheet as of
March 31, 1998 and Proforma Combined Statements of Operations for the three
years ended December 31, 1997.

  On November 6, 1998 (and again on November 12, 1998 to correct an error by
our financial printer), the Company filed with the Securities and Exchange
Commission, an interim report on Form 8-K/A showing the following:

  (A) Peterson financial statements as of December 31, 1997.

  (B) The Company's Proforma Combined Balance Sheet as of June 30, 1998 and
      Proforma Combined Statements of Operations for the three years ended
      December 31, 1997.

  (C) The Company's audited consolidated financial statements as of December
      31, 1997 and 1996, and for the three years ended December 31, 1997, as
      restated.

  (c) The exhibits filed as part of this report are listed below:

a. Exhibits:

<TABLE>
<CAPTION>
 Exhibit
   No.                              Description
 -------                            -----------
 <C>     <S>                                                                <C>
   2.1   Agreement dated as of July 1, 1998 among The Metzler Group,
         Inc., MGI Acquisition Corp. and LECG. Inc. (1)
   2.2   Agreement dated as of July 1, 1998 among The Metzler Group,
         Inc., MGI Acquisition II L.L.C. and Peterson Consulting L.L.C.
         (1)
   3.1   Amended and Restated Certificate of Incorporation of the Company
         (2)
   3.2   Amendment No. 1 to Amended and Restated Certificate of
         Incorporation of the Company (3)
   3.2   Amended and Restated By-Laws of the Company (4)
   4.1   Specimen Common Stock Certificate (5)
   4.2   Form of Registration Agreement
  10.1   Form of Indemnification Agreement between the Company and each
         of its directors and officers (5)
  10.2   The Metzler Group, Inc. Long-Term Incentive Plan (6)
  10.3   Amendment No. 1 to The Metzler Group, Inc. Long Term Incentive
         Plan, dated November 1, 1997 (7)
  10.4   Amendment No. 2 to the Metzler Group, Inc. Long-Term Incentive
         Plan, effective May 1, 1998 (7)
  10.5   The Metzler Group, Inc. Employee Stock Purchase Plan (8)
  10.6   Amendment No. 1 to The Metzler Group, Inc. Employee Stock
         Purchase Plan
  10.7   Amendment No. 2 to The Metzler Group, Inc. Employee Stock
         Purchase Plan
  21.1   Significant Subsidiaries of The Metzler Group, Inc.
  23.1   Consent of KPMG LLP
  27.1   Financial Data Schedule--for the period ended December 31, 1998
</TABLE>

                                      15
<PAGE>

--------
(1) Incorporated by reference from the Registrant's Current Report on Form 8-K
    dated August 19, 1998.
(2) Incorporated by reference from the Registrant's Amendment No. 1 to
    Registration Statement on Form S-1 (Registration No. 333-9019) filed with
    the SEC on September 4, 1996.
(3) Incorporated by reference from the Registrant's Registration Statement on
    Form S-3 (Registration No. 333-40489) filed with the SEC on November 18,
    1997.
(4) Incorporated by reference from the Registrant's Amendment No. 1 to
    Registration Statement on Form S-3 (Registration No. 333-40489) filed with
    the SEC on February 12, 1998.
(5) Incorporated by reference from the Registrant's Amendment No. 2 to
    Registration Statement on Form S-1 (Registration No. 333-9019) filed with
    the SEC on September 20, 1996.
(6) Incorporated by reference from the Registrant's Registration Statement on
    Form S-8 (Registration No. 333-30267) filed with the SEC on June 27, 1997.
(7) Incorporated by reference from the Registrant's Post-Effective Amendment
    No. 1 to Registration Statement on Form S-8 (Registration No. 333-30267)
    filed with the SEC on March 31, 1999.
(8) Incorporated by reference from the Registrant's Registration Statement on
    Form S-8 (Registration No. 333-30265) filed with the SEC on June 27, 1997.

b. Financial Statement Schedule:

  Report of Independent Auditors
  Schedule II: Valuation and Qualifying Accounts

                                      16
<PAGE>

                                  SIGNATURES

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

                                          The Metzler Group, Inc.

                                                   /s/ James F. Hillman
                                          By: _________________________________
                                                      James F. Hillman
                                                  Chief Financial Officer

Dated: January 21, 2000

                                      17
<PAGE>

                       INDEX TO THE FINANCIAL STATEMENTS
                            THE METZLER GROUP, INC.

  Audited Consolidated Financial Statements as of December 31, 1998 and 1997,
and for each of the three years in the period ended December 31, 1998

<TABLE>
<S>                                                                          <C>
Independent Auditors' Report................................................ F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Stockholders' Equity............................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>

                                      F-1
<PAGE>

                         INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
The Metzler Group, Inc.:

  We have audited the accompanying consolidated balance sheet of The Metzler
Group, Inc. and subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.

  We conducted our audit 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 audit provides a reasonable basis
for our opinion.

  In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The
Metzler Group, Inc. and subsidiaries as of December 31, 1998, and the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.

  We previously audited and reported on the consolidated balance sheet of The
Metzler Group, Inc. and subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended December 31, 1997 and 1996, prior to their restatement for the
1998 pooling of interests, which report was based in part on reliance of other
auditors. The contribution of the Company to combined restated assets
represented 41 percent as of December 31, 1997; to combined restated revenues
represented 43 percent and 42 percent; and to combined restated net income
represented 53 percent and 38 percent for the years ended December 31, 1997
and 1996, respectively. Separate financial statements of the other companies
included in the 1997 restated balance sheet and the 1997 and 1996 restated
statements of operations, stockholders' equity and cash flows were audited and
reported on separately by other auditors. We also audited the combination of
the accompanying consolidated balance sheet as of December 31, 1997 and the
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1997 and 1996, after restatement for the 1998 pooling of
interests; in our opinion, such consolidated statements have been properly
combined on the basis described in Note 3 of the notes to the consolidated
financial statements.

  As discussed in Note 13 of the consolidated financial statements, the
Company will account for certain 1999 acquisitions under the purchase method
of accounting.

                                          /s/ KPMG LLP

Chicago, Illinois
February 10, 1999,
except for Note 13 which is as of January 21, 2000

                                      F-2
<PAGE>

                    THE METZLER GROUP, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                            ------------------
                                                              1998      1997
                                                            --------  --------
<S>                                                         <C>       <C>
ASSETS
Current assets:
  Cash and cash equivalents................................ $119,704  $ 45,867
  Accounts receivable, net.................................   80,163    59,397
  Prepaid and other current assets.........................    6,979     3,337
                                                            --------  --------
    Total current assets...................................  206,846   108,601
Property and equipment, net................................   22,197    13,769
Other assets...............................................    1,474     2,073
                                                            --------  --------
    Total assets........................................... $230,517  $124,443
                                                            ========  ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Short-term debt..........................................      --      8,070
  Accounts payable and accrued liabilities.................   17,955    10,458
  Accrued compensation and project costs...................   28,142    17,075
  Income taxes payable.....................................    2,942     3,800
  Deferred income taxes....................................    2,171     1,500
  Stockholder distribution payable.........................      --      5,357
  Other current liabilities................................    9,127     4,072
                                                            --------  --------
    Total current liabilities..............................   60,337    50,332
Long-term debt.............................................      --        319
Deferred income taxes......................................    5,276     3,951
Other non-current liabilities..............................      --      1,169
                                                            --------  --------
    Total liabilities......................................   65,613    55,771
                                                            --------  --------
Stockholders' equity:
  Preferred stock, $.001 par value; 3,000 shares
   authorized; no shares issued or outstanding.............      --        --
  Common stock, $.001 par value; 75,000 shares authorized;
   38,004 and 34,043 shares issued and outstanding in 1998
   and 1997, respectively..................................       38        34
  Additional paid-in capital...............................  134,624    56,580
  Notes receivable from stockholders.......................      --     (2,755)
  Accumulated other comprehensive income...................      (30)      (57)
  Retained earnings........................................   30,272    14,870
                                                            --------  --------
    Total stockholders' equity.............................  164,904    68,672
                                                            --------  --------
    Total liabilities and stockholders' equity............. $230,517  $124,443
                                                            ========  ========
</TABLE>


        See accompanying Notes to the Consolidated Financial Statements.

                                      F-3
<PAGE>

                    THE METZLER GROUP, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                            FOR THE YEARS ENDED DECEMBER 31,
                                            ----------------------------------
                                               1998        1997        1996
                                            ----------  ----------  ----------
<S>                                         <C>         <C>         <C>
Revenues................................... $  266,877  $  196,780  $  151,889
Cost of services...........................    154,322     115,122      89,410
                                            ----------  ----------  ----------
  Gross profit.............................    112,555      81,658      62,479
General and administrative expenses........     60,893      54,151      47,028
Merger-related costs.......................     12,778       1,312         --
                                            ----------  ----------  ----------
  Operating income.........................     38,884      26,195      15,451
                                            ----------  ----------  ----------
Other expense (income):
  Interest income..........................     (3,061)     (1,156)       (420)
  Interest expense.........................        672         432         840
  Other, net...............................       (263)       (581)       (135)
                                            ----------  ----------  ----------
    Total other expense (income)...........     (2,652)     (1,305)        285
                                            ----------  ----------  ----------
Income before income tax expense...........     41,536      27,500      15,166
  Income tax expense.......................     25,413       9,081           9
                                            ----------  ----------  ----------
Net Income................................. $   16,123  $   18,419  $   15,157
                                            ==========  ==========  ==========
Earnings per basic share:
  Net income............................... $     0.45  $     0.58  $     0.49
  Shares used in computing earnings per
   basic share.............................     35,948      31,779      30,933
Earnings per dilutive share:
  Net income............................... $     0.43  $     0.57  $     0.48
  Shares used in computing earnings per
   dilutive share..........................     37,179      32,288      31,262
Pro forma income data (unaudited):
  Net income............................... $   16,123  $   18,419  $   15,157
  Pro forma decrease (increase) to income
   tax expense.............................      7,200      (2,194)     (6,209)
  Pro forma adjustment to executive
   compensation expense, net of tax........      2,267         --          --
                                            ----------  ----------  ----------
  Pro forma net income..................... $   25,590  $   16,225  $    8,948
                                            ==========  ==========  ==========
  Pro forma net income per basic share..... $     0.71  $     0.51  $     0.29
  Pro forma net income per dilutive share.. $     0.69  $     0.50  $     0.29
</TABLE>

        See accompanying Notes to the Consolidated Financial Statements.

                                      F-4
<PAGE>

                    THE METZLER GROUP, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (In thousands)

<TABLE>
<CAPTION>
                           Preferred                                Notes      Accumulated
                             Stock     Common Stock   Additional  Receivable      Other                   Total
                         ------------- --------------  Paid-In       From     Comprehensive Retained  Stockholders'
                         Shares Amount Shares  Amount  Capital   Stockholders    Income     Earnings     Equity
                         ------ ------ ------  ------ ---------- ------------ ------------- --------  -------------
<S>                      <C>    <C>    <C>     <C>    <C>        <C>          <C>           <C>       <C>
Balance at December 31,
 1995...................  --      --   30,760   $ 31   $  7,713    $(1,576)       $--       $  6,401    $ 12,569
 Comprehensive income...  --      --      --     --         --         --            6        15,157      15,163
 Issuance of common
  stock.................  --      --    4,553      5     41,905     (1,619)        --            --       40,291
 Purchase of common
  stock.................  --      --   (3,432)    (4)    (8,460)       --          --         (1,794)    (10,258)
 Distributions..........  --      --      --     --         --        (162)        --         (7,683)     (7,845)
 Interest on notes
  receivable from
  stockholders..........  --      --      --     --         155       (155)        --            --          --
 Collection of notes
  receivable from
  stockholders..........  --      --      --     --         --         467         --            --          467
                          ---    ----  ------   ----   --------    -------        ----      --------    --------
Balance at December 31,
 1996...................  --      --   31,881     32     41,313     (3,045)          6        12,081      50,387
 Comprehensive income...  --      --      --     --         --         --          (63)       18,419      18,356
 Issuance of common
  stock.................  --      --    2,697      2     25,412        (87)        --            780      26,107
 Purchase of common
  stock.................  --      --     (535)   --     (10,340)        44         --           (228)    (10,524)
 Distributions..........  --      --      --     --         --        (351)        --        (16,182)    (16,533)
 Interest on notes
  receivable from
  stockholders..........  --      --      --     --         195       (195)        --            --          --
 Collection of notes
  receivable from
  stockholders..........  --      --      --     --         --         879         --            --          879
                          ---    ----  ------   ----   --------    -------        ----      --------    --------
Balance at December 31,
 1997...................  --      --   34,043     34     56,580    $(2,755)        (57)       14,870      68,672
 Comprehensive income...  --      --      --     --         --         --           27        16,123      16,150
 Issuance of common
  stock.................  --      --    4,556      5     96,957        --          --            --       96,962
 Purchase of common
  stock.................  --      --     (595)    (1)   (18,921)       --          --            --      (18,922)
 Distributions..........  --      --      --     --         --         --          --           (721)       (721)
 Interest on notes
  receivable from
  stockholders..........  --      --      --     --           8        --          --            --            8
 Collection of notes
  receivable from
  stockholders..........  --      --      --     --         --       2,755         --            --        2,755
                          ---    ----  ------   ----   --------    -------        ----      --------    --------
Balance at December 31,
 1998...................  --     $--   38,004   $ 38   $134,624    $   --         $(30)     $ 30,272    $164,904
                          ===    ====  ======   ====   ========    =======        ====      ========    ========
</TABLE>

        See accompanying Notes to the Consolidated Financial Statements.

                                      F-5
<PAGE>

                    THE METZLER GROUP, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                             FOR THE YEARS ENDED DECEMBER 31
                                             ----------------------------------
                                                1998        1997       1996
                                             ----------  ----------  ----------
<S>                                          <C>         <C>         <C>
Cash flows from operating activities:
  Net income...............................  $   16,123  $   18,419  $  15,157
Adjustments to reconcile net income to net
 cash provided by operating activities:
  Depreciation and amortization............       5,098       3,578      2,833
  Provision for bad debts..................       1,094         172      1,831
  Deferred income taxes....................       1,996       2,363       (952)
  Other non-cash items, net................        (107)       (728)        80
  Changes in assets and liabilities, net of
   acquisitions:
    Accounts receivable....................     (21,861)    (12,138)    (8,940)
    Prepaid expenses and other assets......      (3,641)     (1,139)      (444)
    Accounts payable and accrued
     liabilities...........................       7,497       2,644      3,419
    Accrued compensation and project
     costs.................................      11,066          97      6,164
    Income taxes payable...................        (857)      2,922        549
    Other current liabilities..............       5,056       1,340     (4,861)
                                             ----------  ----------  ---------
      Net cash provided by operating
       activities..........................      21,464      17,530     14,836
                                             ----------  ----------  ---------
Cash flows from investing activities:
  Purchase of property and equipment.......     (13,723)     (8,100)    (3,879)
  Other, net...............................        (238)       (656)      (499)
                                             ----------  ----------  ---------
      Net cash used in investing
       activities..........................     (13,961)     (8,756)    (4,378)
                                             ----------  ----------  ---------
Cash flows from financing activities:
  Issuance of common stock.................      96,962      25,493     38,151
  Purchase of common stock.................     (18,922)    (10,175)    (9,806)
  Repayment of long-term debt..............        (319)     (1,480)      (648)
  Proceeds from long-term debt.............         --        3,300      1,799
  Net repayments of short-term debt........      (8,070)     (2,793)      (389)
  Payments of pre-acquisition undistributed
   income to former stockholders...........      (6,079)    (10,121)    (7,338)
  Other, net...............................       2,762        (830)      (406)
                                             ----------  ----------  ---------
Net cash provided by financing activities..      66,334       3,394     21,363
                                             ----------  ----------  ---------
Net increase in cash and cash equivalents..      73,837      12,168     31,821
Cash and cash equivalents at beginning of
 year......................................      45,867      33,699      1,878
                                             ----------  ----------  ---------
Cash and cash equivalents at end of year...  $  119,704  $   45,867  $  33,699
                                             ==========  ==========  =========
Supplemental information:
  Interest payments........................  $      672  $      305  $     544
  Income tax payments......................  $   17,720  $    3,509  $     428
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.

                                      F-6
<PAGE>

                            THE METZLER GROUP, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (In thousands, except per share amounts and unless as otherwise indicated)

1. DESCRIPTION OF BUSINESS

  The Metzler Group, Inc. (the "Company") is a provider of consulting services
to energy-based and related industries. The Company's services include: (1)
management consulting; (2) information technology; and (3) litigation support.
The Company's operating subsidiaries include LECG, Inc. ("LECG"), Metzler &
Associates, Inc. ("Metzler & Associates"), Peterson Consulting, L.L.C.
("Peterson"), Reed Consulting Group, Inc. ("Reed"), and Resource Management
International, Inc. ("RMI"). The Company is headquartered in Chicago, Illinois
and has regional offices in various cities within the United States, and
several international offices.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 Principles of Consolidation

  The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany transactions have been
eliminated in consolidation.

 Use of Estimates

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

 Cash and Cash Equivalents

  Cash equivalents are comprised of highly liquid instruments with original
maturities of 90 days or less. The carrying amount of these financial
instruments approximates fair value because of the short maturities.

 Property and Equipment

  Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method based on the estimated useful lives, ranging from
three to forty years, of the various classes of property and equipment.
Amortization of leasehold improvements is computed over the shorter of the
lease term or the estimated useful life of the asset.

 Revenue Recognition

  The Company recognizes revenues as the related services are provided.
Certain contracts are accounted for on the percentage of completion method
whereby revenues are recognized based upon costs incurred in relation to total
estimated costs at completion. Provision is made for the entire amount of
estimated losses, if any, at the time when they are known.

 Stock Based Compensation

  The Company utilizes the intrinsic value-based method of accounting for its
stock-based compensation arrangements.

 Income Taxes

  Income taxes, including pro forma calculations, are accounted for in
accordance with the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to

                                      F-7
<PAGE>

                            THE METZLER GROUP, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

  Prior to January 1, 1996, Metzler & Associates had operated as a C-
corporation. Effective January 1, 1996, the stockholders of Metzler &
Associates elected to be taxed under Subchapter S of the Internal Revenue
Code. During such period, federal income taxes were the responsibility of
Metzler & Associates' stockholders as were certain state income taxes. As of
the effective date of the election, Metzler & Associates was responsible for
Federal built-in-gain taxes to the extent applicable. Accordingly, the
consolidated statement of operations for the year ended December 31, 1996
provides for such taxes. The S-corporation election terminated in connection
with the consummation of the initial public offering of the Company's common
stock on October 4, 1996.

  Prior to December 18, 1997, LECG had elected to be taxed under Subchapter S
of the Internal Revenue Code for income tax purposes. During such period,
federal income taxes were the responsibility of LECG's stockholders as were
certain state income taxes. Therefore, the financial statements do not include
a provision for federal (and some state) income taxes prior to LECG's initial
public offering on December 18, 1997. LECG's S-corporation status terminated
on December 18, 1997, thereby subjecting LECG's income to federal and certain
other state income taxes at the corporate level. Accordingly, LECG applied the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes," for the period ended December 31, 1997. In
addition, LECG converted from a cash basis to accrual basis for tax purposes
in conjunction with its conversion to a C-corporation. Due to temporary
differences in recognition of revenue and expenses, income for financial
reporting purposes exceeded income for income tax purposes. The conversion to
accrual basis along with these temporary differences resulted in the
recognition of a net deferred tax liability (and a corresponding one-time
charge to expense) of $2.7 million as of December 31, 1997.

  Prior to August 14, 1998, Peterson was a limited liability company, which,
for income tax purposes, was treated as a partnership. Accordingly, the income
of Peterson was reported on the individual income tax returns of its members
and federal income taxes, as well as certain state income taxes, were the
responsibility of its members. Subsequent to August 14, 1998, and based on
events unrelated to its acquisition by the Company, Peterson elected C-
corporation status, thereby subjecting its income to federal and certain state
income taxes at the corporate level. As a result of its acquisition of
Peterson, the Company has applied the provisions of SFAS No. 109, and has
converted Peterson from the modified cash basis to the accrual basis for tax
purposes. Due to temporary differences in recognition of revenue and expense,
income for financial reporting purposes has exceeded income for tax reporting
purposes. The conversion to accrual basis, along with these temporary
differences, resulted in the recognition of a one-time, non-cash charge of
$7.2 million to be recorded during the period in which the merger occurred.

 Pro Forma Adjustments (unaudited)

  The pro forma adjustments for 1998 include a reduction of income tax expense
to exclude the effect of the one-time, non-cash charge of $7.2 million which
resulted from the conversion of Peterson from the modified cash basis to the
accrual basis of accounting for tax purposes. The pro forma adjustments for
1998 also reflect a $2.3 million adjustment, net of tax, relating to the
impact of a new compensation plan for Peterson executives adopted pursuant to
the acquisition. This pro forma presentation, net of related tax effects, is
shown solely as the result of changes in compensation that existed following
consummation of the merger. These changes would have resulted in reduced
compensation in prior periods for Peterson executives, although their duties
and responsibilities would have remained largely unchanged.

                                      F-8
<PAGE>

                            THE METZLER GROUP, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The pro forma adjustments for 1997 and 1996 include federal and additional
state income tax expense of $2,194 and $6,209, respectively, that would have
been required if certain of the Company's subsidiaries which were not taxable
entities during those periods had been subject to federal, and certain state,
income taxes at the corporate level.

 Earnings Per Share

  For the years ended December 31, 1998, 1997 and 1996, earnings per share was
computed in accordance with SFAS No. 128 "Earnings Per Share", which the
Company adopted during the fourth quarter of 1997. The difference between
basic and dilutive shares represents the dilutive effect of common stock
options aggregating 1,231, 509 and 329 for the years ended December 31, 1998,
1997 and 1996, respectively.

 Foreign Currency Translation

  The balance sheets of the Company's foreign subsidiaries are translated into
U.S. dollars using the year-end exchange rate, and sales and expenses are
translated using the average exchange rate for the year. The resulting
translation gains or losses are recorded as a separate component of
stockholders' equity as other comprehensive income.

3. BUSINESS COMBINATIONS

  On July 31, 1997, the Company issued 3.2 million shares of common stock for
substantially all the outstanding common stock of RMI. In connection with the
acquisition of RMI, the Company acquired assets and assumed liabilities with
book values of $13.9 million and $11.1 million, respectively. Additionally, on
August 15, 1997, the Company issued 0.8 million shares of common stock for
substantially all of the outstanding common stock of Reed. In connection with
the acquisition of Reed, the Company acquired assets and assumed liabilities
with book values of $2.5 million and $2.5 million, respectively. Each of the
transactions was accounted for as a pooling of interests. The consolidated
financial statements have been restated as if RMI and Reed had been combined
for all periods presented. There were no pre-acquisition intercompany
transactions or investments among the Company, RMI and Reed. As of the
respective acquisition dates, the acquisitions of RMI and Reed resulted in an
aggregate increase of $2.8 million in the Company's consolidated stockholders'
equity. The Company's consolidated statement of operations for the year ended
December 31, 1997 includes revenues and net income from RMI and Reed totaling
$28,906 and $1,529, respectively, through the dates of acquisition. The
consolidated statement of operations for the year ended December 31, 1996
includes revenues and net loss from RMI and Reed totaling $41,460 and $1,119,
respectively.

  On August 19, 1998, the Company issued 7.3 million shares of common stock
for substantially all the outstanding common stock of LECG. In connection with
the acquisition of LECG, the Company acquired assets and assumed liabilities
with book values of $49.8 million and $17.4 million, respectively.
Additionally, on August 31, 1998, the Company issued 5.6 million shares of
common stock for substantially all of the outstanding common stock of
Peterson. In connection with the acquisition of Peterson, the Company acquired
assets and assumed liabilities with book values of $34.8 million and $24.7
million, respectively. Each of these transactions was accounted for as a
pooling of interests and, accordingly, the consolidated financial statements
have been restated as if the companies had been combined for all periods
presented. There were no pre-acquisition intercompany transactions or
investments among the Company, LECG and Peterson. As of the respective
transaction dates, the acquisitions of LECG and Peterson resulted in an
aggregate increase of $42.5 million in the Company's consolidated
stockholders' equity. The Company's consolidated statement of operations for
the year ended December 31, 1998 includes revenues and net income from LECG
and Peterson totaling $97,910 and $6,070, respectively, through the dates of
acquisition. The Company's consolidated statements of operations for

                                      F-9
<PAGE>

                            THE METZLER GROUP, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

1997 and 1996 have been restated to reflect revenues of $113,119 and $88,336,
respectively, and net income of $8,732 and $9,422, respectively, for the
aggregate of the operations of LECG and Peterson.

  The Company incurred significant costs and expenses in connection with these
acquisitions, including legal and accounting, and other various expenses.
These costs and expenses were recorded in the consolidated statements of
operations and comprehensive income during the third quarter in each of the
years 1997 and 1998.

  During 1998 and 1997, the Company completed nine additional transactions
which were accounted for as poolings of interests. The stockholders' equity
and the operations of these businesses were not material, individually or in
the aggregate, in relation to those of the Company. As such, the Company
recorded the combinations by restating stockholders' equity as of the
effective date of each acquisition without restating prior period financial
statements. There were six such transactions (collectively, the "1998
Acquisitions") in 1998 for which the Company issued 1.2 million shares in the
aggregate and three such transactions (collectively, the "1997 Acquisitions")
in 1997 for which the Company issued 0.7 million shares in the aggregate. The
consolidated financial statements for 1998 reflect the results of operations
of American Corporate Resources, Inc., AUC Management Consultants, Inc., and
Hydrologic Consultants, Inc. beginning on April 3, 1998; the results of
operations of Vision Trust, Inc. beginning on June 1, 1998; and the results of
operations of Saraswati Systems Corporation, Inc. and Applied Health Outcomes,
Inc. beginning on September 1, 1998. The consolidated financial statements for
1997 reflect the results of operations of Burgess Consulting, Inc. beginning
on January 1, 1997 and the results of operations of Sterling Consulting Group,
Inc. and Reed-Stowe & Co., Inc., beginning on December 1, 1997. The Company
acquired assets of $1.9 million and assumed liabilities of $1.4 million, in
the aggregate, in connection with the 1998 Acquisitions. The Company acquired
assets of $0.6 million and assumed liabilities of $0.9 million, in the
aggregate, in connection with the 1997 Acquisitions. There were no pre-
acquisition intercompany transactions among the Company and the acquired
entities. As of the respective transaction dates, the 1998 Acquisitions in the
aggregate, resulted in a $0.5 million net increase in the Company's
consolidated stockholders' equity. As of the respective transaction dates, the
1997 Acquisitions resulted in an aggregate decrease of $0.3 million in the
Company's consolidated stockholders' equity.

4. STOCKHOLDERS' EQUITY

  On October 4, 1996 the Company completed an initial public offering of its
common stock in which 3.9 million shares were sold by the Company, resulting
in proceeds of approximately $37 million, net of issuance costs. Concurrent
with the completion of the initial public offering and in accordance with an
agreement entered into during July 1996 between the Company and a stockholder,
the Company redeemed 2.6 million shares of the stockholder's common stock for
$7,975.

  On December 18, 1997, LECG completed an initial public offering, resulting
in net proceeds of approximately $24.4 million, net of issuance costs.

  On March 2, 1998, the Company completed a secondary offering of its common
stock in which an additional 1.5 million shares were sold by the Company,
resulting in net proceeds of approximately $36 million. On November 19, 1998,
the Company completed a secondary offering of its common stock in which an
additional 1.5 million shares were sold by the Company, resulting in net
proceeds of approximately $51 million.

5. ACCOUNTS RECEIVABLE

  The components of accounts receivable as of December 31 were as follows:

<TABLE>
<CAPTION>
                                                                1998     1997
                                                               -------  -------
   <S>                                                         <C>      <C>
   Billed amounts ............................................ $81,508  $51,595
   Engagements in process.....................................   3,899   11,952
   Allowance for uncollectible accounts.......................  (5,244)  (4,150)
                                                               -------  -------
                                                               $80,163  $59,397
                                                               =======  =======
</TABLE>

                                     F-10
<PAGE>

                            THE METZLER GROUP, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Engagements in process represent balances accrued by the Company for
services that have been performed but have not been billed to the customer.
Billings are generally done on a monthly basis for the prior month's services.

6. PROPERTY AND EQUIPMENT

  Property and equipment, at cost, as of December 31 consisted of:

<TABLE>
<CAPTION>
                                                                1998     1997
                                                               -------  -------
   <S>                                                         <C>      <C>
   Land and buildings......................................... $ 2,878  $   370
   Furniture, fixtures and equipment..........................  27,877   27,418
   Software...................................................   5,338    2,263
   Leasehold improvements.....................................   4,736    3,072
                                                               -------  -------
                                                                40,829   33,123
   Less: accumulated depreciation and amortization............ (18,632) (19,354)
                                                               -------  -------
                                                               $22,197  $13,769
                                                               =======  =======
</TABLE>

7. SHORT-TERM AND LONG-TERM DEBT

  The Company had total short-term debt and other current debt obligations of
$0 and $8,070 at December 31, 1998 and 1997, respectively. Amounts outstanding
at December 31 are as follows:

<TABLE>
<CAPTION>
                                                                    1998  1997
                                                                    ---- ------
   <S>                                                              <C>  <C>
   $1,200 in two lines of credit, interest payable quarterly at
    the bank's prime rate (8.5% at December 31, 1997) plus 1.0%,
    guaranteed by officers of a subsidiary, due April 1, 1998.....   --  $1,020
   Two lines of credit, $4,100 each, interest payable quarterly at
    the bank's prime rate (8.5% at December 31, 1997),
    collateralized by accounts receivable of Peterson, outstanding
    balance due on demand.........................................   --   3,300
   $3,645 term loan, payable in monthly installments of $100
    including interest at the bank's prime rate (8.5% at December
    31, 1997), collateralized by accounts receivable of Peterson,
    and subject to renewal annually...............................   --   3,645
   Other term loans, at variable rates of interest of 9.25%
    through 15.0% with due dates 1998 through 2001................   --     424
                                                                    ---- ------
   Total debt.....................................................   --   8,389
   Portion classified as long-term................................   --     319
                                                                    ---- ------
   Short-term debt................................................  $--  $8,070
                                                                    ==== ======
</TABLE>

  The Company maintains line of credit agreements in the aggregate amount of
$14.0 million expiring through July 1999. Of this total, $6,175 is available
to secure commercial and standby letters of credit. At December 31, 1998, the
Company had letters of credit of $1,657 outstanding. The letters of credit
expire at various dates through 1999.

8. LEASE COMMITMENTS

  The Company leases its office facilities and certain equipment under
operating lease arrangements which expire at various dates through 2008 with
renewal options of two to five years. The Company leases office facilities
under noncancelable operating leases which include fixed or minimum payments
plus, in some cases, scheduled base rent increases over the term of the lease
and additional rents based on the Consumer Price Index. Certain leases provide
for monthly payments of real estate taxes, insurance and other operating
expenses applicable to the property. The total amount of the base rent
payments is being charged to expense as incurred. In addition, the Company
leases equipment under noncancelable operating leases.

                                     F-11
<PAGE>

                            THE METZLER GROUP, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Future minimum annual lease payments, for the years subsequent to 1998 and
in the aggregate, are as follows:

<TABLE>
<CAPTION>
        Year Ending December 31,                                       Amount
        ------------------------                                       ------
        <S>                                                            <C>
        1999.......................................................... $ 9,781
        2000..........................................................   8,623
        2001..........................................................   8,146
        2002..........................................................   5,195
        2003..........................................................   3,149
        Thereafter....................................................   5,449
                                                                       -------
                                                                       $40,343
                                                                       =======
</TABLE>

  Rent expense for operating leases entered into by the Company and charged to
operations amounted to $9,982 for 1998, $9,791 for 1997, and $7,150 for 1996.

9. INCOME TAX EXPENSE

  Income tax expense consists of the following:

<TABLE>
<CAPTION>
                                                              December 31,
                                                           --------------------
                                                            1998    1997   1996
                                                           ------- ------  ----
   <S>                                                     <C>     <C>     <C>
   Federal:
     Current.............................................. $19,980 $5,108  $477
     Deferred.............................................   1,600  2,648  (574)
                                                           ------- ------  ----
       Total..............................................  21,580  7,756   (97)
                                                           ------- ------  ----
   State:
     Current..............................................   3,437  1,392   409
     Deferred.............................................     396    (67) (303)
                                                           ------- ------  ----
       Total..............................................   3,833  1,325   106
                                                           ------- ------  ----
   Total federal and state income tax expense............. $25,413 $9,081  $  9
                                                           ======= ======  ====
</TABLE>

  Income tax expense differs from the amounts estimated by applying the
statutory income tax rates to income before income tax expense as follows:

<TABLE>
<CAPTION>
                                                             December 31,
                                                            -----------------
                                                            1998  1997  1996
                                                            ----  ----  -----
   <S>                                                      <C>   <C>   <C>
   Federal tax at statutory rate........................... 35.0% 35.0%  35.0%
   State tax at statutory rate, net of federal tax
    benefits...............................................  4.9   4.6    4.6
   Effect of nontaxable interest and dividends............. (1.9) (0.9)  (0.6)
   Effect of nontaxable entities...........................  --   (5.2) (39.0)
   Effect of conversion from cash to accrual method of
    accounting for acquired company........................ 17.3   --     --
   Effect of non-deductible merger-related costs...........  4.5   --     --
   Other...................................................  1.4  (0.5)   0.1
                                                            ----  ----  -----
                                                            61.2% 33.0%   0.1%
                                                            ====  ====  =====
</TABLE>

                                     F-12
<PAGE>

                            THE METZLER GROUP, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Deferred income taxes result from temporary differences between years in the
recognition of certain expense items for income tax and financial reporting
purposes. The source and income tax effect of these differences are as
follows:

<TABLE>
<CAPTION>
                                                                 December 31,
                                                                 -------------
                                                                  1998   1997
                                                                 ------ ------
   <S>                                                           <C>    <C>
   Deferred tax assets:
     State income taxes......................................... $  479 $  155
     Allowance for uncollectible receivables....................    194    340
     Merger-related costs.......................................  1,427    382
     Other......................................................    315    236
                                                                 ------ ------
       Total deferred tax assets................................  2,415  1,113
                                                                 ------ ------
   Deferred tax liabilities:
     Adjustment resulting from changes in the method of
      accounting used for tax purposes..........................  9,136  6,080
     Other......................................................    726    484
                                                                 ------ ------
       Deferred tax liabilities.................................  9,862  6,564
                                                                 ------ ------
       Net deferred tax liabilities............................. $7,447 $5,451
                                                                 ====== ======
</TABLE>

10. LONG-TERM INCENTIVE PLAN

  On June 30, 1996, the Company adopted a Long-Term Incentive Plan which
provides for common stock, common stock-based, and other performance
incentives to employees, consultants, directors, advisors, and independent
contractors of the Company. As of December 31, 1998, the Company had 5,510
options outstanding at a weighted average exercise price of $24.19 per share
which was equal to the fair market value of common stock at the dates of
grant. As of December 31, 1998, 138 options were exercisable. In general, the
options have a ten year term and are exercisable in annual installments over a
four year period following the date of grant.

  The Company applies APB Opinion 25, Accounting for Stock Issued to
Employees, and related Interpretations in accounting for its plan.
Accordingly, no compensation cost has been recognized. Had compensation cost
for the plan been determined based on the fair value at the grant dates for
awards under the plan consistent with the method of SFAS No. 123, "Accounting
for Stock-Based Compensation," the Company's compensation expense for the
years ended December 31, 1998, 1997 and 1996 would have been increased by
$4,591, $1,138 and $102, respectively, net of related income taxes. As a
result, the Company's pro forma net earnings available to common stockholders
and earnings per common and common equivalent shares would have been reduced
to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                         1998    1997    1996
                                                        ------- ------- -------
   <S>                                                  <C>     <C>     <C>
   Earnings per common share, as reported:
     Net income.......................................  $16,123 $18,419 $15,157
     Net income per basic share.......................  $  0.45 $  0.58 $  0.49
     Net income per dilutive share....................  $  0.43 $  0.57 $  0.48
   Earnings per common share, fair value method:
     Net income, with compensation expense from fair
      value options...................................  $11,532 $17,281 $15,055
     Fair value method net income per basic share.....  $  0.32 $  0.54 $  0.49
     Fair value method net income per dilutive share..  $  0.31 $  0.54 $  0.48
</TABLE>

                                     F-13
<PAGE>

                            THE METZLER GROUP, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The weighted average fair value of options granted in 1998, 1997 and 1996
was $5.68, $4.46 and $2.00 respectively. For purposes of calculating
compensation cost under SFAS No. 123, the fair value of each option grant is
estimated as of the date of grant using the Black-Scholes option pricing
model. The following weighted average assumptions were used in the model for
grants made in 1998, 1997 and 1996:

<TABLE>
<CAPTION>
                                                  1998       1997       1996
                                                ---------  ---------  ---------
   <S>                                          <C>        <C>        <C>
   Expected volatility.........................        45%        45%        40%
   Risk free interest rate.....................       5.0%       5.7%       6.5%
   Dividend yield..............................         0%         0%         0%
   Expected lives.............................. 2.8 years  2.5 years  3.0 years
</TABLE>

  Additional information on the shares subject to options is as follows:

<TABLE>
<CAPTION>
                                  1998              1997              1996
                            ----------------- ----------------- ----------------
                                    Weighted-         Weighted-        Weighted-
                            Number   Average  Number   Average  Number  Average
                              of    Exercise    of    Exercise    of   Exercise
                            Shares    Price   Shares    Price   Shares   Price
                            ------  --------- ------  --------- ------ ---------
   <S>                      <C>     <C>       <C>     <C>       <C>    <C>
   Options outstanding at
    beginning of year...... 2,623    $16.53     689    $10.37    --     $  --
   Granted................. 3,849     28.47   2,173     18.35    725     10.00
   Exercised...............  (361)    13.07      (3)     8.00    --        --
   Forfeited...............  (601)    24.90    (236)    16.35    (36)     8.00
                            -----             -----              ---
   Options outstanding at
    end of year............ 5,510    $24.19   2,623    $16.53    689    $10.37
                            =====    ======   =====    ======    ===    ======
   Options exercisable at
    year end...............   138    $14.41      14    $18.45    --     $  --
                            =====    ======   =====    ======    ===    ======
</TABLE>


  The following table summarizes information about stock options outstanding
at December 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                       1998                      1997
                             ------------------------- -------------------------
                                 Weighted-Average          Weighted-Average
                             ------------------------- -------------------------
                                    Exercise Remaining        Exercise Remaining
                             Shares  Price     Life    Shares  Price     Life
                             ------ -------- --------- ------ -------- ---------
   Range of Exercise Price
   -----------------------
   <S>                       <C>    <C>      <C>       <C>    <C>      <C>
   $0 to $15...............  1,025   $12.46  0.7 years 1,534   $12.60  1.5 years
   $16 to $25..............  1,277    20.99  2.5 years 1,089    22.14  2.2 years
   $26 to $35..............  3,174    29.06  3.6 years   --       --         --
   $36 to $45..............     34    39.30  3.8 years   --       --         --
                             -----                     -----
                             5,510   $24.19  2.8 years 2,623   $16.53  1.8 years
                             =====                     =====
</TABLE>

11. EMPLOYEE BENEFIT PLANS

  The Company maintained profit sharing and savings plans for six of our
operating subsidiaries through December 31, 1998. Eligible employees may
contribute a portion of their compensation to their respective operating
subsidiaries' plan. The Company, at its discretion matches a percentage of
employees' contributions. The Company may also make an annual profit sharing
contribution at its discretion. The Company, as sponsor of the plans, uses
independent third parties to provide administrative services to the plans. The
Company has the right to terminate the plans at any time. The Company
contributions to the various plans which were charged to operations were
$1,018, $976 and $1,356 in the years ended December 31, 1998, 1997, and 1996,
respectively.

                                     F-14
<PAGE>

                            THE METZLER GROUP, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


12. SEGMENT INFORMATION

  The Company has applied the provisions of SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. This statement establishes
standards for reporting information regarding operating segments, products and
services, geographic areas and major customers. The Company's operations
represent a single reportable segment under the provisions of SFAS No. 131.
The Company's operations have a high degree of similarity in their economic
and operational characteristics, including the nature of the services
provided, the type or class of customers for those services, and the methods
used for delivering such services. While the Company has retained certain
brand identities associated with its principal operating subsidiaries, these
distinctions have not been a critical factor for management in making
operating decisions or in assessing performance. In addition, the structure of
the Company's internal organization has changed from time to time as a result
of acquisition activity and in response to customer, project, personnel or
geographic requirements and, as such, discrete financial information is not
available on a consistent basis at the operating subsidiary level.

  The company derives substantially all of its revenues from operations in the
United States. In each of the three years ended December 31, 1998, more than
95% of the Company's consolidated revenues and operating income were derived
from domestic operations. Substantially all of the Company's identifiable
assets are located in the United States.

13. SUBSEQUENT EVENT (unaudited)

  Effective February 7, 1999 (the "Effective Date"), the Company completed the
acquisition of all of the outstanding securities of Strategic Decisions Group
("SDG"), a consulting firm organized under the laws of California. Pursuant to
a Merger Agreement dated February 7, 1999, a wholly owned subsidiary of the
Company, MGI Acquisition III, Inc., merged with and into SDG on the Effective
Date. Consequently, SDG is now a wholly owned subsidiary of the Company. SDG
stockholders received Company common stock valued at approximately $137
million, calculated by using the final closing bid for the Company's common
stock on the Effective Date, in exchange for substantially all outstanding SDG
shares. The Company exchanged 2.7 million shares of its common stock for
substantially all of the outstanding common stock of SDG. Following the
combination with SDG, the Company had 40.5 million issued and outstanding
shares.

  The acquisition of SDG has been accounted for by the purchase method of
accounting and, accordingly, the results of operations will be included in the
consolidated financial statements beginning on the date of acquisition.
Certain assets acquired and liabilities assumed will be recorded at their
estimated fair values, subject to adjustment when an independent appraisal
concerning tangible and intangible asset valuations is finalized. The
liabilities assumed include certain direct costs and expenses incurred by the
Company in connection with the acquisition, including legal and accounting,
and other various expenses. The excess of cost over the net assets acquired of
approximately $137 million will be recorded as intangible assets, including
goodwill, and be amortized on a straight-line basis over 7 years, subject to
completion of the independent appraisal.

  The following unaudited pro forma financial information presents the
combined results of operations as if the SDG acquisition had occurred as of
January 1, 1997, after giving effect to certain adjustments. The adjustments
include the amortization of goodwill and other intangibles, a reduction in
interest income and related income tax effects, and an increase in the
weighted-average common shares outstanding. The pro forma information is for
informational purposes only. The information presented does not necessarily
reflect the results

                                     F-15
<PAGE>

                            THE METZLER GROUP, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

of operations that would have occurred had the acquisition been completed as
of January 1, 1997, nor are they indicative of future results.

<TABLE>
<CAPTION>
                                                               Year ended
                                                              December 30,
                                                            ------------------
                                                              1998      1997
                                                            --------  --------
      <S>                                                   <C>       <C>
      Revenue (thousands).................................. $324,690  $243,460
      Net Income (thousands)...............................   (3,950)   (1,641)
      Net Income per Diluted Share......................... $   (.10) $   (.05)
</TABLE>

  The Company had initially disclosed in its Annual Report on Form 10-K for
the year ended December 31, 1998, as amended on Form 10-K/A, that it would
account for the SDG acquisition using the pooling-of-interests method of
accounting. The Company also filed a current Report on Form 8-K on June 9,
1999 which included restated selected financial data, unaudited quarterly
financial information, and consolidated financial statements for the SDG
acquisition and two additional acquisitions that were consummated during the
first quarter of 1999 following the pooling-of-interests method of accounting.
Subsequent to the above referenced filings, the Company determined that it
should no longer seek to maintain the pooling of interests treatment in light
of subsequent events that occurred during the third quarter of 1999. Although
these 1999 acquisitions were originally accounted for properly as poolings-of-
interests, the disclosures, financial data, and financial statements referring
to these acquisitions as poolings have been superseded and all acquisitions
consummated during the first quarter of 1999 will be accounted for under the
purchase method of accounting.

                                     F-16
<PAGE>

                         INDEPENDENT AUDITORS' REPORT

Board of Directors
The Metzler Group, Inc.:

  Under date of February 10, 1999, except for Note 13 which is as of January
21, 2000, we reported on the consolidated balance sheets of The Metzler Group,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of earnings, stockholders' equity and comprehensive
income, and cash flows for each of the years in the three-year period ended
December 31, 1998, which report was based in part on reliance of other
auditors, as contained in the annual report on Form 10-K for the year 1998. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule of valuation and qualifying accounts. The consolidated financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated financial
statement schedule based on our audits.


  In our opinion, the consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.

                                          /s/ KPMG LLP
Chicago, Illinois
February 10, 1999

                                      S-1
<PAGE>

                                  SCHEDULE II

                              METZLER GROUP, INC.

                       VALUATION AND QUALIFYING ACCOUNTS
                  Years Ended December 31, 1998, 1997 and 1996
                             (amounts in thousands)

<TABLE>
<CAPTION>
                                         Balance at  Charged             Balance
                                        Beginning of    to    Deductions at End
Description                                 Year     Expenses    (1)     of Year
-----------                             ------------ -------- ---------- -------
<S>                                     <C>          <C>      <C>        <C>
Year Ended December 31, 1998
  Allowance for doubtful accounts......    4,150      2,058       (964)   5,244
Year Ended December 31, 1997
  Allowance for doubtful accounts......    3,977      1,975     (1,802)   4,150
Year Ended December 31, 1996
  Allowance for doubtful accounts......    2,146      1,877        (46)   3,977
</TABLE>
--------
(1) Represent write-offs of bad debts.

                                      S-2
<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
 Exhibit
   No.                              Description
 -------                            -----------
 <C>     <S>                                                                <C>
   2.1   Agreement dated as of July 1, 1998 among The Metzler Group,
         Inc., MGI Acquisition Corp. and LECG. Inc. (1)
   2.2   Agreement dated as of July 1, 1998 among The Metzler Group,
         Inc., MGI Acquisition II L.L.C. and Peterson Consulting L.L.C.
         (1)
   3.1   Amended and Restated Certificate of Incorporation of the Company
         (2)
   3.2   Amendment No. 1 to Amended and Restated Certificate of
         Incorporation of the Company (3)
   3.2   Amended and Restated By-Laws of the Company (4)
   4.1   Specimen Common Stock Certificate (5)
   4.2   Form of Registration Agreement
  10.1   Form of Indemnification Agreement between the Company and each
         of its directors and officers (5)
  10.2   The Metzler Group, Inc. Long-Term Incentive Plan (6)
  10.3   Amendment No. 1 to The Metzler Group, Inc. Long Term Incentive
         Plan, dated November 1, 1997 (7)
  10.4   Amendment No. 2 to the Metzler Group, Inc. Long-Term Incentive
         Plan, effective May 1, 1998 (7)
  10.5   The Metzler Group, Inc. Employee Stock Purchase Plan (8)
  10.6   Amendment No. 1 to The Metzler Group, Inc. Employee Stock
         Purchase Plan
  10.7   Amendment No. 2 to The Metzler Group, Inc. Employee Stock
         Purchase Plan
  21.1   Significant Subsidiaries of The Metzler Group, Inc.
  23.1   Consent of KPMG LLP
  27.1   Financial Data Schedule--for the period ended December 31, 1998
</TABLE>
--------
(1) Incorporated by reference from the Registrant's Current Report on Form 8-K
    dated August 19, 1998.
(2) Incorporated by reference from the Registrant's Amendment No. 1 to
    Registration Statement on Form S-1 (Registration No. 333-9019) filed with
    the SEC on September 4, 1996.
(3) Incorporated by reference from the Registrant's Registration Statement on
    Form S-3 (Registration No. 333-40489) filed with the SEC on November 18,
    1997.
(4) Incorporated by reference from the Registrant's Amendment No. 1 to
    Registration Statement on Form S-3 (Registration No. 333-40489) filed with
    the SEC on February 12, 1998.
(5) Incorporated by reference from the Registrant's Amendment No. 2 to
    Registration Statement on Form S-1 (Registration No. 333-9019) filed with
    the SEC on September 20, 1996.
(6) Incorporated by reference from the Registrant's Registration Statement on
    Form S-8 (Registration No. 333-30267) filed with the SEC on June 27, 1997.
(7) Incorporated by reference from the Registrant's Post-Effective Amendment
    No. 1 to Registration Statement on Form S-8 (Registration No. 333-30267)
    filed with the SEC on March 31, 1999.
(8) Incorporated by reference from the Registrant's Registration Statement on
    Form S-8 (Registration No. 333-30265) filed with the SEC on June 27, 1997.