YOUNG & RUBICAM INC, 424B4, 1998-11-25

YOUNG & RUBICAM INC
424B4, 1998-11-25
ADVERTISING AGENCIES

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PROSPECTUS FILED PURSUANT TO RULE 424(B)(4)
NOVEMBER 24, 1998 Registration No. 333-66883

10,000,000 SHARES

YOUNG & RUBICAM INC.

COMMON STOCK
-------------------

This is an offering of 10,000,000 shares of Common Stock, par value $0.01
per share, of Young & Rubicam Inc.

All of the 10,000,000 shares of Common Stock offered hereby are being sold
by the Selling Stockholders named in this Prospectus. Young & Rubicam will not
receive any of the proceeds from the sale of shares of Common Stock by the
Selling Stockholders.

The last reported sale price of the Common Stock, which is listed on the
New York Stock Exchange under the symbol "YNR", on November 24, 1998, was
$29.63 per share. See "Price Range of Common Stock and Dividend Policy."

INVESTING IN COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 9 TO READ ABOUT CERTAIN RISKS THAT YOU SHOULD CONSIDER BEFORE
BUYING SHARES OF THE COMMON STOCK.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

-------------------
<TABLE>
<CAPTION>
PER
SHARE TOTAL
----------- ---------------
<S> <C> <C>
Public offering price ........................ $ 29.50 $295,000,000
Underwriting discount ........................ $ 1.18 $ 11,800,000
Proceeds to the Selling Stockholders ......... $ 28.32 $283,200,000
</TABLE>

-------------------
The underwriters may, under certain circumstances, purchase up to an
additional 1,500,000 shares of Common Stock from certain Selling Stockholders at
the public offering price less the underwriting discount, solely to cover
over-allotments. The Company has agreed to pay expenses incurred by the Selling
Stockholders in connection with the offering, other than the underwriting
discount.

The underwriters are severally underwriting the shares being offered. The
underwriters are offering the shares when, as and if delivered to and accepted
by them, subject to various prior conditions, including their right to reject
orders in whole or in part. The underwriters expect to deliver the shares
against payment in New York, New York on December 1, 1998.

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

Joint Global Coordinators and Joint Book-Running Managers

BEAR, STEARNS & CO. INC. DONALDSON, LUFKIN & JENRETTE

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

GOLDMAN, SACHS & CO.
ING BARING FURMAN SELZ LLC
SALOMON SMITH BARNEY
<PAGE>
CERTAIN INTRODUCTORY MATTERS

Unless otherwise stated, all of the information in this Prospectus
assumes that the underwriters' over-allotment option is not exercised. Unless
otherwise stated, all references to the "Company" and "Y&R" refer to Young &
Rubicam Inc., its predecessors and its consolidated subsidiaries, including
Young & Rubicam L.P. References in this Prospectus to the years 1993, 1994,
1995, 1996 and 1997 are, unless the context otherwise requires, to the Company's
fiscal years ended December 31.

Information regarding worldwide advertising expenditures, historical and
projected growth in advertising expenditures and comparative rankings of the
size of Young & Rubicam Inc., its affiliates, subsidiaries and operating units
has been obtained from industry sources, principally Advertising Age,
McCann-Erickson Report, O'Dwyer's PR Services Report, Med Ad News and Design
Week. All information regarding comparative size rankings is based on 1997
billings or revenues.

Young & Rubicam, Y&R, Young & Rubicam Advertising, Y&R Advertising,
Wunderman Cato Johnson, WCJ, The Chapman Agency, The Bravo Group,
Burson-Marsteller, Marsteller Advertising, Cohn & Wolfe, Landor Associates,
Sudler & Hennessey, BrandAsset Valuator, Brand Dialogue, Kang & Lee, The Media
Edge and The Mead Point Group are trademarks of the Company. Other trademarks
referenced herein are trademarks of their respective legal owners.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements in this Prospectus are forward-looking statements.
These forward-looking statements include statements in the "Business--Industry
Overview," "--Industry Trends" and "--Strategy" sections of this Prospectus
relating to trends in the advertising and marketing and communications
industries, including anticipated advertising expenditures (and the growth
thereof) in the world's advertising markets. These forward-looking statements
also include statements relating to the Company's performance in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" sections of this Prospectus. In addition, we may make
forward-looking statements in future filings with the Securities and Exchange
Commission, and in written material, press releases and oral statements issued
by or on behalf of us. Forward-looking statements include statements regarding
the intent, belief or current expectations of the Company or its officers
(including statements preceded by, followed by or that include forward-looking
terminology such as "may," "will," "should," "believes," "expects,"
"anticipates," "estimates," "continues" or similar expressions or comparable
terminology) with respect to various matters.

It is important to note that our actual results could differ materially
from those anticipated in these forward-looking statements depending on various
important factors. These important factors include (i) revenues received from
clients, including pursuant to incentive compensation arrangements entered into
by us with certain clients, (ii) gains or losses of clients and client business
and projects, as well as changes in the marketing and communications budgets of
clients, (iii) the overall level of economic activity in the principal markets
in which we conduct business and other trends affecting our financial condition
or results of operations, (iv) the impact of competition in the marketing and
communications industry, (v) our liquidity and financing plans and (vi) risks
associated with the Company's efforts to comply with Year 2000 requirements.

All forward-looking statements in this Prospectus are based on
information available to us on the date hereof. We do not undertake to update
any forward-looking statements that may be made by or on behalf of us, in this
Prospectus or otherwise. In addition, please note that the matters set forth
under the caption "Risk Factors" constitute cautionary statements identifying
important factors with respect to these forward-looking statements, including
certain risks and uncertainties, that could cause actual results to differ
materially from those in such forward-looking statements.

<PAGE>
PROSPECTUS SUMMARY

This summary highlights certain information contained elsewhere in this
Prospectus. This summary is not complete and does not contain all of the
information that you should consider before investing in the Common Stock. You
should read the entire Prospectus carefully, especially the risks of investing
in the Common Stock discussed under "Risk Factors."

THE COMPANY

Young & Rubicam Inc. is the fifth largest consolidated marketing and
communications organization in the world. Since our founding 75 years ago, we
have evolved from a single New York-based advertising agency to a diversified
global marketing and communications company operating in 121 cities in 76
countries worldwide as of September 30, 1998. We operate through internationally
recognized market leaders including Young & Rubicam Advertising (full-service
advertising), Wunderman Cato Johnson (direct marketing and sales promotion),
Burson-Marsteller (perception management and public relations), Landor
Associates (branding consultation and design services) and Sudler & Hennessey
(healthcare communications). Revenues in 1997 totaled approximately $1.4
billion, representing a compound annual growth rate of 12.9% from 1995 to 1997.

Through multi-disciplinary, client-focused teams, we provide clients with
global access to fully integrated marketing and communications solutions. Among
our approximately 5,500 client accounts are a number of large multinational
organizations, including AT&T, Citibank, Colgate-Palmolive, Ford and Philip
Morris. We have maintained long-standing relationships with many of our clients;
the average length of relationship with our top 20 clients exceeds 20 years.

Our mission is to be our clients' most valued business partner in
building, leveraging, protecting and managing their brands for both short-term
results and long-term growth. Consistent with our mission, we have developed an
organizational and management structure designed to meet the diverse needs of
our large global clients as well as the more specialized needs of our other
clients. Our strategy combines this organizational and management structure with
the pursuit of new business opportunities and continued investment in our
business, personnel and superior consumer knowledge.

In late 1992, we created the Key Corporate Account, or KCA, program to
enhance the coordination of services sought by clients from both a global
coverage as well as an integrated solutions perspective. KCAs are large global
client accounts that, as a group, contribute the greatest share of our revenues
and profits, and are served on a multinational basis by two or more of our
businesses. We currently designate 41 of our client accounts as KCAs. Revenues
from the KCAs, as a group, increased by 14.6% in 1997, and accounted for
approximately 45.5% of our consolidated revenues in 1996 and approximately 46.1%
of our consolidated revenues in 1997. In order to further strengthen client
relationships and reward us for meeting or exceeding certain performance
targets, we are working with KCAs to adopt incentive compensation arrangements
that align our compensation with our performance and our clients' business
performance.

As part of our client focus, Peter A. Georgescu, our Chairman and Chief
Executive Officer, Edward H. Vick, our Chief Operating Officer, and Thomas D.
Bell, Jr., an Executive Vice President of the Company and the Chairman and Chief
Executive Officer of Young & Rubicam Advertising, all retain ongoing
responsibilities for individual KCAs in addition to their managerial roles.

<PAGE>
INDUSTRY TRENDS

The marketing and communications industry encompasses a wide range of
services used to develop and deliver messages to both broad and targeted
audiences through multiple communications channels. Several significant trends
are changing the dynamics of the marketing and communications industry,
including the following:

o GROWTH IN UNITED STATES MARKETING AND COMMUNICATIONS MARKETS.
Advertising expenditures in the United States have continued to grow, increasing
from approximately $140 billion in 1993 to approximately $188 billion in 1997.

o GROWTH IN INTERNATIONAL MARKETING AND COMMUNICATIONS MARKETS. Since
1986, non-U.S. advertising expenditures have grown more rapidly than U.S.
expenditures, and according to industry sources, have increased from
approximately 44% of worldwide expenditures in 1986 to approximately 53% in
1997.

o INVESTMENT IN BRAND DEVELOPMENT. Over the last several years,
advertisers have focused on the image or brand identity of their organizations,
products and services in an effort to differentiate themselves from competitors
and increase brand loyalty.

o DEMAND FOR INTEGRATED SERVICE OFFERINGS. Demand has increased for
globally integrated marketing and communications solutions as companies seek
consistent and effective delivery of their messages through multiple
communications channels and across a variety of geographic markets.

STRATEGY

Our strategy consists of the following key components:

o INCREASE PENETRATION OF KEY CORPORATE ACCOUNTS. We believe that there
are significant opportunities to increase our share of the marketing and
communications expenditures of our KCAs by leveraging our global network to
provide integrated services. In recent years, we have successfully increased our
share of the marketing and communications expenditures of certain KCAs. KCAs
also have increased their use of multiple services offered by us over the same
period. During 1997, our 20 largest clients used the capabilities of an average
of five of our marketing and communications services.

o DEVELOP NEW CLIENT RELATIONSHIPS. We believe that there are significant
opportunities for future revenue and profit growth by providing services to new
clients in targeted industry sectors and to those clients seeking to build and
maintain global, regional and local brands. We have successfully used our
integrated and global approach as an effective tool in winning new business.

o LEVERAGE EXISTING GLOBAL NETWORK. With a worldwide presence in 76
countries, we believe that we are well positioned to continue to benefit from
the trend towards the globalization of client marketing and communications needs
and the consolidation of those needs with a single international service
provider.

o CAPITALIZE ON EXISTING CAPABILITIES. We intend to continue the
development of our existing capabilities into more visible and accessible client
services. For example, we created our Brand Dialogue unit in 1997 by combining
the existing interactive capabilities of Young & Rubicam Advertising and
Wunderman Cato Johnson in the United States, Latin America, Europe and
Asia/Pacific.

<PAGE>
o UTILIZE SUPERIOR CONSUMER KNOWLEDGE AND BRAND INSIGHTS. To assist our
clients in building, leveraging, protecting and managing their brands, we have
developed and are maintaining extensive knowledge of consumer brand perceptions.
For example, we have developed BrandAsset Valuator, or BAV, a proprietary
database that reflects the perceptions of over 95,000 consumers in 32 countries
on five continents. We believe that BAV is the first global consumer study that
provides an empirically derived model for how brands gain and lose their
strength over time.

o CULTIVATE CREATIVE EXCELLENCE. We intend to continue emphasizing the
importance of creative marketing and communications. We have created numerous
memorable marketing and communications programs for clients, including "The
Softer Side of Sears," "Everybody Needs a Little KFC," "It's All Within Your
Reach" for AT&T, "The Document Company" for Xerox and "Be All That You Can Be"
for the United States Army. We have also performed identity and design
assignments, including the creation of corporate identities, for Lucent
Technologies, Netscape and the 2002 Salt Lake City Olympics.

o IMPROVE OPERATING EFFICIENCIES. We believe that opportunities exist to
improve operating efficiencies in order to expand margins and increase future
profitability. For example, we have implemented initiatives which have both
improved productivity and reduced compensation expense as a percentage of
consolidated revenues.

Our principal executive office is located at 285 Madison Avenue, New
York, New York 10017, and our telephone number is (212) 210-3000.

<PAGE>
THE OFFERING

Common Stock offered..... 10,000,000 shares

Common Stock to be
outstanding after
the Offering....... 66,481,284 shares (1)

Dividend Policy......... We expect to declare and pay a regular quarterly
cash dividend in the first half of 1999. See "Price
Range of Common Stock and Dividend Policy."

Use of Proceeds........ We will not receive any of the proceeds from the
sale of Common Stock offered hereby.

New York Stock Exchange
Symbol.................. YNR

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

(1) As of the date hereof, the number of shares of Common Stock outstanding
excludes (i) an aggregate of 27,207,069 shares reserved for issuance upon
the exercise of outstanding options under the Young & Rubicam Holdings Inc.
Management Stock Option Plan (under which no additional awards will be made)
and the Young & Rubicam Inc. 1997 Incentive Compensation Plan at a weighted
average exercise price of $7.73 per share and (ii) an aggregate of 2,598,105
shares reserved for issuance upon the exercise of outstanding options issued
to certain investors in the Company at a weighted average exercise price of
$7.67 per share. See "Management--Executive Compensation" and
"Capitalization."

RISK FACTORS

For a discussion of certain risks that you should consider before buying
shares of the Common Stock, see "Risk Factors."

<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ ------------------------------
1995 1996 1997 1997 1998
------------- ------------- -------------- -------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ...................................... $1,085,494 $1,222,139 $1,382,740 $ 977,067 $1,095,720
Compensation expense, including
employee benefits (1) ........................ 672,026 730,261 836,150 600,767 659,449
General and administrative expenses (1)........ 356,523 391,617 463,936 331,353 324,783
Recapitalization-related charges (2) .......... -- 315,397 -- -- --
Other operating charges (2) ................... 31,465 17,166 11,925 -- 234,449
---------- ---------- ---------- ----------- ----------
Operating expenses ............................ 1,060,014 1,454,441 1,312,011 932,120 1,218,681
---------- ---------- ---------- ----------- ----------
Income (loss) from operations ................. 25,480 (232,302) 70,729 44,947 (122,961)
Income (loss) before extraordinary charge. 820 (238,311) (23,938) 11,905 (108,895)
Extraordinary charge for early retirement
of debt (net of tax benefit of $2,834)........ -- -- -- -- (4,433)
---------- ---------- ---------- ----------- ----------
Net income (loss) ............................. $ 820 $ (238,311) $ (23,938) $ 11,905 $ (113,328)
========== ========== ========== =========== ==========
(Loss)/earnings per share (3):
Basic:
(Loss) income before extraordinary charge $ (0.51) $ 0.25 $ (1.84)
Extraordinary charge .......................... $ -- $ -- $ (0.08)
---------- ----------- ----------
Net (loss)/income ............................. $ (0.51) $ 0.25 $ (1.92)
Diluted:
(Loss) income before extraordinary charge $ (0.51) $ 0.20 $ (1.84)
Extraordinary charge .......................... $ -- $ -- $ (0.08)
---------- ----------- ----------
Net (loss)/income ............................. $ (0.51) $ 0.20 $ (1.92)
Weighted average shares outstanding used
to compute (3):
Basic ......................................... 46,949,355 47,109,739 58,939,274
Diluted ....................................... 46,949,355 60,313,689 58,939,274
OTHER OPERATING DATA:
EBITDA (1)(4) ................................ $ 72,972 $ 147,221 $ 139,375 $ 86,421 $ 154,549
Net cash provided by operating activities 79,809 178,064 224,511 54,496 22,073
Net cash used in investing activities ........ (45,821) (76,094) (67,142) (46,917) (39,260)
Net cash used in financing activities ........ (50,025) (12,614) (98,667) (53,049) (75,444)
Capital expenditures ......................... (42,096) (51,792) (51,899) (38,930) (34,784)
International revenues as a % of total
revenues (5) ............................... 54.7% 53.3% 52.2% 51.3% 48.1%
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
(UNAUDITED)
-------------------
<S> <C>
BALANCE SHEET DATA:
Total assets (6) ................... $1,495,213
Total debt (7) ..................... 109,142
Total stockholders' equity ......... 101,310
</TABLE>

(footnotes on following page)

7
<PAGE>
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(1) For a discussion of charges included in compensation expense, including
employee benefits, and general and administrative expenses, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations."

(2) Upon the consummation of the initial public offering of Common Stock in May
1998 (the "IPO"), 9,231,105 shares of Common Stock held in a restricted
stock trust vested and resulted in non-recurring, non-cash pre-tax
compensation charges of $234.4 million which have been reflected as other
operating charges. See Note 7 to the Company's unaudited interim
consolidated financial statements and the notes thereto included in this
Prospectus (together, the "Interim Financial Statements"). For a discussion
of Recapitalization-related and other operating charges for the years ended
December 31, 1995, 1996 and 1997, see Notes 4 and 6 to the Company's audited
consolidated financial statements and the notes thereto included in this
Prospectus (together, the "Annual Financial Statements").

(3) Basic earnings (loss) per common share has been computed by dividing net
income (loss) for the applicable period by the weighted average number of
common shares outstanding during the period. Diluted earnings per share
reflects the dilutive effect of stock options and other stock awards granted
to employees under stock-based compensation plans. Diluted net loss per
common share for the year ended December 31, 1997 and the nine months ended
September 30, 1998 was computed in the same manner as basic net loss per
common share since the inclusion of potential common shares would be
antidilutive.

On May 15, 1998, the Company consummated the IPO. An aggregate of 19,090,000
shares of Common Stock were offered to the public, of which 6,912,730 shares
were sold by the Company and 12,177,270 shares were sold by certain selling
stockholders.

At September 30, 1998, the Company had outstanding options to purchase
30,972,605 shares of Common Stock with a weighted average exercise price of
$7.41 that could potentially dilute basic earnings per share in the future.
These options were excluded from the computation of diluted net loss per
common share for the nine months ended September 30, 1998 because the effect
would be antidilutive. See "Management -- Executive Compensation --
Management Stock Option Plan" and "--1997 ICP" and Notes 3, 15 and 21 to the
Annual Financial Statements.

Earnings per share for 1995 and 1996 cannot be computed because the
Company's capital structure prior to the recapitalization of the Company in
December 1996 consisted of both common shares and limited partnership units
in predecessor entities. See Note 4 to the Annual Financial Statements.

(4) EBITDA is defined as income (loss) from operations before depreciation and
amortization, other non-cash charges and Recapitalization-related charges.
EBITDA is presented because it is a widely accepted financial indicator and
is generally consistent with the definition used for covenant purposes
contained in the Company's credit facilities; however, EBITDA may not be
comparable to other registrants' calculation of EBITDA or similarly titled
items. EBITDA should not be considered as an alternative to net income
(loss) as a measure of operating results in accordance with generally
accepted accounting principles or as an alternative to cash flows as a
measure of liquidity. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations." EBITDA for 1996
and 1997 is before $11,096 and $11,925, respectively, of non-cash charges
primarily related to impairment write-downs which are included in other
operating charges. EBITDA for the nine months ended September 30, 1998 is
before $234,449 of non-cash compensation charges related to the vesting of
certain restricted stock taken at the time of the IPO. See Notes 4 and 6 to
the Annual Financial Statements and Note 7 to the Interim Financial
Statements.

(5) International revenues include all revenues earned outside the United
States.

(6) Total assets as of September 30, 1998 include net deferred tax assets of
$191,188 consisting primarily of federal, state and foreign net operating
loss ("NOL") carryforwards.

(7) Total debt includes current and non-current loans and installment notes. See
Notes 13 and 14 to the Annual Financial Statements.

<PAGE>
RISK FACTORS

An investment in the Common Stock involves a number of risks. You should
consider carefully the following information about these risks, together with
the other information contained in this Prospectus, before buying shares of
Common Stock.

WE HAVE RECENTLY INCURRED SUBSTANTIAL NET LOSSES

We reported net losses of $238.3 million for 1996 and $23.9 million for
1997. In addition, we reported a net loss of $113.3 million for the first nine
months of 1998, including a non-cash compensation charge of $234.4 million
recorded in connection with the vesting of certain restricted stock upon
consummation of the Company's initial public offering ("IPO") in May 1998. We
expect to report a net loss for the full 1998 year resulting from this charge
and a $7.3 million charge for unamortized deferred financing costs related to a
senior secured credit facility that was replaced with an unsecured revolving
credit facility in connection with the IPO.

THE MARKETING AND COMMUNICATIONS INDUSTRY IS HIGHLY COMPETITIVE

The marketing and communications industry is highly competitive, and we
expect it to remain so. Our principal competitors are large multinational
marketing and communications companies, as well as numerous smaller agencies
that operate in one or more countries or local markets. We must compete with
these other companies and agencies to maintain existing client relationships and
to obtain new clients and assignments. Some clients, such as U.S. governmental
agencies, require agencies to compete for business at mandatory periodic
intervals. We compete principally on the basis of the following factors:

o creative reputation;

o knowledge of media;

o geographical coverage and diversity;

o relationships with clients;

o quality and breadth of services; and

o financial controls.

When we represent a client, we do not always handle all advertising or
public relations for that client. Many large multinational companies are served
by a number of agencies within the marketing and communications industry. In
many cases, clients' policies on conflicts of interest or their desires to be
served by multiple agencies result in one or more global agency networks
representing a client only for a portion of its marketing and communications
needs or only in particular geographic areas. In addition, the ability of
agencies within marketing and communications organizations to acquire new
clients or additional assignments from existing clients may be limited by the
conflicts policy followed by many clients. This conflicts policy typically
prohibits agencies from performing similar services for competing products or
companies. Our principal international competitors are holding companies for
more than one global advertising agency network. As a result, in some
situations, separate agency networks within these holding companies may be able
to perform services for competing products or for products of competing
companies. We have one global advertising agency network. Accordingly, our
ability to compete for new advertising assignments and, to a lesser extent,
other marketing and communications assignments, may be limited by these
conflicts policies. Industry practices in other areas of the marketing and
communications business reflect similar concerns with respect to client
relationships. See "Business--Competition."

<PAGE>

WE MAY BE ADVERSELY AFFECTED BY A DOWNTURN IN THE MARKETING AND COMMUNICATIONS
INDUSTRY, WHICH IS CYCLICAL

The marketing and communications industry is cyclical and as a result it
is subject to downturns in general economic conditions and changes in client
business and marketing budgets. Our prospects, business, financial condition and
results of operations may be materially adversely affected by a downturn in
general economic conditions in one or more markets or changes in client business
and marketing budgets.

WE MAY LOSE CLIENTS DUE TO CONSOLIDATION OF ACCOUNTS WITH OTHER GLOBAL AGENCIES

We believe that large multinational companies will seek to consolidate
their accounts with one organization that can fulfill their marketing and
communications needs worldwide. We may not continue to benefit from this trend
towards consolidation of global accounts. In addition, this trend towards
consolidation of global accounts requires companies seeking to compete
effectively in the international marketing and communications industry to make
significant investments. These investments include additional offices and
personnel around the world and new and improved technology for linking these
offices and people. We are required to make significant capital expenditures for
maintenance, expansion and upgrades of the computer networks that link our
international network of employees and offices. To the extent that our
competitors may have broader geographic scope or greater financial resources to
invest in additional offices, personnel or technology, they may be better able
than us to take advantage of an opportunity for the consolidation of a global
account. In those circumstances, our prospects, business, financial condition
and results of operations could be adversely affected.

WE ARE INCREASINGLY DEPENDENT UPON, AND RECEIVE A SIGNIFICANT PERCENTAGE OF OUR
REVENUES FROM, A LIMITED NUMBER OF LARGE CLIENTS

A relatively small number of clients contribute a significant percentage
of our consolidated revenues. In 1997, our 20 largest clients contributed
approximately 40.5% of consolidated revenues, our three largest clients
contributed approximately 18.6% of consolidated revenues and our largest client,
Ford Motor Company, contributed approximately 10.0% of consolidated revenues.
Our dependence on revenues from these clients may increase in the future as we
pursue our strategy of increasing penetration of existing large clients. In
addition, clients' conflicts policies typically prohibit us from performing
similar services for competing products or companies.

These major clients, and our other clients, may not continue to use our
services to the same extent, or at all, in the future. Most of our agreements
with U.S.-based clients are cancelable on 90 days' notice, and our agreements
with non-U.S. clients typically are cancelable on 90 to 180 days' notice. In
addition, clients generally are able to reduce marketing and communications
spending or cancel projects at any time for any reason. A significant reduction
in the marketing and communications spending by, or the loss of one or more of,
our largest clients, if not replaced by new client accounts or an increase in
business from existing clients, would have a material adverse effect on our
prospects, business, financial condition and results of operations.

WE MAY LOSE EXISTING CLIENTS AND MAY NOT BE ABLE TO ATTRACT NEW CLIENTS

Our success, like the success of other marketing and communications
organizations, depends on our continuing ability to attract and retain clients.
We have approximately 5,500 client accounts worldwide. Although historically we
have maintained long-term relationships with many of our largest clients,
clients may move their advertising and other communications assignments from
agency to agency, or may divide their assignments among two or more agencies,
with relative ease. In addition, in order to maintain and increase revenues, we
must obtain new assignments in areas of our business that are project-based,
such as the perception management and public relations business, and the
branding consultation and design business. As is typical in the marketing and
communications industry, we have lost or resigned client accounts and
assignments, including Blockbuster Video and International Home Foods, for a
variety of reasons, including conflicts with newly acquired clients. We may not
be successful in replacing clients or revenues when a client significantly

<PAGE>

reduces the amount of work given to Y&R. The failure to maintain existing
clients or attract new clients could have a material adverse effect on our
prospects, business, financial condition and results of operations.

STRENGTHENING OF THE U.S. DOLLAR AGAINST OTHER MAJOR CURRENCIES COULD HAVE A
MATERIAL ADVERSE EFFECT ON US

Our financial statements are denominated in U.S. dollars. In 1997,
operations outside the United States represented approximately 52.2% of our
revenues, and in the first nine months of 1998 operations outside the United
States represented approximately 48.1% of our revenues. Currency fluctuations
may give rise to translation gains or losses when financial statements of
foreign operating units are translated into U.S. dollars. Significant
strengthening of the U.S. dollar against other major foreign currencies could
have a material adverse effect on our results of operations. With limited
exceptions, we do not actively hedge our foreign currency exposure. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

THE MARKET PRICE OF THE COMMON STOCK MAY DECLINE DUE TO SHARES ELIGIBLE FOR
FUTURE SALE

Following the Offering, we will have 66,481,284 shares of Common Stock
outstanding. Of these, 31,603,969 shares will be freely transferable by persons
other than "affiliates" of the Company without restriction or further
registration under the Securities Act. The remaining 34,877,315 outstanding
shares of Common Stock will be "restricted securities" within the meaning of
Rule 144 under the Securities Act or securities issued and sold pursuant to
Regulation S under the Securities Act and subject to transfer restrictions.

Following the Offering and subject to certain 120-day lock-up agreements
described herein, Hellman & Friedman Capital Partners III, L.P., H&F Orchard
Partners III, L.P. and H&F International Partners III, L.P. (collectively, the
"H&F Investors") and two investors unaffiliated with the Company will have
demand and piggyback registration rights with respect to an aggregate of
17,098,359 shares of Common Stock and shares subject to currently exercisable
options. In addition, subject to these lock-up agreements those shares will be
eligible for sale in the public market without registration under the Securities
Act, subject to compliance with the resale volume limitations and other
restrictions of Rule 144 under the Securities Act.

Following the Offering, an aggregate of 36,027,549 shares of Common Stock
and shares subject to vested options held by Management Investors will be
eligible for sale in the public market without registration under the Securities
Act, subject, in certain instances, to compliance with the resale and volume
limitations and other restrictions of Rule 144 under the Securities Act. Of this
amount, 35,129,065 shares and shares subject to vested options will be subject
to certain 120-day lock up agreements described herein or held in a deferral
trust and not transferable prior to the expiration of this 120-day period.

Future sales of the Common Stock, or the perception that such sales
could occur, could adversely affect prevailing market prices for the Common
Stock. See "Shares Eligible for Future Sale" and "Underwriting."

WE ARE CONTROLLED BY OUR PRINCIPAL STOCKHOLDERS, INCLUDING MANAGEMENT
STOCKHOLDERS

A substantial percentage of our Common Stock is owned by Management
Investors and by the H&F Investors. See "Management." All Common Stock held at
any time by Management Investors is required to be deposited in a voting trust
(the "Management Voting Trust") that is controlled by seven members of Y&R's
senior management, in their capacities as voting trustees. Following the
Offering, this trust will hold voting power over approximately 45.7% of the
outstanding shares of Common Stock (assuming the exercise of all vested options
held by Management Investors). As a result, this voting trust will continue to
be able to exercise substantial control over any matters requiring the vote of
stockholders, including the election of Directors, which could delay or prevent
a change in control of the Company. Furthermore, the vote of Peter A. Georgescu
(or any other person duly elected Chief Executive Officer of Y&R with the prior
approval of the voting trust) will bind the voting trust unless he (or his
successor) is outvoted by five of the other voting trustees. As a result of the
foregoing, Peter A. Georgescu

<PAGE>
(or his successor) will be able to exercise a significant degree of control over
business decisions affecting Y&R. This voting trust will terminate no later than
May 15, 2000. See "Description of Capital Stock--The Management Voting Trust
Agreement." In the event that, following the termination of the voting trust,
management of the Company continues to own collectively a significant percentage
of the outstanding shares of Common Stock, management acting together would be
able to exercise a significant degree of control over business decisions
affecting Y&R.

Following the Offering, the H&F Investors will beneficially own an
aggregate of approximately 24.4% of the outstanding shares of Common Stock
(assuming the exercise of all vested options they hold). As a result of their
stock ownership, the H&F Investors will continue to be able to influence matters
requiring the vote of stockholders, including the election of Directors. In
addition, pursuant to a stockholders' agreement entered into in connection with
the IPO, the H&F Investors have the right to nominate and have elected two
members of the Company's Board of Directors (the "Board") for so long as they
continue to hold, in the aggregate, at least 10% of the Outstanding Shares (as
defined in the stockholders' agreement), and one member of the Board for so long
as they continue to hold, in the aggregate, at least 5% of the Outstanding
Shares. Should the Management Voting Trust and the H&F Investors act together,
they would be able to elect the members of the Board and exercise a controlling
influence over the business and affairs of the Company. In addition, the
Management Voting Trust and the H&F Investors could, acting together, delay or
prevent a change in control of the Company. See "--We Are Subject To Certain
Anti-Takeover Effects" and "Description of Capital Stock--The Stockholders'
Agreement."

OUR COMPETITIVE POSITION DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN KEY
PERSONNEL

Our ability to maintain our competitive position depends on retaining the
services of our senior management. The loss of the services of one or more
members of senior management could have a material adverse effect on the
Company. In addition, our success has been, and is expected to continue to be,
highly dependent upon the skills of our creative, research, media and account
personnel and practice group specialists, and their relationships with our
clients. Employees generally are not subject to employment contracts and are,
therefore, typically able to move within the industry with relative ease.
Although the agreement establishing the Management Voting Trust and certain
stock option and restricted stock agreements contain non-competition and
non-solicitation covenants, these covenants may not be effective in helping us
retain qualified personnel. We may be adversely affected by the failure to
retain qualified personnel.

If we were unable to continue to attract and retain additional key
personnel, or if we were unable to retain and motivate our existing key
personnel, our prospects, business, financial condition and results of
operations would be materially adversely affected. See "Management" and
"Description of Capital Stock--The Management Voting Trust Agreement."

WE ARE EXPOSED TO RISKS FROM OPERATING A MULTINATIONAL BUSINESS

We conduct business in various developing countries in Asia, Latin
America, Eastern Europe and Africa, where the systems and bodies of commercial
law and trade practices are evolving. Commercial laws in such countries are
often vague, arbitrary, contradictory, inconsistently administered and
retroactively applied. Under these circumstances, it is difficult for us to
determine with certainty at all times the exact requirements of such local laws.
If we consistently were unable to remain in compliance with local laws in such
developing countries, it could have a material adverse impact on our prospects,
business, results of operations and financial condition. In addition, the global
nature of our operations poses various challenges to our management and our
financial, accounting and other systems which, if not satisfactorily met, could
have a material adverse impact on our prospects, business, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations."

<PAGE>
OUR ACQUISITION STRATEGY EXPOSES US TO RISKS

Our business strategy includes increasing our share of clients' marketing
expenditures by adding to or enhancing our existing marketing and communications
capabilities, and expanding our geographic reach. We intend to implement this
strategy in part by making acquisitions. We may not be successful in identifying
appropriate acquisition candidates or consummating acquisitions on terms
satisfactory to us. In addition, we may not be successful in integrating any
newly acquired companies into our existing global network. We may use Common
Stock (which could result in dilution to purchasers of Common Stock) or may
incur indebtedness (which may be long-term), expend cash or use any combination
of Common Stock, indebtedness and cash for all or part of the consideration to
be paid in future acquisitions. While we regularly evaluate potential
acquisition opportunities, we have no present commitments, agreements or
understandings with respect to any material acquisition.

WE MAY INCUR LIABILITY TO THIRD PARTIES

From time to time, we may be, or may be joined as, a defendant in
litigation brought against our clients by third parties, including our clients'
competitors, governmental or regulatory bodies or consumers. These litigations
could include claims alleging that:

o advertising claims made with respect to our client's products or
services are false, deceptive or misleading;

o our clients' products are defective or injurious; or

o marketing and communications materials created for our clients
infringe on the proprietary rights of third parties.

If, in such circumstances, we are not insured under the terms of our
insurance policies or are not indemnified under the terms of our agreements with
clients (or this indemnification is unavailable) for these claims, then the
damages, costs, expenses or attorneys' fees arising from any of these claims
could have an adverse effect on our prospects, business, results of operations
and financial condition. In addition, our contracts with clients generally
require us to indemnify clients for claims brought by competitors or others
claiming that advertisements or other communications infringe on intellectual
property rights. Although we maintain an insurance program, including insurance
for advertising agency liability, this insurance may not be available, or if
available may not be sufficient to cover any claim, if a significant adverse
claim is made.

OUR COMPUTER SYSTEMS, AND THOSE OF OTHERS ON WHOM WE RELY, MAY NOT
ACHIEVE YEAR 2000 READINESS

We are working to resolve the potential impact of the year 2000 on the
ability of our computer systems to accurately process information with dates
later than December 31, 1999, or to process date-sensitive information
accurately beyond the year 1999 (referred to as the "Year 2000" issue). We are
in the process of modifying or replacing all affected systems for compliance
with the Year 2000 issue and are also monitoring the adequacy of the processes
and progress of vendors of systems and applications that may be affected by the
Year 2000 issue. We are dependent in part on computer systems and applications
owned and operated by others, particularly with respect to such critical tasks
as accounting, billing and buying, planning and paying for media, as well as on
our own computer systems. While we believe our process is designed to be
successful, because of the complexity of the Year 2000 issue and the
interdependence of organizations using computer systems, we may not
satisfactorily complete our Year 2000 program in a timely fashion. In addition,
others with whom we interact and on whom we rely may not satisfactorily complete
their own Year 2000 programs in a timely fashion. Failure to satisfactorily
address the Year 2000 issue could have a material adverse effect on our
prospects, business, financial condition and results of operations.

The costs of our Year 2000 compliance program have not been determined
but we do not expect such costs to be material. However, we may experience cost
overruns and delays as we replace or modify systems, which could have a material
adverse effect on our prospects, business, financial condition and results of
operations. We have not yet determined the extent of contingency planning that
may be required. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Compliance."

<PAGE>

THE MARKET PRICE OF THE COMMON STOCK WILL FLUCTUATE, AND COULD FLUCTUATE
SIGNIFICANTLY

The market price of the Common Stock will fluctuate, and could fluctuate
significantly, in response to various factors and events, including the
following:

o the liquidity of the market for the Common Stock;

o differences between the Company's actual financial or operating
results and those expected by investors and analysts;

o changes in analysts' recommendations or projections;

o changes in marketing and communications budgets of clients;

o new statutes or regulations or changes in interpretations of
existing statutes and regulations affecting the Company's business;

o changes in general economic or market conditions; and

o broad market fluctuations.

WE ARE SUBJECT TO CERTAIN ANTI-TAKEOVER EFFECTS

Certain provisions of Y&R's Amended and Restated Certificate of
Incorporation (the "Charter") and Amended and Restated By-Laws (the "By-Laws"),
and of the Delaware General Corporation Law (the "DGCL"), may delay, deter or
prevent a change in control of the Company not approved by the Board. These
provisions include:

o a classified Board;

o a requirement that no action required or permitted to be taken at
any annual or special meeting of stockholders may be taken without a
meeting;

o a requirement that special meetings of stockholders be called only
by the Chairman of the Board or the Board;

o advance notice requirements for stockholder proposals and
nominations;

o limitations on the ability of stockholders to amend, alter or repeal
certain provisions of the Charter and the By-Laws;

o authorization for the Board to issue without stockholder approval
preferred stock with such terms as the Board may determine; and

o authorization for the Board to consider the interests of clients and
other customers, creditors, employees and other constituencies of
the Company and its subsidiaries and the effect upon communities in
which the Company and its subsidiaries do business, in evaluating
proposed corporate transactions.

With certain exceptions, Section 203 of the DGCL ("Section 203") imposes
certain restrictions on mergers and other business combinations between the
Company and any holder of 15% or more of the Company's Common Stock (other than
the H&F Investors and their permitted transferees, who have been exempted from
these restrictions by the Board).

In addition, the Company has adopted a stockholder rights plan (the
"Rights Plan") under which each holder of Common Stock receives rights. Under
the Rights Plan, if any person acquires beneficial ownership of 15% or more of
the outstanding shares of Common Stock (with certain exceptions, including the
Management Voting Trust), that person will become an "Acquiring Person". As a
result, holders of rights (other than the Acquiring Person and certain
transferees and related persons) will be entitled to purchase shares of Common
Stock at one-half their market price. In general, the H&F Investors and their
permitted transferees will not become an "Acquiring Person" unless they acquire
beneficial ownership of additional shares of Common Stock under certain
circumstances. While the Rights Plan is designed to protect stockholders in the
event of an unsolicited offer and other takeover tactics which, in the opinion
of the Board, could impair the Company's ability to represent stockholder
interests, the provisions of the Rights Plan may render an unsolicited takeover
of the Company more difficult or less likely to occur or might prevent such a
takeover. See "Description of Capital Stock--Rights Plan."

These provisions of the Charter and the By-Laws, the DGCL and the Rights
Plan, together with the control of 45.7% of the

<PAGE>

outstanding shares of Common Stock by the Management Voting Trust upon
consummation of the Offering (assuming the exercise of all vested options held
by Management Investors) could discourage potential acquisition proposals and
could delay or prevent a change in control of the Company, although such
proposals, if made, might be considered desirable by a majority of the Company's
stockholders. These provisions also could make it more difficult for third
parties to remove and replace the members of the Board. Moreover, these
provisions could diminish the opportunities for a stockholder to participate in
certain tender offers, including tender offers at prices above the then-current
market price of the Common Stock, and may also inhibit increases in the market
price of the Common Stock that could result from takeover attempts or
speculation. In addition, options issued to employees of the Company under the
1997 Incentive Compensation Plan contain change in control provisions that could
have the effect of delaying, deterring or preventing a change in control of the
Company. See "Management--Executive Compensation--1997 ICP--Acceleration of
Vesting" and "Description of Capital Stock--Anti-Takeover Effects of Certain
Provisions of the Charter, the By-Laws, the Rights Plan and Delaware Law."

<PAGE>
THE COMPANY

GENERAL

Since our founding 75 years ago by John Orr Young, an account executive,
and Raymond Rubicam, a copywriter, we have evolved from a single New York-based
advertising agency to a diversified global marketing and communications
organization. In our early years, we grew our core advertising business by
either opening additional offices in the United States and abroad, or by
acquiring established local agencies and fully integrating them into the Company
under the Y&R name. By the early 1970s, we had established a network of
approximately 40 Young & Rubicam Advertising agency offices in the United States
and 22 other countries.

In 1973, we began to expand our capabilities beyond traditional general
advertising by acquiring well-established leaders in other marketing and
communications disciplines. We began this diversification by acquiring Wunderman
Ricotta & Kline (the predecessor to Wunderman Worldwide), a direct marketing
firm, and Sudler & Hennessey, a healthcare communications specialist. In 1976,
we added the sales promotion firm, Cato Johnson Associates, which was merged
with Wunderman Worldwide in 1992 to form Wunderman Cato Johnson. We continued to
diversify by acquiring Burson-Marsteller, a public relations company, in 1979
and Landor Associates, a branding consultation and strategic design firm, in
1989. We have been successful in integrating the diverse capabilities of these
companies, which we believe enables us to better serve clients' marketing and
communications needs on a global basis.

In December 1996, Y&R consummated a recapitalization (the
"Recapitalization"), which is described more fully in Note 4 to the Annual
Financial Statements.

THE INITIAL PUBLIC OFFERING

On May 15, 1998, we consummated the IPO of an aggregate of 19,090,000
shares of Common Stock. Of the total number of shares, 6,912,730 shares were
sold by the Company and 12,177,270 shares were sold by certain selling
stockholders. Net proceeds to the Company were approximately $158.6 million,
after deducting underwriting discounts and commissions and expenses paid by the
Company in connection with the IPO. We used the net proceeds from the IPO,
together with approximately $155 million of borrowings under a new $400 million,
five-year unsecured multicurrency revolving credit facility (the "New Credit
Facility"), to repay all of the outstanding borrowings under our then-existing
$700 million senior secured credit facility (the "Prior Credit Facilities").

Upon consummation of the IPO, 9,231,105 shares of common stock
("Restricted Stock") held in a trust (the "Restricted Stock Trust") pursuant to
the Young & Rubicam Holdings Inc. Restricted Stock Plan vested to employees and
resulted in non-recurring, non-cash, pre-tax compensation charges of $234.4
million which have been reflected as "other operating charges" in our
consolidated statement of operations for the nine months ended September 30,
1998. As of October 30, 1998 an aggregate of 517,065 shares of such Restricted
Stock remain in accounts established for the award recipients in the Restricted
Stock Trust with their distribution subject to certain additional conditions set
forth in the award agreements. We repurchased 1,855,845 shares of Common Stock
held in the Restricted Stock Trust effective upon the consummation of the IPO.

<PAGE>
USE OF PROCEEDS

The Company will not receive any of the proceeds from the sale of shares of
Common Stock by the Selling Stockholders.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Common Stock has been listed on the New York Stock Exchange under the
symbol "YNR" since May 12, 1998. The following table sets forth the low and high
sales prices of the Common Stock for the quarters indicated as reported on the
New York Stock Exchange Composite Tape.

<TABLE>
<CAPTION>
LOW HIGH
--------- ----------
<S> <C> <C>
1998
Second Quarter (beginning May 12, 1998) ............ $26 1/2 $33 1/16
Third Quarter ...................................... $28 3/8 $35 7/8
Fourth Quarter (through November 24, 1998) ......... $19 3/4 $31 1/4
</TABLE>

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

On November 24, 1998, the closing price of the Common Stock as reported
on the New York Stock Exchange was $29.63. As of October 30, 1998, there were
approximately 1,237 holders of record of shares of Common Stock.

Since the consummation of the Recapitalization in December 1996, we have
not declared or paid any cash or other dividends on our Common Stock (other than
a stock split paid in connection with the IPO). We expect to declare and pay a
regular quarterly cash dividend beginning in the first half of 1999. The
decision whether to apply legally available funds to the payment of dividends on
the Common Stock will be made at the discretion of the Board of Directors and
will depend upon, among other factors, our results of operations, financial
condition, capital requirements and contractual restrictions pursuant to the New
Credit Facility. The New Credit Facility contains certain financial and
operating restrictions and covenant requirements and permits the payment of cash
dividends except in the event of a continuing default under the credit
agreement. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."

<PAGE>
CAPITALIZATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The following table sets forth the Company's consolidated cash and cash
equivalents, current portion of installment notes and loans payable and
capitalization as of September 30, 1998.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-------------------
(UNAUDITED)
<S> <C>
Cash and cash equivalents .............................................................. $ 71,181
==========
Current portion of installment notes and loans payable ................................. $ 38,273
==========
Long-term debt:
Installment notes payable ............................................................. $ 400
Loans payable ......................................................................... 70,469
----------
Total long-term debt .................................................................. 70,869
----------
Stockholders' equity:
Preferred Stock:
Money Market Preferred Stock--cumulative variable dividend; liquidating value of
$115.00 per share; one-tenth of one vote per share; 50,000 shares authorized; 87
shares issued and outstanding ...................................................... --
Cumulative Participating Junior Preferred Stock--$ dividend; liquidating value of
$1.00 per share; 100 votes per share; 2,500,000 shares authorized; no shares issued
and outstanding .................................................................... --
Common Stock, $.01 par value; 250,000,000 shares authorized; 66,215,842 shares
issued and outstanding (1) ......................................................... 706
Capital surplus ....................................................................... 940,954
Accumulated deficit ................................................................... (785,552)
Cumulative translation adjustment ..................................................... (13,650)
Pension liability adjustment .......................................................... (706)
Common stock in treasury .............................................................. (40,442)
----------
Total stockholders' equity ....................................................... 101,310
----------
Total capitalization ............................................................. $ 172,179
==========
</TABLE>
- ----------

(1) Excludes 30,972,605 shares of Common Stock issuable upon exercise of options
outstanding at a weighted average exercise price of $7.41 at September 30,
1998. Of the 10,000,000 shares of Common Stock offered hereby, 1,047,166
shares will be issued upon the exercise of options with a weighted average
exercise price of $3.28. See "Management--Executive Compensation."

18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The following selected consolidated balance sheet data and consolidated
statement of operations data as of and for the years 1993 through 1997 have been
derived from the Company's audited annual consolidated financial statements,
including the consolidated balance sheets at December 31, 1996 and 1997 and the
related consolidated statements of operations and of cash flows for the three
years ended December 31, 1997 and the notes thereto appearing elsewhere in this
Prospectus (the "Annual Financial Statements").

The following selected consolidated balance sheet data as of September
30, 1998 and consolidated statement of operations data for the nine months ended
September 30, 1997 and 1998 have been derived from the Company's unaudited
interim consolidated financial statements, including the consolidated balance
sheet at September 30, 1998 and the related consolidated statements of
operations and of cash flows for the nine months ended September 30, 1997 and
1998 and the notes thereto appearing elsewhere in this Prospectus (the "Interim
Financial Statements").

The selected consolidated financial data set forth below should be read
in conjunction with, and are qualified in their entirety by reference to, the
Annual Financial Statements and the Interim Financial Statements appearing
elsewhere in this Prospectus. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

<PAGE>

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
1993 1994 1995 1996 1997
------------ ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ..................................... $ 905,770 $ 959,275 $1,085,494 $1,222,139 $1,382,740
Compensation expense, including
employee benefits (1) ....................... 583,723 594,322 672,026 730,261 836,150
General and administrative expenses (1)....... 312,083 323,087 356,523 391,617 463,936
Recapitalization-related charges (2) ......... -- -- -- 315,397 --
Other operating (income) charges (2) ......... (11,714) 4,507 31,465 17,166 11,925
--------- ----------- ---------- ---------- ----------
Operating expenses ........................... 884,092 921,916 1,060,014 1,454,441 1,312,011
--------- ----------- ---------- ---------- ----------
Income (loss) from operations ................ 21,678 37,359 25,480 (232,302) 70,729
Interest income .............................. 10,646 12,100 9,866 10,269 8,454
Interest expense ............................. (17,958) (23,027) (27,441) (28,584) (42,879)
Other income ................................. -- -- -- -- --
--------- ----------- ---------- ---------- ----------
Income (loss) before income taxes ............ 14,366 26,432 7,905 (250,617) 36,304
Income tax provision (benefit) ............... 8,583 12,998 9,130 (20,611) 58,290
--------- ----------- ---------- ---------- ----------
5,783 13,434 (1,225) (230,006) (21,986)
Equity in net income (loss) of
unconsolidated companies .................... 102 4,740 5,197 (9,837) 342
Minority interest in net (income) loss of
consolidated subsidiaries ................... (1,271) (2,742) (3,152) 1,532 (2,294)
--------- ----------- ---------- ---------- ----------
Income after taxes and before accounting
changes and extraordinary charges ........... 4,614 15,432 820 (238,311) (23,938)
Extraordinary charge for early retirement
of debt (net of tax benefit of $2,834) ...... -- -- -- -- --
Cumulative effect of accounting changes
(net of tax benefit of $3,400) .............. (5,100) -- -- -- --
--------- ----------- ---------- ---------- ----------
Net (loss) income ............................ $ (486) $ 15,432 $ 820 $ (238,311) $ (23,938)
========= =========== ========== ========== ==========
(Loss)/earnings per share (3):
Basic:
(Loss) income before extraordinary
charge ...................................... $ (0.51)
Extraordinary charge ......................... $ --
----------
Net (loss)/income ............................ $ (0.51)
Diluted:
(Loss) income before extraordinary
charge ...................................... $ (0.51)
Extraordinary charge ......................... $ --
----------
Net (loss)/income ............................ $ (0.51)
Weighted average shares outstanding used
to compute (3):
Basic ........................................ 46,949,355
Diluted ...................................... 46,949,355
OTHER OPERATING DATA:
EBITDA (1)(4) ................................ $ 59,282 $ 77,662 $ 72,972 $ 147,221 $ 139,375
Net cash provided by operating activities . 15,426 43,314 79,809 178,064 224,511
Net cash used in investing activities ........ (34,226) (49,941) (45,821) (76,094) (67,142)
Net cash provided by (used in) financing
activities .................................. 41,644 (30,705) (50,025) (12,614) (98,667)
Capital expenditures ......................... (25,241) (33,196) (42,096) (51,792) (51,899)
International revenues as a % of total
revenues (5) ................................ 51.7% 53.6% 54.7% 53.3% 52.2 %

</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit) (6) ................ $ 100,519 $ 72,651 $ 27,827 $ (196,509) $ (106,169)
Total assets (7) ............................. 998,808 1,118,846 1,226,581 1,598,812 1,528,019
Total debt (8) ............................... 197,929 256,032 230,831 267,238 351,051
Mandatorily Redeemable Equity
Securities (9) .............................. -- -- -- 363,264 508,471
Total stockholders' equity (deficit) ......... 123,661 69,982 (55,485) (480,033) (661,714)
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
1997 1998
-------------- ------------------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ..................................... $ 977,067 $ 1,095,720
Compensation expense, including
employee benefits (1) ....................... 600,767 659,449
General and administrative expenses (1)....... 331,353 324,783
Recapitalization-related charges (2) ......... -- --
Other operating (income) charges (2) ......... -- 234,449
----------- -----------
Operating expenses ........................... 932,120 1,218,681
----------- -----------
Income (loss) from operations ................ 44,947 (122,961)
Interest income .............................. 4,655 6,129
Interest expense ............................. (33,235) (19,144)
Other income ................................. -- 2,200
----------- -----------
Income (loss) before income taxes ............ 16,367 (133,776)
Income tax provision (benefit) ............... 7,855 (22,291)
----------- -----------
8,512 (111,485)
Equity in net income (loss) of
unconsolidated companies .................... 4,091 3,194
Minority interest in net (income) loss of
consolidated subsidiaries ................... (698) (604)
----------- -----------
Income after taxes and before accounting
changes and extraordinary charges ........... 11,905 (108,895)
Extraordinary charge for early retirement
of debt (net of tax benefit of $2,834) ...... -- (4,433)
Cumulative effect of accounting changes
(net of tax benefit of $3,400) .............. -- --
----------- -----------
Net (loss) income ............................ $ 11,905 $ (113,328)
=========== ===========
(Loss)/earnings per share (3):
Basic:
(Loss) income before extraordinary
charge ...................................... $ 0.25 $ (1.84)
Extraordinary charge ......................... $ -- $ (0.08)
----------- -----------
Net (loss)/income ............................ $ 0.25 $ (1.92)
Diluted:
(Loss) income before extraordinary
charge ...................................... $ 0.20 $ (1.84)
Extraordinary charge ......................... $ -- $ (0.08)
----------- -----------
Net (loss)/income ............................ $ 0.20 $ (1.92)
Weighted average shares outstanding used
to compute (3):
Basic ........................................ 47,109,739 58,939,274
Diluted ...................................... 60,313,689 58,939,274
OTHER OPERATING DATA:
EBITDA (1)(4) ................................ $ 86,421 $ 154,549
Net cash provided by operating activities . 54,496 22,073
Net cash used in investing activities ........ (46,917) (39,260)
Net cash provided by (used in) financing
activities .................................. (53,049) (75,444)
Capital expenditures ......................... (38,930) (34,784)
International revenues as a % of total
revenues (5) ................................ 51.3% 48.1%
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Working capital (deficit) (6) ................ $ (147,887)
Total assets (7) ............................. 1,495,213
Total debt (8) ............................... 109,142
Mandatorily Redeemable Equity
Securities (9) .............................. --
Total stockholders' equity (deficit) ......... 101,310

</TABLE>

(footnotes on following page)

20
<PAGE>
- ----------
(1) For a discussion of charges included in compensation expense, including
employee benefits, and general and administrative expenses, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations."

(2) Upon the consummation of the IPO, 9,231,105 shares of Common Stock held in a
restricted stock trust vested and resulted in non-recurring, non-cash
pre-tax compensation charges of $234.4 million which have been reflected as
other operating charges. See Note 7 to the Interim Financial Statements. For
a discussion of Recapitalization-related and other operating charges for the
years ended December 31, 1995, 1996 and 1997, see Notes 4 and 6 to the
Annual Financial Statements.

(3) Basic earnings (loss) per common share has been computed by dividing net
income (loss) for the applicable period by the weighted average number of
common shares outstanding during the period. Diluted earnings per share
reflects the dilutive effect of stock options and other stock awards granted
to employees under stock-based compensation plans. Diluted net loss per
common share for the year ended December 31, 1997 and the nine months ended
September 30, 1998 was computed in the same manner as basic net loss per
common share because the inclusion of potential common shares would be
antidilutive.

At September 30, 1998, the Company had outstanding options to purchase
30,972,605 shares of Common Stock with a weighted average exercise price of
$7.41 that could potentially dilute basic earnings per share in the future.
These options were excluded from the computation of diluted net loss per
common share for the nine months ended September 30, 1998 because the effect
would be antidilutive. See "Management--Executive Compensation--Management
Stock Option Plan" and "--1997 ICP" and Notes 3, 15 and 21 to the Annual
Financial Statements.

Earnings per share for 1995 and 1996 cannot be computed because the
Company's capital structure prior to the Recapitalization consisted of both
common shares and limited partnership units in predecessor entities. See
Note 4 to the Annual Financial Statements.

(4) EBITDA is defined as income (loss) from operations, before depreciation and
amortization, other non-cash charges and Recapitalization-related charges.
EBITDA is presented because it is a widely accepted financial indicator and
is generally consistent with the definition used for covenant purposes
contained in the Company's credit facilities; however, EBITDA may not be
comparable to other registrants' calculation of EBITDA or similarly titled
items. EBITDA should not be considered as an alternative to net income
(loss) as a measure of operating results in accordance with generally
accepted accounting principles or as an alternative to cash flows as a
measure of liquidity. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations." EBITDA for 1996
and 1997 is before $11,096 and $11,925, respectively, of non-cash charges
primarily related to impairment write-downs which are included in other
operating charges. EBITDA for the nine months ended September 30, 1998 is
before $234,449 of non-cash compensation charges related to the vesting of
certain restricted stock taken at the time of the IPO. See Notes 4 and 6 to
the Annual Financial Statements and Note 7 to the Interim Financial
Statements.

(5) International revenues include all revenues earned outside the United
States.

(6) Working capital balances are significantly impacted by the seasonal media
spending patterns of advertisers, including the timing of payments made to
media and other suppliers on behalf of clients as well as the timing of cash
collections from clients to fund such expenditures. Additionally, working
capital deficit as of December 31, 1996 includes approximately $161,700 of
accruals related to the Recapitalization which were paid in 1997 through
long-term borrowings. See the Consolidated Statements of Cash Flows and Note
4 to the Annual Financial Statements.

(7) Total assets as of September 30, 1998 include net deferred tax assets of
$191,188 consisting primarily of federal, state and foreign NOL
carryforwards.

(8) Total debt includes current and non-current loans and installment notes. See
Notes 13 and 14 to the Annual Financial Statements.

(9) From the date of consummation of the Recapitalization and through the date
of consummation of the IPO, all outstanding shares of Common Stock,
exclusive of shares of Common Stock held in the Restricted Stock Trust, were
redeemable, subject to certain restrictions, at the option of the
stockholder. Accordingly, all such shares of Common Stock have been recorded
at their redemption values and classified as Mandatorily Redeemable Equity
Securities in the Company's historical balance sheets at December 31, 1996
and 1997, respectively. See Notes 2, 15 and 16 to the Annual Financial
Statements.

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

The following discussion should be read in conjunction with the Annual
Financial Statements and the Interim Financial Statements.

OVERVIEW

Y&R is the fifth largest marketing and communications organization in the
world, with integrated services in advertising, direct marketing and sales
promotion, perception management and public relations, branding consultation and
design services, and healthcare communications. Our revenues were approximately
$1.4 billion in 1997, having grown at a compound annual rate of 12.9% from 1995
to 1997.

Our revenues consist principally of commissions and fees received by us
from our clients. Commissions are derived using a negotiated percentage of an
advertiser's media and production spending through Y&R. Fees are based on hours
spent and costs incurred by agency staff plus a negotiated mark-up. We recognize
commission revenue primarily when media placements appear on television, on
radio or in print, and when labor and production costs are billed. We recognize
fee revenue when services are rendered.

We have also implemented incentive compensation arrangements with several
of our clients that we believe further strengthen our client relationships and
reward us for superior performance. These incentive arrangements create a range
of compensation that could result in either higher or lower revenues and
operating margins than a more traditional commission or fee arrangement.
Incentive levels are determined with reference to agreed upon operating,
performance and other benchmarks, with respect to both clients' businesses as
well as our performance. Although incentive arrangements did not materially
impact our revenues in 1997 or the first nine months of 1998, we believe that
additional clients may request that we institute incentive compensation
arrangements in the future.

Our revenues are diversified across geographic regions, various sectors
of the economy and among many clients. In 1997, we derived approximately 47.8%
of our revenues from our U.S. operations, with approximately 34.2% coming from
our European operations and the remainder divided among our operations in Latin
America, Australia/New Zealand, Asia, Canada and Africa. In the first nine
months of 1998, we derived approximately 51.9% of our revenues from our U.S.
operations and approximately 33.9% came from our European operations. For the
years 1995, 1996 and 1997, and for the first nine months of 1998, our revenue
from any one country (other than the United States) did not exceed 10% of our
consolidated revenues. The United Kingdom, Germany, Brazil, France, Australia,
the Netherlands, Italy, Canada and Switzerland represent the largest sources of
our revenues by country (other than the United States). See Note 10 to the
Annual Financial Statements. We represent clients in various industries,
including automotive, consumer packaged goods, financial services, food and
beverage, government services and telecommunications. Our revenues are
diversified across our approximately 5,500 client accounts. Our largest client,
Ford Motor Company, accounted for approximately 10.0% of our revenues in 1997,
and our top 20 clients accounted for approximately 40.5% of our revenues in
1997.

We have two principal categories of operating expenses: compensation
expense and general and administrative expenses. Our largest expense is
compensation, which includes the salaries, bonuses and benefits of all of our
employees, as well as fees paid to freelance contractors. General and
administrative expenses principally consist of facilities' costs, depreciation,
amortization, new business costs, travel expenses and professional fees.

From the time of our founding until 1996, we were wholly owned by our
employees. As further described in Note 4 to the Annual Financial Statements, in
December 1996, we consummated the Recapitalization, which resulted in the
recording of a pre-tax charge of $315.4 million in 1996. In connection with the
Recapitalization, the Company allocated certain shares of Restricted Stock to
employees that vested at the time of the IPO. On May 15, 1998, we consummated
the IPO of an aggregate of 19,090,000 shares of Common Stock, of which 6,912,730
shares were sold by the

<PAGE>

Company and 12,177,270 shares were sold by certain selling stockholders. We used
the net proceeds to the Company, which aggregated approximately $158.6 million,
together with approximately $155 million of borrowings under the New Credit
Facility, to repay all of the outstanding borrowings under the Prior Credit
Facilities.

The vesting of 9,231,105 shares of Restricted Stock allocated to
employees gave rise to non-recurring, non-cash, pre-tax compensation charges of
$234.4 million ($169.8 million net of the related tax benefit). These charges
have been reflected as "other operating charges" in our consolidated statements
of operations for the nine months ended September 30, 1998. See Note 7 to the
Interim Financial Statements.

RESULTS OF OPERATIONS

The following table sets forth, for the three months ended September 30,
1997 and September 30, 1998, certain items derived from the Company's
consolidated statements of operations and the percentages of revenue represented
by such items. Totals may not add due to rounding.

<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------
% OF % OF
1997 REVENUES 1998 REVENUES
------------ ------------ ------------ -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Revenues .................................................. $ 333.4 100.0% $ 375.4 100.0%
Compensation expense, including employee benefits ......... 206.7 62.0% 227.2 60.5%
General and administrative expense ........................ 131.0 39.3% 106.1 28.3%
-------- ----- -------- -----
Income (loss) from operations ............................. (4.3) (1.3)% 42.2 11.2%
Net (loss) income ......................................... $ (5.7) (1.7)% $ 24.3 6.5%
======== ===== ======== =====
EBITDA .................................................... $ 10.1 3.0% $ 56.9 15.2%
======== ===== ======== =====
</TABLE>

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

THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998

Revenues for the third quarter of 1998 increased by $42.0 million, or
12.6%, to $375.4 million compared to the third quarter of 1997. The increase was
primarily due to new business (including business from new clients and higher
revenue from existing clients). United States revenues increased by 17.1% to
$195.8 million for the third quarter of 1998 compared to the third quarter of
1997. International revenues increased by 8.1% to $179.6 million for the third
quarter of 1998 compared to the third quarter of 1997. Excluding the effect of
the strengthening (on average) of the U.S. dollar against foreign currencies,
total revenues for the third quarter of 1998 increased by 14.0% and
international revenues increased by 10.9% compared to the third quarter of 1997.

Compensation expense increased by $20.5 million, or 9.9%, to $227.2
million for the third quarter of 1998 compared to the third quarter of 1997.
This increase was primarily attributable to additional staffing to support
business growth and to salary increases. Excluding the effect of foreign
currency fluctuations, compensation expense increased by 11.3% compared to the
third quarter of 1997.

General and administrative expenses decreased by $25.0 million, or 19.0%,
to $106.1 million for the third quarter of 1998 compared to the third quarter of
1997. This decrease was primarily due to the inclusion in 1997 of a $25.5
million write-off of accounts receivable, costs billable to clients and other
capitalized costs with respect to the operations of Burson-Marsteller in Europe
and Asia in the third quarter of 1997. The write-offs in Europe were primarily
related to Burson-Marsteller's implementation of a new management information
system in 1997 which resulted in delayed and inaccurate billing of certain
clients and necessitated the creation of additional reserves against accounts
receivable and costs billable to clients. The write-offs in Asia were
attributable to the Company's evaluation of Burson-Marsteller's recent operating
performance in Asia and the determination that Burson-Marsteller was unlikely to
collect certain accounts receivable and costs billable to clients.

<PAGE>
Excluding the effect of foreign currency fluctuations and the Burson-Marsteller
write-off, general and administrative expenses increased by 1.9% compared to the
third quarter of 1997.

Income from operations was $42.2 million for the third quarter of 1998
compared to a loss from operations of $4.3 million for the third quarter of
1997, an increase of $46.5 million, primarily due to the 1997 Burson-Marsteller
write-off described above. Excluding the 1997 Burson-Marsteller write-off,
income from operations increased by $21.0 million, or 98.8%, compared to the
third quarter of 1997. Income from operations in the third quarter of 1998
included $14.7 million of depreciation and amortization. As a result, EBITDA for
the third quarter of 1998 was $56.9 million.

Net interest expense decreased by $8.1 million to $2.8 million for the
third quarter of 1998 compared to the third quarter of 1997. The decline was due
to lower average borrowing levels and lower average borrowing rates during the
third quarter of 1998 compared to the third quarter of 1997.

Income tax expense was $15.9 million for the third quarter of 1998
compared to an income tax benefit of $7.8 million for the third quarter of 1997.
The effective income tax rates were 40.5% and 51.1%, respectively, for the third
quarter of 1998 and 1997. Such decrease in the effective tax rate resulted
primarily from lower foreign taxes on the Company's foreign operations as well
as a reduction in the effective rate at which state and local taxes were
provided on domestic income.

Net income for the third quarter of 1998 was $24.3 million compared to a
net loss of $5.7 million for the third quarter of 1997. Excluding the after-tax
effect of the Burson-Marsteller write-off, net income increased by $16.7 million
compared to the third quarter of 1997.

The following table sets forth, for the nine months ended September 30,
1997 and September 30, 1998, certain items derived from the Company's
consolidated statements of operations and the percentages of revenue represented
by such items. Totals may not add due to rounding.

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------
% OF % OF
1997 REVENUES 1998 REVENUES
----------- ---------- ------------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Revenues .................................................. $ 977.1 100.0% $ 1,095.7 100.0%
Compensation expense, including employee benefits ......... 600.8 61.5% 659.4 60.2%
General and administrative expense ........................ 331.4 33.9% 324.8 29.6%
Other operating charges ................................... -- 0.0% 234.4 21.4%
------- ----- --------- -----
Income (loss) from operations ............................. 44.9 4.6% (123.0) (11.2%)
Net income (loss) ......................................... $ 11.9 1.2% $ (113.3) (10.3%)
------- ----- --------- -----
EBITDA .................................................... $ 86.4 8.8% $ 154.5 14.1%
======= ===== ========= =====
</TABLE>

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

NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1998

Revenues for the nine months ended September 30, 1998 increased by $118.7
million, or 12.1%, to $1,095.7 million compared to the nine months ended
September 30, 1997. The increase was primarily due to new business (including
business from new clients and higher revenue from existing clients). United
States revenues increased by 19.3% to $568.2 million for the nine months ended
September 30, 1998 compared to the nine months ended September 30, 1997.
International revenues increased by 5.3% to $527.5 million for the nine months
ended September 30, 1998 compared to the nine months ended September 30, 1997.
Excluding the effect of the strengthening (on average) of the U.S. dollar
against foreign currencies, total revenues for the nine months ended September
30, 1998 increased by 15.1% and international revenues increased by 11.0%
compared to the nine months ended September 30, 1997.

Compensation expense increased by $58.7 million, or 9.8%, to $659.4
million for the nine months ended September 30, 1998 compared to the nine months
ended September 30, 1997. This increase was primarily attributable to additional
staffing to support business growth and to salary increases. Excluding the
effect of foreign currency

<PAGE>
fluctuations, compensation expense increased by 12.7% compared to the nine
months ended September 30, 1997.

General and administrative expenses decreased by $6.6 million, or 2.0%,
to $324.8 million for the nine months ended September 30, 1998 compared to the
nine months ended September 30, 1997. This decrease was primarily due to the
inclusion in 1997 of a $25.5 million write-off of accounts receivable, costs
billable to clients and other capitalized costs with respect to the operations
of Burson-Marsteller in Europe and Asia offset in 1998 by additional operating
expenses to support new business growth. The Burson-Marsteller write-offs in
Europe were primarily related to its implementation of a new management
information system in 1997 which resulted in delayed and inaccurate billing of
certain clients and necessitated the creation of additional reserves against
accounts receivable and costs billable to clients. The write-offs in Asia were
attributable to the Company's evaluation of Burson-Marsteller's recent operating
performance in Asia and the determination that Burson-Marsteller was unlikely to
collect certain accounts receivable and costs billable to clients. Excluding the
effect of foreign currency fluctuations and the Burson-Marsteller write-off,
general and administrative expenses increased by 9.7% compared to the nine
months ended September 30, 1997.

Effective upon the consummation of the IPO, the Company recognized other
operating charges of $234.4 million. These other operating charges consisted of
non-recurring, non-cash compensation charges resulting from the vesting of
shares of Restricted Stock allocated to employees. As a result of these charges,
the Company expects to incur a net loss for the year ending December 31, 1998.

Loss from operations was $123.0 million for the nine months ended
September 30, 1998 compared to income from operations of $44.9 million for the
nine months ended September 30, 1997, a decrease of $167.9 million, primarily
due to the other operating charges described above partially offset by the
effect of the 1997 Burson-Marsteller write-off. Excluding the other operating
charges and the Burson-Marsteller write-off, income from operations increased by
$41.0 million, or 58.2%, compared to the nine months ended September 30, 1997.
Income from operations in the nine months ended September 30, 1998 included
$43.1 million of depreciation and amortization and $234.4 million of other
operating charges, as described above. As a result, EBITDA for the nine months
ended September 30, 1998, was $154.5 million.

Net interest expense (interest expense net of interest income) decreased
by $15.6 million to $13.0 million for the nine months ended September 30, 1998
compared to the nine months ended September 30, 1997. The decline was due to
lower average borrowing levels and lower average borrowing rates during the nine
months ended September 30, 1998 compared to the nine months ended September 30,
1997.

The Company recognized an income tax benefit of $22.3 million for the
nine months ended September 30, 1998 compared to income tax expense of $7.9
million for the nine months ended September 30, 1997. Included in 1998 is an
income tax benefit of $64.6 million attributable to the other operating charges
of $234.4 million described above and reflects the anticipated federal, state
and foreign tax effect of such other operating charges after consideration of
valuation allowance amounts for certain non-U.S. deductions. The effective
income tax rate was a benefit of 16.7% for the nine months ended September 30,
1998. Excluding the benefit derived from the other operating charges, the
effective tax rate was 42.0% for the nine months ended September 30, 1998, a
decrease from the 48.0% effective tax rate for the nine months ended September
30, 1997. Such decrease resulted primarily from lower foreign taxes on the
Company's foreign operations as well as a reduction in the effective rate at
which state and local taxes were provided on domestic income.

The Company incurred an extraordinary charge of $4.4 million in the nine
months ended September 30, 1998, which is net of a tax benefit of approximately
$2.8 million, due to the write-off of unamortized deferred financing costs
related to the Prior Credit Facilities.

Net loss for the nine months ended September 30, 1998 was $113.3 million
compared to net income of $11.9 million for the nine months ended September 30,
1997. Excluding the after-tax effect of the other operating charges, the
Burson-Marsteller write-off and the extraordinary charge, net income increased
by $35.8 million compared to the nine months ended September 30, 1997.

<PAGE>
The following table sets forth, for the years ended December 31, 1995,
December 31, 1996 and December 31, 1997, certain items derived from the
Company's consolidated statements of operations and the percentages of revenue
represented by such items. Totals may not add due to rounding.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------
% OF % OF % OF
1995 REVENUES 1996 REVENUES 1997 REVENUES
------------- ---------- ------------- ------------ ------------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Revenues ................................... $ 1,085.5 100.0% $ 1,222.1 100.0% $ 1,382.7 100.0%
Compensation expense, including employee
benefits .................................. 672.0 61.9% 730.3 59.8% 836.2 60.5%
General and administrative expense ......... 356.5 32.8% 391.6 32.0% 463.9 33.6%
Recapitalization-related charges ........... -- 0.0% 315.4 25.8% -- 0.0%
Other operating charges .................... 31.5 2.9% 17.2 1.4% 11.9 0.9%
--------- ----- --------- ----- --------- -----
Income (loss) from operations .............. 25.5 2.3% (232.3) (19.0%) 70.7 5.1%
Net income (loss) .......................... $ 0.8 0.1% $ (238.3) (19.5%) $ (23.9) (1.7%)
========= ===== ========= ===== ========= =====
EBITDA ..................................... $ 73.0 6.7% $ 147.2 12.0% $ 139.4 10.1%
========= ===== ========= ===== ========= =====
</TABLE>

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

1996 COMPARED TO 1997

Consolidated worldwide revenues for 1997 increased by 13.1% to $1,382.7
million from $1,222.1 million in 1996. Consolidated U.S. revenues for 1997
increased by 15.8% to $661.3 million from $571.1 million in 1996. Consolidated
international revenues for 1997 increased by 10.8% to $721.4 million from $651.0
million in 1996. Of the worldwide revenue increase, 13.6% was due to organic
growth (including net new business gains and higher net revenues from existing
clients) and 3.0% was due to the acquisition of majority interests in
investments previously accounted for under the equity method. Such increases
were partially offset by a 3.5% decline related to a strengthening (on average)
of the U.S. dollar against foreign currencies. New business was generated from
new client accounts such as Campbell's Soup, Citibank, Merck and United
Airlines.

Compensation expense for 1997 increased by 14.5% to $836.2 million from
$730.3 million in 1996. Compensation expense for 1997 increased as a percentage
of revenues to 60.5% from 59.8% in 1996. The growth in compensation expense was
generally in line with revenue growth and also included a $12.3 million charge
primarily for deferred compensation awards granted to senior executives in 1997.

General and administrative expenses for 1997 increased by 18.5% to $463.9
million from $391.6 million in 1996. General and administrative expenses
increased as a percentage of revenues to 33.6% in 1997 from 32.0% in 1996. The
higher rate of growth in general and administrative expenses compared to
revenues was primarily attributable to a $25.5 million write-off of accounts
receivable, costs billable to clients and other capitalized costs recorded in
1997 with respect to the operations of Burson-Marsteller in Europe and Asia. The
write-offs in Europe were primarily related to Burson-Marsteller's
implementation of a new management information system in 1997 which resulted in
delayed and inaccurate billing of certain clients and necessitated the creation
of additional reserves against accounts receivable and costs billable to
clients. The write-offs in Asia were attributable to the Company's evaluation of
Burson-Marsteller's recent operating performance in Asia and the determination
that Burson-Marsteller was unlikely to collect certain accounts receivable and
costs billable to clients. As a result of its analysis of the circumstances
which led to these write-offs, the Company has made management changes at
Burson-Marsteller in Europe and Asia and implemented additional financial
control and reporting requirements for these operations, including strengthening
controls and procedures regarding regional billing and collection practices.

In 1997, the Company had income from operations of $70.7 million compared
to a loss from operations of $232.3 million in 1996, primarily due to the
Recapitalization-related charges of $315.4 million. Income from

<PAGE>
operations in 1997 included $56.7 million of depreciation and amortization and
$11.9 million of other operating charges for asset impairment write-downs
principally related to certain operations in the United States, Africa, Latin
America and Europe. As a result, EBITDA for 1997 was $139.4 million.

Net interest expense increased by $16.1 million in 1997 compared to 1996.
The increase was primarily due to higher average borrowing levels in 1997 as a
result of the Recapitalization in December 1996.

The effective income tax rate for 1997 was 160.6%. The primary difference
between the U.S. statutory tax rate and Y&R's effective tax rate in 1997
resulted from incremental foreign taxes arising from losses outside the United
States which provided little or no tax benefit. The effective income tax rate
for 1996 was a benefit of 8.2%. This reflects the tax benefit from the
Recapitalization-related charges partially offset by foreign income taxed at
rates greater than the U.S. statutory rate. See Note 9 to the Annual Financial
Statements.

Net income of unconsolidated companies was $0.3 million in 1997 compared
to a loss of $9.8 million in 1996. A $9.3 million charge to write down an
Australian equity investment was recorded in 1996.

Minority interest in net loss of consolidated subsidiaries increased $3.8
million in 1997 compared to 1996, primarily reflecting the minority interest
share of charges for asset impairment write-downs relating to an Italian
operation in 1996.

Net loss for 1997 was $23.9 million compared to a net loss of $238.3
million in 1996, primarily as a result of charges recorded in connection with
the Recapitalization.

1996 COMPARED TO 1995

Consolidated worldwide revenues for 1996 increased by 12.6% to $1,222.1
million from $1,085.5 million in 1995. Consolidated U.S. revenues for 1996
increased by 16.0% to $571.1 million from $492.3 million in 1995. Consolidated
international revenues for 1996 increased by 9.7% to $651.0 million from $593.2
million in 1995. Of the worldwide revenue increase, 12.9% was attributable to
organic growth (including net new business gains and higher net revenues from
existing clients) and 0.7% was due to businesses acquired. Such increases were
partially offset by a 1.0% decline related to a strengthening (on average) of
the U.S. dollar against foreign currencies. New business was generated from new
client accounts such as Blockbuster Video, Equal, Ericsson, H&R Block and
Novell.

Compensation expense for 1996 increased by 8.7% to $730.3 million from
$672.0 million in 1995. Compensation expense decreased as a percentage of
revenues to 59.8% in 1996 from 61.9% in 1995. Such decrease primarily reflects
productivity improvements resulting from selected staff reductions in connection
with a productivity improvement plan implemented by the Company at the end of
1995.

General and administrative expenses for 1996 increased by 9.8% to $391.6
million from $356.5 million in 1995. General and administrative expenses
decreased as a percentage of revenues to 32.0% in 1996 from 32.8% in 1995,
primarily due to improved cost controls.

Recapitalization-related expenses of $315.4 million were incurred in
1996, primarily related to the cancellation of the Company's former equity-based
compensation and stock option plans. See Note 4 to the Annual Financial
Statements.

In 1996, the Company recorded a $17.2 million charge for asset impairment
write-downs for certain European and Latin American operations. In 1995, the
Company recorded a restructuring charge of $24.4 million in connection with a
productivity improvement plan and charges of $7.1 million, primarily to dispose
of certain non-strategic European agencies.

In 1996, the Company had a loss from operations of $232.3 million
compared to income from operations of $25.5 million in 1995. The loss from
operations of $232.3 million in 1996 included $53.0 million of depreciation and
amortization, $315.4 million of Recapitalization-related charges and $11.1
million of non-cash, non-recurring operating charges principally for asset
impairment write-downs for certain operations in Europe and Latin America. As a
result, EBITDA for 1996 was $147.2 million.

<PAGE>
Net interest expense increased by $0.7 million in 1996 compared to 1995.
The increase was primarily due to $2.9 million in prepayment penalties relating
to the repayment, in connection with the Recapitalization, of $100 million of
7.01% senior notes and $40 million of 8.75% senior notes. Excluding these
prepayment penalties, net interest expense in 1996 decreased by $2.2 million
versus 1995, resulting from lower average interest rates combined with lower
average borrowing levels in 1996. See Note 4 to the Annual Financial Statements.

The effective income tax rate for 1996 was a benefit of 8.2%. This
reflects the tax benefit for the Recapitalization-related charges partially
offset by foreign income taxed at rates greater than the U.S. statutory rate.
The effective income tax rate for 1995 was 115.5%. The primary difference
between the statutory tax rate and Y&R's effective tax rate in 1995 resulted
from foreign income taxed at rates greater than the U.S. statutory rate. See
Note 9 to the Annual Financial Statements.

Net loss of unconsolidated companies was $9.8 million in 1996 compared to
income of $5.2 million in 1995. A $9.3 million charge to write down an
Australian equity investment as well as lower earnings reported by the Company's
joint ventures with Dentsu, Inc. contributed to the net loss in 1996.

Minority interest in net loss of consolidated subsidiaries decreased $4.7
million in 1996 compared to 1995, reflecting the minority interest share of
charges for asset impairment write-downs relating to an Italian operation in
1996.

Net loss for 1996 was $238.3 million compared to net income of $0.8
million in 1995, primarily as a result of charges recorded in connection with
the Recapitalization.

LIQUIDITY AND CAPITAL RESOURCES

The Company historically has financed its working capital, capital
expenditures, acquisitions and equity repurchases from cash generated from
operations and third-party borrowings. Quarterly and annual operating cash flows
are significantly impacted by the seasonal media spending patterns of
advertisers, including the timing of payments made to media and other suppliers
on behalf of clients as well as the timing of cash collections from clients to
fund such expenditures. The Company's practice is to bill and collect from its
clients in sufficient time to pay the amounts due the media.

SEPTEMBER 30, 1998

Cash and cash equivalents were $71.2 million at September 30, 1998
compared to $160.3 million at December 31, 1997. Cash was used during the nine
months ended September 30, 1998 primarily to repay long-term debt, including the
prepayment of approximately $19.0 million of certain non-negotiable subordinated
payment obligations to former employee stockholders, and for capital
expenditures and Common Stock repurchases.

At September 30, 1998, the Company had $70.5 million in outstanding
indebtedness under the New Credit Facility. The Company expects to fund its
payments of principal and interest under the New Credit Facility with cash from
operations.

On May 15, 1998, the Company consummated the IPO. Net proceeds to the
Company were $158.6 million, after deducting underwriting discounts and
commissions and expenses paid by the Company in connection with the IPO. The
Company used the net proceeds from the IPO together with $155 million of
borrowings under the New Credit Facility to repay all of the outstanding
borrowings under the Prior Credit Facilities.

Capital expenditures were $34.8 million for the nine months ended
September 30, 1998. The Company estimates that its capital expenditures in 1998
will be approximately $70 million for information technology and certain
leasehold improvements.

On August 4, 1998, the Company announced that the Board had approved a
plan to repurchase up to 2,000,000 shares of Common Stock over the next two
years. Through September 30, 1998, the Company repurchased 712,800 shares of
Common Stock for an aggregate of $21.9 million. On October 13, 1998, the Company
announced that the Board had approved a new repurchase program of up to an
additional 6,000,000 shares of Common Stock over the next two years. As of
November 24, 1998, approximately 1,689,000 shares of Common Stock have been

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repurchased at an average cost of $26.63 per share. The shares may be
repurchased by the Company from time to time in the open market or in private
transactions, possibly including transactions with employees.

The Company's net deferred tax assets at September 30, 1998 were $191.2
million consisting primarily of federal, state and foreign net operating loss
carryforwards. Consequently, the Company expects a reduction in the amount of
cash taxes paid on a worldwide basis in future years. The consummation of the
IPO gave rise to a non-recurring, non-cash, pre-tax compensation charge of
$234.4 million, which resulted in additional tax benefits to the Company of
$64.6 million.

The Company expects to declare and pay a regular quarterly cash dividend
beginning in the first half of 1999. However, any determination to pay dividends
will be at the discretion of the Board and will depend upon, among other
factors, the Company's results of operations, financial condition, capital
requirements and contractual restrictions pursuant to the New Credit Facility.
The New Credit Facility contains certain financial and operating restrictions
and covenant requirements, and permits the payment of cash dividends except in
the event of a continuing default under the credit agreement.

The Company believes that cash provided by operations and funds available
under the New Credit Facility will be sufficient to meet its anticipated cash
requirements as presently contemplated.

DECEMBER 31, 1997

Cash and cash equivalents at December 31, 1997 increased by 45.5% to
$160.3 million from $110.2 million at December 31, 1996. For 1997, the Company
generated operating cash flows of $224.5 million which represented a 26.1%
increase in operating cash flows versus 1996. The Company achieved an
improvement in net cash flow from operating activities due, in part, to
increased focus on cash flow management, including improvements in the timing of
billings and the relationship between the collection of accounts receivable and
the payment of obligations to media and other suppliers. Operating cash flows
and third-party borrowings were used for capital expenditures, acquisition
requirements and equity repurchases.

Investing activities in 1997 included $51.9 million for capital
expenditures and $11.3 million for acquisitions. The majority of capital
expenditures in 1997 were for technology-related purchases, while the remaining
expenditures were for leasehold improvements, furniture and equipment. The $11.3
million for acquisitions primarily consisted of increases in investments in
equity affiliates in the United States, Europe, Latin America and Australia/New
Zealand.

In December 1996, Y&R consummated the Recapitalization. Pursuant to the
Recapitalization, all of the Company's outstanding equity and equity-related
units and options to purchase such units were either acquired for cash
consideration or canceled and exchanged for new equity interests or options to
purchase new equity interests. The Recapitalization was financed by $242 million
contributed by the Recapitalization Investors and by borrowings under the Prior
Credit Facilities. The Prior Credit Facilities consisted of a six and one-half
year $400 million term loan and a six and one-half year $300 million revolving
credit facility. As a result of the timing of Recapitalization-related payments,
net cash used in financing activities increased from $12.6 million in 1996 to
$98.7 million in 1997.

At December 31, 1997, the Company had approximately $330.6 million in
outstanding indebtedness under the Prior Credit Facilities. As required by the
Prior Credit Facilities, the Company entered into interest rate exchange
agreements with off-balance sheet risk in order to reduce its exposure to
changes in interest rates on its variable rate long-term debt. As of December
31, 1997, the Company had obtained interest rate protection agreements with
respect to $275 million of indebtedness, which effectively changed the Company's
interest rate under the Prior Credit Facilities to fixed rate borrowings. The
interest rate protection agreements mature at various times through 2001.

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The Company's consolidated financial statements are denominated in U.S.
dollars. In 1997, Y&R derived approximately 52.2% of its revenues from
operations outside of the United States. Currency fluctuations may give rise to
translation gains or losses when financial statements of foreign operating units
are translated into U.S. dollars. Significant strengthening of the U.S. dollar
against other major foreign currencies could have a material adverse effect on
Y&R's results of operations. Most of the Company's revenues are billed in the
same currency as the costs incurred to support the revenues, thereby reducing
exposure to currency fluctuations. The Company typically does not hedge foreign
currency profits into U.S. dollars, believing that over time the costs of a
hedging program would outweigh any benefit of greater predictability in the
Company's U.S. dollar-denominated profits. However, the Company selectively
hedges some positions where management believes it is economically beneficial to
do so, and bases its foreign subsidiary capitalization, debt and dividend
policies on minimizing currency risk. The Company also seeks, through pricing
and other means, to anticipate and avoid economic currency losses.

SEASONALITY

The Company's revenues generally reflect the media buying patterns of
advertisers and are concentrated in the second and fourth quarters of the year.

YEAR 2000 COMPLIANCE

The Company is working to resolve the potential impact of the year 2000
on the ability of the Company's computer systems to accurately process
information with dates later than December 31, 1999, or to process
date-sensitive information accurately after the turn of the century (referred to
as the "Year 2000" issue). The Company has completed an assessment of its
computer systems and is in the process of modifying or replacing all affected
systems for compliance with the Year 2000 issue. While the Company believes it
has made substantial progress in resolving any Year 2000 issues, the
modifications and testing necessary to fully validate readiness are still being
conducted. The Company is also monitoring the adequacy of the processes and
progress of third-party vendors of systems and applications that may be affected
by the Year 2000 issue. Y&R is dependent in part on third-party computer systems
and applications, particularly with respect to such critical tasks as
accounting, billing and buying, planning and paying for media, as well as on its
own computer systems. The Company is in the process of obtaining assurances from
such vendors that their systems are or are becoming Year 2000 compliant.

While Y&R believes its process is designed to be successful, because of
the complexity of the Year 2000 issue and the interdependence of organizations
using computer systems, it is possible that Y&R's efforts, or those of third
parties with whom Y&R interacts, will not be satisfactorily completed in a
timely fashion. Failure to satisfactorily address the Year 2000 issue could have
a material adverse effect on Y&R's prospects, business, financial condition and
results of operations.

The costs of Y&R's Year 2000 project have not yet been determined but are
not expected to be material. However, there can be no assurance that Y&R will
not experience cost overruns or delays in connection with its plan for replacing
or modifying systems, which could have a material adverse effect on Y&R's
prospects, business, financial condition and results of operations.

The Company has not yet determined the extent of contingency planning
that may be required.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

For a discussion of the impact of recently issued accounting standards,
see Note 2 to the Annual Financial Statements and Note 4 to the Interim
Financial Statements.

30
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BUSINESS

GENERAL

Young & Rubicam Inc. is the fifth largest consolidated marketing and
communications organization in the world. Since our founding 75 years ago, we
have evolved from a single New York-based advertising agency to a diversified
global marketing and communications company operating in 121 cities in 76
countries worldwide as of September 30, 1998. We operate through internationally
recognized market leaders including Young & Rubicam Advertising (full-service
advertising), Wunderman Cato Johnson (direct marketing and sales promotion),
Burson-Marsteller (perception management and public relations), Landor
Associates (branding consultation and design services) and Sudler & Hennessey
(healthcare communications), along with smaller complementary business units,
including The Bravo Group (multi-cultural marketing and communications), Brand
Dialogue (digital interactive branding and digital commerce), The Chapman Agency
(direct marketing) and The Media Edge (media planning, buying and placement
services). Our revenues in 1997 totaled approximately $1.4 billion, having grown
at a compound annual rate of 12.9% from 1995 to 1997.

INDUSTRY OVERVIEW

The marketing and communications industry encompasses a wide range of
services used to develop and deliver messages to both broad and targeted
audiences through multiple communication channels. The industry includes
traditional advertising services as well as other marketing and communications
services such as direct marketing and sales promotion, public relations,
branding consultation and design services, new media marketing and other
specialized services.

Traditional advertising services include the development and planning of
marketing and branding campaigns; the creative design and

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production of advertisements; the planning and buying of time and/or space in a
variety of media, including broadcast and cable television, radio, newspapers,
general interest/specialty magazines, billboards and the Internet; and the
provision of consumer, product and other market research to clients on an
ongoing basis. According to industry sources, growth in advertising expenditures
has accelerated in recent years following the economic recession in the early
1990s, and worldwide advertising expenditures totaled approximately $398 billion
in 1997. Industry sources have predicted that worldwide advertising spending
will grow approximately 5.3% in 1998 to $419 billion.

Direct marketing and sales promotion incorporate a broad range of
services, including direct mail and direct response television advertising
(using toll-free 800 numbers), inbound and outbound telemarketing database
marketing and online marketing. Sales promotion includes the planning, design
and implementation of merchandising and sales promotions as well as design and
implementation of targeted interactive campaigns. Industry sources have
estimated a growth rate in 1998 of approximately 10% for both direct marketing
and sales promotion.

Perception management and public relations address clients' external
corporate or brand positioning, public image and relations with key external
constituencies. Functions provided by public relations firms include corporate
communications, public affairs, lobbying, crisis management, issue advertising
and internal, consumer grassroots communications.

Branding consultation and design services encompass a range of services
to create, build and revitalize clients' brands. Among these services are
corporate identity, package design, retail design and branded environments,
verbal branding and nomenclature systems, corporate literature and interactive
branding.

New media marketing services include interactive marketing campaigns and
strategic consulting services, the design of Internet websites, banners and home
pages, the development of corporate intranets and digital commerce applications.

INDUSTRY TRENDS

Several significant trends are changing the dynamics of the marketing and
communications industries, including the following:

o GROWTH IN UNITED STATES MARKETING AND COMMUNICATIONS MARKETS. According to
industry sources, advertising expenditures in the United States have continued
to grow, increasing from approximately $140 billion in 1993 to approximately
$188 billion in 1997. In 1998, advertising expenditures are estimated to be
approximately $200 billion. In industries such as telecommunications, where
regulatory developments have encouraged increased competition among industry
participants, a growing number of companies have sought to establish and enhance
their brand images through comprehensive marketing and communications programs.
In the healthcare industry, recent regulatory changes that eased restrictions on
direct-to-consumer communications by pharmaceutical companies have also resulted
in significant additional marketing and communications expenditures.

o GROWTH OF INTERNATIONAL MARKETING AND COMMUNICATIONS MARKETS. The
globalization of markets and the deregulation of certain sectors of
international markets have led to growth in demand for marketing and
communications services by large corporate clients. An increasing number of
companies are expanding globally and, where they deem it appropriate, are
seeking consistent brand images and market positions for their products
throughout the world. At the same time, however, companies continue to rely on
their marketing and communications advisors to tailor their regional and local
marketing approach to the demands, tastes and desires of the local marketplace.
As international markets have expanded, particularly the markets in the
Asia/Pacific and Latin American regions, non-U.S. advertising expenditures have
grown more rapidly than U.S. expenditures. According to industry sources,
non-U.S. advertising expenditures have increased from approximately 44% of
worldwide expenditures in 1986 to approximately 53% in 1997.

o INVESTMENT IN BRAND DEVELOPMENT. In the 1980s, many advertisers focused their
marketing campaigns on promotional advertising that emphasized price
competition, often reducing

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brand loyalty. Over the last several years, however, advertisers have focused on
the image or brand identity of their organizations, products and services in an
effort to differentiate themselves from competitors and increase brand loyalty.
This emphasis on brand development has increased the demand for the delivery of
consistent messages and, as a result, companies are seeking marketing and
communications organizations which are able to coordinate resources across
multiple disciplines, geographies and media.

o DEMAND FOR INTEGRATED SERVICE OFFERINGS. Increasingly, certain clients are
turning to large marketing and communications organizations to provide
integrated services across multiple disciplines. Such clients are seeking
integrated services to ensure a consistent brand presence and maximize the
effectiveness of their messages around the world, better coordinate their
marketing activities and simplify and strengthen their relationships with their
marketing partners. The demand for globally-integrated services has led to the
creation of a small number of global marketing and communications companies,
including Y&R, which strive to provide their clients with a full range of
services in each of the local markets in which their clients operate. In
addition, a substantial number of clients continue to require access to
specialized service providers. Y&R has over 20 years of experience in organizing
its companies to address this client need.

o INCREASED EMPHASIS ON TARGETED MARKETING. The desire of companies to reach
their target audiences and quantify the effectiveness of their communications
has resulted in greater demand for customized direct marketing methods, such as
database marketing, infomercials, in-store promotions and interactive programs.
These techniques enable companies to quantify the success of their campaigns and
monitor the return on investment of their marketing expenditures through such
mechanisms as response rate tracking. The desire to create more targeted
marketing has been enhanced by the emergence of new media which permits more
interactive methods of customizing and delivering messages. In certain
developing economies, the technology infrastructure is improving, indicating
increased potential for database marketing and communications.

STRATEGY

Our strategy consists of the following key components:

o INCREASE PENETRATION OF KEY CORPORATE ACCOUNTS. We believe that there are
significant opportunities to increase our share of KCA marketing and
communications expenditures by leveraging our global network to provide
integrated services to KCAs. We have successfully increased our share of the
marketing and communications expenditures of certain KCAs over the past few
years. For example, we have significantly expanded our relationship with Ford,
winning new assignments in Brazil, Germany, Canada and the United States for
Young & Rubicam Advertising, Wunderman Cato Johnson, Landor Associates and Brand
Dialogue. KCAs also have increased their use of multiple services offered by us
over the same period. During 1997, our 20 largest clients used an average of
five of our marketing and communications services.

We have implemented a team concept for certain KCAs that utilize advertising,
direct marketing and other marketing and communications services offered by us.
Each client team aligns Y&R employees from separate disciplines within the
Company around KCAs and offers incentives to these employees to provide the
highest quality service to the client without regard to Y&R's own internal
corporate structure. In addition, we seek to improve KCA satisfaction by
retaining independent consultants to conduct third-party audits with clients
which measure our performance on a variety of criteria. We intend to use this
objective information to identify strengths, weaknesses and opportunities within
KCA relationships.

<PAGE>

was due, in part, to our ability to coordinate advertising and direct marketing
activities for Citibank around the world. We believe that Citibank consolidated
its advertising and direct marketing accounts with us in order to establish a
consistent brand identity around the world. In addition to Citibank, during the
last 24 months, we have won new business from clients including Campbell's Soup,
Sony and United Airlines, each of whom were designated as KCAs.

o LEVERAGE EXISTING GLOBAL NETWORK. With a worldwide presence in 76 countries
(including 14 countries where we are represented by non-equity affiliations with
local partners), we believe that we are well positioned to continue to benefit
from the trend towards the globalization of client marketing and communications
needs and the consolidation of those needs with a single international service
provider. For example, in late 1995, Colgate-Palmolive consolidated its global
advertising with Y&R, and in May 1998, Groupe Danone consolidated the global
advertising for its Fresh Dairy Products division with Young & Rubicam
Advertising.

o CAPITALIZE ON EXISTING CAPABILITIES. We intend to continue the development of
our existing capabilities into more visible and accessible client services. For
example, in 1997, we launched our Brand Dialogue unit to serve our clients in
the areas of digital interactive branding and digital commerce and in the
development and implementation of various interactive strategies, including
website design, creation and production. To create this integrated unit, we
combined the existing interactive capabilities of Young & Rubicam Advertising
and Wunderman Cato Johnson in the United States, Latin America, Europe and
Asia/Pacific. We believe that Brand Dialogue represents a growth opportunity for
us, and we intend to make significant investments in new and emerging
technologies to capitalize on this opportunity.

In July 1997, we consolidated the United States media planning, buying and
placement capabilities of Young & Rubicam Advertising, Wunderman Cato Johnson
and The Media Edge (a media company we acquired in 1996) under The Media Edge
name. With this consolidation, we created a major United States media agency,
thereby enhancing our ability to negotiate effectively and secure discounts for
media purchases on behalf of our clients. In September 1998, we announced the
global launch of The Media Edge brand worldwide. We believe that The Media Edge
will provide a variety of media alternatives in various markets to existing and
future clients. We plan to continue to identify and leverage strengths and
capabilities that can provide further differentiation for us and that can evolve
into businesses that generate incremental revenues and profits.

o UTILIZE SUPERIOR CONSUMER KNOWLEDGE AND BRAND INSIGHTS. To assist our clients
in building, leveraging, protecting and managing their brands, we have developed
and are maintaining extensive knowledge of consumer brand perceptions. In 1994,
we launched BrandAsset Valuator ("BAV"), a proprietary database of consumer
perceptions for building and managing brands. In its first two phases, in 1994
and the second half of 1997, the BAV project involved the gathering of
information on approximately 10,000 brands, including over 9,000 local and
regional brands and 550 global brands. BAV provides an understanding of how
consumers evaluate brands, how brands evolve over time and how brands are
managed successfully. We believe that BAV, in which we have made significant
investments over the past five years, is the first global consumer study that
provides an empirically derived model for how brands gain and lose their
strength. We further believe that BAV, which reflects the perceptions of over
95,000 consumers in 32 countries in the Americas, Europe, Asia, Australia and
Africa, is the most extensive database of information concerning consumer
perceptions of brands. Management believes that Y&R's comprehensive research
capabilities, including BAV, have become a significant factor in attracting new
clients and winning new assignments from existing clients. We plan to continue
to invest in BAV, and believe that knowledge of consumers' changing perceptions
of brands will continue to provide us with a significant competitive advantage.

o CULTIVATE CREATIVE EXCELLENCE. We intend to continue emphasizing the
importance of creative marketing and communications. Our creative leadership has
been recognized over the years through the receipt of various industry awards,
including Cannes Lions and Clio Awards for

<PAGE>

excellence in television and print advertising, EFFIES (awards for effective
advertising) and a number of other awards for direct marketing and design
services. We also have created numerous memorable marketing and communications
programs for clients, including "The Softer Side of Sears," "Everybody Needs a
Little KFC," "It's All Within Your Reach" for AT&T, "The Document Company" for
Xerox, and "Be All That You Can Be" for the United States Army, as well as
identity and design assignments, including the creation of corporate identities,
for Lucent Technologies, Netscape and the 2002 Salt Lake City Olympics.

o IMPROVE OPERATING EFFICIENCIES. We believe that opportunities exist to further
improve operating efficiencies in order to expand margins and increase future
profitability. For example, we have implemented initiatives which have both
improved productivity and reduced compensation expense as a percentage of
consolidated revenues.

o EXPAND CAPABILITIES THROUGH ACQUISITIONS. In order to add new capabilities,
enhance our existing capabilities and expand the geographic scope of our
operations, we regularly evaluate and intend to pursue appropriate acquisition
opportunities. We believe that significant opportunities exist to expand our
businesses. Historically, in order to expand capabilities beyond traditional
advertising, we have acquired well-established leaders in other marketing and
communications disciplines. More recently, we have acquired smaller niche
agencies or companies to enhance existing capabilities or expand geographic
coverage.

OPERATIONS

The following section contains a brief description of the Company's main
service offerings.

YOUNG & RUBICAM ADVERTISING. Young & Rubicam Advertising is one of the
world's leading full-service consumer advertising agencies, offering expertise
in creative development, consumer research and marketing, and media buying and
planning. In 1997, Young & Rubicam Advertising was ranked by industry sources as
the seventh largest advertising agency based in the United States.

Young & Rubicam Advertising has had a number of recent new business wins.
In May 1998, Group Danone awarded the advertising for its worldwide Fresh Dairy
Products division to Young & Rubicam Advertising. In August 1997, Citibank
consolidated its worldwide advertising and direct marketing business with Y&R.
In addition, since 1995, Young & Rubicam Advertising has won substantial new
business from Campbell's Soup, Colgate-Palmolive, Ericsson, Sony and United
Airlines. In June 1997, Young & Rubicam Advertising extended its long-term
relationship with the United States Army, an account which is subject to a
government-mandated review every five years. In October 1997, Young & Rubicam
Advertising won the assignment to develop a campaign for Census 2000, the first
unified, paid advertising campaign undertaken by the United States Bureau of the
Census. Young & Rubicam Advertising also continues to expand relationships with
existing clients, including creating AT&T's corporate branding campaign, and
together with Wunderman Cato Johnson, developing the campaign for the launches
of Sears' Home Services Division, the Navigator sport-utility vehicle for Ford's
Lincoln-Mercury division in the United States and the Puma, Ka and Galaxy
automobiles for Ford in selected international markets.

Young & Rubicam Advertising has long been involved in various public
interest and public service efforts. Young & Rubicam Advertising handles public
service accounts for The National Urban League, The United Negro College Fund
and, through its work with the Ad Council, has launched a series of programs to
benefit children throughout the United States and, separately, to assist
battered women.

Young & Rubicam Advertising operates in 86 cities in 61 countries
worldwide, in the Americas, Europe and Africa. Young & Rubicam Advertising
services clients through the Dentsu, Young & Rubicam Partnerships across
Asia/Pacific.

DENTSU, YOUNG & RUBICAM PARTNERSHIPS. The Dentsu, Young & Rubicam
Partnerships ("DY&R") are a network of full-service advertising agencies that
provide Young & Rubicam Advertising with access to major markets across the
Asia/Pacific region. DY&R was created as a joint venture between Y&R and Dentsu,
Inc. ("Dentsu") in 1991. In 1997, Dentsu ranked as the fourth largest marketing
and communications organization in the world and the largest marketing and
communications

<PAGE>

organization based in Asia/Pacific. DY&R is a series of local ventures in which
Y&R typically has a 50% interest, and is jointly managed and operated by Y&R and
Dentsu. To maximize local brand equity and minimize conflicts, DY&R operates
under different brand names and management in each of its three regions--Asia,
Australia/New Zealand and the United States. DY&R primarily services major
clients of Dentsu and Y&R in Asia, including Y&R's KCAs, but also has its own
local clients in each region. In Asia/Pacific, DY&R has recently won regional
business from Fuji and Citibank and has been awarded additional work from
Cadbury-Schweppes, Ericsson, Ford and Sony, in specific markets. DY&R operates
in 23 cities in 14 countries across Asia/Pacific and the United States, where it
operates as The Lord Group.

WUNDERMAN CATO JOHNSON. Wunderman Cato Johnson ("WCJ") is one of the
world's leading behavior-driven marketing and communications companies.
Behavior-driven marketing and communications are designed to assist clients in
producing immediate sales and building brand and customer equity. WCJ addresses
its clients' marketing objectives through direct marketing, sales promotion,
television commercials and infomercials, customer loyalty programs, relationship
marketing programs, database development and management, merchandising,
entertainment and sports marketing, lead generation and new product launches.

WCJ focuses on converting "consumers" to "customers" and mass markets to
individual relationships. WCJ seeks to motivate behavior by focusing on
identifying and acquiring the most valuable customer prospects for clients,
building loyalty among its clients' most profitable customers and managing the
customer's interactions with the brand, the trade and the sales force.

WCJ provides services to KCAs such as AT&T, DuPont, Ford, Sony, Taco Bell
and the United States Postal Service. Recent new business projects include the
creation of a global promotion for Ericsson, and, together with Young & Rubicam
Advertising, the launches of the Sears Home Services Division and the Navigator
for Ford's Lincoln-Mercury division.

WCJ was created by the 1992 merger of Wunderman Worldwide, a direct
marketing company acquired by Y&R in 1973, and Cato Johnson Associates, a sales
promotion company acquired by Y&R in 1976. Headquartered in New York, WCJ
operates in 47 cities in 31 countries worldwide. WCJ also has major database
facilities in Europe and Latin America.

BURSON-MARSTELLER. Burson-Marsteller is one of the world's leading
international perception management, public relations and public affairs
companies. It provides a comprehensive range of perception management
capabilities to its clients, including issues analysis, crisis management,
consumer and business marketing and research, corporate communications, investor
relations and public affairs advocacy. The perception management process begins
with a statement of the desired business results and then identifies current and
targeted perceptions, as well as different approaches to create the desired
mindset with key audiences.

Burson-Marsteller believes a shift is occurring in the perception
management and public relations field, away from a focus on executional delivery
based upon a client's specific instructions and towards a more consultative and
interactive relationship. To that end, in 1996 and 1997, Burson-Marsteller
implemented a client-focused practice structure in the United States. This
client-focused practice structure has replaced the traditional geographic
organizational model in the United States and helps ensure the firm's
professional client teams have the experience and insight required to provide
clients with the in-depth capabilities and knowledge to meet their needs. In
Europe and Asia, Burson-Marsteller intends to maintain a primarily geographic
organizational model and to implement, where feasible, elements of a
client-focused practice structure. Burson-Marsteller's functional and industry
practice areas currently include corporate, healthcare, marketing, advertising,
media, public affairs, strategic consulting and technology. Burson-Marsteller's
resources include three kinds of specialists:

o industry specialists who are experienced in specific fields;

<PAGE>
o practice specialists who are experienced in specific perception
management, public relations and public affairs disciplines; and

o creative and media specialists who are skilled in using a variety of
techniques and different technologies to deliver messages with
impact.

Burson-Marsteller serves as counselor to a diverse body of clients
ranging from major corporations, business associations and professional
organizations to governmental bodies and non-profit institutions. During the
last 18 months, Burson-Marsteller has undertaken significant assignments for
Qualcomm, Sun Microsystems and Unilever. In addition, Burson-Marsteller has
expanded and strengthened relationships with existing clients such as Andersen
Consulting, Johnson & Johnson and Philip Morris.

Burson-Marsteller was founded in 1953 and was acquired by Y&R in 1979.
Burson-Marsteller is headquartered in New York and operates in 49 cities in 33
countries around the world. The Burson-Marsteller network also includes:

o Black, Kelly, Scruggs & Healey Inc., a lobbying and public affairs
firm based in Washington D.C.;

o Marsteller Advertising, which specializes in corporate,
business-to-business and issues advertising campaigns, with offices
in New York, Chicago, Pittsburgh and London; and

o The Mead Point Group, a small strategic consulting firm.

LANDOR ASSOCIATES. Landor Associates ("Landor") is one of the world's
leading branding consultancies and strategic design firms. Landor creates,
builds and revitalizes clients' brands and helps position these brands for
continued success. Landor's branding and identity consultants, designers and
researchers work with clients on a full range of branding and identity projects,
including corporate identity, packaging and brand identity systems, retail
design and branded environments, interactive branding and design, verbal
branding and nomenclature systems, corporate literature, brand extensions and
new brand development.

Landor has broad international experience across various industries, and
clients include automobile manufacturers, banks and financial institutions,
commercial airlines, communications and information companies, consumer
products, entertainment industry concerns, hotels, major industrials, packaged
goods companies and petroleum retailers.

Landor has gained substantial new business momentum during the last 24
months, and has been awarded corporate identity assignments for Andersen
Consulting, Delta Airlines, Lucent Technologies and the 2002 Salt Lake City
Olympics; brand identity assignments for Walt Disney; package design assignments
for Frito-Lay; and branded environment assignments for Taco Bell, Pizza Hut and
Shell. In addition, Landor has expanded relationships with existing clients.
During 1996, Landor was retained by Coors Beer (as sole supplier) to design
packaging, and more recently this assignment expanded to include verbal
branding. In addition, during the last 12 months, Landor worked to develop the
name and corporate identity for Visteon, a Ford subsidiary that supplies
component parts to the automotive industry.

Landor was founded in 1941 and was acquired by Y&R in 1989. Landor is
headquartered in San Francisco and operates in 15 cities in 11 countries
worldwide, including multidisciplinary consulting and design studios in New
York, Seattle, Mexico City, Hamburg, London, Paris, Hong Kong and Tokyo.

SUDLER & HENNESSEY. Sudler & Hennessey ("S&H") is one of the world's
leading healthcare communications firms, developing strategic promotional and
educational programs for a wide spectrum of healthcare brands. S&H creates
advertising, direct marketing and sales promotion programs for prescription
drugs and over-the-counter medications. In addition, S&H provides strategic
consultancy and communications support in the areas of managed care, medical
devices and equipment, nutrition, veterinary medicine and general healthcare.
Communications programs produced by S&H on behalf of its largely pharmaceutical
industry client base are directed to a wide range of healthcare professionals as
well as patients and their support networks.

S&H's medical education division, IntraMed, develops continuing
educational

<PAGE>

programming on behalf of its pharmaceutical and consumer care clients. These
educational efforts bring credible third-party support to healthcare
professionals as well as patient educational communications.

The healthcare communications industry experienced significant growth
during 1997, due both to a dramatic increase in direct-to-consumer healthcare
communications and numerous new product introductions. S&H has capitalized on
this growth, winning significant new business around the world, including
product launch assignments from Abbott Laboratories, Merck, Roche and Zeneca.

S&H was founded in 1941 and was acquired by Y&R in 1973. S&H is
headquartered in New York and operates in 15 cities in 10 countries in North
America, Europe and Asia/Pacific.

COHN & WOLFE. Cohn & Wolfe is a full-service public relations firm that
provides creative, results-driven services to its clients. Cohn & Wolfe helps
its clients establish and communicate corporate and brand identity, launch new
products and expand sales. Areas of expertise include consumer marketing, sports
publicity and issues management, as well as healthcare, information technology
and business-to-business communications. Current clients include Coca-Cola,
Deloitte Consulting, Eli Lilly, NEC, SmithKline Beecham, Sony, the United States
Army and the United States Postal Service.

Cohn & Wolfe was founded in 1970 and was acquired by Burson-Marsteller in
1984. Cohn & Wolfe operates in 12 cities in 7 countries in North America, Europe
and Australia.

OTHER CAPABILITIES. Brand Dialogue specializes in digital interactive
branding and digital commerce. Brand Dialogue's primary offerings consist of:

o web advertising, including the design, creation and production of
websites, banners, home pages and comprehensive interactive
campaigns;

o digital commerce applications;

o the development of corporate intranets to improve communications and
productivity within and among a defined set of users; and

o interactive marketing consulting services.

Brand Dialogue has obtained new business from both existing KCAs and
other clients, as well as new clients. During the last 12 months, Brand Dialogue
won notable and varied assignments from clients such as AT&T, Citibank,
Ericsson, Ford, Geocities, Sony and Xerox.

The Bravo Group ("Bravo") creates multi-cultural marketing and
communications programs targeted to the fast-growing U.S. Hispanic community.
Bravo's multi-disciplinary services include advertising, promotion and event
marketing, public relations, research and direct marketing. Bravo provides
services for selected KCAs including American Home Products-Whitehall, AT&T,
Campbell's Soup, Clorox, Kraft and the United States Postal Service. The Company
expanded its multi-cultural marketing and communications capabilities in October
1998 with its acquisition of Kang & Lee, an agency that provides a range of
advertising programs within the Asian community in the United States. Kang & Lee
has an established relationship with AT&T.

The Chapman Agency ("Chapman") is a specialized direct marketing agency
that provides a range of services outside the United States, primarily to the
financial services industry. Chapman focuses on communications designed to build
individual relationships with individual customers, and works with its clients
to maximize customer profitability and build enduring brands over time.

The Media Edge provides integrated media planning, buying and placement
services for both Young & Rubicam Advertising and WCJ. In addition, The Media
Edge provides planning and buying of both traditional and direct response media.
Management believes that The Media Edge is positioned to act as an independent
full-service media provider, offering a range of media-related services to
clients other than those of Young & Rubicam Advertising and WCJ, as well as to
smaller independent advertising and communications agencies. We believe that
these capabilities will enable The Media Edge to take advantage of opportunities
presented by the trend of clients separating media responsibility assignments
from other advertising services. During the last

<PAGE>

12 months, The Media Edge won significant new business, including a number of
agency of record assignments (a preferred media provider designation) and media
research and modeling assignments, from clients such as Monsanto, Ore-Ida
(Heinz), Revlon and Sears.

COMPETITION

The marketing and communications industry is highly competitive, and we
expect it to remain so. Our principal competitors in the advertising, direct
marketing and perception management and public relations businesses are large
multinational marketing and communications companies, as well as numerous
smaller agencies that operate only in the United States or in one or more
countries or local markets. We must compete with these other companies and
agencies to maintain existing client relationships and to obtain new clients and
assignments. Some clients, such as U.S. governmental agencies, require agencies
to compete for business at mandatory periodic intervals. We compete principally
on the basis of the following factors:

o creative reputation;

o knowledge of media;

o quality and breadth of services;

o geographical coverage and diversity;

o relationships with clients; and

o financial controls.

Recently, traditional advertising agencies also have been competing with
major consulting firms which have developed practices in marketing and
communications. New competitors also include smaller companies such as systems
integrators, database marketing and modeling companies and telemarketers, which
offer technological solutions to marketing and communications issues faced by
clients. In addition, the trend towards consolidation of global accounts
requires companies seeking to compete effectively in the international marketing
and communications industry to make significant investments. These investments
include additional offices and personnel around the world and new and improved
technology for linking these offices and people.

United States clients typically may cancel contracts with agencies upon
90 days' notice, and non-U.S. clients typically also may cancel contracts with
agencies on 90 to 180 days' notice. However, we believe that clients may find it
increasingly difficult to terminate relationships with agencies that represent
their brands on a global basis because of the complexity of coordinating
creative, media and non-media services. In addition, clients generally remain
able to move from one agency to another with relative ease. As is typical in the
marketing and communications industry, we have lost or resigned client accounts
and assignments, including Blockbuster Video and International Home Foods, for a
variety of reasons, including conflicts with newly acquired clients. Although
typically we have replaced these losses with new clients and assignments, we may
not be successful in replacing clients that may leave Y&R or in replacing
revenues when a client significantly reduces the amount of work given to Y&R.

When we represent a client, we do not always handle all advertising or
public relations for that client. Many large multinational companies are served
by a number of agencies within the marketing and communications industry. In
many cases, clients' policies on conflicts of interest or desires to be served
by multiple agencies result in one or more global agency networks representing a
client only for a portion of its marketing and communications needs or only in
particular geographic areas. In addition, the ability of agencies within
marketing and communications organizations to acquire new clients or additional
assignments from existing clients may be limited by the conflicts policy
followed by many clients. This conflicts policy typically prohibits agencies
from performing similar services for competing products or companies. Our
principal international competitors are holding companies for more than one
global advertising agency network. As a result, in some situations, separate
agency networks within these holding companies may be able to perform services
for competing products or for products of competing companies. We have one
global advertising agency network. Accordingly, our ability to compete for new
advertising assignments and, to a lesser extent, other marketing and
communications assignments, may be limited by these conflicts policies.

<PAGE>

Industry practices in other areas of the marketing and communications business
reflect similar concerns with respect to client relationships.

REGULATION

The regulation of advertising takes several forms. The primary source of
governmental regulation in the United States is the Federal Trade Commission
("FTC") which is charged with administering the Federal Trade Commission Act
(the "FTC Act"). The FTC Act covers a wide range of practices involving false,
misleading and unfair advertising. In the event of violations of federal laws
and regulations, the FTC may seek cease and desist orders, may impose monetary
penalties and may require other remedies. The Federal Food and Drug
Administration, the Federal Communications Commission and other agencies also
have regulatory authority that affects the advertising business. In addition,
many state and local governments have adopted statutes and regulations similar
in scope to the FTC Act and the regulations thereunder.

Self-regulatory activities have become significant in the advertising
business. The Council of Better Business Bureaus has created the National
Advertising Division and the National Advertising Review Board, which review and
process possible violations of proper business conduct through advertising. The
national television networks and various other media have also adopted strict
and extensive regulations governing the advertising that they will accept for
broadcast or publication. Trade associations in certain industries publish
advertising guidelines for their members and, in addition, various consumer
groups have been and continue to be powerful advocates of increased regulation
of advertising.

Advertising is also subject to regulation in countries other than the
United States in which we and our affiliates do business. We have developed
internal review procedures to help ensure that our work product, as well as that
of our affiliates, is in compliance with standards of accuracy, fair disclosure
and ethical proprieties, including those established by federal, state and local
laws and regulations and the pre-clearance procedures of the broadcast media.

In addition, as an international organization we are subject to the
Foreign Corrupt Practices Act (the "FCPA"). The FCPA imposes civil and criminal
fines and penalties on companies and individuals that violate its anti-bribery
and other provisions.

EMPLOYEES

We have approximately 13,000 employees (including part-time employees)
worldwide. None of our U.S. employees are covered by collective bargaining
agreements. We believe that our relations with employees are good.

PRINCIPAL PROPERTIES

We own our headquarters office building at 285 Madison Avenue, New York,
New York. We lease other offices and space for our facilities in New York City
and elsewhere throughout the world. The following table sets forth certain
information relating to our principal properties:

<PAGE>

<TABLE>
<CAPTION>
APPROXIMATE
SQUARE LEASE
LOCATION USE FOOTAGE EXPIRATION
- ----------------------------- ------------------------------------------- ------------ ------------
<S> <C> <C> <C>
285 Madison Avenue, Young & Rubicam Advertising, Brand 370,000 N/A (owned)
New York, New York Dialogue and corporate headquarters

230 Park Avenue South, Burson-Marsteller, Chapman, Bravo, Landor 340,500 1/22/06
New York, New York and WCJ

Gallus Park, Young & Rubicam Advertising, WCJ, 154,000 4/26/04
Frankfurt, Germany Burson-Marsteller and Sudler & Hennessey

825 Seventh Avenue, The Media Edge 111,832 1/31/01
New York, New York

Greater London House, Young & Rubicam Advertising, WCJ and 80,000 5/31/13
London, U.K. Sudler & Hennessey

200 Renaissance Center Young & Rubicam Advertising and WCJ 96,000 11/30/99
Detroit, Michigan

675 Avenue of the Americas, WCJ 92,500 6/30/03
New York, New York

49-59 Avenue Andre Morizet, Young & Rubicam Advertising and WCJ 65,000 3/30/08
Paris, France

One South Wacker Drive, Young & Rubicam Advertising, WCJ 63,000 11/30/99
Chicago, Illinois and Landor

100 First Plaza, Young & Rubicam Advertising, WCJ, 65,000 4/30/03
San Francisco, California Burson-Marsteller and Bravo

1801 K Street N.W., Burson-Marsteller and Cohn & Wolfe 60,000 10/31/06
Washington, D.C.

7535 Irvine Center Drive Young & Rubicam Advertising and WCJ 53,794 12/14/09
Irvine, California

295 Madison Avenue Young & Rubicam Advertising 65,821 1/22/06
New York, New York
</TABLE>

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

Y&R's capital expenditures for 1998 include expenditures for leasehold
improvements of facilities. When completed, these improvements are expected to
result in a configuration of owned and leased facilities that we believe will be
adequate for our current and anticipated purposes. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

LEGAL PROCEEDINGS

We are involved from time to time in various claims and legal actions
incident to our operations, both as plaintiff and defendant. In the opinion of
management, none of these existing claims is expected to have a material adverse
effect on the Company.

<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information with respect to our
executive officers and Directors:

NAME AGE POSITION
- -------------------------------- ----- ----------------------------------------------------
<S> <C> <C>
Peter A. Georgescu ............. 58 Chief Executive Officer of the Company and Chairman
of the Board

Alan J. Sheldon ................ 57 Vice Chairman and Managing Director of the
Company

John P. McGarry, Jr. ........... 58 President of the Company

Edward H. Vick ................ 54 Chief Operating Officer of the Company and Director

Thomas D. Bell, Jr. ........... 49 Executive Vice President of the Company, Chairman
and Chief Executive Officer of Young & Rubicam
Advertising and Director

Stephanie W. Abramson ......... 53 Executive Vice President and General Counsel of the
Company

Michael J. Dolan .............. 51 Vice Chairman and Chief Financial Officer of the
Company and Director

F. Warren Hellman .............. 64 Director

Philip U. Hammarskjold ......... 33 Director

Richard S. Bodman .............. 60 Director

Alan D. Schwartz ............... 48 Director

John F. McGillicuddy ........... 67 Director
</TABLE>

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

The business address of each of our executive officers is 285 Madison
Avenue, New York, New York 10017. The business address of Messrs. Hellman and
Hammarskjold is One Maritime Plaza, San Francisco, California 94111. The
business address of Mr. Schwartz is 245 Park Avenue, New York, New York 10167.
The business address of Mr. Bodman is c/o AT&T Ventures, Chevy Chase Metro
Building, 2 Wisconsin Circle, Suite 610, Chevy Chase, Maryland 20815-7003. The
business address of Mr. McGillicuddy is 270 Park Avenue, 32nd Floor, New York,
New York 10017.

PETER A. GEORGESCU Mr. Georgescu has been Chairman and Chief Executive
Officer of Young & Rubicam Inc. since 1994. He has been a Director of the
Company since 1980. Mr. Georgescu's career at Y&R spans 34 years with top
management experience both in the United States and Europe. Prior to becoming
Chairman, Mr. Georgescu was President of the Company for four years.
Mr. Georgescu joined Young & Rubicam New York in 1963 as a trainee and has held
various positions in research, account management and marketing in New York,
Chicago and Amsterdam. Mr. Georgescu is a member of the Board of Directors of
Briggs and Stratton Company.

ALAN J. SHELDON Mr. Sheldon has been Vice Chairman and Managing Director
of Young & Rubicam Inc. since July 1996. Mr. Sheldon was a Director of the
Company from 1988 to February 1998. From 1994 to 1996, he was Chief Operating
Officer of Young & Rubicam Advertising. Mr. Sheldon was also Chief Financial
Officer of Young & Rubicam Europe from 1993 to 1994, after serving as Executive
Vice President and General Manager of Young & Rubicam Inc. since 1990.
Mr. Sheldon joined Y&R in 1968 in Corporate Finance and subsequently served in
several senior positions at Y&R and Young & Rubicam Advertising. Mr. Sheldon
has announced that he will retire from the Company at the end of 1998.

JOHN P. MCGARRY, JR. Mr. McGarry has been President of the Company since
April 1996. Prior to assuming his present post, he held several positions at
Y&R including Chairman and Chief Executive Officer of Young & Rubicam
Advertising, President and Chief Executive Officer of Young & Rubicam
Advertising North America, President and Chief Executive Officer of Young &
Rubicam USA, and President of Young & Rubicam New York. Mr. McGarry joined Y&R
in 1965. Mr.

<PAGE>

McGarry has announced that he will retire from the Company at the end of 1998.

EDWARD H. VICK Mr. Vick has been Chief Operating Officer of the Company
since November 1997 and a Director of the Company since February 1998. Mr. Vick
was Chairman and Chief Executive Officer of Young & Rubicam Advertising from
April 1996 to September 1998. Mr. Vick joined Young & Rubicam New York as its
President and Chief Executive Officer in February 1994. He began his career
with Benton & Bowles and was a Senior Vice President of Ogilvy & Mather. From
1985 to 1991, he was President of Ammirati & Puris and, in 1991, was President
and Chief Executive Officer of Levine, Huntley, Vick and Beaver. In 1992,
Mr. Vick came to Y&R as President and Chief Executive Officer of Landor.

THOMAS D. BELL, JR. Mr. Bell has been Executive Vice President of the
Company since 1995, Chairman and Chief Executive Officer of Young & Rubicam
Advertising since September 1998, and a Director of the Company since February
1998. From 1995 until September 1998, he was President and Chief Executive
Officer of Burson-Marsteller. From 1994 to 1995, Mr. Bell served as Vice
Chairman of Gulfstream Aerospace Corporation. Prior thereto, Mr. Bell was Vice
Chairman and Chief Operating Officer of Burson-Marsteller from 1991 to 1994.
Before initially joining Burson-Marsteller in 1989, Mr. Bell held senior
positions in business and government. Mr. Bell is a member of the Board of
Directors of Gulfstream Aerospace Corporation, Lincoln National Corporation and
Lincoln Life & Annuity of New York.

STEPHANIE W. ABRAMSON Ms. Abramson has been Executive Vice President and
General Counsel of the Company since 1995. Ms. Abramson was a Director of the
Company from 1995 until February 1998. From 1980 until joining Y&R in 1995, she
was a partner with Morgan, Lewis & Bockius LLP.

MICHAEL J. DOLAN Mr. Dolan has been Vice Chairman and Chief Financial
Officer and a Director of the Company since July 1996. Prior thereto, from 1991
to 1996, he was President and Chief Executive Officer of the joint venture,
Snack Ventures Europe, between PepsiCo Foods International ("PFI") and General
Mills. Mr. Dolan also served PFI as Senior Vice President, Operations. From
1987 to 1991, Mr. Dolan was with Peter Kiewet Sons, Inc. ("PKS"), a
construction and mining conglomerate. While at PKS, he served as Corporate
Executive Vice President for Continental Can Company when it was acquired and
restructured by PKS.

F. WARREN HELLMAN Mr. Hellman has been a Director of the Company since
December 1996. Mr. Hellman is Chairman of Hellman & Friedman LLC ("Hellman &
Friedman"), a private investment company he founded in 1984. Prior thereto, Mr.
Hellman was President and a Director of Lehman Brothers, as well as head of its
Investment Banking Division, and Chairman of Lehman Corporation (a closed-end
investment company). Mr. Hellman serves on the Board as a representative of the
H&F Investors. Mr. Hellman is a member of the Board of Directors of Levi Strauss
& Co., Franklin Resources, Inc., Il Fornaio (America) Corp. and PowerBar Inc.,
as well as a number of private and venture-backed companies.

PHILIP U. HAMMARSKJOLD Mr. Hammarskjold has been a Director of the
Company since December 1996. Mr. Hammarskjold is a Managing Director of Hellman
& Friedman. Prior to joining Hellman & Friedman in 1992, Mr. Hammarskjold was
employed by Dominquez Barry Samuel Montagu in Australia and by Morgan Stanley &
Co. in New York. Mr. Hammarskjold serves on the Board as a representative of
the H&F Investors. Mr. Hammarskjold is a member of the Board of Directors of
The Covenant Group, Inc.

RICHARD S. BODMAN Mr. Bodman has been a Director of the Company since
April 1998. Mr. Bodman has been Managing General Partner of AT&T Ventures, LLC
("AT&T Ventures"), a company which manages a venture capital pool investing in
early stage businesses related to telecommunications and information technology
since May 1996. Prior to joining AT&T Ventures, from 1990 until May 1996,
Mr. Bodman was Senior Vice President for Corporate Strategy & Development and a
member of the Management Executive Committee of AT&T. Mr. Bodman is a member of
the Board of Directors of Reed Elsevier plc, Tyco International, Inc. and
ISS Group.

ALAN D. SCHWARTZ Mr. Schwartz has been a Director of the Company since
December 1996. Mr. Schwartz is Executive Vice President and

<PAGE>

Head of the Investment Banking Department at Bear, Stearns & Co. Inc. He is
also a member of the Executive Committee of the parent company, The Bear
Stearns Companies Inc. Mr. Schwartz joined Bear Stearns in 1976. Mr. Schwartz
is a member of the Board of Directors of Unique Casual Restaurants, Inc.

JOHN F. MCGILLICUDDY Mr. McGillicuddy has been a Director of the Company
since May 1997. Mr. McGillicuddy was the Chairman and Chief Executive Officer
of Chemical Banking Corporation from 1992 to 1993 and Chairman and Chief
Executive Officer of Manufacturers Hanover Corporation and Manufacturers
Hanover Trust Company from 1979 to 1991. Mr. McGillicuddy is a member of the
Board of Directors of UAL Corporation, USX Corporation and Southern Peru Copper
Corporation.

We intend that the Board will continue to be comprised of a majority of
Directors who are independent of management.

Our Board is divided into three classes, as nearly equal in number as is
possible, serving staggered three-year terms, so that the Directors' initial
terms will expire at the annual meetings of our stockholders held in 1999, 2000
and 2001, respectively. At each annual meeting of our stockholders, successors
to the class of Directors whose term expires at that meeting will be elected to
serve for three-year terms and until their successors are elected and qualified.
Messrs. Hellman, Schwartz and Vick are Class I Directors, with terms expiring in
1999. Messrs. Dolan, Georgescu and Hammarskjold are Class II Directors, with
terms expiring in 2000. Messrs. Bell, Bodman and McGillicuddy are Class III
Directors, with terms expiring in 2001.

The H&F Investors have the right to nominate and elect two members of the
Board as long as they continue to hold in the aggregate at least 10% of the
Outstanding Shares (as defined in the Stockholders' Agreement) and one member of
the Board as long as they continue to hold in the aggregate at least 5% of the
Outstanding Shares. See "Description of Capital Stock--The Stockholders'
Agreement."

Executive officers are appointed by, and serve at the discretion of, the
Board.

COMMITTEES

Our Compensation Committee consists of Messrs. Hammarskjold, Schwartz
and Bodman, Chairman. The Compensation Committee reviews the compensation of
our officers and makes recommendations to the Board regarding such compensation
and reviews and administers our equity compensation plans.

Our Audit Committee consists of Messrs. Bodman, Schwartz and
McGillicuddy, Chairman. The Audit Committee is responsible for reviewing any
transactions (other than compensation arrangements) between Y&R and its
executive officers and Directors, the plans for and results of audits of Y&R,
and the results of any internal audits, compliance with any written policies and
procedures and the adequacy of Y&R's systems of internal accounting controls.
The Audit Committee also considers annually the qualifications of Y&R's
independent auditors.

The Board may create such other committees as it may determine from time
to time.

LIMITATION OF LIABILITY AND INDEMNIFICATION

The Charter and the Bylaws contain provisions indemnifying the Directors
and executive officers of Y&R to the fullest extent permitted by law. Section
102(b)(7) of the DGCL provides that Delaware corporations may include in their
certificates of incorporation a provision eliminating or limiting the personal
liability of Directors to the corporation or its stockholders for monetary
damages for breach of their fiduciary duty including acts constituting gross
negligence, except under certain circumstances, including breach of the
Director's duty of loyalty, acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of law or any transaction from
which the Director derived improper personal benefit. The Charter provides that
Y&R's Directors are not liable to it or its stockholders for monetary damages
for breach of their fiduciary duties, subject to the exceptions specified by
Delaware law.

<PAGE>

COMPENSATION OF DIRECTORS

The Company compensates only those members of the Board who are not
employees of the Company for their participation as Directors. During 1997, Alan
D. Schwartz and John C. McGillicuddy each received $50,000 as an annual stipend
for serving as a member of the Board and each, along with Richard S. Bodman,
will receive $50,000 in 1998. Messrs. Hellman and Hammarskjold each waived such
fee in 1997 and have indicated that they intend to waive it in the future.
Out-of-pocket expenses for attendance at meetings of the Board are reimbursed
for all members.

EXECUTIVE COMPENSATION

The following table sets forth the compensation paid or accrued by the
Company to the Chief Executive Officer and the four other most highly
compensated executive officers who were serving as executive officers on
December 31, 1997 (collectively, the "named executive officers").

<PAGE>
SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
-------------------------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
----------------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) AWARDS(2) OPTIONS COMPENSATION (3)
- --------------------------------------------- ------ ----------- ---------- ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Peter A. Georgescu .......................... 1997 $950,000 $598,500 -- -- $8,000
Chairman and Chief Executive Officer,
Young & Rubicam Inc.

Edward H. Vick .............................. 1997 $700,000 $272,250 $740,000 172,500 $8,199
Chief Operating Officer, Young & Rubicam
Inc.

John P. McGarry, Jr. ........................ 1997 $730,000 $297,000 -- -- $8,000
President, Young & Rubicam Inc.

Thomas D. Bell, Jr. ......................... 1997 $575,000 $168,750 -- 176,550 $8,000
Chairman and Chief Executive Officer,
Young & Rubicam Advertising

Michael J. Dolan ............................ 1997 $550,000 $198,000 $555,000 150,000 $2,190
Vice Chairman and Chief Financial Officer,
Young & Rubicam Inc.

</TABLE>

- ----------
(1) The named executive officers were awarded annual cash bonuses under the Key
Corporation Managers Bonus Plan, which bonuses were generally based on the
Company's achievement of target levels of operating profit and EBITA
(earnings before interest, taxes and amortization), each as defined in such
plan, as well as the achievement of individual objectives. The Company
intends to grant future annual cash bonuses under the 1997 Incentive
Compensation Plan (the "1997 ICP") based on substantially similar Company
and individual performance criteria.

(2) The total number and value of shares of Restricted Stock held by the named
executive officers under the Young & Rubicam Holdings Inc. Restricted Stock
Plan (the "Restricted Stock Plan") at December 31, 1997 (based on the value
of the Common Stock as of December 31, 1997 as determined by the Board,
based upon the valuation opinion of an independent investment bank, taking
into account that prior to the IPO, the Company was privately held and that
the shares were subject to contractual transfer restrictions) are as
follows: Mr. Georgescu--430,440 shares ($5,308,760); Mr. Vick--339,405
shares ($4,185,995); Mr. McGarry--155,850 shares ($1,922,150); Mr.
Bell--284,790 shares ($3,512,410); and Mr. Dolan--305,865 shares
($3,772,335). The Board accelerated the vesting of the Restricted Stock to
the date of consummation of the IPO. Accordingly, all Restricted Stock
awarded to the named executive officers vested and was distributed to the
recipients or a deferral trust, as the case may be, upon the consummation of
the IPO. Dividends on Restricted Stock are paid on the same basis as
ordinary dividends on the Common Stock and may be distributed to the holders
of such Restricted Stock. 60,000 shares and 45,000 shares of Restricted
Stock, respectively, of Messrs. Vick and Dolan were placed in a deferral
trust upon vesting thereof pursuant to the Deferred Compensation Plan. Such
deferral trust will hold the shares prior to their distribution to Messrs.
Vick and Dolan which will occur with respect to 33 1/3% of the shares on
January 15, 2001, with respect to an additional 33 1/3% of the shares on
January 15, 2002, and with respect to the remaining 33 1/3% of the shares on
January 15, 2003. Certain of the named executive officers voluntarily
elected under the Deferred Compensation Plan to have their Restricted Stock
placed in a deferral trust upon vesting thereof, and to have such shares
distributed to them from such deferral trust at specified times in the
future.

(3) "All other compensation" for 1997 consisted of the Company's contribution
of: (i) $8,000 on behalf of each of the named executive officers (other than
Mr. Dolan) as matching contributions under the Young & Rubicam Employees'
Savings Plan (a defined contribution plan) and (ii) an additional $199 and
$2,190 on behalf of Mr. Vick and Mr. Dolan, respectively, as matching
contributions under the Company's Education Incentive Plan (pursuant to
which U.S. employees may elect to have limited amounts of compensation,
together with a Company match, invested in a group annuity insurance
contract for purposes of meeting their children's future education costs).

<PAGE>

During 1997, stock option grants covering 11,469,150 shares in the
aggregate were awarded to 442 employees under the Young & Rubicam Holdings Inc.
Management Stock Option Plan (the "Management Stock Option Plan") and the 1997
Incentive Compensation Plan (the "1997 ICP" and, together with the Management
Stock Option Plan, the "Stock Option Plans"). The option grants in 1997 for the
named executive officers are shown in the following table.

OPTION GRANTS IN LAST FISCAL YEAR

INDIVIDUAL GRANTS
------------------------------------------------------------ POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -----------------------------
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
- ------------------------------ ---------------- -------------- ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter A. Georgescu ........... -- -- -- -- -- --
Edward H. Vick ............... 172,500(1) 1.5% $ 12.33 12/17/07 $1,337,973 $3,390,687
John P. McGarry, Jr. ......... -- -- -- -- -- --
Thomas D. Bell, Jr. .......... 176,550(2) 1.5% $ 12.33 12/17/07 $1,369,387 $3,470,295
Michael J. Dolan ............. 150,000(1) 1.3% $ 12.33 12/17/07 $1,163,455 $2,948,424
</TABLE>

- ----------
(1) These represent non-qualified options granted under the 1997 ICP. Such
options have a ten-year term and will become exercisable with respect to 33
1/3% of the shares subject to any such option on December 31, 2000, with
respect to an additional 33 1/3% of such shares on December 31, 2001 and
with respect to the remaining 33 1/3% of such shares on December 31, 2002.
These options will become fully exercisable with respect to 100% of the
shares subject thereto upon a change in control of the Company (as defined
in the 1997 ICP) or termination of employment due to death or disability.
Upon termination of employment for any other reason, the portion of any such
option that was not exercisable at such time will expire.

(2) This represents a non-qualified option granted under the 1997 ICP. Such
option has a ten-year term and will become exercisable nine years and nine
months from the date of grant, unless Burson-Marsteller, Landor Associates,
Sudler & Hennessey and Cohn & Wolfe achieve a targeted operating profit
budget commitment for the year ending December 31, 1998, in which case it
will become exercisable with respect to 33 1/3% of the shares subject to
such option on December 31, 2000, with respect to an additional 33 1/3% of
such shares on December 31, 2001 and with respect to the remaining 33 1/3%
of such shares on December 31, 2002. This option will become fully
exercisable with respect to 100% of the shares subject thereto upon a change
in control of the Company (as defined in the 1997 ICP) or termination of
employment due to death or disability. Upon termination of employment for
any other reason, the portion of such option that was not exercisable at
such time will expire.

<PAGE>

The exercise of options during 1997, number of options held and their value
at year-end for the named executive officers are shown in the following table:

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES

NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR END FISCAL YEAR END
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------ ------------- ------------- ---------------------------------------- --------------------------
<S> <C> <C> <C> <C>
Peter A. Georgescu ........... -- -- --/-- --/--
Edward H. Vick ............... -- -- 895,245(1)/172,500(2) $ 9,325,469/--
John P. McGarry, Jr. ......... 241,110 $1,386,383 --/-- --/--
Thomas D. Bell, Jr. ......... -- -- 1,165,215(1)/176,550(3) $ 12,137,656/--
Michael J. Dolan ............. -- -- 104,340(4)/306,525(5) $486,948/$730,422
</TABLE>

- ----------------------
(1) This represents a Rollover Option granted under the Management Stock Option
Plan (see "--Management Stock Option Plan").

(2) See footnote (1) to the preceding option grant table.

(3) See footnote (2) to the preceding option grant table.

(4) This represents a Closing Option granted under the Management Stock Option
Plan (see "--Management Stock Option Plan").

(5) This represents (i) with respect to 150,000 shares, a non-qualified option
granted under the 1997 ICP with the terms set forth in footnote (1) to the
preceding option grant table and (ii) with respect to 156,525 shares, a
Closing Option granted under the Management Stock Option Plan (see
"--Management Stock Option Plan").

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

MANAGEMENT STOCK OPTION PLAN. At the time of the Recapitalization,
non-qualified options to purchase shares of Common Stock were granted pursuant
to the Management Stock Option Plan to certain members of management of Y&R in
consideration of their surrender for cancellation of all or a portion of their
outstanding options to purchase equity units of predecessor companies of Y&R
(the "Rollover Options"). As of the date hereof, assuming consummation of the
Offering, an aggregate of 10,607,468 Rollover Options remain outstanding.

The Rollover Options were immediately vested and exercisable upon grant.
Each Rollover Option has an exercise price of $1.92 per share of Common Stock
subject to such Rollover Option, with certain limited exceptions outside the
United States, and has a term of five years with respect to 50% of the shares
subject thereto and a term of seven years with respect to the other 50%.

Immediately following the closing of the Recapitalization, non-qualified
options to purchase shares of Common Stock were granted by the Compensation
Committee to certain key employees of Y&R pursuant to the Management Stock
Option Plan (the "Closing Options"). As of the date hereof, assuming
consummation of the Offering, an aggregate of 5,762,091 Closing Options and
additional options (which were granted since the Recapitalization with the same
terms and conditions as the Closing Options (together with the Closing Options,
the "Executive Options")) remain outstanding.

Each Executive Option became exercisable immediately with respect to 40%
of the shares subject thereto and will become exercisable (i) on the third
anniversary of its grant date with respect to 30% of such shares and (ii) on the
fifth anniversary of its grant date with respect to the remaining 30% of such
shares. The exercise price for the Executive Options is $7.67 per share of
Common Stock.

Executive Options will not be exercisable after the expiration of ten
years from the date of grant of such Executive Option. Upon termination of
employment for any reason, all Rollover Options and all Executive Options that
are then exercisable will remain exercisable for 30 days and will then be
canceled if not exercised. All Executive Options that have not yet become
exercisable

<PAGE>
will be canceled immediately on termination of employment.

Among other powers, the Compensation Committee has the authority to
accelerate the right to exercise any or all of the Executive Options, provided
that with respect to the period during which the H&F Investors and six other
investors not affiliated with the Company (together with the H&F Investors, the
"Recapitalization Investors") own at least 20% of the Outstanding Shares (the
"Extended Consent Period"), such action shall only be effective with the written
consent of the Recapitalization Investors unless such acceleration involves only
the waiver of any terms or conditions not expressly provided for by the
Management Stock Option Plan.

The Rollover Options and Executive Options are transferable only by will
or intestate succession and upon such a transfer the transferee must agree to be
bound by the Management Stock Option Plan and to execute any other agreement
which the Compensation Committee may prescribe.

The Compensation Committee, with the written consent of the
Recapitalization Investors (during the Extended Consent Period) and the
Management Voting Trust, may at any time terminate the Management Stock Option
Plan or any Rollover Options or Executive Options then outstanding. Upon the
termination of an outstanding Rollover Option or Executive Option, Y&R would pay
cash consideration to the optionholder as set forth in the Management Stock
Option Plan. The Compensation Committee may amend the Management Stock Option
Plan and the terms and conditions of the Rollover Options and the Executive
Options with the written consent of the Recapitalization Investors (during the
Extended Consent Period with respect to any amendment accelerating the right to
exercise any or all of the Executive Options or any other amendment improving
the terms of the Rollover Options or Executive Options unless such acceleration
or amendment involves the waiver or amendment of any terms or conditions not
expressly provided for by the Management Stock Option Plan) and the Management
Voting Trust. However, no amendment may impair the rights of a holder of a
Rollover Option or Executive Option without such holder's consent. The
Compensation Committee is authorized to make certain adjustments to the
Management Stock Option Plan and any outstanding Rollover Options or Executive
Options in the event of a change in the capitalization of Y&R due to certain
corporate events specified in the Management Stock Option Plan.

Under the Management Stock Option Plan, upon exercise of a Rollover
Option or Executive Option, the employee may pay the exercise price either in
cash or, subject to the approval of the Compensation Committee, by (i)
delivering a number of shares of Common Stock already owned by such employee
with the appropriate value or (ii) a recourse note to Y&R with such terms and
conditions as the Compensation Committee may require, including a pledge of the
related shares. Further, upon exercise of a Rollover or Executive Option, the
employee may pay the withholding taxes or other similar charges that are
incurred in connection with such exercise (or, if the Compensation Committee
consents, the optionholder's estimated total taxes and charges incurred upon
such exercise) by the same methods and subject to the same approvals as for the
payment of the exercise price or, in addition, subject to the approval of the
Compensation Committee, by having Y&R withhold a number of shares of Common
Stock of the appropriate value from those to be distributed upon such exercise.

The Company has adopted a new incentive compensation plan that has
superseded the Management Stock Option Plan with respect to all future grants of
options. See "--1997 ICP" below.

THE RESTRICTED STOCK PLAN AND TRUST AGREEMENT. With respect to the
9,231,105 shares of Restricted Stock granted by the Compensation Committee to
certain members of management of Y&R pursuant to the Restricted Stock Plan, the
Board elected to accelerate the vesting to the date on which the IPO was
consummated. As of the date hereof, an aggregate of 517,065 shares of such
Restricted Stock remain in accounts established for the award recipients in the
Restricted Stock Trust with their distribution subject to certain additional
conditions set forth in the awards agreements. As a result, upon consummation of
the IPO, an aggregate of 8,714,040 shares of Restricted Stock in the Restricted
Stock Trust were distributed to the employees or to a

<PAGE>

deferral trust pursuant to the Deferred Compensation Plan.

Recipients of 1,832,235 shares of Restricted Stock granted in December
1997 were required to place such shares in a deferral trust upon vesting
(subject to the claims of the creditors of the Company in the event of its
insolvency) pursuant to the Deferred Compensation Plan. The deferral trust will
hold the shares prior to their distribution to such recipients, which will occur
with respect to one-third of the shares on January 15, 2001, with respect to an
additional one-third of the shares on January 15, 2002 and with respect to the
remaining one-third of the shares on January 15, 2003.

Upon termination of employment for any reason prior to vesting an
employee will forfeit all unvested Restricted Stock granted to him or her
without consideration on the date of such termination.

While the Management Voting Trust Agreement is in effect, all Restricted
Stock will be delivered to the Management Voting Trust and voted in accordance
with the provisions of the Management Voting Trust Agreement. After the
Management Voting Trust Agreement is no longer in effect, each employee who has
been awarded Restricted Stock will be entitled to instruct the trustee of the
Restricted Stock Trust as to the voting of the Restricted Stock held in his
account. Restricted Stock as to which no voting instructions are received by the
trustee or which have not been granted to any employee will be voted by the
trustee pro rata in accordance with the vote of the Restricted Stock which has
been granted and with respect to which voting instructions have been given.

Among other powers, the Compensation Committee has the authority to
accelerate the vesting of all awards and the release of the related Restricted
Stock.

Restricted Stock granted to an employee and held in the Restricted Stock
Trust is not transferable and any attempt to transfer such Restricted Stock may
lead to its forfeiture without consideration.

The Compensation Committee, with the written consent of the Management
Voting Trust, may at any time terminate the Restricted Stock Plan or any awards
of Restricted Stock then outstanding. Upon the termination of the Restricted
Stock Plan or of an outstanding award of Restricted Stock, the Compensation
Committee may, with the written consent of the Management Voting Trust, either
declare that a vesting event has occurred and release Restricted Stock to
employees or cause Y&R to pay an amount in cash equal to the value of the
Restricted Stock subject to such terminated award minus any applicable
withholding taxes or other similar charges. Within two years of any termination
of the Restricted Stock Plan, the Compensation Committee shall distribute any
unawarded Restricted Stock remaining in the Restricted Stock Trust to such
employees as it may designate. In no event shall any Restricted Stock revert to
Y&R as a result of the termination of the Restricted Stock Plan or any award of
Restricted Stock. The Compensation Committee may amend the Restricted Stock Plan
and the terms and conditions of any awards of Restricted Stock with the written
consent of the Management Voting Trust, provided that no amendment may impair
the rights of a holder of any such award without such holder's consent. The
Compensation Committee is authorized to make certain adjustments to the
Restricted Stock Plan and any outstanding awards of Restricted Stock in the
event of a change in the capitalization of Y&R due to certain corporate events
specified in the Restricted Stock Plan.

The Company has adopted a new incentive compensation plan that has
amended and restated the Restricted Stock Plan with respect to all grants made
subsequent to March 31, 1998. See "--1997 ICP" below. In order to assist the
Company and its affiliates in meeting various cash compensation obligations of
the Company and its affiliates, the Company has amended the agreement governing
the Restricted Stock Trust to provide for cash distributions to be made from the
Restricted Stock Trust to pay salaries and for the benefit of participants in
various annual bonus programs as the Compensation Committee may direct. Such
amendments also permit the trustee of the Restricted Stock Trust to require the
Company to purchase unallocated shares of Common Stock held in the Restricted
Stock Trust such that proceeds from the sale are sufficient to make such salary
and bonus payments. Pursuant to such amendment, the Company repurchased
1,855,845 unallocated shares of Common Stock in the Restricted Stock Trust upon
the consummation of the IPO.

<PAGE>

1997 ICP. In December 1997, the Company adopted the 1997 Incentive
Compensation Plan (the "1997 ICP"). The 1997 ICP has superseded the Management
Stock Option Plan and has amended and restated the Restricted Stock Plan (the
Management Stock Option Plan and the Restricted Stock Plan (prior to such
amendment and restatement), the "Preexisting Plans"), although all awards
granted prior to the adoption of the 1997 ICP, and any grants of Restricted
Stock made after such adoption but on or prior to March 31, 1998, will remain
outstanding in accordance with their terms and be subject to the terms of the
Preexisting Plans.

As of the date hereof, an aggregate of 10,837,510 non-qualified options
granted by the Compensation Committee to certain members of management of Y&R
pursuant to the 1997 ICP remain outstanding. Such options have exercise prices
ranging from $12.33 per share to $31.00 per share. 9,394,275 of such options
will expire if not exercised ten years after the date of grant and will be fully
exercisable with respect to 33 1/3% of the shares subject to such option on
December 31, 2000, with respect to an additional 33 1/3% of such shares on
December 31, 2001, and with respect to the remaining 33 1/3% of such shares on
December 31, 2002. Out of these options, options to purchase 949,050 and 176,550
shares of Common Stock, respectively, granted to employees of Burson-Marsteller
will not become exercisable until nine years and nine months from the date of
their grant, unless Burson-Marsteller or the group of Burson-Marsteller, Landor,
Sudler & Hennessey and Cohn & Wolfe, as the case may be, achieves a targeted
operating profit budget commitment for the year ending December 31, 1998, in
which case the vesting schedule set forth in the previous sentence will apply to
such options. All of these options will become fully exercisable with respect to
100% of the shares subject thereto upon a change in control of the Company (as
defined in the 1997 ICP) or termination of employment due to death or
disability. Upon termination of employment for any other reason, the portion of
any such option that was not exercisable at such time will expire.

The remaining outstanding options will expire if not exercised ten years
after the date of grant and generally will be fully exercisable with respect to
33 1/3% of such shares on the third, fourth and fifth anniversaries,
respectively, of the date of grant.

The following is a description of the material features of the 1997 ICP.

Types of Awards. The terms of the 1997 ICP provide for grants of stock
options, stock appreciation rights ("SARs"), restricted stock, deferred stock,
other stock-related awards, and performance or annual incentive awards that may
be settled in cash, stock or other property ("Awards").

Shares Subject to the 1997 ICP; Annual Per-Person Limitations. Under the
1997 ICP, the total number of shares of Common Stock reserved and available for
delivery to participants in connection with Awards is (i) 19,125,000, plus (ii)
the number of shares of Common Stock subject to awards under Preexisting Plans
that become available (generally due to cancellation or forfeiture) after the
effective date of the 1997 ICP; provided, however, that the total number of
shares of Common Stock with respect to which incentive stock options ("ISOs")
may be granted shall not exceed one million. Any shares of Common Stock
delivered under the 1997 ICP may consist of authorized and unissued shares or
treasury shares.

The 1997 ICP imposes individual limitations on the amount of certain
Awards in order to comply with Section 162(m) of the Internal Revenue Code (the
"Code"). Under these limitations, during any fiscal year the number of options,
SARs, shares of restricted stock, shares of deferred stock, shares of Common
Stock issued as a bonus or in lieu of other obligations, and other stock-based
Awards granted to any one participant must not exceed 200,000 shares for each
type of such Award, subject to adjustment in certain circumstances. In addition,
the maximum cash amount that may be earned as a final annual incentive award or
other annual cash Award in respect of any fiscal year by any one participant and
the maximum cash amount that may be earned as a final performance award or other
cash Award in respect of a performance period other than an annual period by any
one participant may not exceed $10 million. The Company intends for Awards
granted to "covered employees" (as

<PAGE>
defined in Section 162(m)) under the 1997 ICP to qualify as "performance-based
compensation" (as defined in Section 162(m) and regulations thereunder) for
purposes of Section 162(m) to the extent such Awards may otherwise be subject to
Section 162(m).

The Compensation Committee is authorized to adjust the number and kind of
shares subject to the aggregate share limitations and annual limitations under
the 1997 ICP and subject to outstanding Awards (including adjustments to
exercise prices and number of shares underlying options and other affected terms
of Awards) in the event that a dividend or other distribution (whether in cash,
shares, or other property), recapitalization, forward or reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase, or
share exchange, or other similar corporate transaction or event affects the
Common Stock so that an adjustment is determined by the Compensation Committee
to be appropriate. The Compensation Committee is also authorized to adjust
performance conditions and other terms and conditions of Awards in response to
these kinds of events or in response to changes in applicable laws, regulations,
or accounting principles or in view of any other circumstances deemed relevant
by the Compensation Committee, subject to certain limitations in light of
Section 162(m) of the Code.

Eligibility. Executive officers and other officers and employees of the
Company or any affiliate, including any such person who may also be a director
of the Company, and each other person who provides services to the Company or
any affiliate shall be eligible to be granted Awards under the 1997 ICP. An
affiliate of the Company for this purpose includes any entity required to be
aggregated with the Company under Section 414 of the Code and any 10% owned
joint venture or partnership of the Company or an affiliate.

Administration. The 1997 ICP is administered by the Compensation
Committee except to the extent the Board elects to administer the 1997 ICP.
Subject to the terms and conditions of the 1997 ICP, the Compensation Committee
is authorized to select participants, determine the type and number of Awards to
be granted and the number of shares of Common Stock to which Awards will relate,
specify times at which Awards will be exercisable or settleable (including
performance conditions that may be required as a condition to exercise or
settlement), set other terms and conditions of such Awards, prescribe forms of
Award agreements, interpret and specify rules and regulations relating to the
1997 ICP, and make all other determinations that may be necessary or advisable
for the administration of the 1997 ICP. The 1997 ICP provides that Compensation
Committee members shall not be personally liable, and shall be fully
indemnified, in connection with any action, determination, or interpretation
taken or made in good faith under the 1997 ICP.

Stock Options and SARs. The Compensation Committee is authorized to grant
stock options, including both ISOs that can result in potentially favorable tax
treatment to the participant and non-qualified stock options (i.e., options not
qualifying as ISOs), and SARs entitling the participant to receive the excess of
the fair market value of a share of Common Stock on the date of exercise over
the grant price of the SAR. The exercise price per share subject to an option
and the grant price of an SAR is determined by the Compensation Committee, but
must not be less than the fair market value of a share of Common Stock on the
date of grant (except in certain cases specified in the 1997 ICP). The maximum
term of each option or SAR, the times at which each option or SAR will be
exercisable, and provisions requiring forfeiture of unexercised options or SARs
at or following termination of employment generally is fixed by the Compensation
Committee, except no option or SAR may have a term exceeding ten years. Options
may be exercised by payment of the exercise price in cash, Common Stock,
outstanding Awards, or other property (possibly including notes or obligations
to make payment on a deferred basis) having a fair market value equal to the
exercise price, as the Compensation Committee may determine from time to time.
Methods of exercise and settlement and other terms of the SARs are determined by
the Compensation Committee.

Restricted and Deferred Stock. The Compensation Committee is authorized
to grant restricted stock and deferred stock. Restricted

<PAGE>

stock is a grant of Common Stock which may not be sold or disposed of, and which
may be forfeited in the event of certain terminations of employment and/or
failure to meet certain performance requirements prior to the end of a
restricted period as specified by the Compensation Committee. A participant
granted restricted stock generally has all of the rights of a shareholder of the
Company, including the right to vote the shares and to receive dividends
thereon, unless otherwise determined by the Compensation Committee. An Award of
deferred stock confers upon a participant the right to receive shares or cash
(or a combination) at the end of a specified deferral period, subject to
possible forfeiture of the Award in the event of certain terminations of
employment and/or failure to meet certain performance requirements prior to the
end of a specified period. Prior to settlement, an Award of deferred stock
carries no voting or dividend rights or other rights associated with share
ownership, although dividend equivalents may be granted, as discussed below.

Dividend Equivalents. The Compensation Committee is authorized to grant
dividend equivalents conferring on participants the right to receive cash,
shares, other Awards, or other property equal in value to dividends paid on a
specific number of shares, or other periodic payments. Dividend equivalents may
be granted on a free-standing basis or in connection with another Award, may be
paid currently or on a deferred basis, and, if deferred, may be deemed to have
been reinvested in additional shares, Awards, or other investment vehicles
specified by the Compensation Committee.

Bonus Stock and Awards in Lieu of Cash Obligations. The Compensation
Committee is authorized to grant shares as a bonus free of restrictions, or to
grant shares or other Awards in lieu of obligations to pay cash or deliver other
property under the 1997 ICP or other plans or compensatory arrangements, subject
to such terms as the Compensation Committee may specify.

Other Stock-Based Awards. The 1997 ICP authorizes the Compensation
Committee to grant Awards that are denominated or payable in, valued by
reference to, or otherwise based on or related to shares. Such Awards might
include convertible or exchangeable debt securities, other rights convertible or
exchangeable into shares, purchase rights for shares, Awards with value and
payment contingent upon performance of the Company or any other factors
designated by the Compensation Committee, and Awards valued by reference to the
book value of shares or the value of securities of, or the performance of,
specified affiliates. The Compensation Committee determines the terms and
conditions of such Awards, including consideration to be paid to exercise Awards
in the nature of purchase rights, the period during which Awards will be
outstanding, and forfeiture conditions and restrictions on Awards.

Performance Awards, Including Annual Incentive Awards. The right of a
participant to exercise or receive a grant or settlement of an Award, and the
timing thereof, may be subject to performance conditions specified by the
Compensation Committee (measurable over performance periods of up to 10 years).
In addition, the 1997 ICP authorizes specific annual incentive awards, which
represent a conditional right to receive cash, shares or other Awards upon
achievement of preestablished performance goals during a specified one-year
period. Performance awards and annual incentive awards granted to persons the
Compensation Committee expects will, for the year in which a deduction arises,
be among the Chief Executive Officer and four other most highly compensated
executive officers, will, if so intended by the Compensation Committee, be
subject to provisions that should qualify such Awards as "performance-based
compensation" not subject to the limitation on tax deductibility by the Company
under Code Section 162(m).

The performance goals to be achieved as a condition of payment or
settlement of a performance award or annual incentive award will consist of (i)
one or more business criteria and (ii) a targeted level or levels of performance
with respect to each such business criteria as specified by the Compensation
Committee. In the case of performance awards intended to meet the requirements
of Code Section 162(m), the business criteria used must be one of those
specified in the 1997 ICP, although for other participants the Compensation
Committee may specify any other criteria. The business criteria specified in the
1997 ICP are: (1) earnings per share; (2) increase in revenues; (3) cash flow;
(4) cash

<PAGE>

flow return on investment; (5) return on net assets, return on assets, return on
investment, return on capital, return on equity; (6) economic value added; (7)
operating margin; (8) net income, net income before taxes, operating profits,
earnings before interest, taxes and amortization, earnings before interest,
taxes, depreciation and amortization; (9) total shareholder return; (10) ratio
of staff cost to revenues or gross margin; and (11) any of the above goals as
compared to the performance of a published or special index deemed applicable by
the Compensation Committee including, but not limited to, the Standard & Poor's
500 Stock Index or a group of comparator companies.

Subject to the requirements of the 1997 ICP, the Compensation Committee
will determine other performance award and annual incentive award terms,
including the required levels of performance with respect to the business
criteria, the corresponding amounts payable upon achievement of such levels of
performance, termination and forfeiture provisions, and the form of settlement.

Other Terms of Awards. Awards may be settled in the form of cash, Common
Stock, other Awards, or other property, in the discretion of the Compensation
Committee. The Compensation Committee may require or permit participants to
defer the settlement of all or part of an Award in accordance with such terms
and conditions as the Compensation Committee may establish. The Compensation
Committee is authorized to place cash, shares, or other property in trusts or
make other arrangements to provide for payment of the Company's obligations
under the 1997 ICP. The Compensation Committee may condition any payment
relating to an Award on the withholding of taxes and may provide that a portion
of any shares or other property to be distributed will be withheld (or
previously acquired shares or other property surrendered by the participant) to
satisfy withholding and other tax obligations. Awards granted under the 1997 ICP
generally may not be pledged or otherwise encumbered and are not transferable
except by will or by the laws of descent and distribution, or to a designated
beneficiary upon the participant's death, except that the Compensation Committee
may, in its discretion, permit transfers for estate planning or other purposes.

The Compensation Committee may cancel or rescind Awards, or require
repayment of any profits resulting from Awards, if the participant fails to
comply with certain restrictive or other covenants set forth in the 1997 ICP
and/or an Award agreement.

Acceleration of Vesting. The Compensation Committee may, in its
discretion, accelerate the exercisability, the lapsing of restrictions, or the
expiration of deferral or vesting periods of any Award, and such accelerated
exercisability, lapse, expiration and vesting shall occur automatically in the
case of a "change in control" of the Company except to the extent otherwise
provided in the Award agreement. In addition, the Compensation Committee may
provide that the performance goals relating to any performance-based award will
be deemed to have been met upon the occurrence of any "change in control."

"Change in control" is defined in the 1997 ICP to include:

(i) any person (other than the Company, certain companies owned by
the stockholders of the Company or any employee benefit plans of
the Company) becoming the beneficial owner of securities (x)
representing 40% or more of the combined voting power of the
Company's then outstanding securities and (y) so long as the
Management Voting Trust is still in existence, representing a
greater percentage of the combined voting power of the Company's
then outstanding securities than is represented by securities
held by the Management Voting Trust, provided, that all shares of
Common Stock subject to vested options under the 1997 ICP and the
Management Stock Option Plan (not including options which would
vest on such change in control) are counted as outstanding
securities of the Company;

(ii) during a two-year period, individuals who constitute the Board at
the start of such period, and any new director whose election or
nomination for election to the Board was approved by a vote of at
least two-thirds of the directors then in office who either were

<PAGE>
directors at the start of such period or whose election or
nomination was previously so approved (excluding directors whose
elections were as a result of certain proxy contests or who were
designated by any entity who had entered into a change in control
agreement with the Company), ceasing to constitute a majority of
the Board;

(iii) the consummation of a merger or consolidation of the Company with
another entity which would result in either (A) the voting
securities of the Company outstanding immediately prior to such
merger or consolidation failing to represent (either by remaining
outstanding or being converted into voting securities of the
surviving or resulting entity) 40% or more of the combined voting
power of the surviving or resulting entity outstanding
immediately after such merger or consolidation or (B) (I) the
voting securities of the Company outstanding immediately prior to
such merger or consolidation continuing to represent at least 40%
but less than 60% of the combined voting power of the surviving
or resulting entity outstanding immediately after such merger or
consolidation and (II) as a result of such merger or
consolidation, there is an acceleration of the vesting or
exercisability of any material amount of, or material percentage
of, outstanding stock options or other stock awards granted by
the entity with which such merger or consolidation is taking
place or any of its affiliates;

(iv) the stockholders of the Company approve a plan or agreement for
the sale or disposition of all or substantially all of the
consolidated assets of the Company (other than a sale or
disposition immediately after which such assets will be owned
directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of common
stock of the Company immediately prior thereto) in which case the
Board shall determine the effective date of the change in
control; or

(v) any other event which the Board determines, in its discretion,
would materially alter the structure of the Company or its
ownership.

A change in control will also be deemed to have occurred immediately
prior to the consummation of (i) a tender offer for securities of the Company
representing more than 50% of the combined voting power of the Company's then
outstanding securities in which there is not disclosed an intention to follow
the consummation of the tender offer with a merger, reorganization,
consolidation, share exchange or similar transaction or (ii) a tender offer for
securities of the Company representing any percentage of the combined voting
power of the Company's then outstanding securities in which there is disclosed
an intention to follow the consummation of the tender offer with a merger,
reorganization, consolidation, share exchange or similar transaction in which
the value of the consideration to be offered for such securities is lower than
the value of the consideration offered for such securities in the tender offer
(as determined by the Board at the time) in order to allow holders of previously
unexercisable options the opportunity to participate therein with respect to
shares underlying such options.

Amendment and Termination of the 1997 ICP. The Board may amend, alter,
suspend, discontinue, or terminate the 1997 ICP or the Compensation Committee's
authority to grant Awards without the consent of shareholders or participants,
except shareholder approval must be obtained for any amendment or alteration if
required by law or regulation or under the rules of any stock exchange or
automated quotation system on which the shares are then listed or quoted.
Moreover, participant consent must be obtained if such action would materially
and adversely affect the rights of a participant under an outstanding Award.
Shareholder approval will not be deemed to be required under laws or
regulations, such as those relating to ISOs, that condition favorable treatment
of participants on such approval, although the Board may, in its discretion,
seek shareholder approval in any circumstance in which it deems such approval
advisable. Thus, shareholder approval will not necessarily be required for

<PAGE>
amendments that might increase the cost of the 1997 ICP or broaden eligibility.
The Committee may amend, alter, suspend, discontinue or terminate any
outstanding Award or Award agreement, except as otherwise provided in the 1997
ICP. Participant consent must be obtained if such action would materially and
adversely affect the rights of a participant under such Award. Notwithstanding
the foregoing, the Compensation Committee may terminate any outstanding Award in
whole or in part, provided that upon such termination the Company pays to such
participant (i) with respect to an option (whether or not exercisable) or
portion thereof, an amount in cash for each share of Common Stock subject to
such option or portion thereof being terminated equal to the excess, if any, of
(a) the value at which a share of Common Stock received pursuant to the exercise
of such option would have been valued by the Company at that time for purposes
of determining applicable withholding taxes or other similar charges, over (b)
the sum of the exercise price per share of such option and applicable
withholding taxes and other similar charges, and (ii) with respect to any other
type of Award, an amount in Common Stock or cash (as determined by the
Compensation Committee in its sole discretion) equal to the value of such Award
or portion thereof being terminated as of the date of termination (assuming the
acceleration of the exercisability of such Award or portion thereof, the lapsing
of any restrictions on such Award or portion thereof or the expiration of any
deferral or vesting period of such Award or portion thereof) as determined by
the Compensation Committee in its sole discretion.

DEFERRED COMPENSATION PLAN. The Deferred Compensation Plan permits
certain members of a select group of management or highly compensated employees
of the Company and its affiliates to defer receipt of specified portions of
compensation (either cash, stock or stock-based compensation) and to have such
deferred amounts treated as if invested in specified investment vehicles, all in
accordance with the terms of the Deferred Compensation Plan. Amounts deferred
under the Deferred Compensation Plan will be distributed to a participant as
soon as practicable after the date or dates (including upon the occurrence of
specified events), and in such number of installments, as may be elected by the
participant or earlier in the case of retirement, disability or a change in
control (as defined in the 1997 ICP). The Deferred Compensation Plan will be
"unfunded." However, the Compensation Committee has authorized the creation of a
trust to aid in meeting the Company's obligations under the Deferred
Compensation Plan. Such trust will be subject to the claims of the creditors of
the Company in the event of the Company's insolvency.

CAREER CASH BALANCE PLAN (THE "CCB PLAN"). The CCB Plan is a defined
benefit plan available to all employees of the Company and its participating
affiliates. Subject to certain limitations, most vested retirement benefits
available under the CCB Plan are insured by the Pension Benefit Guaranty
Corporation. The Company pays the full cost of the benefit provided under the
CCB Plan. Eligible retired employees may begin receiving full CCB Plan benefits
at or after age 60 if he or she had at least five years of service.
Alternatively a reduced benefit is payable at age 55 at the election of the
participant. Under the CCB Plan, effective July 1, 1996, the Company annually
credits to each participant's account 3.2% of the participant's salary. Salary
is defined to include base salary or wages and excludes bonus, overtime,
commissions and other special compensation. The Company will credit to each
account interest equal to the average 1-year U.S. Treasury Bill interest rate
for the month of November for the previous calendar year, rounded up to the
nearest tenth of a percent, up to a maximum average of $150,000, multiplied by
the number of benefit years (equal to 12 months of service or 2,280 hours). If
the present value of the earned benefit at the time of termination is less than
$3,500, the participant receives a lump sum distribution from the Company. If
the earned benefit is greater than $3,500, the cash balance account is payable
as a lump sum in cash or as an annuity (under certain circumstances) to the
participant for reinvestment in other qualified plans prior to retirement at the
participant's election, or for distribution upon retirement. CCB Plan benefits
are not reduced by Social Security benefits. Loans cannot be taken from the CCB
Plan.

The estimated annual benefits payable upon retirement at normal
retirement age for the named executive officers are as follows:

<PAGE>
Mr. Georgescu--$18,756, Mr. Vick--$3,384, Mr. McGarry--$18,756, Mr. Bell--
$4,632, and Mr. Dolan--$1,152.

SELECTED EXECUTIVE RETIREMENT INCOME PLAN ("SERIP"). The SERIP is a
supplemental executive retirement arrangement for selected members of senior
management under separate contracts with the Company. Subject to certain
non-competition and non-solicitation provisions, cash payments in a fixed annual
amount varying as to each individual will be made to a participant whose rights
have vested in accordance with his agreement when such participant's employment
terminates or when he reaches a specified age (typically 60), whichever occurs
later. Payments are made for the balance of the participant's life and, if fewer
than ten annual payments are made during the participant's life, his beneficiary
will receive the balance of the payments until ten annual payments are made. The
Company's obligations to participants under the SERIP are subordinate in right
of payment to its obligations to senior lenders and certain other creditors.

The estimated annual benefits payable upon retirement at normal
retirement age for the named executive officers are as follows:
Mr. Georgescu--$1,050,000, Mr. Vick--$300,000, Mr. McGarry--$200,000,
Mr. Bell--none, and Mr. Dolan--none.

EMPLOYMENT AND TERMINATION OF EMPLOYMENT ARRANGEMENTS. The Company and
Michael Dolan entered into a letter agreement, as amended, regarding Mr. Dolan's
principal terms of employment with the Company as Vice Chairman and Chief
Financial Officer. This letter agreement entitles Mr. Dolan to an annual base
salary and eligibility for a bonus under the Key Corporation Managers Bonus Plan
as well as to the same perquisites and benefits under Company policies as other
employees of the same rank.

Under the Management Voting Trust Agreement, Y&R has agreed to give each
Management Investor, including each named executive officer, six months
severance pay upon termination of employment for any reason other than for
cause, but each Management Investor is required to waive any possible right to
more than six months severance pay (and any claims for damages under any
employment agreement). Upon termination of the Management Voting Trust, in the
event of termination of employment, the named executive officers may be eligible
to receive severance pay of up to 13 weeks base salary (based upon length of
service) pursuant to a severance plan previously established for U.S. employees
of the Company.

The Management Voting Trust has the unqualified right and power to vote
and to execute consents with respect to all shares of Common Stock held by the
Management Voting Trust. The voting rights of the Management Voting Trust will
be exercised by certain members of senior management of Y&R, as voting trustees
(the "Voting Trustees"). The Voting Trustees are Peter A. Georgescu, Stephanie
W. Abramson, Thomas D. Bell, Jr., Michael J. Dolan, John P. McGarry, Jr., Alan
J. Sheldon and Edward H. Vick. So long as Peter A. Georgescu (or a successor
Chief Executive Officer elected with the approval of the Management Voting
Trust) is a Voting Trustee, his (or such successor's) decision will be binding
unless he is outvoted by a super majority of the other Voting Trustees. If at
any time there is no Chief Executive Officer, or if the Chief Executive Officer
was not approved in advance by the Management Voting Trust, a majority vote of
the Voting Trustees will constitute the action of the Management Voting Trust.
The foregoing voting procedures will also apply to the election of Voting
Trustees.

<PAGE>

CERTAIN TRANSACTIONS

Upon consummation of the Recapitalization, certain of the
Recapitalization Investors were granted an approval right over a number of
specified fundamental corporate actions, and were granted the right to nominate
and have elected three members of the Board. After the IPO, such approval right
terminated, and the H&F Investors retained the right to nominate and have
elected (i) two members of the Board for so long as such investors continue to
hold, in the aggregate, at least 10% of the Outstanding Shares and (ii) one
member of the Board for so long as the H&F Investors continue to hold, in the
aggregate, at least 5% of the Outstanding Shares.

In addition, certain of the Recapitalization Investors have demand and
piggyback registration rights with respect to the Common Stock they hold. Those
Recapitalization Investors have the right to require the Company to register for
resale shares of Common Stock held by the Recapitalization Investors pursuant to
certain demand registration rights, and to have shares they hold included in any
public offering of Common Stock made by the Company. See "Shares Eligible for
Future Sale."

<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Common Stock and options to purchase Common Stock as of the
date hereof, including beneficial ownership by (i) each person who is known by
the Company to own beneficially 5% or more of the outstanding shares of the
Common Stock, (ii) each of the Company's Directors and named executive officers
and (iii) all Directors and executive officers as a group. The information in
the table below has been calculated in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, as amended, and includes shares of Common Stock
held in a deferral trust pursuant to the Deferred Compensation Plan. Except as
indicated in the footnotes to the table, the persons named in the table have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property laws where
applicable. The business address of the Management Voting Trust and the
Company's Directors and executive officers is c/o the Company at 285 Madison
Avenue, New York, New York 10017. The address of the H&F Investors is c/o
Hellman & Friedman LLC, One Maritime Plaza, San Francisco, California 94111. For
information on the Selling Stockholders, see "Selling Stockholders."

<TABLE>
<CAPTION>
NAME SHARES AND VESTED OPTIONS VESTED OPTIONS PERCENT
- --------------------------------------------------- --------------------------- ---------------- ----------
<S> <C> <C> <C>
Management Voting Trust (1) ....................... 41,208,196 13,425,900 52.2%
Hellman & Friedman Capital Partners III, L.P.. 19,713,722 2,311,590 29.1
H&F Orchard Partners III, L.P. .................... 1,435,629 168,270 2.2
H&F International Partners III, L.P. .............. 430,044 50,400 *
Peter A. Georgescu (2) ............................ 1,783,560 -- 2.7
Edward H. Vick (2) ............................... 1,384,710 895,245 2.1
Thomas D. Bell, Jr. (2) ........................... 1,308,908 1,165,215 2.0
John P. McGarry, Jr. (2) .......................... 1,032,353 -- 1.6
Michael J. Dolan (2) .............................. 419,625 104,340 *
Richard S. Bodman ................................. 2,000 -- *
Philip U. Hammarskjold (3) ........................ -- -- *
F. Warren Hellman (3) ............................. -- -- *
John F. McGillicuddy .............................. 13,035 -- *
Alan D. Schwartz (4) .............................. -- -- *
All directors and executive officers as a group (2) 7,277,479 2,190,885 10.6
</TABLE>

- ----------
* Less than one percent.

(1) All shares of Common Stock held by Management Investors have been deposited
into the Management Voting Trust, and the Management Voting Trust exercises
sole voting power over all such shares. See "Description of Capital
Stock--The Management Voting Trust Agreement." Beneficial ownership by the
Management Voting Trust includes an aggregate of 4,223,025 shares of Common
Stock held in a deferral trust pursuant to the Deferred Compensation Plan.
See "Management--Executive Compensation--The Restricted Stock Plan and Trust
Agreement."

(2) This amount does not include any of the 41,208,196 shares beneficially owned
by the Management Voting Trust prior to the Offering in excess of the amount
reported as beneficially owned by the stockholder, which the stockholder may
be deemed to beneficially own as a result of such stockholder's position as
a Voting Trustee of the Management Voting Trust. The stockholder disclaims
beneficial ownership of any such shares in excess of the amount reported as
beneficially owned by such stockholder.

(3) Excludes 21,579,395 shares beneficially owned by the H&F Investors prior to
the Offering. The sole general partner of the H&F Investors is H&F Investors
III ("Investors III"). The managing general partner of Investors III is
Hellman & Friedman Associates III, L.P. ("Associates III"), and the general
partners of Associates III are H&F Management III, L.L.C. ("Management III
LLC") and H&F Investors III, Inc. ("H&F Inc."). The sole shareholder of H&F
Inc. is The Hellman Family Revocable Trust (the "Trust"). Mr. Hammarskjold
is a member of Management III LLC. Mr. Hellman is a managing member of
Management III LLC, a director of H&F Inc. and a trustee of the Trust.
Investors III, Associates III, Management III LLC, H&F Inc., the Trust and
Messrs. Hammarskjold and Hellman exercise, directly or indirectly, voting
and investment discretion with respect to the shares held by the H&F
Investors and could be deemed to beneficially own such shares, but each of
them disclaims such beneficial ownership except to the extent of its or his
indirect pecuniary interest in such shares.

(4) Excludes 197,720 shares held by BearTel Corp., a wholly owned subsidiary of
The Bear Stearns Companies Inc., the parent company of Bear Stearns, of
which Mr. Schwartz is an executive officer.

<PAGE>
SELLING STOCKHOLDERS

The following table sets forth the name of each Selling Stockholder and
certain information regarding the beneficial ownership of the Common Stock and
options to purchase Common Stock by the Selling Stockholders as of the date
hereof and as adjusted to reflect the sale of 10,000,000 shares of Common Stock
in the Offering. The information in the table below has been calculated in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, and includes shares of Common Stock held in a deferral trust pursuant
to the Deferred Compensation Plan. Except as indicated in the footnotes to the
table, the persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable.

BENEFICIAL OWNERSHIP PRIOR TO BENEFICIAL OWNERSHIP AFTER
OFFERING OFFERING
----------------------------------- ------------------------------------
SHARES AND SHARES SHARES AND
VESTED VESTED BEING VESTED VESTED
OPTIONS OPTIONS PERCENT OFFERED OPTIONS OPTIONS PERCENT
------------ ------------ --------- ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Voting Trust (1) .............. 41,208,196 13,425,900 52.2% 5,180,647 36,027,549 12,378,734 45.7%
Hellman & Friedman Capital
Partners III, L.P. ..................... 19,713,722 2,311,590 29.1 4,300,347 15,413,375 2,311,590 22.4%
H&F Orchard Partners III, L.P. ........... 1,435,629 168,270 2.2 313,185 1,122,444 168,270 1.7%
H&F International Partners III, L.P. ..... 430,044 50,400 * 93,816 50,400 *
American Media Management, Inc. .......... 96,489 11,310 * 21,049 75,440 11,310 *
BearTel Corp. ............................ 197,720 -- * 48,860 148,860 -- *
Stephen R. Aiello ........................ 159,135 60,660 * 20,105 139,030 51,560 *
Stig Albinus ............................. 39,390 16,140 * 16,140 23,250 -- *
Patricia Anastos ......................... 70,800 44,310 * 2,000 68,800 44,310 *
Jean-Marc Bara ........................... 237,257 -- * 35,588 201,669 -- *
Stephen Baum ............................. 96,800 -- * 2,000 94,800 -- *
Kimberly Bealle .......................... 101,355 49,995 * 10,000 91,355 49,995 *
Karel Beijen ............................. 3,510 -- * 3,510 -- -- *
Theodore Bell ............................ 753,810 334,065 1.1% 40,000 713,810 334,065 1.1%
Leena Bergerus-Hobinger .................. 48,795 25,575 * 45,570 3,225 -- *
Lincoln Bjorkman ......................... 21,915 15,615 * 15,615 6,300 -- *
June Blocklin ............................ 49,620 29,520 * 29,520 20,100 -- *
Rene Boender ............................. 65,790 18,000 * 12,078 53,712 14,400 *
Bonnie Bohne ............................. 101,250 23,820 * 2,430 98,820 23,820 *
Etienne Boisrond ......................... 225,045 -- * 33,750 191,295 -- *
Tiemen Bosma ............................. 135,000 -- * 55,000 80,000 -- *
Heinz Georg Brands ....................... 32,445 -- * 9,733 22,712 -- *
Craig Branigan ........................... 232,230 -- * 28,000 204,230 -- *
Jurgen Braun ............................. 71,970 -- * 71,970 -- -- *
Jane Brite ............................... 199,620 -- * 40,000 159,620 -- *
Roger Chiocchi ........................... 76,807 25,875 * 14,000 62,807 25,875 *
Ira Chynsky .............................. 84,750 -- * 16,000 68,750 -- *
Michael Claes ............................ 40,230 24,360 * 5,000 35,230 24,360 *
Don Cogman ............................... 410,670 191,775 * 61,600 349,070 130,175 *
Janet Coombs ............................. 146,848 104,355 * 19,327 127,521 104,355 *
David Coronna ............................ 33,390 33,390 * 700 32,690 32,690 *
Jose Maria Costa ......................... 75,000 -- * 15,000 60,000 -- *
Massimo Costa ............................ 18,516 -- * 7,406 11,110 -- *
Michael Cozens ........................... 31,935 26,085 * 5,220 26,715 20,865 *
Brian P. Curran .......................... 52,170 52,170 * 15,651 36,519 36,519 *
Donald H. Davis .......................... 95,400 50,685 * 19,080 76,320 50,685 *
Ferdinand de Bakker ...................... 166,740 63,315 * 15,000 151,740 63,315 *
Joseph E. Dedeo .......................... 670,860 -- 1.0% 201,258 469,602 -- *
Lawrence Deutsch ......................... 42,780 18,645 * 1,400 41,380 17,245 *
Shelley Diamond .......................... 66,570 10,875 * 10,875 55,695 -- *
</TABLE>

60
<PAGE>
<TABLE>
<CAPTION>

BENEFICIAL OWNERSHIP PRIOR TO BENEFICIAL OWNERSHIP AFTER
OFFERING OFFERING
-------------------------------- ------------------------------
SHARES AND SHARES SHARES AND
VESTED VESTED BEING VESTED VESTED
OPTIONS OPTIONS PERCENT OFFERED OPTIONS OPTIONS PERCENT
------------ --------- --------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Pamela DuBose ................ 76,290 -- * 20,000 56,290 -- *
Terry Dukes .................. 44,970 41,745 * 6,250 38,720 35,495 *
Daryl Elliott ................ 32,385 26,085 * 5,200 27,185 20,885 *
Daisy Exposito ............... 147,210 55,740 * 31,709 115,501 24,031 *
Kevin J. Fahey ............... 21,360 17,385 * 4,500 16,860 12,885 *
Charles P. Farley ............ 33,225 10,440 * 5,000 28,225 10,440 *
Peter Farnell-Watson ......... 67,849 -- * 20,355 47,494 -- *
Patrick Ford ................. 35,865 26,055 * 9,000 26,865 26,055 *
Richard Ford ................. 58,020 54,795 * 18,000 40,020 36,795 *
Clark J. Frankel ............. 130,440 -- * 26,088 104,352 -- *
Volker Franz ................. 26,085 26,085 * 1,000 25,085 25,085 *
Eric Fredericks .............. 130,440 -- * 39,000 91,440 -- *
Peter Frederiksen ............ 12,225 9,000 * 9,000 3,225 -- *
Leon Gazma ................... 130,785 -- * 10,000 120,785 -- *
Enrico Gervasi ............... 80,220 -- * 9,000 71,220 -- *
Oscar Gomezese ............... 17,385 17,385 * 2,000 15,385 15,385 *
Eduardo Gonzales ............. 97,830 -- * 40,000 57,830 -- *
William Green ................ 101,805 -- * 10,000 91,805 -- *
David E. Greene .............. 65,220 -- * 10,000 55,220 -- *
H. Irving Grousbeck .......... 192,968 22,620 * 42,096 150,872 22,620 *
Victor Gutierrez ............. 36,390 -- * 6,000 30,390 -- *
Andrew Halley-Wright ......... 40,350 27,060 * 37,125 3,225 -- *
Thomas R. Hansen ............. 30,060 26,085 * 750 29,310 25,335 *
Peter J. Harleman ............ 61,095 15,660 * 16,000 45,095 15,660 *
Fred Hawrysh ................. 37,305 37,305 * 17,400 19,905 19,905 *
Stefaan Himpe ................ 10,500 -- * 5,000 5,500 -- *
James W. Hood ................ 203,520 -- * 35,000 168,520 -- *
Roseanne Horn ................ 38,910 12,660 * 10,350 28,560 12,660 *
Peter Horovitz ............... 48,330 44,355 * 6,957 41,373 37,398 *
Richard H. Hosp .............. 54,240 -- * 20,000 34,240 -- *
Eric Garrison Hoyt ........... 91,365 83,490 * 11,900 79,465 71,590 *
Alex Hughes .................. 38,760 34,785 * 34,785 3,975 -- *
Jeff Hunt .................... 98,820 45,135 * 15,279 83,541 29,856 *
Gigliola Ibba ................ 100,410 36,210 * 15,000 85,410 36,210 *
Robert Igiel ................. 260,865 260,865 * 52,175 208,690 208,690 *
Barbara Jack ................. 595,199 395,565 * 89,370 505,829 395,565 *
Pal Marius Jebsen ............ 41,745 28,695 * 28,000 13,745 13,695 *
William B. Johnston .......... 80,185 60,000 * 6,000 74,185 60,000 *
James E. Kaplove ............. 49,680 16,230 * 8,000 41,680 8,230 *
Mary Ellen Kenny ............. 73,980 5,535 * 6,522 67,458 5,535 *
Edna Kissmann ................ 65,220 -- * 13,000 52,220 -- *
Arthur R. Klein .............. 130,440 -- * 30,000 100,440 -- *
Jackie Koh ................... 43,035 43,035 * 15,500 27,535 27,535 *
Nina Kowalewska .............. 15,225 12,000 * 12,000 3,225 -- *
Philippe Krakowsky ........... 49,169 26,085 * 6,000 43,169 26,085 *
Ingo Krauss .................. 541,725 -- * 150,000 391,725 -- *
Stephanie Kugelman ........... 485,293 88,485 * 72,794 412,499 88,485 *
Mitchell Kurz ................ 1,186,563 589,455 1.8% 356,000 830,563 589,455 1.3%
Jay Kushner .................. 79,960 42,000 * 11,000 68,960 37,000 *
Marta La Rock ................ 30,060 26,085 * 10,000 20,060 16,085 *
Timothy Laing ................ 39,135 39,135 * 4,135 35,000 35,000 *
Denise Leo ................... 46,845 46,230 * 675 46,170 45,555 *
Renato Arantes Loes .......... 42,360 39,135 * 39,135 3,225 -- *
Marco Lombardi ............... 125,205 20,865 * 20,000 105,205 20,865 *
Bennett R. Machtiger ......... 73,950 12,000 * 7,000 66,950 12,000 *
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP PRIOR TO BENEFICIAL OWNERSHIP AFTER
OFFERING OFFERING
-------------------------------- ------------------------------
SHARES AND SHARES SHARES AND
VESTED VESTED BEING VESTED VESTED
OPTIONS OPTIONS PERCENT OFFERED OPTIONS OPTIONS PERCENT
------------ --------- --------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Duncan Mackinnon ................. 33,915 33,915 * 5,000 28,915 28,915 *
John F. Maltese .................. 84,915 13,575 * 16,983 67,932 13,575 *
Anthony S. Manson ................ 21,030 -- * 16,305 4,725 -- *
Helmut Matthies .................. 492,090 -- * 125,000 367,090 -- *
Martin Maurice ................... 97,830 -- * 15,000 82,830 -- *
Robert M. McDuffey ............... 64,530 61,305 * 12,000 52,530 49,305 *
John P. McGarry, Jr. (2) ......... 1,032,353 -- 1.6% 309,706 722,647 -- 1.1%
Steven M. McKenna ................ 306,960 166,935 * 92,000 214,960 116,935 *
Gordon McLean .................... 47,820 47,820 * 11,955 35,865 35,865 *
Thomas McQueeney ................. 175,165 -- * 34,765 140,400 -- *
Bert Meerstadt ................... 96,315 -- * 8,000 88,315 -- *
William C. Melzer ................ 488,679 434,790 * 73,300 415,379 401,879 *
Diane Meskill-Spencer ............ 135,975 22,140 * 22,767 113,208 22,140 *
Craig Middleton .................. 236,441 26,085 * 31,467 204,974 26,085 *
David Minear ..................... 174,045 111,855 * 12,000 162,045 111,855 *
Fernan Montero ................... 940,000 -- 1.4% 282,000 658,000 -- 1.0%
Frans Mootz ...................... 125,280 -- * 18,792 106,488 -- *
John F. Morris ................... 70,035 59,820 * 12,432 57,603 47,388 *
Bruce S. Nelson .................. 90,000 -- * 6,500 83,500 -- *
Charles G. Newton, Jr. ........... 25,560 -- * 7,560 18,000 -- *
Keith Newton ..................... 26,250 -- * 26,250 -- -- *
Lori Nicholson ................... 72,555 15,660 * 11,379 61,176 15,660 *
James A. O'Malley ................ 19,843 13,560 * 13,560 6,283 -- *
Steve Oroho ...................... 159,626 -- * 64,988 94,638 -- *
Raymond J. O'Rourke .............. 40,140 30,105 * 10,000 30,140 30,105 *
Stewart Owen ..................... 220,363 119,265 * 20,000 200,363 119,265 *
Vincent P. Parry ................. 50,685 23,925 * 10,000 40,685 13,925 *
Robert S. Pastrick ............... 86,100 3,480 * 17,220 68,880 -- *
Manuel Perez ..................... 203,535 -- * 32,000 171,535 -- *
Ricardo J. Perez ................. 53,550 49,575 * 49,575 3,975 -- *
Diane Perlmutter ................. 39,975 8,940 * 7,500 32,475 8,940 *
John Peters ...................... 31,935 28,710 * 28,710 3,225 -- *
Graham Phillips .................. 117,166 -- * 4,960 112,206 -- *
Tim Pollak ....................... 889,557 -- 1.4% 264,000 625,557 -- *
Michael Porter ................... 32,610 32,610 * 15,610 17,000 17,000 *
William A. Power ................. 260,865 -- * 50,000 210,865 -- *
Tom Pratt ........................ 22,110 17,385 * 10,000 12,110 7,385 *
Brian Procter .................... 6,450 -- * 6,450 -- -- *
Joerg Puphal ..................... 44,970 6,960 * 32,000 12,970 6,960 *
John E. Putnam ................... 40,410 18,345 * 9,173 31,237 9,172 *
Matthias Quadflieg ............... 10,935 1,485 * 5,475 5,460 1,485 *
Serge Rancourt ................... 161,895 9,810 * 40,000 121,895 -- *
Sheila Raviv ..................... 51,240 -- * 15,000 36,240 -- *
Courtney Reeser .................. 68,910 62,610 * 12,522 56,388 50,088 *
Peter Rentschler ................. 33,660 30,435 * 6,087 27,573 24,348 *
Jorg Rindlisbacher ............... 53,640 -- * 8,000 45,640 -- *
Jorge Rodriguez .................. 105,990 90,315 * 1,755 104,235 90,315 *
Edward Rodway .................... 6,450 -- * 6,450 -- -- *
Ilene Rosenthal .................. 19,315 -- * 10,000 9,315 -- *
John J. Ross ..................... 55,395 52,170 * 5,000 50,395 47,170 *
Seith Rothstein .................. 169,575 71,925 * 33,915 135,660 71,925 *
Alain Rousset .................... 369,015 216,375 * 55,352 313,663 216,375 *
Michael Samet .................... 257,120 14,625 * 38,568 218,552 14,625 *
John Sanders ..................... 176,385 145,275 * 20,000 156,385 125,275 *
Chris Savage ..................... 67,845 54,795 * 13,050 54,795 54,795 *
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP PRIOR TO BENEFICIAL OWNERSHIP AFTER
OFFERING OFFERING
-------------------------------- ------------------------------
SHARES AND SHARES SHARES AND
VESTED VESTED BEING VESTED VESTED
OPTIONS OPTIONS PERCENT OFFERED OPTIONS OPTIONS PERCENT
------------ --------- --------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Matthew Schetlick ........... 90,485 60,870 * 7,000 83,485 60,870 *
Nico Schou .................. 13,755 -- * 13,755 -- -- *
Angelika Schug .............. 26,085 26,085 * 20,000 6,085 6,085 *
James Scielzo ............... 118,665 46,785 * 23,733 94,932 23,052 *
John F. Scruggs ............. 26,085 26,085 * 26,085 -- -- *
Steve Seyferth .............. 96,510 96,510 * 10,000 86,510 86,510 *
Keith Sharp ................. 88,710 10,440 * 17,742 70,968 8,352 *
Jessie Shaw ................. 32,670 28,695 * 3,500 29,170 25,195 *
Alan J. Sheldon (2) ......... 866,310 -- 1.3% 250,000 616,310 -- *
Richard Sinreich ............ 58,695 -- * 11,000 47,695 -- *
Robert Sive ................. 66,180 51,645 * 12,590 53,590 50,365 *
Peter B. Slone .............. 20,865 20,865 * 10,650 10,215 10,215 *
Timothy H. Smith ............ 9,225 -- * 6,000 3,225 -- *
Linda Srere ................. 280,650 52,545 * 15,000 265,650 37,545 *
Christoph Stadeler .......... 116,580 -- * 23,000 93,580 -- *
Stanley Stefanski ........... 535,475 111,675 * 80,321 455,154 111,675 *
Peter Steigrad .............. 52,185 52,185 * 1,000 51,185 51,185 *
Debra Stern Marrone ......... 98,655 -- * 8,000 90,655 -- *
Kathryn Stout ............... 74,085 33,810 * 7,000 67,085 26,810 *
Lars Thalen ................. 30,000 10,440 * 14,000 16,000 10,440 *
Clay Timon .................. 567,256 521,745 * 36,511 530,745 521,745 *
Wayne Traub ................. 63,120 39,585 * 5,500 57,620 39,585 *
Pieter Vijn ................. 36,585 -- * 10,000 26,585 -- *
Marvin Waldman .............. 126,525 5,880 * 24,100 102,425 5,880 *
Mary T. Walsh ............... 37,890 33,915 * 2,000 35,890 31,915 *
Charles Webre ............... 141,090 69,570 * 13,914 127,176 55,656 *
Bruno Widmer ................ 332,205 -- * 65,000 267,205 -- *
Donald D. Williams .......... 95,280 -- * 18,000 77,280 -- *
James Williams .............. 116,370 98,265 * 22,500 93,870 76,765 *
Kenneth Yagoda .............. 65,580 15,375 * 6,000 59,580 15,375 *
Michael Zeigler ............. 30,060 26,085 * 23,185 6,875 2,900 *
</TABLE>

- ----------
* Less than one percent.

(1) Beneficial ownership by the Management Voting Trust prior to the Offering
includes an aggregate of 5,180,647 shares (including shares issuable upon
the exercise of options) offered hereby by Management Investors who are
Selling Stockholders, which shares are held by the Management Voting Trust.
Other than the H&F Investors, American Media Management, Inc., H. Irving
Grousbeck and BearTel Corp., all Selling Stockholders are Management
Investors who are officers, employees or former employees of the Company and
whose shares of Common Stock are held by the Management Voting Trust. See
"Management--Executive Officers and Directors." All such shares offered
hereby will be delivered out of the Management Voting Trust upon
consummation of the Offering. All shares of Common Stock held by Management
Investors have been deposited into the Management Voting Trust, and the
Management Voting Trust exercises sole voting power over all such shares.
See "Description of Capital Stock--The Management Voting Trust Agreement."
Beneficial ownership by the Management Voting Trust includes an aggregate
4,223,025 shares of Common Stock held in a deferral trust pursuant to the
Deferred Compensation Plan. See "Management--Executive Compensation--The
Restricted Stock Plan and Trust Agreement."

63
<PAGE>
DESCRIPTION OF CAPITAL STOCK

GENERAL

The Company is authorized to issue 250,000,000 shares of Common Stock,
par value $0.01 per share (the "Common Stock"), and 10,000,000 shares of
Preferred Stock, par value $0.01 per share (the "Preferred Stock"). As of the
date hereof, prior to the consummation of the Offering, the Company's issued and
outstanding capital stock consists of 65,434,118 shares of issued and
outstanding Common Stock held by approximately 1,237 holders and 87 shares of
issued and outstanding Money Market Preferred Stock, par value $0.01 per share
(the "Money Market Preferred Stock") held by one holder. Also as of the date
hereof, prior to the consummation of the Offering, an additional 30,852,340
shares of Common Stock are issuable upon exercise of outstanding options. All of
the Company's issued and outstanding capital stock has been fully paid.

The following description of the Company's capital stock does not purport
to be complete and is subject to and qualified in its entirety by the Charter
and the By-Laws. These provisions included as exhibits to the Registration
Statement of which this Prospectus forms a part, and by the provisions of
applicable Delaware law.

The Charter and the By-Laws contain certain provisions that are intended
to enhance the likelihood of continuity and stability in the composition of the
Board and which may have the effect of delaying, deferring, or preventing a
future takeover or change in control of the Company unless such takeover or
change in control is approved by the Board.

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share on
all matters voted on by stockholders, and the holders of such shares, together
with the holders of shares of Money Market Preferred Stock (as described
herein), possess all voting power, except as otherwise required by law or as
provided in the Charter. Holders of Common Stock who are employees of Y&R or its
affiliates are subject to the provisions of the Management Voting Trust and the
Amended Stockholders' Agreement. See "--The Management Voting Trust Agreement"
and "The Stockholders' Agreement." The holders of Common Stock do not have
cumulative voting rights. Holders of Common Stock do not have any preemptive
right to subscribe for or purchase any kind or class of securities of the
Company. Holders of Common Stock have no subscription, conversion or redemption
rights, and will not be subject to further calls or assessments. Subject to any
preferential or other rights of any outstanding series of Preferred Stock that
may be designated by the Board, the holders of Common Stock are entitled to such
dividends, if any, as may be declared from time to time by the Board. The New
Credit Facility permits the payment of cash dividends except in the event of a
continuing default under the credit agreement. See "Price Range of Common Stock
and Dividend Policy." In the event of the liquidation, dissolution or winding up
of the Company, holders of Common Stock will be entitled to receive on a pro
rata basis any assets of the Company remaining after provision for payment of
creditors and after payment of any liquidation preferences to holders of
Preferred Stock.

PREFERRED STOCK

The Company is authorized to issue 10,000,000 shares of Preferred Stock.
The Board has the authority to establish and designate series of the Preferred
Stock and, except with respect to the Money Market Preferred Stock, to fix the
number of shares constituting each such series, to fix the designations and the
relative rights, preferences and limitations of the shares of each such series
and the variations in the relative rights, preferences and limitations as
between such series, and to increase and decrease the number of shares
constituting each such series. See "--Authorized But Unissued Capital Stock" and
"--Anti-Takeover Effects of Certain Provisions of the Charter, the By-Laws, the
Rights Plan and Delaware Law--Preferred Stock."

The Charter designates an initial series of Preferred Stock, consisting
of 50,000 shares, as the Money Market Preferred Stock. Holders of Money Market
Preferred Stock are entitled to receive, subject to declaration by the Board,
certain cumulative cash dividends that are payable quarterly and calculated with
reference to the interest rate for the three-month London

<PAGE>

interbank deposit market. On or after December 12, 2001, any Money Market
Preferred Stock issued and outstanding for five years may, at the option of the
Board and subject to providing holders with notice of redemption, be redeemed by
the Company at a redemption price per share of $115.00 (together with all
accrued and unpaid dividends thereon). Redeemed Money Market Preferred Stock may
be reissued by the Board as shares of such series or as shares of any other
series of Preferred Stock. Shares of Money Market Preferred Stock are not
convertible, have a liquidation preference of $115.00 per share (together with
all accrued and unpaid dividends thereon) and have voting rights equal to
one-tenth of one vote for each share of Money Market Preferred Stock.

The Charter authorizes a series of Preferred Stock designated Cumulative
Participating Junior Preferred Stock (the "Junior Preferred Stock"), consisting
of 2,500,000 shares, in connection with the Rights Plan. For a description of
the Rights Plan and the Junior Preferred Stock, see "--Rights Plan" and
"--Anti-Takeover Effects of Certain Provisions of the Charter, the By-Laws, the
Rights Plan and Delaware Law."

AUTHORIZED BUT UNISSUED CAPITAL STOCK

Based on the calculations set forth above, the Company estimates that,
following the completion of the Offering, it will have approximately 183,518,716
shares of authorized but unissued Common Stock (including an aggregate of
27,207,069 shares reserved for issuance upon the exercise of options under the
Stock Option Plans and 2,598,105 shares reserved for issuance upon the exercise
of options issued to certain of the Recapitalization Investors) and 9,999,913
shares of authorized but unissued Preferred Stock (including the 2,500,000
shares designated as Junior Preferred Stock and 49,913 shares designated as
Money Market Preferred Stock). Delaware law does not require stockholder
approval for the issuance of authorized shares. However, the listing
requirements of the New York Stock Exchange, which apply so long as the Common
Stock is listed on such exchange, require prior stockholder approval of certain
issuances, including issuances of shares bearing voting power equal to or
exceeding 20% of the pre-issuance outstanding voting power or pre-issuance
outstanding number of shares of Common Stock. These additional shares could be
used for a variety of corporate purposes, including future public offerings to
raise additional capital or to facilitate corporate acquisitions. The Company
currently does not have any plans to issue additional shares of Common Stock or
Preferred Stock other than in connection with employee compensation plans. See
"Management--Executive Compensation." One of the effects of the existence of
unissued and unreserved Common Stock and Preferred Stock may be to enable the
Board of the Company to issue shares to persons friendly to current management.
Such an issuance could render more difficult or discourage an attempt to obtain
control of the Company by means of a merger, tender offer, proxy contest or
otherwise, and thereby protect the continuity of the Company's management and
possibly deprive the stockholders of the opportunity to sell their shares of
Common Stock at prices higher than prevailing market prices. Such additional
shares also could be used to dilute the stock ownership of persons seeking to
obtain control of the Company pursuant to the operation of the Rights Plan,
which is discussed below. See "--Anti-Takeover Effects of Certain Provisions of
the Charter, the By-Laws, the Rights Plan and Delaware Law."

THE MANAGEMENT VOTING TRUST AGREEMENT

Pursuant to the agreement establishing the Management Voting Trust (the
"Management Voting Trust Agreement"), the Management Investors and the
Restricted Stock Trust are required to deposit with the Management Voting Trust
all shares of Common Stock and all shares of Money Market Preferred Stock
acquired by them prior to the termination of the Management Voting Trust
(including Common Stock acquired upon the exercise of options, distributions
from the Restricted Stock Trust or otherwise). Common Stock sold in the public
market by Management Investors and the Restricted Stock Trust will be withdrawn
from, and delivered free of, the Management Voting Trust.

The Management Voting Trust has the unqualified right and power to vote
and to execute consents with respect to all shares of Common Stock and all
shares of Money Market

<PAGE>

Preferred Stock held by the Management Voting Trust. The voting rights of the
Management Voting Trust are exercised by certain members of senior management of
Y&R, in their capacities as Voting Trustees. The current Voting Trustees are
Peter A. Georgescu, Stephanie W. Abramson, Thomas D. Bell, Jr., Michael J.
Dolan, John P. McGarry, Jr., Alan J. Sheldon and Edward H. Vick (each of whom is
currently a member of the senior management of Y&R). So long as Peter A.
Georgescu (or a successor Chief Executive Officer elected with the approval of
the Management Voting Trust) is a Voting Trustee, any action (i) approved in
writing or at a meeting by Peter A. Georgescu (or such successor) and any two
other Voting Trustees and (ii) any action approved over the objection of Peter
A. Georgescu (or such successor) at a meeting of the Voting Trustees by an
aggregate vote of Voting Trustees equal to not less than the total number of
Voting Trustees then in office minus two, shall constitute the action of, and
shall be binding upon, the Management Voting Trust (unless there shall be fewer
than seven Voting Trustees then in office, in which event any action under
clause (ii) shall require the vote of all the Voting Trustees other than Peter
A. Georgescu (or such successor)). The foregoing voting procedures will also
apply to the election and removal of Voting Trustees, to proposals to increase
or decrease the number of Voting Trustees and to proposals to amend the
foregoing voting procedures.

The Management Voting Trust will terminate when (i) no person (including
the Recapitalization Investors and the Management Voting Trust) is the owner of
more than 20% of the Outstanding Shares, (ii) the number of shares of Common
Stock held by the Management Voting Trust is less than 10% of the Outstanding
Shares or (iii) the Voting Trustees determine to terminate the Management Voting
Trust. Pursuant to an irrevocable unanimous written consent of the Voting
Trustees, the Management Voting Trust will terminate 24 months after the
consummation of the IPO (which occurred on May 15, 1998), assuming no earlier
termination in accordance with its terms.

The Management Voting Trust has issued and will issue voting trust
certificates ("Voting Trust Certificates") representing the shares of Common
Stock and Money Market Preferred Stock deposited with it. The Voting Trust
Certificates are subject to the transfer restrictions set forth in the Amended
Stockholders' Agreement. See "--The Stockholders' Agreement."

Y&R has agreed to assume all liability and indemnify and defend all
Voting Trustees and their successors, assigns, agents and servants from any and
all losses incurred or asserted against any Voting Trustees relating to their
administration of the Management Voting Trust, unless there is clear and
convincing evidence that such losses were proximately caused by an act or
omission that was not taken in good faith or not reasonably believed to be in
the best interest of Y&R and the Management Investors as a group. See
"Management--Limitation of Liability and Indemnification."

Under the Management Voting Trust Agreement and certain stock option and
restricted stock agreements, each of the Management Investors is subject to
certain non-competition, non-solicitation, confidentiality and notice
requirements in connection with the termination of such person's employment.
They include the following: (i) for one year after termination of employment, a
Management Investor may not work for any competitor of Y&R on the account of any
client of Y&R or any of its affiliates with whom such Management Investor had a
direct relationship or as to which such Management Investor had a significant
supervisory responsibility or otherwise was significantly involved at any time
during the two years prior to termination; (ii) for six months after termination
of employment, (a) a Management Investor with principally corporate type job
responsibilities that do not principally involve client service related
functions may not work for a principal competitor of Y&R or any of its
affiliates in any substantially similar role as that held with Y&R or any of its
affiliates during the two years prior to termination, and (b) a Management
Investor with principally client service related responsibilities may not work
for a competitor of Y&R or its affiliates on the account of any substantial
competitor (or directly for such competitor) of any client of Y&R or any of its
affiliates for whom such Management Investor had substantial

<PAGE>

responsibility during the two years prior to termination; (iii) for one year
after termination of employment, a Management Investor may not (a) directly or
indirectly solicit or hire, or assist in the soliciting or hiring of, any person
employed by Y&R or any of its affiliates as of the date of termination or any
person who was then being recruited by Y&R or any of its subsidiaries or (b)
induce any such employee to terminate his or her employment with Y&R or any of
its affiliates; (iv) a Management Investor shall keep confidential information
of Y&R, its affiliates and their clients learned during his or her employment;
and (v) a Management Investor shall give six weeks written notice prior to
voluntary termination unless a shorter period is approved by the Company.

Y&R has agreed, under the Management Voting Trust Agreement, to give each
Management Investor six months' severance pay upon termination of employment for
any reason other than for cause (as defined), and each Management Investor is
required to waive any possible right to more than six months' severance pay (or
similar compensation) and any claims for damages under any employment agreement.

THE STOCKHOLDERS' AGREEMENT

In connection with the Recapitalization, the Recapitalization Investors,
the Management Investors, the Restricted Stock Trust, the Management Voting
Trust and Y&R entered into a stockholders' agreement with respect to the
restrictions on transferability of shares of Common Stock and related Voting
Trust Certificates, and with respect to the management of Y&R. Upon consummation
of the IPO, that stockholders' agreement was terminated as to certain parties,
and the H&F Investors, the Management Investors, the Management Voting Trust and
Y&R entered into an amended stockholders' agreement (the "Amended Stockholders'
Agreement").

RIGHT TO NOMINATE DIRECTORS. Under the Amended Stockholders' Agreement,
the H&F Investors have the right to nominate and have elected two members of the
Board for so long as they continue to hold, in the aggregate, at least 10% of
the Outstanding Shares, and one member of the Board for so long as they continue
to hold, in the aggregate, at least 5% of the Outstanding Shares. Outstanding
Shares is defined in the Amended Stockholders' Agreement to include all shares
of Common Stock subject to vested options (not including options that would vest
on a change in control).

TRANSFER RESTRICTIONS. Under the Amended Stockholders' Agreement, the
transfer restrictions described below apply. Purported transfers in violation
of these restrictions will be null and void.

H&F Investors may not transfer shares of Common Stock, options to
purchase Common Stock or other voting capital stock, (i) prior to termination of
the Management Voting Trust (which will occur no later than the second
anniversary of the consummation of the IPO), if at least 20% of the Outstanding
Shares are then subject to the Management Voting Trust, to any party who as a
result thereof would (together with its affiliates) own a percentage of the
Outstanding Shares that is greater than the percentage then subject to the
Management Voting Trust, or (ii) after the termination of the Management Voting
Trust and (A) prior to the first anniversary of the termination, to any party
who as a result thereof would (together with its affiliates) own a percentage of
the Outstanding Shares that is greater than the greater of (1) 20% and (2) the
percentage of the Outstanding Shares subject to the Management Voting Trust upon
termination thereof (the "Termination Percentage") less 5% and (B) from and
after the first anniversary of the termination of the Management Voting Trust
until December 12, 2002, to any party who as a result thereof would (together
with its affiliates) own a percentage of the Outstanding Shares that is greater
than the greater of (1) 20% and (2) the Termination Percentage less 10%, unless,
in any such case (A) Y&R fails to arrange for the sale of such shares to a third
party for the benefit of the H&F Investors at a price to the H&F Investors not
less than the price proposed to be paid by the proposed transferee and (B) the
Management Voting Trust (or, following its termination, the Company) consents to
the proposed transfer, which consent may not be unreasonably withheld.

Prior to termination of the Management Voting Trust, proposed transfers
of shares of Common Stock, options to purchase Common Stock or other voting
capital stock by Management Investors (other than transfers by

<PAGE>

will or intestate succession) to any party who as a result thereof (together
with its affiliates) would own more than 20% of the Outstanding Shares are
subject to a right of first refusal by each of Y&R and the H&F Investors,
exercisable in that order.

CERTAIN TRANSFER RESTRICTIONS

The following transfer restrictions apply to shares of Common Stock
issued to Management Investors pursuant to Regulation S under the Securities
Act, but will not apply to shares of Common Stock sold in the Offering. Under
the By-Laws, any direct or indirect sale, transfer, assignment, pledge,
hypothecation or other encumbrance or disposition (a "Transfer") of legal or
beneficial ownership of any stock issued and sold by the Company pursuant to
Regulation S under the Securities Act of 1933, as amended (the "Securities
Act"), may be made only (i) pursuant to an effective registration statement
under the Securities Act or (ii) pursuant to a transaction that is exempt from,
or not subject to, the registration requirements of the Securities Act. Neither
the Company nor any employee or agent of the Company will record any Transfer
prohibited by the preceding sentence, and the purported transferee of such a
prohibited Transfer (the "Purported Transferee") will not be recognized as a
securityholder of the Company for any purpose whatsoever in respect of the
security or securities that are the subject of the prohibited Transfer. The
Purported Transferee will not be entitled, with respect to such securities, to
any rights of a securityholder of the Company, including without limitation, in
the case of securities that are Common Stock, the right to vote such Common
Stock or to receive dividends or distributions in respect thereof, if any. All
certificates representing securities subject to the transfer restrictions set
forth in the By-Laws will bear a legend to the effect that the securities
represented by such certificates are subject to such restrictions, unless and
until the Company determines in its sole discretion that such legend may be
removed consistent with applicable law.

NO PREEMPTIVE RIGHTS

No holder of any class of stock of the Company has any preemptive right
to subscribe for or purchase any kind or class of securities of the Company.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is The Bank of New
York.

RIGHTS PLAN

The Company has adopted the Rights Plan and entered into a Rights
Agreement (the "Rights Agreement") between the Company and The Bank of New York,
as Rights Agent (the "Rights Agent"). Each outstanding share of Common Stock has
attached to it one associated Right. The terms of the Rights are set forth in
the Rights Agreement. The Charter authorizes the Board to adopt a stockholder
rights plan such as the Rights Plan.

Each Right entitles the registered holder under certain circumstances to
purchase from the Company one one-hundredth of a share of Junior Preferred Stock
at a purchase price of $87.50, subject to adjustment (the "Purchase Price"). The
Purchase Price is payable in cash or by certified check or bank draft.

Junior Preferred Stock purchasable upon exercise of the Rights will not
be redeemable. Each share of Junior Preferred Stock will be entitled to a
minimum preferential quarterly dividend payment of $1.00 per share but will be
entitled to an aggregate dividend of 100 times the dividend declared per share
of Common Stock. In the event of liquidation, the holders of shares of Junior
Preferred Stock will be entitled to a minimum preferential liquidation payment
of $1 per share, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment.
Each share of Junior Preferred Stock will have 100 votes, voting together with
the Common Stock and the Money Market Preferred Stock and, in the event of
certain dividend arrearages, will also have the right, voting as a class, to
elect one director. In the event of any merger, consolidation or other
transaction in which shares of Common Stock are exchanged, each share of Junior
Preferred Stock will be entitled to receive 100 times the amount received per
share of Common Stock. These rights are protected by customary anti-dilution
provisions. Because of the nature of their dividend, liquidation and voting
rights, the value of the one-one-hundredth interest in a share of Junior
Preferred Stock purchasable upon exercise of each Right should approximate the
value of one share of Common Stock.

<PAGE>

Until the close of business on the Distribution Date (as defined below),
the Rights will be evidenced by the certificates representing shares of Common
Stock and no separate Right Certificates (as defined below) will be issued or
distributed. All shares of Common Stock issued prior to the earlier of the
Distribution Date or the Expiration Date (as defined below) will be issued with
Rights.

The term "Distribution Date" means the earlier of (i) the tenth business
day after the Stock Acquisition Date (as defined below) and (ii) the tenth
business day (or such later day as may be determined by action of the Board
prior to such time as any person becomes an Acquiring Person (as defined below))
after the date of the commencement by any person (other than any Company Entity
(as defined below)) of, or the first public announcement of the intent of any
person (other than any Company Entity) to commence (which intention to commence
remains in effect for five business days after such announcement), a tender or
exchange offer the consummation of which would result in any person becoming an
Acquiring Person.

The term "Stock Acquisition Date" means the time and day of the first
public announcement (including by the filing of a report pursuant to the
Exchange Act) by the Company or an Acquiring Person indicating that an Acquiring
Person has become such.

The term "Acquiring Person" means:

(i) any person (other than the H&F Investors and other than any
Permitted H&F 15% Transferee (as defined below)) who or which,
together with all affiliates and associates of such person,
acquires beneficial ownership (as defined in the Rights
Agreement) of 15% or more of the then outstanding shares of
Common Stock (other than as a result of an Approved Offer (as
defined below));

(ii) the H&F Investors if, after the Offering, the H&F Investors,
together with all of their affiliates and associates, acquire
beneficial ownership of any additional shares of Common Stock
such that following such acquisition (A) the H&F Investors
beneficially own in excess of 15% of the then outstanding shares
of Common Stock and (B) if the Management Voting Trust is then in
existence, following such acquisition the H&F Investors
beneficially own a greater percentage of the Diluted Shares
Outstanding (as defined below) than the percentage of the Diluted
Shares Outstanding subject to the Management Voting Trust at the
time of such acquisition (it being understood that neither sales
by, nor termination of, the Management Voting Trust will trigger
this provision absent a subsequent acquisition of beneficial
ownership of additional shares by the H&F Investors or any of
their affiliates or associates); or

(iii) any Permitted H&F 15% Transferee if contemporaneously with or
subsequent to the transfer from the H&F Investors that resulted
in such person becoming a Permitted H&F 15% Transferee, such
Permitted H&F 15% Transferee, together with all affiliates and
associates of such Permitted H&F 15% Transferee, acquires
beneficial ownership of any additional shares.

Notwithstanding the foregoing:

(1) a person shall not become an Acquiring Person if such person,
together with all of its affiliates and associates, becomes the
beneficial owner of 15% or more (in the case of clause (i) above)
of the then outstanding shares of Common Stock as a result of a
reduction in the number of shares of Common Stock outstanding due
to the repurchase of shares of Common Stock by the Company,
unless and until such time as such person purchases or otherwise
becomes (as a result of actions taken by such person or any of
its affiliates or associates) the beneficial owner of any
additional shares of Common Stock; and

(2) the term "Acquiring Person" shall not include any Company Entity;
and (3) the term "Acquiring Person" shall not include any person
who or which, together with all affiliates and

<PAGE>

associates of such person, becomes the beneficial owner of 15% or
more of the then outstanding shares of Common Stock (in the case of
clause (i) above) or any additional shares of Common Stock (in the
case of clauses (ii) and (iii) above) but who acquired beneficial
ownership of shares of Common Stock inadvertently, and such person
promptly (and in any event within 10 business days after being so
requested by the Company) enters into an irrevocable commitment
satisfactory to the Board promptly (and in any event within 20
business days or such shorter period as shall be determined by the
Board) to divest, and thereafter promptly divests as required by
such commitment, sufficient shares of Common Stock so that such
person, together with all of its affiliates and associates, ceases
to be a beneficial owner of 15% or more of the then outstanding
shares of Common Stock (in the case of clause (i) above) or any
additional shares of Common Stock (in the case of clauses (ii) and
(iii) above).

The term "Company Entity" means any of the Company, any wholly owned
subsidiary of the Company, any employee benefit plan or employee stock plan of
the Company or any wholly owned subsidiary of the Company, any person or entity
holding shares of Common Stock which was organized, appointed or established by
the Company or any such wholly owned subsidiary for or pursuant to the terms of
any such plan, the Management Voting Trust, the Restricted Stock Trust, the
trustees under the Management Voting Trust or the Restricted Stock Trust, any
affiliate or associate of the Management Voting Trust or the Restricted Stock
Trust or any trustee under either such trust and any group that includes the
Management Voting Trust, the Restricted Stock Trust, any trustee under either
such trust or any affiliate or associate thereof.

The term "Permitted H&F 15% Transferee" means any person who is a
Permitted H&F Transferee (as defined below) who or which, immediately after the
transfer from the H&F Investors that resulted in such person becoming a
Permitted H&F Transferee, together with all affiliates and associates of such
person, is the beneficial owner of 15% or more of the then outstanding shares of
Common Stock.

The term "Permitted H&F Transferee" means any person that acquires
beneficial ownership of shares of Common Stock from the H&F Investors pursuant
to a transfer that is either not restricted under, or occurs in compliance with,
the transfer restrictions applicable to the H&F Investors set forth in the
Amended Stockholders' Agreement.

The term "Approved Offer" means a tender offer or exchange offer for all
the outstanding shares of Common Stock which is at a price and on terms
approved, prior to the acceptance for payment of shares under such tender or
exchange offer, by the Board.

The term "Diluted Shares Outstanding" as of any given time means the sum
of (a) the number of shares of Common Stock then issued and outstanding
(including all shares of Common Stock held in the Restricted Stock Trust) and
(b) the number of shares of Common Stock issuable upon exercise of the (1) HFCP
Options (as defined in the Amended Stockholders' Agreement) and the Rollover
Options and (2) all other options, warrants and rights to acquire, and the
conversion of any securities convertible into, shares of Common Stock, to the
extent such rights to acquire shares of Common Stock are then exercisable. For
purposes of clause (ii)(B) of the definition of "Acquiring Person" above, when
calculating the percentage of the Diluted Shares Outstanding owned by the H&F
Investors or the Management Voting Trust, as the case may be, the H&F Investors
or the Management Voting Trust, as the case may be, shall be deemed to own all
shares of Common Stock beneficially owned by them assuming the exercise of all
of their options, warrants and rights to acquire, and the conversion by them of
any securities convertible into, shares of Common Stock to the extent, but only
to the extent, such rights to acquire shares of Common Stock are then
exercisable by them. For purposes of calculating the percentage of Diluted
Shares Outstanding owned by the Management Voting Trust, the Management Voting
Trust shall be deemed to own all shares of Common Stock (including all shares of
Common Stock required to be deposited thereunder upon exercise of vested
options) then subject to the Management Voting Trust.

<PAGE>

The Rights Agreement provides that, until the Distribution Date, the
Rights will be transferred with and only with the Common Stock. Certificates
representing shares of Common Stock issued prior to the earlier of the
Distribution Date and the Expiration Date will contain a legend incorporating
the Rights Agreement by reference. Until the Distribution Date, the surrender
for transfer of any of the certificates representing shares of Common Stock
issued prior to the Distribution Date will also constitute the transfer of the
Rights associated with the Common Stock represented by such certificate. Until
the Distribution Date, the number of Rights associated with each share of Common
Stock will be proportionately adjusted in the event of any dividend in Common
Stock on the Common Stock or subdivision, combination or reclassification of the
Common Stock. In the event that the Company purchases or acquires any shares of
Common Stock prior to the Distribution Date, any Rights associated with such
shares of Common Stock shall be deemed canceled and retired so that the Company
shall not be entitled to exercise any Rights associated with the shares of
Common Stock that are no longer outstanding. As soon as practicable following
the Distribution Date, separate certificates evidencing the Rights ("Rights
Certificates") will be mailed to holders of record of Common Stock as of the
close of business on the Distribution Date and such separate Rights Certificates
alone will evidence the Rights. The Rights are not exercisable until the
Distribution Date. The Rights will expire at the close of business on May 31,
2008, unless they have previously expired in connection with an Approved Offer
(as described in the Rights Agreement) or have been previously exchanged for
shares of Common Stock or have been previously redeemed by the Company as
described below (the date and time of the earliest of such events to occur, the
"Expiration Date").

Immediately upon the Stock Acquisition Date, proper provision shall be
made so that each holder of a Right will thereafter have the right to receive,
upon exercise, Common Stock (or, in certain circumstances, cash, property or
other securities of the Company) having a preexisting market value (as of
shortly before the Stock Acquisition Date), equal to two times the then current
Purchase Price of the Right. Notwithstanding any of the foregoing, following the
occurrence of the Stock Acquisition Date, all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by any
Acquiring Person and certain related parties will become null and void.

To illustrate the rights described in the preceding paragraph, at a
Purchase Price of $87.50 per Right, each Right not owned by an Acquiring Person
(or by certain related parties) following an event set forth in the preceding
paragraph would entitle its holder to purchase Common Stock (or other
consideration, as noted above) with a preexisting market value of $175.00 for
$87.50. Assuming that the Common Stock has a preexisting market value of $25.00
per share at such time, the holder of each Right would be entitled to purchase
seven shares of Common Stock for $87.50.

In the event that, at any time following the Stock Acquisition Date, (i)
the Company is acquired in a merger or other business consolidation transaction,
(ii) the Company is the surviving corporation in a merger or other business
consolidation with any person and the Common Stock is changed into or exchanged
for stock or other securities of any other person or cash or any other property
(other than, in the case of any transaction described in (i) or (ii), a merger
or consolidation that would result in all of the voting securities of the
Company outstanding immediately prior thereto continuing to represent all of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation and holders of such securities
not having changed as a result of such merger or consolidation) or (iii) 50% or
more of the Company's assets or earning power is sold or transferred, each
holder of a Right (except Rights that previously have been voided as set forth
above) shall thereafter have the right to receive, upon exercise, common stock
of the acquiring company having a market value equal to two times the then
current Purchase Price of the Right.

The Purchase Price payable, and the fraction of a share of Junior
Preferred Stock or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution (i) in
the event of a stock dividend on, or a subdivision,

<PAGE>
combination or reclassification of, the Junior Preferred Stock (prior to the
Distribution Date) or the Common Stock, (ii) if holders of the Junior Preferred
Stock are granted certain rights or warrants to subscribe for Junior Preferred
Stock or convertible securities at less than the current market price of the
Junior Preferred Stock, or (iii) upon the distribution to holders of the Junior
Preferred Stock of evidences of indebtedness or assets (excluding regular
quarterly cash dividends below certain levels or dividends payable in shares of
Junior Preferred Stock) or of subscription rights or warrants (other than those
referred to above).

With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. In addition, to the extent that the Company does not have sufficient
shares of Common Stock issuable upon exercise of the Rights following the Stock
Acquisition Date, the Company may, under certain circumstances, reduce the
Purchase Price. No fractional shares of Junior Preferred Stock (other than
fractions which are integral multiples of one one-hundredth) will be issued and,
in lieu thereof, an adjustment in cash will be made based on the market price of
the Junior Preferred Stock or the Common Stock on the last trading date prior to
the date of exercise.

At any time until the Stock Acquisition Date, the Company may redeem the
Rights in whole, but not in part, at a price of $0.01 per Right (payable in
cash, shares of Common Stock or other consideration deemed appropriate by the
Board). Immediately upon the action of the Board ordering redemption of the
Rights, the Rights will terminate and thereafter the only right of the holders
of Rights will be to receive the $0.01 redemption price. In addition, at any
time after the Stock Acquisition Date, the Board may elect to exchange all or
part of the then-outstanding and exercisable Rights (other than Rights that have
become null and void as described above) for one share of Company Common Stock.
Both the redemption price and the exchange rate are subject to adjustment.

Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders or to the Company, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Stock (or other consideration) or for common stock of an
acquiring company as set forth above.

Any of the provisions of the Rights Agreement may be amended by the Board
prior to the Stock Acquisition Date. After the Stock Acquisition Date, the
provisions of the Rights Agreement may be amended by the Board in order to cure
any ambiguity, to correct any defects or inconsistencies, to make changes that
do not adversely affect the interests of holders of Rights (excluding the
interests of any Acquiring Person) or to shorten or lengthen any time period
under the Rights Agreement; provided, however, that no amendment to adjust the
time period governing redemption or to modify the ability (or inability) of the
Board to redeem the Rights may be made when the Rights are not redeemable.

As long as the Rights are attached to the Common Stock, the Company will
issue one Right for each share of Common Stock issued prior to the Distribution
Date so that all such shares will have attached Rights. Two million five hundred
thousand shares of Junior Preferred Stock initially have been reserved for
issuance upon exercise of the Rights.

The Rights have certain anti-takeover effects. See "--Anti-Takeover
Effects of Certain Provisions of the Charter, the By-Laws, the Rights Plan and
Delaware Law."

The foregoing summary of certain terms of the Rights is qualified in its
entirety by reference to the Rights Agreement, which is filed as an exhibit to
the Registration Statement and is incorporated herein by reference.

ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE CHARTER, THE BY-LAWS, THE
RIGHTS PLAN AND DELAWARE LAW

The Charter, the By-Laws, the Rights Plan and the DGCL contain certain
provisions that could make more difficult the acquisition of control of the
Company by means of a tender offer, open market purchases, a proxy contest or
otherwise. Set forth below is a description of these provisions in the Charter,
the By-Laws,

<PAGE>
the Rights Plan and the DGCL. The following description is intended as a summary
only and is qualified in its entirety by reference to the Charter, the By-Laws
and the Rights Agreement, which have been filed as exhibits to the Registration
Statement of which this Prospectus forms a part, and to the DGCL. Upon
consummation of the Offering, the Management Voting Trust will hold
approximately 45.7% of the outstanding shares of Common Stock (assuming the
exercise of all vested options held by Management Investors), which could
discourage potential acquisition proposals and could delay or prevent a change
in control of the Company. See "Description of Capital Stock--The Management
Voting Trust Agreement."

CLASSIFIED BOARD OF DIRECTORS; REMOVAL OF DIRECTORS. The Charter provides
that the number of Directors will be not less than five nor more than fifteen,
with the exact number of Directors to be determined from time to time by a
majority of the entire Board. The Directors will be divided into three classes,
as nearly equal in number as is possible, serving staggered three-year terms so
that Directors' initial terms will expire at the annual meeting of the Company's
stockholders held in 1999, 2000 and 2001, respectively. Starting with the 1999
annual meeting of the Company's stockholders, one class of Directors will be
elected each year for a three-year term. See "Management."

The Company believes that a classified Board will help to assure the
continuity and stability of the Board and the Company's business strategies and
policies, since a majority of the Directors at any given time will have had
prior experience as Directors of the Company. The Company believes that this in
turn will permit the Board to represent more effectively the interests of
stockholders.

With a classified Board, at least two annual meetings of stockholders,
instead of one, will generally be required to effect a change in a majority of
the members of the Board. As a result, the classification of the Board of the
Company may discourage proxy contests for the election of Directors, unsolicited
tender offers or purchases of a substantial block of the Common Stock because it
could prevent an acquirer from obtaining control of the Board in a relatively
short period of time. In addition, pursuant to the DGCL and the Charter, a
Director may be removed only for cause and only by the affirmative vote of
holders of not less than 80% of the outstanding shares of Common Stock entitled
to vote thereon. As a result, a classified Board delays stockholders who do not
agree with the policies of the Board from replacing Directors, unless they can
demonstrate that the Directors should be removed for cause and obtain the
requisite vote. Such a delay may help ensure that the Board, if confronted with
a proxy contest or an unsolicited proposal for an extraordinary corporate
transaction, will have sufficient time to review the proposal and appropriate
alternatives to the proposal and to act in what it believes is the best interest
of the Company's stockholders.

FILLING VACANCIES ON THE BOARD. The Charter provides that, subject to the
rights of holders of any shares of Preferred Stock, any vacancy in the Board
that results from an increase in the number of Directors may be filled only by a
majority of the Directors then in office, provided that a quorum is present. The
Charter provides that any other vacancy in the Board may be filled by a majority
of the Directors then in office, even if less than a quorum, or by the sole
remaining Director. Accordingly, these provisions could temporarily prevent any
stockholder from obtaining majority representation on the Board by enlarging the
Board and filling the new Directorships with its own nominees.

WRITTEN CONSENTS AND SPECIAL MEETINGS. The Charter provides that no
action required or permitted to be taken at any annual or special meeting of
stockholders may be taken by stockholders of the Company except at such a
meeting of stockholders. The By-Laws provide that special meetings of
stockholders may be called only by the Chairman of the Board or the Board.
Stockholders are not permitted to call a special meeting or to require that the
Board call a special meeting of stockholders. Moreover, the business permitted
to be conducted at any special meeting of stockholders is limited to the purpose
or purposes specified in the written notice of the meeting. The provisions of
the Charter prohibiting action by written consent without a meeting and the
provisions of the By-Laws governing the calling of and matters considered at
special meetings may have the effect of

<PAGE>
delaying consideration of a stockholder proposal until the next annual meeting.
These provisions also would prevent the holders of a majority of the voting
power of the outstanding shares of stock entitled to vote generally in the
election of Directors from using the written consent procedure to take
stockholder action and from taking action by written consent without giving all
the stockholders entitled to vote on a proposed action the opportunity to
participate in determining such proposed action at a meeting.

ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND PROPOSALS. The
By-Laws establish an advance notice provision with regard to the nomination,
other than by or at the direction of the Board, of candidates for election as
Directors, or the bringing before any annual meeting of any stockholder proposal
(the "Notice of Meeting Provision").

The Notice of Meeting Provision provides that, subject to any rights of
holders of any Preferred Stock, business other than that proposed by the Board
may be transacted and candidates for Director other than those selected by the
Board may be nominated at the annual meeting only if the Secretary of the
Company has received a written notice identifying such business or candidates
and providing specified additional information not less than ninety nor more
than one hundred twenty days before the first Tuesday in June (or, if the Board
has set a different date for the annual meeting, not less than ninety nor more
than one hundred twenty days before such other date or, if such other date has
not been publicly disclosed or announced at least one hundred five days in
advance, then not less than fifteen days after such public disclosure or
announcement). In addition, not more than ten days after receipt by the
sponsoring stockholder of the Secretary's written request, the sponsoring
stockholder must provide the Secretary with such additional information as the
Secretary may reasonably require.

By requiring advance notice of nominations by stockholders, the Notice of
Meeting Provision will afford the Board a meaningful opportunity to consider the
qualifications of the proposed nominees and, to the extent deemed necessary or
desirable by the Board, to inform the stockholders about such qualifications. By
requiring advance notice of proposed business, the Notice of Meeting Proposal
Provision will provide the Board with a meaningful opportunity to inform
stockholders, prior to such meeting, of any business proposed to be conducted at
such meeting, together with any recommendation or statement of the Board's
position as to action to be taken with respect to such business, so as to enable
stockholders better to determine whether they desire to attend such a meeting or
to grant a proxy to the Board as to the disposition of any such business.
Although the By-Laws do not give the Board any power to approve or disapprove
stockholder nominations for the election of Directors or proposals for action,
they may have the effect of precluding a contest for the election of Directors
or the consideration of stockholder proposals if the proper procedures are not
followed, and of discouraging or deterring a third party from conducting a
solicitation of proxies to elect its own slate of Directors or to approve its
proposal without regard to whether consideration of such nominees or proposals
might be harmful or beneficial to the Company and its stockholders.

RESTRICTIONS ON AMENDMENT. The Charter provides that the approval of
holders of at least 80% of the voting power entitled to vote generally in the
election of Directors, voting together as a single class, is required to adopt
any charter provision inconsistent with or to alter, amend or repeal the
provisions of the Charter classifying the Board; governing the removal of
directors; establishing the minimum and maximum number of members of the Board;
eliminating the ability of stockholders to act by written consent; authorizing
the Board to consider the interests of clients and other customers, creditors,
employees and other constituencies of the Corporation and its subsidiaries and
the effect upon communities in which the Corporation and its subsidiaries do
business, in evaluating proposed corporate transactions; establishing the
Board's authority to issue, without a vote or any other action of the
stockholders, any or all authorized shares of stock of the Corporation,
securities convertible into or exchangeable for any authorized shares of stock
of the Corporation and warrants, options or rights to purchase, subscribe for or
otherwise acquire shares of stock of the Corporation for any such consideration
and on such terms as the Board in its discretion lawfully may determine; and
authorizing that

<PAGE>

the By-Laws of the Corporation may establish procedures regulating the
submission by stockholders of nominations and proposals for consideration at
meetings of stockholders of the Corporation. In addition, the Charter provides
that the approval of the Board or the affirmative vote of the holders of 80% of
the voting power entitled to vote generally in the election of Directors, voting
together as a single class, is required to alter, amend or repeal the above
provisions of the Charter or to adopt any provision of the Charter inconsistent
with such provisions or to alter, amend or repeal certain provisions of the
By-Laws or to adopt any provision of the By-Laws inconsistent with such
provisions.

PREFERRED STOCK. Subject to the Charter and applicable law, the authority
of the Board with respect to each series of Preferred Stock, excluding the Money
Market Preferred Stock, includes but is not limited to the authority to
generally determine the following: the designation of such series, the number of
shares initially constituting such series and whether to increase or decrease
such number of shares, dividend rights and rates, terms of redemption and
redemption prices, liquidation preferences, voting rights, conversion rights,
whether a sinking fund will be provided for the redemption of the shares of such
series (and, if so, the terms and conditions thereof) and whether a purchase
fund shall be provided for the shares of such series (and, if so, the terms and
conditions thereof).

The Company believes that the availability of the Preferred Stock will
provide increased flexibility in structuring possible future financings and
acquisitions and in meeting other corporate needs that might arise. Having such
authorized shares available for issuance will allow the Company to issue shares
of Preferred Stock without the expense and delay of a special stockholders'
meeting. The authorized shares of Preferred Stock, as well as shares of Common
Stock, will be available for issuance without further action by the
stockholders, unless such action is required by applicable law or the rules of
any stock exchange on which the Company's securities may be listed. Although the
Board has no current intention to do so, it would have the power (subject to
applicable law) to issue a series of Preferred Stock that could, depending on
the terms of such series, impede the completion of a merger, tender offer or
other takeover attempt. For instance, subject to applicable law, such series of
Preferred Stock might impede a business combination by including class voting
rights that would enable the holder to block such a transaction. The Board will
make any determination to issue such shares based on its judgment as to the best
interests of the Company and its stockholders. The Board, in so acting, could
issue Preferred Stock having terms which could discourage an acquisition attempt
or other transaction that some, or a majority, of the stockholders might believe
to be in their best interest or in which stockholders might receive a premium
for their stock over the then market price of such stock. See "--Rights Plan."

OTHER CONSIDERATIONS. Article XII of the Charter generally provides that,
in determining whether to take or refrain from taking corporate action on any
matter, including proposing any matter to the stockholders of the Company, the
Board may, but shall not be obligated to, take into account the interests of
clients and other customers, creditors, employees and other constituencies of
the Company and its subsidiaries and the effect upon communities in which the
Company and its subsidiaries do business.

CERTAIN EFFECTS OF THE RIGHTS PLAN. The Rights Plan is designed to
protect stockholders of the Company in the event of unsolicited offers to
acquire the Company and other coercive takeover tactics which, in the opinion of
the Board, could impair its ability to represent stockholder interests. The
provisions of the Rights Agreement may render an unsolicited takeover of the
Company more difficult or less likely to occur or might prevent such a takeover,
even though such takeover may offer the Company's stockholders the opportunity
to sell their stock at a price above the then prevailing market rate and may be
favored by a majority of the Company's stockholders. See "--Rights Plan." The
Charter authorizes the Board to adopt a stockholder rights plan.

DELAWARE BUSINESS COMBINATION STATUTE. The terms of Section 203 of the
DGCL apply to the Company. With certain exceptions, Section 203 generally
prohibits an "interested stockholder" from engaging in a broad range of

<PAGE>

"business combination" transactions, including mergers, consolidations and sales
of 10% or more of a corporation's assets, with a Delaware corporation for three
years following the date on which such person became an interested stockholder
unless (i) the transaction that results in the person's becoming an interested
stockholder or the business combination is approved by the board of directors of
the corporation before the person becomes an interested stockholder, (ii) upon
consummation of the transaction which results in the stockholder becoming an
interested stockholder, the interested stockholder owns 85% or more of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also officers
and shares owned by certain employee stock plans, or (iii) on or after the date
the person becomes an interested stockholder, the business combination is
approved by the corporation's board of directors and by holders of at least
two-thirds of the corporation's outstanding voting stock, excluding shares owned
by the interested stockholder, at a meeting of stockholders. Under Section 203,
an "interested stockholder" is generally defined as any person (and the
affiliates and associates of any such person), other than the corporation and
any direct or indirect majority-owned subsidiary, that is (a) the owner of 15%
or more of the outstanding voting stock of the corporation or (b) an affiliate
or associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder. The restrictions contained in
Section 203 do not apply to a corporation that so provides in an amendment to
its certificate of incorporation or by-laws passed by a majority of its
outstanding voting shares, but such stockholder action generally does not become
effective for 12 months following its adoption and would not apply to persons
who were already interested stockholders at the time of the amendment. The
Charter and By-Laws do not exclude the Company from the restrictions imposed
under Section 203, but the Charter provides that in no case shall the H&F
Investors or any person who is a Permitted H&F 15% Transferee, regardless of the
total percentage of the Company's Common Stock or other voting stock owned by
the H&F Investors or such person, be deemed an interested stockholder for any
purpose under Section 203 whatsoever.

Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period. The provisions of
Section 203 may encourage companies interested in acquiring the Company to
negotiate in advance with the Board, because the stockholder approval
requirement would be avoided if the Board approves either the business
combination or the transaction which results in the stockholder becoming an
interested stockholder. Such provisions also may have the effect of preventing
changes in the Board. It is further possible that such provisions could make it
more difficult to accomplish transactions which stockholders may otherwise deem
to be in their best interests.

<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Common Stock in the public market
following the Offering could adversely affect the market price of the Common
Stock and could impair the Company's future ability to raise capital through the
sale of its equity securities.

Upon the closing of the Offering, the Company will have outstanding
66,481,284 shares of Common Stock. Of these shares, approximately (i) 31,603,969
shares will be freely tradeable by persons, other than "affiliates" of the
Company, without restriction under the Securities Act of 1933, as amended (the
"Securities Act"); (ii) 34,877,315 shares will be "restricted" securities,
within the meaning of Rule 144 under the Securities Act, and may not be sold in
the absence of registration under the Securities Act unless an exemption from
registration is available, including the exemption provided by Rule 144; and
(iii) 1,036,455 shares originally issued pursuant to Regulation S under the
Securities Act will be subject to transfer restrictions thereunder.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including any affiliate of the Company, who has
beneficially owned restricted securities for at least one year (including the
holding period of any prior owner except an affiliate of the Company) would be
entitled to sell within any three-month period, a number of shares that does not
exceed the greater of: (i) one percent of the number of Common Stock then
outstanding (approximately 664,813 shares immediately after the Offering); or
(ii) the average weekly trading volume of the Common Stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale and notice
requirements and to the availability of current public information about the
Company. Under Rule 144(k), a person who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale, and who has
beneficially owned restricted securities for at least two years (including the
holding period of any prior owner except an affiliate of the Company), is
entitled to sell such shares without complying with the manner of sale, public
information requirements, volume limitations or notice requirements of Rule 144.
Sale of shares by affiliates of the Company will continue to be subject to such
volume limitations, and manner of sale, notice and public information
requirements.

Each of the Company, certain of the Management Investors, the Directors,
the H&F Investors and certain other stockholders of the Company, including the
Selling Stockholders, who, upon consummation of the Offering, will collectively
be the beneficial owners of an aggregate of 27,794,903 shares of Common Stock
and hold vested options to acquire an aggregate of 8,704,664 shares of Common
Stock has agreed not to (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or (ii) enter into any swap
or other arrangement that transfers all or a portion of the economic
consequences associated with the ownership of any Common Stock (regardless of
whether any of the transactions described in clause (i) or (ii) is to be settled
by the delivery of Common Stock, or such other securities, in cash or
otherwise), without the prior written consent of Bear, Stearns & Co. Inc. and
Donaldson, Lufkin & Jenrette Securities Corporation, for a period of 120 days
after the date of this Prospectus (except that (i) the Company may grant stock
options or stock awards pursuant to the Company's existing benefit or
compensation plans, (ii) the Company may issue shares of Common Stock upon the
exercise of options, warrants or Rights or the conversion of currently
outstanding securities, (iii) the H&F Investors may transfer shares of Common
Stock to partners or affiliates thereof in transactions not involving a public
offering provided that each transferee agrees in writing to be bound by the
restrictions set forth in this paragraph and (iv) the Company may issue, offer
and sell shares of Common Stock or securities convertible, exercisable or
exchangeable therefor in transactions not involving a public offering as
consideration for the acquisition (pursuant to merger or otherwise) of one or
more entities provided that each recipient of such securities agrees in writing
to be bound by

<PAGE>

the restrictions set forth in this paragraph). In addition, during such period,
the Company has also agreed not to file any registration statement with respect
to, and the Company's executive officers and Directors, and certain other
stockholders, including the Selling Stockholders, have agreed not to make any
demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, without the prior written consent of Bear,
Stearns & Co. Inc. and Donaldson, Lufkin & Jenrette Securities Corporation. See
"Underwriting."

In addition, certain of the Management Investors who are not Selling
Stockholders and who, upon consummation of the Offering, will collectively be
the beneficial owners of an aggregate of 9,293,807 shares of Common Stock and
hold vested options to acquire an aggregate of 6,042,330 shares of Common Stock,
have agreed with the Company not to (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, or (ii) enter
into any swap or other arrangement that transfers all or a portion of the
economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or otherwise) or (iii) make any demand for, or exercise any right with
respect to, the registration of any shares of Common Stock or any securities
convertible into or exercisable or exchangeable Common Stock, without the prior
written consent of the Company, for a period ending on a date no later than 180
days after the date of this Prospectus. For a period of 120 days after the date
of this Prospectus, the Company has agreed with the Underwriters to enforce the
Company's rights under the foregoing agreements to prohibit transfers of Common
Stock and the making of demands for registration of Common Stock. In addition,
certain of the Management Investors hold an aggregate of 980,835 shares of
Common Stock in a deferral trust pursuant to the Deferred Compensation Plan,
which shares are not transferable for a period of at least 120 days.

REGISTRATION RIGHTS AGREEMENT

In connection with the Recapitalization, Y&R, the Recapitalization
Investors and the Management Voting Trust entered into a Registration Rights
Agreement in favor of the Recapitalization Investors and, to the extent
necessary to permit a Management Investor to pay taxes when such sales would not
otherwise be permitted, the Management Investors, under which registration
rights are available. Pursuant to the Registration Rights Agreement, the Company
has granted (i) the Recapitalization Investors the right to require, subject to
the terms and conditions set forth therein, the Company to register shares of
Common Stock held by them for sale in accordance with their intended method of
disposition thereof and (ii) the Management Voting Trust the right to require,
subject to the terms and conditions set forth therein, the Company to register
such number of shares of Common Stock as is necessary to permit Management
Investors to pay taxes as a result of the exercise by such Management Investors
of Rollover Options or Closing Options or the vesting of Restricted Stock
awarded to such Management Investors (each a "demand registration"), provided
that in the case of the Management Voting Trust no such request may be made
without the consent of the Company. Subject to certain limitations, the
Recapitalization Investors may request up to four demand registrations and the
Management Voting Trust may request up to two demand registrations. The Company
will not be required to effect any demand registration if (i) the aggregate
market value of the shares of Common Stock proposed to be registered is less
than $100 million or (ii) such demand registration is requested by the
Recapitalization Investors or the Management Voting Trust within six months of
the effective date of a prior demand registration requested by the
Recapitalization Investors or the Management Voting Trust, respectively. The
Company may postpone the filing of a demand registration for up to 60 days in
certain circumstances.

In addition, the Company has granted the Recapitalization Investors and
the Management Voting Trust (to the extent of such number of

<PAGE>

shares of Common Stock as is necessary to permit Management Investors to pay
taxes as a result of the exercise by such Management Investors of Rollover
Options or Closing Options or the vesting of Restricted Stock awarded to such
Management Investors) the right, subject to certain exceptions, to participate
in registrations of Common Stock initiated by the Company on its own behalf or
on behalf of any other stockholder (a "piggy-back registration"). The
Recapitalization Investors have exercised these piggy-back registration rights
in connection with the Offering.

The Registration Rights Agreement provides that if requested by the
managing underwriter(s) of any underwritten offering of shares of Common Stock,
the Recapitalization Investors and the Management Voting Trust will agree, on
the same terms applicable to officers and directors of the Company, not to
effect any public sale or distribution of any shares of Common Stock for a
period of up to 180 days following and 15 days prior to the date of the final
prospectus contained in the registration statement filed in connection with
such offering. See "Underwriting."

The Company is required to pay expenses incurred by it and the reasonable
fees and disbursements of one counsel to the selling stockholders under the
Registration Rights Agreement in connection with the demand and piggy-back
registrations under the Registration Rights Agreement. The Company has agreed to
pay expenses incurred by the Selling Stockholders in connection with the
Offering, other than the underwriting discount. In connection with any
registration under the Registration Rights Agreement, the Company has agreed to
indemnify five of the Recapitalization Investors against certain liabilities,
including liabilities under the Securities Act, and to contribute to certain
payments they may be required to make. The Registration Rights Agreement will
terminate on December 12, 2011.

<PAGE>

CERTAIN U.S. TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS

The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Common Stock by a
person that, for U.S. federal income tax purposes, is not a U.S. Person (a
"non-U.S. holder"). For purposes of this Section a "U.S. Person" means a citizen
or resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, an estate the income of which is subject to United States
federal income taxation regardless of its source or a trust if (i) a U.S. court
is able to exercise primary supervision over the trust's administration and (ii)
one or more United States persons have the authority to control all of the
trust's substantial decisions, and the term "United States" means the United
States of America (including the States and the District of Columbia). The
discussion does not consider specific facts and circumstances that may be
relevant to a particular non-U.S. holder's tax position. Accordingly, each
non-U.S. holder is urged to consult its own tax advisor with respect to the U.S.
tax consequences of the ownership and disposition of Common Stock, as well as
any tax consequences that may arise under the laws of any state, municipality,
foreign country or other taxing jurisdiction.

DIVIDENDS

Dividends paid to a non-U.S. holder of Common Stock ordinarily will be
subject to withholding of U.S. federal income tax at a 30 percent rate, or at a
lower rate under an applicable income tax treaty that provides for a reduced
rate of withholding. However, if the dividends are effectively connected with
the conduct by the holder of a trade or business within the United States, then
the dividends will be exempt from the withholding tax described above and
instead will be subject to U.S. federal income tax on a net income basis.

GAIN ON DISPOSITION OF COMMON STOCK

A non-U.S. holder generally will not be subject to U.S. federal income
tax in respect of gain realized on a disposition of Common Stock, provided that
(a) the gain is not effectively connected with a trade or business conducted by
the non-U.S. holder in the United States and (b) in the case of a non-U.S.
holder who is an individual and who holds the Common Stock as a capital asset,
such holder is present in the United States for less than 183 days in the
taxable year of the sale and other conditions are met.

FEDERAL ESTATE TAXES

Common Stock owned or treated as being owned by a non-U.S. holder at the
time of death will be included in such holder's gross estate for U.S. federal
estate tax purposes (and thereby may be subject to U.S. federal estate tax),
unless an applicable estate tax treaty provides otherwise.

U.S. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX

U.S. information reporting requirements and backup withholding tax will
not apply to dividends paid on Common Stock to a non-U.S. holder address outside
the United States, except that with regard to payments made after December 31,
1999, a non-U.S. Holder will be entitled to such an exemption only if it
provides a Form W-8 (or satisfies certain documentary evidence requirements for
establishing that it is a non-United States person) or otherwise establishes an
exemption. As a general matter, information reporting and backup withholding
also will not apply to a payment of the proceeds of a sale of Common Stock
effected outside the United States by a foreign office of a foreign broker.
However, information reporting requirements (but not backup withholding) will
apply to a payment of the proceeds of a sale of Common Stock effected outside
the United States by a foreign office of a broker if the broker (i) is a U.S.
person, (ii) derives 50 percent or more of its gross income for certain periods
from the conduct of a trade or business in the United States, or (iii) is a
"controlled foreign corporation" as to the United States, or (iv) with respect
to payments made after December 31, 1999, is a foreign partnership that, at any
time during its taxable year is 50 percent or more (by income or capital
interest) owned by U.S. persons or is engaged in the conduct of a U.S. trade or
business, unless in each case the broker has documentary evidence

<PAGE>

in its records that the holder is a non-U.S. holder and certain conditions are
met, or the holder otherwise establishes an exemption. Payment by a United
States office of a broker of the proceeds of a sale of Common Stock will be
subject to both backup withholding and information reporting unless the holder
certifies its non-United States status under penalties of perjury or otherwise
establishes an exemption.

<PAGE>
UNDERWRITING

Subject to the terms and conditions of an Underwriting Agreement, dated
November 24, 1998 (the "Underwriting Agreement"), the Underwriters named below
(the "Underwriters"), who are represented by Bear, Stearns & Co. Inc. ("Bear
Stearns"), Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), Goldman,
Sachs & Co., ING Baring Furman Selz LLC and Salomon Smith Barney Inc. (the
"Representatives"), have severally agreed to purchase from the Selling
Stockholders the respective number of shares of Common Stock set forth opposite
their names below.

<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITER SHARES
- ------------------------------------------------------------- ------------
<S> <C>
Bear, Stearns & Co. Inc. .................................... 2,750,000
Donaldson, Lufkin & Jenrette Securities Corporation ......... 2,750,000
Goldman, Sachs & Co. ........................................ 1,500,000
ING Baring Furman Selz LLC .................................. 1,500,000
Salomon Smith Barney Inc. ................................... 1,500,000
---------
Total ...................................................... 10,000,000
==========

</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The Underwriters are obligated to purchase and
accept delivery of all the shares of Common Stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased.

The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $0.71 per share.
The Underwriters may allow, and such dealers may re-allow, to certain other
dealers a concession not in excess of $0.10 per share. After the initial
offering of the Common Stock, the public offering price and other selling terms
may be changed by the Representatives at any time without notice. The
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.

Certain of the Selling Stockholders have granted to the Underwriters an
option, exercisable within 30 days after the date of this Prospectus, to
purchase, from time to time, in whole or in part, up to an aggregate of
1,500,000 additional shares of Common Stock at the initial public offering price
less underwriting discounts and commissions. The Underwriters may exercise such
option solely to cover over-allotments, if any, made in connection with the
Offering. To the extent that the Underwriters exercise such option, each
Underwriter will become obligated, subject to certain conditions, to purchase
its pro rata portion of such additional shares based on such Underwriter's
percentage underwriting commitment in the Offering as indicated in the preceding
table.

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

<PAGE>

Each of the Company, certain of the Management Investors, the Directors,
the H&F Investors and certain other stockholders of the Company, including the
Selling Stockholders, who upon consummation of the Offering will collectively be
the beneficial owners of an aggregate of 27,794,903 shares of Common Stock and
hold vested options to acquire an aggregate of 8,704,664 shares of Common Stock,
has agreed not to (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (ii) enter into any swap or
other arrangement that transfers all or a portion of the economic consequences
associated with the ownership of any Common Stock (regardless of whether any of
the transactions described in clause (i) or (ii) is to be settled by the
delivery of Common Stock, or such other securities, in cash or otherwise) for a
period of 120 days after the date of this Prospectus without the prior written
consent of Bear Stearns and DLJ (and, in the case of Management Investors, the
Company) (except that (i) the Company may grant stock options or stock awards
pursuant to the Company's existing benefit or compensation plans, (ii) the
Company may issue shares of Common Stock upon the exercise of options, warrants
or Rights or the conversion of currently outstanding securities, (iii) the H&F
Investors may transfer shares of Common Stock to partners or affiliates thereof
in transactions not involving a public offering provided that each transferee
agrees in writing to be bound by the restrictions set forth in this paragraph
and (iv) the Company may issue, offer and sell shares of Common Stock or
securities convertible, exercisable or exchangeable therefor in transactions not
involving a public offering as consideration for the acquisition (pursuant to
merger or otherwise) of one or more entities provided that each recipient of
such securities agrees in writing to be bound by the restrictions set forth in
this paragraph). In addition, during such period, the Company has also agreed
not to file any registration statement with respect to, and each of its
executive officers, directors and certain stockholders of the Company (including
the Selling Stockholders) has agreed not to make any demand for, or exercise any
right with respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
without the prior written consent of Bear Stearns and DLJ.

Other than in the United States, no action has been taken by the Company,
the Selling Stockholders or the Underwriters that would permit a public offering
of the shares of Common Stock offered hereby in any

<PAGE>

jurisdiction where action for that purpose is required. The shares of Common
Stock offered hereby may not be offered or sold, directly or indirectly, nor may
this Prospectus or any other offering material or advertisements in connection
with the offer and sale of any such shares of Common Stock be distributed or
published in any jurisdiction, except under circumstances that will result in
compliance with the applicable rules and regulations of such jurisdiction.
Persons into whose possession this Prospectus comes are advised to inform
themselves about and to observe any restrictions relating to the Offering and
the distribution of this Prospectus. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any shares of Common Stock
offered hereby in any jurisdiction in which such an offer or a solicitation is
unlawful.

In order to facilitate the Offering, certain persons participating in the
Offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the Common Stock during and after the Offering. Specifically, the
Underwriters may over-allot or otherwise create a short position in the Common
Stock for their own account by selling more shares of Common Stock than have
been sold to them by the Company. The Underwriters may elect to cover any such
short position by purchasing shares of Common Stock in the open market or by
exercising the over-allotment options granted to the Underwriters. In addition,
such persons may stabilize or maintain the price of the Common Stock by bidding
for or purchasing shares of Common Stock in the open market and may impose
penalty bids, under which selling concessions allowed to syndicate members or
other broker-dealers participating in the Offering are reclaimed if shares
previously distributed in the Offering are repurchased in connection with
stabilization transactions or otherwise. The effect of these transactions may be
to stabilize or maintain the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. The imposition of a
penalty bid may also affect the price of the Common Stock to the extent that it
discourages resales thereof. No representation is made as to the magnitude or
effect of any such stabilization or other transactions. Such transactions, if
commenced, may be discontinued at any time.

Bear Stearns from time to time performs investment banking and other
financial services for the Company and its affiliates for which Bear Stearns may
receive advisory or transaction fees, as applicable, plus out-of-pocket
expenses, of the nature and in amounts customary in the industry for such
services. Alan D. Schwartz, an Executive Vice President and Head of the
Investment Banking Department of Bear Stearns, is a member of the Board. BearTel
Corp., a wholly owned subsidiary of The Bear Stearns Companies Inc., the parent
company of Bear Stearns, is a Selling Stockholder in the Offering. See "Selling
Stockholders."

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Cleary, Gottlieb, Steen & Hamilton, New York, New York.
Certain legal matters in connection with the Offering will be passed upon for
the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New
York.

EXPERTS

The consolidated financial statements as of December 31, 1996 and 1997
and for each of the three years in the period ended December 31, 1997 included
in this Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on authority of said
firm as experts in auditing and accounting.

<PAGE>

AVAILABLE INFORMATION

We have filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits, schedules and supplements, the "Registration Statement").
This Prospectus is a part of the Registration Statement and does not contain all
of the information set forth in the Registration Statement. For further
information with respect to the Company and the Common Stock, you should refer
to the Registration Statement. Statements contained in this Prospectus as to the
contents of any contract or other document referred to in this Prospectus are
not necessarily complete. Where such contract or other document is an exhibit to
the Registration Statement, each such statement is qualified in all respects by
the provisions of such exhibit, to which reference is hereby made.

We are required to file annual, quarterly and current reports, proxy
statements and other information with the Commission. You may review the
Registration Statement, as well as reports and other information we have filed,
without charge at the Committee's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies may also be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates or at the Commission's web site at http://www.sec.gov.
These materials may also be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005. For further information on
the operation of the public reference rooms, please call 1-800-SEC-0330.You may
also review these materials at the regional offices of the Commission at 7 World
Trade Center, Suite 1300, New York, New York 10048 and at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois, 60661-2511.

<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants ........................................................ F-2

Consolidated Balance Sheets as of December 31, 1996 and 1997 ............................. F-3

Consolidated Statements of Operations for the three years ended December 31, 1997 ........ F-4

Consolidated Statements of Cash Flows for the three years ended December 31, 1997 ........ F-5

Consolidated Statements of Changes in Equity (Deficit) for the three years ended
December 31, 1997 ..................................................................... F-6

Notes to Consolidated Financial Statements ............................................... F-7

Consolidated Balance Sheets as of December 31, 1997 and September 30, 1998 (unaudited) ... F-29

Unaudited Consolidated Statements of Operations for the three months and nine months
ended September 30, 1997 and 1998 ...................................................... F-30

Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30,
1997 and 1998 .......................................................................... F-31

Consolidated Statements of Changes in Equity (Deficit) for the year ended December 31,
1997 and for the nine months ended September 30, 1998 (unaudited) ....................... F-32

Notes to Unaudited Consolidated Financial Statements ..................................... F-33

</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Young & Rubicam Inc.

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of changes in
equity (deficit) present fairly, in all material respects, the financial
position of Young & Rubicam Inc. and its subsidiaries at December 31, 1996 and
1997, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

Price Waterhouse LLP
New York, New York
February 19, 1998

F-2

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997
------------- -------------
(IN THOUSANDS, EXCEPT SHARE
DATA)

<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ............................................................... $ 110,180 $ 160,263
Accounts receivable, net of allowance for doubtful accounts of $9,849 and $14,125 at
December 31, 1996 and 1997, respectively ............................................... 847,653 790,342
Costs billable to clients ............................................................... 78,723 50,479
Other receivables ....................................................................... 50,302 35,218
Deferred income taxes ................................................................... 78,732 32,832
Prepaid expenses and other assets ....................................................... 17,102 16,891
Due from employees ...................................................................... 2,340 1,098
---------- ----------
Total Current Assets ................................................................... 1,185,032 1,087,123
---------- ----------
NONCURRENT ASSETS
Property and equipment, net ............................................................. 129,088 125,014
Deferred income taxes ................................................................... 79,411 124,192
Goodwill, less accumulated amortization of $64,062 and $80,166 at December 31, 1996 and
1997, respectively ..................................................................... 131,511 116,637
Equity in net assets of and advances to unconsolidated companies ........................ 25,219 26,393
Due from employees ...................................................................... 705 300
Other assets ............................................................................ 47,846 48,360
---------- ----------
Total Noncurrent Assets ................................................................ 413,780 440,896
---------- ----------
Total Assets ........................................................................... $1,598,812 $1,528,019
========== ==========
CURRENT LIABILITIES
Loans payable ........................................................................... $ 36,282 $ 10,765
Accounts payable ........................................................................ 805,710 811,162
Installment notes payable--related parties .............................................. 24,874 3,231
Accrued expenses and other liabilities .................................................. 247,816 273,011
Accrued payroll and bonuses ............................................................. 252,487 65,458
Income taxes payable .................................................................... 14,372 29,665
---------- ----------
Total Current Liabilities .............................................................. 1,381,541 1,193,292
---------- ----------
NONCURRENT LIABILITIES
Loans payable ........................................................................... 206,082 330,552
Installment notes payable--related parties .............................................. -- 6,503
Deferred compensation--related parties .................................................. 17,887 31,077
Other liabilities ....................................................................... 104,502 112,851
---------- ----------
Total Noncurrent Liabilities ........................................................... 328,471 480,983
---------- ----------
Commitments and Contingencies (Note 18)
Minority Interest ........................................................................ 5,569 6,987
---------- ----------
MANDATORILY REDEEMABLE EQUITY SECURITIES
Common stock, par value $.01 per share; authorized--250,000,000 shares at
December 31, 1996 and 1997; issued and outstanding--47,382,330 shares and
50,658,180 shares at
December 31, 1996 and December 31, 1997, respectively .................................. 363,264 508,471
---------- ----------
STOCKHOLDERS' DEFICIT
Money Market Preferred Stock--Cumulative variable dividend; liquidating value
of $115.00 per share; one-tenth of one vote per share; 50,000 shares
authorized December 31, 1996 and
1997; 87 shares issued and outstanding at December 31, 1996 and 1997 ................... -- --
Common stock, par value $.01 per share; authorized 250,000,000 shares at December 31,
1996 and 1997; issued and outstanding--11,086,950 shares at December 31, 1996 and 1997 . 111 111
Capital surplus ......................................................................... 106,825 23,613
Accumulated deficit ..................................................................... (498,928) (522,866)
Cumulative translation adjustment ....................................................... (2,322) (16,577)
Pension liability adjustment ............................................................ (719) (706)
---------- ----------
(395,033) (516,425)
Common stock in treasury, at cost; 0 shares at December 31, 1996 and 1,115,160 shares at
December 31, 1997 ...................................................................... -- (8,550)
Unearned compensation--Restricted Stock ................................................. (85,000) (136,739)
---------- ----------
Total Stockholders' Deficit ........................................................... (480,033) (661,714)
---------- ----------
Total Liabilities, Mandatorily Redeemable Equity Securities and Stockholders' Deficit. $1,598,812 $1,528,019
========== ==========
</TABLE>

The accompanying notes are an integral part of
these consolidated financial statements.

F-3
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1995 1996 1997
------------- ------------- -------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE
DATA)

<S> <C> <C> <C>
Revenues .................................................. $1,085,494 $1,222,139 $1,382,740
Compensation expense, including employee benefits ......... 672,026 730,261 836,150
General and administrative expenses ....................... 356,523 391,617 463,936
Recapitalization-related charges .......................... -- 315,397 --
Other operating charges ................................... 31,465 17,166 11,925
---------- ---------- ----------
Operating expenses ........................................ 1,060,014 1,454,441 1,312,011
---------- ---------- ----------
Income (loss) from operations ............................. 25,480 (232,302) 70,729
Interest income ........................................... 9,866 10,269 8,454
Interest expense .......................................... (27,441) (28,584) (42,879)
---------- ---------- ----------
Income (loss) before income taxes ......................... 7,905 (250,617) 36,304
Income tax provision (benefit) ............................ 9,130 (20,611) 58,290
---------- ---------- ----------
(1,225) (230,006) (21,986)
Equity in net income (loss) of unconsolidated companies. 5,197 (9,837) 342
Minority interest in net (income) loss of consolidated
subsidiaries ............................................. (3,152) 1,532 (2,294)
---------- ---------- ----------
Net income (loss) ......................................... $ 820 $ (238,311) $ (23,938)
========== ========== ==========
Basic and diluted loss per common share (Note 3) .......... $ (0.51)
==========
Weighted average shares outstanding (Note 3) .............. 46,949,355
==========
</TABLE>

The accompanying notes are an integral part of
these consolidated financial statements.

F-4

<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

YEAR ENDED DECEMBER 31,
---------------------------------------------
1995 1996 1997
------------ -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................................... $ 820 $ (238,311) $ (23,938)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Recapitalization-related charges .......................................... -- 315,397 --
Depreciation and amortization ............................................. 47,492 53,030 56,721
Other operating charges ................................................... 24,360 11,096 11,925
Deferred income tax expense ............................................... (14,866) (59,671) (384)
Equity in net (income) loss of unconsolidated companies ................... (5,197) 9,837 (342)
Dividends from unconsolidated companies ................................... 2,101 2,691 2,728
Minority interest in net income (loss) of consolidated subsidiaries ....... 3,152 (1,532) 2,294
Change in assets and liabilities, excluding effects from acquisitions,
dispositions, recapitalization and foreign exchange:
Accounts receivable ...................................................... (44,156) (209,518) 42,144
Costs billable to clients ................................................ (19,637) 7,784 25,622
Other receivables ........................................................ 5,462 (2,883) 13,930
Prepaid expenses and other assets ........................................ (1,922) 5,342 (876)
Due from employees ....................................................... (453) 3,434 1,145
Accounts payable ......................................................... 58,635 256,460 18,547
Accrued expenses and other liabilities ................................... 7,368 (7,565) 25,621
Accrued payroll and bonuses .............................................. (90) 3,192 2,179
Income taxes payable ..................................................... 2,383 4,263 19,352
Deferred compensation .................................................... 10,921 4,950 13,052
Other liabilities ........................................................ 2,188 11,225 9,457
Other .................................................................... 1,248 8,843 5,334
--------- ---------- ----------
Net cash provided by operating activities ................................ 79,809 178,064 224,511
--------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ......................................... (42,096) (51,792) (51,899)
Acquisitions, net of cash acquired .......................................... (5,298) (23,887) (11,281)
Investment in net assets of and advances to unconsolidated companies ........ (189) (775) (5,640)
Proceeds from notes receivable .............................................. 1,762 360 1,678
--------- ---------- ----------
Net cash used in investing activities ....................................... (45,821) (76,094) (67,142)
--------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable, long-term ...................................... -- 319,282 226,770
Repayment of loans payable, long-term ....................................... (29,743) (252,496) (105,870)
Proceeds from loans payable, short-term, net ................................ 11,052 27,849 20,103
Deferred financing costs .................................................... -- (9,157) --
Recapitalization cash contributions ......................................... -- 242,007 --
Recapitalization payments ................................................... -- (323,920) (247,789)
Payments of non-recapitalization deferred compensation ...................... (15,243) (13,886) (961)
Proceeds (loans) due from employees, net .................................... 1,145 2,262 (157)
Common stock/LPUs issued .................................................... 9,732 4,163 10,390
Common stock/LPUs repurchased ............................................... (21,647) (8,971) (1,500)
Dividends paid on preferred and common stock ................................ (491) (696) --
(Dividends paid to) capital contributions from minority shareholders ........ (1,770) 1,652 347
Distributions to limited partners ........................................... (3,060) (703) --
--------- ---------- ----------
Net cash used in financing activities ....................................... (50,025) (12,614) (98,667)
--------- ---------- ----------
Effect of exchange rate changes on cash and cash equivalents ................ 1,148 (822) (8,619)
--------- ---------- ----------
Net (decrease) increase in cash and cash equivalents ........................ (14,889) 88,534 50,083
Cash and cash equivalents, beginning of period .............................. 36,535 21,646 110,180
--------- ---------- ----------
Cash and cash equivalents, end of period .................................... $ 21,646 $ 110,180 $ 160,263
========= ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ............................................................... $ 30,161 $ 28,612 $ 39,986
========= ========== ==========
Income taxes paid ........................................................... $ 20,350 $ 20,732 $ 25,020
========= ========== ==========
NONCASH INVESTING ACTIVITY:
Common stock issued in acquisitions ......................................... $ -- $ -- $ 1,126
========= ========== ==========

</TABLE>

The accompanying notes are an integral part of
these consolidated financial statements.

F-5

<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)

<TABLE>
<CAPTION>
LIMITED
NON-VOTING VOTING PARTNERS'
PREFERRED COMMON COMMON CONTRIBUTED
STOCK STOCK STOCK EQUITY
----------- ------------ --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 ......... $ 63 $ 4,000 $ -- $ 946
----- --------- ------- ---------
Net income .......................... -- -- -- --
Dividends paid ...................... -- -- -- --
Common stock/Limited
Partnership Units issued ........... 28 -- -- 1,359
Limited Partnership Units
repurchased/capital
distributions ...................... -- -- -- (4,000)
Common Stock repurchased ............ (25) -- -- --
Capitalization of tax benefits of
options exercised .................. -- -- -- --
Equityholder loans .................. -- -- -- 4,231
----- --------- ------- ---------
BALANCE AT DECEMBER 31, 1995 ......... $ 66 $ 4,000 $ -- $ 2,536
----- --------- ------- ---------
Net loss ............................ -- -- -- --
Dividends paid ...................... -- -- -- --
Common stock/Limited
Partnership Units issued ........... 3 -- -- 4,067
Limited Partnership Units
repurchased/capital
distributions ...................... -- -- -- (2,370)
Common stock repurchased ............ (2) -- -- --
Recapitalization redemptions ........ (67) (3,900) -- (1,534)
Recapitalization issuances .......... -- -- 427 --
Recapitalization exchanges .......... -- (100) 158 (2,914)
Mandatorily Redeemable
Equity Securities .................. -- -- (474) --
Equityholder loans .................. -- -- -- 215
------- --------- ------- ---------
BALANCE AT DECEMBER 31, 1996 ......... $ -- $ -- $ 111 $ --
------- --------- ------- ---------
Net loss ............................ -- -- -- --
Common stock issued ................. -- -- -- --
Common stock repurchased ............ -- -- -- --
Unearned
compensation--Restricted
Stock .............................. -- -- -- --
Common stock options
exercised .......................... -- -- 44 --
Accretion of Mandatorily
Redeemable Equity
Securities ......................... -- -- (44) --
------- --------- ------- ---------
BALANCE AT DECEMBER 31, 1997 ......... $ -- $ -- $ 111 $ --
======= ========= ======= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RETAINED AND
UNDISTRIBUTED
EARNINGS COMMON
CAPITAL (ACCUMULATED STOCK IN RESTRICTED
SURPLUS DEFICIT) TREASURY STOCK
------------- -------------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 ......... $ 53,006 $ 29,616 $ 3,298 $ --
----------- ---------- -------- ----------
Net income .......................... -- 820 -- --
Dividends paid ...................... -- (491) -- --
Common stock/Limited
Partnership Units issued ........... 12,237 183 (72) --
Limited Partnership Units
repurchased/capital
distributions ...................... -- (6,733) -- --
Common Stock repurchased ............ (10,051) (5,759) 91 --
Capitalization of tax benefits of
options exercised .................. 29 -- -- --
Equityholder loans .................. 1,882 -- -- --
----------- ---------- -------- ----------
BALANCE AT DECEMBER 31, 1995 ......... $ 57,103 $ 17,636 $ 3,317 $ --
----------- ---------- -------- ----------
Net loss ............................ -- (238,311) -- --
Dividends paid ...................... -- (696) -- --
Common stock/Limited
Partnership Units issued ........... 13,269 -- (61) --
Limited Partnership Units
repurchased/capital
distributions ...................... -- (3,329) -- --
Common stock repurchased ............ (14,699) (8,863) 123 --
Recapitalization redemptions ........ (36,435) (265,365) (3,379) --
Recapitalization issuances .......... 326,590 -- -- (85,000)
Recapitalization exchanges .......... 122,732 -- -- --
Mandatorily Redeemable
Equity Securities .................. (362,790) -- -- --
Equityholder loans .................. 1,055 -- -- --
----------- ---------- -------- ----------
BALANCE AT DECEMBER 31, 1996 ......... $ 106,825 $ (498,928) $ -- $ (85,000)
----------- ---------- -------- ----------
Net loss ............................ -- (23,938) -- --
Common stock issued ................. 1,501 -- -- --
Common stock repurchased ............ -- -- (8,550) --
Unearned
compensation--Restricted
Stock .............................. 51,739 -- -- (51,739)
Common stock options
exercised .......................... 8,711 -- -- --
Accretion of Mandatorily
Redeemable Equity
Securities ......................... (145,163) -- -- --
----------- ---------- -------- ----------
BALANCE AT DECEMBER 31, 1997 ......... $ 23,613 $ (522,866) $ (8,550) $ (136,739)
=========== ========== ======== ==========
</TABLE>

The accompanying notes are an integral part of
these consolidated financial statements.

F-6

<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--OPERATIONS AND BASIS OF PRESENTATION:

NATURE OF OPERATIONS: Young and Rubicam Inc. (the "Company") is a global
marketing and communications enterprise with integrated services in advertising,
perception management and public relations, identity and design, sales
promotion, direct marketing and healthcare communications. The Company operates
in the U.S., Canada, Europe, Latin America and Asia/Pacific as well as through
certain affiliations in other parts of the world.

BASIS OF PRESENTATION: On December 12, 1996, the Company effected a
recapitalization (the "Recapitalization"). As the equity holders prior to the
Recapitalization retained control of the Company, the financial statements
reflect the consolidated financial position, results of operations and cash
flows of the Company on a continuous basis (see Note 4).

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company, a Delaware corporation, and all subsidiaries in
which it holds a controlling interest, including a Delaware Limited Partnership,
Young & Rubicam L.P. (the "LP"). Investments in affiliates in which the Company
owns more than 20% but less than or equal to 50% of the voting interest are
accounted for under the equity method. All significant intercompany transactions
are eliminated.

CASH EQUIVALENTS: The Company considers all highly liquid instruments with
an initial maturity of three months or less at the time of purchase to be cash
equivalents.

REVENUE RECOGNITION: Revenue from advertising and related services is
comprised of commissions and fees derived from billings to clients for media and
production activities. Public relations, sales promotion and other services are
generally billed on the basis of negotiated fees. Commission revenue is
recognized primarily when media placements appear on television, on radio or in
print, and when labor and production costs are billed. Fee revenue is recognized
when services are rendered.

BENEFIT PLANS: The Company maintains a noncontributory defined benefit
pension plan for all full-time U.S. employees. The Company also contributes to
government mandated plans and maintains various noncontributory retirement plans
at certain foreign subsidiaries in accordance with local laws and customs. The
Company also maintains deferred compensation plans and has made appropriate
provisions for future payments due under these plans.

DEPRECIATION AND AMORTIZATION: Depreciation and amortization are computed
using the straight-line method over the estimated useful life of the respective
asset. Leasehold improvements are amortized over the shorter of their estimated
useful life or the remaining term of the lease. Goodwill is amortized on a
straight-line basis generally over twenty to forty years.

INCOME TAXES: In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes", deferred tax assets
and liabilities are determined based on differences between the financial
reporting and the tax basis of assets and liabilities and are measured by
applying enacted tax rates and laws to taxable years in which such differences
are expected to reverse. The Company's practice is to provide currently for
taxes that will be payable upon remittance of foreign earnings of subsidiaries
and affiliates to the extent that such earnings are not considered to be
indefinitely reinvested.

STOCK-BASED COMPENSATION: SFAS No. 123, "Accounting for Stock-Based
Compensation", ("SFAS 123") encourages entities to account for employee stock
options or similar equity instruments using a fair value approach for all such
plans. However, it also allows an entity to continue to measure compensation
costs for those plans using the method prescribed by Accounting Principles
Bulletin ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." The
Company has

F-7

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )

elected to continue to account for such plans under the provisions of APB
Opinion No. 25 and has included, in Note 17, the required SFAS 123 pro forma
disclosures of net income (loss) and earnings (loss) per share as if the fair
value-based method of accounting had been applied.

FOREIGN CURRENCY TRANSLATION: Assets and liabilities of certain non-U.S.
subsidiaries are translated at current exchange rates, and related revenues and
expenses are translated at average exchange rates in effect during the period.
Resulting translation adjustments are recorded as a component of stockholders'
deficit in the accompanying Consolidated Balance Sheets. Financial results of
non-U.S. subsidiaries in countries with highly inflationary economies are
translated using a combination of current and historical exchange rates and any
translation adjustments are included in net income (loss) along with all
transaction gains and losses for the period.

DERIVATIVE FINANCIAL INSTRUMENTS AND FOREIGN CURRENCY TRANSACTIONS:
Derivative financial instruments are used by the Company principally in the
management of its interest rate and foreign currency exposures. The Company does
not hold or issue derivative financial investments for trading purposes. Gains
and losses on hedges of existing assets and liabilities are included in the
carrying amounts of those assets and liabilities and are ultimately recognized
in income as part of those carrying amounts. Gains and losses related to hedges
of firm commitments are also deferred and included in the basis of the
transaction when it is completed. Amounts to be paid or received under interest
rate swap agreements are accrued as interest and are recognized over the life of
the swap agreements as an adjustment to interest expense.

LONG-LIVED ASSETS: In accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
("SFAS 121") management reviews long-lived assets and the related intangible
assets for impairment whenever events or changes in circumstances indicate the
carrying amount of such assets may not be recoverable. Recoverability of these
assets is determined by comparing the forecasted undiscounted net cash flows of
the operation to which the assets relate, to the carrying amount including
associated intangible assets of such operation. If the operation is determined
to be unable to recover the carrying amount of its assets, then intangible
assets are written down first, followed by the other long-lived assets of the
operation, to fair value. Fair value is determined based on discounted cash
flows or appraised values, depending upon the nature of the assets.

CONCENTRATIONS OF CREDIT RISK: The Company's clients are engaged in various
businesses located primarily in North America, Europe, Latin America and
Asia/Pacific. The Company performs ongoing credit evaluations of its clients.
Reserves for credit losses are maintained at levels considered adequate by
management. The Company invests its excess cash in deposits with major banks and
in money market securities. These securities typically mature within 90 days and
bear minimal risk. Additionally, due to the Company's strategy, the Company is
dependent upon a relatively small number of clients who contribute a significant
percentage of revenues. The Company's largest client accounted for approximately
9%, 9%, and 10% of consolidated revenues for the years ended December 31, 1995,
1996 and 1997, respectively.

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.

RECENT ACCOUNTING PRONOUNCEMENTS: In June 1997, SFAS No. 130, "Reporting
Comprehensive Income", ("SFAS 130") was issued. SFAS 130 establishes standards
for the reporting of comprehensive income and its components. It requires all
items that are required to be recognized as components of comprehensive income
be reported in a financial statement that is displayed with the

F-8

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )

same prominence as other income statement information. SFAS 130 is effective for
financial statements for periods beginning after December 15, 1997.
Reclassification of financial statements for earlier periods presented for
comparative purposes is required upon adoption.

In June 1997, SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information", ("SFAS 131") was issued. SFAS 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in annual
financial statements and in interim financial reports issued to shareholders.
SFAS 131 is effective for financial statements for periods beginning after
December 15, 1997.

In February 1998, SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits", ("SFAS 132") was issued. SFAS 132 revises
disclosures about pensions and other postretirement benefit plans. SFAS 132 is
effective for financial statements for periods beginning after December 15,
1997. Restatement of disclosures for earlier periods provided for comparative
purposes is required upon adoption.

The Company anticipates that the adoption of SFAS 130, SFAS 131 and SFAS
132 will not have a significant effect on its 1998 financial statements.

NOTE 3--NET LOSS PER COMMON SHARE:

The Company computes earnings (loss) per share in accordance with SFAS No.
128, "Earnings Per Share".

Basic net loss per share was computed by dividing net loss by the
weighted-average number of common shares outstanding during the period. In
computing basic net loss per share, the Company's 11,086,950 shares of
restricted stock were excluded from the weighted average number of common shares
outstanding as such shares vest upon the six-month anniversary of an initial
public offering or the six-month anniversary thereof, a condition which was not
satisfied at December 31, 1997. Diluted net loss per share for the period was
computed in the same manner as basic net loss per share since the Company
experienced a net loss for the period and therefore including potential common
shares would be antidilutive.

There are 31,013,205 common stock options that could potentially dilute
basic earnings (loss) per share in the future that were excluded from the
computation of diluted net loss per share because the effect would be
antidilutive. In addition, there exists 11,086,950 shares of Restricted Stock,
which would also be potentially dilutive upon the occurrence of the Company's
contemplated initial public offering which is further described in Note 21.

Earnings per share for the years ended December 31, 1996 and 1995 cannot be
computed because the Company's capital structure prior to the 1996
Recapitalization consisted of both common shares and Limited Partnership Units
in Predecessor entities (see Note 4).

NOTE 4--RECAPITALIZATION:

On December 12, 1996, a recapitalization (the "Recapitalization") was
effected of Young & Rubicam Inc., a New York corporation (the "Predecessor
Company") whereby (a) the Predecessor Company, Young & Rubicam Holdings Inc.
("Holdings"), or subsidiaries of the Predecessor Company (i) acquired 2,058,678
of the 2,458,102 outstanding shares of Predecessor Company common stock for an
amount equal to $115 per share less the principal and accrued interest of any
outstanding loans relating to such shares (which loans were thereby repaid),
(ii) acquired 760,232 of the 1,869,682 outstanding Limited Partnership Units of
the LP ("LPUs") together with any related subordinated promissory notes of the
Predecessor Company for an amount equal to $115 per LPU less the principal and
accrued interest of any outstanding loans relating to such LPUs (which loans

F-9

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )

were thereby repaid); (iii) canceled 332,636 of the 690,249 common stock options
and 596,448 of the 1,600,414 LPU options (collectively, the "Nonrollover
Options") and all outstanding Growth Participation Units ("GPUs") for cash
consideration of $115 per unit less the aggregate option exercise price and (iv)
exchanged for, or canceled in consideration of, the remaining outstanding common
stock, LPUs and options on common stock and LPUs held by certain members of the
management of the Predecessor Company (the "Management Investors") for
15,815,985 shares of Holdings common stock and 16,823,565 options on common
stock of Holdings ("Rollover Options"); (b) Hellman & Friedman Capital Partners
III, L.P. ("HFCP") and certain other investors contributed $242 million in cash
to Holdings in exchange for 31,566,345 shares of Holdings common stock at a
price of $7.67 per share ($115 per share prior to the stock dividend which is
further described in Note 20) and 2,598,105 options to purchase additional
shares of Holdings common stock at $7.67 per share ($115 per share prior to the
stock dividend which is further described in Note 20)(the "HFCP Options"--see
Note 17), and (c) Senior Secured Credit Facilities of $700 million (the "Credit
Facilities") were arranged (see Note 14).

Common stock, LPUs, Nonrollover Options on common stock and LPUs and GPUs
held by non U.S.-based equity holders were acquired or canceled prior to
December 31, 1996. Payment for previously tendered Nonrollover options and GPUs
of $161.7 million (included as a component of accrued payroll and bonuses at
December 31, 1996) held by U.S. based equity holders occurred on March 18, 1997.

Following the closing of the Recapitalization, Holdings was merged with and
into the Predecessor Company. As a result of the merger, the 1,391 outstanding
shares of Predecessor Company preferred stock were each converted into the right
to receive par value $50 in cash. On December 31, 1996, the Predecessor Company
then merged into Young & Rubicam Inc., a Delaware corporation (the "Company").

Under the Stockholders' Agreement, the Management Investors are required to
deposit all Company common stock currently held or acquired in the future into a
voting trust (the "Management Voting Trust") under which all rights to vote such
shares are assigned to certain members of the Company's senior management as
voting trustees. In the event that HFCP holds greater than 49% of Company common
stock, HFCP is required to transfer those shares in excess of 49% to a separate
voting trust (the "HFCP Voting Trust") with the Chief Executive Officer of the
Company as voting trustee, provided that the Company is not in default under
certain terms of the Credit Facilities.

As the equity holders of the Predecessor Company retained control of the
Company, the transaction has been reported as a recapitalization. The financial
statements reflect the financial position, results of operations and cash flows
of the Company and the Predecessor Company on a continuous basis. The excess of
the Predecessor common stock and LPUs repurchase transaction amount over the
stated amount of the Predecessor common stock and LPUs repurchased has been
reported as a distribution to equity holders and charged to limited partners'
contributed equity, capital surplus and accumulated deficit.

As a result of the Recapitalization, the Company recorded charges of $315.4
million, primarily related to compensation. A summary of the significant
Recapitalization and related charges include the following:

(1) The cancellation of 1,244,647 GPUs outstanding for cash consideration
of $115 per unit. Compensation expense of $83.1 million represents the
difference between the cash consideration paid to GPU holders and the amount
of previously accrued compensation under the original terms of the GPU plan.

F-10

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )

(2) The cancellation of 929,084 Nonrollover Options for cash
consideration. The cash consideration and the associated compensation
expense of $66.6 million represents the difference between the transaction
price of $115 and the $40.2 million aggregate exercise price of the
Nonrollover Options.

(3) Cancellation of the remaining outstanding options and award of
Rollover Options to acquire 16,823,565 shares of Company common stock at an
exercise price of $1.92 ($28.75 per share prior to the stock split which is
further described in Note 20) per share, with certain limited exceptions
outside of the U.S. As a result of the change in the terms of the former
stock option plan, which resulted in a new measurement date, the Company
recognized compensation expense of $96.7 million representing the difference
between the transaction price per Rollover Option of $7.67 ($115 per share
prior to the stock split which is further described in Note 20) and the
aggregate exercise price of the Rollover Options.

(4) Professional fees and other charges amounted to approximately $69
million.

NOTE 5--EQUITY IN NET ASSETS OF UNCONSOLIDATED COMPANIES:

<TABLE>
<CAPTION>
1995 1996 1997
------------------------- ------------------------- ------------------------
EQUITY IN EQUITY IN
OWNERSHIP EQUITY IN EQUITY IN EQUITY IN NET INCOME EQUITY IN NET INCOME
AFFILIATE INTEREST NET ASSETS NET INCOME NET ASSETS (LOSS) NET ASSETS (LOSS)
- --------------------------------------- ------------- ------------ ------------ ------------ ------------ ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Dentsu, Y&R Partnerships .............. 50% $16,957 $ 534 $12,954 $ (9,181) $17,510 $ 2,587
J.M.C. Creatividad Orientada
(Venezuela) .......................... 49% 4,509 1,315 2,471 (2,038) 953 (1,515)
Prolam (Chile) ........................ 30% 3,106 968 2,656 262 2,851 825
Eco S.A. (Guatemala) .................. 40% 1,864 372 2,134 26 2,206 96
Cresswell, Munsell, Fultz & Zirbel .... 33% 1,245 524 1,635 624 1,922 508
National Public Relations (Canada)..... 22% 414 333 607 204 647 98
ViceVersa (Uruguay) ................... 35% 652 401 883 224 -- --
Other ................................. 50% or less 8,618 750 1,879 42 304 (2,257)
------- ------ ------- -------- ------- ---------
$37,365 $5,197 $25,219 $ (9,837) $26,393 $ 342
======= ====== ======= ======== ======= =========
</TABLE>

The summarized financial information below represents an aggregation of the
Company's unconsolidated companies.

FINANCIAL INFORMATION

<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
EARNINGS DATA
Revenues ........................................ $234,891 $ 238,810 $207,668
Income from operations .......................... 29,398 22,132 13,768
Net income (loss) ............................... 14,984 (16,097) 4,347
Company's equity in net earnings (loss) ......... $ 5,197 $ (9,837) $ 342
======== ========= ========
BALANCE SHEET DATA
Current assets .................................. $361,451 $ 348,325 $321,372
Noncurrent assets ............................... 54,954 33,996 40,147
Current liabilities ............................. 335,490 323,406 287,101
Noncurrent liabilities .......................... 18,902 11,683 13,215
Equity .......................................... 62,013 47,232 61,203
Company's equity in net assets .................. $ 37,365 $ 25,219 $ 26,393
======== ========= ========

</TABLE>

F-11

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )

NOTE 6--ACQUISITIONS, DISPOSITIONS AND OTHER OPERATING CHARGES:

In 1995, the Predecessor Company increased its ownership interests in
advertising agencies in Holland (from 49% to 70%) and Spain (from 49% to 77%),
as well as a public relations firm in Belgium (from 40% to 85%). In addition,
the Predecessor Company acquired the remaining 40% interest in an advertising
agency in the Czech Republic, the remaining 25% interest in an agency in
Hungary, the remaining 20% interest in a direct marketing operation in South
Africa and the remaining 10% interest in an advertising agency, also in South
Africa. The purchase price of these investments was $5.4 million. Other regional
investment activity took place in Latin America in 1995, with increased
ownership interests in advertising agencies in Guatemala (from 25% to 40%) and
Uruguay (from 20% to 35%).

In 1995, the D,Y&R Partnerships also acquired a 40% interest in an
advertising agency in India (Y&R's effective ownership is 20%). The cost of this
investment to Y&R was $2.2 million.

A wholly owned public relations subsidiary in Canada was merged in 1995
with another Canadian public relations firm. The Company has a 22% interest in
the merged operation.

In 1995, the Predecessor Company approved a productivity improvement plan
which resulted in the elimination of 500 positions throughout its worldwide
operations. The Predecessor Company recorded a charge in 1995 of $24.4 million
to cover the expected severance, benefits and social law costs which were paid
during 1996 relating to this staff reduction.

Also in 1995, losses of $7.1 million were recorded primarily to cancel a
long-term agreement with a service provider as well as to dispose of certain
non-strategic European agencies. The aforementioned charges are included in
other operating charges in the accompanying Consolidated Statement of
Operations.

In 1996, the Predecessor Company acquired substantially all of the assets
of one advertising agency and one media buying agency in the United States and
acquired the remaining 28% equity interest in an advertising agency in
Switzerland. In addition, the Predecessor Company increased its ownership
interests in three advertising agencies in Europe. Other regional activity took
place in Korea where the Company acquired a 25% equity interest in a public
relations agency. The purchase price of these investments was $26.8 million.

In 1996, a $17.2 million charge was recorded for asset impairment
writedowns principally related to certain operations in Europe and Latin
America.

In 1997, the Company acquired the remaining 60% equity interest in an
advertising agency in France and a 51% equity interest in an advertising agency
in Brazil. In addition, the Company increased its ownership interests in one
advertising agency in Latin America and one agency in Europe. The Company also
acquired substantially all of the assets of one public relations agency and
acquired a 70% equity interest in a German public relations agency and the
remaining 49% equity interest in a Japanese public relations agency. The
purchase price of these investments was $14.7 million.

Effective January 1, 1997, the Company acquired an additional 37.5% equity
interest in the former Australian and New Zealand joint ventures with Dentsu. In
consideration for this additional equity interest, the Company contributed to
Dentsu, 12.5% of its equity interest in its advertising and direct marketing
agencies in Australia and New Zealand.

In 1997, an $11.9 million charge was recorded for asset impairment
writedowns principally related to certain operations in the U.S., Africa, Latin
America and Europe.

F-12

<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )

NOTE 7--PROPERTY AND EQUIPMENT:

Property and equipment are recorded at cost and are comprised of the
following:

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------
USEFUL LIVES 1996 1997
--------------------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Land and buildings ...................................... 20-40 years $ 31,901 $ 29,716
Furniture, fixtures and equipment ....................... 3-10 years 220,728 235,836
Leasehold improvements .................................. Shorter of 10 years 78,414 77,804
or life of lease
Automobiles ............................................. 3-5 years 6,315 6,609
-------- --------
337,358 349,965
-------- --------
Less--Accumulated depreciation and amortization ......... 208,270 224,951
-------- --------
$129,088 $125,014
======== ========
</TABLE>

During 1995, 1996 and 1997, depreciation expense amounted to $38.2 million,
$42.0 million and $47.6 million, respectively.

NOTE 8--CERTAIN LIABILITIES:

Accrued expenses and other liabilities include $71.3 million and $41.0
million of bank overdrafts as of December 31, 1996 and 1997, respectively.

Accrued payroll and bonuses are comprised of the following:

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------
1996 1997
----------- ---------
(IN THOUSANDS)
<S> <C> <C>
Accrued costs--Recapitalization ......... $161,700 $ --
Accrued payroll and bonuses ............. 90,787 65,458
-------- -------
$252,487 $65,458
======== =======
</TABLE>

NOTE 9--INCOME TAXES:

The components of income (loss) before income taxes are as follows:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------
1995 1996 1997
------------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic ......... $ (22,957) $ (242,578) $12,304
Foreign .......... 30,862 (8,039) 24,000
--------- ---------- -------
Total ............ $ 7,905 $ (250,617) $36,304
========= ========== =======
</TABLE>

F-13

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )

The following summarizes the provision (benefit) for income taxes:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
----------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
CURRENT:
Federal ...................................... $ 1,295 $ 16,993 $ 18,195
State and local .............................. 2,138 3,921 4,220
Foreign ...................................... 20,563 18,146 36,259
--------- --------- ---------
23,996 39,060 58,674
--------- --------- ---------
DEFERRED:
Federal ...................................... (7,548) (51,363) 7,547
State and local .............................. (2,811) (22,111) 2,472
Foreign ...................................... (4,507) 13,803 (10,403)
--------- --------- ---------
(14,866) (59,671) (384)
--------- --------- ---------
Provision (benefit) for income taxes ......... $ 9,130 $ (20,611) $ 58,290
========= ========= =========

</TABLE>

The reconciliation of the United States statutory rate to the effective
rate is as follows:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1996 1997
---------- ------------- ----------
<S> <C> <C> <C>
PERCENT OF INCOME (LOSS) BEFORE TAXES
United States statutory rate ............................................ 35.0% (35.0)% 35.0%
Federal tax savings attributable to limited partnership structure ....... (27.6) -- --
State and local income taxes, net of federal tax effect ................. ( 7.1) ( 4.5) 17.1
Foreign income taxed greater than the United States statutory
rate .................................................................. 64.2 15.2 107.2
Change in valuation allowance and related components .................... 11.5 5.9 (13.1)
Amortization of goodwill ................................................ 14.3 2.1 8.5
Travel, entertainment and other non-deductible expenses ................. 19.7 8.4 6.2
Other, net .............................................................. 5.5 ( 0.3) ( 0.3)
----- ----- -----
Consolidated effective rate ............................................. 115.5% ( 8.2)% 160.6%
===== ===== =====
</TABLE>

The Company's share of the undistributed earnings of foreign subsidiaries
not included in its consolidated Federal income tax return that could be subject
to additional income taxes if remitted, was approximately $49.5 million at
December 31, 1997. No provision has been recorded for the U.S. or foreign taxes
that could result from the remittance of such undistributed earnings since the
earnings are permanently reinvested outside the U.S. and it is not practicable
to estimate the amount of such taxes. Withholding taxes of approximately $6.4
million would be payable upon remittance of all previously unremitted earnings
at December 31, 1997.

F-14
<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )

The components of the Company's net deferred income tax assets are:

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------
1996 1997
------------ -----------
(IN THOUSANDS)
<S> <C> <C>
Bad debt reserve ........................... $ 1,785 $ 3,118
Accrued expenses and other ................. 5,195 --
Net operating loss carryforwards ........... 7,377 32,797
Deferred compensation ...................... 76,170 1,172
--------- ---------
90,527 37,087
Valuation allowance ........................ (11,795) (4,255)
--------- ---------
Current portion ............................ 78,732 32,832
--------- ---------
Deferred compensation ...................... 42,646 40,650
Depreciable and amortizable assets ......... 26,671 30,561
Long-term leases ........................... 7,351 7,436
Postretirement benefits .................... 3,570 3,654
Other non-current items .................... 810 11,989
Net operating loss carryforwards ........... 10,259 42,338
Tax credit carryforwards ................... -- 3,658
--------- ---------
91,307 140,286
Valuation allowance ........................ (11,896) (16,094)
--------- ---------
Non-current portion ........................ 79,411 124,192
--------- ---------
Net deferred income tax assets ............. $ 158,143 $ 157,024
========= =========

</TABLE>

The Company's net deferred income tax assets arise from temporary
differences which represent the cumulative deductible or taxable amounts
recorded in the financial statements in different years than recognized in the
tax returns. The majority of the temporary differences result from expenses
accrued for financial reporting purposes which are not deductible for tax
purposes until actually paid and net operating losses.

The net operating loss ("NOL") carryforwards represent the benefit recorded
for U.S., state and local, and foreign NOLs. At December 31, 1997, the Company
had approximately $140.4 million of NOL carryforwards for U.S. tax purposes
which expire in the year 2012 and approximately $69.2 million of NOL
carryforwards for foreign tax purposes with carryforward periods ranging from
one year to an indefinite time. The Company had approximately $3.2 million of
alternative minimum tax credits which are not subject to expiration and $0.4
million of foreign tax credits which expire in the year 2001.

The Company is required to provide a valuation allowance against deferred
income tax assets when it is more likely than not that some or all of the
deferred tax assets will not be realized. A valuation allowance of $13.5 million
was recorded at December 31, 1994. The valuation allowance increased $0.9
million to $14.4 million at December 31, 1995, increased $9.3 million to $23.7
million at December 31, 1996 and decreased $3.3 million to $20.4 million at
December 31, 1997. The valuation allowances represent a provision for
uncertainty as to the realization of certain deferred tax assets, including net
operating loss carryforwards in certain jurisdictions. The Company has
concluded, that based upon expected future results, it is more likely than not
that the net deferred tax asset balance will be realized.

F-15

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )

NOTE 10--WORLDWIDE OPERATIONS:

Financial information by geographic area is as follows:

<TABLE>
<CAPTION>
UNITED STATES EUROPE OTHER TOTAL
--------------- ----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1995
Revenues .............................. $ 492,265 $411,283 $181,946 $1,085,494
(Loss) income from operations ......... (7,695) 14,899 18,276 25,480
Identifiable assets ................... 511,779 499,335 215,467 1,226,581
1996
Revenues .............................. $ 571,155 $444,644 $206,340 $1,222,139
(Loss) income from operations ......... (239,201) (3,627) 10,526 (232,302)
Identifiable assets ................... 819,828 533,318 245,666 1,598,812
1997
Revenues .............................. $ 661,367 $472,225 $249,148 $1,382,740
(Loss) income from operations ......... 42,816 29,527 (1,614) 70,729
Identifiable assets ................... 687,462 582,424 258,133 1,528,019

</TABLE>

Foreign currency transactions and remeasurement losses resulting from
operations in highly inflationary economies are included in general and
administrative expenses. These amounts were comprised of the following:

FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
--------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Foreign currency transaction losses .......... $1,101 $ 887 $1,344
Remeasurement losses resulting from operations
in highly inflationary economies ............ 1,156 1,653 2,603
------ ------ ------
$2,257 $2,540 $3,947
====== ====== ======
</TABLE>

NOTE 11--EMPLOYEE BENEFITS:

The Company has a defined benefit pension plan ("the Plan") that covers all
full-time U.S. employees upon commencement of employment. Contributions to the
Plan are based upon current costs and prior service costs. Both costs are
actuarially computed and the latter are amortized over the average remaining
service period. Effective July 1, 1996, the Predecessor Company amended the
Plan. Benefits credited to each employee's account under the Plan are based on
3.2% of the employee's annual compensation up to $150,000. The Plan also credits
each employee's account with interest equal to the average one year U.S.
Treasury Bill interest rate multiplied by the account balance at the beginning
of the year. Subject to certain limitations, most vested retirement benefits
available under the Plan are insured by the Pension Benefit Guaranty Corporation
("PBGC"). The Company is in compliance with the minimum funding standards
required by the Employee Retirement Income Security Act of 1974 ("ERISA").

In connection with the Recapitalization transaction, the Company
contributed an additional $12.5 million to the Plan on December 23, 1996,
pursuant to an agreement with the PBGC. Total contributions made in 1996 and
1997 were $18.9 million and $6.6 million, respectively.

The Company also agreed to make future contributions to the Plan in an
amount required to cause the credit balance at the end of each Plan year to be
at least equal to the required credit balance of $12.5 million plus interest.
The Company is not required to make any payment that would

F-16

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )

not be deductible under Internal Revenue Code section 404. The Company's credit
balance maintenance requirement terminates when the Company's debt obtains
specified rating levels (or, if there are no such ratings from certain major
ratings agencies, when the Company meets a fixed charge coverage ratio test),
but in no event earlier than December 31, 2001. In addition, such credit balance
maintenance requirements terminate if the Plan's unfunded benefit liabilities
are zero at the end of two consecutive Plan years.

The Company also contributes to government mandated plans and maintains
various noncontributory retirement plans at certain foreign subsidiaries, some
of which are considered to be defined benefit plans for accounting purposes.

A summary of the components of net periodic pension cost for the defined
benefit plans is as follows:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1995 1996
------------------------------------ ------------------------------------
U.S. NON-U.S. TOTAL U.S. NON-U.S. TOTAL
------------ ---------- ------------ ------------ ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Service costs for benefits earned
during the period ....................... $ 2,774 $ 717 $ 3,491 $ 2,834 $ 674 $ 3,508
Interest costs on projected benefit
obligation .............................. 8,074 946 9,020 8,488 893 9,381
Actual return on plan assets ............. (15,960) -- (15,960) (11,070) -- (11,070)
Net amortization and deferral ............ 9,390 182 9,572 5,668 188 5,856
---------- ------ ---------- ---------- ------ ----------
Net periodic pension cost of the plans. $ 4,278 $1,845 $ 6,123 $ 5,920 $1,755 $ 7,675
========== ====== ========== ========== ====== ==========

<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1997
------------------------------------
U.S. NON-U.S. TOTAL
------------ ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Service costs for benefits earned
during the period ....................... $ 2,671 $ 550 $ 3,221
Interest costs on projected benefit
obligation .............................. 8,804 789 9,593
Actual return on plan assets ............. (15,558) -- (15,558)
Net amortization and deferral ............ 6,862 150 7,012
---------- ------ ----------
Net periodic pension cost of the plans. $ 2,779 $1,489 $ 4,268
========== ====== ==========
</TABLE>

The funded status of the defined benefit plans is summarized as follows:

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------------------------
1996 1997
------------------------------------ ------------------------------------
U.S. NON-U.S. TOTAL U.S. NON-U.S. TOTAL
----------- ------------ ----------- ----------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value of accumulated
benefit obligation including vested benefits
of $119,093 and $134,491 at December 31,
1996 and 1997, respectively ................. $111,921 $ 10,350 $ 122,271 $126,975 $ 9,557 $ 136,532
-------- --------- --------- -------- --------- ---------
Projected benefit obligation ................. 114,710 12,198 126,908 130,036 10,753 140,789
Plan assets at fair value, primarily fixed
income and equity securities ................ 114,264 -- 114,264 129,421 -- 129,421
-------- --------- --------- -------- --------- ---------
Projected benefit obligation in excess of plan
assets ...................................... (446) (12,198) (12,644) (615) (10,753) (11,368)
Unrecognized net transition (asset)
obligation .................................. (225) 644 419 (164) 471 307
Unrecognized prior service benefit ........... (2,953) -- (2,953) (2,542) -- (2,542)
Unrecognized net loss ........................ 12,811 1,813 14,624 16,352 1,260 17,612
Additional liability ......................... -- (719) (719) -- (706) (706)
-------- --------- --------- -------- --------- ---------
(Accrued) prepaid pension costs for defined
benefit plans ............................... $ 9,187 $ (10,460) $ (1,273) $ 13,031 $ (9,728) $ 3,303
======== ========= ========= ======== ========= =========
</TABLE>

Assumptions used were:

<TABLE>
<CAPTION>
1995 1996 1997
------------------------ ------------------------ -------------------------
U.S. NON-U.S. U.S. NON-U.S. U.S. NON-U.S.
--------- -------------- --------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Discount and settlement rate ............... 7.5% 6.5%-8.5% 8.0% 7.0%-8.0% 7.25% 6.5%-7.0%
Rate of increase in compensation levels..... 7.0% 3.5%-5.5% 5.5% 3.5%-5.0% 5.0% 3.5%-5.0%
Expected long-term rate of return on
assets .................................... 9.0% N/A 9.0% N/A 9.0% N/A
</TABLE>

F-17

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )

In 1996 and 1997, the Company recorded liabilities of $0.7 million for the
portion of its unfunded pension liabilities that had not been recognized as
expense and an adjustment to equity of $0.7 million.

Contributions to other foreign defined contribution plans were $5.9
million, $6.2 million and $7.5 million in 1995, 1996 and 1997, respectively.

The Company also has an employee savings plan that qualifies as a deferred
salary arrangement under section 401(k) of the Internal Revenue Code. Under the
plan, participating U.S. employees may defer a portion of their pre-tax earnings
up to the Internal Revenue Service annual contribution limit. The Company
currently matches 100% of each employee's contribution up to a maximum of 5% of
the employee's earnings up to $150,000. Amounts expensed by the Company for its
contributions to the plan were $6.4 million, $7.0 million and $7.8 million in
1995, 1996 and 1997, respectively. Prior to the Recapitalization, the Company's
contribution was made through the issuance of the Company's common stock. All of
the shares of common stock held in the Plan were purchased by Holdings as part
of the Recapitalization. Subsequent to the Recapitalization, matching
contributions are satisfied in cash.

NOTE 12--DEFERRED COMPENSATION:

The Predecessor Company maintained a non-qualified deferred compensation
plan for its key executives, the Growth Participation Plan. Participation in the
plan was at the discretion of management. Awards of growth participation units
("GPUs") granted under the plan generally vested at the rate of 20% per year. As
a result of the Recapitalization, all GPUs (whether fully or partially vested)
were canceled for cash consideration of $115 per unit (see Note 4).

The Company maintains other deferred cash incentive plans which are either
tied to operating performance or contractual deferred compensation agreements.
The costs of these compensation plans are expensed currently. At December 31,
1996 and 1997, included in other non-current liabilities were deferred
compensation liabilities of $17.9 million and $31.1 million, respectively.

NOTE 13--INSTALLMENT PAYMENT OBLIGATIONS:

Prior to 1997, the Company issued installment notes payable to former
equityholders of the Predecessor Company which arose out of the repurchase of
Common Stock and LPUs upon termination of employment. Installment notes were
paid in five annual installments, the first of which was payable 90 days
following termination of employment. In connection with the Recapitalization,
all foreign installment notes outstanding at December 12, 1996 were assumed and
repaid. The remaining current installment notes of $24.9 million at December 31,
1996 were repaid in the first quarter of 1997.

Effective in 1997 and pursuant to the Stockholders' Agreement, the Company
may, at its election, pay for shares purchased from Management Investors
pursuant to a call or put at the applicable call price or the applicable put
price in up to four equal installments. The first such installment is payable in
cash upon the applicable payment date (generally the June 30 or December 31
closest in time following termination of employment) and the remaining
installments are evidenced by a non-negotiable obligation from the Company to
the Management Investor. At December 31, 1997, current and non-current
installment notes of $3.2 million and $6.5 million, respectively, were payable
to former Management Investors.

Interest accrues and is payable annually with each installment payment at a
rate equal to the applicable federal rate in effect as published by the Internal
Revenue Service, compounded semi-annually. For 1997, the interest rate ranged
from 5.68% to 6.14%.

F-18

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )

NOTE 14--LOANS PAYABLE:

Short Term: The Company's short term loans payable are primarily advances
under bank lines of credit and generally bear interest at prevailing market
rates. The Company's current loans payable of $36.3 million and $10.8 million
include the short-term portion of long-term loans payable of $14.7 million and
$1.2 million at December 31, 1996 and 1997 respectively.

Long-term loans payable are comprised of the following at December 31:

AS OF DECEMBER 31,
-------------------------
1996 1997
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Senior Secured Credit Facilities ......... $219,282 $330,552
Capital lease obligations ................ 611 404
Other borrowings ......................... 859 818
-------- --------
220,752 331,774
Less--Current portion .................... 14,670 1,222
-------- --------
$206,082 $330,552
======== ========

</TABLE>

In connection with the Recapitalization, in December 1996, the Company
entered into Senior Secured Credit Facilities (the "Credit Facilities")
amounting to $700 million with a group of banks arranged by Bank of America,
with The Bank of New York, Citibank N.A., Credit Lyonnais and Wachovia Bank as
managing agents. The Credit Facilities consist of a six and one-half year $400
million term loan and a six and one-half year $300 million revolving credit
facility. The term loan is available in two drawings of $200 million each: the
first drawdown occurred in December 1996, while the second drawdown occurred on
March 18, 1997. The Company's obligations under the Credit Facilities are
secured by a security interest in certain domestic assets, including its
headquarters building in New York, all of the capital stock of the direct and
indirect domestic subsidiaries of the Company and 66.7% of the capital stock of
the Company's first-tier non-U.S. subsidiaries. The Company pays a commitment
fee ranging from 0.20% to 0.50% on the unused portion of the total Credit
Facilities. The Credit Facilities include several credit sensitive pricing
options (LIBOR, Base Rate Loans, Fronted Loans and Swing Line Loans), letter of
credit issuances and a $175 million multi-currency subfacility. The applicable
interest rate was 6.915% and 6.875% at December 31, 1996 and 1997, respectively.

The Credit Facilities contain various covenants which contain interest,
fixed charge, and debt coverage ratios, the maintenance of minimum net worth and
limitations on the amount of debt, liens, asset sales, dividends and
acquisitions. Deferred financing costs of $9.2 million were capitalized and are
being amortized over the six and one-half year term of the Credit Facilities.

The Company is required to enter into interest rate protection agreements
with respect to $100 million of the initial drawdown and $100 million of the
second drawdown.

In December 1996, the Company entered into a two year $50 million notional
principal amount interest rate floored-swap, and pays, on a quarterly basis,
fixed interest equal to 6.00% and receives interest based on floating
three-month LIBOR. If LIBOR is less than 5.00%, the Company receives the
difference between 5.00% and the three-month LIBOR. This agreement expires
December 29, 1998.

In January 1997, the Company entered into a one year $50 million notional
principal amount interest rate cap. The interest rate cap resulted in the
Company receiving quarterly, the difference between the amount that three-month
LIBOR exceeded the cap rate of 6.25%. This agreement expired January 27, 1998.

F-19

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )

In February 1997, the Company entered into a four year $50 million notional
principal amount interest rate swap. The interest rate swap will result in the
Company paying, on a quarterly basis, fixed interest equal to 6.11% and
receiving interest based on floating three month LIBOR. This four year interest
rate swap agreement expires February 20, 2001.

In March 1997, the Company entered into a two year $50 million notional
principal amount interest rate floored-swap, and pays, on a quarterly basis,
fixed interest equal to 6.36% and receives interest based on floating
three-month LIBOR. If LIBOR is less than 5.00%, the Company receives the
difference between 5.00% and the three-month LIBOR. This agreement expires March
24, 1999.

In April 1997, the Company entered into a one year $50 million notional
principal amount interest rate cap. The interest rate cap will result in the
Company receiving quarterly, the difference between the amount that three-month
LIBOR exceeds the cap rate of 6.50%. This agreement expires May 1, 1998.

In June 1997, the Company entered into a four year $25 million notional
principal amount interest rate swap. The interest rate swap will result in the
Company paying, on a quarterly basis, fixed interest equal to 6.365% and
receiving interest based on floating three-month LIBOR. This four year interest
rate swap agreement expires June 18, 2001.

In February 1996, the Predecessor Company entered into a 10-year, $100
million, 7.01% Senior Note transaction with a group of insurance companies. The
proceeds were used to reduce the Revolving Credit Agreement borrowings. This
note was repaid by proceeds from the Credit Facilities. A prepayment penalty of
$1.8 million was paid in 1996 and is included as a component of interest
expense.

In June 1996, the Predecessor Company entered into a $150 million, five
year Revolving Credit Agreement. The Company paid a facility fee ranging from
0.125% to 0.30% on the full amount of the committed facility. This agreement
included several pricing options (LIBOR, Bid Loans and Swing Line Loans), letter
of credit issuances and multi-currency borrowing options. This Revolving Credit
Agreement was repaid by proceeds from the Credit Facilities.

In June 1994, the Predecessor Company entered into a $225 million, three
year Revolving Credit Agreement. The Company paid a facility fee ranging from
0.20% to 0.375% on the full amount of the committed facility. This revolving
credit agreement included several pricing options (LIBOR, Bid Loans and Swing
Line Loans), letter of credit issuances and multicurrency borrowing options. The
Revolving Credit Agreement was replaced by the five year Revolving Credit
Agreement entered into in June 1996.

In October 1991, the Predecessor Company arranged a seven year $40 million,
8.75% Senior Note transaction with the Prudential Insurance Company. This note
was repaid by proceeds from the Credit Facilities. A prepayment penalty of $1.1
million was paid in 1996 and is included as a component of interest expense.

In January 1991, the Predecessor Company entered into a five year, $20
million notional principal amount interest rate swap. The Predecessor Company
paid, on a semi-annual basis, fixed interest rate equal to 8.485% and received
interest based on floating six-month LIBOR. This agreement expired January 22,
1996.

At December 31, 1997, the Company had $690 million in availability under
its commercial lines of credit ($449 million in the U.S. and $241 million
outside the U.S.). Unused commercial lines of credit at December 31, 1997 were
$349 million. The Company paid commitment fees of approximately $0.9 million on
the unused portion of the U.S. credit lines and varying fees on the foreign
credit lines. At December 31, 1996, the Company had $802 million in availability
under its

F-20

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )

commercial lines of credit ($540 million in the U.S. and $262 million outside
the U.S.). Unused commercial lines of credit at December 31, 1996 were $560
million. The Company paid commitment fees of approximately $0.1 million on the
unused portion of the U.S. credit lines and varying fees on the foreign credit
lines.

Repayment requirements on long-term loans existing at December 31, 1997 are
as follows:

TOTAL
(IN THOUSANDS)
---------------
1998 ............... $ 1,222
1999 ............... 50,250
2000 ............... 68,750
2001 ............... 71,250
2002 ............... 84,583
Thereafter ......... 55,719
---------
$ 331,774
=========

NOTE 15--EQUITY:

The following schedule summarizes the changes in the number of outstanding
shares of preferred stock, common stock, LPUs and treasury stock:

<TABLE>
<CAPTION>
NON-VOTING LIMITED
PREFERRED VOTING COMMON COMMON PARTNERSHIP COMMON STOCK
STOCK STOCK STOCK UNITS IN TREASURY
----------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCE 12/31/94 .......... 1,252 -- 16,000,000 2,465,729 13,190,263
----- -- ---------- --------- ----------
Issued ................... 563 -- -- 43,000 (289,970)
Repurchased .............. (491) -- -- (476,719) 365,779
----- -- ---------- --------- ----------
BALANCE 12/31/95 .......... 1,324 -- 16,000,000 2,032,010 13,266,072
----- -- ---------- --------- ----------
Issued ................... 67 -- -- 83,993 (215,907)
Repurchased .............. -- -- -- (246,321) 491,733
Recapitalization ......... (1,391) 58,469,280 (16,000,000) (1,869,682) (13,541,898)
------ ---------- ----------- ---------- -----------
BALANCE 12/31/96 .......... -- 58,469,280 -- -- --
------ ---------- ----------- ---------- -----------
Issued ................... -- 4,391,010 -- -- --
Repurchased .............. -- (1,115,160) -- -- 1,115,160
------ ---------- ----------- ---------- -----------
BALANCE 12/31/97 .......... -- 61,745,130 -- -- 1,115,160
====== ========== =========== ========== ===========
</TABLE>

The preferred stock of the Predecessor Company was owned by members of the
Predecessor Company's Board of Directors. The Predecessor Company had the right
to reacquire the preferred stock when the holder ceased to be a member of the
Board of Directors.

On December 12, 1996, all outstanding Predecessor Company equity was
purchased for cash or exchanged for Company common stock pursuant to the
Recapitalization. In addition, all outstanding Predecessor Company options were
canceled for cash consideration or the award of Company options and all
outstanding GPUs were canceled for cash consideration (see Note 4). In addition,
all treasury shares were retired.

In connection with the consummation of the Recapitalization in December
1996, the Company created a class of preferred stock designated as Money Market
Preferred Stock (the "Money Market Preferred"). The Money Market Preferred
carries a variable rate dividend and is redeemable at the

F-21

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )

Company's election for $115.00 per share following the fifth anniversary of the
issuance thereof. At December 31, 1996 and 1997, 50,000 shares of Money Market
Preferred were authorized. 87 shares of Money Market Preferred were issued and
outstanding at December 31, 1996 and 1997.

In connection with the Recapitalization, the Company also issued 11,086,950
shares of common stock ("Restricted Shares") to a trust ("Restricted Stock
Trust"). All Restricted Shares held in the Restricted Stock Trust are deposited
in the Management Voting Trust. Any employee awarded Restricted Shares under the
plan will become vested in the Restricted Shares on the earlier of (i) a change
of control event (as defined); (ii) the consummation of an initial public
offering or the six month anniversary following an initial public offering if,
in connection with the offering, the holders are unable to sell such Restricted
Shares; and (iii) upon any other event as determined by the Compensation
Committee of the Board of Directors with the written consent of the HFCP
Investors, if prior to an initial public offering, and the Management Voting
Trust. The Company has recorded unearned compensation of $85 million and $136.7
million, representing the fair value of the Restricted Shares at December 31,
1996 and 1997, respectively. Compensation expense will be recognized when
vesting becomes probable and will be equal to the fair value of the common stock
at the time that the Restricted Shares become vested. At December 31, 1996 and
1997, a total of 11,086,950 shares were outstanding and held in the Restricted
Stock Trust.

NOTE 16--MANDATORILY REDEEMABLE EQUITY SECURITIES:

Concurrent with the Recapitalization, the Company entered into a
Stockholders' agreement which includes both put rights and calls on the
Company's common stock. The Company has the right to purchase shares and the
stockholder has the right to cause the Company to purchase such shares at
certain times and subject to certain conditions. The put provision becomes
enforceable upon termination of employment for Management Investors if the
Company has not previously exercised its call right and upon the six-year
anniversary of the Recapitalization for HFCP. The carrying value of the
mandatorily redeemable equity securities held by the Management Investors is
equivalent to the redemption value of $7.67 and $12.33 at December 31, 1996 and
1997, respectively. The carrying value of the Mandatorily Redeemable Equity
Securities for common shares held by HFCP is being accreted to redemption value
over the six year period from the date of the Recapitalization. Accordingly, the
carrying value of Mandatorily Redeemable Equity Securities held by HFCP was
$7.67 and $8.47 at December 31, 1996 and 1997, respectively.

The accretion from carrying value to redemption value for the respective
periods is reflected as a charge to capital surplus. Both the calls and puts
terminate upon the earlier to occur of an initial public offering or such time
as the Common Stock is listed for trading on a national securities exchange.

NOTE 17--OPTIONS:

Under the Company's 1992 Stock Option Plan, options to purchase an
aggregate of 8,000,000 shares of common stock, at a price not less than the
prior year-end book value, as defined, could be granted to key employees. The
Predecessor Company also had an LPU Option Plan with substantially the same
terms as the common stock option plan. In accordance with the Recapitalization
(as discussed below), all prior option plans were terminated.

In connection with the Recapitalization, the shareholders approved a stock
option plan (the "Stock Option Plan") which allowed the Board of Directors to
grant to employees of the Company options to purchase up to 33,173,565 shares of
Company common stock. The Stock Option Plan governs both the Rollover Options
and certain other executive options (the "Executive Options").

At the closing of the Recapitalization (see Note 4), the Board of Directors
granted the Rollover Options which were immediately vested and exercisable. Each
Rollover Option has an exercise price

F-22

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )

of $1.92 per share, with certain limited exceptions outside of the U.S. Of the
Rollover Options, 50% have a term of five years and the remaining 50% have a
term of seven years. In connection with the issuance of the Rollover Options,
the Company recognized compensation expense of $96.7 million (see Note 4).

At the closing of the Recapitalization, the Board of Directors granted to
employees 5,200,590 options to purchase shares of Company common stock at $7.67
per share (the "Closing Options"). The Closing Options vest as follows: 40% on
the grant date, 30% on the third anniversary of the grant date and 30% on the
fifth anniversary of the grant date.

Pursuant to the Stock Option Plan, the Board of Directors had the right to
grant additional options (the "Additional Options") to purchase up to 2,974,410
shares of Company common stock plus any shares that became available through the
cancellation of unexercised Executive Options. Through December 31, 1997,
Additional Options to purchase 1,891,200 shares of Company common stock had been
granted, each at $7.67 per share. As a result, during 1997 the Company
recognized a compensation charge of $1.3 million representing the difference
between the estimated fair market value of Company common stock and the exercise
price of $7.67 on date of grant in accordance with the applicable vesting
provisions of the Additional Options.

Additionally, at the closing of the Recapitalization, the Company issued
options to HFCP (see Note 4) to purchase 2,598,105 shares of Company common
stock at $7.67 per share which were exercisable immediately and expire on the
seventh anniversary of the closing. The HFCP Options are not governed under the
Stock Option Plan.

In December 1997, the Company adopted the Young & Rubicam Inc. 1997
Incentive Compensation Plan (the "Incentive Compensation Plan" or "ICP"). The
ICP superseded the Stock Option Plan and amended and restated the Restricted
Stock Plan (the Stock Option Plan and the Restricted Stock Plan (prior to such
amendment and restatement) (the "Preexisting Plans"), although all awards
granted prior to the adoption of the ICP, and any grants of Restricted Stock
made after such adoption but on or prior to March 31, 1998, will remain
outstanding in accordance with their terms and will be subject to the terms of
the Preexisting Plans.

The ICP provides for grants of stock options, stock appreciation rights
("SARS"), Restricted Stock, deferred stock, other stock-related awards, and
performance or annual incentive awards that may be settled in cash, stock or
other property ("Awards"). Under the ICP, the total number of shares of Company
common stock reserved and available for delivery to participants in connection
with Awards is 19,125,000, plus the number of shares of Company common stock
subject to awards under the Preexisting Plans that become available (generally
due to cancellation or forfeiture) after the effective date of the ICP;
provided, however that the total number of shares of Company common stock with
respect to which incentive stock options ("ISO") may be granted shall not exceed
15,000,000. Any shares of Company common stock delivered under the ICP may
consist of authorized and unissued shares or treasury shares.

The Board of Directors is authorized to grant stock options, including both
incentive stock options, non-qualified stock options, and SARS entitling the
participant to receive the excess of the fair market value of a share of common
stock on the date of exercise over the grant price of the SAR. The exercise
price per share subject to an option and the grant price of a SAR is determined
by the Board of Directors, but must not be less than the fair market value of a
share of common stock on the date of grant. The maximum term of each option or
SAR, the times at which each option or SAR will be exercisable, and provisions
requiring forfeiture of unexercised options or SARS at or following termination
of employment generally is fixed by the Board of Directors, except no option or
SAR may have a term exceeding ten years.

The Board of Directors may, at its discretion, accelerate the
exercisability, the lapsing of restrictions, or the expiration of deferral or
vesting periods of any award, and such accelerated exercisability, lapse,
expiration and vesting shall occur automatically in the case of a "change in

F-23

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )

control" of the Company except to the extent otherwise provided in the award
agreement. In addition, the Board of Directors may provide that the performance
goals relating to any performance-based awards will be deemed to have been met
upon the occurrence of any change in control.

In December 1997, the Company granted options to employees to purchase an
aggregate of 9,577,950 shares of Company common stock at $12.33 per share, the
fair market value of such common stock as of the date of grant. Each such option
will expire if not exercised ten years after the date of grant and will be fully
exercisable on the fifth anniversary of the date of grant if the recipient
remains an employee of the Company or an affiliate as of such date; provided,
however, that in the event that the Company completes an initial public offering
of its common stock prior to December 31, 1999, the exercisability of 33 1/3% of
the shares subject to any such option will accelerate to December 31, 2000, if
the recipient remains an employee of the Company or an affiliate as of December
31, 2000, and an additional 33 1/3% of the shares subject to any such option
will accelerate to December 31, 2001, if the recipient remains an employee of
the Company or an affiliate as of December 31, 2001. Of the 9,577,950 options
granted in December 1997, options to purchase 1,152,150 shares of common stock
will not become exercisable until nine years and nine months from the date of
grant, unless certain 1998 operating targets are met, in which case the vesting
schedule described above will apply.

The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation", ("SFAS 123"). In accordance with the provisions of SFAS 123, the
Company applies APB Opinion No. 25, and related interpretations in accounting
for its plans. If the Company had elected to recognize compensation expense
based upon the fair value at the grant date for awards under its plans
consistent with the methodology prescribed by SFAS 123, the Company's SFAS 123
net loss would be increased by $1.3 million and $9.4 million for 1995 and 1996
and the net loss and net loss per common share would be increased by $6.3
million and $.13, respectively, for 1997.

These SFAS 123 pro forma amounts may not be representative of future
disclosures since the estimated fair value of stock options is amortized to
expense over the vesting period, and additional options may be granted in future
years. The fair value for these options was estimated at the date of grant using
the Black-Scholes option-pricing model with the following assumptions for the
period ended December 31, 1995, 1996 and 1997, respectively:

ADDITIONAL OPTIONS

<TABLE>
<CAPTION>
1995 1996 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Expected term ................ 2-10 years 5-10 years 10 years
Risk-free rate ............... 5.41%-7.22% 5.92%-6.61% 5.59%-7.12%
Dividend yield ............... 0% 0% 0%
Expected volatility .......... 0% 0% 0%

</TABLE>

The weighted-average fair value and weighted average exercise price of
options granted prior to the Recapitalization for which the exercise price
equals the fair value of Company common stock on the grant date was $11.23 and
$44.65 in 1995, respectively, and $13.28 and $47.14, in 1996, respectively. The
weighted-average fair value and weighted-average exercise price of options
granted on and subsequent to the Recapitalization for which the exercise price
equals the fair value of Company common stock on the grant date was $3.69 and
$7.67 in 1996, respectively, and $5.28 and $12.33 in 1997, respectively.

The weighted-average fair value and weighted-average exercise price of
options granted for which the exercise price was less than the fair value of
Company common stock on the grant date

F-24

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )

was $6.30 and $1.97 in 1996, respectively and $6.76 and $7.67 in 1997,
respectively. There were no option issuances prior to the Recapitalization for
which the exercise price was less than the estimated fair value of Company
common stock on the date of grant.

The Black-Scholes option valuation model was developed for use in
estimating the weighted-average fair value of traded options which have no
vesting restrictions and are fully transferable. Because the Company's employee
stock options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.

Transactions involving options are summarized as follows:

<TABLE>
<CAPTION>
WEIGHTED-
OPTIONS AVERAGE
OUTSTANDING EXERCISE PRICE
--------------- ---------------
<S> <C> <C>
JANUARY 1, 1995 ......................... 1,633,110 $40.51
Granted ................................ 1,197,722 44.72
Exercised .............................. (144,400) 34.26
Cancellations .......................... (260,324) 40.17
--------- -------
DECEMBER 31, 1995 ....................... 2,426,108 42.99
--------- -------
Granted ................................ 284,773 47.14
Exercised .............................. (252,278) 41.94
Cancellations .......................... (167,940) 42.83
Recapitalization cancellations ......... (2,290,663) 43.64
Recapitalization grants ................ 24,622,260 3.76
---------- -------
DECEMBER 31, 1996 ....................... 24,622,260 3.76
---------- -------
Granted ................................ 11,469,150 11.56
Exercised .............................. (4,250,790) 2.19
Cancellations .......................... (827,415) 4.50
---------- -------
DECEMBER 31, 1997 ....................... 31,013,205 6.84
========== =======
</TABLE>

The following information is as of December 31, 1997:

<TABLE>

<S> <C> <C> <C>
Number outstanding .................................. 12,312,690 9,122,565 9,577,950
---------- --------- ---------
Weighted-average contractual life, in years ......... 6 10 10
Weighted-average exercise price ..................... $ 1.92 $ 7.67 $ 12.33
------------ ----------- -----------
Number exercisable .................................. 12,312,690 4,930,305 0
------------ ----------- -----------
Weighted-average exercise price ..................... $ 1.92 $ 7.67 $ 12.33
------------ ----------- -----------
</TABLE>

The following information is as of December 31, 1995 and 1996:

<TABLE>
<CAPTION>
1995 1996
------------------ ------------------------------
<S> <C> <C> <C>
Range of Exercise Prices ............................. $ 35.85-$44.65 $ 1.92 $ 7.67
-------------- ----------- ----------
Number outstanding ................................... 2,426,108 16,823,565 7,798,695
-------------- ----------- ----------
Weighted-average contractual life, in years .......... 5 6 10
Weighted-average exercise price ...................... $ 42.96 $ 1.92 $ 7.67
-------------- ----------- ----------
Number exercisable ................................... 544,004 16,823,565 4,678,335
-------------- ----------- ----------
Weighted-average exercise price ...................... $ 40.92 $ 1.92 $ 7.67
-------------- ----------- ----------
</TABLE>

F-25

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )

NOTE 18--LITIGATION, COMMITMENTS AND CONTINGENT LIABILITIES:

The Company has performed, and continues to perform, services for clients
in a wide range of businesses, including tobacco products manufacturers. As a
result, the Company may from time to time be joined as a defendant in litigation
brought against its clients and others by third parties, including its
competitors, governmental and regulatory bodies, or consumers, alleging that
advertising claims made through the Company with respect to such clients'
products are false, deceptive or misleading; that such clients products are
defective, injurious or pose some manner of threat to the public generally; or
that marketing or communications materials created for such clients infringe
upon the proprietary rights of third parties. The Company's practice is to
attempt to minimize such potential liabilities through insurance coverage and/or
indemnification provisions in its agreements with clients and others.

Recently, the Company was named as a defendant in an action brought by a
county government against tobacco products manufacturers (including a current
and a former client of the Company) and others alleging that, because the
Company performed advertising and other professional services for such clients,
the Company is liable for damages for health and other claims. While this action
is in its early stages and the allegations against the Company have not been
made with specificity, the Company believes it has meritorious defenses to the
claims and intends to contest them vigorously.

The Company is named as party in litigation matters which arise in the
ordinary course of its business, including claims by former employees for money
damages and other relief based upon the circumstances or consequences of their
separation from employment. The Company believes that it has meritorious
defenses to these claims, and is contesting such claims vigorously. In addition,
the Company is covered by insurance with respect to some of such claims.
Accordingly, the Company does not expect such matters to have a material adverse
effect on its consolidated financial position, results of operations or cash
flows.

Net rental expense was $62.4 million, $62.9 million, and $74.4 million in
1995, 1996 and 1997, respectively. Future minimum rental commitments as of
December 31, 1997 are as follows:

(IN THOUSANDS)
1998 ................ $ 62,863
1999 ................ 54,525
2000 ................ 42,924
2001 ................ 40,162
2002 ................ 39,119
Thereafter .......... 108,437

Certain leases contain renewal options calling for increased rentals.
Others contain certain escalation clauses relating to taxes and other operating
expenses.

At December 31, 1996, the Company had outstanding guarantees of $18.6
million in support of credit lines of unconsolidated companies. At December 31,
1997, the Company had outstanding guarantees of $7.6 million in support of
credit lines of unconsolidated companies.

The Company and its corporate affiliates conduct business in various
developing countries in Asia, Africa, Latin America and Eastern Europe, where
the systems and bodies of commercial law and trade practices arising thereunder
are in a continuing state of evolution. Commercial laws in such countries are
often vague, arbitrary, contradictory, inconsistently administered and
retroactively applied. Under such circumstances, it is difficult for the Company
to determine with certainty at all times the exact requirements of such local
laws. Nevertheless, the Company believes that any difficulty in compliance with
local laws in such developing countries will not have a materially adverse
impact on the consolidated financial position, results of operations or cash
flows of the Company.

F-26

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )

NOTE 19--FAIR VALUE OF FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES:

At December 31, 1996 and 1997, the carrying value of the Company's
financial instruments approximated fair value in all material respects.

The Company entered into interest rate exchange agreements with off-balance
sheet risk in order to reduce its exposure to changes in interest rates on its
variable rate long-term debt. These interest rate exchange agreements included
interest rate swaps, interest rate floors and interest rate caps. At December
31, 1996 and 1997, the notional amount of these agreements was $50 million and
$275 million, respectively (see Note 14). The fair value, which has been
estimated based upon quotations from independent third party banks, approximated
the notional amount at December 31, 1996 and 1997.

The Company enters into forward foreign exchange contracts to hedge certain
assets and liabilities which are recorded in a currency different from that in
which they settle. The purpose of these contracts is almost exclusively to hedge
intercompany transactions. The Company's forward foreign exchange contracts do
not create exchange rate risk because gains and losses on these contracts
generally offset losses and gains on the foreign currency denominated
intercompany transactions. The gains and losses on these positions are deferred
and included in the basis of the transaction upon settlement. The terms of these
contracts are generally a one month maturity. The tables below summarize the
Company's forward foreign exchange contracts outstanding at December 31, 1996
and 1997. The "buy" amounts represent the U.S. dollar equivalent of commitments
to purchase the respective currency, and the "sell" amounts represent the U.S.
dollar equivalent of commitments to sell the respective currency.

COMPANY COMPANY
BUYS SELLS
--------- --------
(IN THOUSANDS)
1996
Canadian Dollar ................. $ -- $8,399
Italian Lira .................... 4,524 --
Swiss Franc ..................... 5,934 --
Japanese Yen .................... 6,199 --
------- ------
$16,657 $8,399
======= ======

COMPANY COMPANY
BUYS SELLS
--------- -------
(IN THOUSANDS)
1997
German Deutschemark ............. $ -- $13,318
Italian Lira .................... -- 3,901
Swedish Krona ................... -- 1,268
Swiss Franc ..................... 6,849 --
Japanese Yen .................... 5,975 --
------- -------
$12,824 $18,487
======= =======

Management believes the risk of incurring losses due to credit risk and
foreign exchange would not have a material adverse impact on the consolidated
financial position, results of operations or cash flows of the Company.

F-27

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )

NOTE 20--SUBSEQUENT EVENT--COMMON STOCK DIVIDEND

On April 6, 1998, the Board of Directors declared a stock dividend of 14
shares of common stock payable for each share of common stock outstanding on the
effective date of the Company's planned initial public offering (see Note 21).
Common stock and accumulated deficit reflected in the historical balance sheets
at December 31, 1996 and 1997 have been restated to reflect the common stock
dividend. The number of common shares the Company is authorized to issue was
also increased from 10 million to 250 million and the number of authorized
preferred shares, none of which have been issued, was increased from 50,000 to
10 million.

All references in the consolidated financial statements to shares, share
prices, per share data, including stock option and stock option plan
information, for periods after the 1996 Recapitalization are reflected on a post
dividend basis. All references in the historical financial statements to common
shares and Limited Partnership Units in Predecessor entities including option
and option plan information are reflected on a pre-dividend basis.

NOTE 21--PUBLIC OFFERING AND RELATED TRANSACTIONS SUBSEQUENT TO THE DATE OF THE
INDEPENDENT ACCOUNTANTS REPORT (UNAUDITED)

PUBLIC OFFERING: On May 15, 1998, the Company closed its initial public
offering of common stock (the "Offering"). An aggregate of 19,090,000 shares
(including 2,490,000 shares subject to the underwriters' overallotment option)
of the Company's common stock was offered to the public, of which 6,912,730
shares were sold by the Company and 12,177,270 shares were sold by certain
selling stockholders. Net proceeds to the Company were $158.6 million, after
deducting underwriting discounts and commissions and expenses paid by the
Company in connection with the Offering. The Company did not receive any of the
net proceeds from the sale of common stock by the selling stockholders. The
Company used the net proceeds from the Offering together with $155 million of
borrowings under a new credit facility (see below) to repay all of the
outstanding borrowings under its then existing $700 million senior secured
credit facility.

NEW DEBT FACILITY: On May 15, 1998, the Company entered into a $400
million, five-year unsecured multicurrency revolving credit facility (the "New
Credit Facility") which replaced its then existing $700 million senior secured
credit facility. The New Credit Facility contains certain financial and
operating restrictions and covenant requirements, including a maximum leverage
ratio and a minimum interest coverage requirement. The Company is required to
pay a facility fee tied to the leverage ratio ranging from 0.125% to 0.2% per
annum. Under the terms of the New Credit Facility, interest charged on loans
ranges from base rate to Eurodollar and Eurocurrency rate plus applicable
margins tied to the leverage ratio ranging from 0.275% to 0.3%. On May 15, 1998,
the Company used the net proceeds from the Offering together with $155 million
of borrowings under the New Credit Facility to repay all outstanding borrowings
under its then existing $700 million senior secured credit facility.
Approximately $7.3 million of unamortized deferred financing costs related to
the replaced credit facility were charged to expense and were reflected as an
extraordinary charge, net of an applicable tax benefit of approximately $2.8
million, in the Company's consolidated statements of operations for the nine
months ended September 30, 1998.

RESTRICTED STOCK: Upon the consummation of the Offering, 9,231,105 shares
of common stock ("Restricted Stock") held in a restricted stock trust vested and
resulted in non-recurring, non-cash, pre-tax compensation charges of $234.4
million which were reflected as "other operating charges" in the Company's
consolidated statements of operations for the nine months ended September 30,
1998. The Company redeemed the remaining 1,855,845 shares of Restricted Stock
held in the restricted stock trust upon the consummation of the Offering.

F-28

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
-------------- --------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ............................................................... $ 160,263 $ 71,181
Accounts receivable, net of allowance for doubtful accounts of $14,125 and $15,509 at
December 31, 1997 and ,September 30, 1998 respectively ................................. 790,342 780,230
Costs billable to clients, net .......................................................... 50,479 80,479
Other receivables ....................................................................... 35,218 38,568
Deferred income taxes ................................................................... 32,832 26,434
Prepaid expenses and other assets ....................................................... 17,989 30,657
---------- ----------
Total Current Assets ................................................................... 1,087,123 1,027,549
---------- ----------
NONCURRENT ASSETS
Property and equipment, net ............................................................. 125,014 123,092
Deferred income taxes ................................................................... 124,192 164,754
Goodwill, less accumulated amortization of $80,166 and $85,269 at December 31, 1997 and
September 30, 1998, respectively ....................................................... 116,637 111,065
Equity in net assets of and advances to unconsolidated companies ........................ 26,393 30,741
Other assets ............................................................................ 48,660 38,012
---------- ----------
Total Noncurrent Assets ................................................................ 440,896 467,664
---------- ----------
Total Assets ........................................................................... $1,528,019 $1,495,213
========== ==========
CURRENT LIABILITIES
Loans payable ........................................................................... $ 10,765 $ 37,822
Accounts payable ........................................................................ 811,162 834,592
Installment notes payable ............................................................... 3,231 451
Accrued expenses and other liabilities .................................................. 273,011 238,022
Accrued payroll and bonuses ............................................................. 65,458 61,601
Income taxes payable .................................................................... 29,665 2,948
---------- ----------
Total Current Liabilities .............................................................. 1,193,292 1,175,436
---------- ----------
NONCURRENT LIABILITIES
Loans payable ........................................................................... 330,552 70,469
Installment notes payable ............................................................... 6,503 400
Deferred compensation ................................................................... 31,077 32,542
Other liabilities ....................................................................... 112,851 109,299
---------- ----------
Total Noncurrent Liabilities ........................................................... 480,983 212,710
---------- ----------
Commitments and Contingencies
Minority Interest ....................................................................... 6,987 5,757
---------- ----------
MANDATORILY REDEEMABLE EQUITY SECURITIES
Common stock, par value $.01 per share; authorized - 250,000,000 shares; issued
and outstanding 50,658,180 shares and - 0 shares at December 31, 1997 and
September 30,
1998, respectively ..................................................................... 508,471 --
---------- ----------
STOCKHOLDERS' EQUITY/(DEFICIT) Preferred stock:
Money Market Preferred Stock - Cumulative variable dividend; liquidating value of
$115.00 per share; one-tenth of one vote per share; authorized 50,000 shares; 87 shares
issued and outstanding ................................................................ - --
---------- ----------
Cumulative Participating Junior Preferred Stock - $ dividend; liquidating value of
$1.00 per share; 100 votes per share; authorized 2,500,000 shares; no shares issued
and outstanding........................................................................ -- --
---------- ----------
Common stock, par value $.01 per share; authorized - 250,000,000 shares; issued
and outstanding - 11,086,950 and 66,215,842 shares at December 31, 1997 and
September 30, 1998, respectively (excluding 1,115,160 and 4,393,848 common shares
in treasury) ........................................................................... 111 706
Capital surplus ......................................................................... 23,613 940,954
Accumulated deficit ..................................................................... (522,866) (785,552)
Cumulative translation adjustment ....................................................... (16,577) (13,650)
Pension liability adjustment ............................................................ (706) (706)
Common stock in treasury, at cost ....................................................... (8,550) (40,442)
Unearned compensation - restricted stock ................................................ (136,739) -
---------- ----------
Total Stockholders' Equity/(Deficit) ................................................... (661,714) 101,310
---------- ----------
Total Liabilities, Mandatorily Redeemable Equity Securities and Stockholders'
Equity/(Deficit) ...................................................................... $1,528,019 $1,495,213
========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-29

<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- ------------------------------
1997 1998 1997 1998
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenues ............................................. $ 333,387 $ 375,419 $ 977,067 $ 1,095,720
Compensation expense, including employee benefits. 206,676 227,184 600,767 659,449
General and administrative expenses .................. 131,013 106,057 331,353 324,783
Other operating charges .............................. -- -- -- 234,449
----------- ----------- ----------- -----------
Operating expenses ................................... 337,689 333,241 932,120 1,218,681
----------- ----------- ----------- -----------
Income (loss) from operations ........................ (4,302) 42,178 44,947 (122,961)
Interest expense, net ................................ (10,950) (2,843) (28,580) (13,015)
Other income ......................................... -- -- -- 2,200
----------- ----------- ----------- -----------
Income (loss) before income taxes .................... (15,252) 39,335 16,367 (133,776)
Income tax expense (benefit) ......................... (7,796) 15,914 7,855 (22,291)
----------- ----------- ----------- -----------
(7,456) 23,421 8,512 (111,485)
Equity in net income of unconsolidated companies...... 1,621 1,567 4,091 3,194
----------- ----------- ----------- -----------
Minority interest in net (income) loss of consolidated
subsidiaries ........................................ 135 (682) (698) (604)
----------- ----------- ----------- -----------
Income (loss) before extraordinary charge ............ (5,700) 24,306 11,905 (108,895)
Extraordinary charge for early retirement of debt,
net of tax benefit of $2,834......................... -- -- -- (4,433)
----------- ----------- ----------- -----------
Net income (loss) .................................... $ (5,700) $ 24,306 $ 11,905 $ (113,328)
=========== =========== =========== ===========
Earnings (loss) per share:
Basic:
Income (loss) before extraordinary charge ............ $ (0.12) $ 0.36 $ 0.25 $ (1.84)
=========== =========== =========== ===========
Extraordinary charge ................................. $ -- $ -- $ -- $ (0.08)
=========== =========== =========== ===========
Net income (loss) .................................... $ (0.12) $ 0.36 $ 0.25 $ (1.92)
=========== =========== =========== ===========
Diluted:
Income (loss) before extraordinary charge ............ $ (0.12) $ 0.29 $ 0.20 $ (1.84)
=========== =========== =========== ===========
Extraordinary charge ................................. $ -- $ -- $ -- $ (0.08)
=========== =========== =========== ===========
Net income (loss) .................................... $ (0.12) $ 0.29 $ 0.20 $ (1.92)
=========== =========== =========== ===========
Weighted average shares used to compute:
Basic ................................................ 46,566,357 66,608,726 47,109,739 58,939,274
=========== =========== =========== ===========
Diluted .............................................. 46,566,357 82,764,754 60,313,689 58,939,274
=========== =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-30
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1997 1998
------------ --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ......................................................... $ 11,905 $ (113,328)
Adjustments to reconcile net (loss) income to net cash used by operating
activities:
Depreciation and amortization ............................................. 41,474 43,061
Other operating charges ................................................... -- 234,449
Extraordinary charge, net ................................................. -- 4,433
Deferred income tax benefit ............................................... -- (34,589)
Equity in net income of unconsolidated companies .......................... (4,091) (3,194)
Dividends from unconsolidated companies ................................... 2,220 1,427
Minority interest in net income of consolidated subsidiaries .............. 698 604
Change in assets and liabilities, excluding effects from acquisitions,
dispositions, recapitalization and foreign exchange:
Accounts receivable, net .................................................. 135,539 15,450
Costs billable to clients, net ............................................ (31,447) (27,933)
Other receivables ......................................................... (2,167) (3,247)
Prepaid expenses and other assets ......................................... (7,651) (12,218)
Accounts payable .......................................................... (50,958) (7,934)
Accrued expenses and other liabilities .................................... (30,284) (49,244)
Accrued payroll and bonuses ............................................... (12,900) (5,901)
Income taxes payable ...................................................... (8,887) (23,996)
Deferred compensation ..................................................... 4,295 3,209
Other ..................................................................... 6,750 1,024
---------- ----------
Net cash provided by operating activities .................................... 54,496 22,073
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ....................................... (38,930) (34,784)
Acquisitions, net of cash acquired ........................................ (5,337) (499)
Investment in net assets of and advances to unconsolidated companies ...... (3,297) (4,316)
Proceeds from notes receivable ............................................ 647 339
---------- ----------
Net cash used in investing activities ........................................ (46,917) (39,260)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable, long-term .................................... 236,361 224,795
Repayment of loans payable, long-term ..................................... (53,679) (484,816)
Proceeds from loans payable, short-term, net .............................. 14,855 65,468
Proceeds from issuance of common stock in initial public offering, net .... -- 158,637
Deferred financing costs .................................................. -- (667)
Recapitalization payments ................................................. (247,259) --
Payments of non-recapitalization deferred compensation .................... (508) (3,985)
Common stock repurchased .................................................. (1,500) (31,892)
Common stock issued and other ............................................. 99 7,431
Payment of installment notes, net ......................................... -- (8,883)
Dividends paid to minority shareholders ................................... (1,418) (1,532)
---------- ----------
Net cash used in financing activities ........................................ (53,049) (75,444)
---------- ----------
Effect of exchange rate changes on cash and cash equivalents ................. (7,002) 3,549
---------- ----------
Net decrease in cash and cash equivalents .................................... (52,472) (89,082)
Cash and cash equivalents, beginning of period ............................... 110,180 160,263
---------- ----------
Cash and cash equivalents, end of period ..................................... $ 57,708 $ 71,181
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ............................................................. $ 28,563 $ 24,660
========== ==========
Income taxes paid ......................................................... $ 15,624 $ 30,760
========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-31

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY/(DEFICIT)
(IN THOUSANDS)

<TABLE>
<CAPTION>
VOTING COMMON
COMMON CAPITAL ACCUMULATED STOCK IN RESTRICTED
STOCK SURPLUS DEFICIT TREASURY STOCK
---------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997 ................ $111 $ 106,825 $ (498,928) $ -- $ (85,000)
Net loss ................................. -- -- (23,938) -- --
Common stock issued ...................... -- 1,501 -- -- --
Common stock repurchased ................. -- -- -- (8,550) --
Unearned compensation-Restricted Stock -- 51,739 -- -- (51,739)
Common stock options exercised/
repurchased ............................ 44 8,711 -- -- --
Accretion of mandatorily redeemable
equity securities ...................... (44) (145,163) -- -- --
----- ---------- ---------- --------- ----------
BALANCE AT DECEMBER 31, 1997 .............. $111 $ 23,613 $ (522,866) $ (8,550) $ (136,739)
Net loss ................................. -- -- (113,328) -- --
Issuance of Restricted Stock ............. -- 94,039 -- -- 136,739
Common stock issued and other ............ 19 7,412 -- -- --
Common stock repurchased ................. -- -- -- (31,892) --
Issuance of common stock in initial public
offering, net of expenses .............. 69 158,568 -- -- --
Accretion of mandatorily redeemable
equity securities ...................... (3) (137,942) (149,358) -- --
Conversion of mandatorily redeemable
equity securities ...................... 510 795,264 -- -- --
------ ---------- ---------- --------- ----------
BALANCE AT SEPTEMBER 30, 1998 (UNAUDITED). $706 $ 940,954 $ (785,552) $ (40,442) $ --
====== ========== ========== ========= ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-32

<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Young &
Rubicam Inc. (the "Company") have been prepared pursuant to the rules of the
Securities and Exchange Commission (the "SEC"). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. These consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
and notes thereto included in the Company's Registration Statements. In the
opinion of management, the accompanying financial statements reflect all
adjustments, which are of a normal recurring nature, necessary for a fair
presentation of the results for the periods presented.

The results of operations for the interim periods presented are not
necessarily indicative of the results expected for the full year.

NOTE 2--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 for the reporting
period. Actual results could differ from those estimates.

NOTE 3--EARNINGS (LOSS) PER SHARE

The Company computes earnings (loss) per share in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." Basic
earnings (loss) per share is calculated by dividing net income (loss) by the
weighted average shares of common stock outstanding during each period. Diluted
earnings per share reflects the dilutive effect of stock options and other stock
awards granted to employees under stock-based compensation plans. Shares used in
computing basic and diluted earnings (loss) per share were as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ----------------------------
1997 1998 1997 1998
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Basic - weighted average shares ........... 46,566,357 66,608,726 47,109,739 58,939,274
Effect of dilutive securities ............. -- 16,156,028 13,203,950 --
---------- ---------- ---------- ----------
Diluted - weighted average shares ......... 46,566,357 82,764,754 60,313,689 58,939,274
========== ========== ========== ==========
</TABLE>

As of September 30, 1998, there were approximately 30.9 million common
stock options outstanding that could potentially dilute basic earnings (loss)
per share in the future that were excluded from the computation of diluted loss
per share for the nine months ended September 30, 1998 because the effect would
be antidilutive.

NOTE 4--RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
required to be adopted in years beginning after June 15, 1999. The Company
anticipates that the adoption of SFAS No. 133 will not have a significant effect
on the financial condition of the Company.

F-33

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )

NOTE 5--COMPREHENSIVE INCOME (LOSS)

The Company has adopted SFAS No. 130, "Reporting Comprehensive Income,"
which requires presentation of information on comprehensive income (loss) and
its components in the financial statements. For the Company, comprehensive
income (loss) includes net income (loss), foreign currency translation
adjustments and minimum pension liability adjustments. Total comprehensive
income (loss) and its components for interim periods ended September 30, 1997
and 1998 were as follows (in thousands):

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -----------------------------
1997 1998 1997 1998
------------ ---------- ------------ --------------
<S> <C> <C> <C> <C>
Net income (loss) ................................ $ (5,700) $24,306 $ 11,905 $ (113,328)
Foreign currency translation adjustment, net of
tax ............................................. (2,394) 5,036 (11,047) 2,927
Pension liability adjustment, net of tax ......... -- -- -- --
-------- ------- --------- ----------
Total comprehensive income (loss) ................ $ (8,094) $29,342 $ 858 $ (110,401)
======== ======= ========= ==========
</TABLE>

NOTE 6--COMMON STOCK DIVIDEND

On April 6, 1998, the Board of Directors declared a stock dividend of 14
shares of common stock payable for each share of common stock outstanding, which
dividend became effective and was paid on May 11, 1998, the effective date of
the Registration Statement filed on Form S-1 for the Company's initial public
offering of common stock (the "Offering"). The Company's historical financial
statements have been presented to give retroactive effect to such common stock
dividend. In addition, the number of shares of common stock the Company is
authorized to issue was increased from 10,000,000 to 250,000,000 and the number
of authorized preferred shares was increased from 50,000 to 10,000,000. Of the
authorized preferred shares, 50,000 shares have been designated as Money Market
Preferred Stock and 2,500,000 shares have been designated as Cumulative
Participating Junior Preferred Stock.

NOTE 7--PUBLIC OFFERING

On May 15, 1998, the Company closed the Offering. An aggregate of
19,090,000 shares (including 2,490,000 shares subject to the underwriters'
overallotment option) of the Company's common stock was offered to the public,
of which 6,912,730 shares were sold by the Company and 12,177,270 shares were
sold by certain selling stockholders. Net proceeds to the Company were $158.6
million, after deducting underwriting discounts and commissions and expenses
paid by the Company in connection with the Offering. The Company did not receive
any of the net proceeds from the sale of common stock by the selling
stockholders. The Company used the net proceeds from the Offering together with
$155 million of borrowings under a new credit facility (see Note 8) to repay all
of the outstanding borrowings under its then existing $700 million senior
secured credit facility.

Upon the consummation of the Offering, 9,231,105 shares of common stock
("Restricted Stock") held in a restricted stock trust vested and resulted in
non-recurring, non-cash, pre-tax compensation charges of $234.4 million which
have been reflected as "other operating charges" in the Company's consolidated
statement of operations for the nine months ended September 30, 1998. The
Company redeemed the remaining 1,855,845 shares of Restricted Stock held in the
restricted stock trust upon the consummation of the Offering.

NOTE 8--NEW DEBT FACILITY

On May 15, 1998, the Company entered into a $400 million, five-year
unsecured multicurrency revolving credit facility (the "New Credit Facility")
which replaced its then existing $700 million senior secured credit facility.
The New Credit Facility contains certain financial and operating

F-34

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )

restrictions and covenant requirements, including a maximum leverage ratio and a
minimum interest coverage requirement. The Company is required to pay a facility
fee tied to the leverage ratio ranging from 0.125% to 0.2% per annum. Under the
terms of the New Credit Facility, interest charged on loans ranges from base
rate to Eurodollar and Eurocurrency rate plus applicable margins tied to the
leverage ratio ranging from 0.275% to 0.3%. On May 15, 1998, the Company used
the net proceeds from the Offering together with $155 million of borrowings
under the New Credit Facility to repay all outstanding borrowings under its then
existing $700 million senior secured credit facility. Approximately $7.3 million
of unamortized deferred financing costs related to the replaced credit facility
were charged to expense and have been reflected as an extraordinary charge, net
of an applicable tax benefit of approximately $2.8 million, in the Company's
consolidated statement of operations for the nine months ended September 30,
1998.

F-35

<PAGE>
<TABLE>
<S> <C>
================================================================================================

NO DEALER, SALESPERSON OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR TO
REPRESENT ANYTHING NOT CONTAINED IN THIS
PROSPECTUS. YOU MUST NOT RELY ON ANY UNAUTHORIZED
INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS YOUNG & RUBICAM INC.
IS AN OFFER TO SELL OR A SOLICITATION ON AN OFFER
TO BUY ONLY THE SHARES OFFERED HEREBY, BUT ONLY
UNDER CIRCUMSTANCES AND IN JURISDICTIONS WHERE IT
IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN
THIS PROSPECTUS IS CURRENT ONLY AS OF ITS DATE. 10,000,000 SHARES
COMMON STOCK
-------------------------------
TABLE OF CONTENTS
-------------------------------

PAGE
----
Certain Introductory Matters ............. 2
Prospectus Summary ....................... 3
Risk Factors ............................. 9
The Company .............................. 16
Use of Proceeds .......................... 17 -------------
Price Range of Common Stock and PROSPECTUS
Dividend Policy ....................... 17 -------------
Capitalization ........................... 18
Selected Consolidated Financial
Data .................................. 19
Management's Discussion and
Analysis of Financial Condition and
Results of Operations ................. 22
Business ................................. 31 BEAR, STEARNS & CO. INC.
Management ............................... 42
Certain Transactions ..................... 58 DONALDSON, LUFKIN & JENRETTE
Principal Stockholders ................... 59
Selling Stockholders ..................... 60 ------------
Description of Capital Stock ............. 64
Shares Eligible for Future Sale .......... 77 GOLDMAN, SACHS & CO.
Certain U.S. Tax Consequences to
Non-United States Holders ............. 80 ING BARING FURMAN SELZ LLC
Underwriting ............................. 82
Legal Matters ............................ 84 SALOMON SMITH BARNEY
Experts .................................. 84
Available Information .................... 85
Index to Consolidated Financial
Statements ............................ F-1 NOVEMBER 24, 1998

================================================================================================
</TABLE>