YOUNG & RUBICAM INC, 424B4, 1999-05-25

YOUNG & RUBICAM INC
424B4, 1999-05-25
ADVERTISING AGENCIES

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FILED PURSUANT TO RULE 424(b)(4)
REGISTRATION NO. 333-77235

PROSPECTUS

15,000,000 SHARES

YOUNG & RUBICAM INC.

COMMON STOCK

-------------------
This is an offering of 15,000,000 shares of common stock of Young & Rubicam
Inc. This prospectus relates to an offering of 12,000,000 shares in the United
States and Canada. In addition, 3,000,000 shares are being offered in a
concurrent international offering outside the United States and Canada.

All of the 15,000,000 shares of common stock offered by this prospectus 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 May 24, 1999, was $37.25 per
share.

INVESTING IN COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 7 TO READ ABOUT 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 ........................ $ 37.2500 $558,750,000
Underwriting discount ........................ $ 1.2665 $ 18,997,500
Proceeds to the selling stockholders ......... $ 35.9835 $539,752,500
</TABLE>
-------------------
The U.S. underwriters may purchase up to an additional 2,250,000 shares
from selling stockholders to cover over-allotments. Young & Rubicam Inc. has
agreed to pay expenses incurred by the selling stockholders in connection with
the offerings, other than the underwriting discount.

The underwriters expect to deliver the shares in New York, New York on May
28, 1999.

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

Joint Global Coordinators and Joint Book-Running Managers

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

-------------------
GOLDMAN, SACHS & CO.
ING BARING FURMAN SELZ LLC
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY

The date of this prospectus is May 24, 1999

<PAGE>

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
This summary 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."

YOUNG & RUBICAM INC.

Young & Rubicam Inc. is the fifth largest consolidated marketing and
communications organization in the world based on 1998 revenues. 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 December 31, 1998. We operate through
recognized market leaders including:

o Young & Rubicam Advertising, full-service advertising;

o The Bravo Group and Kang & Lee, multi-cultural marketing and
communications;

o Wunderman Cato Johnson, direct marketing and sales promotion;

o Brand Dialogue, digital interactive branding and digital commerce;

o The Media Edge, media planning, buying and placement services;

o Burson-Marsteller, perception management and public relations;

o Cohn & Wolfe, full-service public relations;

o Landor Associates, branding consultation and design services; and

o Sudler & Hennessey, healthcare communications.

Our revenues in 1998 totaled $1.5 billion, representing a compound annual
growth rate of 12.2% from 1994 to 1998.

We are a single agency network, allowing us to centrally manage and
utilize our resources. 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. As part of our strategy, we
seek to provide clients with superior creative services and extensive research
capabilities, including access to Y&R's proprietary research tool, BrandAsset
Valuator.

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. Revenues from the 41 client accounts designated as KCAs accounted
for 48.6% of our consolidated revenues in 1998. In order to further strengthen
client relationships and reward us for meeting or

<PAGE>

exceeding 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, members of our senior management, including
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 Y&R and the Chairman and Chief Executive Officer of Young & Rubicam
Advertising, retain ongoing responsibilities for individual KCAs in addition to
their managerial roles.

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
$200 billion in 1998.

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 52% in 1998.

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 some KCAs. KCAs also have increased their use of
multiple services offered by us over the same period. During 1998,
our 20 largest KCAs used the capabilities of an average of five of
our marketing and communications services.

<PAGE>

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 toward the globalization of client marketing
and communications needs and the consolidation of those needs with a
single global network.

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 the
Asia/Pacific region.

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.

RECENT DEVELOPMENTS

On May 21, 1999, we completed our acquisition of KnowledgeBase Marketing,
Inc. for consideration consisting of Y&R common stock and cash valued at
approximately $175 million. KnowledgeBase Marketing, headquartered in Chapel
Hill, North Carolina, is a leading customer relationship marketing service that
specializes in gathering and analyzing marketing data.

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 OFFERINGS

Common stock offered:
U.S. offering........... 12,000,000 shares
International offering.. 3,000,000 shares
----------------

Total.................. 15,000,000 shares

Common stock to be
outstanding after the
common stock offerings.. 69,754,728 shares

This number excludes:

o 23,854,152 shares of common stock reserved for
issuance upon the exercise of outstanding employee
options at a weighted average exercise price of
$9.11 per share;

o 2,598,105 shares of common stock reserved for
issuance upon the exercise of outstanding options
issued to investors in Y&R at a weighted average
exercise price of $7.67 per share;

o 3,074,484 shares of common stock reserved for
issuance upon the exercise of options granted to
employees of Y&R on the date of this prospectus at
an exercise price per share equal to the public
offering price set forth on the cover page of this
prospectus; and

o 275,000 shares of common stock reserved for
issuance upon the exercise of options to be
granted to employees of KnowledgeBase Marketing in
connection with the acquisition of KnowledgeBase
Marketing at an exercise price per share equal to
the fair market value of the common stock on the
date of grant.

All information in this prospectus assumes that the
U.S. underwriters' over-allotment option is not
exercised.

Dividend Policy......... On April 29, 1999, we announced that our board of
directors declared a cash dividend of $0.025 per
share of common stock, payable on June 15, 1999 to
all stockholders of record as of June 1, 1999. See
"Price Range of Common Stock and Dividend Policy"
for further information on our dividend policy.

Use of Proceeds........ We will not receive any of the proceeds from the
sale of common stock offered by this prospectus.

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

RISK FACTORS

For a discussion of risks that you should consider before buying shares of
the common stock, see "Risk Factors."

<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31,
----------------------------- -------------------------------------------
1999 1998 1998 1997 1996
-------------- -------------- -------------- -------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ................................. $ 383,873 $ 348,173 $ 1,522,464 $ 1,382,740 $1,222,139
Compensation expense, including
employee benefits ....................... 235,018 213,598 903,948 836,150 730,261
General and administrative expenses 114,297 109,242 455,578 463,936 391,617
Other operating charges (1) .............. -- -- 234,449 11,925 17,166
Recapitalization-related charges (1) ..... -- -- -- -- 315,397
----------- ----------- ----------- ----------- ----------
Operating expenses ...................... 349,315 322,840 1,593,975 1,312,011 1,454,441
----------- ----------- ----------- ----------- ----------
Income (loss) from operations ............ 34,558 25,333 (71,511) 70,729 (232,302)
Extraordinary charge for early
retirement of debt (net of tax
benefit of $2,834)....................... -- -- (4,433) -- --
Net income (loss) ........................ $ 19,701 $ 12,190 $ (86,068) $ (23,938) $ (238,311)
EARNINGS (LOSS) PER SHARE (2):
Basic:
Income (loss) before extraordinary
charge ................................ $ 0.30 $ 0.24 $ (1.34) $ (0.51)
Extraordinary charge .................... -- -- (0.08) --
----------- ----------- ----------- -----------
Net income (loss) ....................... $ 0.30 $ 0.24 $ (1.42) $ (0.51)
=========== =========== =========== ===========
Diluted:
Income (loss) before extraordinary
charge ................................ $ 0.24 $ 0.19 $ (1.34) $ (0.51)
Extraordinary charge .................... -- -- (0.08) --
----------- ----------- ----------- -----------
Net income (loss) ....................... $ 0.24 $ 0.19 $ (1.42) $ (0.51)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING
USED TO COMPUTE:
Basic .................................... 66,324,420 50,762,144 60,673,994 46,949,355
Diluted .................................. 81,892,192 64,453,134 60,673,994 46,949,355

OTHER OPERATING DATA:
EBITDA (1)(3) ............................ $ 50,327 $ 39,513 $ 223,548 $ 139,375 $ 147,221
Net cash (used in) provided by
operating activities .................... (124,470) (122,176) 195,615 224,511 178,064
Net cash used in investing activities .... 25,047 8,580 99,683 67,142 76,094
Net cash provided by (used in)
financing activities .................... 90,444 22,692 (136,242) (98,667) (12,614)
Capital expenditures ..................... 14,788 7,889 76,378 51,899 51,792
International revenues as a % of total
revenues ................................ 45.7% 47.0% 49.1% 52.2% 53.3%
</TABLE>

<TABLE>
<CAPTION>
AS OF MARCH 31,
1999
----------------
<S> <C>
BALANCE SHEET DATA:
Total assets (4) ................... $1,622,625
Total debt (5) ..................... 204,871
Total stockholders' equity ......... 86,351

</TABLE>

(footnotes on following page)

<PAGE>

- -----------
(1) For a discussion of other operating charges and recapitalization-related
charges for the years ended December 31, 1998, 1997 and 1996, see notes 4, 6
and 9 to the consolidated financial statements included in this prospectus.

(2) At March 31, 1999, Y&R had outstanding options to purchase 29,455,047 shares
of common stock with a weighted average exercise price of $8.55 that could
potentially dilute basic earnings per share in the future. For a discussion
of options outstanding, see note 3 to the unaudited interim consolidated
financial statements and note 18 to the consolidated financial statements
included in this prospectus.

Earnings per share for 1996 cannot be computed because Y&R's capital
structure prior to its recapitalization in December 1996 consisted of both
common shares and limited partnership units in predecessor entities. For a
discussion of the recapitalization, see note 6 to the consolidated financial
statements included in this prospectus.

(3) 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 Y&R's credit facilities; however, EBITDA may not be comparable
to other registrants' calculation of EBITDA or similarly titled items. You
should not consider EBITDA 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. EBITDA for 1998 is before $234,449 of non-cash compensation
charges related to the vesting of restricted stock taken at the time of our
initial public offering. EBITDA for 1997 and 1996 is before $11,925 and
$11,096, respectively, of non-cash charges primarily related to impairment
write-downs which are included in other operating charges. For a discussion
of other operating charges and recapitalization-related charges for the
years ended December 31, 1998, 1997 and 1996, see notes 4, 6 and 9 to the
consolidated financial statements included in this prospectus.

(4) Total assets as of March 31, 1999 include net deferred tax assets of
$197,062 consisting primarily of federal, state and foreign net operating
loss carryforwards.

(5) Total debt includes current and non-current loans and installment notes,
which are discussed in notes 14 and 15 to the consolidated financial
statements included in this prospectus.

<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 $86.1 million for 1998 and $23.9 million for
1997. The net loss in 1998 includes a non-cash pre-tax compensation charge of
$234.4 million recorded in connection with the vesting of restricted stock upon
completion of our initial public offering, or IPO, in May 1998 and a $7.3
million pre-tax charge for unamortized deferred financing costs related to a
credit facility that we replaced in connection with the IPO.

WE MAY HAVE DIFFICULTY COMPETING IN THE HIGHLY COMPETITIVE MARKETING AND
COMMUNICATIONS INDUSTRY.

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.

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.

When we represent a client, we do not necessarily handle all advertising
or public relations for that client. 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" for a further discussion of the competition we face.

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.

<PAGE>

WE MAY LOSE CLIENTS DUE TO CONSOLIDATION OF ACCOUNTS WITH OTHER GLOBAL MARKETING
AND COMMUNICATIONS 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 we are to take advantage of an opportunity for the consolidation of a
global account. In those circumstances, our business and results of operations
could suffer.

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

A significant reduction in the marketing and communications spending by,
or the loss of one or more of, our largest clients could weaken our financial
condition and cause our business and results of operations to suffer. A
relatively small number of clients contribute a significant percentage of our
consolidated revenues. In 1998, our KCAs contributed 48.6% of consolidated
revenues, and our largest client account, Ford Motor Company, contributed 10.5%
of consolidated revenues. Our dependence on revenues from these client accounts
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.

WE MAY LOSE SOME OF OUR EXISTING CLIENTS AND MAY NOT BE ABLE TO ATTRACT NEW
CLIENTS FOR OUR MARKETING AND COMMUNICATIONS SERVICES.

The loss of one or more of our largest clients could weaken our financial
condition and cause our business and results of operations to suffer. 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, International Home Foods and Molson,
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 reduces the amount of work given to Y&R.

STRENGTHENING OF THE U.S. DOLLAR AGAINST OTHER MAJOR CURRENCIES COULD
MATERIALLY ADVERSELY AFFECT US.

Our financial statements are denominated in U.S. dollars. In 1998,
operations outside the United States represented 49.1% 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 harm our results

<PAGE>

of operations and weaken our financial position. 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--Market Risk
Management--Foreign Exchange Rate Risk" for a further discussion of our exposure
to currency fluctuations.

THE MARKET PRICE OF OUR COMMON STOCK MAY DECLINE DUE TO THE LARGE NUMBER OF
SHARES ELIGIBLE FOR FUTURE SALE.

Following the common stock offerings, we will have 69,754,728 shares of
common stock outstanding. Of these, 50,418,036 shares will be freely
transferable by persons other than "affiliates" of Y&R without restriction or
further registration under the Securities Act. The remaining 19,336,692
outstanding shares of common stock will be "restricted securities" within the
meaning of Rule 144 under the Securities Act.

Following the common stock offerings and subject to the 120-day lock-up
agreements described in this prospectus, Hellman & Friedman Capital Partners
III, L.P., H&F Orchard Partners III, L.P. and H&F International Partners III,
L.P., whom we refer to as the H&F investors, and two other investors
unaffiliated with Y&R will have demand and piggyback registration rights with
respect to an aggregate of 8,178,069 shares of common stock. 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 common stock offerings, an aggregate of 29,454,575 shares
of common stock and shares subject to vested options held by current or former
employees of Y&R, whom we refer to as management investors, and by stockholders
who received shares of Y&R common stock in the KnowledgeBase Marketing
acquisition, will be eligible for sale in the public market without registration
under the Securities Act, subject, in some instances, to compliance with the
resale and volume limitations and other restrictions of Rule 144 under the
Securities Act. Of this number, 28,175,058 shares and shares subject to vested
options will be subject to the 120-day lock-up agreements described in this
prospectus or held in a deferral trust and not transferable prior to the
expiration of this 120-day period.

Future sales of common stock, or the perception that future sales could
occur, could adversely affect prevailing market prices for the common stock. See
"Shares Eligible for Future Sale" and "Underwriting" for a discussion of future
sales of common stock that could occur.

WE ARE CONTROLLED BY OUR PRINCIPAL STOCKHOLDERS, INCLUDING MANAGEMENT
STOCKHOLDERS, WHOSE INTERESTS MAY DIFFER FROM THOSE OF OTHER STOCKHOLDERS.

A substantial percentage of our common stock is owned by management
investors and by the H&F investors, as described more fully in "Management." All
common stock held at any time by management investors is required to be
deposited in a voting trust, which we refer to as the management voting trust,
that is controlled by six members of Y&R's senior management, in their
capacities as voting trustees. Following the common stock offerings, this trust
will hold voting power over 35.2% of the outstanding shares of common stock,
assuming the exercise of all currently vested options held by the 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 Y&R. 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 the five other voting trustees. As a result of the foregoing, Peter A.
Georgescu 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. In the event that, following the termination of the
voting trust, Y&R management continues to own collectively a significant
percentage of the outstanding shares of common stock, management acting together
will be able to exercise a significant degree of control over business decisions
affecting Y&R.

<PAGE>

Following the common stock offerings, the H&F investors will beneficially
own an aggregate of 11.0% of the outstanding shares of common stock, assuming
the exercise of all currently vested options that 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 our IPO, the H&F investors have the right to nominate and have elected two
members of Y&R's board of directors for so long as they continue to hold, in the
aggregate, at least 10% of the outstanding shares, and one member of the board
of directors 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 of
directors and exercise a controlling influence over the business and affairs of
Y&R. In addition, the management voting trust and the H&F investors could,
acting together, delay or prevent a change in control of us. See "--Our
organizational documents, the provisions of Delaware law and our stockholder
rights plan may delay, deter or prevent a change in control of us." and
"Description of Capital Stock--The Stockholders' Agreement" for a further
discussion of events that may prevent a change in control of us.

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

Our ability to maintain our competitive position depends on retaining the
services of our senior management. The loss of the services of key members of
senior management could harm our business and results of operations. 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 other 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.

WE ARE EXPOSED TO VARIOUS RISKS FROM OPERATING A MULTINATIONAL BUSINESS.

If we were unable to remain in compliance with local laws in developing
countries in which we conduct business, our prospects, business and results of
operations could be harmed, and our financial condition could be weakened. 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 many of these 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 these local laws. 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, also could harm our prospects, business and results of operations and
weaken our financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations" for a
further discussion of the risks we are exposed to from operating a multinational
business.

WE MAY NOT BE SUCCESSFUL IN IDENTIFYING APPROPRIATE ACQUISITION CANDIDATES OR
INVESTMENT OPPORTUNITIES, COMPLETING ACQUISITIONS OR INVESTMENTS ON
SATISFACTORY TERMS OR INTEGRATING NEWLY ACQUIRED COMPANIES.

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 and

<PAGE>

investments. We may not be successful in identifying appropriate acquisition
candidates or investment opportunities or consummating acquisitions or
investments 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, 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 ARE EXPOSED TO POTENTIAL LIABILITIES, INCLUDING LIABILITIES ARISING FROM
ALLEGATIONS THAT OUR CLIENTS' ADVERTISING CLAIMS ARE FALSE OR MISLEADING OR
OUR CLIENTS' PRODUCTS ARE DEFECTIVE.

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 clients' 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 those 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 THIRD PARTIES 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 after the turn of the century, which we refer to as the "Year 2000"
issue. We have modified or replaced the majority of all affected systems and are
in the process of testing these systems to fully validate their readiness for
compliance with the Year 2000 issue. We are also dependent in part on
third-party computer systems and applications, particularly with respect to
critical tasks such as accounting, billing and buying, planning and paying for
media, as well as on our own computer systems. We have performed tests of major
systems in this category and have received assurances as to their readiness for
compliance with the Year 2000 issue. However, we continue to monitor the
adequacy of the processes and progress of other less critical vendors of systems
and applications that may be affected by the Year 2000 issue and to seek
assurances from these vendors that their systems are Year 2000 compliant.

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, third parties with whom we interact and on whom we
rely may not satisfactorily complete their own Year 2000 programs in a timely
fashion. Our failure to satisfactorily address the Year 2000 issue could harm
our business and results of operations and weaken our financial condition.

We do not expect the costs of our Year 2000 project to be material, and
we have funded all identified remedial projects in connection with our program.
However, we may experience cost overruns and delays as we replace or modify
systems, which could harm our business and results of operations and weaken our
financial condition.

<PAGE>

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" for a further discussion of our
exposure to the Year 2000 issue.

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 Y&R'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 our business;

o changes in general economic or market conditions; and

o broad market fluctuations.

OUR ORGANIZATIONAL DOCUMENTS, PROVISIONS OF DELAWARE LAW AND OUR STOCKHOLDER
RIGHTS PLAN MAY DELAY, DETER OR PREVENT A CHANGE IN CONTROL OF US.

Various provisions of organizational documents, and of the law of
Delaware, where we are incorporated, may delay, deter or prevent a change in
control of Y&R not approved by our board of directors. These provisions include:

o a classified board of directors;

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 of directors or the board of directors;

o advance notice requirements for stockholder proposals and nominations;

o limitations on the ability of stockholders to amend, alter or repeal
provisions of our organizational documents;

o authorization for the board of directors to issue without stockholder
approval preferred stock with terms as the board of directors may
determine; and

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

Section 203 of the Delaware general corporation law imposes restrictions
on mergers and other business combinations between Y&R and any holder of 15% or
more of the common stock. These restrictions do not apply to the H&F investors
and their permitted transferees, who have been exempted from these restrictions
by the board of directors.

In addition, we have adopted a stockholder rights plan under which each
holder of common stock also receives rights. Under the stockholder rights plan,
if any person acquires beneficial ownership of 15% or more of the outstanding
shares of common stock (with 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 some other 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 circumstances described in the
stockholder rights plan. While the stockholder 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 of directors, could impair Y&R's
ability to represent stockholder interests, the provisions of the stockholder
rights plan may render an unsolicited takeover of Y&R more difficult or less
likely to occur or might prevent such a takeover. See "Description of Capital
Stock--Rights Plan" for a description of the rights plan.

<PAGE>

These provisions of our organizational documents, Delaware law and the
stockholder rights plan, together with the control of 35.2% of the outstanding
shares of common stock by the management voting trust upon completion of the
common stock offerings (assuming the exercise of all currently vested options
held by management investors) could discourage potential acquisition proposals
and could delay, deter or prevent a change in control of Y&R, although a
majority of Y&R's stockholders might consider these acquisition proposals, if
made, to be desirable. These provisions also could make it more difficult for
third parties to remove and replace the members of the board of directors.
Moreover, these provisions could diminish the opportunities for a stockholder to
participate in 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, some options issued to our employees contain change in
control provisions that could have the effect of delaying, deterring or
preventing a change in control of us. See "Management--Executive
Compensation--1997 ICP--Acceleration of Vesting" and "Description of Capital
Stock--Anti-Takeover Effects of Provisions of the Certificate of Incorporation,
the By-Laws, the Rights Plan and Delaware Law" for a further discussion of how
our organizational documents and provisions of Delaware law, our stockholder
rights plan and some of the options that we have granted to our employees may
delay, deter or prevent a change in control of us.

OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM RESULTS ANTICIPATED IN
FORWARD-LOOKING STATEMENTS WE MAKE.

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 Y&R'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 Y&R or its officers. Forward-looking statements
include statements preceded by, followed by or that include forward-looking
terminology such as "may," "will," "should," "believes," "expects,"
"anticipates," "estimates," "continues" or similar expressions.

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 the following:

o revenues received from clients, including under incentive compensation
arrangements entered into by us with clients;

o gains or losses of clients and client business and projects, as well
as changes in the marketing and communications budgets of clients;

o 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;

o the impact of competition in the marketing and communications
industry;

o our liquidity and financing plans; and

o risks associated with our 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, the matters set forth above in this "Risk
Factors" section constitute cautionary statements identifying important factors
with respect to these forward-looking statements, including risks and
uncertainties that could cause actual results to differ materially from those
included in these forward-looking statements.

<PAGE>

RECENT DEVELOPMENTS

On May 21, 1999, we acquired KnowledgeBase Marketing, Inc. for
consideration consisting of Y&R common stock and cash valued at approximately
$175 million. KnowledgeBase Marketing is a leading customer relationship
marketing service that specializes in gathering and analyzing marketing data.
KnowledgeBase Marketing creates information marketing solutions for companies
engaged in consumer and business-to-business direct marketing by creating a
consolidated database and then designing, implementing and evaluating database
marketing programs. KnowledgeBase Marketing is headquartered in Chapel Hill,
North Carolina and has eight offices in North America.

In connection with the acquisition, the stockholders of KnowledgeBase
Marketing received a combination of Y&R common stock and cash. We issued an
aggregate of 2,100,980 shares of Y&R common stock and agreed to grant options to
purchase an aggregate of up to 275,000 additional shares of Y&R common stock to
stockholders of KnowledgeBase Marketing. We granted registration rights to the
stockholders of KnowledgeBase Marketing pursuant to which they have the right to
participate in the common stock offerings. Stockholders of KnowledgeBase
Marketing have elected to sell an aggregate of 641,472 shares in the common
stock offerings.

USE OF PROCEEDS

We 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 fiscal 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 .................................. $19 3/4 $ 33 5/8
1999
First Quarter ................................... $31 1/4 $ 43 5/16
Second Quarter (through May 24, 1999) ........... $37 1/4 $ 44 3/8

</TABLE>

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

On May 24, 1999, the closing price of the common stock as reported on the
New York Stock Exchange was $37.25. As of May 21, 1999, there were approximately
1,135 holders of record of shares of common stock.

On April 29, 1999, we announced that our board of directors declared a
cash dividend of $0.025 per share of common stock, payable on June 15, 1999 to
all stockholders of record as of June 1, 1999. The decision whether to apply
legally available funds to the payment of additional dividends on the common
stock in the future 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 under our credit
facility. Our credit facility contains 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.

<PAGE>

CAPITALIZATION

The following table sets forth Y&R's consolidated cash and cash
equivalents, current portion of installment notes and loans payable and
capitalization as of March 31, 1999. Common stock issued and outstanding as of
March 31, 1999 excludes 29,455,047 shares of common stock issuable upon exercise
of options outstanding at a weighted average exercise price of $8.55 at March
31, 1999. Of the shares of common stock offered by this prospectus, 1,996,486
shares will be issued upon the exercise of options with a weighted average
exercise price of $2.87.

<TABLE>
<CAPTION>
MARCH 31, 1999
---------------
UNAUDITED
(IN THOUSANDS)
<S> <C>
Cash and cash equivalents .................................................... $ 63,209
==========
Current portion of installment notes and loans payable ....................... $ 53,133
==========
Long-term debt:
Installment notes payable ................................................... $ 400
Loans payable ............................................................... 151,338
----------
Total long-term debt ........................................................ 151,738
----------
Stockholders' equity:
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--minimum $1.00 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 per share; 250,000,000 shares authorized;
65,886,003 shares issued and outstanding (excluding 4,322,392 shares in
treasury) ................................................................. 702
Capital surplus ............................................................. 926,840
Accumulated deficit ......................................................... (738,592)
Cumulative translation adjustment ........................................... (18,024)
Pension liability adjustment ................................................ (1,738)
Common stock in treasury, at cost ........................................... (82,837)
----------
Total stockholders' equity ................................................ 86,351
----------
Total capitalization ...................................................... $ 238,089
==========

</TABLE>

<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated statement of operations data and
consolidated balance sheet data as of and for the years 1994 through 1998 have
been derived from Y&R's audited annual consolidated financial statements,
including the consolidated balance sheets at December 31, 1998 and 1997 and the
related consolidated statements of operations and of cash flows for the three
years ended December 31, 1998 and the notes thereto included in this prospectus.

Data for the three months ended March 31, 1999 and 1998 have been derived
from Y&R's unaudited interim consolidated financial statements, including the
consolidated balance sheet at March 31, 1999 and the related consolidated
statements of operations and of cash flows for the three months ended March 31,
1999 and 1998 and the notes thereto included in this prospectus.

The selected consolidated financial data set forth below should be read in
conjunction with the consolidated financial statements included in this
prospectus and the information under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1999 1998
-------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ........................................ $ 383,873 $ 348,173
Compensation expense, including employee
benefits ....................................... 235,018 213,598
General and administrative expenses ............. 114,297 109,242
Other operating charges (1) ..................... -- --
Recapitalization-related charges (1) ............ -- --
------------ ------------
Operating expenses ............................. 349,315 322,840
------------ ------------
Income (loss) from operations ................... 34,558 25,333
Interest income ................................. 2,087 2,630
Interest expense ................................ (3,733) (8,205)
Other income .................................... -- 827
------------ ------------
Income (loss) before income taxes ............... 32,912 20,585
Income tax provision (benefit) .................. 13,494 8,852
------------ ------------
19,418 11,733
Equity in net (loss) income of unconsolidated
companies ...................................... (16) 115
Minority interest in net loss (income) of
consolidated subsidiaries ...................... 299 342
------------ ------------
Income (loss) before extraordinary charge ....... 19,701 12,190
Extraordinary charge for early retirement of
debt (net of tax benefit of $2,834)............. -- --
------------ ------------
Net income (loss) ............................... $ 19,701 $ 12,190
============ ============
EARNINGS (LOSS) PER SHARE (2):
Basic:
Income (loss) before extraordinary charge....... $ 0.30 $ 0.24
Extraordinary charge ........................... -- --
------------ ------------
Net income (loss) .............................. $ 0.30 $ 0.24
============ ============
Diluted:
Income (loss) before extraordinary charge....... $ 0.24 $ 0.19
Extraordinary charge ........................... -- --
------------ ------------
Net income (loss) .............................. $ 0.24 $ 0.19
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING USED TO
COMPUTE:
Basic ........................................... 66,324,420 50,762,144
Diluted ......................................... 81,892,192 64,453,134
</TABLE>

<PAGE>

YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ........................................ $ 1,522,464 $ 1,382,740 $1,222,139 $1,085,494 $ 959,275
Compensation expense, including employee
benefits ....................................... 903,948 836,150 730,261 672,026 594,322
General and administrative expenses ............. 455,578 463,936 391,617 356,523 323,087
Other operating charges (1) ..................... 234,449 11,925 17,166 31,465 4,507
Recapitalization-related charges (1) ............ -- -- 315,397 -- --
----------- ----------- ---------- ---------- ---------
Operating expenses ............................. 1,593,975 1,312,011 1,454,441 1,060,014 921,916
----------- ----------- ---------- ---------- ---------
Income (loss) from operations ................... (71,511) 70,729 (232,302) 25,480 37,359
Interest income ................................. 8,315 8,454 10,269 9,866 12,100
Interest expense ................................ (26,001) (42,879) (28,584) (27,441) (23,027)
Other income .................................... 2,200 -- -- -- --
----------- ----------- ---------- ---------- ---------
Income (loss) before income taxes ............... (86,997) 36,304 (250,617) 7,905 26,432
Income tax provision (benefit) .................. (2,644) 58,290 (20,611) 9,130 12,998
----------- ----------- ---------- ---------- ---------
(84,353) (21,986) (230,006) (1,225) 13,434
Equity in net (loss) income of unconsolidated
companies ...................................... 4,707 342 (9,837) 5,197 4,740
Minority interest in net loss (income) of
consolidated subsidiaries ...................... (1,989) (2,294) 1,532 (3,152) (2,742)
----------- ----------- ---------- ---------- ---------
Income (loss) before extraordinary charge ....... (81,635) (23,938) (238,311) 820 15,432
Extraordinary charge for early retirement of
debt (net of tax benefit of $2,834)............. (4,433) -- -- -- --
----------- ----------- ---------- ---------- ---------
Net income (loss) ............................... $ (86,068) $ (23,938) $ (238,311) $ 820 $ 15,432
=========== =========== ========== ========== =========
EARNINGS (LOSS) PER SHARE (2):
Basic:
Income (loss) before extraordinary charge....... $ (1.34) $ (0.51)
Extraordinary charge ........................... (0.08) --
----------- -----------
Net income (loss) .............................. $ (1.42) $ (0.51)
=========== ===========
Diluted:
Income (loss) before extraordinary charge....... $ (1.34) $ (0.51)
Extraordinary charge ........................... (0.08) --
----------- -----------
Net income (loss) .............................. $ (1.42) $ (0.51)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING USED TO
COMPUTE:
Basic ........................................... 60,673,994 46,949,355
Diluted ......................................... 60,673,994 46,949,355
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1999 1998
------------- -------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C>
OTHER OPERATING DATA:
EBITDA (1)(3) ............................. $ 50,327 $ 39,513
Net cash (used in) provided by operating
activities ............................... (124,470) (122,176)
Net cash used in investing activities ..... 25,047 8,580
Net cash provided by (used in) financing
activities ............................... 90,444 22,692
Capital expenditures ...................... 14,788 7,889
International revenues as a % of total
revenues ................................. 45.7% 47.0%

<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ----------- ----------- ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OTHER OPERATING DATA:
EBITDA (1)(3) ............................. $ 223,548 $ 139,375 $ 147,221 $ 72,972 $ 77,662
Net cash (used in) provided by operating
activities ............................... 195,615 224,511 178,064 79,809 43,314
Net cash used in investing activities ..... 99,683 67,142 76,094 45,821 49,941
Net cash provided by (used in) financing
activities ............................... (136,242) (98,667) (12,614) (50,025) (30,705)
Capital expenditures ...................... 76,378 51,899 51,792 42,096 33,196
International revenues as a % of total
revenues ................................. 49.1% 52.2% 53.3% 54.7% 53.6%
</TABLE>

<TABLE>
<CAPTION>
AS OF MARCH 31,
-----------------
1999
-----------------
<S> <C>
BALANCE SHEET DATA:
Working capital (deficit) (4) ............. $ (116,662)
Total assets (5) .......................... 1,622,625
Total debt (6) ............................ 204,871
Mandatorily redeemable equity securities
(7) ...................................... --
Total stockholders equity (deficit) ....... 86,351

<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- -------------- -------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit) (4) ............. $ (216,888) $ (106,169) $ (196,509) $ 27,827 $ 72,651
Total assets (5) .......................... 1,635,255 1,537,807 1,598,812 1,226,581 1,118,846
Total debt (6) ............................ 63,959 351,051 267,238 230,831 256,032
Mandatorily redeemable equity securities
(7) ...................................... -- 508,471 363,264 -- --
Total stockholders equity (deficit) ....... 114,969 (661,714) (480,033) (55,485) 69,982
</TABLE>

- ----------
(1) For a discussion of other operating charges and recapitalization-related
charges for the years ended December 31, 1998, 1997 and 1996, see notes 4, 6
and 9 to the consolidated financial statements included in this prospectus.

Earnings per share for 1996 and 1995 cannot be computed because Y&R's
capital structure prior to its recapitalization in 1996 consisted of both
common shares and limited partnership units in predecessor entities. For a
discussion of the recapitalization, see note 6 to the consolidated financial
statements included in this prospectus.

(3) 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 Y&R's credit facilities; however, EBITDA may not be comparable
to other registrants' calculation of EBITDA or similarly titled items. You
should not consider EBITDA to be 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. EBITDA for 1998 is before $234,449 of non-cash compensation
charges related to the vesting of restricted stock taken at the time of our
initial public offering in May 1998. EBITDA for 1997 and 1996 is before
$11,925 and $11,096, respectively, of non-cash charges primarily related to
impairment write-downs which are included in other operating charges. For a
discussion of other operating charges and recapitalization-related charges
for the years ended December 31, 1998, 1997 and 1996, see notes 4, 6 and 9
to the consolidated financial statements included in this prospectus.

(4) 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
collection from clients to fund each expenditure.

(5) Total assets as of March 31, 1999 include net deferred tax assets of
$197,062 consisting primarily of federal, state and foreign net operating
loss carryforwards.

(6) Total debt includes current and non-current loans and installment notes,
which are discussed in notes 14 and 15 to the consolidated financial
statements included in this prospectus.

(7) From the date of completion of the recapitalization of Y&R in 1996 and
through the date of completion of the IPO, all outstanding shares of common
stock, exclusive of shares of common stock held in a restricted stock trust
under our restricted stock plan, were redeemable, subject to restrictions,
at the option of the stockholder. Accordingly, all of these shares of common
stock were recorded at their redemption values and classified as mandatorily
redeemable equity securities at December 31, 1997 and 1996. For a discussion
of the mandatorily redeemable equity securities, see note 17 to the
consolidated financial statements included in this prospectus.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with the
consolidated financial statements.

OVERVIEW

Young & Rubicam Inc. is the fifth largest consolidated marketing and
communications organization in the world based on 1998 revenues.

Our revenues in 1998 totaled $1.5 billion, representing a compound annual
growth rate of 12.2% from 1994 to 1998.

Our revenues consist principally of commissions and fees received by us
from our clients. Commissions are derived using a 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 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 have not materially
impacted our revenues, 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 the first three months of 1999, we
derived 54.3% of our revenues from our U.S. operations, with 35.1% coming from
our European operations and the remainder divided among our operations in Latin
America, Australia/New Zealand, Asia, Canada and Africa. In 1998, we derived
50.9% of our revenues from our U.S. operations, with 35.0% coming from our
European operations. For the three months ended March 31, 1999 and the years
1998, 1997 and 1996, 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. For information on our worldwide operations, see note 12 to
the consolidated financial statements included in this prospectus.

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 account, Ford Motor
Company, accounted for 10.5% of our consolidated revenues in 1998. In addition,
our KCAs accounted for 48.6% of our revenues in 1998.

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 6 to the consolidated financial
statements included in this prospectus, in December 1996, we consummated a
recapitalization, which resulted in the recording of a pre-tax charge of $315.4
million in 1996. In connection with the recapitalization, we allocated shares of
restricted stock to employees, the vesting of which was subject to conditions.
On May 15, 1998, we completed our IPO of an aggregate of 19,090,000 shares of
common stock, of which 6,912,730 shares were sold by Y&R and 12,177,270 shares
were sold by selling stockholders. We used the net

<PAGE>

proceeds to Y&R, which aggregated $158.6 million, together with $155 million of
borrowings under a new credit facility, to repay all of the outstanding
borrowings under our prior credit facilities.

The completion of the IPO gave rise to non-recurring, non-cash, pre-tax
compensation charges of $234.4 million, or $169.8 million net of the related tax
benefit, from the vesting of an aggregate of 9,231,105 shares of restricted
stock allocated to employees as of the date of completion of the IPO. These
charges have been reflected as "other operating charges" in our consolidated
statements of operations for 1998.

Unless otherwise stated, all references to "Young & Rubicam", "Y&R",
"we", "our" and "us" refer to Young & Rubicam Inc., its predecessors and its
consolidated subsidiaries, including Young & Rubicam L.P.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, items derived
from our consolidated statements of operations and the percentages of revenue
represented by these items. Totals may not add due to rounding.

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------------------
% OF % OF
1999 REVENUES 1998 REVENUES
------------ ---------- ------------ -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Revenues .................................................. $ 383.9 100.0% $ 348.2 100.0%
Compensation expense, including employee benefits ......... 235.0 61.2% 213.6 61.3%
General and administrative expenses ....................... 114.3 29.8% 109.2 31.4%
-------- ----- -------- -----
Income from operations .................................... 34.6 9.0% 25.3 7.3%
Net income ................................................ $ 19.7 5.1% $ 12.2 3.5%
======== ===== ======== =====
</TABLE>

FIRST QUARTER 1999 COMPARED TO FIRST QUARTER 1998

Revenues for the first quarter of 1999 increased by $35.7 million, or
10.3%, to $383.9 million compared to the first quarter of 1998. The increase was
primarily due to net new business, including business from new clients and
higher revenue from existing clients, that we generated from clients including
Ford and AT&T. United States revenues increased by 13.1% to $208.6 million for
the first quarter of 1999 compared to the first quarter of 1998. International
revenues increased by 7.1% to $175.3 million, primarily due to strong
performance in Europe, which was partially offset by declines in Latin America
and the Asia/Pacific region and the impact of the overall strengthening of the
U.S. dollar against foreign currencies. Organic worldwide revenue growth,
excluding the effect of acquisitions and foreign currency fluctuations, was also
10.3%, with the impact of the strengthening of the U.S. dollar against foreign
currencies offset by revenues from acquisitions. Excluding the effect of foreign
currency fluctuations and acquisitions, international revenues increased 7.8%
for the first quarter of 1999 compared to the first quarter of 1998.

Compensation expense increased by $21.4 million to $235.0 million for the
first quarter of 1999 compared to the first quarter of 1998. This increase in
compensation expense was primarily due to salary increases and additional
staffing to support new business growth. Compensation expense in the first
quarter of 1999 decreased as a percentage of revenues to 61.2% from 61.3% in the
first quarter of 1998.

General and administrative expenses increased by $5.1 million to $114.3
million for the first quarter of 1999 compared to the first quarter of 1998.
This increase was primarily due to additional operating expenses to support new
business growth, offset in part by the impact of cost containment measures
implemented by management. General and administrative expenses in the first
quarter of 1999 decreased as a percentage of revenues to 29.8% from 31.4% in the
first quarter of 1998.

Income from operations increased by $9.3 million, or 36.8%, to $34.6
million for the first quarter of 1999 compared to the first quarter of

<PAGE>

1998. This increase was primarily due to net new business gains in 1999 and
improved operating margins.

Net interest expense decreased by $3.9 million to $1.6 million for the
first quarter of 1999 compared to the first quarter of 1998. The decline was due
to lower average borrowing levels and lower average borrowing rates during the
first quarter of 1999 compared to the first quarter of 1998.

We recognized income tax expense of $13.5 million for the first quarter
of 1999 compared to $8.9 million for the first quarter of 1998. The effective
tax rate for the first quarter of 1999 was 41.0%, as compared to 43.0% in the
first quarter of 1998. The decrease in the effective tax rate was due to a
decrease in foreign income taxed at rates greater than the U.S. statutory rate
and lower taxes on U.S. income.

Net income for the first quarter of 1999 was $19.7 million compared to
net income of $12.2 million for 1998. This increase was primarily the result of
revenue growth, improved operating margins, lower net borrowing costs and a
reduced effective tax rate.

The following table sets forth, for the years indicated, items derived
from our consolidated statements of operations and the percentages of revenue
represented by these items. Totals may not add due to rounding.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
% OF % OF % OF
1998 REVENUES 1997 REVENUES 1996 REVENUES
------------- ------------ ------------- ------------ ------------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Revenues ................................... $1,522.5 100.0% $1,382.7 100.0% $1,222.1 100.0%
Compensation expense, including
employee benefits ......................... 903.9 59.4% 836.2 60.5% 730.3 59.8%
General and administrative expense ......... 455.6 29.9% 463.9 33.6% 391.6 32.0%
--------- ----- --------- ----- --------- -----
Income before non-recurring

charges (1) ............................... 162.9 10.7% 82.7 6.0% 100.3 8.2%
Other operating charges .................... 234.4 15.4% 11.9 0.9% 17.2 1.4%
Recapitalization-related charges ........... -- 0.0% -- 0.0% 315.4 25.8%
--------- ----- --------- ----- --------- -----
(Loss) income from operations .............. (71.5) (4.7%) 70.7 5.1% (232.3) (19.0%)
Net loss ................................... $ (86.1) (5.7%) $ (23.9) (1.7%) $ (238.3) (19.5%)
========= ===== ========= ===== ========= =====
</TABLE>

- ----------------------
(1) We believe that income before non-recurring charges is an appropriate
measure for evaluating our operating performance; however, it should be
considered in addition to, not as a substitute for, operating income, net
income and other measures of financial performance reported in accordance
with generally accepted accounting principles.

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

1998 COMPARED TO 1997

Revenues for 1998 increased by $139.8 million, or 10.1%, to $1,522.5
million compared to 1997. This increase was primarily due to net new business,
including business from new clients and higher revenue from existing clients,
that we generated from clients such as Citibank and Ford. United States revenues
increased by 17.3% to $775.7 million for 1998 compared to 1997. International
revenues increased by 3.5% to $746.8 million for 1998 compared to 1997,
primarily due to strong performance in Europe, which was partially offset by
declines in Latin America and the impact of the overall strengthening of the
U.S. dollar against foreign currencies. Organic revenue growth, excluding
acquisitions and foreign currency fluctuations, was 12.2%. Excluding the effect
of foreign currency fluctuations, international revenues increased by 7.9%
compared to 1997.

Compensation expense increased by $67.7 million to $903.9 million for
1998 compared to 1997. The growth in compensation expense is primarily
attributable to additional staffing to support business growth and to salary
increases. Compensation expense in 1997 also included a $12.3 million charge
primarily for deferred compensation awards granted to senior executives.
Excluding the effect of the 1997 deferred compensation awards, compensation

<PAGE>

expense in 1998 decreased as a percentage of revenues to 59.4% from 59.6% in
1997.

General and administrative expenses decreased by $8.3 million to $455.6
million for 1998 compared to 1997. This decrease was primarily due to a $25.5
million write-off in 1997 of accounts receivable, costs billable to clients and
other capitalized costs with respect to the operations of Burson-Marsteller in
Europe and Asia, which was partially offset in 1998 by additional operating
expenses to support business growth. Excluding the effect of the
Burson-Marsteller write-off, general and administrative expenses in 1998
decreased as a percentage of revenues to 29.9% from 31.7% in 1997.

Income before non-recurring charges increased by $80.2 million, or 97.0%,
to $162.9 million for 1998 compared to 1997. This increase was primarily due to
net new business gains in 1998, improved operating margins, and the
Burson-Marsteller write-off and deferred compensation charge in 1997.

Effective upon the completion of the IPO, we 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. In 1997, we recognized $11.9
million of other operating charges for non-cash asset impairment write-downs
principally related to operations in the United States, Africa, Latin America
and Europe.

As a result of the $234.4 million in other operating charges associated
with the IPO, we reported a loss from operations of $71.5 million for 1998.
Excluding the other operating charges described above for both 1998 and 1997,
and the Burson-Marsteller write-off and deferred compensation charge in 1997,
income from operations in 1998 increased by $42.4 million, or 35.2%, compared to
1997.

Net interest expense decreased by $16.7 million to $17.7 million for 1998
compared to 1997. The decline was due to lower average borrowing levels and
lower average borrowing rates during 1998 compared to 1997.

We recognized an income tax benefit of $2.6 million for 1998 compared to
income tax expense of $58.3 million for 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, which reflects the anticipated federal, state and
foreign tax effect of the other operating charges after consideration of
valuation allowance amounts for non-U.S. deductions. The effective income tax
rate was a benefit of 3.0% for 1998. Excluding the benefit derived from the
other operating charges, the effective tax rate was 42% for 1998, a decrease
from the 160.6% effective tax rate for 1997. The effective tax rate for 1997
includes the effect of incremental foreign taxes arising from losses outside the
United States which provided little or no tax benefit.

Equity in net income of unconsolidated companies was $4.7 million in 1998
compared to $0.3 million in 1997, reflecting improved worldwide operating
results by advertising agency affiliates.

Minority interest in net income of consolidated subsidiaries was $2.0
million in 1998 compared to $2.3 million in 1997, primarily due to lower
earnings from a Latin American operation.

We incurred an extraordinary charge of $4.4 million in 1998, which is net
of a tax benefit of $2.8 million, due to the write-off of unamortized deferred
financing costs related to a credit facility which was replaced in May 1998 in
connection with the IPO.

Net loss for 1998 was $86.1 million compared to a net loss of $23.9
million for 1997. Excluding the after-tax effect of the other operating charges
associated with the IPO and the extraordinary charge in 1998, and the other
operating charges, the Burson-Marsteller write-off and the deferred compensation
charge in 1997, net income increased by $86.3 million in 1998 compared to 1997.
This increase was primarily the result of revenue growth, improved operating
margins, lower net borrowing costs and a reduced effective tax rate.

1997 COMPARED TO 1996

Revenues for 1997 increased by $160.6 million, or 13.1%, to $1,382.7
million compared to 1996. This increase was primarily due to net new business,
including business from new clients and higher revenues from existing

<PAGE>

clients, generated from clients such as Campbell's Soup, Citibank, Merck and
United Airlines. United States revenues increased by 15.8% to $661.3 million for
1997 compared to 1996. International revenues for 1997 increased by 10.8% to
$721.4 million for 1997 compared to 1996. Organic revenue growth was 13.6%. An
additional 3.0% of the revenue increase was due to the acquisition of majority
interests in investments previously accounted for under the equity method. These
increases were partially offset by a 3.5% decline related to a strengthening (on
average) of the U.S. dollar against foreign currencies.

Compensation expense increased by $105.9 million to $836.2 million for
1997 compared to 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. Excluding the
effect of the 1997 deferred compensation charges, compensation expense in 1997
decreased as a percentage of revenues to 59.6% from 59.8% in 1996.

General and administrative expenses increased by $72.3 million to $463.9
million for 1997 compared to 1996. This increase included a $25.5 million
write-off in 1997 of accounts receivable, costs billable to clients and other
capitalized costs 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 some clients and necessitated the creation of
additional reserves against accounts receivable and costs billable to clients.
The write-offs in Asia were attributable to our evaluation of
Burson-Marsteller's recent operating performance in Asia and the determination
that Burson-Marsteller was unlikely to collect various accounts receivable and
costs billable to clients. As a result of its analysis of the circumstances
which led to these write-offs, we 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. Excluding the
effect of the 1997 Burson-Marsteller write-off, general and administrative
expenses in 1997 decreased as a percentage of revenues to 31.7% from 32.0% in
1996.

Income before non-recurring charges decreased by $17.6 million, or 17.5%,
to $82.7 million for 1997 compared to 1996. This decrease was primarily due to
the inclusion of the deferred compensation charge and Burson-Marsteller
write-off in 1997, offset in part by net new business gains.

In 1997, we had income from operations of $70.7 million compared to a
loss from operations of $232.3 million in 1996, primarily due to charges of
$315.4 million related to our recapitalization in 1996. Income from operations
in 1997 included $11.9 million of other operating charges for asset impairment
write-downs principally related to operations in the United States, Africa,
Latin America and Europe.

Net interest expense increased by $16.1 million to $34.4 million for 1997
compared to 1996. The increase was primarily due to higher average borrowing
levels in 1997 as a result of the recapitalization.

We recognized income tax expense of $58.3 million for 1997 compared to an
income tax benefit of $20.6 million for 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 recapitalization-related charges partially offset by foreign
income taxed at rates greater than the U.S. statutory rate. See Note 11 to the
consolidated financial statements.

Equity in 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 income of consolidated subsidiaries was $2.3
million in 1997 compared to minority interest in net loss of consolidated
subsidiaries of $1.5 million in

<PAGE>

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 for 1996, primarily as a result of charges recorded in connection with
the recapitalization in 1996.

LIQUIDITY AND CAPITAL RESOURCES

We generally finance our working capital, capital expenditures,
acquisitions and equity repurchases from cash generated from operations and
third-party borrowings. In addition, in May 1998, we completed our 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 Y&R and 12,177,270 shares were sold by selling
stockholders. Net proceeds to Y&R were $158.6 million, after deducting
underwriting discounts and commissions and expenses paid by Y&R in connection
with the IPO. We used the net proceeds from the IPO together with $155 million
of borrowings under a new $400 million credit facility to repay all of the
outstanding borrowings under our then-existing $700 million senior secured
credit facility.

MARCH 31, 1999

Cash and cash equivalents were $63.2 million and $122.1 million at March
31, 1999 and December 31, 1998. Cash used in operating activities in the first
quarter of 1999 was $124.5 million compared to $122.2 million in the first
quarter of 1998. Quarterly 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. Our practice
is to bill and collect from our clients in sufficient time to pay the amounts
due the media.

Cash used in investing activities in the first quarter of 1999 was $25.0
million and included $14.8 million in capital expenditures and $10.2 million for
net acquisitions, investments and other investing activity. In the first quarter
of 1998, cash used in investing activities was $8.6 million, principally
consisting of $7.9 million in capital expenditures. The majority of capital
expenditures in the first quarter of 1999 were for information
technology-related purchases and leasehold improvements. These capital
expenditures are estimated to be approximately $65 million for the remainder of
1999. Acquisitions and investments in the first quarter of 1999 consisted
primarily of the purchase of a company located in the United States specializing
in grassroots issues management.

Cash provided by financing activities in the first quarter of 1999 was
$90.4 million and included net borrowings of $131.8 million. In the first
quarter of 1999, we repurchased 1.1 million shares of common stock on the open
market and in other transactions for an aggregate of $42.4 million. As of March
31, 1999, we had repurchased a total of 3.0 million shares under the existing
8.0 million share repurchase program. As of May 21, 1999, we had repurchased
approximately 0.4 million additional shares for an aggregate of $16.2 million
under the share repurchase program during the second quarter of 1999.

In the first quarter of 1998, cash provided by financing activities was
$22.7 million, reflecting borrowings under our short and long-term credit
facilities that existed at that time to fund our operations and capital
expenditures.

At March 31, 1999, we had approximately $151 million in outstanding
indebtedness under our $400 million credit facility. We expect to fund payments
of principal and interest under this credit facility with cash from operations.
We intend to increase our borrowing capacity by entering into an additional $200
million credit facility during the second quarter of 1999. During the first
quarter of 1999, all interest rate protection agreements to which we were party
either matured or were retired. Accordingly, at March 31, 1999, we had no such
agreements outstanding.

At March 31, 1999, our net deferred tax assets were $197.1 million
consisting primarily of federal, state and foreign net operating loss
carryforwards and deferred tax assets resulting from prior period compensation
payments made in connection with our initial public offering of common stock in
1998 and our recapitalization in 1996.

Our $400 million credit facility contains financial and operating
restrictions and covenant requirements, and permits the payment of cash

<PAGE>

dividends except in the event of a continuing default under the credit
agreement. On April 29, 1999, we announced that our board of directors declared
a cash dividend of $0.025 per common share, payable on June 15, 1999 to all
stockholders of record as of June 1, 1999. Any determination to pay additional
dividends in the future will be at the discretion of our board of directors and
will depend upon, among other factors, our results of operations, financial
condition, capital requirements and contractual restrictions in our credit
facilities.

On May 21, 1999, we acquired KnowledgeBase Marketing, Inc., a leading
customer relationship marketing service that specializes in gathering and
analyzing marketing data, in a stock and cash transaction valued at
approximately $175 million. We issued an aggregate of 2,100,980 shares of common
stock and agreed to grant options to purchase an aggregate of up to 275,000
additional shares of common stock in connection with the transaction.

We may, from time to time, pursue acquisition opportunities that would
expand or enhance existing capabilities or the geographic scope of our
operations.

We believe that cash provided by operations and funds available under our
credit facilities will be sufficient to meet our anticipated cash requirements
as presently contemplated.

DECEMBER 31, 1998

Cash and cash equivalents were $122.1 million and $160.3 million at
December 31, 1998 and 1997, respectively. Cash provided by operations in 1998
was $195.6 million, reflecting strong operating performance and our continued
focus on cash management.

Cash used in investing activities in 1998 was $99.7 million and consisted
of $76.4 million in capital expenditures and $23.3 million for net acquisitions
and investments. The majority of capital expenditures were for information
technology-related purchases and leasehold improvements. Acquisitions and
investments consisted primarily of the purchase of a multi-cultural advertising
agency and related assets in the United States and additional investment in
partially owned international affiliates.

Cash used in financing activities in 1998 was $136.2 million. In 1998,
proceeds from our new credit facility and the IPO, along with cash generated by
operations, were used to repay our obligations under our prior credit
facilities.

During 1998, we announced that the board of directors had approved a plan
to repurchase an aggregate of up to 8.0 million shares of common stock over the
next two years. We may repurchase the shares from time to time in the open
market or in private transactions, possibly including transactions with
employees.

In 1997, cash provided by operations was $224.5 million, reflecting our
implementation of cash management improvements relating to the timing of
billings, accounts receivable collections and payments to media and other
suppliers.

In 1997, cash used in investing activities was $67.1 million and
consisted of $51.9 million in capital expenditures and $15.2 million for net
acquisitions and investments. The majority of capital expenditures were for
information technology-related purchases, while the remaining expenditures were
for leasehold improvements, furniture and equipment. Acquisitions and
investments consisted primarily of additional investments in partially owned
domestic and international affiliates.

In 1997, cash flows used in financing activities were $98.7 million. Net
proceeds from our prior credit facilities were more than offset by payments
incurred in connection with our recapitalization in 1996.

At December 31, 1998, we had $31.5 million in outstanding indebtedness
under our new credit facility. As of December 31, 1998, we had entered into
interest rate protection agreements with respect to our indebtedness under the
credit facility, which effectively changed our interest rate under the credit
facility to fixed rate borrowings.

MARKET RISK MANAGEMENT

At December 31, 1998 and 1997, the carrying value of our financial
instruments approximated fair value in all material respects.

INTEREST RATE RISK

We enter into interest rate protection agreements in order to reduce our
exposure to changes in interest rates on our variable rate

<PAGE>

long-term debt. At December 31, 1998 and 1997, we had entered into interest rate
protection agreements with respect to $31.5 million and $275 million of our
indebtedness, respectively.

FOREIGN EXCHANGE RATE RISK

Our consolidated financial statements are denominated in U.S. dollars. In
1998, we derived 49.1% of our 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 our results of
operations. Most of our revenues are billed in the same currency as the costs
incurred to support the revenues, thereby reducing exposure to transaction gains
and losses. We typically do 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 our U.S. dollar-denominated profits.
However, we selectively hedge some positions where management believes it is
economically beneficial to do so, and base our foreign subsidiary
capitalization, debt and dividend policies on minimizing currency risk. We also
seek, through pricing and other means, to anticipate and avoid economic currency
losses.

We enter into forward foreign exchange contracts to hedge some of our
assets and liabilities that are recorded in a currency different from that in
which they settle. These contracts are generally entered into in order to hedge
intercompany transactions. Gains and losses on these contracts generally offset
losses and gains on the related 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. At December 31, 1998, we had contracts for
the sale of $19.4 million and the purchase of $6.1 million of foreign currencies
at fixed rates, compared to contracts for the sale of $18.5 million and the
purchase of $12.8 million of foreign currencies at December 31, 1997.

We believe that any losses resulting from market risk would not have a
material adverse impact on our consolidated financial position, results of
operations or cash flows.

INTERNATIONAL BUSINESS RISK

Economic prospects throughout Latin America may be adversely affected by
the devaluation of the Brazilian real which occurred in January 1999. In
addition, there was a significant economic downturn in the Asia/Pacific region
in 1998 which has continued into 1999. There can be no assurance as to when the
value of the Brazilian real or the conditions in the Asia/Pacific region will
improve. However, because we do not derive a significant amount of our revenues
from these regions, the above conditions are not expected to be material to our
consolidated financial position, results of operations or cash flows.

On January 1, 1999, 11 of the member countries of the European Union
established fixed conversion rates between their existing currencies and the
European Union's common currency, the euro. The transition period for the
introduction of the euro began on January 1, 1999. Beginning January 1, 2002,
the participating countries will issue new euro-denominated bills and coins for
use in cash transactions. No later than July 1, 2002, the participating
countries will withdraw all bills and coins denominated in the legacy
currencies, so that the legacy currencies no longer will be legal tender for any
transactions, making the conversion to the euro complete.

We are addressing the issues involved with the introduction of the euro,
including converting information technology systems, reassessing currency risk
and negotiating and amending agreements. Based on progress to date, we believe
that the use of the euro will not have a significant impact on the manner in
which we conduct our business. Accordingly, conversion to the euro is not
expected to have a material effect on our consolidated financial position,
results of operations or cash flows.

YEAR 2000 COMPLIANCE

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,

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1999, or to process date-sensitive information accurately after the turn of the
century, which we refer to as the "Year 2000" issue. We have modified or
replaced the majority of all affected systems and are in the process of testing
these systems to fully validate their readiness for compliance with the Year
2000 issue. We are also dependent in part on third-party computer systems and
applications, particularly with respect to critical tasks such as accounting,
billing and buying, planning and paying for media, as well as on our own
computer systems. We have performed tests of major systems in this category and
have received assurances as to their readiness for compliance with the Year 2000
issue. However, we continue to monitor the adequacy of the processes and
progress of other less critical vendors of systems and applications that may be
affected by the Year 2000 issue and to seek assurances from these vendors that
their systems are Year 2000 compliant.

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, it is possible that our efforts, or those of third parties
with whom we interact, will not be satisfactorily completed in a timely fashion.
Our failure to satisfactorily address the Year 2000 issue could have a material
adverse effect on our prospects, business, financial condition and results of
operations.

We do not expect the costs of our Year 2000 project to be material, and
we have funded all identified remedial projects in connection with our program.
However, we may experience cost overruns or 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 are presently evaluating the extent of contingency planning that may
be required.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD

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

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BUSINESS

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 following:

o the development and planning of marketing and branding campaigns;

o the creative design and production of advertisements;

o 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

o 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 $415 billion in
1998.

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.

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.

Information regarding worldwide advertising expenditures, historical
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, AdWeek,
McCann-Erickson Report, Med Ad News and Design Week.

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 $200 billion in 1998. 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

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resulted in significant additional marketing and communications
expenditures.

o GROWTH OF INTERNATIONAL MARKETING AND COMMUNICATIONS MARKETS. The
globalization of markets and the deregulation of several 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 44% of worldwide expenditures in 1986 to 52% in 1998.

o INVESTMENT IN BRAND DEVELOPMENT. In the 1980s, many advertisers
focused their marketing campaigns on promotional advertising that
emphasized price competition, often reducing 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 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, some clients
are turning to large marketing and communications organizations to
provide integrated services across multiple disciplines. These
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, that 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
mechanisms such as response rate tracking. The desire to create more
targeted marketing has been enhanced by the emergence of new media
which permit more interactive methods of customizing and delivering
messages. In some developing economies, the technology infrastructure
is improving, indicating increased potential for database marketing
and communications.

<PAGE>

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 some
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 1998, our 20 largest
clients used an average of five of our marketing and communications
services.

We have implemented a team concept for several KCAs that utilize
advertising, direct marketing and other marketing and communications
services we offer. Each client team aligns Y&R employees from
separate disciplines within Y&R 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.

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. Our win of the
global Citibank account in August 1997 exemplifies the success of
this strategy. We believe that the acquisition of this new business
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, in recent years we have won new
business from clients including Barilla Pasta, Campbell's Soup, Sony
and United Airlines, each of whom was designated as a KCA.

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 toward the
globalization of client marketing and communications needs and the
consolidation of those needs with a single international service
provider. For example, 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 the Asia/Pacific region. 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

<PAGE>

name The Media Edge. 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,
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 BrandAsset Valuator project involved the gathering of
information on approximately 10,000 brands, including over 9,000
local and regional brands and 550 global brands. BrandAsset Valuator
provides an understanding of how consumers evaluate brands, how
brands evolve over time and how brands are managed successfully. We
believe that BrandAsset Valuator, 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 BrandAsset Valuator,
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 BrandAsset Valuator, have become a
significant factor in attracting new clients and winning new
assignments from existing clients. We plan to continue to invest in
BrandAsset Valuator, 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
excellence in television and print advertising, EFFIES, which are
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 AND INVESTMENTS. 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 and investment
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

<PAGE>

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 our 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 1998, based on billings, industry sources ranked Young & Rubicam
Advertising as the fourth largest advertising agency based in the United States.

Young & Rubicam Advertising provides services to KCAs such as AT&T,
Cadbury-Schweppes, Campbell's Soup, Citibank, Colgate-Palmolive, Ericsson, Ford,
Philip Morris, Sears, 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. Since
1998, Young & Rubicam Advertising has expanded its relationships with AT&T,
Campbell's Soup, Ford and Sony and won new business from clients such as Barilla
Pasta and Jim Beam.

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 the
Asia/Pacific region.

DENTSU, YOUNG & RUBICAM PARTNERSHIPS. The Dentsu, Young & Rubicam
Partnerships, or 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. in 1991. 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 the Asia/Pacific region, 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 28 cities in 15
countries across the Asia/Pacific region and the United States, where it
operates as The Lord Group.

THE BRAVO GROUP AND KANG & LEE. The Bravo Group creates multi-cultural
marketing and communications programs targeted to the fast-growing U.S. hispanic
community. The Bravo Group's multi-disciplinary services include advertising,
promotion and event marketing, public relations, research and direct marketing.
The Bravo Group provides services for selected KCAs including American Home
Products-Whitehall, AT&T, Campbell's Soup, Clorox, Ford, Kraft, Sony and the
United States Postal Service. Y&R expanded its multi-cultural marketing and
communications capabilities in October 1998 with the acquisition of Kang & Lee,
an agency that creates Asian-language integrated marketing programs that are
designed to establish strong product positions in the Asian-American consumer
segments.

WUNDERMAN CATO JOHNSON. Wunderman Cato Johnson, or 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

<PAGE>

management, merchandising, entertainment and sports marketing, lead generation
and new product launches.

Wunderman Cato Johnson 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.

Wunderman Cato Johnson 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.

Wunderman Cato Johnson 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.

BRAND DIALOGUE. 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. Brand Dialogue has recently won notable
and varied assignments from clients such as Andersen Consulting, AT&T, Citibank,
Ericsson, Ford, Pfizer, Philip Morris, Seven Up/Dr Pepper, Sony and Xerox.

THE MEDIA EDGE. The Media Edge provides integrated media planning, buying
and placement services for both Young & Rubicam Advertising and Wunderman Cato
Johnson. In addition, The Media Edge provides planning and buying of both
traditional and direct response media. We believe 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 Wunderman Cato Johnson, 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. The Media Edge has recently won significant new business, including a
number of agency of record assignments (a preferred media provider designation),
media research and modeling assignments and expanded its relationships with
Campbell's Soup, Celebrex, Fort James Corp., Glaxo-Wellcome and Pella.

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

<PAGE>

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;

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.
Burson-Marsteller has recently undertaken significant assignments for Ford,
Pfizer, Qualcomm, Sun Microsystems, Telefonica 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 head-quartered 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 Direct Impact Company, a grass roots issues management company,
located in Alexandria, Virginia, which Burson-Marsteller acquired in
March 1999.

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,
Colgate-Palmolive, Deloitte Consulting, Eli Lilly, NEC, SmithKline Beecham,
Sony, the United States Army, the United States Postal Service and Visa
International.

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.

LANDOR ASSOCIATES. Landor Associates, or 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.

In recent years Landor has obtained the following new business
assignments:

o corporate identity assignments for Andersen Consulting, Delta
Airlines,

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Lucent Technologies and the 2002 Salt Lake City Olympics;

o brand identity assignments for Walt Disney;

o package design assignments for Frito-Lay; and

o branded environment assignments for Taco Bell, Pizza Hut and Shell.

In addition, Landor has expanded relationships with existing clients
including Coors Beer and 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 is one of the world's leading
healthcare communications firms, developing strategic promotional and
educational programs for a wide spectrum of healthcare brands. Sudler &
Hennessey creates advertising, direct marketing and sales promotion programs for
prescription drugs and over-the-counter medications. In addition, Sudler &
Hennessey 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 Sudler & Hennessey
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.

Sudler & Hennessey's medical education division, IntraMed, develops
continuing educational 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 has experienced significant growth
in recent years, due both to a dramatic increase in direct-to-consumer
healthcare communications and numerous new product introductions. Sudler &
Hennessey has won new business, including product launch assignments from Abbott
Laboratories, Roche and Zeneca.

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

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 that 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 toward 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.

<PAGE>

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, International Home Foods and
Molson, 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. 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, may
cause our business and results of operations to suffer and may weaken our
financial condition.

When we represent a client, we do not necessarily 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. 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,
which is charged with administering the Federal Trade Commission Act. The
Federal Trade Commission Act covers a wide range of practices involving false,
misleading and unfair advertising. In the event of violations of federal laws
and regulations, the Federal Trade Commission 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 Federal Trade Commission 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 of directors,
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 some 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

<PAGE>

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 Foreign Corrupt Practices Act 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. Our U.S. employees are not 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 information
relating to our principal properties:

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

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

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

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

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

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

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

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

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

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

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
</TABLE>

<PAGE>

Y&R's capital expenditures for 1999 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."

Young & Rubicam, Y&R, Young & Rubicam Advertising, Y&R Advertising,
Wunderman Cato Johnson, WCJ, The Bravo Group, Burson-Marsteller, Marsteller
Advertising, Cohn & Wolfe, Landor Associates, Sudler & Hennessey, BrandAsset
Valuator, Brand Dialogue, Kang & Lee, The Media Edge and The Direct Impact
Company are trademarks of Young & Rubicam Inc. Other trademarks referenced in
this prospectus are trademarks of their respective legal owners.

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 Y&R.

<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

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

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------- ----- ----------------------------------------------------
<S> <C> <C>
Peter A. Georgescu ............... 60 Chief Executive Officer of Y&R and Chairman of the
Board of Directors
Edward H. Vick ................... 55 Chief Operating Officer of Y&R and Director
Thomas D. Bell, Jr. .............. 49 Executive Vice President of Y&R, Chairman and Chief
Executive Officer of Young & Rubicam Advertising
and Director
Stephanie W. Abramson ............ 54 Executive Vice President and General Counsel of
Y&R
Michael J. Dolan ................. 52 Vice Chairman and Chief Financial Officer of Y&R
and Director
F. Warren Hellman ................ 64 Director
Philip U. Hammarskjold ........... 34 Director
Richard S. Bodman ................ 61 Director
Alan D. Schwartz ................. 49 Director
Sir Christopher Lewinton ......... 67 Director
John F. McGillicuddy ............. 68 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 c/o Bear, Stearns & Co. Inc., 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 Sir Christopher Lewinton is
c/o TI Group plc, 50 Curzon Street, London W1Y 7PN, United Kingdom. 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 Y&R since
1980. Mr. Georgescu's career at Y&R spans 36 years with top management
experience both in the United States and Europe. Prior to becoming Chairman,
Mr. Georgescu was President of Y&R 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.

EDWARD H. VICK Mr. Vick has been Chief Operating Officer of Y&R since
November 1997 and a director of Y&R since February 1998. Mr. Vick was Chairman
and Chief Executive Officer of Young & Rubicam Advertising from April 1996 to
September 1998 and was President and Chief Executive Officer of Young & Rubicam
New York from February 1994 to April 1996. He began his career with Benton &
Bowles and was a Senior Vice President of Ogilvy & Mather. From 1985 to 1991, he
was President and Chief Operating Officer of Ammirati & Puris. In 1991, Mr. Vick
came to Y&R as President and Chief Executive Officer of its branding consultancy
and strategic design firm, Landor Associates. Mr. Vick is a member of the board
of directors of the United Negro College Fund and the American Foundation for
AIDS Research and a member of the advisory board of directors of the University
of North Carolina and of Northwestern University.

THOMAS D. BELL, JR. Mr. Bell has been Executive Vice President of Y&R
since 1995, Chairman and Chief Executive Officer of Young & Rubicam Advertising
since September 1998, and a director of Y&R since February

<PAGE>

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 Y&R since 1995. Ms. Abramson was a director of Y&R 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 Y&R since July 1996. From 1991 to 1996, he was
President and Chief Executive Officer of the joint venture, Snack Ventures
Europe, between PepsiCo Foods International and General Mills. Mr. Dolan also
served PepsiCo Foods International as Senior Vice President, Operations. From
1987 to 1991, Mr. Dolan was with Peter Kiewet Sons, Inc., or 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 Y&R since December
1996. Mr. Hellman is Chairman of Hellman & Friedman LLC, 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 our board of directors 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 Y&R since
December 1996. Mr. Hammarskjold is a Managing Director of Hellman & Friedman
LLC. Prior to joining Hellman & Friedman in 1992, Mr. Hammarskjold was employed
by Dominguez Barry Samuel Montagu in Australia and by Morgan Stanley & Co. in
New York. Mr. Hammarskjold serves on our board of directors 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 Y&R since April
1998. Mr. Bodman has been Managing General Partner of AT&T Ventures, LLC, 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, LLC, 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 Tyco International Ltd. and ISS Group, Inc.

ALAN D. SCHWARTZ Mr. Schwartz has been a director of Y&R since December
1996. Mr. Schwartz has been Executive Vice President and Head of the Investment
Banking Department at Bear, Stearns & Co. Inc. since 1989. He is 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.

SIR CHRISTOPHER LEWINTON Sir Christopher Lewinton has been a director of
Y&R since May 1, 1999. Sir Christopher is Chairman of TI Group plc, a position
he has held since 1989. He is a member of the board of directors of Reed
Elsevier plc and a member of the supervisory board of directors of Mannesmann
AG.

JOHN F. MCGILLICUDDY Mr. McGillicuddy has been a director of Y&R 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.

<PAGE>

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 of directors will continue to be comprised of a
majority of directors who are independent of management.

Our board of directors 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 and Sir Christopher Lewinton 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 of directors 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 of directors 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" for additional information on the rights of
the H&F investors.

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

COMMITTEES

Our compensation committee consists of Mr. Bodman, Chairman, and Mr.
Hammarskjold and Sir Christopher Lewinton. The compensation committee is
responsible for reviewing and making recommendations to the board of directors
concerning the compensation of Y&R's executive officers and other members of
senior management. The compensation committee also makes recommendations to the
board of directors and/or determinations with respect to awards to be granted
under our 1997 Incentive Compensation Plan, or 1997 ICP, and is responsible for
reviewing and administering the 1997 ICP.

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 of directors may create other committees as it may determine
from time to time.

LIMITATION OF LIABILITY AND INDEMNIFICATION

Our certificate of incorporation and by-laws contain provisions
indemnifying the directors and executive officers of Y&R to the fullest extent
permitted by law. Section 102(b)(7) of the Delaware general corporation law
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 specified 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. Our certificate of incorporation provides that our
directors are not liable to us or our stockholders for monetary damages for
breach of their fiduciary duties, subject to the exceptions specified by
Delaware law.

COMPENSATION OF DIRECTORS

Y&R compensates only those members of the board of directors who are not
employees of Y&R for their participation as directors. During 1998, Richard S.
Bodman, Alan D. Schwartz and John C. McGillicuddy each received $50,000 in cash
as an annual stipend for serving as a member of the board of

<PAGE>

directors and each will receive $50,000 as an annual stipend in 1999. Messrs.
Hellman and Hammarskjold each waived this fee in 1998 but have indicated that
they intend to accept it in the future. Sir Christopher Lewinton will receive
$80,000 as an annual stipend for serving as a member of the board of directors.
Our board of directors has adopted a director deferred fee plan to provide our
non-employee directors with the opportunity to defer taxation of their annual
directors' stipend and to provide directors with an equity interest in Y&R. Any
eligible director may defer payment of his annual directors' stipend. Each year,
the deferred stipend will be credited as shares of common stock and generally
distributed to him on the earlier of (1) May 15 of the third calendar year
beginning after the calendar year to which the stipend related and (2) when he
ceases to be a director. Directors may receive shares credited to them earlier
upon a change in control of Y&R or upon termination of the plan. Out-of-pocket
expenses for attendance at meetings of the board of directors are reimbursed for
all members.

EXECUTIVE COMPENSATION

The following table sets forth information about the cash and non-cash
compensation paid to, earned by or awarded to the chief executive officer and
the four other most highly compensated executive officers of Y&R for the year
ended December 31, 1998, who are collectively referred to in this prospectus as
the named executive officers. John P. McGarry, Jr. retired as President of Y&R
effective at the end of 1998.

<PAGE>

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------------ ---------------------------
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 .......... 1998 $950,000 $1,000,000 $601,272 -- $8,000
Chairman and Chief Executive 1997 $950,000 $ 598,500 -- -- $8,000
Officer

Edward H. Vick .............. 1998 $800,000 $ 600,000 $234,702 26,374 $8,199
Chief Operating Officer 1997 $700,000 $ 272,250 $740,000 172,500 $8,199

John P. McGarry, Jr. ........ 1998 $730,000 $ 300,000 $324,032 -- $8,000
President 1997 $730,000 $ 297,000 -- -- $8,000

Thomas D. Bell, Jr........... 1998 $575,000 $ 300,000 $168,305 -- $8,000
Chairman and Chief Executive 1997 $575,000 $ 168,750 -- 176,550 $8,000
Officer, Young & Rubicam
Advertising

Michael J. Dolan ............ 1998 $550,000 $ 300,000 $116,149 -- $7,919
Vice Chairman and Chief 1997 $550,000 $ 198,000 $555,000 150,000 $2,190
Financial Officer

</TABLE>

- ----------
(1) The named executive officers were awarded annual cash bonuses under the key
corporation managers bonus plan. These bonuses were generally based on Y&R's
achievement of target levels of operating profit and EBITA (earnings before
interest, taxes and amortization), each as defined in the plan, as well as
the achievement of individual objectives.

(2) The information in the table is based upon the value of the common stock on
the date of grant. All shares of restricted stock awarded to the named
executive officers under the Young & Rubicam Holdings Inc. restricted stock
plan vested upon completion of the IPO in May 1998. As a result, none of the
named executive officers held any shares of restricted stock at December 31,
1998. Upon vesting, the shares of restricted stock awarded to the named
executive officers were distributed either to the recipients or to the Young
& Rubicam Inc. grantor trust, which we refer to as the deferral trust,
pursuant to the Young & Rubicam Inc. deferred compensation plan for tax
deferral purposes. The restricted stock awards set forth in the table above
with respect to 1997 were distributed to the deferral trust upon vesting
under the deferred compensation plan. The deferral trust will hold those
shares prior to their distribution to Messrs. Vick and Dolan. This
distribution 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. Some of the named executive officers voluntarily elected under the
deferred compensation plan to defer the receipt of other shares of
restricted stock and to have those shares distributed to them from the
deferral trust at specified times in the future.

(3) "All other compensation" for 1998 consisted of Y&R's contribution of: (1)
$8,000 on behalf of each of the named executive officers as matching
contributions under the Young & Rubicam employees' savings plan, a defined
contribution plan, except for Mr. Dolan, whose matching contribution was
$5,729 and (2) an additional $199 and $2,190 on behalf of Mr. Vick and Mr.
Dolan, respectively, as matching contributions under Y&R's education
incentive plan. Under this plan, U.S. employees may elect to have limited
amounts of compensation, together with a match by Y&R, invested in a group
annuity insurance contract for purposes of meeting their children's future
education costs.

<PAGE>

The option grants in 1998 for the named executive officers under the 1997
ICP are shown in the following table.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
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 ......... 26,374 (1) 1.07% $ 28.4375 12/15/08 $471,678 $1,195,324
John P. McGarry, Jr.. -- -- -- -- -- --
Thomas D. Bell, Jr...... -- -- -- -- -- --
Michael J. Dolan ....... -- -- -- -- -- --
</TABLE>

- ----------------------
(1) This represents a non-qualified option granted under the 1997 ICP. This
option has a ten-year term and will become exercisable with respect to 100%
of the shares subject to the option on December 15, 1999. This option will
also become fully exercisable with respect to 100% of the shares subject to
the option upon a change in control of Y&R, 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 option that was not
exercisable at that time will expire.

The following table summarizes for the named executive officers
information about the number of options held and their value at the end of 1998.
None of the named executive officers exercised any options during 1998.

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

<TABLE>
<CAPTION>
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(1)
- ------------------------------ ------------- ---------- ---------------------------- -----------------------------
<S> <C> <C> <C> <C>
Peter A. Georgescu ........... -- -- --/-- --/--
Edward H. Vick ............... -- -- 895,245 / 198,874 $27,264,686 / $3,561,610
John P. McGarry, Jr. ......... -- -- --/-- --/--
Thomas D. Bell, Jr. .......... -- -- 1,165,215 / 176,550 $35,486,623 / $3,538,945
Michael J. Dolan ............. -- -- 104,340 / 306,525 $2,577,720 / $6,873,700
</TABLE>

- ----------------------
(1) The value of unexercised in-the-money options equals the difference between
the option exercise price and the closing price of the common stock at the
fiscal year end, multiplied by the number of shares underlying the options.
The closing price of the common stock on December 31, 1998, as reported by
the New York Stock Exchange composite tape, was $32.375 per share.

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

MANAGEMENT STOCK OPTION PLAN. At the time of the recapitalization of Y&R
in 1996, non-qualified options to purchase shares of common stock were granted
under the Young & Rubicam Holdings Inc. management stock option plan, which we
refer to as the management stock option plan, to members of management of Y&R.
These options were granted to management 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. We refer to these options as rollover
options. As of May 21, 1999, assuming completion of the common stock offerings,
an aggregate of 8,162,543 rollover options remain outstanding. We refer to the
management stock option plan and the 1997 ICP as the stock option plans.

The rollover options were immediately vested and exercisable upon grant.
Each rollover option has an exercise price of $1.92

<PAGE>

per share of common stock subject to the rollover option, with limited
exceptions outside the United States. Each rollover option has a term of five
years with respect to 50% of the shares subject to the option and a term of
seven years with respect to the other 50%.

Immediately following the closing of the recapitalization of Y&R in 1996,
non-qualified options to purchase shares of common stock were granted by the
compensation committee to key employees of Y&R under the management stock option
plan. We refer to these options as closing options. We have granted additional
options since the recapitalization with the same terms and conditions as the
closing options, and we refer to all of these options as the executive options.
As of May 21, 1999, assuming completion of the common stock offerings, an
aggregate of 4,870,411 executive options remain outstanding.

Each executive option became exercisable immediately with respect to 40%
of the shares subject to the executive option and will become exercisable (1) on
the third anniversary of its grant date with respect to 30% of those shares and
(2) on the fifth anniversary of its grant date with respect to the remaining 30%
of those 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. 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 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. However,
with respect to the period during which the H&F investors and six other
investors not affiliated with Y&R (whom we refer to as, together with the H&F
investors, the recapitalization investors) own at least 20% of the outstanding
shares (which period we refer to as the extended consent period), this action
will only be effective with the written consent of the recapitalization
investors unless the acceleration involves only the waiver of 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. Upon a transfer the transferee must agree to be bound
by the management stock option plan and to execute any other agreement that 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 management voting trust. The written
consent of the recapitalization investors also would be needed during the
extended consent period for 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 the acceleration or amendment
involves the waiver or amendment of terms or conditions not expressly provided
for by the management stock option plan. However, no amendment may impair the
rights of a holder of a rollover option or executive option without the holder's
consent. The compensation committee is authorized to make appropriate
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 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 delivering
(1) a number of shares of common stock already owned by the employee with the
appropriate value or (2) a recourse note to Y&R with terms and conditions that
the compensation

<PAGE>

committee may require, including a pledge of the related shares. Further, upon
exercise of a rollover option or executive option, the employee may pay the
withholding taxes or other similar charges that are incurred in connection with
the exercise, or, if the compensation committee consents, the optionholder's
estimated total taxes and charges incurred upon the 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 the exercise.

Y&R has adopted a new incentive compensation plan, the 1997 ICP, that has
superseded the management stock option plan with respect to all future grants of
options and that is described under "--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
members of management of Y&R held in a restricted stock trust under the Young &
Rubicam Holdings Inc. Restricted Stock Plan, the board of directors elected to
accelerate the vesting to the date on which the IPO was completed. As of May 21,
1999, 482,805 shares of this restricted stock remain in the restricted stock
trust either unallocated or with their distribution subject to additional
conditions set forth in the award agreements. Upon completion of the IPO, an
aggregate of 8,665,065 shares of this restricted stock in the restricted stock
trust were distributed to the employees or to the deferral trust under the
deferred compensation plan.

Recipients of 1,832,235 shares of restricted stock granted in December
1997 were required to place those shares in a deferral trust upon vesting,
subject to the claims of Y&R's creditors in the event of its insolvency. The
deferral trust will hold the shares prior to their distribution to the
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 termination.

While the management voting trust agreement is in effect, all restricted
stock is required to 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 that 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 that 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 the 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 will distribute any
unawarded restricted stock remaining in the restricted stock trust to those
employees that it designates. In no event will 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

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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, but
no amendment may impair the rights of a holder of any award without the holder's
consent. However, the compensation committee is authorized to make appropriate
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
corporate events specified in the restricted stock plan.

Y&R has adopted a new incentive compensation plan, the 1997 ICP, that has
amended and restated the restricted stock plan with respect to all grants made
subsequent to March 31, 1998, and that is described under "--1997 ICP" below. In
order to assist Y&R and its affiliates in meeting various cash compensation
obligations of Y&R and its affiliates, Y&R has amended the restricted stock
trust agreement. The amendments 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. These
amendments also permit the trustee of the restricted stock trust to require Y&R
to purchase unallocated shares of common stock held in the restricted stock
trust so that proceeds from the sale are sufficient to make those salary and
bonus payments. Under these amendments, Y&R repurchased 1,855,845 unallocated
shares of common stock in the restricted stock trust upon the completion of the
IPO.

1997 ICP. In December 1997, Y&R adopted, and in February 1998
subsequently amended, the 1997 Incentive Compensation Plan. The 1997 ICP has
superseded the management stock option plan and has amended and restated the
restricted stock plan. We refer to the management stock option plan and the
restricted stock plan, prior to its amendment and restatement, as the
preexisting plans. All awards granted prior to the adoption of the 1997 ICP, and
any grants of restricted stock made after the 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 May 24, 1999, an aggregate of 13,770,682 non-qualified options
granted by the compensation committee to members of management of Y&R under the
1997 ICP are outstanding. 10,696,198 of these options have exercise prices
ranging from $12.33 per share to $38.00 per share. All of these options will
expire if not exercised ten years after their date of grant. Substantially all
of these options will be fully exercisable with respect to 33 1/3% of the shares
subject to these options on the third, fourth and fifth anniversaries of the
date of grant.

On May 24, 1999, we granted non-qualified options to purchase an
aggregate of 3,074,484 shares of our common stock to members of management of
Y&R under the 1997 ICP. These options have an exercise price per share equal to
the public offering price set forth on the cover page of this prospectus. All of
these options will expire if not exercised ten years after their date of grant,
and will be fully exercisable with respect to 33 1/3% of the shares subject to
these options on the first, second and third anniversaries of the date of grant.

All outstanding options granted under the 1997 ICP will become fully
exercisable with respect to 100% of the shares subject to the options upon a
change in control of Y&R, 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 option that was not exercisable at that time
will expire.

The following is a general 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, restricted stock, deferred stock, other
stock-related awards, and performance or annual incentive awards that may be
settled in cash, stock or other property, all of which we collectively refer to
as "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 (1) 19,125,000, plus (2)
the number of shares of common stock subject to awards under preexisting plans
that become available, generally due to cancellation or forfeiture of awards,
after the effective date of the 1997 ICP.

<PAGE>

However, the total number of shares of common stock with respect to which
incentive stock options 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 some awards
in order to comply with Section 162(m) of the Internal Revenue Code. Under these
limitations, during any fiscal year the number of options, stock appreciation
rights, shares of restricted stock, shares of deferred stock, shares of common
stock issued as a bonus or in lieu of other obligations, dividend equivalents,
other stock-based awards, performance awards and annual incentive awards granted
to any one participant must not exceed 200,000 shares for each type of these
awards, subject to adjustment under the 1997 ICP. 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. Y&R intends for awards granted to
"covered employees" (as 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 these
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, 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 limitations in light of Section 162(m).

Eligibility. Executive officers and other officers and employees of Y&R
or any affiliate, including persons who have accepted offers of employment from
Y&R or any affiliate, persons who may also be directors of Y&R, and each other
person who provides services to Y&R or any affiliate shall be eligible to be
granted awards under the 1997 ICP. An affiliate of Y&R for this purpose includes
any entity required to be aggregated with Y&R under Section 414 of the Internal
Revenue Code and any 10% owned joint venture or partnership of Y&R or an
affiliate.

Administration. The 1997 ICP is administered by the compensation
committee except to the extent the board of directors elects to administer the
1997 ICP. Subject to the terms and conditions of the 1997 ICP, the compensation
committee is authorized to: (1) select participants, (2) determine the type and
number of awards to be granted and the number of shares of common stock
underlying awards, (3) specify times at which awards will be exercisable or
settleable, including performance conditions that may be required as a condition
to exercise or settlement, (4) set other terms and conditions of these awards,
(5) prescribe forms of award agreements, (6) interpret and specify rules and
regulations relating to the 1997 ICP, and (7) 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 Stock Appreciation Rights. The compensation committee
is authorized to grant stock options, including both incentive stock options
that can result in potentially favorable tax treatment to the participant and
non-qualified stock options, i.e., options not qualifying as incentive stock
options. The compensation committee is also

<PAGE>

authorized to grant stock appreciation rights 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 stock appreciation right. The
exercise price per share subject to an option and the grant price of an stock
appreciation right 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 as otherwise specified in the 1997 ICP. The maximum term of each option
or stock appreciation right, the times at which each option or stock
appreciation right will be exercisable, and provisions requiring forfeiture of
unexercised options or stock appreciation rights at or following termination of
employment generally is fixed by the compensation committee, except no option or
stock appreciation right 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 stock appreciation rights are
determined by the compensation committee.

Restricted and Deferred Stock. The compensation committee is authorized
to grant restricted stock and deferred stock. Restricted stock is a grant of
common stock which may not be sold or disposed of, and which may be forfeited in
the event of some kinds of termination of employment and/or failure to meet
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 Y&R stockholder, including the right to vote the shares
and to receive dividends, unless otherwise determined by the compensation
committee. An award of deferred stock gives a participant the right to receive
shares or cash or a combination of shares and cash at the end of a specified
deferral period, subject to possible forfeiture of the award in the event of
some kinds of termination of employment and/or failure to meet 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 stock ownership, although dividend equivalents may be granted,
as discussed below.

Dividend Equivalents. The compensation committee is authorized to grant
dividend equivalents giving 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. They 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 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. These 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 Y&R 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
these awards, including consideration to be paid to exercise awards in the
nature of purchase rights, the period during which they will be outstanding, and
forfeiture conditions and restrictions.

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

<PAGE>

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 the compensation committee chooses, be subject to
provisions that should qualify these awards as "performance-based compensation."
As a result, those awards would not be subject to the limitation on tax
deductibility by Y&R under Internal Revenue 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 (1)
one or more business criteria and (2) a targeted level or levels of performance
with respect to each of these business criteria as specified by the compensation
committee. In the case of performance and annual incentive awards intended to
meet the requirements of Section 162(m), the business criteria used must be one
of those specified in the 1997 ICP. For other participants the compensation
committee may specify any other criteria. The following business criteria for
Y&R are specified in the 1997 ICP: (1) earnings per share; (2) increase in
revenues; (3) cash flow; (4) cash 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 comparative companies. These criteria may be used on a consolidated basis,
and/or for specified affiliates or business units of Y&R, except with respect to
the total shareholder return and earnings per share criteria.

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 these 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 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 Y&R'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. The compensation committee may, in its discretion, however,
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 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. This accelerated
exercisability, lapse, expiration and vesting shall occur automatically

<PAGE>

in the case of a "change in control" of Y&R except to the extent otherwise
provided in an 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:

(1) any person (other than Y&R, some companies owned by the
stockholders of Y&R or any Y&R employee benefit plans) becoming
the beneficial owner of securities representing (a) 40% or more of
the combined voting power of Y&R's then outstanding securities and
(b) so long as the management voting trust is still in existence,
representing a greater percentage of the combined voting power of
Y&R'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 Y&R;

(2) during a two-year period, individuals who constitute the board of
directors at the start of such period, and any new director whose
election or nomination for election to the board of directors was
approved by a vote of at least two-thirds of the directors then in
office who either were directors at the start of the two-year
period or whose election or nomination was previously so approved
(excluding directors whose elections were as a result of some
proxy contests or who were designated by any entity who had
entered into a change in control agreement with Y&R), ceasing to
constitute a majority of the board of directors;

(3) the completion of a merger or consolidation of Y&R with another
entity which would result in either (a) the voting securities of
Y&R 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 Y&R 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;

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

(5) any other event which the board of directors determines, in its
discretion, would materially alter the structure of Y&R or its
ownership.

A change in control will also be deemed to have occurred immediately
prior to the completion of (1) a tender offer for securities of Y&R representing
more than 50% of the combined voting power of Y&R's then outstanding securities
in which there is not disclosed an intention to follow the completion of the
tender offer with a merger, reorganization, consolidation, share exchange or
similar transaction or (2) a tender offer for securities of Y&R representing any
percentage

<PAGE>

of the combined voting power of Y&R's then outstanding securities in which there
is disclosed an intention to follow the completion 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 these securities is lower
than the value of the consideration offered for these securities in the tender
offer, as determined by the board of directors at the time, in order to allow
holders of previously unexercisable options the opportunity to participate with
respect to shares underlying the options.

Amendment and Termination of the 1997 ICP. The board of directors may
amend, alter, suspend, discontinue, or terminate the 1997 ICP or the
compensation committee's authority to grant awards without the consent of
stockholders or participants, except stockholder 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 this action
would materially and adversely affect the rights of a participant under an
outstanding award. Stockholder approval will not be deemed to be required under
laws or regulations, such as those relating to incentive stock options, that
condition favorable treatment of participants on this approval. However, the
board of directors may, in its discretion, seek shareholder approval in any
circumstance in which it deems this approval advisable. Thus, stockholder
approval will not necessarily be required for amendments that might increase the
cost of the 1997 ICP or broaden eligibility. The compensation 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 this action would materially and adversely affect the rights
of a participant under the award. However, the compensation committee may
terminate any outstanding award in whole or in part, provided that upon
termination Y&R pays to the participant (1) with respect to an option or any
portion of an option, whether or not exercisable, an amount in cash for each
share of common stock subject to the option or portion 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 the option would have been valued by Y&R 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 the option and
applicable withholding taxes and other similar charges, and (2) 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 the award
or portion being terminated as of the date of termination, assuming the
acceleration of the exercisability of the award, the lapsing of any restrictions
on the award or the expiration of any deferral or vesting period of the award,
as determined by the compensation committee in its sole discretion.

DEFERRED COMPENSATION PLAN. The deferred compensation plan permits
members of a select group of management or highly compensated employees of Y&R
and its affiliates to defer receipt of specified portions of cash, stock or
stock-based compensation and to have these 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,
dates or occurrence of specified events, and in the number of installments,
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 Y&R's obligations under the deferred
compensation plan. This trust will be subject to the claims of the creditors of
Y&R in the event of Y&R's insolvency.

CAREER CASH BALANCE PLAN. The career cash balance plan is a defined
benefit plan available to all Y&R employees and its participating affiliates.
Subject to limitations, most vested retirement benefits available under the
career cash balance plan are insured by the Pension Benefit Guaranty
Corporation. Y&R pays the full cost of the benefit provided under the career
cash balance plan. Participants become vested in their career cash balance plan
benefits after completing five full years of service with

<PAGE>

Y&R. Under the career cash balance plan, effective July 1, 1996, a participant's
starting account balance equalled the lump sum value of his benefit under prior
plan provisions. Y&R annually credits to each participant's account 3.2% of the
participant's salary up to $150,000. Salary is defined to include base salary or
wages and excludes bonus, overtime, commissions and other special compensation.
Y&R will credit to each account interest equal to the amount of the account on
the first day of the plan year multiplied by 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. 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 Y&R. 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
specified circumstances to the participant, for reinvestment in other qualified
plans prior to retirement at the participant's election, or for distribution
upon retirement. Career cash balance plan benefits are not reduced by Social
Security benefits. Loans cannot be taken from the career cash balance plan.

The estimated annual benefits payable upon retirement at normal
retirement age for the named executive officers are as follows:
Mr. Georgescu--$18,756, Mr. Vick--$3,384, Mr. McGarry--$18,756,
Mr. Bell--$4,632, and Mr. Dolan--$1,812.

SELECTED EXECUTIVE RETIREMENT INCOME PLAN. The selected executive
retirement income plan is a supplemental executive retirement arrangement for
selected members of senior management under separate contracts with Y&R. Subject
to 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 the 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. Y&R's obligations to participants under the selected
executive retirement income plan are subordinate in right of payment to its
obligations to senior lenders and 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. Y&R and Michael
Dolan entered into a letter agreement, as amended, regarding Mr. Dolan's
principal terms of employment with Y&R 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 Y&R 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, under a severance plan previously established for U.S. employees of
Y&R. In addition, under some stock option agreements with some of the named
executive officers, upon termination of employment by Y&R other than for cause,
the named executive officer may receive severance pay equal to six months base
salary in return for a release of claims against Y&R and in lieu of any other
severance payments.

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 specified members of senior management of Y&R, as

<PAGE>

voting trustees. The voting trustees are Peter A. Georgescu, Stephanie W.
Abramson, Thomas D. Bell, Jr., Michael J. Dolan, Satish Korde 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 his 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.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. The
compensation committee was established in 1996 and consists of Messrs. Bodman,
Hammarskjold and Sir Christopher Lewinton, none of whom was or had been an
officer or employee of Y&R or any of its subsidiaries. None of Y&R's executive
officers served on the board of directors of any entities whose directors or
officers serve on the compensation committee. Alan D. Schwartz, who was a member
of the compensation committee during a part of 1998, is an Executive Vice
President of Bear, Stearns & Co. Inc. Bear Stearns from time to time performs
investment banking and other financial services for Y&R, including as an
underwriter for Y&R's two public offerings during 1998, and is acting as an
underwriter in the common stock offerings. For these services, Bear Stearns may
receive advisory or transaction fees, as applicable, plus reimbursement of
out-of-pocket expenses, of the nature and in amounts customary in the industry
for these services.

<PAGE>

CERTAIN TRANSACTIONS

Upon the completion of the recapitalization of Y&R in 1996, several 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 of directors. After the IPO, this
approval right terminated, and the H&F investors retained the right to nominate
and have elected (1) two members of the board of directors for so long as those
investors continue to hold, in the aggregate, at least 10% of the outstanding
shares and (2) one member of the board of directors for so long as the H&F
investors continue to hold, in the aggregate, at least 5% of the outstanding
shares.

In addition, several of the recapitalization investors have demand and
piggyback registration rights with respect to the common stock they hold. These
recapitalization investors have the right to require Y&R to register for resale
shares of common stock held by the recapitalization investors pursuant to demand
registration rights, and to have shares they hold included in any public
offering of common stock made by Y&R. Y&R is required to pay expenses incurred
by it and the reasonable fees and disbursements of one counsel to those
investors in connection with any demand as piggy-back registration. Y&R paid the
expenses incurred by the H&F investors in connection with the IPO as well as the
offering of common stock by the H&F investors (among other selling stockholders)
in November 1998, which totalled approximately $125,000. For a further
discussion of registration rights with respect to the common stock, see "Shares
Eligible for Future Sale."

For a discussion of other transactions between Y&R and directors or
related entities, see "Management--Compensation Committee Interlocks and Insider
Participation."

<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding beneficial ownership
of the common stock and vested options to purchase common stock as of May 21,
1999, including beneficial ownership by:

o each person who is known by Y&R to own beneficially 5% or more of the
outstanding shares of the common stock;

o each of the directors and named executive officers; and

o 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, and also includes shares
of common stock held in the deferral trust under the deferred compensation plan.
Except as described below, 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 shares of common stock held by Y&R employees, as well as a number of retired
and former employees, have been deposited into the management voting trust, and
the management voting trust exercises sole voting power over all those shares.
Beneficial ownership by the management voting trust includes an aggregate of
3,501,733 shares of common stock held in the deferral trust.

The business address of the management voting trust, the deferral trust,
our executive officers and our directors, other than Messrs. Bodman,
Hammarskjold, Hellman, McGillicuddy, Schwartz and Sir Christopher Lewinton, is
c/o Y&R at 285 Madison Avenue, New York, New York 10017. The business address of
Mr. Bodman is c/o AT&T Ventures, Chevy Chase Metro Building, 2 Wisconsin Circle,
Chevy Chase, Maryland 20815-7003. The business address of the H&F investors and
Messrs. Hammarskjold and Hellman is c/o Hellman & Friedman LLC, One Maritime
Plaza, San Francisco, California 94111. The business address of Mr. McGillicuddy
is 270 Park Avenue, 32nd Floor, New York, New York 10017. The business address
of Mr. Schwartz is c/o Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New
York 10167. The business address of Sir Christopher Lewinton is c/o TI Group
plc, 50 Curzon Street, London W1Y 7PN, United Kingdom. All information set forth
below with respect to the H&F investors is based upon a Statement on Schedule
13G, dated February 12, 1999, filed on behalf of the H&F investors. 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 ............................... 34,853,595 11,762,395 43.8%
Hellman & Friedman Capital Partners III, L.P. ......... 14,074,913 2,311,590 20.1%
H&F Orchard Partners III, L.P. ........................ 1,024,967 168,270 1.5%
H&F International Partners III, L.P. .................. 307,028 50,400 *
Deferral trust (1) .................................... 3,501,733 -- 5.2%
Peter A. Georgescu (2) ................................ 1,783,560 -- 2.6%
Edward H. Vick (2) .................................... 1,384,710 895,245 2.0%
Thomas D. Bell Jr. (2) ................................ 1,308,908 1,165,215 1.9%
Michael J. Dolan (2) .................................. 419,625 104,340 *
Richard S. Bodman ..................................... 2,000 -- *
Philip U. Hammarskjold (3) ............................ -- -- *
F. Warren Hellman (3) ................................. -- -- *
Sir Christopher Lewinton .............................. -- -- *
John P. McGarry, Jr. (4) .............................. 722,647 -- 1.1%
John F. McGillicuddy .................................. 13,035 -- *
Alan D. Schwartz (5) .................................. -- -- *
All directors and executive officers
as a group (11 persons) .............................. 5,365,833 2,190,885 7.7%
</TABLE>

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

<PAGE>

(1) Y&R established the deferral trust to aid in meeting Y&R's obligations to
employee and former employee participants under the deferred compensation
plan. The deferral trust is administered by a committee currently comprised
of Stephanie W. Abramson, Mark T. McEnroe and Rene'e E. Becnel, each of
whom, acting alone, has the power to act on behalf of the committee,
including to dispose of the common stock held in the deferral trust. The
common stock held in the deferral trust is voted solely by the voting
trustees of the management voting trust.

(2) This amount does not include any of the 34,853,595 shares beneficially owned
by the management voting trust prior to the common stock offerings 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 the
stockholder's position as a voting trustee of the management voting trust.
This amount also does not include any of the 2,100,980 shares beneficially
owned prior to the common stock offerings by stockholders who acquired such
shares in connection with Y&R's acquisition of KnowledgeBase Marketing,
which the stockholder may be deemed to beneficially own as a result of the
stockholder's having a voting proxy over such shares. The stockholder
disclaims beneficial ownership of any of these shares in excess of the
amount reported above as beneficially owned by the stockholder.

(3) Excludes 15,406,908 shares beneficially owned by the H&F investors prior to
the common stock offerings. The sole general partner of the H&F investors is
H&F Investors III, L.P. The managing general partner of H&F Investors III,
L.P. is Hellman & Friedman Associates III, L.P., and the general partners of
Hellman & Friedman Associates III, L.P. are H&F Management III, L.L.C. and
H&F Investors III, Inc. The sole shareholder of H&F Investors III, Inc. is
The Hellman Family Revocable Trust. The investment decisions of H&F
Management III, L.L.C. and H&F Investors III, Inc. are made by an executive
committee, of which Mr. Hellman is a member. Mr. Hammarskjold is a member of
H&F Management III, L.L.C. Mr. Hellman is a managing member of H&F
Management III, L.L.C., a director of H&F Investors III, Inc. and a trustee
of The Hellman Family Revocable Trust. H&F Investors III, L.P., Hellman &
Friedman Associates III, L.P., H&F Management III, L.L.C., H&F Investors
III, Inc., The Hellman Family Revocable 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 these shares, but each of them disclaims beneficial
ownership except to the extent of its or his indirect pecuniary interest in
these shares.

(4) Mr. McGarry retired as President of Y&R effective at the end of 1998.

(5) Excludes 133,652 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
information regarding the beneficial ownership of the common stock and options
to purchase common stock by the selling stockholders as of May 21, 1999, and as
adjusted to reflect the sale of shares of common stock in the common stock
offerings. The information in the table below has been calculated in accordance
with Rule 13d-3 under the Securities Exchange Act of 1934, and includes shares
of common stock held in the deferral trust under the deferred compensation plan.
Except as described below, 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 by the management voting trust prior to the common
stock offerings includes an aggregate of 6,858,528 shares held by the management
voting trust (including shares issuable upon the exercise of options) offered
hereby by management investors who are selling stockholders. Other than the H&F
investors and BearTel Corp., all selling stockholders are management investors
who are officers, employees or former employees of Y&R and whose shares of
common stock are held by the management voting trust. See "Management--Executive
Officers and Directors." All of these shares offered hereby will be delivered
out of the management voting trust upon completion of the common stock
offerings. 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 these shares. Beneficial ownership by the
management voting trust includes an aggregate of 3,501,733 shares of common
stock held in the deferral trust. For information on our principal stockholders,
see "Principal Stockholders."

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERINGS AFTER OFFERINGS
----------------------------------- -----------------------------------
SHARES AND SHARES SHARES AND
VESTED VESTED BEING VESTED VESTED
OPTIONS OPTIONS PERCENT SOLD OPTIONS OPTIONS PERCENT
------------ ------------ --------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Management voting trust .................. 34,853,595 11,762,395 43.8% 6,858,528 27,995,067 9,765,909 35.2%
Hellman & Friedman Capital Partners
III, L.P. ............................... 14,074,913 2,311,590 20.1% 6,793,071 7,281,842 2,311,590 10.1%
H&F Orchard Partners III, L.P. ........... 1,024,967 168,270 1.5% 494,461 530,506 168,270 *
H&F International Partners III, L.P. ..... 307,028 50,400 * 147,966 159,062 50,400 *
BearTel Corp. ............................ 133,652 -- * 64,502 69,150 -- *
Stephanie W. Abramson(1)(2) .............. 453,995 26,085 * 45,400 408,595 26,085 *
Stuart Agres ............................. 275,820 -- * 40,000 235,820 -- *
Stephen S. Aiello ........................ 137,811 51,560 * 20,672 117,139 51,560 *
Stig Albinus ............................. 23,250 -- * 10,000 13,250 -- *
Jean-Marc Bara ........................... 201,669 -- * 35,588 166,081 -- *
Bernard Barnett .......................... 13,050 13,050 * 1,050 12,000 12,000 *
Stephen Baum ............................. 8,400 -- * 3,120 5,280 -- *
Kimberly Bealle .......................... 91,355 49,995 * 20,000 71,355 49,995 *
Martin Beck .............................. 39,315 33,915 * 33,915 5,400 -- *
Urs Beer ................................. 69,195 -- * 25,000 44,195 -- *
Jed Beitler .............................. 74,835 15,660 * 11,225 63,610 4,435 *
Theodore A. Bell ......................... 713,810 334,065 1.0% 60,000 653,810 334,065 *
Thomas D. Bell, Jr.(1)(2) ................ 1,308,908 1,165,215 1.9% 130,891 1,178,017 1,165,215 1.7%
Tom Benelli .............................. 38,760 34,785 * 7,000 31,760 27,785 *
Thomas Blach ............................. 19,050 19,050 * 19,050 -- -- *
June Blocklin ............................ 20,100 -- * 10,225 9,875 -- *
Rene Boender ............................. 50,960 14,400 * 24,312 26,648 -- *
Bonnie Bohne ............................. 98,820 23,820 * 30,000 68,820 23,820 *
Etienne Boisrond ......................... 191,295 -- * 33,750 157,545 -- *
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERINGS AFTER OFFERINGS
-------------------------------- ------------------------------
SHARES AND SHARES SHARES AND
VESTED VESTED BEING VESTED VESTED
OPTIONS OPTIONS PERCENT SOLD OPTIONS OPTIONS PERCENT
------------ --------- --------- ---------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
William Borrelle ................ 13,184 -- * 1,841 11,343 -- *
Tiemen Bosma .................... 80,000 -- * 40,000 40,000 -- *
Heinz-Georg Brands .............. 22,712 -- * 22,712 -- -- *
Craig Branigan .................. 204,230 -- * 46,446 157,784 -- *
Howard Breen .................... 15,450 11,475 * 3,090 12,360 8,385 *
Jane Brite ...................... 159,620 -- * 99,810 59,810 -- *
T. J. Broadbent ................. 20,357 17,385 * 15,500 4,857 1,885 *
David Butter .................... 61,262 24,465 * 24,465 36,797 -- *
Ignacio Cabezon ................. 37,290 22,005 * 10,720 26,570 22,005 *
Patricia Cafferata .............. 158,205 -- * 16,000 142,205 -- *
Roger Chiocchi .................. 62,807 25,875 * 14,191 48,616 11,684 *
Ira Chynsky ..................... 68,750 -- * 13,750 55,000 -- *
Michael Claes ................... 35,230 24,360 * 7,500 27,730 24,360 *
Neil Clark ...................... 75,651 52,170 * 23,481 52,170 52,170 *
Don Cogman ...................... 349,070 130,175 * 61,601 287,469 68,574 *
Thomas Coleman .................. 9,780 -- * 2,300 7,480 -- *
Janet Coombs .................... 127,521 104,355 * 16,428 111,093 93,093 *
David Coronna ................... 32,690 32,690 * 6,000 26,690 26,690 *
Jose Maria Costa ................ 60,000 -- * 12,000 48,000 -- *
Massimo Costa ................... 11,110 -- * 11,110 -- -- *
Charles Courtier ................ 52,000 46,965 * 10,000 42,000 36,965 *
Michael Cozens .................. 26,715 20,865 * 20,000 6,715 865 *
Dominique Damato ................ 73,050 73,050 * 15,000 58,050 58,050 *
Donald H. Davis ................. 76,320 50,685 * 19,080 57,240 50,685 *
Ferdinand de Bakker ............. 151,740 -- * 60,000 91,740 -- *
Pierre de Roualle ............... 131,550 97,980 * 25,000 106,550 72,980 *
Jerome Dean ..................... 93,570 35,310 * 18,000 75,570 35,310 *
Joseph E. Dedeo ................. 469,602 -- * 134,172 335,430 -- *
Lawrence Deutsch ................ 41,380 17,245 * 19,660 21,720 -- *
Shelley Diamond ................. 55,695 -- * 13,314 42,381 -- *
Michael J. Dolan(1)(2) .......... 419,625 104,340 * 41,926 377,699 104,340 *
Terry Dukes ..................... 38,720 35,495 * 6,150 32,570 29,345 *
Daryl Elliott ................... 27,185 20,885 * 20,885 6,300 -- *
Daisy Exposito .................. 115,501 24,031 * 26,953 88,548 -- *
Michael Faems ................... 135,840 -- * 20,440 115,400 -- *
Charles P. Farley ............... 28,225 10,440 * 2,100 26,125 10,440 *
Peter Farnell-Watson ............ 47,494 -- * 14,494 33,000 -- *
John Fenton ..................... 37,875 -- * 6,500 31,375 -- *
Ian Ferguson Brown .............. 44,537 -- * 2,250 42,287 -- *
Patrick Ford .................... 26,865 26,055 * 6,055 20,810 20,000 *
Richard Ford .................... 40,020 36,795 * 7,500 32,520 29,295 *
Clark J. Frankel ................ 104,352 -- * 30,000 74,352 -- *
Volker Franz .................... 25,085 25,085 * 16,385 8,700 8,700 *
Eric Fredericks ................. 91,440 -- * 80,000 11,440 -- *
John Frew ....................... 27,300 12,045 * 6,030 21,270 6,015 *
Enrico Gervasi .................. 71,220 -- * 12,033 59,187 -- *
Christopher Grabenstein ......... 50,940 46,965 * 10,188 40,752 36,777 *
William Green ................... 91,805 -- * 10,000 81,805 -- *
David E. Greene ................. 55,220 -- * 5,000 50,220 -- *
Victor Gutierrez ................ 30,390 -- * 27,145 3,245 -- *
Cynthia Hampton ................. 29,310 26,085 * 10,000 19,310 16,085 *
Tom Hansen ...................... 29,310 25,335 * 2,000 27,310 23,335 *
Peter Harleman .................. 45,095 15,660 * 16,000 29,095 15,660 *
Fred Hawrysh .................... 19,905 19,905 * 5,000 14,905 14,905 *
Jan Hedquist .................... 182,610 95,655 * 36,522 146,088 59,133 *
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERINGS AFTER OFFERINGS
-------------------------------- ------------------------------
SHARES AND SHARES SHARES AND
VESTED VESTED BEING VESTED VESTED
OPTIONS OPTIONS PERCENT SOLD OPTIONS OPTIONS PERCENT
------------ --------- --------- ---------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Heggenes ...................... 87,255 66,960 * 17,451 69,804 49,509 *
Stefan Himpe ...................... 5,500 -- * 3,000 2,500 -- *
Toby Hoare ........................ 209,839 121,020 * 55,000 154,839 66,020 *
Barry Hoffman ..................... 34,095 -- * 6,800 27,295 -- *
Charles Hollenkamp ................ 6,990 -- * 3,000 3,990 -- *
James W. Hood ..................... 168,520 -- * 45,000 123,520 -- *
Penny Hooper ...................... 93,945 23,595 * 14,000 79,945 23,595 *
Roseanne Horn ..................... 28,560 12,660 * 12,675 15,885 12,660 *
Peter Horovitz .................... 41,373 37,398 * 32,828 8,545 4,570 *
Richard Hosp ...................... 34,240 -- * 30,000 4,240 -- *
Eric Garrison Hoyt ................ 79,465 71,590 * 7,670 71,795 63,920 *
Brian Hubbard ..................... 17,025 -- * 5,000 12,025 -- *
Jeff Hunt ......................... 81,463 29,856 * 17,014 64,449 12,842 *
Gigliola Ibba ..................... 85,410 36,210 * 21,000 64,410 36,210 *
Robert Igiel ...................... 208,690 208,690 * 52,170 156,520 156,520 *
Barbara Jack ...................... 464,631 395,565 * 178,560 286,071 279,292 *
Paal Marius Jebsen ................ 13,745 13,695 * 11,085 2,660 2,610 *
William Johnston .................. 74,185 60,000 * 19,185 55,000 55,000 *
James Kaplove ..................... 41,680 8,230 * 4,000 37,680 4,230 *
Mary Ellen Kenny .................. 67,458 5,535 * 14,796 52,662 5,535 *
Kevin King ........................ 31,441 26,085 * 25,000 6,441 1,085 *
Edna Kissmann ..................... 52,220 -- * 21,500 30,720 -- *
Jackie Koh ........................ 27,535 27,535 * 27,535 -- -- *
Christopher Komisarjevsky ......... 150,377 109,575 * 22,557 127,820 87,018 *
Satish Korde(1) ................... 967,265 39,735 1.4% 96,727 870,538 39,735 1.2%
Philippe Krakowsky ................ 43,169 26,085 * 7,375 35,794 26,085 *
Ingo Krauss ....................... 391,725 -- * 162,000 229,725 -- *
Kurt Krauss ....................... 21,948 -- * 3,120 18,828 -- *
Stephanie Kugelman ................ 307,277 88,485 * 57,011 250,266 88,485 *
Mitchell Kurz ..................... 527,577 -- * 356,000 171,577 -- *
Jay Kushner ....................... 68,960 37,000 * 11,994 56,966 37,000 *
Marta La Rock ..................... 20,060 16,085 * 15,000 5,060 1,085 *
Jean-Paul Lafaye .................. 322,980 225,825 * 64,400 258,580 180,825 *
Timothy Laing ..................... 35,000 35,000 * 25,000 10,000 10,000 *
Robert Lallamant .................. 97,830 -- * 19,566 78,264 -- *
Kevin Lavan ....................... 49,807 12,000 * 9,000 40,807 12,000 *
Mark Levine ....................... 76,095 -- * 15,219 60,876 -- *
Marco Lombardi .................... 105,205 20,865 * 16,680 88,525 20,865 *
Bennett R. Machtiger .............. 66,950 12,000 * 6,450 60,500 12,000 *
Duncan Mackinnon .................. 28,915 28,915 * 7,000 21,915 21,915 *
John F. Maltese ................... 67,932 13,575 * 13,575 54,357 -- *
Helmut Matthies ................... 367,090 -- * 174,503 192,587 -- *
Martin Maurice .................... 82,830 -- * 16,000 66,830 -- *
Robert M. McDuffey ................ 52,530 49,305 * 10,506 42,024 38,799 *
John P. McGarry, Jr. .............. 722,647 -- 1.1% 309,706 412,941 -- *
Austin McGhie ..................... 64,365 56,490 * 22,875 41,490 33,615 *
David McLean ...................... 159,270 42,600 * 31,853 127,417 34,081 *
Gordon McLean ..................... 35,865 35,865 * 11,955 23,910 23,910 *
Bert Meerstadt .................... 88,315 -- * 14,440 73,875 -- *
William C. Melzer ................. 415,379 401,879 * 73,300 342,079 328,579 *
Diane Meskill-Spencer ............. 113,208 22,140 * 27,195 86,013 22,140 *
Craig Middleton ................... 204,974 26,085 * 34,700 170,274 26,085 *
David Minear ...................... 162,045 111,855 * 40,000 122,045 71,855 *
Dominique Missoffe ................ 77,370 48,600 * 15,474 61,896 48,600 *
Fernan Montero .................... 658,000 -- * 158,000 500,000 -- *
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERINGS AFTER OFFERINGS
-------------------------------- ------------------------------
SHARES AND SHARES SHARES AND
VESTED VESTED BEING VESTED VESTED
OPTIONS OPTIONS PERCENT SOLD OPTIONS OPTIONS PERCENT
------------ --------- --------- ---------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Fred Moolhuijsen ................. 15,000 -- * 15,000 -- -- *
Frans Mootz ...................... 106,488 -- * 26,622 79,866 -- *
John Morris ...................... 57,603 47,388 * 11,519 46,084 35,869 *
Janice Muniz ..................... 38,760 34,785 * 17,400 21,360 17,385 *
Bruce S. Nelson .................. 155,008 105,000 * 28,250 126,758 105,000 *
Charles G. Newton, Jr. ........... 18,000 -- * 3,600 14,400 -- *
Lori Nicholson ................... 61,176 15,660 * 10,000 51,176 15,660 *
Lars Nordstrom ................... 17,025 13,050 * 13,050 3,975 -- *
Laurie Null ...................... 53,670 47,820 * 10,850 42,820 36,970 *
Hans Ohman ....................... 17,025 13,050 * 13,050 3,975 -- *
Steve Oroho ...................... 73,512 -- * 59,010 14,502 -- *
Stewart Owen ..................... 200,363 119,265 * 33,054 167,309 119,265 *
Santiago Alonso Paniagua ......... 52,184 35,055 * 38,715 13,469 10,590 *
Manuel Perez ..................... 171,535 -- * 40,704 130,831 -- *
Diane Perlmutter ................. 31,975 8,940 * 8,035 23,940 8,940 *
Graham Phillips .................. 52,399 -- * 40,000 12,399 -- *
Dan Plouffe ...................... 3,300 -- * 3,300 -- -- *
Tim Pollak ....................... 625,557 -- * 264,000 361,557 -- *
Michael Porter ................... 17,000 17,000 * 2,500 14,500 14,500 *
William A. Power ................. 210,865 -- * 42,000 168,865 -- *
Tom Pratt ........................ 12,110 7,385 * 6,385 5,725 1,000 *
Joerg Puphal ..................... 12,970 6,960 * 9,745 3,225 -- *
John E. Putnam ................... 31,237 9,172 * 9,172 22,065 -- *
Matthias Quadflieg ............... 5,460 1,485 * 1,484 3,976 1 *
Serge Rancourt ................... 121,895 -- * 121,895 -- -- *
Sheila Raviv ..................... 36,240 -- * 20,000 16,240 -- *
Courtney Reeser .................. 56,388 50,088 * 10,017 46,371 40,071 *
Ken Rietz ........................ 125,650 117,390 * 31,000 94,650 86,390 *
Jorg Rindlisbacher ............... 45,640 -- * 19,500 26,140 -- *
Jorge Rodriguez .................. 104,235 90,315 * 1,755 102,480 90,315 *
Robert Rosiek .................... 52,170 -- * 2,170 50,000 -- *
John J. Ross ..................... 50,395 47,170 * 10,000 40,395 37,170 *
Maggie Ross ...................... 47,460 21,735 * 4,000 43,460 21,735 *
James Rossman .................... 58,410 11,955 * 38,580 19,830 11,955 *
Seith Rothstein .................. 135,660 71,925 * 33,915 101,745 71,925 *
Alain Rousset .................... 310,638 216,375 * 55,352 255,286 161,023 *
Amy Rubenstein ................... 73,680 15,660 * 14,736 58,944 15,660 *
Nicholas Rudd .................... 130,440 -- * 39,132 91,308 -- *
Cas Saeys ........................ 27,465 -- * 27,465 -- -- *
Michael Samet .................... 218,552 -- * 77,136 141,416 -- *
John Sanders ..................... 156,385 125,275 * 112,435 43,950 12,840 *
Chris Savage ..................... 54,795 54,795 * 52,000 2,795 2,795 *
Matthew Schetlick ................ 83,485 60,870 * 8,185 75,300 60,870 *
Angelika Schug ................... 6,085 6,085 * 3,400 2,685 2,685 *
Gertrude Schutz .................. 32,085 6,000 * 11,217 20,868 -- *
Tom Schwartz ..................... 29,310 8,700 * 3,500 25,810 8,700 *
James Scielzo .................... 94,932 23,052 * 23,052 71,880 -- *
Steve Seyferth ................... 86,510 86,510 * 17,300 69,210 69,210 *
Keith Sharp ...................... 70,968 8,352 * 14,194 56,774 -- *
Jessie Shaw ...................... 29,170 25,195 * 10,000 19,170 15,195 *
Alan Sheldon ..................... 616,310 -- * 116,310 500,000 -- *
Thomas Shortlidge ................ 227,130 -- * 44,000 183,130 -- *
Richard Sinreich ................. 47,695 -- * 7,695 40,000 -- *
Robert Sive ...................... 53,590 50,365 * 13,236 40,354 37,129 *
Barbara Smith .................... 58,670 10,440 * 10,000 48,670 10,440 *
</TABLE>

<PAGE>

KnowledgeBase Marketing selling stockholders:
207 Ventures, LLC ..................... 16,281 -- * 14,652 1,629 -- *
Wand Affiliates Fund L.P. ............. 631 -- * 567 64 -- *
Wand Equity Portfolio II, L.P. ........ 62,446 -- * 56,201 6,245 -- *
Wand/CMS Investments I L.P. ........... 62,842 -- * 56,556 6,286 -- *
Wand/CMS Investments II L.P. .......... 21,490 -- * 19,340 2,150 -- *
Wand/CMS Investments III L.P. ......... 37,329 -- * 33,595 3,734 -- *
Wand/CMS Investments IV L.P. .......... 69,871 -- * 62,883 6,988 -- *
Tom Benedict .......................... 52 -- * 46 6 -- *
Bertrand Billiot ...................... 183 -- * 164 19 -- *
Todd Board ............................ 1,756 -- * 790 966 -- *
Ret Boney ............................. 782 -- * 703 79 -- *
Joe Branch ............................ 183 -- * 164 19 -- *
Clifton J. Brayshaw ................... 403 -- * 181 222 -- *
Thomas V. Butta ....................... 7,278 -- * 6,550 728 -- *
Marti Campbell ........................ 52 -- * 46 6 -- *
Shawn Cheston ......................... 105 -- * 94 11 -- *
Thomas A. Cook ........................ 968 -- * 697 271 -- *
Steve Cureton ......................... 83 -- * 74 9 -- *
Dave Dietrich ......................... 42 -- * 37 5 -- *
Beryle P. Faier ....................... 2,016 -- * 1,814 202 -- *
Susan D. Faulk ........................ 16,125 -- * 7,256 8,869 -- *
Joseph Ficarra III .................... 1,209 -- * 871 338 -- *
Wilfer Garcia ......................... 322 -- * 232 90 -- *
M. Peggy R. Garner .................... 161 -- * 144 17 -- *
Wayne Gibbons ......................... 183 -- * 164 19 -- *
</TABLE>

<PAGE>

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

(1) This amount does not include any of the 34,853,595 shares beneficially owned
by the management voting trust prior to the common stock offerings 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 the
stockholder's position as a voting trustee of the management voting trust.
The stockholder disclaims beneficial ownership of any of these shares in
excess of the amount reported above as beneficially owned by the
stockholder.

(2) This amount does not include any of the 2,100,980 shares beneficially owned
prior to the common stock offerings, or the 1,459,508 shares beneficially
owned after the common stock offerings, by stockholders who acquired such
shares in connection with Y&R's acquisition of KnowledgeBase Marketing,
which the stockholder may be deemed to beneficially own as a result of the
stockholder's having a voting proxy over such shares.

<PAGE>

DESCRIPTION OF CAPITAL STOCK

Y&R is authorized to issue 250,000,000 shares of common stock, par value
$0.01 per share, and 10,000,000 shares of preferred stock, par value $0.01 per
share. As of May 21, 1999, Y&R's issued and outstanding capital stock consisted
of 67,758,242 shares of issued and outstanding common stock held by
approximately 1,135 holders and 87 shares of issued and outstanding Money Market
Preferred Stock, par value $0.01 per share held by one holder. Also as of May
21, 1999, an additional 28,448,743 shares of common stock were issuable upon
exercise of outstanding options. All of Y&R's issued and outstanding capital
stock has been fully paid.

The following description of Y&R's capital stock does not purport to be
complete and is subject to and qualified in its entirety by reference to our
certificate of incorporation and by-laws, which are included as exhibits to the
registration statement of which this prospectus forms a part, and by the
provisions of applicable Delaware law.

Our certificate of incorporation and by-laws contain provisions that are
intended to enhance the likelihood of continuity and stability in the
composition of the board of directors and which may have the effect of delaying,
deterring, or preventing a future takeover or change in control of Y&R unless
the takeover or change in control is approved by the board of directors.

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 common stock, together
with the holders of shares of money market preferred stock, possess all voting
power, except as otherwise required by law or as provided in the certificate of
incorporation. 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 Y&R.
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 of directors, the holders of common stock are
entitled to the dividends, if any, as may be declared from time to time by the
board of directors. Our 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" for a discussion of our
dividend policy. In the event of the liquidation, dissolution or winding up of
Y&R, holders of common stock will be entitled to receive on a pro rata basis any
assets of Y&R remaining after provision for payment of creditors and after
payment of any liquidation preferences to holders of preferred stock.

PREFERRED STOCK

Y&R is authorized to issue 10,000,000 shares of preferred stock. The
board of directors 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 series, to fix the designations and
the relative rights, preferences and limitations of the shares of each series
and the variations in the relative rights, preferences and limitations as
between series, and to increase and decrease the number of shares constituting
each series. See "--Authorized But Unissued Capital Stock" and "--Anti-Takeover
Effects of Provisions of the Certificate of Incorporation, the By-Laws, the
Rights Plan and Delaware Law--Preferred Stock."

The certificate of incorporation 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 of directors, cumulative cash dividends that are
payable quarterly and calculated with reference to the interest rate for the
three-month London 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 of directors and subject to providing

<PAGE>

holders with notice of redemption, be redeemed by Y&R at a redemption price per
share of $115.00 together with all accrued and unpaid dividends. Redeemed money
market preferred stock may be reissued by the board of directors as shares of
the initial 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
and have voting rights equal to one-tenth of one vote for each share of money
market preferred stock.

The certificate of incorporation authorizes a series of preferred stock
designated cumulative participating 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 Provisions of the Certificate of Incorporation, the
By-Laws, the Rights Plan and Delaware Law."

AUTHORIZED BUT UNISSUED CAPITAL STOCK

Based on the calculations set forth above, Y&R estimates that, following
the completion of the common stock offerings, it will have approximately
180,245,272 shares of authorized but unissued common stock (including an
aggregate of 23,854,152 shares reserved for issuance upon the exercise of
options issued to employees, 2,598,105 shares reserved for issuance upon the
exercise of options issued to recapitalization investors, 3,074,484 shares of
common stock reserved for issuance upon the exercise of options granted to
employees on the date of this prospectus and 275,000 shares of common stock
reserved for issuance upon the exercise of options to be granted to employees of
KnowledgeBase Marketing in connection with the acquisition of KnowledgeBase
Marketing) 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 the New York Stock Exchange, require prior stockholder
approval of specified 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. Y&R 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 directors to issue shares to persons friendly to
current management. This type of issuance could render more difficult or
discourage an attempt to obtain control of Y&R by means of a merger, tender
offer, proxy contest or otherwise, and thereby protect the continuity of Y&R's
management and possibly deprive the stockholders of the opportunity to sell
their shares of common stock at prices higher than prevailing market prices.
These additional shares also could be used to dilute the stock ownership of
persons seeking to obtain control of Y&R pursuant to the operation of the rights
plan, which is discussed below. See "--Anti-Takeover Effects of Provisions of
the certificate of incorporation, the by-laws, the Rights Plan and Delaware
Law."

THE MANAGEMENT VOTING TRUST AGREEMENT

Under 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 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, Satish
Korde 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 (1) approved in writing or at a meeting by Peter A.
Georgescu or his successor and any two other voting trustees and (2) any action
approved over the objection of Peter A. Georgescu or his 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 (2) shall require the vote of all the voting
trustees other than Peter A. Georgescu or his 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:

o no person, including the recapitalization investors and the management
voting trust, is the owner of more than 20% of the outstanding shares;

o the number of shares of common stock held by the management voting
trust is less than 10% of the outstanding shares; or

o the voting trustees determine to terminate the management voting
trust.

Under an irrevocable unanimous written consent of the voting trustees,
the management voting trust will terminate 24 months after the completion 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 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 these 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 stock option and
restricted stock agreements, each of the management investors is subject to
non-competition, non-solicitation, confidentiality and notice requirements in
connection with the termination of that person's employment. They include the
following:

o 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 the management investor had a
direct relationship or as to which the management investor had a
significant supervisory responsibility or otherwise was significantly
involved at any time during the two years prior to termination;

o for six months after termination of employment, (1) 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 (2) a
management investor with principally client service related
responsibilities may not work for a competitor of Y&R or its
affiliates on

<PAGE>

the account of or directly for any substantial competitor of any
client of Y&R or any of its affiliates for whom the management
investor had substantial responsibility during the two years prior to
termination;

o for one year after termination of employment, a management investor
may not (1) 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 (2) induce any
Y&R employee to terminate his or her employment with Y&R or any of its
affiliates;

o a management investor shall keep confidential information of Y&R, its
affiliates and their clients learned during his or her employment; and

o a management investor shall give six weeks written notice prior to
voluntary termination unless a shorter period is approved by Y&R.

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 in the management voting trust
agreement, 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 of Y&R in 1996, 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 completion of the IPO, that stockholders' agreement was
terminated, and the H&F investors, the management investors, the management
voting trust and Y&R entered into an 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 of directors for so long as they continue to hold, in the aggregate, at
least 10% of the outstanding shares, and one member of the board of directors
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:

o prior to termination of the management voting trust (which will occur
no later than the second anniversary of the completion 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

o after the termination of the management voting trust and (1) 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 (a) 20% and (b)
the percentage of the outstanding shares subject to the management
voting trust upon termination thereof (the "termination percentage")
less 5% and (2) 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

<PAGE>

that is greater than the greater of (a) 20% and (b) the termination
percentage less 10%,

unless, in any of these cases:

o Y&R fails to arrange for the sale of the 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

o the management voting trust, or, following its termination, Y&R,
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 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.

TRANSFER RESTRICTIONS

The following transfer restrictions apply to shares of common stock
issued to management investors under Regulation S under the Securities Act, but
will not apply to shares of common stock sold in the common stock offerings.
Under the by-laws, any direct or indirect sale, transfer, assignment, pledge,
hypothecation or other encumbrance or disposition, each referred to as a
"Transfer", of legal or beneficial ownership of any stock issued and sold by Y&R
under Regulation S under the Securities Act, may be made only under an effective
registration statement under the Securities Act or in a transaction that is
exempt from, or not subject to, the registration requirements of the Securities
Act. Neither Y&R nor any of its employees or agents will record any Transfer
prohibited by the preceding sentence, and the purported transferee of a
prohibited Transfer will not be recognized as a Y&R securityholder for any
purpose whatsoever in respect of the security or securities that are the subject
of the prohibited Transfer. The purported transferee in a prohibited Transfer
will not be entitled, with respect to the securities purported to be
transferred, to any rights of a Y&R securityholder, including without
limitation, in the case of common stock, the right to vote the common stock or
to receive dividends or distributions, if any, in respect of the common stock.
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 the certificates are subject to these restrictions, unless and
until Y&R determines in its sole discretion that the legend may be removed
consistent with applicable law.

NO PREEMPTIVE RIGHTS

No holder of any class of stock of Y&R has any preemptive right to
subscribe for or purchase any kind or class of securities of Y&R.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the common stock is The Bank of New
York.

RIGHTS PLAN

Y&R has adopted the rights plan and entered into a rights agreement
between Y&R and The Bank of New York, as 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 certificate of incorporation
authorizes the board of directors to adopt a stockholder rights plan such as the
rights plan.

Each right entitles the registered holder under specified circumstances
to purchase from Y&R 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

<PAGE>

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 the liquidation 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 specified dividend aggregates, 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.

Until the close of business on the distribution date, the rights will be
evidenced by the certificates representing shares of common stock and no
separate right certificates will be issued or distributed. All shares of common
stock issued prior to the earlier of the distribution date or the expiration
date will be issued with rights.

The term "distribution date" means the earlier of:

o the tenth business day after the stock acquisition date; and

o the tenth business day (or a later day as may be determined by action
of the board of directors prior to the time as any person becomes an
acquiring person) after the date of the commencement by any person
(other than any company entity) 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 this announcement), a tender or exchange offer the
completion 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 Y&R or an acquiring person indicating that an acquiring person
has become an acquiring person.

The term "acquiring person" means:

(i) any person (other than the H&F investors and other than any
Permitted H&F 15% Transferee) who or which, together with all
affiliates and associates of that person, acquires beneficial
ownership of 15% or more of the then outstanding shares of common
stock (other than as a result of an approved offer);

(ii) the H&F investors if 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 this
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 this
acquisition the H&F investors beneficially own a greater
percentage of the diluted shares outstanding than the percentage
of the diluted shares outstanding subject to the management
voting trust at the time of this 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 that person becoming a Permitted H&F 15% Transferee, that
Permitted H&F 15% Transferee, together with all affiliates and
associates of that Permitted H&F 15% Transferee, acquires
beneficial ownership of any additional shares.

<PAGE>

Notwithstanding the foregoing:

(1) a person shall not become an acquiring person if that 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 Y&R, unless and
until such time as that person purchases or otherwise becomes (as
a result of actions taken by that 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 associates of that 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 that person
promptly (and in any event within 10 business days after being so
requested by Y&R) enters into an irrevocable commitment
satisfactory to the board of directors promptly (and in any event
within 20 business days or a shorter period as shall be determined
by the board of directors) to divest, and thereafter promptly
divests as required by the irrevocable commitment, sufficient
shares of common stock so that that 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 Y&R, any wholly owned subsidiary
of Y&R, any employee benefit plan or employee stock plan of Y&R or any wholly
owned subsidiary of Y&R, any person or entity holding shares of common stock
which was organized, appointed or established by Y&R or any of its wholly owned
subsidiary for or under the terms of any employee benefit plan or employee stock
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 of these trusts and any group that includes the management
voting trust, the restricted stock trust, any trustee under either of these
trusts or any affiliate or associate thereof.

The term "Permitted H&F 15% Transferee" means any person who is a
Permitted H&F Transferee who or which, immediately after the transfer from the
H&F investors that resulted in that person becoming a Permitted H&F Transferee,
together with all affiliates and associates of that 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 in 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 the tender or
exchange offer, by the board of directors.

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 these rights to acquire shares of common stock

<PAGE>

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, these 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.

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 that 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 Y&R purchases or acquires any shares of common
stock prior to the distribution date, any rights associated with those shares of
common stock shall be deemed canceled and retired so that Y&R 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 will be mailed to holders of
record of common stock as of the close of business on the distribution date and
these 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 or have been previously exchanged for shares
of common stock or have been previously redeemed by Y&R as described below.

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 specified circumstances, cash, property or
other securities of Y&R) 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 circumstances
specified in the rights agreement) were, beneficially owned by any acquiring
person and specified 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 specified 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 that 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, (1)
Y&R is acquired in a merger or other business consolidation transaction, (2) Y&R
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 (1) or (2), a merger or consolidation that
would result in all of the voting securities of Y&R outstanding immediately
prior thereto continuing to represent all of the voting securities of Y&R or the
surviving entity outstanding immediately after the merger or consolidation and
holders of these securities not having changed as a result

<PAGE>

of the merger or consolidation) or (3) 50% or more of Y&R'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:

o in the event of a stock dividend on, or a subdivision, combination
or reclassification of, the junior preferred stock (prior to the
distribution date) or the common stock;

o if holders of the junior preferred stock are granted specified
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

o upon the distribution to holders of the junior preferred stock of
evidences of indebtedness or assets (excluding regular quarterly
cash dividends below specified levels or dividends payable in shares
of junior preferred stock) or of subscription rights or warrants,
other than those referred to above.

With 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 Y&R does not have sufficient shares of common stock
issuable upon exercise of the rights following the stock acquisition date, Y&R
may, in some 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, Y&R 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 of
directors. Immediately upon the action of the board of directors 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 of directors
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 common stock. Both the redemption price and the exchange rate are
subject to adjustment.

Until a right is exercised, the holder thereof will have no rights as a
stockholder of Y&R, 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 Y&R, 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
of directors prior to the stock acquisition date. After the stock acquisition
date, the provisions of the rights agreement may be amended by the board of
directors 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 of directors to redeem the rights
may be made when the rights are not redeemable.

As long as the rights are attached to the common stock, Y&R will issue
one right for each share of common stock issued prior to the distribution date
so that all those 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 anti-takeover effects. See "--Anti-Takeover Effects of
Provisions of the

<PAGE>

Certificate of Incorporation, the By-Laws, the Rights Plan and Delaware Law."

The foregoing summary of 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 PROVISIONS OF THE CERTIFICATE OF INCORPORATION, THE
BY-LAWS, THE RIGHTS PLAN AND DELAWARE LAW

The certificate of incorporation, the by-laws, the rights plan and the
Delaware general corporation law contain provisions that could make more
difficult the acquisition of control of Y&R 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 certificate of incorporation, the by-laws, the rights
plan and the Delaware general corporation law. The following description is
intended as a summary only and is qualified in its entirety by reference to the
certificate of incorporation, 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 Delaware general corporation law. Upon completion of
the common stock offerings, the management voting trust will hold 35.2% of the
outstanding shares of common stock (assuming the exercise of all currently
vested options held by management investors), which could discourage potential
acquisition proposals and could delay or prevent a change in control of Y&R. See
"Description of Capital Stock--The Management Voting Trust Agreement."

CLASSIFIED BOARD OF DIRECTORS; REMOVAL OF DIRECTORS. The certificate of
incorporation 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 of directors. 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 Y&R's stockholders held in 1999, 2000 and 2001, respectively.
Starting with the 1999 annual meeting of Y&R's stockholders, one class of
directors will be elected each year for a three-year term. See "Management."

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

With a classified board of directors, 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 of directors. As a result, the
classification of the board of directors of Y&R 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 of directors in a relatively short period of
time. In addition, pursuant to the Delaware general corporation law and the
certificate of incorporation, 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
of directors delays stockholders who do not agree with the policies of the board
of directors from replacing directors, unless they can demonstrate that the
directors should be removed for cause and obtain the requisite vote. This delay
may help ensure that the board of directors, 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 Y&R's
stockholders.

FILLING VACANCIES ON THE BOARD OF DIRECTORS. The certificate of
incorporation provides that, subject to the rights of holders of any shares of
preferred stock, any vacancy in the board of directors 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 certificate of
incorporation provides that any other vacancy in the board of directors 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

<PAGE>

provisions could temporarily prevent any stockholder from obtaining majority
representation on the board of directors by enlarging the board of directors and
filling the new directorships with its own nominees.

WRITTEN CONSENTS AND SPECIAL MEETINGS. The certificate of incorporation
provides that no action required or permitted to be taken at any annual or
special meeting of stockholders may be taken by stockholders of Y&R except at an
annual or special meeting. The by-laws provide that special meetings of
stockholders may be called only by the chairman of the board of directors or the
board of directors. Stockholders are not permitted to call a special meeting or
to require that the board of directors 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 certificate of incorporation
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 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 the 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 directors, of candidates for
election as directors, or the bringing before any annual meeting of any
stockholder proposal, which we refer to as 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
of directors may be transacted and candidates for director other than those
selected by the board of directors may be nominated at the annual meeting only
if the Secretary of Y&R has received a written notice identifying the 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 of directors has set a different date for the annual meeting,
not less than ninety nor more than one hundred twenty days before the other date
or, if the other date has not been publicly disclosed or announced at least one
hundred five days in advance, then not less than fifteen days after its 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 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 of directors a meaningful opportunity to
consider the qualifications of the proposed nominees and, to the extent deemed
necessary or desirable by the board of directors, to inform the stockholders
about these qualifications. By requiring advance notice of proposed business,
the notice of meeting provision will provide the board of directors with a
meaningful opportunity to inform stockholders, prior to the meeting, of any
business proposed to be conducted at the meeting, together with any
recommendation or statement of the board of directors' position as to action to
be taken with respect to the proposed business, so as to enable stockholders
better to determine whether they desire to attend the meeting or to grant a
proxy to the board of directors as to the disposition of any proposed business.
Although the by-laws do not give the board of directors 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 these nominees or proposals
might be harmful or beneficial to Y&R and its stockholders.

<PAGE>

RESTRICTIONS ON AMENDMENT. The certificate of incorporation 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 certificate of incorporation:

o classifying the board of directors;

o governing the removal of directors;

o establishing the minimum and maximum number of members of the board of
directors;

o eliminating the ability of stockholders to act by written consent;

o authorizing the board of directors to consider the interests of
clients and other customers, creditors, employees and other
constituencies of Y&R and its subsidiaries and the effect upon
communities in which Y&R and its subsidiaries do business, in
evaluating proposed corporate transactions;

o establishing the board of directors' authority to issue, without a
vote or any other action of the stockholders, any or all authorized
shares of stock of Y&R, securities convertible into or exchangeable
for any authorized shares of stock of Y&R and warrants, options or
rights to purchase, subscribe for or otherwise acquire shares of stock
of Y&R for any of these forms of consideration and on such terms as
the board of directors in its discretion lawfully may determine; and

o authorizing the by-laws of Y&R to establish procedures regulating the
submission by stockholders of nominations and proposals for
consideration at meetings of stockholders of Y&R. In addition, the
certificate of incorporation provides that the approval of the board
of directors 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 certificate of incorporation or to
adopt any provision of the certificate of incorporation inconsistent
with the above provisions or to alter, amend or repeal specified
provisions of the by-laws or to adopt any provision of the by-laws
inconsistent with the above provisions.

PREFERRED STOCK. Subject to the certificate of incorporation and
applicable law, the authority of the board of directors 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 each series, the number of shares initially constituting each
series and whether to increase or decrease the 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 each series and, if so, the terms and conditions
thereof, and whether a purchase fund shall be provided for the shares of each
series and, if so, the terms and conditions thereof.

Y&R 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 these authorized
shares available for issuance will allow Y&R 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 further action
is required by applicable law or the rules of any stock exchange on which Y&R's
securities may be listed. Although the board of directors 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 this series,
impede the completion of a merger, tender offer or other takeover attempt. For
instance, subject to applicable law, this series of preferred stock might impede
a business combination by including class voting rights that would enable the
holder to block the transaction. The board of directors will make any
determination to issue these shares based on its judgment as to

<PAGE>

the best interests of Y&R and its stockholders. The board of directors, 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 the stock. See "--Rights Plan."

OTHER CONSIDERATIONS. Our certificate of incorporation 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 Y&R, the board
of directors may, but shall not be obligated to, take into account the interests
of clients and other customers, creditors, employees and other constituencies of
Y&R and its subsidiaries and the effect upon communities in which Y&R and its
subsidiaries do business.

EFFECTS OF THE RIGHTS PLAN. The rights plan is designed to protect
stockholders of Y&R in the event of unsolicited offers to acquire Y&R and other
coercive takeover tactics which, in the opinion of the board of directors, could
impair its ability to represent stockholder interests. The provisions of the
rights agreement may render an unsolicited takeover of Y&R more difficult or
less likely to occur or might prevent the takeover, even though the takeover may
offer Y&R'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 Y&R's
stockholders. See "--Rights Plan." The certificate of incorporation authorizes
the board of directors to adopt a stockholder rights plan.

DELAWARE BUSINESS COMBINATION STATUTE. The terms of Section 203 of the
Delaware general corporation law apply to Y&R. With exceptions, Section 203
generally prohibits an "interested stockholder" from engaging in a broad range
of "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 the person became an interested
stockholder unless:

o the transaction that results in the person's becoming an interested
stockholder or the business combination is approved by the board of
directors of directors of the corporation before the person becomes an
interested stockholder;

o upon completion 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 employee stock
plans; or

o on or after the date the person becomes an interested stockholder, the
business combination is approved by the corporation's board of
directors 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 that person), other than the
corporation and any direct or indirect majority-owned subsidiary, that is:

o the owner of 15% or more of the outstanding voting stock of the
corporation; or

o 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 that 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 this 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 certificate of incorporation and by-laws do not
exclude Y&R from the

<PAGE>

restrictions imposed under Section 203, but the certificate of incorporation
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 common
stock or other voting stock owned by the H&F investors or the Permitted H&F 15%
Transferee, be deemed an interested stockholder for any purpose under Section
203 whatsoever.

In some 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 Y&R to negotiate in advance with the
board of directors, because the stockholder approval requirement would be
avoided if the board of directors approves either the business combination or
the transaction which results in the stockholder becoming an interested
stockholder. These provisions also may have the effect of preventing changes in
the board of directors. It is further possible that these 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 common stock offerings could adversely affect the market price of
the common stock and could impair Y&R's future ability to raise capital through
the sale of its equity securities.

Upon the closing of the common stock offerings, Y&R will have outstanding
69,754,728 shares of common stock. Of these shares, approximately:

o 50,418,036 shares will be freely tradeable by persons, other than
"affiliates" of Y&R, without restriction under the Securities Act; and

o 19,336,692 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.

In general, under Rule 144 as currently in effect, a person or persons
whose shares are aggregated, including any affiliate of Y&R, who has
beneficially owned restricted securities for at least one year, including the
holding period of any prior owner except an affiliate of Y&R, would be entitled
to sell within any three-month period, a number of shares that does not exceed
the greater of:

o one percent of the number of common stock then outstanding
(approximately 697,547 shares immediately after the common stock
offerings); or

o the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to the
sale.

Sales under Rule 144 are also subject to manner of sale and notice
requirements and to the availability of current public information about Y&R.
Under Rule 144(k), a person who is not deemed to have been an affiliate of Y&R
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 Y&R, is entitled to sell these shares
without complying with the manner of sale, public information requirements,
volume limitations or notice requirements of Rule 144. Sales of shares by
affiliates of Y&R will continue to be subject to these volume limitations, and
manner of sale, notice and public information requirements.

REGISTRATION RIGHTS AGREEMENT

In connection with the recapitalization of Y&R in 1996, 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 sales of
common stock by the management investor would not otherwise be permitted, the
management investors, under which registration rights are available after the
completion of the common stock offerings. Under the registration rights
agreement, Y&R has granted:

o the recapitalization investors the right to require, subject to the
terms and conditions set forth in the registration rights agreement,
Y&R to register shares of common stock held by them for sale in
accordance with their intended method of disposition of those shares;
and

o the management voting trust the right to require, subject to the terms
and conditions set forth in the registration rights agreement, Y&R to
register the number of shares of common stock as is necessary to
permit management investors to pay taxes as a result of the exercise
by the management investors of rollover options or closing options or
the vesting of restricted stock awarded to the management investors
(each a "demand registration"), provided that in the case of the
management voting trust this request may not be made without the
consent of Y&R.

Subject to limitations set forth in the registration rights agreement,
the recapitalization investors may request up to four demand registrations and
the management voting trust may request up to two demand registrations. Y&R will
not be required to effect any demand registration if:

<PAGE>

o the aggregate market value of the shares of common stock proposed to
be registered is less than $100 million; or

o the 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.

Y&R may postpone the filing of a demand registration for up to 60 days in
some circumstances.

In addition, Y&R has granted the recapitalization investors and the
management voting trust (to the extent of the number of shares of common stock
as is necessary to permit management investors to pay taxes as a result of the
exercise by the management investors of rollover options or closing options or
the vesting of restricted stock awarded to the management investors) the right,
subject to exceptions set forth in the registration rights agreement, to
participate in registrations of common stock initiated by Y&R on its own behalf
or on behalf of any other stockholder (a "piggy-back registration"). The
recapitalization investors exercised these piggy-back registration rights in
connection with the offering of common stock completed on November 30, 1998.

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 Y&R, 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 that offering.
See "Underwriting."

Y&R 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. In connection with any
registration under the registration rights agreement, Y&R has agreed to
indemnify five of the recapitalization investors against liabilities, including
liabilities under the Securities Act, and to contribute to 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 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 (1) a U.S. court
is able to exercise primary supervision over the trust's administration and (2)
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,
the 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 an individual non-U.S.
holder at the time of death will be included in the 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 this 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 (1) is a U.S. person, (2) derives 50
percent or more of its gross income for certain periods from the conduct of a
trade or business in the United States, (3) is a "controlled foreign
corporation" as to the United States, or (4) with respect to payments made after
December 31, 2000, 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 any such
case the broker has documentary

<PAGE>

evidence 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
May 24, 1999 (the "Underwriting Agreement"), the U.S. Underwriters named below
(the "U.S. 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, Morgan Stanley & Co.
Incorporated and Salomon Smith Barney Inc. (the "U.S. Representatives"), and the
International Managers named below (the "International Managers" and, together
with the U.S. Underwriters, the "Underwriters"), who are represented by Bear,
Stearns International Limited, Cazenove & Co., Donaldson, Lufkin & Jenrette
International, Goldman Sachs International, ING Barings Ltd. as agent for ING
Bank N.V., London Branch, Morgan Stanley & Co. International Limited and Salomon
Brothers International Limited (the "International Representatives", and
together with the U.S. Representatives, 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
U.S. UNDERWRITERS OF SHARES
----------------- ---------
<S> <C>
Bear, Stearns & Co. Inc. ........................................... 3,000,000
Donaldson, Lufkin & Jenrette Securities Corporation ................ 3,000,000
Goldman, Sachs & Co. ............................................... 1,500,000
ING Baring Furman Selz LLC ......................................... 1,500,000
Morgan Stanley & Co. Incorporated .................................. 1,500,000
Salomon Smith Barney Inc. .......................................... 1,500,000
---------
Subtotal .......................................................... 12,000,000

INTERNATIONAL MANAGERS
----------------------
Bear, Stearns International Limited ................................ 600,000
Cazenove & Co. ..................................................... 600,000
Donaldson, Lufkin & Jenrette International ......................... 600,000
Goldman Sachs International ........................................ 300,000
ING Barings Ltd. as agent for ING Bank N.V., London Branch ......... 300,000
Morgan Stanley & Co. International Limited ......................... 300,000
Salomon Brothers International Limited ............................. 300,000
----------
Subtotal .......................................................... 3,000,000
----------
Total ............................................................ 15,000,000
==========
</TABLE>

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

The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of common stock
offered by this prospectus are subject to approval by their counsel of legal
matters and to other conditions set forth in the Underwriting Agreement. 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 that price less a concession not in excess of $0.76 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.

The H&F investors and certain other selling stockholders have granted to
the U.S. Underwriters an option, exercisable within 30 days after the date of
this prospectus, to purchase,

<PAGE>

from time to time, in whole or in part, up to an aggregate of 2,250,000
additional shares of common stock at the initial public offering price less
underwriting discounts and commissions. The U.S. Underwriters may exercise such
option solely to cover over-allotments, if any, made in connection with the
common stock offerings. To the extent that the U.S. Underwriters exercise such
option, each U.S. Underwriter will become obligated, subject to certain
conditions, to purchase its pro rata portion of these additional shares based on
the U.S. Underwriter's percentage underwriting commitment in the U.S. portion of
the common stock offerings as indicated in the preceding table.

Y&R 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 of those liabilities.

Each of Y&R, certain of the management investors and certain other
stockholders, including the selling stockholders, who upon completion of the
common stock offerings collectively will hold an aggregate of 36,215,618 shares
and shares subject to vested options, has agreed not to:

o 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

o 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 these transactions are
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, Y&R),

except that:

o Y&R may grant stock options or stock awards under Y&R's existing
benefit or compensation plans;

o Y&R may issue shares of common stock upon the exercise of options,
warrants or rights or the conversion of currently outstanding
securities;

o 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;

o Y&R 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, by
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; and

o Y&R and any management investor may enter into any transaction or
arrangement pursuant to which Y&R withholds delivery of shares of
common stock (including shares of common stock (a) held in the
restricted stock trust under our restricted stock plan, as amended,
(b) held in the deferral trust under our deferred compensation plan or
(c) deliverable pursuant to the exercise of options) to any management
investor or accepts delivery of shares of common stock or options to
purchase shares of common stock from any management investor to fund
taxes due as a result of the exercise of options by such management
investor or as a result of the receipt of shares from such trusts or
to pay the exercise price in respect of options exercised by such
management investor.

In addition, during this period, Y&R has also agreed not to file any
registration statement with respect to, and each of its executive officers,
directors and certain stockholders of Y&R, 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.

Y&R has agreed with the Underwriters to enforce Y&R's rights under the
foregoing agreements to prohibit transfers of common

<PAGE>

stock and the making of demands for registration of common stock. In addition,
certain of the management investors hold an aggregate of 3,501,733 shares of
common stock in a deferral trust under the deferred compensation plan, which
shares are not transferable for a period of at least 120 days.

Under an Agreement Between U.S. Underwriters and International Managers
(the "Intersyndicate Agreement"), each U.S. Underwriter has represented and
agreed that, with certain exceptions:

o it is not purchasing any shares of common stock offered by this
prospectus for the account of anyone other than a United States or
Canadian Person (as defined below); and

o it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares of common stock offered by this prospectus or
distribute any prospectus relating to such shares of common stock
outside the United States or Canada or to anyone other than a United
States or Canadian Person.

Under the Intersyndicate Agreement, each International Manager has
represented and agreed that, with certain exceptions:

o it is not purchasing any shares of common stock offered by this
prospectus for the account of any United States or Canadian Person;
and

o it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares of common stock offered by this prospectus or
distribute any prospectus relating to such shares of common stock in
the United States or Canada or to any United States or Canadian
Person.

With respect to any Underwriter that is both a U.S. Underwriter and an
International Manager, the foregoing representations and agreements (1) made by
it in its capacity as a U.S. Underwriter apply only to it in its capacity as a
U.S. Underwriter and (2) made by it in its capacity as an International Manager
apply only to it in its capacity as an International Manager. The foregoing
limitations do not apply to stabilization transactions and to other transactions
specified in the Intersyndicate Agreement. As used herein, "United States or
Canadian Person" means any individual who is resident in the United States or
Canada, or any corporation, pension, profit-sharing or other trust or other
entity organized under or governed by the laws of the United States or Canada or
of any political subdivision thereof, other than the foreign branch of any
United States or Canadian Person, and includes any United States or Canadian
branch of a person other than a United States or Canadian Person.

Under the Intersyndicate Agreement, sales may be made between the
syndicates of U.S. Underwriters and International Managers of a number of the
shares of common stock offered by this prospectus as may be mutually agreed.
Unless otherwise determined by the Representatives, the per share price of any
shares of common stock so sold shall be the initial public offering price set
forth on cover page hereof, in United States dollars, less an amount not greater
than the per share amount of the concession to dealers set forth above.

Under the Intersyndicate Agreement, each U.S. Underwriter has represented
and agreed that:

o it has not offered or sold and will not offer or sell, directly or
indirectly, any shares of common stock offered by this prospectus in
any province or territory of Canada or to, or for the benefit of, any
resident of any province or territory of Canada in contravention of
the securities laws thereof; and

o without limiting the generality of the foregoing, any offer or sale of
such shares of common stock in Canada will be made only under an
exemption from the requirement to file a prospectus in the province or
territory of Canada in which such offer or sale is made.

Each U.S. Underwriter has further agreed to send to any dealer who
purchases from it any shares of common stock offered by this prospectus a notice
stating in substance that by purchasing those shares of common stock that dealer
represents and agrees that:

o it has not offered or sold and will not offer or sell, directly or
indirectly, any of those shares of common stock in any province or
territory of Canada or to, or for the benefit

<PAGE>

of, any resident of any province or territory of Canada in
contravention of securities laws thereof;

o any offer or sale of those shares of common stock in Canada will be
made only under an exemption from the requirement to file a prospectus
in the province or territory of Canada in which such offer or sale is
made; and

o it will send to any other dealer to whom it sells any of those shares
of common stock a notice containing substantially the same statement
as is contained in this sentence.

Under the Intersyndicate Agreement, each International Manager has
represented and agreed that:

o it has not offered or sold and, prior to the date six months after the
closing date for the sale of shares of common stock to the
International Managers under the Underwriting Agreement, will not
offer or sell, any shares of common stock offered by this prospectus
to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing
of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which have not resulted and
will not result in an offer to the public in the United Kingdom within
the meaning of the Public Offers of Securities Regulations 1995;

o it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the shares of common stock offered by this prospectus in,
from or otherwise involving the United Kingdom; and

o it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the
common stock offerings to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom the
document may otherwise lawfully be issued or passed on.

Under the Intersyndicate Agreement, each International Manager has
further represented and agreed that it has not offered or sold and will not
offer or sell, directly or indirectly, any shares of common stock acquired in
connection with the distribution contemplated by this prospectus in Japan or to
or for the account of any resident thereof, except for offers or sales to
Japanese International Managers or dealers and except under an exemption from
the registration requirements of the Securities and Exchange Law of Japan and
otherwise in compliance with applicable provisions of Japanese law. Each
International Manager has further agreed to send to any dealer who purchases
from it any shares of common stock offered by this prospectus a notice stating
in substance that by purchasing such shares of common stock such dealer
represents and agrees that:

o it has not offered or sold and will not offer or sell, directly or
indirectly, any of those shares of common stock in Japan or to or for
the account of any resident thereof, except for offers or sales to
Japanese International Managers or dealers and except under an
exemption from the registration requirements of the Securities and
Exchange Law of Japan and otherwise in compliance with applicable
provisions of Japanese law; and

o it will send to any other dealer to whom it sells any of such shares
of common stock a notice containing substantially the same statement
as is contained in this sentence.

Other than in the United States, no action has been taken by Y&R, the
selling stockholders or the Underwriters that would permit a public offering of
the shares of common stock offered by this prospectus in any jurisdiction where
action for that purpose is required. The shares of common stock offered by this
prospectus 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 that jurisdiction.
Persons into whose possession this prospectus comes are advised to inform
themselves about and to observe any restrictions relating to the common stock
offerings and the distribution of this prospectus. This prospectus

<PAGE>

does not constitute an offer to sell or a solicitation of an offer to buy any
shares of common stock offered by this prospectus in any jurisdiction in which
such an offer or a solicitation is unlawful.

In order to facilitate the common stock offerings, the Underwriters
participating in the common stock offerings may engage in transactions that
stabilize, maintain or otherwise affect the price of the common stock during and
after the common stock offerings. Prior to the close of trading on May 24, 1999,
Bear Stearns engaged in stabilization transactions by purchasing an aggregate of
78,000 shares of common stock in the open market at a price of $37.25 per share.
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 Y&R. The Underwriters may elect to
cover this 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, the Underwriters 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 common stock offerings are
reclaimed if shares previously distributed in the common stock offerings are
repurchased in connection with stabilization transactions or otherwise. The
effect of these transactions may be to stabilize 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 of the common stock. No representation is
made as to the magnitude or effect of any stabilization or other transactions.
These transactions, if commenced, may be discontinued at any time.

Bear Stearns and DLJ from time to time perform investment banking and
other financial services for Y&R and its affiliates for which Bear Stearns and
DLJ may receive advisory or transaction fees, as applicable, plus out-of-pocket
expenses, of the nature and in amounts customary in the industry for these
financial services. Alan D. Schwartz, an Executive Vice President and Head of
the Investment Banking Department of Bear Stearns, is a member of the board of
directors. BearTel Corp., a wholly owned subsidiary of The Bear Stearns
Companies Inc., the parent company of Bear Stearns, is a selling stockholder in
the common stock offerings. See "Selling Stockholders."

LEGAL MATTERS

The validity of the shares of common stock offered by this prospectus
will be passed upon for Y&R by Cleary, Gottlieb, Steen & Hamilton, New York, New
York. Certain legal matters in connection with the common stock offerings 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, 1998 and 1997
and for each of the three years in the period ended December 31, 1998 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.

AVAILABLE INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1. 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 Y&R 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 a contract or other document
is an exhibit to the registration statement, each of those statements is
qualified in all respects by the provisions of the exhibit, to which reference
is hereby made.

We are required to file annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange

<PAGE>

Commission. You may review the registration statement, as well as reports and
other information we have filed, without charge at the Commission'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 statements 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, 1998 and 1997 ............................. F-3
Consolidated Statements of Operations for the three years ended December 31, 1998 ........ F-4
Consolidated Statements of Cash Flows for the three years ended December 31, 1998 ........ F-5
Consolidated Statements of Changes in Equity (Deficit) for the three years ended December
31, 1998 ................................................................................. F-6
Notes to Consolidated Financial Statements ............................................... F-7
Quarterly Financial Information .......................................................... F-26
Consolidated Balance Sheets as of March 31, 1999 (unaudited) and December 31, 1998 ....... F-27
Unaudited Consolidated Statements of Operations for the three months ended March 31, 1999
and 1998 ................................................................................ F-28
Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 1999
and 1998 ................................................................................ F-29
Notes to Unaudited Consolidated Financial Statements ..................................... F-30
Financial Statement Schedule II--Valuation and Qualifying Accounts ....................... S-1

</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. (the "Company") and its subsidiaries at
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, 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.

PricewaterhouseCoopers LLP
New York, New York
February 16, 1999

F-2

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1998 1997
-------------- --------------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ............................................................... $ 122,138 $ 160,263
Accounts receivable, net of allowance for doubtful accounts of $17,938 and $14,125 at
December 31, 1998 and 1997, respectively ............................................... 835,284 790,342
Costs billable to clients ............................................................... 55,187 60,267
Other receivables ....................................................................... 37,177 35,218
Deferred income taxes ................................................................... 46,803 32,832
Prepaid expenses and other assets ....................................................... 25,979 17,989
----------- -----------
Total Current Assets ................................................................... 1,122,568 1,096,911
----------- -----------
NONCURRENT ASSETS
Property and equipment, net ............................................................. 150,413 125,014
Deferred income taxes ................................................................... 158,646 124,192
Goodwill, less accumulated amortization of $84,292 and $80,166 at December 31, 1998
and 1997, respectively ................................................................. 120,075 116,637
Equity in net assets of and advances to unconsolidated companies ........................ 38,397 26,393
Other assets ............................................................................ 45,156 48,660
----------- -----------
Total Noncurrent Assets ................................................................ 512,687 440,896
----------- -----------
Total Assets ........................................................................... $ 1,635,255 $ 1,537,807
=========== ===========
CURRENT LIABILITIES
Loans payable ........................................................................... $ 31,365 $ 10,765
Accounts payable ........................................................................ 1,008,624 861,939
Accrued expenses and other liabilities .................................................. 203,099 235,253
Accrued payroll and bonuses ............................................................. 77,078 65,458
Income taxes payable .................................................................... 19,290 29,665
----------- -----------
Total Current Liabilities .............................................................. 1,339,456 1,203,080
----------- -----------
NONCURRENT LIABILITIES
Loans payable ........................................................................... 31,494 330,552
Deferred compensation ................................................................... 30,635 31,077
Other liabilities ....................................................................... 114,128 119,354
----------- -----------
Total Noncurrent Liabilities ........................................................... 176,257 480,983
----------- -----------
Commitments and Contingencies (Note 19) ..................................................
Minority Interest ........................................................................ 4,573 6,987
----------- -----------
MANDATORILY REDEEMABLE EQUITY SECURITIES
Common stock, par value $.01 per share; authorized--250,000,000 shares; issued
and outstanding--0 shares and 50,658,180 shares at December 31, 1998 and 1997,
respectively ........................................................................... -- 508,471
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Money Market Preferred Stock--cumulative variable dividend; liquidating value
of $115 per share; one-tenth of one vote per share; authorized--50,000 shares;
issued and outstanding--87 shares at December 31, 1998 and 1997 ........................ -- --
Cumulative Participating Junior Preferred Stock--minimum $1.00 dividend;
liquidating value of $1.00 per share; 100 votes per share; authorized--2,500,000
shares; issued and outstanding--0 shares at December 31, 1998 and 1997 ................. -- --
Common stock, par value $.01 per share; authorized--250,000,000 shares; issued and
outstanding--66,374,569 shares and 11,086,950 shares at December 31, 1998 and
1997, respectively (excluding 3,976,941 shares and 1,115,160 shares in treasury) ....... 704 111
Capital surplus ......................................................................... 934,676 23,613
Accumulated deficit ..................................................................... (758,292) (522,866)
Cumulative translation adjustment ....................................................... (10,810) (16,577)
Pension liability adjustment ............................................................ (1,738) (706)
----------- -----------
164,540 (516,425)
Common stock in treasury, at cost ....................................................... (49,571) (8,550)
Unearned compensation--Restricted Stock ................................................. -- (136,739)
----------- -----------
Total Stockholders' Equity (Deficit) ................................................... 114,969 (661,714)
----------- -----------
Total Liabilities, Mandatorily Redeemable Equity Securities and Stockholders'
Equity (Deficit) .................................................................... $ 1,635,255 $ 1,537,807
=========== ===========
</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,
-----------------------------------------
1998 1997 1996
------------- ------------- -------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenues .................................................... $ 1,522,464 $ 1,382,740 $1,222,139
Compensation expense, including employee benefits ........... 903,948 836,150 730,261
General and administrative expenses ......................... 455,578 463,936 391,617
Other operating charges ..................................... 234,449 11,925 17,166
Recapitalization-related charges ............................ -- -- 315,397
----------- ----------- ----------
Operating expenses .......................................... 1,593,975 1,312,011 1,454,441
----------- ----------- ----------
(Loss) income from operations ............................... (71,511) 70,729 (232,302)
Interest income ............................................. 8,315 8,454 10,269
Interest expense ............................................ (26,001) (42,879) (28,584)
Other income ................................................ 2,200 -- --
----------- ----------- ----------
(Loss) income before income taxes ........................... (86,997) 36,304 (250,617)
Income tax (benefit) provision .............................. (2,644) 58,290 (20,611)
----------- ----------- ----------
(84,353) (21,986) (230,006)
Equity in net income (loss) of unconsolidated companies 4,707 342 (9,837)
Minority interest in net (income) loss of consolidated
subsidiaries ............................................... (1,989) (2,294) 1,532
----------- ----------- ----------
Loss before extraordinary charge ............................ (81,635) (23,938) (238,311)
Extraordinary charge for early retirement of debt, net of
tax benefit of $2,834 ...................................... (4,433) -- --
----------- ----------- ----------
Net loss .................................................... $ (86,068) $ (23,938) $ (238,311)
=========== =========== ==========
Loss per share (basic and diluted):
Loss before extraordinary charge ........................... $ (1.34) $ (0.51)
Extraordinary charge ....................................... (0.08) --
----------- -----------
Net loss ................................................... $ (1.42) $ (0.51)
=========== ===========
Weighted average shares outstanding (Note 3) ................ 60,673,994 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

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1998
--------------
(IN THOUSANDS)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................................... $ (86,068)
Adjustments to reconcile net loss to net cash provided by operating activities:
Recapitalization-related charges ...................................................... --
Depreciation and amortization ......................................................... 60,610
Extraordinary charge, net ............................................................. 4,433
Other operating charges ............................................................... 234,449
Deferred income tax benefit ........................................................... (38,664)
Equity in net (income) loss of unconsolidated companies ............................... (4,707)
Dividends from unconsolidated companies ............................................... 3,467
Minority interest in net income (loss) of consolidated subsidiaries ................... 1,989
Change in assets and liabilities, excluding effects from acquisitions, dispositions,
recapitalization and foreign exchange:
Accounts receivable ................................................................... (29,398)
Costs billable to clients ............................................................. 5,418
Other receivables ..................................................................... (2,346)
Prepaid expenses and other assets ..................................................... (6,702)
Accounts payable ...................................................................... 87,290
Accrued expenses and other liabilities ................................................ (29,374)
Accrued payroll and bonuses ........................................................... 8,869
Income taxes payable .................................................................. (10,652)
Deferred compensation ................................................................. 3,234
Other ................................................................................. (6,233)
-----------
Net cash provided by operating activities .............................................. $ 195,615
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ................................................... $ (76,378)
Acquisitions, net of cash acquired .................................................... (17,423)
Investment in net assets of and advances to unconsolidated companies .................. (7,072)
Proceeds from notes receivable ........................................................ 1,190
-----------
Net cash used in investing activities .................................................. $ (99,683)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable, long-term ................................................ 225,834
Repayment of loans payable, long-term ................................................. (524,883)
Proceeds from loans payable, short-term, net .......................................... 71,997
Proceeds from issuance of common stock in initial public offering, net ................ 158,637
Deferred financing costs .............................................................. (667)
Recapitalization cash contributions ................................................... --
Recapitalization payments ............................................................. --
Payments of non-recapitalization deferred compensation ................................ (3,535)
Common stock/LPUs issued .............................................................. 7,995
Common stock/LPUs repurchased ......................................................... (60,956)
Payment of installment notes, net ..................................................... (8,883)
Other financing activities ............................................................ (1,781)
-----------
Net cash used in financing activities .................................................. $ (136,242)
-----------
Effect of exchange rate changes on cash and cash equivalents ........................... 2,185
Net (decrease) increase in cash and cash equivalents ................................... (38,125)
Cash and cash equivalents, beginning of period ......................................... 160,263
-----------
Cash and cash equivalents, end of period ............................................... $ 122,138
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ......................................................................... $ 29,439
===========
Income taxes paid ..................................................................... $ 36,288
===========

NONCASH INVESTING ACTIVITY:
Common stock issued in acquisition .................................................... $ --
===========
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996
-------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................................... $ (23,938) $ (238,311)
Adjustments to reconcile net loss to net cash provided by operating activities:
Recapitalization-related charges ...................................................... -- 315,397
Depreciation and amortization ......................................................... 56,721 53,030
Extraordinary charge, net ............................................................. -- --
Other operating charges ............................................................... 11,925 11,096
Deferred income tax benefit ........................................................... (384) (59,671)
Equity in net (income) loss of unconsolidated companies ............................... (342) 9,837
Dividends from unconsolidated companies ............................................... 2,728 2,691
Minority interest in net income (loss) of consolidated subsidiaries ................... 2,294 (1,532)
Change in assets and liabilities, excluding effects from acquisitions,
dispositions, recapitalization and foreign exchange:
Accounts receivable ................................................................... 42,144 (209,518)
Costs billable to clients ............................................................. 15,834 7,784
Other receivables ..................................................................... 13,930 (2,883)
Prepaid expenses and other assets ..................................................... 269 8,776
Accounts payable ...................................................................... 69,324 256,460
Accrued expenses and other liabilities ................................................ (15,368) (7,565)
Accrued payroll and bonuses ........................................................... 2,179 3,192
Income taxes payable .................................................................. 19,352 4,263
Deferred compensation ................................................................. 13,052 4,950
Other ................................................................................. 14,791 20,068
---------- -----------
Net cash provided by operating activities .............................................. $ 224,511 $ 178,064
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ................................................... $ (51,899) $ (51,792)
Acquisitions, net of cash acquired .................................................... (11,281) (23,887)
Investment in net assets of and advances to unconsolidated companies .................. (5,640) (775)
Proceeds from notes receivable ........................................................ 1,678 360
---------- -----------
Net cash used in investing activities .................................................. $ (67,142) $ (76,094)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable, long-term ................................................ 226,770 319,282
Repayment of loans payable, long-term ................................................. (105,870) (252,496)
Proceeds from loans payable, short-term, net .......................................... 20,103 27,849
Proceeds from issuance of common stock in initial public offering, net ................ -- --
Deferred financing costs .............................................................. -- (9,157)
Recapitalization cash contributions ................................................... -- 242,007
Recapitalization payments ............................................................. (247,789) (323,920)
Payments of non-recapitalization deferred compensation ................................ (1,118) (11,624)
Common stock/LPUs issued .............................................................. 10,390 4,163
Common stock/LPUs repurchased ......................................................... (1,500) (8,971)
Payment of installment notes, net ..................................................... -- --
Other financing activities ............................................................ 347 253
---------- -----------
Net cash used in financing activities .................................................. $ (98,667) $ (12,614)
---------- -----------
Effect of exchange rate changes on cash and cash equivalents ........................... (8,619) (822)
Net (decrease) increase in cash and cash equivalents ................................... 50,083 88,534
Cash and cash equivalents, beginning of period ......................................... 110,180 21,646
---------- -----------
Cash and cash equivalents, end of period ............................................... $ 160,263 $ 110,180
========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ......................................................................... $ 39,986 $ 28,612
========== ===========
Income taxes paid ..................................................................... $ 25,020 $ 20,732
========== ===========

NONCASH INVESTING ACTIVITY:
Common stock issued in acquisition .................................................... $ 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 CAPITAL
STOCK STOCK STOCK EQUITY SURPLUS
----------- ------------ ----------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 .............. $ 66 $ 4,000 $ -- $ 2,536 $ 57,103
==== ======== ===== ======== ==========
Net loss .................................. -- -- -- -- --
Foreign currency translation
adjustments .............................. -- -- -- -- --
Minimum pension liability adjustments. -- -- -- -- --
---- -------- ----- -------- ----------
Comprehensive income (loss) .............. -- -- -- -- --
Dividends paid ............................ -- -- -- -- --
Common stock/Limited Partnership
Units issued ............................. 3 -- -- 4,067 13,269
Limited Partnership Units
repurchased/capital distributions ........ -- -- -- (2,370) --
Common stock repurchased .................. (2) -- -- -- (14,699)
Recapitalization redemptions .............. (67) (3,900) -- (1,534) (36,435)
Recapitalization issuances ................ -- -- 427 -- 326,590
Recapitalization exchanges ................ -- (100) 158 (2,914) 122,732
Mandatorily Redeemable Equity
Securities ............................... -- -- (474) -- (362,790)
Equityholder loans ........................ -- -- -- 215 1,055
------ -------- ----- -------- ----------
BALANCE AT DECEMBER 31, 1996 .............. $ -- $ -- $ 111 $ -- $ 106,825
====== ======== ===== ======== ==========
Net loss .................................. -- -- -- -- --
Foreign currency translation
adjustments .............................. -- -- -- -- --
Minimum pension liability adjustments -- -- -- -- --
------ -------- ----- -------- ----------
Comprehensive income (loss) .............. -- -- -- -- --
Common stock issued ....................... -- -- -- -- 1,501
Common stock repurchased .................. -- -- -- -- --
Unearned compensation -- Restricted
Stock .................................... -- -- -- -- 51,739
Common stock options exercised ............ -- -- 44 -- 8,711
Accretion of Mandatorily Redeemable

Equity Securities ........................ -- -- (44) -- (145,163)
------ -------- ----- -------- ----------
BALANCE AT DECEMBER 31, 1997 .............. $ -- $ -- $ 111 $ -- $ 23,613
====== ======== ===== ======== ==========
Net loss .................................. -- -- -- -- --
Foreign currency translation
adjustments .............................. -- -- -- -- --
Minimum pension liability adjustments -- -- -- -- --
------ -------- ----- -------- ----------
Comprehensive income (loss) .............. -- -- -- -- --
Issuance of Restricted Stock .............. -- -- -- -- 94,039
Common stock options exercised and
other .................................... -- -- 17 -- 1,134
Common stock repurchased .................. -- -- -- -- --
Issuance of common stock in initial
public offering, net of expenses ......... -- -- 69 -- 158,568
Accretion of Mandatorily Redeemable
Equity Securities ........................ -- -- (3) -- (137,942)
Conversion of Mandatorily
Redeemable Equity Securities ............. -- -- 510 -- 795,264
------ -------- ------- -------- ----------
BALANCE AT DECEMBER 31, 1998 .............. $ -- $ -- $ 704 $ -- $ 934,676
====== ======== ======= ======== ==========
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
RETAINED AND
UNDISTRIBUTED ACCUMULATED
EARNINGS COMMON OTHER
(ACCUMULATED STOCK IN RESTRICTED COMPREHENSIVE
DEFICIT) TREASURY STOCK INCOME TOTAL
--------------- ------------- -------------- -------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 .............. $ 17,636 $ (3,317) $ -- $ (22,539) $ 55,485
=========== ========= =========== ========== ===========
Net loss .................................. (238,311) -- -- -- (238,311)
Foreign currency translation
adjustments .............................. -- -- -- (3,565) (3,565)
Minimum pension liability adjustments. -- -- -- 23,063 23,063
----------- --------- ----------- ---------- -----------
Comprehensive income (loss) .............. (238,311) -- -- 19,498 (218,813)
Dividends paid ............................ (696) -- -- -- (696)
Common stock/Limited Partnership
Units issued ............................. -- 61 -- -- 17,400
Limited Partnership Units
repurchased/capital distributions ........ (3,329) -- -- -- (5,699)
Common stock repurchased .................. (8,863) (123) -- -- (23,687)
Recapitalization redemptions .............. (265,365) 3,379 -- -- (303,922)
Recapitalization issuances ................ -- -- (85,000) -- 242,017
Recapitalization exchanges ................ -- -- -- -- 119,876
Mandatorily Redeemable Equity
Securities ............................... -- -- -- -- (363,264)
Equityholder loans ........................ -- -- -- -- 1,270
----------- --------- ----------- ---------- -----------
BALANCE AT DECEMBER 31, 1996 .............. $ (498,928) $ -- $ (85,000) $ (3,041) $ (480,033)
=========== ========= =========== ========== ===========
Net loss .................................. (23,938) -- -- -- (23,938)
Foreign currency translation
adjustments .............................. -- -- -- (14,255) (14,255)
Minimum pension liability adjustments -- -- -- 13 13
----------- --------- ----------- ---------- -----------
Comprehensive income (loss) .............. (23,938) -- -- (14,242) (38,180)
Common stock issued ....................... -- -- -- -- 1,501
Common stock repurchased .................. -- (8,550) -- -- (8,550)
Unearned compensation -- Restricted
Stock .................................... -- -- (51,739) -- --
Common stock options exercised ............ -- -- -- -- 8,755
Accretion of Mandatorily Redeemable
Equity Securities ........................ -- -- -- -- (145,207)
----------- --------- ----------- ---------- -----------
BALANCE AT DECEMBER 31, 1997 .............. $ (522,866) $ (8,550) $ (136,739) $ (17,283) $ (661,714)
=========== ========= =========== ========== ===========
Net loss .................................. (86,068) -- -- -- (86,068)
Foreign currency translation
adjustments .............................. -- -- -- 5,767 5,767
Minimum pension liability adjustments -- -- -- (1,032) (1,032)
----------- --------- ----------- ---------- -----------
Comprehensive income (loss) .............. (86,068) -- -- 4,735 (81,333)
Issuance of Restricted Stock .............. -- -- 136,739 -- 230,778
Common stock options exercised and
other .................................... -- 19,935 -- -- 21,086
Common stock repurchased .................. -- (60,956) -- -- (60,956)
Issuance of common stock in initial
public offering, net of expenses ......... -- -- -- -- 158,637
Accretion of Mandatorily Redeemable
Equity Securities ........................ (149,358) -- -- -- (287,303)
Conversion of Mandatorily
Redeemable Equity Securities ............. -- -- -- -- 795,774
----------- --------- ----------- ---------- -----------
BALANCE AT DECEMBER 31, 1998 .............. $ (758,292) $ (49,571) $ -- $ (12,548) $ 114,969
=========== ========= =========== ========== ===========
</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 BASIC 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, branding consultation and design,
sales promotion, direct marketing and healthcare communications. The Company
operates in the United States, Canada, Europe, Latin America and Asia/Pacific as
well as through certain affiliations in other parts of the world.

BASIC OF PRESENTATION: On December 12, 1996, the Company effected a
recapitalization (the "Recapitalization") of Young & Rubicam Inc., a New York
corporation (the "Predecessor Company"). 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 6). References herein to
the "Company" refer to the Predecessor Company prior to December 12, 1996 and
Young & Rubicam Inc. thereafter unless the context indicates otherwise. Certain
reclassifications have been made to the prior years' financial statements to
conform to the 1998 presentation.

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. Investments in affiliates in which the Company has
significant influence, but not a controlling 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 to be cash equivalents at the time
of purchase. The Company records book overdrafts in accounts payable. Accounts
payable included $51.8 million and $41.0 million of book overdrafts as of
December 31, 1998 and 1997, respectively.

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 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.

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 over a period not exceeding 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
reinvested indefinitely.

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. However, it
also allows an entity to continue to measure compensation costs using the method
prescribed by Accounting Principles Bulletin ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees." The Company has elected to continue to

F-7

<PAGE>

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

account for such plans under the provisions of APB Opinion No. 25 and has
included, in Note 18, 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: 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 separate component of stockholders'
equity. 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 recorded in general and administrative expenses.
Net remeasurement losses resulting from operations in highly inflationary
economies were $1.4 million, $2.6 million and $1.7 million in 1998, 1997 and
1996, respectively. Foreign currency transaction gains and losses are also
recorded in general and administrative expenses. The Company recorded net
foreign currency transaction losses of $12 thousand, $1.3 million and $0.9
million in 1998, 1997 and 1996, respectively.

DERIVATIVE FINANCIAL INSTRUMENTS: 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,"
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.
Allowances 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
are highly rated instruments. Additionally, 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 10%, 10% and
9% of consolidated revenues for the years ended December 31, 1998, 1997 and
1996, 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 1998, the Financial Accounting
Standards Board issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS

F-8

<PAGE>

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

133"), which is required to be adopted in years beginning after June 15, 1999.
The Company anticipates that the adoption of SFAS 133 will not have a
significant effect on the financial condition of the Company.

NOTE (3)--NET LOSS PER COMMON SHARE

Basic net loss per share is calculated by dividing net loss by the weighted
average shares of common stock outstanding during the years ended December 31,
1998 and 1997. Diluted earnings per share would reflect the dilutive effect of
stock options and other stock awards granted to employees under stock-based
compensation plans in periods where the effect would not be antidilutive.

As of December 31, 1998, there were approximately 30.1 million common stock
options outstanding that could potentially dilute basic earnings per share in
the future that were excluded from the computation of diluted net loss per share
because the effect would be antidilutive.

In computing basic net loss per share for the year ended December 31, 1997,
the Company's 11.1 million shares of restricted stock were excluded from the
weighted average number of common shares outstanding. Such shares vested upon
the consummation of the Company's initial public offering of common stock on May
15, 1998, a condition which was not satisfied at December 31, 1997 (see Note 4).

Earnings per share for the year ended December 31, 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 6).

NOTE (4)--INITIAL PUBLIC OFFERING

On May 15, 1998, the Company closed an initial public offering of its
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 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 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 year ended December 31, 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. At December 31,
1997, the Company had recorded unearned compensation of $136.7 million,
representing the fair value of the Restricted Stock.

NOTE (5)--COMMON STOCK DIVIDEND

On April 6, 1998, the Board of Directors declared a stock dividend of 14
shares (the "Stock Dividend") 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
Offering. The Company's historical financial statements have been presented to
give retroactive effect to the 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

F-9

<PAGE>

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

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 (6)--RECAPITALIZATION

On December 12, 1996, the Recapitalization of Young & Rubicam Inc., a New
York corporation (the "Predecessor Company") was effected, 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 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) 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) (the "HFCP Options"), and (c) senior secured
credit facilities of $700 million were arranged.

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 held by U.S.-based equity holders occurred in March 1997.

Under a stockholders' agreement entered into in connection with the
Recapitalization (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.

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.

F-10

<PAGE>

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

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

(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 per share ($28.75 per share prior to the Stock
Dividend), with certain limited exceptions outside of the United States. 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 per share ($115 per share prior to the
Stock Dividend) and the aggregate exercise price of the Rollover Options.

(4) Professional fees and other charges amounted to approximately $69.0
million.

NOTE (7)--EQUITY IN NET ASSETS OF UNCONSOLIDATED COMPANIES

<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ---------------------- -------------------------
EQUITY EQUITY EQUITY
EQUITY IN IN NET EQUITY IN IN NET EQUITY IN IN NET
OWNERSHIP NET INCOME NET INCOME NET INCOME
AFFILIATE INTEREST ASSETS (LOSS) ASSETS (LOSS) ASSETS (LOSS)
- ---------------------------------- --------------- ----------- ---------- ----------- ---------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Dentsu, Y&R Partnerships ......... Generally 50% $ 27,790 $ 2,389 $ 17,510 $ 2,587 $12,954 $ (9,181)
J.M.C. Creatividad Orientada
(Venezuela) ..................... 49% 1,474 412 953 (1,515) 2,471 (2,038)
Prolam (Chile) ................... 30% 3,075 950 2,851 825 2,656 262
Eco S.A. (Guatemala) ............. 40% 2,085 (75) 2,206 96 2,134 26
Cresswell, Munsell, Fultz &
Zirbel (United States) .......... 33% 2,183 500 1,922 508 1,635 624
National Public Relations
(Canada) ........................ 22% 527 (19) 647 98 607 204
Other ............................ 50% or less 1,263 550 304 (2,257) 2,762 266
-------- ------- -------- -------- ------- ---------
$ 38,397 $ 4,707 $ 26,393 $ 342 $25,219 $ (9,837)
======== ======= ======== ======== ======= =========
</TABLE>

F-11

<PAGE>

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

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

FINANCIAL INFORMATION

<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
EARNINGS DATA
Revenues ....................... $ 218,973 $ 207,668 $ 238,810
Income from operations ......... 22,320 13,768 22,132
Net income (loss) .............. 15,424 4,347 (16,097)

BALANCE SHEET DATA
Current assets ................. $ 317,916 $ 321,372 $ 348,325
Noncurrent assets .............. 60,624 40,147 33,996
Current liabilities ............ 266,090 287,101 323,406
Noncurrent liabilities ......... 17,023 13,215 11,683
Equity ......................... 95,427 61,203 47,232

</TABLE>

NOTE (8)--ACQUISITIONS AND INVESTMENTS

The Company acquires and makes investments in certain entities related to
its business if it believes it is strategically beneficial to do so. The Company
acquired, both domestically and internationally, full or partial interests in
certain entities and obtained additional interests in certain partially owned
entities for an aggregate purchase price of $17.6 million, $14.7 million and
$26.8 million during 1998, 1997 and 1996, respectively. In 1998, acquisitions
included the Company's purchase of a multi-cultural advertising agency and
certain other assets located in the United States.

In addition, effective January 1, 1997, the Company acquired an additional
37.5% equity interest in the 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.

NOTE (9)--OTHER OPERATING CHARGES

During 1998, the Company recorded $234.4 million in other operating charges
incurred in connection with the Offering. During 1997 and 1996, the Company
recorded $11.9 million and $17.2 million, respectively, in other operating
charges for certain asset impairment writedowns.

F-12

<PAGE>

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

NOTE (10)--PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
USEFUL LIVES 1998 1997
--------------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Land and buildings ........................ 20-40 years $ 29,706 $ 29,716
Furniture, fixtures and equipment ......... 3-10 years 252,673 235,836
Leasehold improvements .................... Shorter of 10 years 93,797 77,804
or life of lease
Automobiles ............................... 3-5 years 5,892 6,609
--------- ---------
382,068 349,965
--------- ---------
Less--Accumulated depreciation and
amortization ............................ 231,655 224,951
--------- ---------
$ 150,413 $ 125,014
========= =========

</TABLE>

During 1998, 1997 and 1996, depreciation expense amounted to $49.2 million,
$47.6 million, and $42.0 million, respectively.

NOTE (11)--INCOME TAXES

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

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
--------------- ---------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic .............. $ (127,325) $12,304 $ (242,578)
Foreign ............... 40,328 24,000 (8,039)
----------- ------- -----------
Total ................. $ (86,997) $36,304 $ (250,617)
=========== ======= ===========

</TABLE>

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

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
------------ ----------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
CURRENT:
Federal .................................. $ 3,938 $ 18,195 $ 16,993
State and local .......................... 3,512 4,220 3,921
Foreign .................................. 28,570 36,259 18,146
--------- --------- ----------
36,020 58,674 39,060
========= ========= ==========
DEFERRED:
Federal .................................. (28,126) 7,547 (51,363)
State and local .......................... (6,415) 2,472 (22,111)
Foreign .................................. (4,123) (10,403) 13,803
--------- --------- ----------
(38,664) (384) (59,671)
--------- --------- ----------
(Benefit) provision for income taxes ..... $ (2,644) $ 58,290 $ (20,611)
========= ========= ==========

</TABLE>

F-13

<PAGE>

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

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

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
------------- ---------- -------------
<S> <C> <C> <C>
PERCENT OF (LOSS) INCOME BEFORE INCOME TAXES
United States statutory rate ................................ (35.0)% 35.0% (35.0)%
Effect of Offering* ......................................... 32.1 -- --
State and local income taxes, net of federal tax effect ..... ( 6.3) 17.1 ( 4.5)
Foreign income taxed greater than the United States
statutory rate ............................................ 7.2 107.2 15.2
Change in valuation allowance and related components ........ ( 2.8) (13.1) 5.9
Amortization of goodwill .................................... 0.7 8.5 2.1
Travel, entertainment and other non-deductible expenses . 1.2 6.2 8.4
Other, net .................................................. ( 0.1) ( 0.3) ( 0.3)
----- ----- -----
Consolidated effective tax rate ............................. ( 3.0)% 160.6% ( 8.2)%
===== ===== =====
</TABLE>

- ----------
*Represents charges related to the Offering for which the Company has
determined it will receive little or no tax benefit.

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 $59.1 million at
December 31, 1998. No provision has been recorded for the United States in
respect of foreign taxes that could result from the remittance of such
undistributed earnings since the earnings are permanently reinvested outside the
United States and it is not practicable to estimate the amount of such taxes.
Withholding taxes of approximately $8.1 million would be payable upon remittance
of all previously unremitted earnings at December 31, 1998.

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

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------
1998 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Allowance for doubtful accounts ............ $ 4,274 $ 3,118
Net operating loss carryforwards ........... 45,126 32,797
Deferred compensation ...................... 2,424 1,172
--------- ---------
51,824 37,087
Valuation allowance ........................ (5,021) (4,255)
--------- ---------
Current portion ............................ 46,803 32,832
Deferred compensation ...................... 53,501 40,650
Depreciable and amortizable assets ......... 30,417 30,561
Long-term leases ........................... 7,377 7,436
Postretirement benefits .................... 3,570 3,654
Other non-current items .................... 11,801 11,989
Net operating loss carryforwards ........... 65,300 42,338
Tax credit carryforwards ................... 3,658 3,658
--------- ---------
175,624 140,286
Valuation allowance ........................ (16,978) (16,094)
--------- ---------
Non-current portion ........................ 158,646 124,192
Net deferred income tax assets ............. $ 205,449 $ 157,024
========= =========
</TABLE>

F-14

<PAGE>

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

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, 1998, the Company
had approximately $258.3 million of NOL carryforwards for U.S. tax purposes
which expire in the year 2018 and approximately $91.4 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. Valuation allowances of $22.0 million
and $20.4 million were recorded at December 31, 1998 and 1997, respectively. The
valuation allowances represent a provision for uncertainty as to the realization
of certain deferred tax assets, including NOL 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.

NOTE (12)--WORLDWIDE OPERATIONS

The Company conducts and manages its business using an integrated,
multi-disciplinary approach. It operates as a single agency network, allowing
the Company to centrally manage and utilize its resources. The Company operates
in one business segment: global marketing and communications. Amounts related to
specified geographic areas are as follows:

<TABLE>
<CAPTION>
UNITED STATES EUROPE OTHER TOTAL
--------------- ----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1998
Revenues ............. $775,700 $532,404 $214,360 $1,522,464
Total assets ......... 844,070 589,128 202,057 1,635,255
1997
Revenues ............. $661,367 $472,225 $249,148 $1,382,740
Total assets ......... 697,250 582,424 258,133 1,537,807
1996
Revenues ............. $571,155 $444,644 $206,340 $1,222,139
Total assets ......... 819,828 533,318 245,666 1,598,812

</TABLE>

NOTE (13)--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 based on 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

F-15

<PAGE>

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

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").

Total contributions to the Plan made in 1998 and 1997 were $10.0 million
and $6.6 million, respectively. Pursuant to an agreement with the PBGC, the
Company has also agreed to make 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
$12.5 million plus interest. The Company is not required to make any payment
that would 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.
Plans are funded in accordance with the laws of the countries where the plans
are in effect and, in accordance with such local statutory requirements, may
have no plan assets.

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

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1998 1997
------------------------------------ --------------------------------
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 $ 3,801 $ 543 $ 4,344 $ 2,671 $ 550 $ 3,221
Interest costs on projected
benefit obligation ........... 9,151 722 9,873 8,804 789 9,593
Expected return on plan
assets ....................... (10,263) -- (10,263) (9,281) -- (9,281)
Amortization of prior
service benefit .............. (411) -- (411) (411) -- (411)
Amortization of transition
(asset)/obligation ........... (61) 80 19 (61) 82 21
Recognized actuarial loss ..... 1,910 69 1,979 1,057 68 1,125
---------- ------- ---------- -------- ------- --------
Net periodic pension cost
of the plans ................. $ 4,127 $ 1,414 $ 5,541 $ 2,779 $ 1,489 $ 4,268
========== ======= ========== ======== ======= ========

<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1996
--------------------------------
U.S. NON-U.S. TOTAL
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Service costs for benefits
earned during the period $ 2,834 $ 674 $ 3,508
Interest costs on projected
benefit obligation ........... 8,488 893 9,381
Expected return on plan
assets ....................... (7,561) -- (7,561)
Amortization of prior
service benefit .............. (107) -- (107)
Amortization of transition
(asset)/obligation ........... (61) 96 35
Recognized actuarial loss ..... 2,327 92 2,419
-------- ------- --------
Net periodic pension cost
of the plans ................. $ 5,920 $ 1,755 $ 7,675
======== ======= ========
</TABLE>

F-16

<PAGE>

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

Changes in the benefit obligation and plan assets are as follows:

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------
1998
----------------------------------------
U.S. NON-U.S. TOTAL
------------ -------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year ................ $ 130,036 $ 10,753 $ 140,789
Service costs ......................................... 3,801 543 4,344
Interest costs ........................................ 9,151 722 9,873
Foreign currency exchange rate loss/(gain) ............ -- 888 888
Actuarial loss/(gain) ................................. 6,958 716 7,674
Benefits paid ......................................... (11,530) (717) (12,247)
--------- ---------- ---------
Benefit obligation at end of year ...................... 138,416 12,905 151,321
--------- ---------- ---------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year,
primarily fixed income and equity securities .......... 129,421 -- 129,421
Actual return on plan assets .......................... 11,309 -- 11,309
Company contributions ................................. 10,000 717 10,717
Benefits paid ......................................... (11,530) (717) (12,247)
--------- ---------- ---------
Fair value of plan assets at end of year ............... 139,200 -- 139,200
--------- ---------- ---------
Funded status .......................................... 784 (12,905) (12,121)
Unrecognized net transition (asset) obligation ......... (103) 425 322
Unrecognized prior service benefit ..................... (2,131) -- (2,131)
Unrecognized net loss .................................. 20,354 2,029 22,383
Additional liability ................................... -- (1,738) (1,738)
--------- ---------- ---------
Prepaid (accrued) pension costs for defined benefit
plans ................................................. $ 18,904 $ (12,189) $ 6,715
========= ========== =========

<CAPTION>
AS OF DECEMBER 31,
--------------------------------------
1997
--------------------------------------
U.S. NON-U.S. TOTAL
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year ................ $ 114,710 $ 12,198 $ 126,908
Service costs ......................................... 2,671 550 3,221
Interest costs ........................................ 8,804 789 9,593
Foreign currency exchange rate loss/(gain) ............ -- (1,770) (1,770)
Actuarial loss/(gain) ................................. 10,874 (241) 10,633
Benefits paid ......................................... (7,023) (773) (7,796)
--------- --------- ---------
Benefit obligation at end of year ...................... 130,036 10,753 140,789
--------- --------- ---------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year,
primarily fixed income and equity securities .......... 114,264 -- 114,264
Actual return on plan assets .......................... 15,558 -- 15,558
Company contributions ................................. 6,622 773 7,395
Benefits paid ......................................... (7,023) (773) (7,796)
--------- --------- ---------
Fair value of plan assets at end of year ............... 129,421 -- 129,421
--------- --------- ---------
Funded status .......................................... (615) (10,753) (11,368)
Unrecognized net transition (asset) obligation ......... (164) 471 307
Unrecognized prior service benefit ..................... (2,542) -- (2,542)
Unrecognized net loss .................................. 16,352 1,260 17,612
Additional liability ................................... -- (706) (706)
--------- --------- ---------
Prepaid (accrued) pension costs for defined benefit
plans ................................................. $ 13,031 $ (9,728) $ 3,303
========= ========= =========
</TABLE>

Assumptions used were:
<PAGE>

<TABLE>
<CAPTION>
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31,
-------------------------------------------------------------------------------------
1998 1997 1996
-------------------------- --------------------------- --------------------------
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 ......... 7.0% 5.5%-6.0% 7.25% 6.5%-7.0% 8.0% 7.0%-8.0%
Rate of increase in compensation
levels .............................. 5.0% 2.5%-4.0% 5.0% 3.5%-5.0% 5.5% 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>

The Company recorded liabilities of $1.7 million and $0.7 million at
December 31, 1998 and 1997, respectively, for the portion of its unfunded
pension liabilities that had not been recognized as expense with corresponding
adjustments to equity.

Contributions to foreign defined contribution plans were $7.2 million, $7.5
million and $6.2 million in 1998, 1997 and 1996, 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 $8.4 million, $7.8 million and $7.0 million in
1998, 1997 and 1996, respectively.

F-17

<PAGE>

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

At December 31, 1998 and 1997, other non-current liabilities include $8.6
million and $7.9 million relating to postretirement and postemployment benefits
other than pensions.

The Company maintains certain deferred cash incentive plans which are
either tied to operating performance or contractual deferred compensation
agreements. The costs of these compensation plans were expensed over the
applicable service period. At December 31, 1998 and 1997, included in
non-current liabilities were deferred compensation liabilities of $30.6 million
and $31.1 million, respectively.

NOTE (14)--INSTALLMENT PAYMENT OBLIGATIONS

Effective through the closing of the Offering, pursuant to the
Stockholders' Agreement, the Company was able, at its election, to pay for
shares purchased from Management Investors pursuant to a call or put at the
applicable call price or applicable put price in up to four equal installments.
Pursuant to the Stockholders' Agreement, effective at the time of the Offering,
the Company no longer had the right or obligation to pay for shares purchased
from Management Investors pursuant to a call or put. The Company also
accelerated the payment of substantially all of the outstanding installment
notes to June 30, 1998. At December 31, 1998, other current and non-current
liabilities include installment notes payable of $0.7 million and $0.4 million,
respectively. At December 31, 1997, other current and non-current liabilities
include installment notes payable of $3.2 million and $6.5 million,
respectively.

NOTE (15)--LOANS PAYABLE

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 $31.4 million and $10.8 million include
short-term portions of long-term loans payable of $0.5 million and $1.2 million
at December 31, 1998 and 1997, respectively.

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

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------
1998 1997
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Unsecured revolving credit facility ......... $ 31,460 $ --
Senior secured credit facility .............. -- 330,552
Capital lease obligations ................... 34 404
Other borrowings ............................ 462 818
-------- ---------
31,956 331,774
Less -- Current portion ..................... 462 1,222
-------- ---------
$ 31,494 $ 330,552
======== =========

</TABLE>

On May 15, 1998, the Company entered into a $400 million, five-year
unsecured multicurrency revolving credit facility (the "Credit Facility") and
used the net proceeds from the Offering together with $155 million of borrowings
under the Credit Facility to repay all outstanding borrowings outstanding 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 year
ended December 31, 1998.

The Credit Facility permits borrowings of up to $400 million. Amounts due
under the Credit Facility are required to be repaid on May 15, 2003. The Company
is required to pay varying rates of interest, generally based on LIBOR plus an
applicable margin ranging from 0.275% to 0.3%

F-18

<PAGE>

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

depending on its leverage ratio, or the Federal Funds Rate plus 0.5%. The
Company is also required to pay a facility fee depending on its leverage ratio
ranging from 0.125% and 0.2% per annum. In 1998, the total facility fee under
the Credit Facility was $0.4 million.

Under the Credit Facility, the Company is subject to certain financial and
operating restrictions and covenant requirements, including a maximum leverage
ratio and a minimum interest coverage requirement.

At December 31, 1998 and 1997, the Company had entered into interest rate
protection agreements with respect to $31.5 million and $275 million of its
indebtedness, respectively, which expire at various times through 2001 and
result in the Company paying, on a quarterly basis, fixed interest amounts from
6.0% to 6.5%. The weighted average interest rate on outstanding debt, including
the effect of interest rate swap contracts, was 6.27% and 6.875% for the years
ended December 31, 1998 and 1997, respectively.

The interest expense amount for the year ended December 31, 1996 includes
prepayment penalties of $2.9 million related to certain prior outstanding
indebtedness.

At December 31, 1998, the Company had $543 million in availability under
its commercial lines of credit ($435 million in the United States and $108
million outside the United States). Unused commercial lines of credit at
December 31, 1998 were $480 million. The Company has no obligation to pay
commitment fees on the Credit Facility. During 1998, the Company paid commitment
fees of approximately $0.1 million on the unused portion of the replaced credit
facility. At December 31, 1997, the Company had $690 million in availability
under its commercial lines of credit ($449 million in the United States and $241
million outside the United States). Unused commercial lines of credit at
December 31, 1997 were $349 million. The Company paid commitment fees of
approximately $0.9 million in 1997.

NOTE (16)--EQUITY

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

<TABLE>
<CAPTION>
VOTING NON-VOTING LIMITED
PREFERRED COMMON COMMON PARTNERSHIPS COMMON STOCK
STOCK STOCK STOCK UNITS IN TREASURY
----------- --------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1996 .......... 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 DECEMBER 31, 1996 ........ -- 58,469,280 -- -- --
------ ---------- ----------- ---------- -----------
Issued ........................... -- 4,391,010 -- -- --
Repurchased ...................... -- (1,115,160) -- -- 1,115,160
------ ---------- ----------- ---------- -----------
BALANCE DECEMBER 31, 1997 ........ -- 61,745,130 -- -- 1,115,160
------ ---------- ----------- ---------- -----------
Issued -- Offering ............... -- 6,912,730 -- -- --
Issued -- Option Exercises ....... -- 2,178,436 -- -- (1,599,946)
Restricted Stock Redeemed ........ -- (1,855,845) -- -- 1,855,845
Repurchased ...................... -- (2,605,882) -- -- 2,605,882
------ ---------- ----------- ---------- -----------
BALANCE DECEMBER 31, 1998 ........ -- 66,374,569 -- -- 3,976,941
====== ========== =========== ========== ===========
</TABLE>

The preferred stock of the Predecessor Company was owned by members of the
Predecessor Company's 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.

F-19

<PAGE>

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

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 6). 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 Company's election for
$115.00 per share following the fifth anniversary of the issuance thereof. At
December 31, 1998 and 1997, 50,000 shares of Money Market Preferred were
authorized and 87 shares were issued and outstanding.

NOTE (17)--MANDATORILY REDEEMABLE EQUITY SECURITIES

Concurrent with the Recapitalization, the Company entered into a
stockholders' agreement which included both put rights and calls on the
Company's common stock. Effective at the time of the Offering, such call and put
provisions were terminated and, accordingly, the carrying value of such
mandatorily redeemable equity securities was reclassified to stockholders'
equity. The carrying value of the mandatorily redeemable equity securities held
by the Management Investors was equivalent to the redemption value of $12.33 per
share at December 31, 1997. The carrying value of the mandatorily redeemable
equity securities for common shares held by HFCP was 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 $8.47 per share at December 31, 1997.

NOTE (18)--OPTIONS

The Company has adopted the Young & Rubicam Inc. 1997 Incentive
Compensation Plan (the "ICP"). The ICP superseded the pre-existing stock option
plan maintained by the Company (the "Stock Option Plan"); however, all awards
granted under the Stock Option Plan will remain outstanding in accordance with
their terms and will be subject to the Stock Option Plan.

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 pre-existing 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 may be granted shall not exceed 1,000,000. 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
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.

Generally, options granted under the ICP become exercisable over a
three-year vesting period beginning on the three-year anniversary of the date of
grant and expire ten years from the date of grant. However, the Board of
Directors may, at its discretion, accelerate the exercisability, the lapsing

F-20

<PAGE>

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

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 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.

At the closing of the Recapitalization, the Board of Directors granted the
Rollover Options which were immediately vested and exercisable. Each Rollover
Option has an exercise price of $1.92 per share, with certain limited exceptions
outside of the United States. 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.

At the closing of the Recapitalization, the Board of Directors granted to
employees options to purchase 5,200,590 shares of Company common stock at $7.67
per share. In addition, from the closing of the Recapitalization through
December 31, 1997, the Board of Directors granted additional options to purchase
1,891,200 shares of Company common stock at $7.67 per share (the "Additional
Options"). As a result of the granting of the Additional Options, during 1997
the Company recognized a compensation charge of $1.3 million reflecting the
difference between the estimated fair market value of Company common stock on
the date of grant and the exercise price of the Additional Options. All options
granted to employees in connection with the Recapitalization were pursuant to
and are governed by the Stock Option Plan.

Additionally, at the closing of the Recapitalization, the Company granted
to HFCP options 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 by the Stock
Option Plan.

The Company has adopted SFAS 123 (see Note 2). 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 net loss would be increased by $7.8 million, $6.3 million and $9.4
million for the years ended December 31, 1998, 1997 and 1996, respectively, and
the net loss per common share would be increased by $0.13 for each of the years
ended December 31, 1998 and 1997.

F-21

<PAGE>

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

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
years ended December 31, 1998, 1997 and 1996, respectively:

1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Expected term ................ 6 years 10 years 5-10 years
Risk-free rate ............... 4.26%-5.84% 5.59%-7.12% 5.92%-6.61%
Dividend yield ............... 0% 0% 0%
Expected volatility .......... 24.90% 0% 0%

</TABLE>

Since the Company's common stock was publicly traded for the first time in
1998 as a result of the Offering, it does not yet have sufficient historical
information to make a reasonable assumption as to the expected volatility of its
common stock price in the future. As a result, the assumption in the table above
reflects the expected volatility of stock prices of entities similar to the
Company. In addition, the decrease in the expected term of options for 1998 as
compared to 1997 is due to the creation of an active, liquid market for the
Company's common stock resulting from the Company's initial public offering in
1998.

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 $5.25
and $22.59 in 1998, respectively, $5.28 and $12.33 in 1997, respectively, and
$3.69 and $7.67 in 1996, respectively. 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 $13.28 and $47.14 in 1996, respectively.

In 1997 and 1996, the Company granted options to certain executives at
exercise prices below the fair value of Company common stock on the date of
grant. The weighted-average fair value and weighted-average exercise price of
these options was $6.76 and $7.67 in 1997, respectively, and $6.30 and $1.97 in
1996, respectively.

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.

F-22

<PAGE>

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

Transactions involving options are summarized as follows:

<TABLE>
<CAPTION>
OPTIONS WEIGHTED-AVERAGE
OUTSTANDING* EXERCISE PRICE*
-------------- -----------------
<S> <C> <C>
JANUARY 1, 1996 ......................... 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
---------- ---------
Granted ................................ 2,472,933 22.59
Exercised .............................. (2,178,436) 3.10
Cancelled .............................. (1,230,060) 10.81
---------- ---------
DECEMBER 31, 1998 ....................... 30,077,642 $ 8.23
========== =========
</TABLE>

- ----------
* Options outstanding and related weighted-average exercise prices prior to the
Recapitalization have not been retroactively adjusted for the Stock Dividend.

At December 31, 1998, 1997 and 1996, the Company had exercisable options of
14,963,354, 17,242,995, and 21,501,900, respectively.

The following information is as of December 31, 1998:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ---------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
NUMBER REMAINING AVERAGE NUMBER AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICES AT 12/31/98 LIFE PRICE AT 12/31/98 PRICE
- --------------------------- ------------- ------------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
$ 1.92 .................... 10,563,983 4.11 $ 1.92 10,563,983 $ 1.92
$ 7.67 .................... 8,297,586 7.24 7.67 4,369,371 7.67
$ 12.00 -- $15.00 ......... 9,734,850 9.11 12.46 30,000 12.33
$ 25.00 -- $31.00 ......... 1,481,223 9.95 28.55 -- --
---------- ---- -------- ---------- --------
Total ..................... 30,077,642 6.88 $ 8.23 14,963,354 $ 3.62
========== ==== ======== ========== ========
</TABLE>

NOTE (19)--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.

F-23

<PAGE>

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

The Company is also named as party in litigation matters which arise from
time to time in the ordinary course of its business, including without
limitation 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 current matters to have a material adverse effect on its
consolidated financial position, results of operations or cash flows.

Net rental expense was $75.5 million, $74.4 million, and $62.9 million in
1998, 1997 and 1996, respectively. Future minimum rental commitments as of
December 31, 1998 are as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1999 ................ $ 68,060
2000 ................ 54,613
2001 ................ 50,137
2002 ................ 47,056
2003 ................ 41,114
Thereafter .......... 131,018

</TABLE>

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

The Company had outstanding guarantees of $8.6 million and $7.6 million at
December 31, 1998 and 1997, respectively, primarily 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.

NOTE (20)--FAIR VALUE OF FINANCIAL INSTRUMENTS AND HEDGING ACTIVITY

At December 31, 1998 and 1997, the carrying value of the Company's
financial instruments approximated fair value in all material respects.

The Company enters into interest rate protection 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 protection
agreements included interest rate swaps, interest rate floors and interest rate
caps. At December 31, 1998 and 1997, the Company had entered into interest rate
protection agreements with respect to $31.5 million and $275 million of its
indebtedness.

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. These contracts are generally entered into in order to hedge
intercompany transactions. Gains and losses on these contracts generally offset
losses and gains on the related 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. At December 31, 1998, the Company had
contracts for the sale of $19.4 million and the purchase of $6.1 million of
foreign currencies at fixed rates, compared to contracts for the sale of $18.5
million and the purchase of $12.8 million of foreign currencies at December 31,
1997.

F-24

<PAGE>

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

Management believes that any losses resulting from market risk would not
have a material adverse impact on the consolidated financial position, results
of operations or cash flows of the Company.

F-25

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
EARNINGS PER SHARE
INCOME (LOSS) BEFORE EXTRAORDINARY
INCOME (LOSS) BEFORE CHARGE COMMON STOCK
FROM EXTRAORDINARY ----------------------- NET INCOME -------------------
QUARTER REVENUES OPERATIONS CHARGE BASIC DILUTED (LOSS) HIGH LOW
- ------------------- ------------ --------------- --------------- ----------- ----------- ------------- ---------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998
1st ............... $ 348,173 $ 25,333 $ 12,190 $ 0.24 $ 0.19 $ 12,190 $ -- $ --
2nd(1)(2) ......... 372,128 (190,472) (145,391) (2.45) (2.45) (149,824) 33 1/16 26 1/2
3rd ............... 375,419 42,178 24,306 0.36 0.29 24,306 35 7/8 28 3/8
4th ............... 426,744 51,450 27,260 0.41 0.34 27,260 33 5/8 19 3/4
---------- ---------- ---------- ----------
Year .............. 1,522,464 (71,511) (81,635) (1.34) (1.34) (86,068) 35 7/8 19 3/4
========== ========== ========== ==========
1997
1st ............... $ 298,206 $ 14,093 $ 4,089 $ 0.09 $ 0.07 $ 4,089
2nd ............... 345,474 35,156 13,516 0.29 0.22 13,516
3rd ............... 333,387 (4,302) (5,700) (0.12) (0.12) (5,700)
4th ............... 405,673 25,782 (35,843) (0.77) (0.77) (35,843)
---------- ---------- ---------- ----------
Year .............. 1,382,740 70,729 (23,938) (0.51) (0.51) (23,938)
========== ========== ========== ==========
</TABLE>

- ----------
(1) Income from operations for the second quarter of 1998 includes $234.4
million of non-recurring, non-cash, pre-tax compensation charges recognized
upon the consummation of the Offering resulting from the vesting of shares
of restricted stock allocated to employees. Net income for the second
quarter of 1998 also includes an extraordinary charge of $4.4 million, which
is net of a tax benefit of $2.8 million, due to the write-off of unamortized
deferred financing costs related to the Company's replaced credit facility.

(2) The high and low prices of common stock reflect amounts from the period
commencing upon the consummation of the Offering on May 12, 1998, the first
day of public trading, through June 30, 1998.

F-26

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
-------------- ---------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ................................................... $ 63,209 $ 122,138
Accounts receivable, net of allowance for doubtful accounts of $18,485
and $17,938 at March 31, 1999 and December 31, 1998, respectively. 866,609 835,284
Costs billable to clients ................................................... 63,874 55,187
Other receivables ........................................................... 46,693 37,177
Deferred income taxes ....................................................... 46,831 46,803
Prepaid expenses and other assets ........................................... 34,839 25,979
----------- -----------
Total Current Assets ..................................................... 1,122,055 1,122,568
----------- -----------
NONCURRENT ASSETS
Property and equipment, net ................................................. 148,488 150,413
Deferred income taxes ....................................................... 150,231 158,646
Goodwill, less accumulated amortization of $76,959 and $84,292 at
March 31, 1999 and December 31, 1998, respectively ........................ 123,302 120,075
Equity in net assets of and advances to unconsolidated companies ............ 36,630 38,397
Other assets ................................................................ 41,919 45,156
----------- -----------
Total Noncurrent Assets .................................................. 500,570 512,687
----------- -----------
Total Assets ............................................................. $ 1,622,625 $ 1,635,255
=========== ===========
CURRENT LIABILITIES
Loans payable ............................................................... $ 52,699 $ 31,365
Accounts payable ............................................................ 931,378 1,008,624
Accrued expenses and other liabilities ...................................... 184,487 203,099
Accrued payroll and bonuses ................................................. 50,370 77,078
Income taxes payable ........................................................ 19,783 19,290
----------- -----------
Total Current Liabilities ................................................. 1,238,717 1,339,456
----------- -----------
NONCURRENT LIABILITIES
Loans payable ............................................................... 151,338 31,494
Deferred compensation ....................................................... 31,353 30,635
Other liabilities ........................................................... 110,838 114,128
----------- -----------
Total Noncurrent Liabilities .............................................. 293,529 176,257
----------- -----------
Commitments and Contingencies ................................................
Minority Interest ............................................................ 4,028 4,573
----------- -----------
Stockholders' Equity .........................................................
Money Market Preferred Stock - cumulative variable dividend;
liquidating value of $115 per share; one - tenth of one vote per share;
authorized - 50,000 shares; issued and outstanding - 87 shares ............ - -
Cumulative Participating Junior Preferred Stock - minimum $1.00
dividend; liquidating value of $1.00 per share; 100 votes per share;
authorized - 2,500,000 shares; issued and outstanding - 0 shares .......... - -
Common stock, par value $.01 per share; authorized - 250,000,000
shares; issued and outstanding - 65,886,003 shares and 66,374,569 shares at
March 31, 1999 and December 31, 1998, respectively
(excluding 4,322,392 shares and 3,976,941 shares in treasury) ............. 702 704
Capital surplus ............................................................. 926,840 934,676
Accumulated deficit ......................................................... (738,592) (758,292)
Cumulative translation adjustment ........................................... (18,024) (10,810)
Pension liability adjustment ................................................ (1,738) (1,738)
----------- -----------
169,188 164,540
Common stock in treasury, at cost ............................................ (82,837) (49,571)
----------- -----------
Total Stockholders' Equity ................................................ 86,351 114,969
----------- -----------
Total Liabilities and Stockholders' Equity ................................ $ 1,622,625 $ 1,635,255
=========== ===========

</TABLE>

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

F-27

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------
1999 1998
-------------- --------------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE AMOUNTS)
<S> <C> <C>
Revenues ........................................................... $ 383,873 $ 348,173
Compensation expense, including employee benefits .................. 235,018 213,598
General and administrative expenses ................................ 114,297 109,242
----------- -----------
Operating expenses ................................................. 349,315 322,840
----------- -----------
Income from operations ............................................. 34,558 25,333
Interest expense, net .............................................. (1,646) (5,575)
Other income ....................................................... - 827
----------- -----------
Income before income taxes ......................................... 32,912 20,585
Income tax provision ............................................... 13,494 8,852
----------- -----------
19,418 11,733
Equity in net (loss) income of unconsolidated companies ............ (16) 115
Minority interest in net loss of consolidated subsidiaries ......... 299 342
----------- -----------
Net income ......................................................... $ 19,701 $ 12,190
----------- -----------
Earnings per share:
Basic ............................................................. $ 0.30 $ 0.24
=========== ===========
Diluted ........................................................... $ 0.24 $ 0.19
=========== ===========
Weighted average shares outstanding (Note 3):
Basic ............................................................. 66,324,420 50,762,144
=========== ===========
Diluted ........................................................... 81,892,192 64,453,134
=========== ===========

</TABLE>

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

F-28

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------
1999 1998
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................... $ 19,701 $ 12,190
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ....................................... 15,769 14,180
Deferred income tax expense ......................................... 8,280 3,777
Equity in net loss (income)of unconsolidated companies .............. 16 (115)
Dividends from unconsolidated companies ............................. 905 252
Minority interest in net loss of consolidated subsidiaries .......... (299) (342)
Change in assets and liabilities, excluding effects from
acquisitions, dispositions and foreign exchange:
Accounts receivable ................................................. (29,034) (22,261)
Costs billable to clients ........................................... (9,306) (21,508)
Other receivables ................................................... (9,527) (5,031)
Prepaid expenses and other assets ................................... (5,895) (1,163)
Accounts payable .................................................... (69,759) (43,672)
Accrued expenses and other liabilities .............................. (18,868) (34,377)
Accrued payroll and bonuses ......................................... (26,616) (16,556)
Income taxes payable ................................................ 1,167 (5,007)
Deferred compensation ............................................... 355 1,478
Other ............................................................... (1,359) (4,021)
---------- ----------
Net cash used in operating activities ................................ $ (124,470) $ (122,176)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ................................. $ (14,788) $ (7,889)
Acquisitions, net of cash acquired .................................. (8,669) -
Investment in net assets of and advances to unconsolidated
companies ......................................................... (1,912) (1,030)
Proceeds from notes receivable ...................................... 322 339
---------- ----------
Net cash used in investing activities ................................ $ (25,047) $ (8,580)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES: ................................
Proceeds from loans payable, net .................................... 131,772 24,972
Common stock issued ................................................. 1,134 1,287
Common stock repurchased ............................................ (42,403) -
Payments of deferred compensation ................................... - (1,190)
Payment of installment notes, net ................................... - (2,100)
Other financing activities .......................................... (59) (277)
---------- ----------
Net cash provided by financing activities ............................ $ 90,444 $ 22,692
---------- ----------
Effect of exchange rate changes on cash and cash equivalents ......... 144 (1,234)
Net decrease in cash and cash equivalents ............................ (58,929) (109,298)
Cash and cash equivalents, beginning of period ....................... 122,138 160,263
---------- ----------
Cash and cash equivalents, end of period ............................. $ 63,209 $ 50,965
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ....................................................... $ 2,939 $ 9,157
========== ==========
Income taxes paid ................................................... $ 4,960 $ 9,237
========== ==========

</TABLE>

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

F-29

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - OPERATIONS AND BASIS OF PRESENTATION:

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

BASIS OF PRESENTATIONS: The accompanying unaudited consolidated financial
statements of the Company have been prepared pursuant to the rules of the
Securities and Exchange Commission. 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 Annual Report on Form 10-K for the year ended December
31, 1998. 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. Certain
reclassifications have been made to the prior years' financial statements to
conform to the 1999 presentation.

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 during the
reporting period. Actual results could differ from those estimates.

NOTE 3 - EARNINGS PER COMMON SHARE:

Basic net earnings per share is calculated by dividing net income by the
weighted average shares of common stock outstanding during the three months
ended March 31, 1999 and 1998. Diluted earnings per share reflects the dilutive
effect of stock options, primarily stock options granted to employees under
stock-based compensation plans. Shares used in computing basic and diluted
earnings per share were as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
--------------------------
1999 1998
------------ -----------
<S> <C> <C>
Basic - weighted average shares ........... 66,324,420 50,762,144
Dilutive effect of stock options .......... 15,567,772 13,690,990
---------- ----------
Diluted - weighted average shares ......... 81,892,192 64,453,134
========== ==========
</TABLE>

F-30

<PAGE>

NOTE 4 - COMPREHENSIVE INCOME

The following table sets forth total comprehensive income and its
components:

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Net income ....................................... $ 19,701 $ 12,190
Foreign currency translation adjustments ......... (7,214) (2,054)
-------- --------
Total comprehensive income ....................... $ 12,487 $ 10,136
======== ========
</TABLE>

NOTE 5 - SUBSEQUENT EVENTS

ACQUISITION: On May 21, 1999, the Company acquired KnowledgeBase Marketing,
Inc., a leading customer relationship marketing service that specializes in
gathering and analyzing marketing data, in a stock and cash transaction valued
at approximately $175 million. In connection with this acquisition, the Company
issued an aggregate of 2.1 million shares of common stock and agreed to grant
options to purchase up to an aggregate of 275,000 additional shares of common
stock.

CASH DIVIDEND: On April 29, 1999, the Company announced that the Board of
Directors declared a cash dividend of $0.025 per common share, payable on June
15, 1999 to all stockholders of record as of June 1, 1999.

F-31

<PAGE>

YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ADDITIONS
-----------------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND CHARGED TO END OF
DESCRIPTION OF PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS PERIOD
- ----------------------------------------- ------------ ------------ ---------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Allowance for Doubtful Accounts ......... $14,125 $ 9,404 -- $ 5,591 $17,938
======= ======= == ======= =======
YEAR ENDED DECEMBER 31, 1997
Allowance for Doubtful Accounts ......... $ 9,849 $14,269 -- $ 9,993 $14,125
======= ======= == ======= =======
YEAR ENDED DECEMBER 31, 1996
Allowance for Doubtful Accounts ......... $11,526 $11,411 -- $13,088 $ 9,849
======= ======= == ======= =======
</TABLE>

S-1

<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 IS YOUNG & RUBICAM INC.
AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ONLY THE SHARES OFFERED BY
THIS PROSPECTUS, 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. 15,000,000 SHARES
COMMON STOCK
------------------
TABLE OF CONTENTS ----------
------------------ PROSPECTUS
----------

PAGE
----

Prospectus Summary ............................ 1 BEAR, STEARNS & CO. INC.
Risk Factors .................................. 7
Recent Developments ........................... 14 DONALDSON, LUFKIN & JENRETTE
Use of Proceeds ............................... 14
Price Range of Common Stock and -------------
Dividend Policy ............................ 14 GOLDMAN, SACHS & CO.
Capitalization ................................ 15
Selected Consolidated Financial Data .......... 16 ING BARING FURMAN SELZ LLC
Management's Discussion and
Analysis of Financial Condition and MORGAN STANLEY DEAN WITTER
Results of Operations ...................... 18
Business ...................................... 27 SALOMON SMITH BARNEY
Management .................................... 38
Certain Transactions .......................... 54
Principal Stockholders ........................ 55
Selling Stockholders .......................... 57 MAY 24, 1999
Description of Capital Stock .................. 63
Shares Eligible for Future Sale ............... 77
Certain U.S. Tax Consequences to
Non-United States Holders .................. 79
Underwriting .................................. 81
Legal Matters ................................. 85
Experts ....................................... 85
Available Information ......................... 85
Index to Consolidated Financial
Statements ................................. F-1
=======================================================================================
</TABLE>

<PAGE>

[INTERNATIONAL COVER PAGE]

PROSPECTUS

15,000,000 SHARES

YOUNG & RUBICAM INC.

COMMON STOCK

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

This is an offering of 15,000,000 shares of common stock of Young & Rubicam
Inc. This prospectus relates to an international offering of 3,000,000 shares
outside the United States and Canada. In addition, 12,000,000 shares are being
offered in a concurrent offering in the United States and Canada.

The last reported sale price of the common stock, which is listed on the
New York Stock Exchange under the symbol "YNR", on May 24, 1999, was $37.25 per
share.

INVESTING IN COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 7 TO READ ABOUT RISKS THAT YOU SHOULD CONSIDER BEFORE BUYING SHARES OF THE
COMMON STOCK.

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

Per
Share Total
----------- ---------------
<S> <C> <C>
Public offering price ........................ $ 37.2500 $558,750,000
Underwriting discount ........................ $ 1.2665 $ 18,997,500
Proceeds to the selling stockholders ......... $ 35.9835 $539,752,500
</TABLE>

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

The U.S. underwriters may purchase up to an additional 2,250,000 shares
from selling stockholders to cover over-allotments. Young & Rubicam Inc. has
agreed to pay expenses incurred by the selling stockholders in connection with
the offerings, other than the underwriting discount.

The underwriters expect to deliver the shares in New York, New York on May
28, 1999.

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

BEAR, STEARNS INTERNATIONAL LIMITED

CAZENOVE & CO.

DONALDSON, LUFKIN & JENRETTE

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

GOLDMAN SACHS INTERNATIONAL

ING BARINGS

MORGAN STANLEY DEAN WITTER

SALOMON SMITH BARNEY INTERNATIONAL

The date of this prospectus is May 24, 1999

<PAGE>
<TABLE>
<S> <C>
[INTERNATIONAL BACK COVER PAGE]
=================================================================================================

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 YOUNG & RUBICAM INC.
OR REPRESENTATIONS. THIS PROSPECTUS IS
AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ONLY THE SHARES OFFERED BY
THIS PROSPECTUS, BUT ONLY UNDER
CIRCUMSTANCES AND IN JURISDICTIONS WHERE 15,000,000 SHARES
IT IS LAWFUL TO DO SO. THE INFORMATION COMMON STOCK
CONTAINED IN THIS PROSPECTUS IS CURRENT
ONLY AS OF ITS DATE.

-----------------
TABLE OF CONTENTS ----------
----------------- PROSPECTUS
----------
PAGE
----
Prospectus Summary ............................ 1
Risk Factors .................................. 7
Recent Developments ........................... 14
Use of Proceeds ............................... 14 BEAR, STEARNS INTERNATIONAL LIMITED
Price Range of Common Stock and
Dividend Policy ............................ 14 CAZENOVE & CO.
Capitalization ................................ 15
Selected Consolidated Financial Data .......... 16 DONALDSON, LUFKIN & JENRETTE
Management's Discussion and
Analysis of Financial Condition and ------------
Results of Operations ...................... 18
Business ...................................... 27 GOLDMAN SACHS INTERNATIONAL
Management .................................... 38
Certain Transactions .......................... 54 ING BARINGS
Principal Stockholders ........................ 55
Selling Stockholders .......................... 57 MORGAN STANLEY DEAN WITTER
Description of Capital Stock .................. 63
Shares Eligible for Future Sale ............... 77 SALOMON SMITH BARNEY INTERNATIONAL
Certain U.S. Tax Consequences to
Non-United States Holders .................. 79
Underwriting .................................. 81
Legal Matters ................................. 85
Experts ....................................... 85 MAY 24, 1999
Available Information ......................... 85
Index to Consolidated Financial
Statements ................................. F-1
=================================================================================================
</TABLE>