<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-K

             / X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                   For the Fiscal Year Ended December 31, 1995

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

                          Commission File Number 0-7898

                              GREY ADVERTISING INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

           Delaware                                     13-0802840
-------------------------------          ---------------------------------------
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation or organization)

777 Third Avenue, New York, New York                      10017
------------------------------------                    ----------
(Address of principal executive offices)                (Zip Code)

Registrant's telephone number,
 including area code                                    212-546-2000
                                                        ------------ 

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

Title of each Class                   Name of each exchange on which registered
-------------------                   -----------------------------------------
      None                                              None

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

                      Common Stock, par value $1 per share
                      ------------------------------------
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to the filing requirements for
the past 90 days.


Yes   X            No
    -----            -----

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


Yes   X            No
    -----            -----



<PAGE>   2
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $159,812,962 as at March 1, 1996.

The registrant had 884,292 shares of its Common Stock, par value $1 per share,
and 305,120 shares of its Limited Duration Class B Common Stock, par value $1
per share, outstanding as at March 1, 1996.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the annual proxy statement to be furnished in connection with the
registrant's 1996 annual meeting of stockholders are incorporated by reference
into Part III.

                        

<PAGE>   3
PART I.

ITEM 1.       BUSINESS.

              The Registrant ("Grey") and its subsidiaries (collectively with 
Grey, the "Company") have been engaged in the planning, creation, supervision
and placing of advertising since the Company's formation in 1917. Grey was
incorporated in New York in 1925 and changed its state of incorporation to
Delaware in 1974.

              The Company's principal business activity consists of providing a 
full range of advertising services to its clients. Typically, this involves
developing an advertising and/or marketing plan after study of a client's
business, the distribution or utilization of the client's products or services
and the use of various media (e.g., television, radio, newspapers, magazines,
direct mail, outdoor billboards and the Internet) by which desired market
performance can best be achieved. The Company then creates advertising, prepares
media recommendations and places advertising in the media. The Company's
business also involves it in allied areas such as marketing consultation,
audio-visual production, cooperative advertising programs, direct marketing,
interactive consulting and production, media research and buying, research,
product publicity, public affairs, public relations and sales promotion.


                                       3
<PAGE>   4
              The Company is not engaged in more than one industry segment, and
no  separate class of similar services contributed 10% or more of the Company's
gross income or net income during 1995, 1994 or 1993.

              The Company serves a diversified client roster in the apparel,
automobile, beverage, chemical, communications, community service, computer,
corporate, electrical appliance, entertainment, food product, home furnishing,
houseware, office product, packaged goods, publishing, restaurant, retailing,
toy, travel and other sectors.

              Advertising is a highly competitive business in which agencies of 
all sizes and other providers of creative or media services strive to attract
new clients or additional assignments from existing clients. Competition for new
business, however, is restricted from time to time because large agencies (such
as the Company) often are precluded from providing advertising services for
products or services that may be viewed as being competitive with those of an
existing client. Generally, since advertising agencies charge clients
substantially equivalent rates for their services, competitive efforts
principally focus on the skills of the competing agencies.

              Published reports indicate that there are over 500 advertising 
agencies of all sizes in the United States. According to a report published in 
1995 (Adweek, a trade publication), the Company was the 8th largest United
States advertising agency in terms of domestic gross income.


                                       4
<PAGE>   5
              Approximately 58% of Grey's present domestic advertising clients,
representing a majority of the Company's 1995 domestic gross income, have been
with the Company since 1991. The agreements between the Company and most of its
clients are generally terminable by either the Company or the client on 90 days'
notice as is the custom in the industry. Clients may also modify advertising
budgets at any time and for any reason, and because the agency's compensation
for many clients is determined on the basis of commission rates, shifts in
advertising budgets may result in increased or reduced levels of revenue for the
Company.

              During 1995, one client (The Procter & Gamble Company), which has
been a client of the Company for forty years, represented more than 10% of the
Company's consolidated income from commissions and fees. The loss of this client
would be expected to have an adverse effect on the results of the Company. No
other client represented more than 5% of the Company's total consolidated income
from commissions and fees. The loss of any single client in past years has not
had a long-term negative impact upon the Company's financial condition or its
competitive position.

              On December 31, 1995, the Company and its nonconsolidated 
affiliated companies employed approximately 6,000 persons, of whom eight are
executive officers of Grey.

              As is generally the case in the advertising industry, the 
Company's business traditionally has been seasonal, with greater revenues 
generated in the second and fourth quarters of each year.  This reflects, in 
large degree, the media placement patterns of the Company's clients.


                                       5
<PAGE>   6

              Advertising programs created by the Company and its 
nonconsolidated affiliated companies are placed principally in media distributed
within the United States and overseas through its offices in the United States
and 58 foreign countries. While the Company operates on a worldwide basis, for
the purpose of presenting certain financial information in accordance with
Securities and Exchange Commission rules, its operations are deemed to be
conducted in three geographic areas. Commissions and fees, and operating profit
by each such geographic area for the years ended December 31, 1995, 1994 and
1993, and related identifiable assets at December 31 of each of the years, are
summarized in Note N of the Notes to Consolidated Financial Statements, which is
incorporated herein by reference.

              While the Company has no reason to believe that its foreign 
operations as a whole are presently jeopardized in any material respect, there
are certain risks of operating which do not affect domestic operations but which
may affect the Company's foreign operations from time to time. Such risks
include the possibility of limitations on repatriation of capital or dividends,
political instability, currency devaluation and restrictions on the percentage
of permitted foreign ownership.


                                       6
<PAGE>   7
                      Executive Officers of the Registrant
                               as of March 1, 1996

<TABLE>
<CAPTION>
                                                                                 Year First
                                                                                 became Execu-
Executive Officers (a)              Position                       Age           tive Officer
----------------------              --------                       ---           ------------
<S>                            <C>                                 <C>           <C>
Robert L. Berenson             President - Grey, N.Y.               56               1978
Barbara S. Feigin              Exec. Vice President                 58               1983
Steven G. Felsher              Exec. Vice President                               
                               Finance - Worldwide,                               
                               Secretary & Treasurer                46               1989
William P. Garvey              Exec. Vice President,                              
                               Chief Financial Officer                            
                               - United States                      58               1970
John A. Gerster                Exec. Vice President                 48               1983
Edward H. Meyer                Chairman of the Board,                             
                               President & Chief                                  
                               Executive Officer                    69               1959
Stephen A. Novick              Exec. Vice President                 55               1984
O. John C. Shannon             President - Grey Int'l.              59               1993

</TABLE>


(a)    All executive officers are elected annually by the Board of Directors of
       Grey. Each executive officer has been with Grey for a period greater
       than five years. There exists no family relationship between any of
       Grey's directors or executive officers and any other director or
       executive officer or person nominated or chosen to become a director or
       executive officer.



                                       7
<PAGE>   8
ITEM 2.             PROPERTIES.

                    Substantially all offices of the Company are located in
leased premises. The Company's principal office is at 777 Third Avenue, New
York, New York, where it occupies approximately 357,000 square feet of space.
The main lease covering the bulk of this space expires at the end of 1999. The
Company also has significant leases covering other offices in New York, Los
Angeles, Amsterdam, Brussels, Copenhagen, Dusseldorf, Hong Kong, London, Madrid,
Melbourne, Milan, Paris, Stockholm and Toronto.

                    The Company considers all space leased by it to be adequate
for the operation of its business and does not foresee any significant
difficulty in meeting its space requirements.

ITEM 3.             LEGAL PROCEEDINGS.

                    The Company is not involved in any material pending legal
proceedings other than ordinary routine litigation incidental to the business of
the Company.

ITEM 4.             SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

                    On October 10, 1995, Grey conducted its 1995 Annual Meeting
of Stockholders ("Meeting").

                    At the Meeting, Grey's stockholders approved a proposal
("Class B Proposal") to amend Grey's Restated Certificate of Incorporation and a
proposal ("Director Proposal") to elect O. John C. Shannon as director for a
three-year term.


                                       8
<PAGE>   9
                    The Class B Proposal requested that the stockholders approve
an amendment to extend the date for the automatic conversion of Grey's Limited
Duration Class B common stock, par value $1 per share ("Class B Common Stock").

                    The Class B Proposal was voted on by the holders of Grey's
common stock, par value $1 per share ("Common Stock"), the Class B Common Stock,
and the various classes of Grey's Preferred Stock.

                 The votes cast by the holders of outstanding shares of Common
Stock, Class B Common Stock and Preferred Stock with respect to the Class B
Proposal are set forth below.

<TABLE>
<CAPTION>
                                   FOR              AGAINST         ABSTAINED
                                   ---              -------         ---------
<S>                            <C>                  <C>             <C>
Common Stock                     462,010            219,882           1,183
Class B Common Stock           2,809,040             16,050           3,870
Preferred Stock                  330,000              -0-               -0-
</TABLE>


                 At the Meeting, the Director Proposal was passed by the
following vote:

<TABLE>
<CAPTION>
                                   FOR              WITHHELD
                                   ---              --------
<S>                            <C>                  <C>            
Common Stock                     687,301              5,038
Class B Common Stock           2,847,240              3,180
Preferred Stock                  330,000                -0-
</TABLE>


                                       9
<PAGE>   10
PART II

ITEM 5.       MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
              MATTERS.

               The Common Stock is traded on The Nasdaq Stock Market's National 
Market and listed on the Nasdaq Stock Market under the symbol GREY.

               As of March 1, 1996, there were 493 holders of record of the
Common Stock and 285 holders of record of the Limited Duration Class B Common
Stock.

               The following table sets forth certain information about 
dividends paid, and the bid prices on the Nasdaq Stock Market during the periods
indicated with respect to the Common Stock:

<TABLE>
<CAPTION>
                                                      BID PRICES*
                                                   DOLLARS PER SHARE               DIVIDENDS
                                                HIGH               LOW             PER SHARE
                                                ----               ---             ---------
<S>              <C>                            <C>                <C>             <C>  
1994             First Quarter                   196               178               .8125
                 Second Quarter                  195               182               .8125
                 Third Quarter                   190               159               .8125
                 Fourth Quarter                  165               144               .875

1995             First Quarter                   178               145               .875
                 Second Quarter                  188               160               .875
                 Third Quarter                   205               183               .875
                 Fourth Quarter                  196               182               .9375
</TABLE>



*       Such over-the-counter market quotations reflect inter-dealer prices,
        without retail mark-up, mark-down or commission and may not necessarily
        represent actual transactions.


                                       10
<PAGE>   11
ITEM 6.     SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>
                                    1995            1994            1993           1992           1991
                                    ----            ----            ----           ----           ----

<S>                             <C>            <C>              <C>            <C>            <C>          
Commissions and fees ........   $688,219,000   $ 593,317,000    $567,243,000   $564,468,000   $528,299,000
Expenses ....................    637,979,000     552,022,000     526,455,000    522,510,000    490,570,000
Restructuring charges (a) ...                                                                   23,850,000
Goodwill write-off (b).......                     39,944,000
Income of consolidated
  companies before taxes
  on income .................     54,327,000       1,610,000      42,705,000     42,588,000     13,277,000
Provision for taxes on
  income ....................     26,966,000      21,621,000      22,487,000     19,975,000      5,057,000
Net income (loss) ...........     23,438,000     (21,378,000)     17,681,000     15,904,000      3,807,000
Net income (loss) per
 common share (c)
  Primary ...................       16.79          (17.51)          13.46          12.68           3.09
  Fully diluted .............       16.16             N/A           13.00          12.25           3.08
Weighted average number
 of common shares out-
 standing
  Primary ...................      1,295,182       1,285,605       1,263,900      1,205,241      1,196,908
  Fully diluted .............      1,353,849       1,336,829       1,319,349      1,258,799      1,248,815
Working capital .............      6,557,000      33,735,000      25,001,000     12,588,000      8,364,000
Total assets ................    955,137,000     830,076,000     820,633,000    752,364,000    735,831,000
Long-term debt ..............     30,000,000      33,025,000      33,025,000      3,025,000      3,025,000
Redeemable preferred
  stock at redemption
  value .....................      8,986,000       7,516,000       6,590,000      6,468,000      6,053,000
Common stockholders'
  equity ....................    127,663,000     108,705,000     129,077,000    118,741,000    105,153,000
Cash dividend per share
  of Common Stock and
  Limited Duration Class B
  Common Stock ..............      3.5625          3.3125          3.1375          3.025           2.93
</TABLE>

       (a) In 1991, the Company recognized restructuring charges primarily
           related to the absorption of the Company's subsidiary, Levine Huntley
           Vick & Beaver, Inc.

       (b) In 1994, the Company recorded a charge of $39,944,000 on both a
           pre-tax and after-tax basis, for a non-cash write-off which related
           almost exclusively to write-offs of goodwill.

       (c) Gives effects to amounts attributable to (i) redeemable preferred
           stock, (ii) the assumed exercise of dilutive stock options, (iii)
           shares issuable pursuant to the Company's Senior Management Incentive
           Plan and (iv) for fully diluted net income per common share, the
           assumed conversion of 8 1/2% Convertible Subordinated Debentures
           issued December 1983.


                                       11
<PAGE>   12
ITEM 7.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
              RESULTS OF OPERATIONS.

RESULTS OF OPERATIONS

         Income from commissions and fees ("gross income") increased 16.0% in
1995 and 4.6% in 1994 as compared to the respective prior years. Absent exchange
rate fluctuations, gross income increased 11.4% in 1995 and 6.0% in 1994 as
compared to the respective prior years. In 1995, 1994 and 1993, respectively,
44.1%, 46.8% and 47.2% of consolidated gross income was attributable to domestic
operations and 55.9%, 53.2% and 52.8%, respectively, to international
operations. In 1995, gross income from domestic operations increased 9.5% versus
1994 and was up 3.5% in 1994 versus 1993. Gross income from international
operations increased 21.7% (13.1% absent exchange rate fluctuations) in 1995
when compared to 1994 and increased 5.6% (7.7% absent exchange rate
fluctuations) in 1994 when compared to 1993. The increases in gross income in
both years primarily resulted from expanded activities from existing clients and
the continued growth of the Company's general agency and specialized operations.
The increase in gross income from international operations is indicative of
the continued development of the Company's worldwide business. In addition, the
Company benefited from the continuing strong economic conditions in Europe, that
carryover from 1994.

         Salaries and employee-related expenses increased 16.8% in 1995 and 6.2%
in 1994 as compared to the respective prior years. Office and general expenses
increased 13.1% in 1995 and 3.3% in 1994 versus respective prior years. The
increases in expenses are generally in line with the increases in gross income
in such years.


                                       12
<PAGE>   13
         In 1994, the Company wrote-off $39,944,000 of goodwill. The non-cash
write-off related almost exclusively to international acquisitions made by the
Company principally in the 1980's. The carrying value of the Company's goodwill
prior to the write-off was approximately $84,000,000 and the write-off was
associated with 34 of the almost 100 investments for which the Company had
unamortized goodwill. The portion of the write-off relating to advertising
agencies was approximately $31,295,000 and $8,649,000 related to public
relations agencies. A significant portion of the write-off related to operations
in the United Kingdom.

         The widely recognized international recession seriously affected the
advertising industry, particularly in Western Europe, where the Company has its
largest and most developed international operations. As the recession abated in
the latter part of 1994, the Company was able to assess more clearly the
long-term prospects of the affected operations. At that point, it became clear
that the goodwill associated with a number of the agencies had become
permanently impaired.

         In substantially all of the 34 operations for which there were goodwill
write-offs, the loss of key clients and/or key personnel specific to those
operations were significant factors leading to management's determination that
goodwill was impaired.

         A material portion of the goodwill write-offs related to ten agencies
acquired in the United Kingdom as part of a strategy to develop the Company's
representation outside of the London market in the general advertising category
and in certain specialized disciplines (such as retail advertising, promotional
services and public relations). While future client losses and management
changes could affect the Company's operations in the United Kingdom, the Company
has consolidated a number of operations, which lessens the 


                                       13
<PAGE>   14
likelihood of a negative impact from any instance of client or management
turnover. The unimpaired goodwill balances associated with the United Kingdom
operations represented less than 10% of the Company's consolidated unamortized
goodwill as of December 31, 1994.

         Several of the operations where permanent impairment of goodwill was
identified continue to operate as ongoing businesses. While the Company has no
intention of closing any office or terminating employees in these operations
other than in the normal course of business, the Company has and will continue
to take prudent and reasonable actions, which may include expense reductions,
consolidation of offices and perhaps making selected acquisitions to supplement
those operations, as may be necessary to have such operations contribute to the
Company's profitable activities.

         In 1993, the Company wrote-off $1,939,000 of goodwill in excess of
normal amortization schedules. There were no goodwill write-offs in 1995 in
excess of normal amortization schedules.

         The Company will continue to assess the carrying value of its goodwill
by analyzing indicators of impairment, and will recognize additional permanent
impairments, if any, as they arise in accordance with current policy.

         Inflation did not have a material effect on revenue or expenses in
1995, 1994 or 1993.

         The effective tax rate was 49.6% in 1995, 1,342.9% in 1994 (52.0% not
including the goodwill write-off) and 52.7% in 1993. The decrease in the
effective tax rate in 1995 as 


                                       14
<PAGE>   15
compared to 1994 is due, in part, to the reduction of goodwill amortization and
write-off (which are not deductible for tax purposes) and other factors.

           Minority interest increased $3,233,000 in 1995 and decreased
$1,468,000 in 1994 as compared to the respective prior years. The changes in
1995 and in 1994 were primarily due to changes in the level of profits of
majority-owned companies.

           Equity in earnings of nonconsolidated companies increased $677,000
in 1995 and decreased $298,000 in 1994 as compared to the respective prior
years. These changes are due primarily to changes in the level of profits
attributable to the nonconsolidated companies.

           The Company reported net income of $23,438,000 for 1995 as compared
to a net loss of $21,378,000 in 1994. Absent the goodwill write-off, net income
for 1994 would have been $18,566,000. Net income for 1995 was up 26.2% over
1994's results absent the goodwill write-off. Net income for 1994, absent the
goodwill write-off, increased 5.0% over 1993. For 1995, primary earnings per
common share was up 24.4% versus 1994, absent the goodwill write-off. Primary
earnings per common share for 1994 not including the write-off increased 0.3%
over 1993.

           For purposes of computing primary net income (loss) per common share,
the Company's net income (loss) was adjusted by (i) dividends paid on the
Company's Preferred Stock and (ii) by the change in redemption value of the
Company's Preferred Stock.

           The Company's results may be affected by currency exchange rate
fluctuations given the Company's extensive non-United States operations.
Generally, the foreign currency 
             

                                       15
<PAGE>   16
exchange risk is limited to net income because the Company's revenues and
expenses, by country, are almost exclusively denominated in the local currency
of each respective operation with both revenue and expense items matched.
Occasionally, the Company enters into foreign currency contracts for known cash
flows related to repatriation of earnings from its international subsidiaries.
The term of each such foreign currency contract entered into in 1995 was for
less than three months. At December 31, 1995, there were no foreign currency
contract transactions open. In addition, the Company had no derivative contracts
outstanding at December 31, 1995, and did not enter into any derivative
contracts during 1995.

LIQUIDITY AND CAPITAL RESOURCES

           The Company continues to maintain a high level of liquidity, as it
continued to have high levels of cash and investments in highly liquid
marketable securities, a significant majority of which are United States
government securities. Cash and cash equivalents were $134,313,000 and
$170,077,000 at December 31, 1995 and 1994, respectively, and the Company's
investment in marketable securities was $68,671,000 and $25,433,000 at December
31, 1995 and 1994, respectively. The continued high level of liquidity reflects
the Company's ongoing focus on the cash management process. Working capital
decreased by $27,178,000 from $33,735,000 at December 31, 1994 to $6,557,000 at
December 31, 1995. The decrease in working capital is largely attributable to
the increase in the portion of marketable securities which are classified as
non-current assets due to their stated maturity dates and the repurchase of
approximately 77,000 shares of the Company's stock during 1995.


                                       16
<PAGE>   17
           Domestically, the Company maintains committed bank lines of credit
totaling $40,000,000. These lines of credit were partially utilized during both
1995 and 1994 to secure obligations of selected foreign subsidiaries in the
amount of $15,000,000 at each year end.

           Other lines of credit are available to the Company in foreign
countries in connection with short-term borrowings and bank overdrafts used in
the normal course of business. Amounts outstanding under such facilities at
December 31, 1995 and 1994 were $56,336,000 and $49,460,000, respectively.

           Historically, funds from operations and short-term bank borrowings
have been sufficient to meet the Company's dividend, capital expenditure and
working capital needs. The Company expects that such sources will be sufficient
to meet its short-term cash requirements in the future. While the Company has
not utilized long-term borrowing to fund its operating needs, in 1993, it took
advantage of favorable terms offered, and borrowed $30,000,000, at a fixed
interest rate of 7.68%. The principal is repayable in equal installments in
January 1998, 1999 and 2000. Additionally, during 1995 the Company borrowed
against the cash value of life insurance policies it owns on the Chairman and
Chief Executive Officer at a fixed rate of 8.75%. The amount borrowed against
the cash value at December 31, 1995 was $13,024,000. The Company does not
anticipate any material increased requirement for capital or other expenditures
which will adversely affect its liquidity.

           The Company's business generally has been seasonal with greater gross
income earned in the second and fourth quarters, particularly the fourth
quarter. As a result, cash, 


                                       17
<PAGE>   18

accounts receivable, accounts payable and accrued expenses are typically higher
on the Company's year-end balance sheet than at the end of any of the preceding
three quarters.

FASB STATEMENT 121

           The Financial Accounting Standards Board has issued Statement No.
121, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
be Disposed of. The Company will adopt the new statement in the first quarter of
1996. The adoption of the new statement will not have a material impact on the
Company's financial statements.

FASB STATEMENT 123

           The Financial Accounting Standards Board has issued Statement No. 
123, Accounting for Stock-Based Compensation. The Company will adopt the new
statement in 1996. The Company will continue to account for stock-based
compensation by applying APB Opinion No. 25, Accounting for Stock Issued to
Employees, and will provide required footnote disclosures as appropriate.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

           The information required by this Item is presented in this report
beginning on Page F-1.


                                       18
<PAGE>   19
ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE.

           None.


                                       19
<PAGE>   20
PART III.

ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

             Information with respect to the directors of the Company is
incorporated herein by reference to the Company's proxy statement ("Proxy
Statement") to be sent to its stockholders in connection with its 1996 Annual
Meeting, under the caption "Election of Directors". Information with respect to
the Company's executive officers is set forth in Part I of this report.

ITEM 11.     EXECUTIVE COMPENSATION.

             The information required by this Item is incorporated herein by
reference to the Proxy Statement and will be included under the caption
"Management Remuneration and Other Transactions".

ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

             The information required by this Item is incorporated herein by
reference to the Proxy Statement and will be included under the captions
"Election of Directors" and "Voting Securities".


                                       20
<PAGE>   21
ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

             The information required by this Item is incorporated herein by
reference to the Proxy Statement and will be included under the captions
"Election of Directors" and "Voting Securities".

PART IV.

ITEM 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

                    (a)    (1) (2) The information required by this subsection
                           of this Item is presented in the index to Financial
                           Statements on Page F-1.

                           (3) The information required by this subsection of
                           this Item is provided in the Index of Exhibits at
                           Page E-1 of this report. Such index provides a
                           listing of exhibits filed with this report and those
                           incorporated herein by reference.

                    (b)    Reports on Form 8-K: The Company filed a report on
                           Form 8-K, dated October 10, 1995, in which the
                           Company disclosed that the Company's stockholders
                           voted to extend to April 3, 2006 the date on which
                           all outstanding shares of Limited Duration Class B
                           Common Stock will automatically convert into shares
                           of Common Stock.


                                       21
<PAGE>   22
                                   SIGNATURES

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

                                            GREY ADVERTISING INC.
                                        
                                            By: /s/ Edward H. Meyer
                                               -------------------- 
                                                 Edward H. Meyer,
                                                 Chairman, Chief Executive
                                                 Officer & President
                                        
                                            Dated:  March 29, 1996
                                    
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Registrant and in
the capacities and on the date indicated.

/s/ Mark N. Kaplan                          Dated: March 29, 1996
-------------------------------
Mark N. Kaplan, Director

/s/ Edward H. Meyer                         Dated: March 29, 1996
-------------------------------
Edward H. Meyer, Director;
Principal Executive Officer

/s/ O. John C. Shannon                      Dated: March 29, 1996
-------------------------------
O. John C. Shannon, Director;
President - Grey International

/s/ Richard R. Shinn                        Dated: March 29, 1996
-------------------------------
Richard R. Shinn, Director

/s/ Steven G. Felsher                       Dated: March 29, 1996
-------------------------------
Steven G. Felsher,
Principal Financial Officer

/s/ William P. Garvey                       Dated: March 29, 1996
-------------------------------
William P. Garvey,
Principal Accounting Officer


                                       22
<PAGE>   23
                           Annual Report on Form 10-K

                  Item 8, Item 14(a)(1) and (2) and Item 14(d)

                   Financial Statements and Supplementary Data

                          List of Financial Statements

                          Year ended December 31, 1995

                              GREY ADVERTISING INC.

                               New York, New York


<PAGE>   24
Form 10-K-Item 8, Item 14(a)(1) and (2)

Grey Advertising Inc. and Consolidated Subsidiary Companies

Index to Financial Statements

The following consolidated financial statements of Grey Advertising Inc. and
consolidated subsidiary companies are included in Item 8:

<TABLE>
<S>                                                                         <C> 
   Report of Independent Auditors.........................................  F-2

   Consolidated Balance Sheets--December 31, 1995 and 1994................  F-3

   Consolidated Statements of Operations--Years Ended
     December 31, 1995, 1994 and 1993.....................................  F-5

   Consolidated Statements of Common Stockholders' Equity--
     Years Ended December 31, 1995, 1994 and 1993.........................  F-6

   Consolidated Statements of Cash Flows--
     Years Ended December 31, 1995, 1994 and 1993.........................  F-8 

   Notes to Consolidated Financial Statements--
     December 31, 1995....................................................  F-10
</TABLE>

All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.

Summarized financial information and financial statements for nonconsolidated
foreign investee companies accounted for by the equity method have been omitted
because such companies, considered individually or in the aggregate, do not
constitute a significant subsidiary.


                                                                             F-1
<PAGE>   25


                         Report of Independent Auditors

Board of Directors
Grey Advertising Inc.

We have audited the accompanying consolidated balance sheets of Grey Advertising
Inc. and consolidated subsidiary companies as of December 31, 1995 and 1994, and
the related consolidated statements of operations, common stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Grey
Advertising Inc. and consolidated subsidiary companies at December 31, 1995 and
1994, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.

                                                         ERNST & YOUNG LLP

New York, New York
February 7, 1996


                                                                             F-2
<PAGE>   26
           GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                    DECEMBER 31
                                                              1995               1994
                                                          -------------------------------
<S>                                                       <C>                <C>
ASSETS
Current assets:
   Cash and cash equivalents                              $134,313,000       $170,077,000
   Marketable securities (Notes A and E)                    20,419,000         10,648,000
   Accounts receivable                                     495,349,000        403,973,000
   Expenditures billable to clients                         46,449,000         30,145,000
   Other current assets                                     49,614,000         60,826,000
                                                          -------------------------------
Total current assets                                       746,144,000        675,669,000
                                                                            
Investments in and advances to nonconsolidated                              
   affiliated companies (Notes A and B)                     20,693,000         16,495,000
Fixed assets-net (Note D)                                   74,706,000         61,174,000
Marketable securities (Notes A and E)                       48,252,000         14,785,000
Intangibles and other assets-including loans to                             
   officers of $5,522,000 in 1995 and $5,347,000 in                         
   1994 (Notes A, F, G, I and L(1))                         65,342,000         61,953,000
                                                          -------------------------------
Total assets                                              $955,137,000       $830,076,000
                                                          =============================== 
</TABLE>

See notes to consolidated financial statements


                                                                             F-3
<PAGE>   27
           GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
                                                                    DECEMBER 31
                                                              1995               1994
                                                          --------------------------------
<S>                                                       <C>                <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                        $549,533,000       $475,188,000
   Notes payable to banks (Note F)                           71,336,000         64,460,000
   Accrued expenses and other                                97,126,000         88,156,000
   Current portion of long-term debt (Note F)                 3,025,000     
   Income taxes payable                                      18,567,000         14,130,000
                                                          --------------------------------
Total current liabilities                                   739,587,000        641,934,000
                                                                            
Other liabilities, including deferred compensation of                       
   $22,021,000 and $16,244,000 (Note L(1))                   39,620,000         30,053,000
Long-term debt (Note F)                                      30,000,000         33,025,000
Minority interest                                             9,281,000          8,843,000
Redeemable preferred stock-at redemption value; par                         
   value $1 per share; authorized 500,000 shares; issued                    
   and outstanding 32,000 shares in 1995 and 1994,                          
   respectively (Note G)                                      8,986,000          7,516,000
                                                                            
Common stockholders' equity:                                                
  Common Stock-par value $1 per share; authorized                           
   10,000,000 shares; issued 1,096,096 shares in 1995                       
   and 1,077,116 shares in 1994                               1,096,000          1,077,000
  Limited Duration Class B Common Stock-par value                           
   $1 per share; authorized 2,000,000 shares; issued                        
   335,688 shares in 1995 and 354,668 shares in 1994            336,000            355,000
  Paid-in additional capital                                 37,898,000         31,895,000
  Retained earnings                                         122,345,000        105,123,000
  Cumulative translation adjustment                           4,664,000           (728,000)
  Unrealized gain (loss) on marketable securities                           
   (Notes A and E)                                              550,000         (1,492,000)
  Loans to officer used to purchase Common Stock and                        
    Limited Duration Class B Common Stock (Note I)           (4,726,000)        (4,726,000)
                                                          --------------------------------
                                                            162,163,000        131,504,000
  Less-cost of 212,848 and 161,382 shares of Common                         
   Stock and 26,751 and 26,751 shares of Limited                            
   Duration Class B Common Stock held in treasury                           
   at December 31, 1995 and 1994, respectively               34,500,000         22,799,000
                                                          --------------------------------
Total common stockholders' equity                           127,663,000        108,705,000
Retirement plans, leases and contingencies (Note L)                         
                                                          --------------------------------
Total liabilities and stockholders' equity                 $955,137,000       $830,076,000
                                                          ================================
</TABLE>
                                                                            
                                                                            
 See notes to consolidated financial statements.                         


                                                                             F-4
<PAGE>   28
           GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                      YEAR ENDED DECEMBER 31
                                              1995             1994              1993
                                          -----------------------------------------------
<S>                                       <C>              <C>              <C>  
Commissions and fees                       $688,219,000     $593,317,000     $567,243,000
Expenses:
Salaries and employee related
   expenses (Note L(1))                     432,311,000      370,196,000      348,462,000
Office and general expenses (Note L(2))     205,668,000      181,826,000      176,054,000
Goodwill write-off (Notes A and M)                            39,944,000        1,939,000
                                          -----------------------------------------------
                                            637,979,000      591,966,000      526,455,000
                                          -----------------------------------------------
                                             50,240,000        1,351,000       40,788,000
Other income-net (Note C)                     4,087,000          259,000        1,917,000
                                          -----------------------------------------------
Income of consolidated companies
   before taxes on income                    54,327,000        1,610,000       42,705,000
Provision for taxes on income (Note K)       26,966,000       21,621,000       22,487,000
                                          -----------------------------------------------
Net income (loss) of consolidated
   companies                                 27,361,000      (20,011,000)      20,218,000
Minority interest applicable to
   consolidated companies                    (6,273,000)      (3,040,000)      (4,508,000)
Equity in earnings of nonconsolidated
   affiliated companies                       2,350,000        1,673,000        1,971,000
                                          -----------------------------------------------
Net income (loss)                          $ 23,438,000     $(21,378,000)    $ 17,681,000
                                          ===============================================
Earnings per Common Share (Note J):
     Primary                                     $16.79          $(17.51)          $13.46
     Fully diluted                               $16.16             *              $13.00

     *Antidilutive
</TABLE>

See notes to consolidated financial statements.


                                                                            F-5
<PAGE>   29
           GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
             CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
                                                                                                                                  
                                                                                              PAID-IN                             
                                                                              COMMON         ADDITIONAL         RETAINED          
                                                                              STOCK           CAPITAL           EARNINGS          
                                                                           ----------------------------------------------
<S>                                                                        <C>              <C>              <C>                  
Balance at December 31, 1992                                               $1,432,000       $23,635,000      $118,737,000         

  Net income                                                                                                   17,681,000         
  Cash dividends-Common Shares-$3.1375 per share                                                               (3,884,000)        
  Cash dividends-Redeemable Preferred Stock-$6.275 per share                                                     (204,000)        
  Common Shares acquired-at cost                                                                                                  
  Dividends payable in Company Stock pursuant to Senior
    Management Incentive Plan (Note L)                                                           27,000           (27,000)
  Increase in redemption value of Redeemable Preferred Stock (Note G)                                            (468,000)        
  Restricted Stock Plan activity (Note I)                                                       256,000                           
  Tax benefit from restricted stock (Note K)                                                     66,000                           
  Common Shares issued upon exercise of stock options                                           (44,000)                          
  Tax benefit from exercise of stock options (Note K)                                            46,000                           
  Senior Management Incentive Plan activity (Note L)                                          3,343,000                           
  Translation adjustment                                                                                                          
  Unrealized loss on marketable securities (Notes A and E)                                                                        
                                                                           ----------------------------------------------
Balance at December 31, 1993                                                1,432,000        27,329,000       131,835,000         

  Net loss                                                                                                    (21,378,000)        
  Cash dividends-Common Shares-$3.3125 per share                                                               (4,112,000)        
  Cash dividends-Redeemable Preferred Stock-$6.625 per share                                                     (212,000)        
  Common Shares acquired-at cost                                                                                                  
  Dividends Payable in Company Stock pursuant to Senior
    Management Incentive Plan (Note L)                                                           84,000           (84,000)
  Increase in redemption value of Redeemable Preferred Stock (Note G)                                            (926,000)        
  Restricted stock activity (Note I)                                                             30,000                           
  Tax benefit from restricted stock (Note K)                                                    450,000                           
  Common Shares issued upon exercise of stock options                                          (101,000)                          
  Tax benefit from exercise of stock options (Note K)                                           118,000                           
  Senior Management Incentive Plan activity (Note L)                                          3,985,000                           
  Translation adjustment                                                                                                          
  Unrealized loss on marketable securities (Notes A and E)                                                                        
                                                                           -----------------------------------------------
Balance at December 31, 1994                                                1,432,000        31,895,000        105,123,000        

</TABLE>


<TABLE>
<CAPTION>
                                                                                COMMON STOCK                                        
                                                                              HELD IN TREASURY             OTHER                    
                                                                          -------------------------        EQUITY                   
                                                                          SHARES           AMOUNT         ACCOUNTS         TOTAL    
                                                                          -------------------------------------------------------- 
<S>                                                                       <C>          <C>             <C>            <C> 
Balance at December 31, 1992                                                194,381    $(23,116,000)   $(1,947,000)   $118,741,000  
                                                                                                                                    
  Net income                                                                                                            17,681,000  
  Cash dividends-Common Shares-$3.1375 per share                                                                        (3,884,000) 
  Cash dividends-Redeemable Preferred Stock-$6.275 per share                                                              (204,000) 
  Common Shares acquired-at cost                                              5,426        (787,000)                      (787,000) 
  Dividends payable in Company Stock pursuant to Senior                                                                             
    Management Incentive Plan (Note L)                                                                                              
  Increase in redemption value of Redeemable Preferred Stock (Note G)                                                     (468,000) 
  Restricted Stock Plan activity (Note I)                                                                                  256,000  
  Tax benefit from restricted stock (Note K)                                                                                66,000  
  Common Shares issued upon exercise of stock options                        (8,584)        830,000                        786,000  
  Tax benefit from exercise of stock options (Note K)                                                                       46,000  
  Senior Management Incentive Plan activity (Note L)                                                                     3,343,000  
  Translation adjustment                                                                                (6,352,000)     (6,352,000) 
  Unrealized loss on marketable securities (Notes A and E)                                                (147,000)       (147,000) 
                                                                          --------------------------------------------------------  
Balance at December 31, 1993                                                191,223     (23,073,000)    (8,446,000)    129,077,000  
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
  Net loss                                                                                                             (21,378,000) 
  Cash dividends-Common Shares-$3.3125 per share                                                                        (4,112,000) 
  Cash dividends-Redeemable Preferred Stock-$6.625 per share                                                              (212,000) 
  Common Shares acquired-at cost                                              1,993        (372,000)                      (372,000) 
  Dividends Payable in Company Stock pursuant to Senior                                                                             
    Management Incentive Plan (Note L)                                                                                              
  Increase in redemption value of Redeemable Preferred Stock (Note G)                                                     (926,000) 
  Restricted stock activity (Note I)                                         (1,750)        226,000                        256,000  
  Tax benefit from restricted stock (Note K)                                                                               450,000  
  Common Shares issued upon exercise of stock options                        (3,333)        420,000                        319,000  
  Tax benefit from exercise of stock options (Note K)                                                                      118,000  
  Senior Management Incentive Plan activity (Note L)                                                                     3,985,000  
  Translation adjustment                                                                                 2,845,000       2,845,000  
  Unrealized loss on marketable securities (Notes A and E)                                              (1,345,000)     (1,345,000) 
                                                                          --------------------------------------------------------  
Balance at December 31, 1994                                                188,133     (22,799,000)    (6,946,000)    108,705,000  

</TABLE>
                                                                           



                                                                             F-6
<PAGE>   30
           GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES  
       CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (CONTINUED)
                  YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993


<TABLE>   
<CAPTION>     
                                                                                             PAID-IN       
                                                                             COMMON         ADDITIONAL         RETAINED 
                                                                              STOCK           CAPITAL           EARNINGS  
                                                                           ------------------------------------------------
<S>                                                                        <C>              <C>              <C>               
 Net income                                                                                                      23,438,000  
 Cash dividends-Common Shares-$3.5625 per share                                                                  (4,333,000) 
 Cash dividends-Redeemable Preferred Stock-$7.125 per share                                                        (228,000) 
 Common Shares acquired-at cost                                                      
 Dividends Payable in Company Stock pursuant to Senior
   Management Incentive Plan (Note L)                                                           185,000            (185,000)
 Increase in redemption value of Redeemable Preferred Stock (Note G)                                             (1,470,000) 
 Restricted stock activity (Note I)                                                             133,000                      
 Tax benefit from restricted stock  (Note K)                                                    164,000                      
 Common Shares issued upon exercise of stock options                                           (287,000)                     
 Tax benefit from exercise of stock options (Note K)                                            959,000                      
 Senior Management Incentive Plan activity (Note L)                                           4,849,000                      
 Translation adjustment                                                                                                      
 Unrealized gain on marketable securities (Notes A and E)                                                                    
                                                                           ------------------------------------------------ 
Balance at December 31, 1995                                               $1,432,000       $37,898,000        $122,345,000   
                                                                           ================================================   
</TABLE>

<TABLE>
<CAPTION>
                                                                               COMMON STOCK        
                                                                             HELD IN TREASURY              OTHER           
                                                                          -------------------------        EQUITY        
                                                                          SHARES           AMOUNT         ACCOUNTS         TOTAL   
                                                                          --------------------------------------------------------  
<S>                                                                       <C>          <C>             <C>            <C>  
 Net income                                                                                                             23,438,000  
 Cash dividends-Common Shares-$3.5625 per share                                                                         (4,333,000) 
 Cash dividends-Redeemable Preferred Stock-$7.125 per share                                                               (228,000) 
 Common Shares acquired-at cost                                            77,001       (14,434,000)                   (14,434,000) 
 Dividends Payable in Company Stock pursuant to Senior                                                                              
   Management Incentive Plan (Note L)                                                                                               
 Increase in redemption value of Redeemable Preferred Stock (Note G)                                                    (1,470,000) 
 Restricted stock activity (Note I)                                                                                        133,000  
 Tax benefit from restricted stock  (Note K)                                                                               164,000 
 Common Shares issued upon exercise of stock options                      (25,535)        2,733,000                      2,446,000  
 Tax benefit from exercise of stock options (Note K)                                                                       959,000  
 Senior Management Incentive Plan activity (Note L)                                                                      4,849,000  
 Translation adjustment                                                                                 5,392,000        5,392,000  
 Unrealized gain on marketable securities (Notes A and E)                                               2,042,000        2,042,000 
                                                                          --------------------------------------------------------
Balance at December 31, 1995                                              239,599      $(34,500,000)   $  488,000     $127,663,000 
                                                                          ======================================================== 
</TABLE>                                                           

See notes to consolidated financial statements.

F-7
<PAGE>   31
           GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31
                                                            1995              1994               1993
                                                        -------------------------------------------------
<S>                                                     <C>               <C>               <C>
OPERATING ACTIVITIES
Net income (loss)                                       $ 23,438,000      $(21,378,000)      $ 17,681,000
Adjustments to reconcile net income (loss) to net
   cash provided by operating activities:
     Depreciation and amortization of fixed assets        17,388,000        15,093,000         13,591,000
     Goodwill write-off                                                     39,944,000          1,939,000
     Amortization of intangibles                           4,146,000         7,475,000          5,486,000
     Deferred compensation                                15,162,000         9,006,000          6,379,000
     Equity in earnings of nonconsolidated
       affiliated companies, net of dividends
       received of $483,000, $903,000 and
       $1,336,000                                         (1,867,000)         (770,000)          (635,000)
     Minority interest applicable to consolidated
       companies                                           6,273,000         3,040,000          4,508,000
     Amortization of restricted stock expense                133,000           116,000            256,000
     Deferred income taxes                                (2,999,000)       (5,104,000)        (3,271,000)

     Changes in operating assets and liabilities:
       Increase in accounts receivable                   (79,612,000)      (31,058,000)       (29,082,000)
       (Increase) decrease in expenditures billable
         to clients                                      (14,109,000)       (6,006,000)           555,000
       Decrease in other current assets                    4,351,000        10,739,000         31,454,000
       Decrease (increase) in other assets                 3,680,000        (3,077,000)        (4,141,000)
       Increase (decrease) in accounts payable            61,846,000        (4,220,000)        76,731,000
       Increase (decrease) in accrued expenses
         and other                                         3,180,000        (9,424,000)        (5,580,000)
       Increase in income taxes payable                    2,431,000         6,600,000          2,385,000
       Decrease in other liabilities                      (2,509,000)       (2,507,000)        (7,298,000)
                                                        -------------------------------------------------
Net cash provided by operating activities                 40,932,000         8,469,000        110,958,000

INVESTING ACTIVITIES

Purchases of fixed assets                                (29,136,000)      (17,067,000)       (13,421,000)
Trust fund deposits                                       (2,426,000)
Increase in investments in and advances to
   nonconsolidated affiliated companies                   (1,686,000)       (3,564,000)        (4,849,000)
Purchases of marketable securities                       (68,500,000)       (2,003,000)       (25,572,000)
Sales of marketable securities                            26,957,000           486,000
Increase in intangibles, primarily goodwill               (6,183,000)      (14,800,000)        (6,770,000)
                                                        -------------------------------------------------
Net cash used in investing activities                    (80,974,000)      (36,948,000)       (50,612,000)
</TABLE>



                                                                             F-8
<PAGE>   32
           GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31
                                                           1995               1994               1993
                                                      ---------------------------------------------------
<S>                                                   <C>                <C>                <C>
FINANCING ACTIVITIES
Net proceeds from short-term borrowings               $   4,834,000      $  15,826,000      $   9,762,000
Common Shares issued under Stock Incentive Plan                                141,000
Common Shares acquired for treasury                     (14,434,000)          (372,000)          (787,000)
Cash dividends paid on Common Shares                     (4,333,000)        (4,112,000)        (3,884,000)
Cash dividends paid on Redeemable Preferred Stock          (228,000)          (212,000)          (204,000)
Proceeds from exercise of stock options                   2,446,000            319,000            786,000
Redemption of Redeemable Preferred Stock                                                         (300,000)
Proceeds from long-term debt                                                                   30,000,000
Borrowings under life insurance policies                 11,779,000
                                                      ---------------------------------------------------
Net cash provided by financing activities                    64,000         11,590,000         35,373,000
Effect of exchange rate changes on cash                   4,214,000          5,699,000         (7,207,000)
                                                      ---------------------------------------------------
(Decrease) increase in cash and cash equivalents        (35,764,000)       (11,190,000)        88,512,000
Cash and cash equivalents at beginning of year          170,077,000        181,267,000         92,755,000
                                                      ---------------------------------------------------
Cash and cash equivalents at end of year              $ 134,313,000      $ 170,077,000      $ 181,267,000
                                                      ===================================================
</TABLE>





See notes to consolidated financial statements.



                                                                             F-9
<PAGE>   33
           GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its majority owned subsidiaries. Material intercompany balances and transactions
have been eliminated in consolidation. Certain amounts for years prior to 1995
have been reclassified to conform with the current year classification.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company 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.
Estimates also affect the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.

COMMISSIONS AND FEES AND ACCOUNTS RECEIVABLE

Income derived from advertising placed with media is generally recognized based
upon the publication or broadcast dates. Income resulting from expenditures
billable to clients is generally recognized when billed. Payroll costs are
expensed as incurred. Accounts receivable include both the income recognized as
well as the actual media and production costs which are paid for by the Company
and rebilled to clients at the Company's cost.

CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of three
months or less from the purchase date to be cash equivalents. The carrying
amount of cash equivalents approximates fair value because of the short
maturities of those instruments.

INVESTMENTS IN AND ADVANCES TO NONCONSOLIDATED AFFILIATED COMPANIES

The Company generally carries its investments in nonconsolidated affiliated
companies on the equity method. Certain investments which are not material in
the aggregate are carried on the cost method.

FIXED ASSETS

Depreciation of furniture, fixtures and equipment is provided for over their
estimated useful lives ranging from three to ten years and has been computed
principally by the straight-line method. Amortization of leaseholds and
leasehold improvements is provided for principally over the terms of the related
leases, which are not in excess of the lives of the assets.



                                                                            F-10
<PAGE>   34
           GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

FOREIGN CURRENCY TRANSLATION

Primarily all balance sheet accounts of the Company's foreign operations are
translated at the exchange rate in effect at each year end and statement of
operations accounts are translated at the average exchange rates prevailing
during the year. Resulting translation adjustments are made directly to a
separate component of stockholders' equity. Foreign currency transaction gains
and losses are reported in income. During 1995, 1994 and 1993, foreign currency
transaction gains and losses were not material.
           
INTANGIBLES

The excess of purchase price over underlying net equity of certain consolidated
subsidiaries and nonconsolidated affiliated companies at the date of acquisition
("goodwill") is amortized by the straight-line method over periods of up to 20
years. The amounts of goodwill associated with consolidated subsidiaries
(included in Other Assets) and nonconsolidated investments (included in
Investments in and Advances to Nonconsolidated Affiliated Companies) were
$41,237,000 and $8,325,000 at the end of 1995 and $36,603,000 and $7,718,000 at
the end of 1994, respectively.

Annually, the Company assesses the carrying value of its goodwill and the
respective periods of amortization. As part of the evaluation, the Company
considers a number of factors including actual operating results, the impact of
gains and losses of major local clients, the impact of any loss of key local
management staff and any changes in general economic conditions. In 1994, the
Company formalized its assessment of goodwill and since then quantifies the
recoverability of goodwill based on each agency's estimated future
non-discounted cash flows over the applicable remaining amortization periods.
This requires management to make certain specific assumptions with respect to
future revenue and expense levels. Where multiple investments had been made in a
single company, a weighted average amortization period is used.

Charges to reflect permanent impairment are recorded to the extent that the
unamortized book value of the goodwill exceeds the future cumulative
non-discounted cash flows. If such cash flows are expected to recover less than
10% of the associated goodwill, a full write-off is recorded. No write-off is
recorded if the cash flows are expected to recover 90% or more of the associated
goodwill.



                                                                            F-11
<PAGE>   35
           GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INCOME TAXES

The Company uses the liability method of accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The Company provides appropriate foreign
withholding taxes on unremitted earnings of consolidated and nonconsolidated
foreign companies.

MARKETABLE SECURITIES

The Company considers all its investments in marketable securities as
available-for-sale. Available-for-sale securities are carried at fair value,
based on publicly quoted market prices, with unrealized gains and losses
reported as a separate component of stockholders' equity.

STOCK-BASED COMPENSATION

The Company accounts for stock-based awards in accordance with APB Opinion No.
25, Accounting For Stock Issued to Employees.  No compensation expense is
recorded for options granted at fair market value at the date of grant. The
excess of the fair market value of Restricted Stock over the cash
consideration received is amortized, as compensation, over the period of
restriction. The future obligation to issue stock pursuant to the Company's
Senior Management Incentive Plan, included in Paid-In Additional Capital, is
increased by periodic charges to compensation.

B. FOREIGN OPERATIONS

The following financial data is applicable to consolidated foreign subsidiaries:

<TABLE>
<CAPTION>
                             1995              1994              1993
                         ------------------------------------------------
<S>                      <C>              <C>                <C>
Current assets           $395,016,000      $349,208,000      $357,391,000
Current liabilities       408,541,000       364,571,000       367,048,000
Other assets--net of
   other liabilities       56,312,000        50,696,000        69,915,000
Net income (loss)           9,384,000       (35,043,000)        2,584,000
</TABLE>


Consolidated retained earnings at December 31, 1995 includes equity in
unremitted earnings of nonconsolidated foreign companies of approximately
$6,517,000.


                                                                           F-12
<PAGE>   36
           GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

C. OTHER INCOME - NET

<TABLE>
<CAPTION>
                                   1995             1994             1993
                              ----------------------------------------------
<S>                           <C>               <C>              <C>
Interest income                $12,183,000       $7,507,000       $7,307,000
Interest expense                (8,928,000)      (7,833,000)      (7,558,000)
Dividends from affiliates          217,000           86,000          674,000
Other--net                         615,000          499,000        1,494,000
                              ----------------------------------------------
                               $ 4,087,000       $  259,000       $1,917,000
                              ==============================================
</TABLE>

D. FIXED ASSETS

Components of fixed assets-at cost are:

<TABLE>
<CAPTION>
                                                       1995             1994
                                                   -----------------------------
<S>                                                <C>              <C>
Furniture, fixtures and equipment                  $119,575,000     $ 97,988,000
Leaseholds and leasehold improvements                48,920,000       43,770,000
                                                   -----------------------------
                                                    168,495,000      141,758,000
Less accumulated depreciation and amortization       93,789,000       80,584,000
                                                   -----------------------------
                                                   $ 74,706,000     $ 61,174,000
                                                   =============================
</TABLE>

E. MARKETABLE SECURITIES

The marketable securities, by type of investment, held by the Company at
December 31, 1995 and 1994 are described as follows:

<TABLE>
<CAPTION>
                                                   1995            1994
                                               ---------------------------
<S>                                            <C>             <C>
Maturities of one year or less:
  U.S. Treasury Securities                     $ 4,758,000     $ 7,678,000
  Money market funds                            12,394,000       2,970,000
  Corporate bonds                                3,267,000
                                               ---------------------------
                                                20,419,000      10,648,000
                                               ---------------------------
Maturities greater than one year:
  U.S. Treasury Securities                      41,946,000      14,785,000
  Government National Mortgage Association
   Securities                                    1,838,000
  Corporate bonds                                4,468,000
                                               ---------------------------
                                                48,252,000      14,785,000
                                               ---------------------------
                                               $68,671,000     $25,433,000
                                               ===========================
</TABLE>

At December 31, 1995, the Company had unrealized gains of $550,000 and at
December 31, 1994 unrealized losses of $1,492,000, principally related to the
investments in U.S. Treasury Securities. At December 31, 1995 and 1994, the
Company's investments in marketable securities classified as non-current had an
average maturity of 6 years and 4 years, respectively.



                                                                            F-13
<PAGE>   37
           GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

F. CREDIT ARRANGEMENTS AND LONG-TERM DEBT

The Company maintains committed lines of credit of $40,000,000 with various
banks and may draw against the lines on unsecured demand notes at rates below
the applicable bank's prime interest rate. These lines of credit, which are
renewable annually, were partially utilized during both 1995 and 1994 to secure
obligations of selected foreign subsidiaries in the amount of $15,000,000 at the
end of each year. The weighted average interest rate related to the debt
associated with the committed lines of credit was 6.95% and 6.25% at December
31, 1995 and 1994, respectively. The Company had $56,336,000 and $49,460,000
outstanding under other uncommitted lines of credit at December 31, 1995 and
1994, respectively. The weighted average interest rate for the borrowings under
the uncommitted lines of credit was 7.91% and 7.70% at December 31, 1995 and
1994, respectively. The carrying amount of the debt outstanding under both the
committed and uncommitted lines of credit approximates fair value because of the
short maturities of the underlying notes. Occasionally, the Company enters into
foreign currency contracts for known cash flows related to the repatriation of
earnings from its international subsidiaries. The term of each foreign currency
contract entered into in 1995 was for less than three months. At December 31,
1995, there were no foreign currency contract transactions open. In addition,
the Company had no derivative contracts outstanding at December 31, 1995, and
did not enter into any derivative contracts during 1995.

Long-term debt at December 31, 1995 and 1994 is as follows:

<TABLE>
<CAPTION>
                               1995            1994
                           --------------------------- 
<S>                        <C>             <C>
Term loans                 $30,000,000     $30,000,000
Convertible debentures       3,025,000       3,025,000
                           ---------------------------  
                            33,025,000      33,025,000
Current maturities           3,025,000          -0-
                           ---------------------------
Long-term Debt             $30,000,000     $33,025,000
                           ===========================
</TABLE>
 

The term loans consist of $30,000,000 borrowed from the Prudential Insurance
Company at a fixed interest rate of 7.68% with principal repayable in equal
installments of $10,000,000 in January 1998, 1999 and 2000. The terms of the
loan agreement require, inter alia, that the Company maintain specified levels
of net worth, meet certain cash flow requirements and limit its incurrence of
additional indebtedness to certain specified amounts. At December 31, 1995, the
Company was in compliance with all of these covenants. The fair value of the
Prudential debt is estimated to be $30,900,000 and $29,900,000 at December 31,
1995 and 1994, respectively. This estimate was determined using a discounted
cash flow analysis using current interest rates for debt having similar terms
and remaining maturities.



                                                                            F-14
<PAGE>   38
           GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

F. CREDIT ARRANGEMENTS AND LONG-TERM DEBT (CONTINUED)

During 1995, the Company borrowed against the cash value of the life insurance
policies that it owns on the life of its Chairman and Chief Executive Officer.
The amount borrowed at December 31, 1995 is $13,024,000 with a fixed interest
rate of 8.75% and is carried as a reduction of the related cash value that is
included in Other Assets. Of the amount borrowed in 1995, the Company received
$11,779,000 in cash and $1,245,000 was used in payment of the 1995 premiums
due on the life insurance policies.

The current portion of long-term debt consists of 8 1/2% Convertible
Subordinated Debentures, due December 10, 1996, which are currently convertible
into 8.41 shares of Common Stock and an equal number of Limited Duration Class B
Common Stock, subject to certain adjustments, for each $1,000 principal amount
of such debentures. The debt was issued in exchange for cash and a $3,000,000,
9% promissory note, payable December 10, 1997, from an officer of the Company
that is included in Other Assets at December 31, 1995 and 1994.  During each of
the years 1995, 1994 and 1993, the Company paid to the officer interest of
$257,000 pursuant to the terms of the debentures and the officer paid to the
Company interest of $270,000 pursuant to the terms of the 9% promissory note.

The scheduled repayment of long-term debt is as follows:

<TABLE>
<CAPTION>
             YEARS ENDING
              DECEMBER 31            AMOUNT
              -----------         ------------
              <S>                 <C>
                 1996             $ 3,025,000
                 1997                     -0-
                 1998              10,000,000
                 1999              10,000,000
                 2000              10,000,000
                                  -----------
                                  $33,025,000
                                  ===========
</TABLE>
                         
For the years 1995, 1994 and 1993, the Company made interest payments of
$8,934,000, $7,839,000 and $6,529,000, respectively.

G. REDEEMABLE PREFERRED STOCK

As of December 31, 1995 and 1994, the Company had outstanding 20,000 shares of
Series I Preferred Stock, 5,000 shares each of its Series II and Series III
Preferred Stock, and 2,000 shares of Series 1 Preferred Stock. The holder of the
Series I, Series II and Series III Preferred Stock is a senior executive of the
Company, and the Series 1 Preferred Stock is held by a former employee. The
terms of each class of Preferred




                                                                            F-15
<PAGE>   39
           GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

G. REDEEMABLE PREFERRED STOCK (CONTINUED)

Stock, including the basic economic terms relating thereto, are essentially the
same, except with respect to the redemption date of each series. The redemption
date for the Series I, Series II and Series III Preferred Stock is fixed at
April 7, 2004, unless redeemed earlier under circumstances described below. The
terms of the Series I, Series II and Series III Preferred Stock also give the
holder, his estate or legal representative, as the case may be, the option to
require the Company to redeem his Preferred Stock for a period of 12 months
following his (i) death, (ii) permanent disability or permanent mental
disability, (iii) termination of full-time employment for good reason or (iv)
termination of full-time employment by the Company with cause. The terms of the
Series 1 Preferred Stock permit the holder of shares thereof the option to have
his shares redeemed upon termination of his employment prior to age 65. The
Company is obligated to redeem such shares following the attainment of age 65 by
the holder thereof following termination of employment.

Each share of Preferred Stock is to be redeemed by the Company at a price equal
to the book value per share attributable to one share of Common Stock and one
share of Limited Duration Class B Common Stock (Class B Common Stock) (subject
to certain adjustments) upon redemption, less a fixed discount established upon
the issuance of the Preferred Stock. The holders of each class of Preferred
Stock are entitled to receive cumulative preferential dividends at the annual
rate of $.25 per share, and to participate in dividends on one share of the
Common Stock and one share of the Class B Common Stock to the extent such
dividends exceed the per share preferential dividend. In connection with his
ownership of the Series I, Series II and Series III Preferred Stock, the senior
executive issued to the Company full recourse promissory notes totaling $763,000
(included in Other Assets at December 31, 1995 and 1994) with a maturity date of
April 2004. The interest paid by the senior executive to the Company in 1995,
1994 and 1993 pursuant to the terms of these notes was $70,000 in each year.

In accordance with the terms of the respective Certificates of Designation and
Terms of each Series of Preferred Stock ("Certificates"), the Board of Directors
determined the change in redemption value would not reflect the 1994 write-off
of goodwill described in Note M, but rather reflect amortization as if the
Company had continued to write-off goodwill in accordance with historical
amortization schedules.

Following the distribution of Class B Common Stock, the holders of the Preferred
Stock became entitled to eleven votes per share on all matters submitted to the
vote of stockholders. The holder of the Series I Preferred Stock is entitled, as
well, to vote as a single class to elect or remove one-quarter of the Board of
Directors, to approve the merger or consolidation of the Company or the sale by
it of all or substantially all of its assets, and to approve the authorization
or issuance of any other class of Preferred Stock having equivalent voting
rights.





                                                                            F-16
<PAGE>   40
           GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

G. REDEEMABLE PREFERRED STOCK (CONTINUED)

In the event of the liquidation of the Company, holders of Preferred Stock are
entitled to a preferential liquidation distribution of $1.00 per share in
addition to all accrued and unpaid preferential dividends.

The total carrying value of the Preferred Stock (applicable to those shares
outstanding at each respective year end) increased by $1,470,000, $926,000 and
$468,000 in 1995, 1994 and 1993, respectively. The change in carrying value
represents the change in redemption value during those periods. This change is
referred to as "Additional Capital Applicable to Redeemable Preferred Stock" in
the respective Certificates.

H. COMMON STOCK

The Company has authorized and outstanding two classes of common stock, Common
Stock and Class B Common Stock, both $1 par value per share.

The Class B Common Stock has the same dividend and liquidation rights as the
Common Stock and a holder of each share of Class B Common Stock is entitled to
ten votes on all matters submitted to stockholders. The shares of Class B Common
Stock are restricted as to transferability and upon transfer, except to
specified limited classes of transferees, will convert into shares of Common
Stock which have one vote per share. In October 1995, the shareholders of the
Company approved an amendment to the Company's Articles of Incorporation to
extend to April 3, 2006 the automatic conversion date of the Class B Common
Stock.

I. RESTRICTED STOCK AND STOCK OPTION PLANS

The Company's 1994 Stock Incentive Plan ("Stock Incentive Plan") was adopted in
June 1994. The Stock Incentive Plan replaced the Restricted Stock Plan, the
Executive Growth Plan, the Incentive Stock Option Plan and the Nonqualified
Stock Option Plan (collectively, the "Prior Plans"), and any shares available
for granting of awards under the Prior Plans are no longer available for such
awards. Options granted pursuant to the Prior Plans remain outstanding and in
full force and shares reserved remain so for such purposes.



                                                                            F-17
<PAGE>   41
           GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

I. RESTRICTED STOCK AND STOCK OPTION PLANS (CONTINUED)

STOCK INCENTIVE PLAN

Under the Stock Incentive Plan, awards in the form of incentive or nonqualified
stock options or restricted stock are available to be granted through June 2003
to officers and other key employees. A maximum of 250,000 shares of Common Stock
are available for grant under the Stock Incentive Plan and no employee can be
granted stock options in excess of 75,000 shares or more than 75,000 shares of
restricted stock. Stock options cannot be granted at a price less than 100% of
the fair market value of the shares on the date of grant. A committee of the
Board of Directors ("Committee") determines the terms and conditions under which
the awards may be granted or exercised. Options, however, shall expire not later
than ten years from the date of grant. Shares of restricted stock may be sold to
participants, at a purchase price determined by the Committee (which may be less
than fair market value per share). In 1994, 1,750 shares of Restricted Stock
were issued at prices between $77.50 and $81.50 per share with restrictions as
to transferability expiring after five years. No shares of restricted stock were
issued in 1995. No restrictions lapsed during either 1995 or 1994 and no
restricted stock was forfeited during either year.

Transactions involving outstanding stock options under this Plan were:

<TABLE>
<CAPTION>
                                               NUMBER          TOTAL
                                             OF SHARES      OPTION PRICE
                                             ---------------------------
<S>                                          <C>            <C> 
Outstanding, December 31, 1993                    -0-       $     -0-
Granted                                         3,250           531,000
                                             ---------------------------
Outstanding, December 31, 1994                  3,250           531,000
Cancelled                                        (250)          (43,000)
Granted                                        84,174        12,670,000
                                             ---------------------------
Outstanding, December 31, 1995                 87,174       $13,158,000
                                             =========================== 
</TABLE>

At December 31, 1995, options to acquire 13,333 shares were exercisable and
161,076 shares of Common Stock were available for issuance under the Stock
Incentive Plan.

Compensation to employees under the Plan of $106,000 in 1995 and $134,000 in
1994, representing the unamortized excess of the market value of restricted
stock over any cash consideration received, is carried as a reduction of Paid-In
Additional Capital and is charged to income ($28,000 in 1995 and $7,000 in 1994)
over the related required period of service of the respective employees.


                                                                            F-18
<PAGE>   42
           GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

I. RESTRICTED STOCK AND STOCK OPTION PLANS (CONTINUED)

RESTRICTED STOCK PLAN

There are no shares outstanding under this plan at December 31, 1995. During
1995, the restriction lapsed on 5,000 shares of Common Stock. Compensation to
employees representing the unamortized excess of the market value of restricted
stock over any cash consideration received, is carried as a reduction of Paid-In
Additional Capital and is charged to income ($104,000 in 1995, $109,000 in 1994
and $256,000 in 1993) over the related required period of service of the
respective employees.

This plan was replaced by the Stock Incentive Plan discussed above.

EXECUTIVE GROWTH PLAN

Under the terms of the Company's qualified stock option plan (Executive Growth
Plan), options were granted to officers and other key employees at prices not
less than 100% of the fair market value of the shares on the date of grant. At
December 31, 1995, there were no options outstanding. In connection with a 1992
exercise of the plan options, the Company received a cash payment of $67,000 and
a note from an officer of the Company in the amount of $3,170,000, due in
December 2001, at a fixed interest rate of 6.06%.

In addition, and in accordance with the terms of the option agreement, the
holder of the options issued to the Company a promissory note in the principal
amount of $2,340,000 bearing interest at the rate of 6.06%, payable in December
2001, to settle his obligation to provide the Company with funds necessary to
pay the required withholding taxes due upon the exercise of the options. A
portion of this note ($1,556,000) equal to the tax benefit received by the
Company upon exercise and the full amount of the note for $3,170,000 are
reflected in a separate component of stockholders' equity at December 31, 1995
and 1994.


                                                                            F-19
<PAGE>   43
           GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

I. RESTRICTED STOCK AND STOCK OPTIONS PLANS (CONTINUED)

The interest paid to the Company by the holder pursuant to the terms of the two
notes issued in connection with the option exercise was $334,000 in 1995, 1994
and 1993.

This plan was replaced by the Stock Incentive Plan discussed above.

INCENTIVE STOCK OPTION PLAN

Under this plan, options were granted to key employees, including officers, at a
price not less than 100% of the fair market value of the shares on the date of
grant.

Transactions involving outstanding stock options under this plan were:

<TABLE>
<CAPTION>
                                     NUMBER OF SHARES
                                   --------------------
                                   CLASS B
                                   COMMON        COMMON          TOTAL
                                    STOCK         STOCK       OPTION PRICE
                                   ---------------------------------------
<S>                                <C>         <C>           <C>   
Outstanding, December 31, 1992      4,100         9,100      $ 1,247,000
Cancelled                            (300)         (300)         (58,000)
Exercised                          (3,700)       (3,700)        (676,000)
                                   ---------------------------------------
Outstanding, December 31, 1993        100         5,100          513,000
Exercised                            (100)         (100)         (18,000)
                                   ---------------------------------------
Outstanding, December 31, 1994        -0-         5,000          495,000
Exercised                                        (3,570)        (353,000)
                                   ---------------------------------------
Outstanding, December 31, 1995        -0-         1,430      $   142,000
                                   =======================================
</TABLE>

As of December 31, 1995, options to acquire 714 shares of Common Stock were
exercisable. There are 1,430 shares of Common Stock reserved to be issued with
respect to this plan.

This plan was replaced by the Stock Incentive Plan discussed above.

NONQUALIFIED STOCK OPTION PLAN

Under this plan, nonqualified stock options were granted to employees eligible
to receive options at prices not less than 100% of the fair market value of the
shares on the date of grant, and options must be exercised within 10 years of
grant and for only specified limited periods beyond termination of employment.




                                                                            F-20
<PAGE>   44
           GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

I. RESTRICTED STOCK AND STOCK OPTIONS PLANS (CONTINUED)

Transactions involving outstanding stock options under this plan were:

<TABLE>
<CAPTION>

                                             NUMBER          TOTAL
                                            OF SHARES     OPTION PRICE
                                            --------------------------
<S>                                         <C>           <C>
Outstanding, December 31, 1992                39,117      $ 4,131,000
Cancelled                                       (567)         (58,000)
Exercised                                     (1,184)        (110,000)
                                            --------------------------
Outstanding, December 31, 1993                37,366        3,963,000
Cancelled                                     (1,084)        (116,000)
Exercised                                     (3,133)        (301,000)
                                            --------------------------
Outstanding, December 31, 1994                33,149        3,546,000
Cancelled                                        (34)          (4,000)
Exercised                                    (21,965)      (2,092,000)
                                            --------------------------
Outstanding, December 31, 1995                11,150      $ 1,450,000
                                            ==========================
</TABLE>

As of December 31, 1995, options to acquire 9,950 shares of Common Stock were
exercisable, and 11,150 shares were reserved for issuance under this plan.

This plan was replaced by the Stock Incentive Plan discussed above.

J. COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE

The computation of net income (loss) per common share is based on the weighted
average number of common shares outstanding, including adjustments for the
effect of the assumed exercise of dilutive stock options and shares issuable
pursuant to the Company's Senior Management Incentive Plan (see Note L(1))
(1,295,182 in 1995, 1,285,605 in 1994 and 1,263,900 in 1993) and, for fully
diluted net income (loss) per common share, the assumed conversion of the 8 1/2%
Convertible Subordinated Debentures issued in December 1983. Also, for the
purpose of computing net income (loss) per common share, the Company's net
income (loss) is adjusted by dividends on the Preferred Stock and by the
increase or decrease, in redemption value of the Preferred Stock. Primary net
income (loss) per common share is computed as if stock options were exercised at
the beginning of the period and the funds obtained thereby used to purchase
common shares at the average market price during the period. In computing fully
diluted net income (loss) per common share, the market price at the close of the
period or the average market price, whichever is higher, is used to determine
the number of shares which are assumed to be repurchased.


                                                                            F-21
<PAGE>   45
           GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

J. COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE (CONTINUED)

The effects of the Preferred Stock dividend requirements and the change in
redemption values amounted to $1.31, $0.88 and $0.53 per share in 1995, 1994 and
1993, respectively.

K. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes. At December 31, 1995, 1994
and 1993, the Company had deferred tax assets of $19,550,000, $19,651,000 and
$16,282,000 and deferred tax liabilities of $7,359,000, $10,459,000 and
$12,194,000, respectively, detailed as follows:

<TABLE>
<CAPTION>
                                                         DEFERRED TAX ASSETS (LIABILITIES)
                                                      1995             1994             1993
                                                 ----------------------------------------------
<S>                                              <C>               <C>              <C>
Restructuring costs and related future tax
   benefits                                       $ 1,642,000      $ 2,056,000      $ 3,531,000
Deferred compensation                              15,250,000        8,955,000        5,730,000
Accrued expenses                                    2,658,000        8,640,000        7,021,000
Safe harbor lease and depreciation                 (5,134,000)      (7,493,000)      (9,228,000)
Tax on unremitted foreign earnings and other       (2,225,000)      (2,966,000)      (2,966,000)
                                                 ----------------------------------------------
                                                   12,191,000        9,192,000        4,088,000
Valuation allowance for deferred tax assets           -0-              -0-              -0-
                                                 ----------------------------------------------
Net deferred tax assets                           $12,191,000      $ 9,192,000      $ 4,088,000
                                                 ==============================================
</TABLE>

The components of income of consolidated companies before taxes on income are as
follows:

<TABLE>
<CAPTION>
                 1995             1994             1993
             ---------------------------------------------
<S>          <C>             <C>               <C>
Domestic     $26,704,000     $ 25,918,000      $28,646,000
Foreign       27,623,000      (24,308,000)      14,059,000
             --------------------------------------------- 
             $54,327,000     $  1,610,000      $42,705,000
             =============================================
</TABLE>

Provisions (benefits) for Federal, foreign, state and local income taxes
consisted of the following:

<TABLE>
<CAPTION>
                                  1995                                   1994                             1993
                      ------------------------------      ------------------------------      -----------------------------
                        CURRENT            DEFERRED          CURRENT           DEFERRED         CURRENT          DEFERRED
                      -----------------------------------------------------------------------------------------------------
<S>                   <C>               <C>               <C>               <C>               <C>               <C>
Federal                $13,607,000       $(4,248,000)      $11,510,000       $(2,470,000)      $12,106,000      $(2,448,000)
Foreign                 10,167,000         2,888,000         9,034,000        (1,197,000)        8,580,000       (1,578,000)
State and
   local                 6,191,000        (1,639,000)        6,181,000        (1,437,000)        5,072,000          755,000
                      -----------------------------------------------------------------------------------------------------
                       $29,965,000       $(2,999,000)      $26,725,000       $(5,104,000)      $25,758,000      $(3,271,000)
                      =====================================================================================================
</TABLE>


                                                                            F-22
<PAGE>   46
           GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

K. INCOME TAXES (CONTINUED)

The effective tax rate varied from the statutory Federal income tax rate as
follows:

<TABLE>
<CAPTION>
                                                             1995          1994         1993
                                                            --------------------------------
<S>                                                         <C>         <C>             <C>          
Statutory Federal tax rate                                   35.0%         35.0%        35.0%
State and local income taxes, net of Federal income
   tax benefits                                               5.4         191.5          8.9
Difference in foreign tax rates                               6.5         215.0          6.8
Withholding tax on unremitted foreign earnings                0.5          33.4          1.2
   Goodwill write-off                                                     868.3          1.6
   Adjustment of prior years' provisions                                  (24.8)        (2.2)
   Other--net                                                 2.2          24.5          1.4
                                                            --------------------------------
                                                             49.6%      1,342.9%        52.7%
                                                            ================================
</TABLE>

During the years 1995, 1994 and 1993, the Company made net income tax payments
of $21,368,000, $19,005,000 and $18,748,000, respectively.

The tax benefit resulting from the difference between compensation expense
deducted for tax purposes and compensation expense charged to income for
restricted stock and nonqualified stock options is recorded as an increase to
Paid-In Additional Capital.

L. RETIREMENT PLANS, DEFERRED COMPENSATION, LEASES AND CONTINGENCIES

1.   The Company's Profit Sharing Plan is available to all employees of the 
     Company and qualifying subsidiaries meeting certain eligibility 
     requirements. This plan provides for contributions by the Company at the
     discretion of the Board of Directors, subject to maximum limitations. The 
     Company also operates a noncontributory Employee Stock Ownership Plan 
     covering eligible employees of the Company and qualifying subsidiaries, 
     under which the Company may make contributions (in stock or cash) to an
     Employee Stock Ownership Trust ("ESOT") in amounts each year as determined 
     at the discretion of the Board of Directors. The Company made only cash 
     contributions to the ESOT in 1995, 1994 and 1993. The Company and the ESOT 
     have certain rights to purchase shares from participants whose employment
     has terminated. In addition to the two plans noted above, various 
     subsidiaries maintain separate profit sharing and retirement arrangements.
     Furthermore, the Company also provides additional retirement and deferred
     compensation benefits to certain officers and employees.


                                                                            F-23
<PAGE>   47
           GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

L. RETIREMENT PLANS, DEFERRED COMPENSATION, LEASES AND CONTINGENCIES (CONTINUED)

     The Company maintains a Senior Management Incentive Plan in which deferred
     compensation is granted to senior executive or management employees deemed
     essential to the continued success of the Company. The amount recorded as
     an expense related to this plan amounted to $6,873,000, $5,434,000 and
     $4,581,000 in 1995, 1994 and 1993, respectively. Approximately $5,223,000,
     $4,215,300 and $3,343,000 of plan expense incurred in 1995, 1994 and 1993,
     respectively, will be payable in Company Stock in accordance with the terms
     of the plan. These awards converted into 27,705, 28,647 and 18,610
     equivalent shares of Common Stock at December 31, 1995, 1994 and 1993,
     respectively, including an amount for the dividends that would have been
     payable on the Company Stock as if such stock was outstanding from the time
     the awards were granted. The future obligation related to the stock award
     has been reflected as an increase to Paid-In Additional Capital.

     Expenses related to the foregoing plans and benefits aggregated $29,307,000
     in 1995, $24,211,000 in 1994 and $21,057,000 in 1993.

     In December 1990, the Company amended its employment agreement with its
     Chairman and Chief Executive Officer and concurrently, also discharged this
     individual's pension obligation which had been established pursuant to the
     terms of his long-standing employment agreement with a payment of
     approximately $29,300,000. Included in Other Assets at December 31, 1995
     and 1994 is approximately $4,700,000 and $7,100,000, respectively, related
     to this arrangement which is being amortized to expense over the remaining
     term of the related employment agreement.

     In the first quarter of 1995, the Company and its Chairman and Chief
     Executive Officer entered into an agreement extending the term of the
     Chairman and Chief Executive Officer employment agreement through December
     31, 2002. This agreement further provides for the deferral of certain
     compensation otherwise payable to the Chairman and Chief Executive pursuant
     to his employment agreement and the payment of such deferred compensation
     into a trust, commonly referred to as a rabbi trust, established with
     United States Trust Company of New York. The purpose of the trust
     arrangement is to ensure the Company's ability to deduct compensation paid
     to the Chairman and Chief Executive Officer without the application of
     Section 162(m) of the Internal Revenue Code ("Section"). The Section, under
     certain circumstances, denies a tax deduction to an employer for certain
     compensation expenses in excess of $1,000,000 per year paid by a
     publicly-held corporation to certain of its executives. Amounts deferred
     and paid into the trust, as adjusted for the earnings, gains or losses on
     the trust assets, shall be paid to the Chairman and Chief Executive Officer
     or to his estate, as the case may be, upon the expiration of his employment
     agreement, or the termination of his employment by reason of death or
     disability.


                                                                            F-24
<PAGE>   48
           GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

L. RETIREMENT PLANS, DEFERRED COMPENSATION, LEASES AND CONTINGENCIES (CONTINUED)

     At December 31, 1995, the value of the trust was $2,496,000 and is included
     in Other Assets and the Company's related deferred compensation obligation
     for the same amount is included in Other Liabilities.

     Pursuant to an employment agreement, dated December 21, 1990, an executive
     officer of the Company borrowed $1,000,000 from the Company repayable at
     December 31, 1995, except that one-fifth of the principal amount of the
     loan is forgiven by the Company each December 31, beginning with December
     31, 1991, provided that the officer continues to be employed by the Company
     on those dates. In 1994, the executive officer entered into a new
     employment agreement. Pursuant to that agreement, the executive officer
     borrowed an additional $600,000 from the Company repayable at December 31,
     1998, except that one-third of the principal amount of the loan is forgiven
     by the Company each December 31, beginning with December 31, 1996, provided
     that the officer continues to be employed by the Company on those dates. In
     1995, 1994 and 1993, the Company has included in each year $200,000 of
     compensation expense, representing the amount of loan forgiven each year.
     As of December 31, 1995 and 1994, the remaining loan balance was $600,000
     and $800,000, respectively, included in Other Assets.

     In addition, a second executive officer has three loans outstanding with
     the Company. The first loan, granted in 1994, was for $50,000 and is
     forgivable contingent upon employment by the Company through 1998. During
     1995, the Company made two additional loans to this executive officer for
     $125,000 and $200,000 which are repayable with accrued interest in May 1998
     and 1999, respectively. As of December 31, 1995, the loan balance was
     $375,000 and is reflected in Other Assets.

2.   Rental expense amounted to approximately $36,445,000 in 1995, $35,568,000
     in 1994 and $32,725,000 in 1993 which is net of sub-lease rental income of
     $129,000 in 1995, $1,263,000 in 1994, and $2,016,000 in 1993. Approximate
     minimum rental commitments, excluding escalations, under noncancellable
     operating leases are as follows:

<TABLE>
<CAPTION>
                                         SUB-LEASE
                      OFFICE SPACE      COMMITMENTS             NET
                      ------------------------------------------------
<S>                   <C>               <C>                <C>
   1996               $29,935,000        $(111,000)        $29,824,000
   1997                27,724,000                           27,724,000
   1998                25,216,000                           25,216,000
   1999                24,387,000                           24,387,000
   2000                18,314,000                           18,314,000
   Beyond 2000         51,142,000                           51,142,000
                     -------------------------------------------------
                     $176,718,000        $(111,000)       $176,607,000
                     =================================================
</TABLE>


                                                                            F-25
<PAGE>   49
           GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

L. RETIREMENT PLANS, DEFERRED COMPENSATION, LEASES AND CONTINGENCIES (CONTINUED)

3.   The Company is not involved in any pending legal proceedings not covered by
     insurance or by adequate indemnification or which, if decided adversely,
     would have a material effect on the results of operations, liquidity or
     financial position of the Company.

M. GOODWILL WRITE-OFF

In 1994, the Company wrote-off $39,944,000 of goodwill. The non-cash write-off
related almost exclusively to international acquisitions made by the Company
principally in the 1980's. The carrying value of the Company's goodwill prior to
the write-off was approximately $84,000,000 and the write-off was associated
with 34 of the almost 100 investments for which the Company had unamortized
goodwill. The portion of the write-off relating to advertising agencies was
approximately $31,295,000 and $8,649,000 relates to public relations agencies.
Significant amounts of these write-offs related to operations in the United
Kingdom.

The widely recognized international recession seriously affected the advertising
industry, particularly in Western Europe, where the Company has its largest and
most developed international operations. As the recession abated in the latter
part of 1994, the Company was able to assess more clearly the long-term
prospects of the affected operations. At that point, and in connection with
annual business plan meetings which took place in the fourth quarter, it became
clear that the goodwill associated with a number of the agencies had become
permanently impaired. Management's projections indicated that anticipated future
cash flows for these specific operations would not, as would be expected in a
normal post- recession environment, recover sufficiently to cover amortization
of the associated goodwill.

The material portion of the goodwill write-off related to ten agencies acquired
in the United Kingdom as part of a strategy to develop the Company's
representation outside of the London market in the general advertising category
and in specialized disciplines (such as retail advertising, promotional services
and public relations). With the revival of the industry, a review of the
Company's local market strategies and in conjunction with several key management
changes, client losses or the inability of these operations to maintain revenues
with replacement or new clients, after the analysis referred to above,
management concluded that the goodwill associated with these operations had been
permanently impaired. While future client losses and management changes could
affect the Company's operation in the United Kingdom, the Company has
consolidated a number of operations, thereby lessening the likelihood of a
negative impact from any instance of client or management turnover. In addition,
the unimpaired goodwill balances


                                                                            F-26
<PAGE>   50
           GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

M. GOODWILL WRITE-OFF (CONTINUED)

associated with the United Kingdom operations represented less than 10% of the
Company's consolidated unamortized goodwill as of December 31, 1994.

In 1993, the Company wrote-off $1,939,000 of goodwill in excess of normal
amortization schedules. There were no write-offs in excess of normal
amortization schedules in 1995.


                                                                            F-27
<PAGE>   51
           GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

N. INDUSTRY SEGMENT AND RELATED INFORMATION

Commissions and fees and operating profit by geographic area for the years ended
December 31, 1995, 1994 and 1993, and related identifiable assets at December
31, 1995, 1994 and 1993 are summarized below (000s omitted):

<TABLE>
<CAPTION>
                                                       UNITED STATES                            WESTERN EUROPE                     
                                           ------------------------------------       --------------------------------------       
                                              1995         1994          1993           1995          1994            1993         
                                           ---------------------------------------------------------------------------------
<S>                                        <C>           <C>           <C>            <C>           <C>             <C>            
Commissions and fees                       $303,826      $277,411      $267,964       $337,726      $273,754        $260,005       
                                           =================================================================================

Operating profit (loss)                    $ 21,368      $ 22,767      $ 28,809       $ 27,212      $(20,457)       $ 11,415       
                                           =================================================================================

Other income-net                                                                                                                   

Income of consolidated companies
   before taxes on income                                                                                                          
                                                                                                                                   
Identifiable assets                        $455,771      $390,547      $353,532       $406,757       $353,904       $389,723       
                                           =================================================================================

Investments in and advances to
   nonconsolidated affiliated companies                                                                                            

Total assets                                                                                                                       
</TABLE>

<TABLE>
<CAPTION>                                
                                                          OTHER                                   CONSOLIDATED                   
                                           ----------------------------------      --------------------------------------- 
                                             1995          1994         1993          1995            1994          1993   
                                           ------------------------------------------------------------------------------- 
<S>                                        <C>           <C>          <C>          <C>              <C>           <C>      
Commissions and fees                       $46,667       $42,152      $39,274      $688,219         $593,317      $567,243 
                                           =============================================================================== 
                                                                                                                           
Operating profit (loss)                    $ 1,660       $  (959)     $   564      $ 50,240         $  1,351      $ 40,788 
                                           ==================================                                              
                                                                                                                           
Other income-net                                                                   $  4,087         $    259      $  1,917 
                                                                                   --------------------------------------- 
Income of consolidated companies                                                                                           
   before taxes on income                                                          $ 54,327         $  1,610      $ 42,705 
                                                                                   ======================================= 
Identifiable assets                        $71,916       $69,130      $61,274      $934,444         $813,581      $804,529 
                                           ==================================                                              
                                                                                                                           
Investments in and advances to                                                                                             
   nonconsolidated affiliated companies                                            $ 20,693         $ 16,495      $ 16,104 
                                                                                   --------------------------------------- 
Total assets                                                                       $955,137         $830,076      $820,633 
                                                                                   =======================================
</TABLE>

Commissions and fees from one client amounted to 13.8%, 13.8% and 13.0% of the
consolidated total in 1995, 1994 and 1993, respectively.

                                                                            F-28

<PAGE>   52
                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Number Assigned                                                                              
to Exhibit (i.e. 601                                                                         
of Regulation S-K)                       Description of Exhibits                             
------------------                       -----------------------                             
<S>                                <C>                                                       
     3.01                          Restated Certificate of Incorporation                     
                                   of Grey Advertising Inc. ("Grey").
                                   (Incorporated herein by reference to
                                   Exhibit 3.01 to Grey's Current Report
                                   on Form 8-K, dated October 10, 1995,
                                   filed with the SEC pursuant to
                                   Section 13 of the 1934 Act.)

     3.02                          By-Laws of Grey as amended.                               
                                   (Incorporated herein by reference to Exhibit
                                   3.02 to Grey's Annual Report on Form 10-K for
                                   the fiscal year ended December 31, 1988.)

     4.01                          Stockholder Exchange Agreement, dated                     
                                   as of April 7, 1994, by and between
                                   Grey and Edward H. Meyer. (Incorporated
                                   herein by reference to Exhibit 10(a) of
                                   Grey's Current Report on Form 8-K, dated
                                   April 7, 1994, filed with the SEC pursuant to
                                   Section 13 of the 1934 Act.

     4.02                          Purchase Agreement, dated as of                           
                                   December 10, 1983, between Grey and Edward H.
                                   Meyer relating to the sale to Mr. Meyer of
                                   Grey's 8-1/2% Convertible Debentures, of even
                                   date therewith ("Convertible Debenture").
                                   (Incorporated herein by reference to Exhibit
                                   3.08 to Grey's Annual Report on Form 10-K for
                                   the fiscal year ended December 31, 1983.)

     4.03                          Extension Agreement, dated as of                          
                                   November 19, 1991 between Grey and
                                   Edward H. Meyer relating to the extension of
                                   the maturity dates of the Convertible
                                   Debenture and related Promissory Note.
                                   (Incorporated herein by reference to Exhibit
                                   3.07 to Grey's Annual Report on Form 10-K for
                                   the fiscal year ended December 31, 1991.)
</TABLE>

                                                                             E-1


<PAGE>   53
                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Number Assigned                                                                              
to Exhibit (i.e. 601                                                                         
of Regulation S-K)                       Description of Exhibits                             
------------------                       -----------------------                             
<S>                                <C>                                                       
     4.04                          Form of Convertible Debenture.                            
                                   (Incorporated herein by reference to Exhibit
                                   3.09 to Grey's Annual Report on Form 10-K for
                                   the fiscal year ended December 31, 1983.)

     9.01                          Voting Trust Agreement, dated as of                       
                                   December 1, 1989, among the several
                                   Beneficiaries, Grey and Edward H. Meyer as
                                   Voting Trustee. (Incorporated herein by
                                   reference to Exhibit 9.03 to Grey's Annual
                                   Report on Form 10-K for the fiscal year ended
                                   December 31, 1989.)

     9.02                          Amended and Restated Voting Trust                         
                                   Agreement, dated as of February
                                   24, 1986, as amended and restated as
                                   of August 31, 1987 and again amended
                                   and restated as of March 21, 1994,
                                   among the several Beneficiaries there-
                                   under, Grey and Edward H. Meyer as
                                   Voting Trustee.  (Incorporated herein
                                   by reference to Exhibit 9.04 to Grey's
                                   Annual Report on Form 10-K for the
                                   fiscal year ended December 31, 1993.)

    10.01*                         Employment Agreement, dated as of                         
                                   February 9, 1984, between Grey and Edward H.
                                   Meyer ("Meyer Employment Agreement").
                                   (Incorporated herein by reference to Exhibit
                                   10.01 to Grey's Annual Report on Form 10-K
                                   for the fiscal year ended December 31, 1983.)
</TABLE>


                                                                             E-2
<PAGE>   54
                                INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Assigned                                                                              
to Exhibit (i.e. 601                                                                         
of Regulation S-K)                       Description of Exhibits                             
------------------                       -----------------------                             
<S>                                <C>                                                       
    10.02*                         Amendments Two through Seven to Meyer                     
                                   Employment Agreement. (Incorporated herein by
                                   reference to Exhibit 10.02 to Grey's Annual
                                   Report on Form 10-K for the fiscal year ended
                                   December 31, 1985, Exhibit 10.03 to Grey's
                                   Annual Report on Form 10-K for the fiscal
                                   year ended December 31, 1987, Exhibit 1 to
                                   Grey's Current Report on Form 8-K, dated May
                                   9, 1988, filed with the SEC pursuant to
                                   Section 13 of the 1934 Act, Exhibit 2 to
                                   Grey's Current Report on Form 8-K, dated May
                                   9, 1988, filed with the SEC pursuant to
                                   Section 13 of the 1934 Act. Exhibit I to
                                   Grey's Current Report on Form 8-K, dated June
                                   9, 1989, filed with the SEC pursuant to
                                   Section 13 of the 1934 Act and Exhibit 10.07
                                   to Grey's Annual Report on Form 10-K for the
                                   fiscal year ended December 31, 1990
                                   respectively.)

    10.03*                         Amendment and Extension Agreement, to                     
                                   Meyer Employment Agreement, dated
                                   March 22, 1995, by and between Grey
                                   and Edward H. Meyer. (Incorporated herein
                                   by reference to Exhibit 10.03 to Grey's
                                   Annual Report on Form 10-K for the fiscal
                                   year ended December 31, 1994.)

    10.04*                         Deferred Compensation Trust Agreement                     
                                   dated March 22, 1995 ("Trust Agreement"),
                                   by and between Grey and United States Trust
                                   Company of New York. (Incorporated herein by
                                   reference to Exhibit 10.04 to Grey's Annual
                                   Report on Form 10-K for the fiscal year ended
                                   December 31, 1994.)

    10.05*                         First Amendment to Trust Agreement, dated
                                   as of February 26, 1996, by and between
                                   Grey and United States Trust Company of
                                   New York.
</TABLE>


                                                                             E-3

<PAGE>   55
                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Number Assigned                                                                            
to Exhibit (i.e. 601                                                                       
of Regulation S-K)                       Description of Exhibits                           
------------------                       -----------------------                                        
<S>                                <C>                                                     
    10.06*                         Pension Agreement, dated as of                          
                                   May 9, 1988, between Grey and Edward H.                 
                                   Meyer. (Incorporated herein by reference to             
                                   Exhibit 3 to Grey's Current Report on Form              
                                   8-K, dated May 9, 1988 filed with the SEC               
                                   pursuant to Section 13 of the 1934 Act.)                
                                                                                           
    10.07*                         Employment Agreement, dated as of                       
                                   December 21, 1990, by and between                       
                                   Grey and Stephen A. Novick.                             
                                   (Incorporated herein by reference                       
                                   to Exhibit 10.11 to Grey's Annual                       
                                   Report on Form 10-K for the fiscal                      
                                   year ended December 31, 1990.)                          
                                                                                           
    10.08*                         Amendment to Employment Agreement,                      
                                   dated as of April 26, 1994, by and                      
                                   between Grey and Stephen A. Novick.                     
                                   (Incorporated herein by reference to                    
                                   Exhibit 10.07 to Grey's Annual Report                   
                                   on Form 10-K for the fiscal year ended                  
                                   December 31, 1994.)                                     
                                                                                           
    10.09*                         Employment Agreement, dated as of                       
                                   December 1, 1992, by and between                        
                                   Grey and Robert L. Berenson.  (Incor-                   
                                   porated herein by reference to                          
                                   Exhibit 10.05 to Grey's Annual Report                   
                                   on Form 10-K for the fiscal year                        
                                   ended December 31, 1992.)                               
                                                                                           
    10.10*                         Employment Agreement, dated as of                       
                                   January 1, 1993 by and between Grey and                 
                                   Barbara S. Feigin.  (Incorporated herein                
                                   by reference to Exhibit 10.06 to Grey's                 
                                   Annual Report on Form 10-K for the fiscal               
                                   year ended December 31, 1993.)                          
</TABLE>


                                                                             E-4

<PAGE>   56
                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Number Assigned  
to Exhibit (i.e. 601   
of Regulation S-K)                       Description of Exhibits                           
------------------                       -----------------------                                       
<S>                                <C>                                                     
    10.11*                         Grey Advertising Inc. Book Value Pre-                   
                                   ferred Stock Plan, as amended. (Incorporated            
                                   herein by reference to Exhibit 4.1 to Grey's            
                                   Current Report on Form 8-K, dated June 14,              
                                   1983, filed with the SEC pursuant to Section            
                                   13 of the 1934 Act.)                                    
                                                                                           
    10.12*                         Grey Advertising Inc. Amended and Re-                   
                                   stated Senior Executive Officer Pension                 
                                   Plan.  (Incorporated herein by reference                
                                   to Exhibit 10.08 to Grey's Annual Report                
                                   on Form 10-K for the fiscal year ended                  
                                   December 31, 1984.)                                     
                                                                                           
    10.13*                         Grey Advertising Inc. 1993 Senior Man-                  
                                   agement Incentive Plan.  (Incorporated                  
                                   herein by reference to Exhibit A to the Proxy           
                                   Statement for Grey's Annual Meeting of                  
                                   Stockholders dated June 27, 1994.)                      
                                                                                           
    10.14*                         Grey Advertising Inc. Restricted Stock                  
                                   Plan, as amended and restated as of April 3,            
                                   1986. (Incorporated herein by reference to              
                                   Exhibit 4.03 to Grey's Registration Statement           
                                   on Form S-8, filed with the SEC pursuant to             
                                   Section 6(a) of the '33 Act.)                           
                                                                                           
    10.15*                         Stock Option Agreement, dated as                        
                                   of October 13, 1984, by and between                     
                                   Grey and Edward H. Meyer ("Meyer 1984 Option            
                                   Agreement"). (Incorporated herein by                    
                                   reference to Exhibit 10.15 to Grey's Annual             
                                   Report on Form 10-K for the fiscal year ended           
                                   December 31, 1985.)                                     
                                                                                           
    10.16*                         Extension Agreement, dated as of                        
                                   March 27, 1992, by and between Grey and                 
                                   Edward H. Meyer, relating to the Meyer 1984             
                                   Option Agreement. (Incorporated herein by               
                                   reference to Exhibit 10.13 to Grey's Annual             
                                   Report on Form 10-K for the fiscal year ended           
                                   December 31, 1992.)                                     
</TABLE> 


                                                                             E-5

<PAGE>   57
                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Number Assigned    
to Exhibit (i.e. 601   
of Regulation S-K)                       Description of Exhibits                          
------------------                       -----------------------                                     
<S>                                <C>                                                    
    10.17*                         Amendment One to Meyer 1984 Option                     
                                   Agreement, dated as of December 29, 1992.              
                                   (Incorporated herein by reference to Exhibit           
                                   10.14 to Grey's Annual Report on Form 10-K             
                                   for the fiscal year ended December 31, 1992.)          
                                                                                          
    10.18                          Notice of Exercise, dated                              
                                   December 29, 1992, from Edward H. Meyer                
                                   to Grey pursuant to the Meyer 1984 Option              
                                   Agreement. (Incorporated herein by reference           
                                   to Exhibit 10.15 to Grey's Annual Report on            
                                   Form 10-K for the fiscal year ended December           
                                   31, 1992.)                                             
                                                                                          
    10.19                          Promissory Notes I and II, dated as of                 
                                   December 29, 1992, from Edward H. Meyer                
                                   to Grey, delivered pursuant to the Meyer               
                                   1984 Option Agreement.  (Incorporated                  
                                   herein by reference to Exhibit 10.16 to                
                                   Grey's Annual Report on Form 10-K for the              
                                   fiscal year ended December 31, 1992.)                  
                                                                                          
    10.20*                         Stock Option Agreement, effective as                   
                                   of January 5, 1995, by and between                     
                                   Grey and Edward H. Meyer.  (Incorpor-                  
                                   ated herein by reference to Exhibit 13                 
                                   to Amendment No. 8 to the Statement on                 
                                   Schedule 13D, dated as of March 10, 1995,              
                                   filed by Edward H. Meyer.)                             
                                                                                          
    10.21                          Registration Rights Agreement, dated                   
                                   as of June 5, 1986, between Grey and                   
                                   Edward H. Meyer.  (Incorporated herein                 
                                   by reference to Exhibit 12 to Amendment                
                                   No. 8 to the Statement on Schedule 13D,                
                                   dated as of March 10, 1995, filed by                   
                                   Edward H. Meyer.)                                      
</TABLE> 


                                                                            E-6

<PAGE>   58
                                INDEX TO EXHIBITS



<TABLE>
<CAPTION>
Number Assigned                                                          
to Exhibit (i.e. 601                                                     
of Regulation S-K)                       Description of Exhibits         
------------------                       -----------------------         
<S>                                <C>                                   
    10.22*                         Grey Advertising Inc. Incentive Stock                  
                                   Option Plan, as amended and restated as of             
                                   April 3, 1986. (Incorporated herein by                 
                                   reference to Exhibit 4.04 to Grey's                    
                                   Registration Statement on Form S-8 filed with          
                                   the SEC pursuant to Section 6(a) of the '33            
                                   Act.)                                                  
                                                                                          
    10.23*                         Grey Advertising Inc. 1987 Stock                       
                                   Option Plan.  (Incorporated herein by                  
                                   reference to Exhibit 10.24 to Grey's                   
                                   Annual Report on Form 10-K for the fiscal              
                                   year ended December 31, 1988.)                         
                                                                                          
    10.24*                         Grey Advertising Inc. 1994 Stock Incen-                
                                   tive Plan.  (Incorporated herein by refer-             
                                   ence to Exhibit B to the Proxy Statement for           
                                   Grey's 1994 Annual Meeting of Stockholders,            
                                   dated June 27, 1994.)                                  
                                                                                          
    10.25*                         Note Agreement, dated as of                            
                                   January 19, 1993, by and between Grey                  
                                   and The Prudential Insurance Company                   
                                   of America.   (Incorporated herein by                  
                                   reference to Exhibit 10.21 to Grey's Annual            
                                   Report on Form 10-K for the fiscal year ended          
                                   December 31, 1992.)                                    
                                                                                          
    10.26*                         Bonuses - Grey has paid bonuses to                     
                                   certain of its executive officers                      
                                   (including those who are directors)                    
                                   and employees in prior years including 1993,           
                                   and may do so in future years. Bonuses have            
                                   been and may be in the form of cash, shares            
                                   of stock or both although Grey presently does          
                                   not have any plans to pay stock bonuses.               
                                   Bonuses are not granted pursuant to any                
                                   formal plan.                                           
</TABLE>  
          
          
                                                                           E-7 

<PAGE>   59
                                INDEX TO EXHIBITS



<TABLE>
<CAPTION>
Number Assigned                                                           
to Exhibit (i.e. 601                                                      
of Regulation S-K)                       Description of Exhibits          
------------------                       -----------------------          
<S>                                <C>                                    
    10.27*                         Directors' Fees - It is the policy of  
                                   Grey to pay each of its non-employee   
                                   directors a fee of $4,500 per fiscal   
                                   quarter and a fee of $3,000 for each   
                                   meeting of the Board of Directors      
                                   attended.  This policy is not embodied 
                                   in any written document.               
                                                                          
    10.28*                         Deferred Compensation Agreement,       
                                   dated December 23, 1981, between       
                                   Grey and Mark N. Kaplan, regarding     
                                   deferral of payment of director's      
                                   fees to which Mr. Kaplan may become    
                                   entitled.  (Incorporated herein by     
                                   reference to Exhibit 10.18 to Grey's   
                                   Annual Report on Form 10-K for the     
                                   fiscal year ended December 31, 1982.)  
                                                                          
    10.29*                         On March 23, 1978, Grey's Board of     
                                   Directors, at a meeting thereof held   
                                   on such date, approved an arrangement    
                                   whereby Grey is required to accrue for   
                                   Edward H. Meyer, the difference between  
                                   the amount contributed by Grey on behalf 
                                   of Mr. Meyer under the Profit Sharing    
                                   Plan and Grey's Employee Stock Owner-    
                                   ship Plan, and the amount which would    
                                   have been contributed to such plans on his            
                                   behalf had such plans not contained maximum           
                                   annual limitations on contributions and               
                                   credits, as required by the Employee Retire-          
                                   ment Income Security Act of 1974.  Such               
                                   accrual is to be paid to Mr. Meyer as if it           
                                   had been contributed to his account under             
                                   the Profit Sharing Plan.  Such arrangement            
                                   is not embodied in any written document.              
</TABLE>   




                                                                            E-8


<PAGE>   60
                                INDEX TO EXHIBITS



<TABLE>
<CAPTION>
Number Assigned   
to Exhibit (i.e. 601                                                   
of Regulation S-K)                       Description of Exhibits       
------------------                       -----------------------       
<S>                                <C>                                 
    10.30                          Lease, dated as of July 1, 1978 by and 
                                   between Grey and William Kaufman and J. D.
                                   Weiler, regarding space at 777 Third Avenue,          
                                   New York, New York ("Main Lease").                    
                                   (Incorporated herein by reference to Exhibit          
                                   10.21 to Grey's Annual Report on Form 10-K            
                                   for the fiscal year ended December 31, 1982.)         
                                                                                         
    10.31                          First through Fourteenth Amendments to                
                                   Main Lease (Incorporated herein by re-                
                                   ference to Exhibits 10.22, 10.23, 10.24,              
                                   10.25, 10.26, 10.27, 10.28 and 10.29                  
                                   to Grey's Annual Report on Form 10-K                  
                                   for the fiscal year ended Decem-                      
                                   ber 31, 1982, Exhibit 10.30 to Grey's                 
                                   Annual Report on Form 10-K for the fiscal             
                                   year ended December 31, 1983, Exhibits 10.33          
                                   and 10.34 to Grey's Annual Report on Form             
                                   10-K for the fiscal year ended Decem-                 
                                   ber 31, 1984, Exhibits 10.35 and 10.36                
                                   to Grey's Annual Report on Form 10-K                  
                                   for the fiscal year ended December 31, 1985,          
                                   and Exhibit 10.36 to Grey's Annual Report             
                                   on Form 10-K for the fiscal year ended                
                                   December 31, 1986 respectively.)                      
                                                                                         
    11.01                          Statement re: Computation of Net                      
                                   Income (Loss) Per Share.                              
                                                                                         
    21.01                          Subsidiaries of Grey.                                 
                                                                                         
    24.01                          Consent of Independent Auditors                       
                                                                                         
    27.01                          Financial Data Schedule                               
                                                                                         
                                                                                         
                                   *Management contract or compensatory plan or          
                                   arrangement identified in compliance with             
                                   Item 14(c) of the rules governing the                 
                                   preparation of this report.                           
</TABLE> 

10K-Exhibits

                                                                            E-9