<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, 1996

              [ ] 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 $194,248,241 as at March 1, 1997.

The registrant had 890,021 shares of its Common Stock, par value $1 per share,
and 292,907 shares of its Limited Duration Class B Common Stock, par value $1
per share, outstanding as at March 1, 1997.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the annual proxy statement to be furnished in connection with the
registrant's 1997 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, co-marketing programs, direct marketing,
interactive consulting and production, media research and buying, research,
product publicity, public affairs, public relations and sales promotion.

                  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 1996, 1995 or 1994.     

                                       3

<PAGE>   4

                  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 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
1996 (Advertising Age, a trade publication), the Company was the 7th largest
United States advertising agency in terms of worldwide gross income.

                  Approximately 53% of Grey's present domestic advertising
clients, representing a majority of the Company's 1996 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.                                                       

                                       4
<PAGE>   5


                  During 1996, 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 on the Company's financial
condition or its competitive position.

                  On December 31, 1996, the Company and its nonconsolidated
affiliated companies employed approximately 6,300 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.

                  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 more than 70 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. 


                                       5
<PAGE>   6
Commissions and fees, and operating profit by each such geographic area for the
years ended December 31, 1996, 1995 and 1994, 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.

                  In connection with the provisions of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), the Company may include
Forward Looking Statements (as defined in the Reform Act) in oral or written
public statements issued by or on behalf of the Company. These Forward Looking
Statements may include, among other things, plans, objectives, projections,
anticipated future economic performance or assumptions and the like that are
subject to risks and uncertainties. As such, actual results or outcomes may
differ materially from those discussed in the Forward Looking Statements.
Important factors which may cause actual results to differ include but are not
limited to the following: the unanticipated loss of a material client or key
personnel, delays or reductions in client advertising budgets, shifts in
industry rates of compensation, government compliance costs or litigation,
unanticipated natural disasters, changes in the general economic conditions that
affect interest rates and/or consumer spending both in the U.S. and the
Company's international marketplace, unanticipated expenses, client preferences
which can be affected by competition and the ability to project risk factors
which may vary. 


                                       6
<PAGE>   7
                      Executive Officers of the Registrant
                               as of March 1, 1997


<TABLE>
<CAPTION>
                                                                                     Year First became
Executive Officers (a)                 Position                       Age            Executive Officer
----------------------                 --------                       ---            -----------------
<S>                          <C>                                      <C>            <C> 
Robert L. Berenson           President - Grey, N.Y.                    57                   1978
Barbara S. Feigin            Exec. Vice President                      59                   1983
Steven G. Felsher            Exec. Vice President Finance -
                             Worldwide, Secretary & Treasurer          47                   1989
William P. Garvey            Exec. Vice President,
                             Chief Financial Officer
                             - United States                           59                   1970
John A. Gerster              Exec. Vice President                      49                   1983
Edward H. Meyer              Chairman of the Board,
                             President & Chief Executive
                             Officer                                   70                   1959
Stephen A. Novick            Exec. Vice President                      56                   1984
O. John C. Shannon           President - Grey Int'l.                   60                   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.

                 In  the Company's judgement, it 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.

                  None


                                        8
<PAGE>   9
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, 1997, there were 488 holders of record of the
Common Stock and 279 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> 
1995           First Quarter               178                145              .875
               Second Quarter              188                160              .875
               Third Quarter               205                183              .875
               Fourth Quarter              196                182              .9375

1996           First Quarter               223                190              .9375
               Second Quarter              233                219              .9375
               Third Quarter               240                204              .9375
               Fourth Quarter              251                230             1.000
</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.


                                        9
<PAGE>   10
ITEM 6.     SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>
                                      1996              1995               1994               1993              1992
                                      ----              ----               ----               ----              ----
<S>                             <C>                 <C>               <C>                 <C>               <C>         
Commissions and fees .....      $  765,498,000      $688,219,000      $ 593,317,000       $567,243,000      $564,468,000
Expenses .................         706,965,000       637,979,000        552,022,000        526,455,000       522,510,000
Goodwill write-off (a) ...                                               39,944,000
Income of consolidated
  companies before taxes
  on income ..............          65,693,000        54,327,000          1,610,000         42,705,000        42,588,000
Provision for taxes
on income ................          31,612,000        26,966,000         21,621,000         22,487,000        19,975,000
Net income (loss) ........          28,602,000        23,438,000        (21,378,000)        17,681,000        15,904,000
Net income (loss) per
  common share (b)
    Primary ..............               21.03             16.79             (17.51)             13.46             12.68
    Fully diluted ........               20.19             16.16                N/A              13.00             12.25
Weighted average number
  of common shares out-
  standing
    Primary ..............           1,295,441         1,295,182          1,285,605          1,263,900         1,205,241
    Fully diluted ........           1,356,645         1,353,849          1,336,829          1,319,349         1,258,799
Working capital ..........           3,843,000         9,582,000         33,735,000         25,001,000        12,588,000
Total assets .............       1,089,394,000       963,433,000        830,076,000        820,633,000       752,364,000
Long-term debt ...........          33,025,000        33,025,000         33,025,000         33,025,000         3,025,000
Redeemable preferred
  stock at redemption
  value ..................          10,098,000         8,986,000          7,516,000          6,590,000         6,468,000
Common stockholders'
  equity .................         147,922,000       127,663,000        108,705,000        129,077,000       118,741,000
Cash dividend per share
  of Common Stock and
  Limited Duration Class B
  Common Stock ...........              3.8125            3.5625             3.3125             3.1375             3.025
</TABLE>

       (a) 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.

       (b) Gives effect (i) to amounts attributable to redeemable preferred
           stock, (ii) to the assumed exercise of dilutive stock options, (iii)
           to 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.


                                       10
<PAGE>   11
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 11.2% in
1996 and 16.0% in 1995 as compared to the respective prior years. Absent
exchange rate fluctuations, gross income increased 11.6% in 1996 and 11.4% in
1995. In 1996, 1995 and 1994, respectively, 44.2%, 44.1% and 46.8% of
consolidated gross income was attributable to domestic operations and 55.8%,
55.9% and 53.2%, respectively, to international operations. In 1996, gross
income from domestic operations increased 11.4% versus 1995 and was up 9.5% in
1995 versus 1994. Gross income from international operations increased 11.1%
(11.8% absent exchange rate fluctuations) in 1996 when compared to 1995 and
21.7% (13.1% absent exchange rate fluctuations) in 1995 when compared to 1994.
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.

         Salaries and employee-related expenses increased 9.8% in 1996 and 16.8%
in 1995 as compared to the respective prior years. Office and general expenses
increased 12.9% in 1996 and 13.1% in 1995 versus respective prior years. The
increases in expenses are generally in line with the increases in gross income
in such years.

                  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 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 


                                       11
<PAGE>   12
advertising agencies was approximately $31,295,000 and $8,649,000 relates to
public relations agencies. A significant amount of this write-off related to
operations in the United Kingdom. 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). 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. There were
no write-offs in excess of normal amortization schedules in 1996 or 1995.

         Inflation did not have a material effect on revenue or expenses in
1996, 1995 or 1994.

         In 1996, other income was affected positively by non-recurring,
non-operating pre-tax income of approximately $4,000,000 primarily related to
gains on the sale of the Company's equity position in a nonconsolidated
subsidiary and the liquidation of a non-marketable investment security.

         The effective tax rate was 48.1% in 1996, 49.6% in 1995, and 1,342.9%
in 1994 (52.0% not factoring in the goodwill write-off). The decrease in the
effective tax rate in 1996 as compared to 1995 is due, in part, to a lower
effective foreign tax rate in 1996. The decrease in the effective tax rate in
1995 as 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
items.


                                       12
<PAGE>   13
           Minority interest increased $390,000 in 1996 and $3,233,000 in 1995
as compared to the respective prior years. The changes in 1996 and in 1995 were
primarily due to changes in the level of profits of majority-owned companies.

           Equity in earnings of nonconsolidated companies decreased $1,166,000
in 1996 and increased $677,000 in 1995 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 $28,602,000 for 1996 as compared
to $23,438,000 in 1995. Net income for 1996 was up 22.0% over 1995's results.
For 1996, primary earnings per common share was up 25.3% versus 1995. Primary
earnings per common share for 1995 was up 24.4% versus 1994, absent the goodwill
write-off. Absent the non-recurring, non-operating gains, primary earnings per
common share for 1996 increased by approximately 16.0% over 1995.           

           For purposes of computing primary earnings 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 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 


                                       13
<PAGE>   14
contract entered into in 1996 was for less than three months. At December 31,
1996, there were no foreign currency contract transactions open. In addition,
the Company had no derivative contracts outstanding at December 31, 1996, and
did not enter into any derivative contracts during 1996.



LIQUIDITY AND CAPITAL RESOURCES

           The Company continues to be highly liquid by maintaining significant
levels of cash, cash equivalents and investments in highly liquid marketable
securities, a majority of which are United States government securities. Cash
and cash equivalents were $112,485,000 and $134,313,000 at December 31, 1996 and
1995, respectively, and the Company's investment in marketable securities was
$96,107,000 and $68,671,000 at December 31, 1996 and 1995, respectively. The
continued high level of liquidity reflects the Company's ongoing focus on its
cash management process. Working capital decreased by $5,739,000 from $9,582,000
at December 31, 1995 to $3,843,000 at December 31, 1996. 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.

           Domestically, the Company maintains committed bank lines of credit
totaling $51,000,000. These lines of credit were partially utilized during both
1996 and 1995 to secure obligations of selected foreign subsidiaries in the
amount of $26,000,000 and $15,000,000 at December 31, 1996 and 1995,
respectively.


                                       14
<PAGE>   15
           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, 1996 and 1995 were $60,004,000 and $56,336,000, 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 three equal annual
installments, commencing in January 1998. During 1996 and 1995, the Company
borrowed $1,709,000 and $13,024,000, respectively, against the cash surrender
value of life insurance policies it owns on the life of its Chairman and Chief
Executive Officer at rates of 7.30% and 8.75%, respectively. 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, 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.


                                       15

<PAGE>   16
ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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

ITEM 9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
              FINANCIAL DISCLOSURE.

              None.
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 1997 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".


                                       16
<PAGE>   17
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".

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.


                                       17
<PAGE>   18
                                   SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) needs 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  28, 1997

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  28, 1997
-----------------------------
Mark N. Kaplan, Director


/s/ Edward H. Meyer                                  Dated:   March  28, 1997
-----------------------------
Edward H. Meyer, Director;
 Principal Executive Officer


/s/ O. John C. Shannon                               Dated:   March  28, 1997
-----------------------------
O. John C. Shannon, Director;
 President - Grey International


/s/ Richard R. Shinn                                 Dated:   March  28, 1997
-----------------------------
Richard R. Shinn, Director


/s/ Steven G. Felsher                                Dated:   March  28, 1997
-----------------------------
Steven G. Felsher,
 Principal Financial Officer


/s/ William P. Garvey                                Dated:   March  28, 1997
-----------------------------
William P. Garvey,
 Principal Accounting Officer


<PAGE>   19





                           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, 1996

                              GREY ADVERTISING INC.

                               New York, New York


<PAGE>   20
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:


   Report of Independent Auditors.........................................  F-2

   Consolidated Balance Sheets -- December 31, 1996 and 1995..............  F-3

   Consolidated Statements of Operations -- Years Ended
     December 31, 1996, 1995 and 1994.....................................  F-5

   Consolidated Statements of Common Stockholders' Equity --
     Years Ended December 31, 1996, 1995 and 1994.........................  F-6

   Consolidated Statements of Cash Flows --
     Years Ended December 31, 1996, 1995 and 1994.........................  F-8

   Notes to Consolidated Financial Statements --
     December 31, 1996....................................................  F-10


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>   21
                         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, 1996 and 1995, 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,
1996. 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, 1996 and
1995, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.


                                                    ERNST & YOUNG LLP
New York, New York
February 7, 1997


                                                                             F-2
<PAGE>   22
           Grey Advertising Inc. and Consolidated Subsidiary Companies

                           Consolidated Balance Sheets


<TABLE>
<CAPTION>
                                                                          DECEMBER 31
                                                                     1996              1995
                                                               --------------------------------
<S>                                                            <C>                 <C>         
ASSETS
Current assets:
   Cash and cash equivalents                                   $  112,485,000      $134,313,000
   Marketable securities (Notes A and E)                           28,688,000        20,419,000
   Accounts receivable                                            590,002,000       495,349,000
   Expenditures billable to clients                                52,285,000        46,449,000
   Other current assets (Note K)                                   52,982,000        49,614,000
                                                               --------------------------------
Total current assets                                              836,442,000       746,144,000

Investments in and advances to nonconsolidated
   affiliated companies (Notes A and B)                            17,723,000        20,693,000
Fixed assets-net (Note D)                                          78,223,000        74,706,000
Marketable securities (Notes A and E)                              67,419,000        48,252,000
Intangibles and other assets-including loans to executive
   officers of $5,822,000 in 1996 and $5,522,000 in 1995
   (Notes A, F, G, K  and L(2))                                    89,587,000        73,638,000
                                                               --------------------------------
Total assets                                                   $1,089,394,000      $963,433,000
                                                               ================================
</TABLE>



See notes to consolidated financial statements


                                                                             F-3
<PAGE>   23
           Grey Advertising Inc. and Consolidated Subsidiary Companies

                     Consolidated Balance Sheets (continued)

<TABLE>
<CAPTION>
                                                                               DECEMBER 31
                                                                        1996                 1995
                                                                  -----------------------------------
<S>                                                               <C>                   <C>          
  LIABILITIES AND STOCKHOLDERS' EQUITY
  Current liabilities:
     Accounts payable                                              $  619,003,000        $549,533,000
     Notes payable to banks (Note F)                                   86,004,000          71,336,000
     Accrued expenses and other                                       107,368,000          97,126,000
     Income taxes payable                                              20,224,000          18,567,000
                                                                  -----------------------------------
  Total current liabilities                                           832,599,000         736,562,000

  Other liabilities, including deferred compensation of
     $28,738,000 and $22,021,000 (Note L(1))                           55,217,000          47,916,000
  Long-term debt (Note F)                                              33,025,000          33,025,000
  Minority interest                                                    10,533,000           9,281,000
  Redeemable preferred stock - at redemption value; par
     value $1 per share; authorized 500,000 shares; issued
     and outstanding 32,000 shares in 1996 and 1995 (Note G)           10,098,000           8,986,000

  Common stockholders' equity:
     Common Stock - par value $1 per share; authorized
       10,000,000 shares; issued 1,110,918 in 1996 and
       1,096,096 shares in 1995                                         1,111,000           1,096,000
     Limited Duration Class B Common Stock - par value
       $1 per share; authorized 2,000,000 shares; issued
       320,866 in 1996 and 335,688 shares in 1995                         321,000             336,000
     Paid-in additional capital                                        42,814,000          37,898,000
     Retained earnings                                                144,789,000         122,345,000
     Cumulative translation adjustment                                  2,579,000           4,664,000
     Unrealized  (loss) gain on marketable securities
       (Notes A and E)                                                   (870,000)            550,000
     Loans to officer used to purchase Common Stock and
       Limited Duration Class B Common Stock (Note L(2))               (4,726,000)         (4,726,000)
                                                                  -----------------------------------
                                                                      186,018,000         162,163,000
     Less - cost of 222,810 and 212,848 shares of Common
       Stock and 26,759 and 26,751 shares of Limited
       Duration Class B Common Stock held in treasury
       at December 31, 1996 and 1995, respectively                     38,096,000          34,500,000
                                                                  -----------------------------------
  Total common stockholders' equity                                   147,922,000         127,663,000
  Retirement plans, leases and contingencies (Note L)
                                                                  -----------------------------------
  Total liabilities and stockholders' equity                       $1,089,394,000        $963,433,000
                                                                  ===================================
</TABLE>


See notes to consolidated financial statements.


                                                                             F-4
<PAGE>   24
           Grey Advertising Inc. and Consolidated Subsidiary Companies

                      Consolidated Statements of Operations


<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31
                                                           1996               1995                 1994
                                                      -----------------------------------------------------
<S>                                                   <C>                 <C>                 <C>          
Commissions and fees                                   $765,498,000        $688,219,000        $593,317,000
Expenses:
   Salaries and employee related                                                              
     expenses (Note L(1))                               474,686,000         432,311,000         370,196,000
   Office and general expenses (Note L(3))              232,279,000         205,668,000         181,826,000
   Goodwill write-off (Notes A and M)                                                            39,944,000
                                                      -----------------------------------------------------
                                                        706,965,000         637,979,000         591,966,000
                                                      -----------------------------------------------------
                                                         58,533,000          50,240,000           1,351,000
Other income - net (Note C)                               7,160,000           4,087,000             259,000
                                                      -----------------------------------------------------
Income of consolidated companies
   before taxes on income                                65,693,000          54,327,000           1,610,000
Provision for taxes on income (Note K)                   31,612,000          26,966,000          21,621,000
                                                      -----------------------------------------------------
Net income (loss) of consolidated companies              34,081,000          27,361,000         (20,011,000)
Minority interest applicable to consolidated
   companies                                             (6,663,000)         (6,273,000)         (3,040,000)
Equity in earnings of nonconsolidated affiliated
   companies                                              1,184,000           2,350,000           1,673,000
                                                      -----------------------------------------------------
Net income (loss)                                       $28,602,000         $23,438,000        $(21,378,000)
                                                      =====================================================
Earnings (loss) per Common Share                                                                  
       (Note J):
     Primary                                                 $21.03              $16.79             $(17.51)
     Fully diluted                                           $20.19              $16.16                 *
</TABLE>

     *Antidilutive

See notes to consolidated financial statements.


                                                                             F-5
<PAGE>   25
           Grey Advertising Inc. and Consolidated Subsidiary Companies
             Consolidated Statements of Common Stockholders' Equity
                  Years ended December 31, 1996, 1995 and 1994

<TABLE>
<CAPTION>
                                                                      PAID-IN                       COMMON STOCK          OTHER
                                                            COMMON   ADDITIONAL    RETAINED       HELD IN TREASURY        EQUITY
                                                             STOCK    CAPITAL      EARNINGS     SHARES        AMOUNT     ACCOUNTS   
                                                        ----------------------------------------------------------------------------
<S>                                                     <C>         <C>          <C>           <C>        <C>           <C>         
Balance at December 31, 1993                            $1,432,000  $27,329,000  $131,835,000  191,223    $(23,073,000) $(8,446,000)
  Net loss                                                                        (21,378,000)                                      
  Cash dividends - Common Shares $3.3125 per share                                 (4,112,000)                                      
  Cash dividends - Redeemable Preferred Stock - $6.625                               (212,000)                                      
  per share
  Common Shares acquired - at cost                                                               1,993        (372,000)             
  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                 (1,750)        226,000              
  Tax benefit from restricted stock (Note K)                            450,000                                                     
  Common Shares issued upon exercise of stock options                  (101,000)                (3,333)        420,000        
  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 
  Unrealized loss on marketable securities (Notes A                                                                      
  and E)                                                                                                                 (1,345,000)
                                                        ----------------------------------------------------------------------------
Balance at December 31, 1994                             1,432,000   31,895,000   105,123,000  188,133     (22,799,000)  (6,946,000)
  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)             
  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)               (25,535)      2,733,000              
  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 
  Unrealized gain on marketable securities (Notes A                                                                       
  and E)                                                                                                                  2,042,000
                                                        ----------------------------------------------------------------------------
Balance at December 31, 1995                            $1,432,000  $37,898,000  $122,345,000  239,599    $(34,500,000) $   488,000 
</TABLE>

<TABLE>
<CAPTION>
                                                                    TOTAL    
                                                               ---------------
<S>                                                               <C>          
Balance at December 31, 1993                                      $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                                    (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)                                   256,000 
  Tax benefit from restricted stock (Note K)                           450,000 
  Common Shares issued upon exercise of stock options                  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 
  Unrealized loss on marketable securities (Notes A                 
  and E)                                                            (1,345,000)           
                                                               ---------------  
Balance at December 31, 1994                                       108,705,000 
  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                                 (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                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 
  Unrealized gain on marketable securities (Notes A             
  and E)                                                             2,042,000          
                                                               ---------------
Balance at December 31, 1995                                      $127,663,000 
</TABLE>                                                         


                                                                             F-6
<PAGE>   26
           Grey Advertising Inc. and Consolidated Subsidiary Companies
             Consolidated Statements of Common Stockholders' Equity
            Years ended December 31, 1996, 1995 and 1994 (continued)
<TABLE>
<CAPTION>
                                                                           PAID-IN                               COMMON STOCK
                                                            COMMON        ADDITIONAL        RETAINED           HELD IN TREASURY
                                                                                                          --------------------------
                                                             STOCK         CAPITAL          EARNINGS         SHARES       AMOUNT
                                                        ----------------------------------------------------------------------------
<S>                                                       <C>             <C>            <C>                <C>       <C>
  Balance at December 31, 1995                            $ 1,432,000     $ 37,898,000   $ 122,345,000      239,599   $ (34,500,000)

  Net income                                                                                28,602,000
  Cash dividends - Common Shares - $3.8125 per share                                        (4,527,000)
  Cash dividends - Redeemable Preferred Stock $7.625                                
   per share                                                                                  (244,000)
  Common Shares acquired - at cost                                                                           20,818      (4,733,000)
  Dividends Payable in Company Stock pursuant to Senior
    Management Incentive Plan (Note L)                                         275,000        (275,000)
  Increase in redemption value of Redeemable Preferred                                 
   Stock (Note G)                                                                           (1,112,000)
  Restricted stock activity (Note I)                                            43,000                         (250)         14,000
  Tax benefit from restricted stock  (Note K)                                    3,000
  Common Shares issued upon exercise of stock options                          250,000                      (10,598)      1,123,000
  Tax benefit from exercise of stock options (Note K)                          483,000
  Senior Management Incentive Plan activity (Note L)                         3,862,000
  Translation adjustment                                                          
  Unrealized loss on marketable securities (Notes A                               
and E)
                                                        ----------------------------------------------------------------------------
Balance at December 31, 1996                              $ 1,432,000     $ 42,814,000   $ 144,789,000      249,569   $ (38,096,000)
                                                        ============================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                              OTHER
                                                              EQUITY

                                                             ACCOUNTS            TOTAL
                                                       ---------------------------------------
<S>                                                        <C>              <C>
  Balance at December 31, 1995                             $    488,000     $ 127,663,000

  Net income                                                                   28,602,000
  Cash dividends - Common Shares - $3.8125 per share                           (4,527,000)
  Cash dividends - Redeemable Preferred Stock $7.625                           
   per share                                                                     (244,000)
  Common Shares acquired - at cost                                             (4,733,000)
  Dividends Payable in Company Stock pursuant to Senior
    Management Incentive Plan (Note L)
  Increase in redemption value of Redeemable Preferred                         
   Stock (Note G)                                                              (1,112,000)
  Restricted stock activity (Note I)                                               57,000
  Tax benefit from restricted stock  (Note K)                                       3,000
  Common Shares issued upon exercise of stock options                           1,373,000
  Tax benefit from exercise of stock options (Note K)                             483,000
  Senior Management Incentive Plan activity (Note L)                            3,862,000
  Translation adjustment                                     (2,085,000)       (2,085,000)
  Unrealized loss on marketable securities (Notes A         
  and E)                                                     (1,420,000)       (1,420,000)
                                                       ---------------------------------------
Balance at December 31, 1996                               $ (3,017,000)    $ 147,922,000
                                                       =======================================
</TABLE>


See notes to consolidated financial statements.


                                                                             F-7
<PAGE>   27
           Grey Advertising Inc. and Consolidated Subsidiary Companies

                      Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31
                                                                     1996               1995              1994
                                                             ---------------------------------------------------------
<S>                                                              <C>                 <C>                <C>
OPERATING ACTIVITIES
Net income (loss)                                                $  28,602,000       $ 23,438,000       $(21,378,000)
Adjustments to reconcile net income (loss) to net cash
   provided by operating activities:
     Depreciation and amortization of fixed assets                  22,880,000         17,388,000         15,093,000
     Goodwill write-off                                                                                   39,944,000
     Amortization of intangibles                                     4,976,000          4,146,000          7,475,000
     Deferred compensation                                          16,217,000         15,162,000          9,006,000
     Equity in earnings of nonconsolidated affiliated
       companies, net of dividends received of $441,000,
       $483,000 and $903,000                                          (743,000)        (1,867,000)          (770,000)
     Gains from the sale of a nonconsolidated affiliated
       company, a non-marketable investment security and
       marketable securities                                        (4,911,000)
     Minority interest applicable to consolidated companies          6,663,000          6,273,000          3,040,000
     Deferred income taxes                                          (7,085,000)        (2,999,000)        (5,104,000)
     Amortization of restricted stock expense                           33,000            133,000            116,000

     Changes in operating assets and liabilities:
       Increase in accounts receivable                            (103,252,000)       (79,612,000)       (31,058,000)
       Increase in expenditures billable to clients                 (7,229,000)       (14,109,000)        (6,006,000)
       (Increase) decrease in other current assets                  (4,782,000)         4,351,000         10,739,000
       (Increase) decrease in other assets                          (2,741,000)         3,680,000         (3,077,000)
       Increase (decrease) in accounts payable                      78,157,000         61,846,000         (4,220,000)
       Increase (decrease) in accrued expenses
         and other                                                   8,611,000          3,180,000         (9,424,000)
       Increase in income taxes payable                              2,419,000          2,431,000          6,600,000
       Decrease in other liabilities                                (2,592,000)        (2,509,000)        (2,507,000)
                                                                  --------------------------------------------------
Net cash provided by operating activities                           35,223,000         40,932,000          8,469,000

INVESTING ACTIVITIES
Purchases of fixed assets                                          (27,896,000)       (29,136,000)       (17,067,000)
Trust fund deposits                                                 (2,833,000)        (2,426,000)
Increase in investments in and advances to non-consolidated
   affiliated companies                                               (320,000)        (1,686,000)        (3,564,000)
Purchases of marketable securities                                (129,491,000)       (68,500,000)        (2,003,000)
Proceeds from the sales of marketable securities                   101,012,000         26,957,000            486,000
Proceeds from the sale of a nonconsolidated affiliated
  company and a non-marketable investment security                   8,568,000
Increase in intangibles, primarily goodwill                        (13,103,000)        (6,183,000)       (14,800,000)
                                                                  --------------------------------------------------
Net cash used in investing activities                              (64,063,000)       (80,974,000)       (36,948,000)
</TABLE>


                                                                             F-8
<PAGE>   28
           Grey Advertising Inc. and Consolidated Subsidiary Companies

                Consolidated Statements of Cash Flows (continued)

<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31
                                                             1996                1995                1994
                                                      ----------------------------------------------------------
<S>                                                    <C>                 <C>                 <C>
FINANCING ACTIVITIES
Net proceeds from short-term borrowings                  $18,180,000          $4,834,000         $15,826,000
Common Shares issued under Stock Incentive Plan               24,000                                 141,000
Common Shares acquired for treasury                       (4,733,000)        (14,434,000)           (372,000)
Cash dividends paid on Common Shares                      (4,527,000)         (4,333,000)         (4,112,000)
Cash dividends paid on Redeemable Preferred Stock           (244,000)           (228,000)           (212,000)
Proceeds from exercise of stock options                    1,373,000           2,446,000             319,000
Borrowings under life insurance policies                     464,000          11,779,000
                                                       -----------------------------------------------------
Net cash provided by financing activities                 10,537,000              64,000          11,590,000
Effect of exchange rate changes on cash                   (3,525,000)          4,214,000           5,699,000
                                                       -----------------------------------------------------
Decrease in cash and cash equivalents                    (21,828,000)        (35,764,000)        (11,190,000)
Cash and cash equivalents at beginning of year           134,313,000         170,077,000         181,267,000
                                                       -----------------------------------------------------
Cash and cash equivalents at end of year                $112,485,000        $134,313,000        $170,077,000
                                                       =====================================================
</TABLE>

See notes to consolidated financial statements.



                                                                             F-9
<PAGE>   29
           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 1996
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>   30
           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 1996, 1995 and 1994, 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
twenty years. The amounts of goodwill, net of accumulated amortization,
associated with consolidated subsidiaries (included in Other Assets) and
nonconsolidated investments (included in Investments in and Advances to
Nonconsolidated Affiliated Companies) were $46,084,000 and $5,592,000 in 1996
and $41,237,000 and $8,325,000 in 1995, 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. The Company
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.


                                                                            F-11
<PAGE>   31
           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

As permitted by Financial Accounting Standards Statement No. 123, Accounting
for 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, is included in Paid-In Additional
Capital and results in periodic charges to compensation.

B. FOREIGN OPERATIONS

The following financial data is applicable to consolidated foreign subsidiaries:
<TABLE>
<CAPTION>
                                  1996            1995             1994
                           ---------------------------------------------------
<S>                           <C>              <C>             <C>
Current assets                $429,863,000     $395,016,000    $349,208,000
Current liabilities            452,220,000      408,541,000     364,571,000
Other assets--net of
   other liabilities            62,363,000       56,312,000      50,696,000
Net income (loss)                9,276,000        9,384,000     (35,043,000)
</TABLE>

Consolidated retained earnings at December 31, 1996 includes equity in
unremitted earnings of nonconsolidated foreign companies of approximately
$8,914,000.


                                                                            F-12
<PAGE>   32
           Grey Advertising Inc. and Consolidated Subsidiary Companies

             Notes to Consolidated Financial Statements (continued)



C. OTHER INCOME - NET

Details of other income - net are:
<TABLE>
<CAPTION>
                                                        1996            1995           1994
                                                 -----------------------------------------------
<S>                                                <C>              <C>           <C>
Interest income                                    $ 12,211,000     $12,183,000   $ 7,507,000
Interest expense                                    (10,065,000)     (8,928,000)   (7,833,000)
Gain from the sale of a non-consolidated
   affiliated company, a non-marketable
   investment security and marketable securities      4,911,000
Dividends from affiliates                               151,000         217,000        86,000
Other -- net (expense) income                           (48,000)        615,000       499,000
                                                 ===============================================
                                                   $  7,160,000     $ 4,087,000   $   259,000
                                                 ===============================================
</TABLE>

D. FIXED ASSETS

Components of fixed assets - at cost are:
<TABLE>
<CAPTION>
                                                                   1996                   1995
                                                         ----------------------------------------------
<S>                                                              <C>                    <C>
Furniture, fixtures and equipment                                $131,329,000           $119,575,000
Leaseholds and leasehold improvements                              51,705,000             48,920,000
                                                         ----------------------------------------------
                                                                  183,034,000            168,495,000
Less accumulated depreciation and amortization                    104,811,000             93,789,000
                                                         ==============================================
                                                                 $ 78,223,000           $ 74,706,000
                                                         ==============================================
</TABLE>

E. MARKETABLE SECURITIES

The marketable securities, by type of investment, held by the Company at
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
                                                            1996               1995
                                                      -------------------------------------
<S>                                                      <C>                <C>
   Maturities of one year or less:
     U.S. Treasury Securities                            $  2,506,000       $  4,758,000
     Money market funds                                    22,556,000         12,394,000
     Corporate bonds                                        3,626,000          3,267,000
                                                      -------------------------------------
                                                           28,688,000         20,419,000
                                                      -------------------------------------
   Maturities greater than one year:
     U.S. Treasury Securities                              49,355,000         41,946,000
     Government National Mortgage Association
       Securities                                           4,920,000          1,838,000
     Corporate bonds                                       13,144,000          4,468,000
                                                      -------------------------------------
                                                           67,419,000         48,252,000
                                                      -------------------------------------
                                                          $96,107,000        $68,671,000
                                                      =====================================
</TABLE>


                                                                            F-13
<PAGE>   33
           Grey Advertising Inc. and Consolidated Subsidiary Companies

             Notes to Consolidated Financial Statements (continued)

E. MARKETABLE SECURITIES (CONTINUED)

At December 31, 1996, the Company had unrealized losses of $870,000 and at
December 31, 1995 unrealized gains of $550,000, principally related to the
investments in U. S. Treasury Securities. At December 31, 1996 and 1995, the
Company's investments in marketable securities classified as non-current had an
average maturity of approximately 6 years.

F. CREDIT ARRANGEMENTS AND LONG-TERM DEBT

The Company maintains committed lines of credit of $51,000,000 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 1996 and 1995 to secure
obligations of selected foreign subsidiaries in the amount of $26,000,000 and
$15,000,000 at the end of each respective year. The weighted average interest
rate related to the debt associated with the committed lines of credit was 7.11%
and 6.95% at December 31, 1996 and 1995, respectively. The Company had
$60,004,000 and $56,336,000 outstanding under other uncommitted lines of credit
at December 31, 1996 and 1995, respectively. The weighted average interest rate
for the borrowings under the uncommitted lines of credit was 6.94% and 7.91% at
December 31, 1996 and 1995, 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 1996
was for less than three months. At December 31, 1996, there were no foreign
currency contract transactions open. In addition, the Company had no derivative
contracts outstanding at December 31, 1996, and did not enter into any
derivative contracts during 1996.

Long-term debt at December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
                                             1996                  1995
                                        --------------------------------------
<S>                                       <C>                   <C>
           Term loans                     $30,000,000           $30,000,000
           Convertible debentures           3,025,000             3,025,000
                                        --------------------------------------
           Long-term debt                 $33,025,000           $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

                                                                            F-14
<PAGE>   34
           Grey Advertising Inc. and Consolidated Subsidiary Companies

             Notes to Consolidated Financial Statements (continued)

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

amounts. At December 31, 1996, the Company was in compliance with all of these
covenants. The fair value of the Prudential debt is estimated to be $30,275,000
and $30,900,000 at December 31, 1996 and 1995, respectively. This estimate was
determined using a discounted cash flow analysis using current interest rates
for debt having similar terms and remaining maturities.

The remaining portion of long-term debt consists of 8-1/2% Convertible
Subordinated Debentures, due December 31, 2003, which are currently convertible
into 8.48 shares of Common Stock and an equal number of shares of Limited
Duration Class B Common Stock, subject to certain adjustments, for each $1,000
principal amount of such debentures. The debentures were issued in exchange for
cash and a $3,000,000, 9% promissory note, payable December 31, 2004, from the 
Chairman and Chief Executive Officer of the Company, that is included in Other
Assets at December 31, 1996 and 1995. During each of the years 1996, 1995 and
1994, 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>
                       1998            $10,000,000
                       1999             10,000,000
                       2000             10,000,000
                       2003              3,025,000
                                      =============
                                       $33,025,000
                                      =============
</TABLE>

During 1996 and 1995, the Company borrowed against the cash surrender value of
the life insurance policies that it owns on the life of its Chairman and Chief
Executive Officer. The amounts borrowed at December 31, 1996 and 1995 are
$14,733,000 and $13,024,000, respectively, with interest rates of 7.30% and
8.75%, respectively, and are carried as a reduction of the related cash
surrender value that is included in Other Assets. Of the amounts borrowed in
1996 and 1995, the Company received $464,000 and $11,779,000 in cash,
respectively, and $1,245,000 was used in each year to pay premiums on the
underlying life insurance policies.               

For the years 1996, 1995 and 1994, the Company made interest payments of
$10,065,000, $8,934,000 and $7,839,000, respectively.


                                                                            F-15
<PAGE>   35
           Grey Advertising Inc. and Consolidated Subsidiary Companies

             Notes to Consolidated Financial Statements (continued)


G. REDEEMABLE PREFERRED STOCK

As of December 31, 1996 and 1995, the Company had outstanding 20,000 shares of
Series I Preferred Stock, 5,000 shares each of 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 the Chairmen and Chief
Executive Officer of the Company, and the Series 1 Preferred Stock is held by a
former employee. The terms of each class of Preferred 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 without cause. The Company is obligated to
redeem the Series 1 Preferred Stock following the attainment of age 65 by the
holder thereof.      

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 holder
issued to the Company full recourse promissory notes totaling $763,000
(included in Other Assets at December 31, 1996 and 1995) with a maturity date of
April 2004. The interest paid by the senior executive to the Company in 1996,
1995 and 1994 pursuant to the terms of these notes was approximately $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.


                                                                            F-16
<PAGE>   36
           Grey Advertising Inc. and Consolidated Subsidiary Companies

             Notes to Consolidated Financial Statements (continued)

G. REDEEMABLE PREFERRED STOCK (CONTINUED)

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.

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 $1,112,000, $1,470,000 and
$926,000 in 1996, 1995 and 1994, respectively. The change in carrying value
represents the change in aggregate 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, each having a $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. The Class B Common Stock will automatically convert to Common
Stock on April 3, 2006.

I. RESTRICTED STOCK AND STOCK OPTION PLANS

The Company's 1994 Stock Incentive Plan ("Stock Incentive Plan") is the
Company's active restricted stock and stock option plan. 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 thereunder remain so for such purposes.


                                                                            F-17
<PAGE>   37
           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, vest or are exercisable. Options must be exercised
within ten years of 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). Under the Prior Plans, nonqualified and
incentive 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. Options must be exercised within ten years of grant and for only
specified limited periods beyond termination of employment. There were 1,916
shares reserved for issuance under the Prior Plans at December 31, 1996.

NONQUALIFIED OPTIONS

Transactions involving nonqualified options under the Stock Incentive and Prior
Plans were:
<TABLE>
<CAPTION>
                                                  NUMBER       WEIGHTED AVERAGE
                                                OF SHARES       EXERCISE PRICE
                                               --------------------------------------
<S>                                               <C>                 <C>
Outstanding, December 31, 1993                     37,366             $106
Granted                                             3,250              163
Exercised                                          (3,133)              96
Forfeited                                          (1,084)             107
                                               --------------------------------------
Outstanding, December 31, 1994                     36,399              112
Granted                                            84,174              151
Exercised                                         (21,965)              95
Forfeited                                            (284)             165
                                               --------------------------------------
Outstanding, December 31, 1995                     98,324              149
GRANTED                                            47,100              229
EXERCISED                                          (9,884)             130
FORFEITED                                             (66)             118
                                               ======================================
OUTSTANDING, DECEMBER 31, 1996                    135,474              178
                                               ======================================
</TABLE>




                                                                            F-18
<PAGE>   38
           Grey Advertising Inc. and Consolidated Subsidiary Companies

             Notes to Consolidated Financial Statements (continued)


I. RESTRICTED STOCK AND STOCK OPTION PLANS (CONTINUED)

There were 33,400, 23,283 and 27,973 options exercisable at December 31, 1996,
1995 and 1994, respectively. The weighted average fair value the of the options
granted during 1996 and 1995 was $77 and $51, respectively.         

The remaining weighted average contractual life of options outstanding as of
December 31, 1996 and the weighted average exercise price for options 
exercisable at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
                                 OPTIONS OUTSTANDING                              OPTIONS EXERCISABLE
               -------------------------------------------------------   ---------------------------------
                                    WEIGHTED AVERAGE        WEIGHTED                          WEIGHTED
  RANGE OF        NUMBER OF       REMAINING CONTRACTUAL      AVERAGE         NUMBER OF         AVERAGE
  EXERCISE          SHARES                LIFE              EXERCISE           SHARES         EXERCISE
   PRICES        OUTSTANDING                                  PRICE         EXERCISABLE         PRICE
-------------------------------------------------------------------------------------------------------
<S>                 <C>                <C>                    <C>            <C>               <C>
  $131-142            1,200            3.2 years              $133                67           $141
   149-171           86,674            7.3 years               151            26,666            149
   188-196            7,600            9.0 years               195               -0-            -0-
       235           40,000            9.8 years               235             6,667            235
               ----------------------------------------------------------------------------------------

     Total          135,474                                                   33,400
               ========================================================================================
</TABLE>


INCENTIVE STOCK OPTIONS

Transactions involving outstanding incentive stock options under the plans were:
<TABLE>
<CAPTION>
                                                          NUMBER OF SHARES
                                              --------------------------------------
                                                    CLASS B                                   WEIGHTED
                                                     COMMON               COMMON              AVERAGE
                                                     STOCK                STOCK            EXERCISE PRICE
                                              ---------------------------------------------------------------
<S>                                                     <C>                <C>                    <C>
   Outstanding, December 31, 1993                        100                5,100                 $99
   Exercised                                            (100)                (100)                 99
                                              ---------------------------------------------------------------
   Outstanding, December 31, 1994                          0                5,000                  99
   Exercised                                               0               (3,570)                 99
                                              ---------------------------------------------------------------
   Outstanding, December 31, 1995                          0                1,430                  99
   EXERCISED                                               0                 (714)                 99
                                              ---------------------------------------------------------------
   OUTSTANDING, DECEMBER 31, 1996                          0                  716                  99
                                              ===============================================================
</TABLE>

As of December 31, 1996, there were no incentive stock options which were
exercisable. As of December 31, 1995 and 1994, options to acquire 714 and 2,856
shares of Common Stock were exercisable. All incentive stock options outstanding
as of December 31, 1996 have a remaining contractual life of approximately one
year.


                                                                            F-19
<PAGE>   39
           Grey Advertising Inc. and Consolidated Subsidiary Companies

             Notes to Consolidated Financial Statements (continued)


I. RESTRICTED STOCK AND STOCK OPTIONS PLANS (CONTINUED)

RESTRICTED STOCK

In 1994, the Company issued 1,750 shares of Restricted Stock 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. In 1996,
250 shares of Restricted Stock were issued at a price of $97.75 per share with
restrictions as to transferability expiring after five years. During 1995, the
restrictions lapsed on 5,000 shares of Common Stock. No restrictions lapsed in
either 1996 or 1994.

Compensation to employees under the Stock Incentive and Prior Plans of $98,000
in 1996, $106,000 in 1995 and $238,000 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 ($33,000 in 1996, $132,000 in 1995 and $116,000 in 1994) over the
related required period of service of the respective employees.

PRO FORMA INFORMATION

Pro forma information regarding net income and earnings per share is required by
Financial Accounting Standards Statement No. 123, Accounting for
Stock-Based Compensation, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of the
Statement. The approximate fair value for these options was estimated at the
date of grant using a Black-Scholes option valuation model with the following
weighted average assumptions for the years 1996 and 1995, respectively;
risk-free interest rates of 6.16% and 7.85%; dividend yields of 1.73% and 2.37%;
volatility factors of the expected market price of the Company's Common Stock of
 .17 each year; and a weighted-average expected life for the options of 9.6
years.

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


                                                                            F-20
<PAGE>   40
           Grey Advertising Inc. and Consolidated Subsidiary Companies

             Notes to Consolidated Financial Statements (continued)

I. RESTRICTED STOCK AND STOCK OPTIONS PLANS (CONTINUED)

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
<TABLE>
<CAPTION>
                                       1996             1995
                                   -----------      -----------
<S>                                <C>              <C>
Pro forma net income               $27,861,000      $22,493,000
Pro forma earnings per share:
     Primary                          $20.64           $16.26
     Fully Diluted                    $19.82           $15.62
</TABLE>


The pro forma information for 1996 and 1995 is not necessarily indicative of
future year calculations because options issued prior to 1995 have not been
valued for purposes of the pro forma calculation.



J. COMPUTATION OF EARNINGS PER COMMON SHARE

The computation of earnings 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)) (1,295,441 in 1996,
1,295,182 in 1995, 1,285,605 in 1994) and, for fully diluted earnings per common
share, the assumed conversion of the 8-1/2% Convertible Subordinated Debentures.
Also, for the purpose of computing earnings 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
earnings 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
earnings 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.

The effects of the Preferred Stock dividend requirements and the change in
redemption values amounted to $1.05, $1.31, and $0.88 per share in 1996, 1995
and 1994, respectively.



                                                                            F-21
<PAGE>   41
           Grey Advertising Inc. and Consolidated Subsidiary Companies

             Notes to Consolidated Financial Statements (continued)


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, 1996 and
1995, the Company had deferred tax assets and deferred tax liabilities as
follows:
<TABLE>
<CAPTION>
                                                        DEFERRED TAX ASSETS (LIABILITIES)
                                                             1996               1995
                                                         ------------       ------------
<S>                                                      <C>                <C>
Restructuring costs and related future tax benefits      $  1,373,000       $  1,642,000
Deferred compensation                                      23,056,000         15,250,000
Accrued expenses                                            2,613,000          2,658,000
Safe harbor lease and depreciation                         (3,415,000)        (5,134,000)
Tax on unremitted foreign earnings and other               (4,351,000)        (2,225,000)
                                                         ------------       ------------
Net deferred tax assets                                  $ 19,276,000       $ 12,191,000
                                                         ============       ============

Included in:
  Other current assets                                   $  4,426,000       $  3,665,000
  Intangibles and other assets                             14,850,000          8,526,000
                                                         ============       ============
                                                         $ 19,276,000       $ 12,191,000
                                                         ============       ============
</TABLE>

The components of income of consolidated companies before taxes on income are as
follows:
<TABLE>
<CAPTION>
                  1996             1995               1994
             ------------------------------------------------
<S>           <C>              <C>               <C>
Domestic      $36,553,000      $26,704,000       $ 25,918,000
Foreign        29,140,000       27,623,000        (24,308,000)
             ------------------------------------------------
              $65,693,000      $54,327,000       $  1,610,000
             ================================================
</TABLE>

Provisions (benefits) for Federal, foreign, state and local income taxes
consisted of the following:
<TABLE>
<CAPTION>
                          1996                           1995                            1994
               ----------------------------   ---------------------------   -------------------------------
                   CURRENT     DEFERRED         CURRENT        DEFERRED        CURRENT        DEFERRED
               --------------------------------------------------------------------------------------------
<S>            <C>             <C>             <C>            <C>            <C>             <C>
Federal        $ 16,285,000    $ (3,890,000)   $ 13,607,000   $(4,248,000)   $ 11,510,000    $(2,470,000)
Foreign          13,677,000        (280,000)     10,167,000     2,888,000       9,034,000     (1,197,000)
State and
   local          8,735,000      (2,915,000)      6,191,000    (1,639,000)      6,181,000     (1,437,000)
               --------------------------------------------------------------------------------------------
               $ 38,697,000    $ (7,085,000)   $ 29,965,000   $(2,999,000)   $ 26,725,000    $(5,104,000)
               ============================================================================================
</TABLE>


                                                                            F-22
<PAGE>   42
           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>
                                                                           1996            1995            1994
                                                                       ------------------------------------------
<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                                                          5.8             5.4           191.5
       Difference in foreign tax rates                                      4.3             6.5           215.0
       Withholding tax on unremitted foreign earnings                       0.6             0.5            33.4
       Goodwill write-off                                                                                 868.3
       Adjustment of prior years' provisions                                                              (24.8)
       Other -- net                                                         2.4             2.2            24.5
                                                                       ------------------------------------------
                                                                           48.1%           49.6%        1,342.9%
                                                                       ==========================================
</TABLE>


During the years 1996, 1995 and 1994, the Company made net income tax payments
of $36,513,000, $21,368,000 and $19,005,000, 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, EXECUTIVE OFFICER LOANS, LEASES AND
   CONTINGENCIES

1.   The Company's Profit Sharing Plan is available to 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 maintains a noncontributory Employee Stock Ownership Plan covering
     eligible employees of the Company and specified, 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 1996, 1995 and
     1994. 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>   43
           Grey Advertising Inc. and Consolidated Subsidiary Companies

             Notes to Consolidated Financial Statements (continued)

L.   RETIREMENT PLANS, DEFERRED COMPENSATION, EXECUTIVE OFFICER LOANS,
     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 Plan operates as an
     ongoing series of individual five year plans. The latest plan in the series
     commenced in 1993 and will end on December 31, 1997. At that date,
     participants with 5 years of participation in the current plan will vest in
     their awards. Those participants who commenced participation after 1993
     will vest in their awards five years from the year of their initial
     participation. The amount recorded as an expense related to this plan
     amounted to $8,211,000, $6,873,000 and $5,434,000 in 1996, 1995 and 1994,
     respectively. Approximately $5,634,000, $5,223,000 and $4,215,300 of plan
     expense incurred in 1996, 1995 and 1994, respectively, will be payable in
     Common Stock in accordance with the terms of the plan. These awards
     converted, at the fair value of the Common Stock on the date of grant, into
     22,424, 27,705 and 28,647 equivalent shares of Common Stock at December 31,
     1996, 1995 and 1994, respectively, including an amount of shares for the
     dividends that would have been payable assuming awards were outstanding
     from the date of the grant. The future obligation to issue stock related to
     these stock awards has been reflected as an increase to Paid-In Additional
     Capital. At December 31, 1996, there were 95,543 shares which were payable
     in Common Stock pursuant to this plan.

     Expenses related to the foregoing plans and benefits aggregated $36,140,000
     in 1996, $29,307,000 in 1995 and $24,211,000 in 1994.


     In 1995, the Company and its Chairman and Chief Executive Officer entered
     into an agreement extending the term of his employment agreement with the
     Company 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



                                                                            F-24
<PAGE>   44
           Grey Advertising Inc. and Consolidated Subsidiary Companies

             Notes to Consolidated Financial Statements (continued)


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

     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 and gains or losses on the trust assets, will 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. At December 31, 1996 and 1995,
     the value of the trust was $5,648,000 and $2,496,000 respectively and is
     included in Other Assets and the Company's related deferred compensation
     obligation for the same amount is included in Other Liabilities.

2.   Pursuant to an employment agreement, dated December 21, 1990, an executive
     officer of the Company borrowed $1,000,000 from the Company. One-fifth of
     the principal amount of the loan was forgiven by the Company each December
     31, beginning with December 31, 1991, as the officer continued 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 1996, 1995 and 1994, the Company has
     included in each year $200,000 of compensation expense, representing the
     amount of loan forgiven each year. As of December 31, 1996 and 1995, the
     remaining loan balance was $400,000 and $600,000, respectively, included
     in Other Assets.                                   

     In addition, a second executive officer has outstanding loans with the
     Company totaling $875,000 and $375,000 as of December 31, 1996 and 1995,
     respectively, which are reflected in Other Assets. The first of these
     loans, granted in 1995, was for $50,000 and is forgivable contingent upon
     employment by the Company through 1998, while two other loans for $125,000
     and $200,000 made in 1995 are repayable with accrued interest in December
     1999 and May 1999, respectively. The loan for $125,000 is forgivable on
     December 31, 1999 provided that the executive officer is employed by the
     Company on that date. During 1996, the Company made two additional loans to
     this executive officer for $175,000 and $325,000 which are repayable with
     accrued interest in December 2003.


                                                                            F-25
<PAGE>   45
           Grey Advertising Inc. and Consolidated Subsidiary Companies

             Notes to Consolidated Financial Statements (continued)

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

     In connection with a 1992 exercise of the stock options, the Company
     received a cash payment of $67,000 and a note from the Chairman and
     Chief Executive 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 the second 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, 1996 and 1995. 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 1996, 1995 and 1994.

3.   Rental expense amounted to approximately $41,104,000 in 1996, $36,445,000
     in 1995 and $35,568,000 in 1994 which is net of sub-lease rental income of
     $66,000 in 1996, $129,000 in 1995 and $1,263,000 in 1994. Approximate
     minimum rental commitments, excluding escalations, under noncancellable
     operating leases are as follows:
<TABLE>
<CAPTION>
                             OFFICE SPACE
                             --------------
<S>                           <C>
     1997                     $  35,062,000
     1998                        33,450,000
     1999                        33,094,000
     2000                        26,726,000
     2001                        26,010,000
     Beyond 2001                 54,818,000
                             ==============
                              $ 209,160,000
                             ==============
</TABLE>

4.   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.


                                                                            F-26
<PAGE>   46
           Grey Advertising Inc. and Consolidated Subsidiary Companies

             Notes to Consolidated Financial Statements (continued)


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 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. A significant amount of this
write-off related to operations in the United Kingdom. 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). 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. There were no write-offs in excess of normal amortization
schedules in 1996 or 1995.


                                                                            F-27
<PAGE>   47
           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, 1996, 1995 and 1994, and related identifiable assets at December
31, 1996, 1995 and 1994 are summarized below (000s omitted):

<TABLE>
<CAPTION>
                                            UNITED STATES                     WESTERN EUROPE                       OTHER
                                  --------------------------------- ----------------------------------- ----------------------------
                                     1996       1995       1994       1996       1995        1994       1996      1995       1994
                                  -------------------------------------------------------------------------------------------------
<S>                                <C>        <C>        <C>        <C>        <C>        <C>          <C>       <C>       <C>
Commissions and fees               $338,496   $303,826   $277,411   $370,888   $337,726   $ 273,754    $56,114   $46,667   $ 42,152
                                  -------------------------------------------------------------------------------------------------

Operating profit (loss)            $ 26,174   $ 21,368   $ 22,767   $ 30,279   $ 27,212   $ (20,457)   $ 2,080   $ 1,660   $   (959)
                                  -------------------------------------------------------------------------------------------------

Other income-net

Income of consolidated companies
   before taxes on income


Identifiable assets                $549,160   $464,067   $390,547   $445,038   $406,757   $ 353,904    $77,473   $71,916   $ 69,130
                                  -------------------------------------------------------------------------------------------------

Investments in and advances to
   nonconsolidated affiliated                                                                          
   companies
                                                                                                       
Total assets                                                                                           
                                                                                                       
</TABLE>

<TABLE>
<CAPTION>
                                                CONSOLIDATED
                                    -------------------------------------
                                            1996       1995       1994
                                    -------------------------------------
<S>                                     <C>          <C>        <C>
Commissions and fees                    $  765,498   $688,219   $593,317
                                   -------------------------------------

Operating profit (loss)                 $   58,533   $ 50,240   $  1,351


Other income-net                             7,160      4,087        259
                                   -------------------------------------
Income of consolidated companies
   before taxes on income               $   65,693   $ 54,327   $  1,610
                                   -------------------------------------

Identifiable assets                     $1,071,671   $942,740   $813,581


Investments in and advances to
   nonconsolidated affiliated               17,723     20,693     16,495
   companies
                                   -------------------------------------
Total assets                            $1,089,394   $963,433   $830,076
                                   -------------------------------------
</TABLE>

Commissions and fees from one client amounted to 13.2%, 13.8% and 13.8% of the
consolidated total in 1996, 1995 and 1994, respectively.


                                                                            F-28
<PAGE>   48
                                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 31, 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.)

             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.)
</TABLE>


                                                                             E-1
<PAGE>   49
<TABLE>
<CAPTION>
                                                                                   
  Number Assigned to Exhibit                                                        
 (i.e. 601 of Regulation S-K)                 Description of Exhibits                        
 ----------------------------                 -----------------------                

<S>                              <C>                                                              
             4.05                Extension Agreements dated as of July 29, 1996                   
                                 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 4.01 and 4.02 to Grey's Quarterly
                                 Report on Form 10-Q for the quarter ended June
                                 30, 1996).

             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 where-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.)

            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.)
</TABLE>


                                                                             E-2
<PAGE>   50
<TABLE>
<CAPTION>
                                                                                    
  Number Assigned to Exhibit                                                     
 (i.e. 601 of Regulation S-K)                 Description of Exhibits                        
 ----------------------------                 -----------------------                        
<S>                              <C>                                                            
            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. (Incorporated
                                 herein by reference to Exhibit 10.05 to Grey's
                                 Annual Report on Form 10-K for the fiscal year
                                 ended December 31, 1995.)

            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.  (Incorporated herein by reference to
                                 Exhibit 10.05 to Grey's Annual Report on Form
                                 10-K for the fiscal year ended December 31,
                                 1992.)
</TABLE>

                                                                             E-3
<PAGE>   51
<TABLE>
<CAPTION>
                                                                                     
  Number Assigned to Exhibit                                                     
 (i.e. 601 of Regulation S-K)                 Description of Exhibits                       
 ----------------------------                 -----------------------                     
<S>                              <C>                                                              
            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.)

            10.11 *              Grey Advertising Inc. Book Value Preferred 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 Restated                        
                                 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. Amended and Restated 1993                   
                                 Senior Management Incentive Plan.  (Incorporated
                                 herein by reference to Exhibit 10.01  to Grey's
                                 Quarterly Report on Form 10-Q for the quarter
                                 ended September 30, 1996.

            10.14 *              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.)

            10.15 *              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-4
<PAGE>   52
<TABLE>
<CAPTION>
                                                                                   
  Number Assigned to Exhibit                                                        
 (i.e. 601 of Regulation S-K)                 Description of Exhibits                        
 ----------------------------                 -----------------------                         
<S>                              <C>                                                              
            10.16 *              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.)

            10.17 *              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.)

            10.18 *              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.)

            10.19 *              Stock Option Agreement, effective as of January                   
                                 5, 1995, by and between Grey and Edward H.
                                 Meyer.  (Incorporated 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.)

            10.20*               Stock Option Agreement effective as of November                  
                                 26, 1996, by and between Grey and Edward H.
                                 Meyer.  (Incorporated herein by reference to
                                 Exhibit 15 to Amendment No. 10 to the Statement
                                 on Schedule 13D, dated as of February 11, 1997,
                                 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.)

            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.)
</TABLE>


                                                                             E-5
<PAGE>   53
<TABLE>
<CAPTION>
                                                                                   
  Number Assigned to Exhibit                                                      
 (i.e. 601 of Regulation S-K)                 Description of Exhibits                        
 ----------------------------                 -----------------------                     
<S>                              <C>                                                              
            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. amended and restated 1994                   
                                 Stock Incentive Plan.  (Incorporated herein by
                                 reference to Exhibit 10.02 Grey's Quarterly
                                 Report on Form 10-Q for the quarter ended
                                 September 30, 1996.

            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.

            10.27 *              Director's 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.)
</TABLE>


                                                                             E-6
<PAGE>   54
<TABLE>
<CAPTION>
                                                                                    
  Number Assigned to Exhibit                                                       
 (i.e. 601 of Regulation S-K)                 Description of Exhibits                        
 ----------------------------                 -----------------------                        
<S>                              <C>                                                               
            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 Ownership 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 Retirement
                                 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.

             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 reference 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 December
                                 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 December 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                                          
</TABLE>



                                                                             E-7
<PAGE>   55
<TABLE>
<CAPTION>
                                                                                    
  Number Assigned to Exhibit                                                     
 (i.e. 601 of Regulation S-K)                 Description of Exhibits                       
 ----------------------------                 -----------------------                       
<S>                              <C>                                                           
                                 *Management contract or compensatory plan or
                                 arrangement identified in compliance with Item
                                 14(c) of the rules governing the preparation of
                                 this report.

         10K-Exhibits
</TABLE>


                                                                             E-8