DONNELLEY ENTERPRISE SOLUTIONS INC, 424B4, 1996-10-31

DONNELLEY ENTERPRISE SOLUTIONS INC
424B4, 1996-10-31
MANAGEMENT SERVICES

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<PAGE>

FILED PURSUANT TO RULE 424(b)(4)
REGISTRATION NO. 333-10127

PROSPECTUS

LOGO
2,860,000 SHARES

DONNELLEY ENTERPRISE
SOLUTIONS INCORPORATED

COMMON STOCK
($.01 PAR VALUE)

Of the 2,860,000 shares of Common Stock, $.01 par value per share (the "Common
Stock"), of Donnelley Enterprise Solutions Incorporated ("DESI" or the
"Company") offered hereby (the "Offering"), 1,855,000 are being issued and
sold by the Company and 1,005,000 are being sold by R. R. Donnelley & Sons
Company, which is currently the sole stockholder of the Company ("R.R.
Donnelley" or the "Selling Stockholder"). The Company will not receive any of
the proceeds from the sale of shares of Common Stock by R.R. Donnelley. The
Company will use a significant portion of the net proceeds it receives in the
Offering to repay amounts owed to R.R. Donnelley and in final payment of
certain contingent obligations arising from its acquisition of LAN Systems,
Inc. See "Use of Proceeds." Upon completion of the Offering, R.R. Donnelley
will own 42.8% of the outstanding Common Stock (34.2% if the Underwriters
exercise their over-allotment option in full).

Prior to the Offering, there has been no public market for the Common Stock.
See "Underwriting" for information relating to the factors to be considered in
determining the initial public offering price.

The Common Stock has been approved for quotation on the Nasdaq National Market
under the symbol "DEZI."

SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY POTENTIAL INVESTORS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO
PUBLIC DISCOUNT COMPANY(1) SELLING STOCKHOLDER
<S> <C> <C> <C> <C>
Per Share............. $25.000 $1.625 $23.375 $23.375
Total(2).............. $71,500,000 $4,647,500 $43,360,625 $23,491,875
- -------------------------------------------------------------------------------
</TABLE>
(1) Before deducting expenses payable by the Company, estimated to be
approximately $900,000. The Company will bear all expenses of the Offering
other than the Underwriting Discount attributable to the shares of Common
Stock being sold by the Selling Stockholder, which will be borne by the
Selling Stockholder.
(2) The Selling Stockholder has granted the Underwriters an option,
exercisable within 30 days of the date of this Prospectus, to purchase up
to an additional 429,000 shares of Common Stock at the Price to Public,
less the Underwriting Discount, solely to cover over-allotments, if any.
If the Underwriters exercise such option in full, the total Price to
Public, Underwriting Discount and Proceeds to Selling Stockholder will be
$82,225,000, $5,344,625 and $33,519,750, respectively. See "Underwriting."

The shares of Common Stock are offered subject to receipt and acceptance by
the Underwriters, to prior sale and to the Underwriters' right to reject any
order in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that delivery of the shares of Common Stock will be
made at the office of Salomon Brothers Inc, Seven World Trade Center, New
York, New York, or through the facilities of The Depository Trust Company, on
or about November 5, 1996.

SALOMON BROTHERS INC

MONTGOMERY SECURITIES

J.P. MORGAN & CO.

The date of this Prospectus is October 30, 1996
<PAGE>

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE>

Donnelley
Enterprise
Solutions
Incorporated

is a single-source
provider of
integrated information
management services
to professional service
organizations,
primarily large law [Graphic representing range of services
firms, investment provided by Donnelley Enterprise
banks and accounting Solutions Incorporated]
firms. Donnelley
Enterprise Solutions
Incorporated offers its
clients the opportunity
to focus on their core
businesses through
a comprehensive
array of business
services outsourcing
and information
technology services.

<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the financial statements
and pro forma information (and the notes related thereto) included elsewhere in
this Prospectus. Unless otherwise indicated, all information in this Prospectus
assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting."

THE COMPANY

Donnelley Enterprise Solutions Incorporated is a single-source provider of
integrated information management services to professional service
organizations, primarily large law firms, investment banks and accounting
firms. DESI offers its clients the opportunity to focus on their core
businesses by outsourcing a variety of functions, including business services
and information technology services. The Company has experienced substantial
growth by expanding its service offerings, adding new clients, increasing
business with existing clients and capitalizing on the growing trend toward
outsourcing. In 1995, the Company had revenues of $45.7 million from business
services outsourcing and $20.2 million from information technology services,
representing six months of operations following the June 1995 acquisition of
LAN Systems, Inc. ("LANSystems"). In the first six months of 1996, the
Company's revenues from business services outsourcing and information
technology services were $26.6 million and $18.6 million, respectively.

The Company has well-established client relationships with a significant
number of leaders in its target markets, including the law firms of Shearman &
Sterling and Sidley & Austin, the investment banks of Lehman Brothers Inc. and
Morgan Stanley & Co. Incorporated and the accounting firm of Ernst & Young LLP.
Revenues from these five clients accounted for approximately 28.9% of the
Company's 1995 revenues and approximately 25.4% of the Company's revenues for
the first six months of 1996. In 1995, the Company provided services to 30 of
the 100 largest law firms as ranked by the American Lawyer for 1995 and six of
the 10 largest investment banks ranked by dollar volume of public debt and
equity issuances for 1995 as reported by Securities Data Corporation. The
Company typically enters into contracts with business services clients that
have terms ranging from three to five years and which typically provide for
monthly minimum payments. The Company's record in retaining outsourcing clients
has been excellent. The Company's information technology services are
contracted for primarily on a project basis and generally result in follow-on
projects and on-going support.

DESI commenced outsourcing operations in 1988 as a provider of reprographic
services and expanded its service offerings to include networked and color
printing, mailroom and facsimile services, word processing, desktop publishing
and imaging. In June 1995, the Company broadened its capabilities from managing
paper-based information to include the management of electronic information
through the acquisition of LANSystems, which has provided information
technology services since 1983, including systems integration, consulting and
software development. Beginning in February 1996, the Company began providing
systems management outsourcing services, which include on-site management and
administration of servers and desktops and operation of the help-desk function.

The demand for business services outsourcing and information technology
services is accelerating as more businesses seek outside expertise in the
management of increasingly complex and crucial business and technology
requirements. DESI focuses on its target markets because the success of leading
professional service organizations greatly depends on their ability to manage
and process

3
<PAGE>

information, integrate information into document form and generate and deliver
high-quality documents, all under significant time pressures. Tolerance for
system downtime or disruption to normal business services is very limited. As a
result, the Company's clients demand premium service levels with stringent
controls to ensure quality, reliability and accuracy.

The Company believes its competitive strengths are as follows:

. Established Premier Client Base in Target Markets--DESI has well-
established relationships with a significant number of industry leaders
in its target markets. These relationships with high-quality professional
service organizations have been an important factor in enabling the
Company to add new clients.

. Comprehensive Array of Service Offerings--The Company is capable of
satisfying a client's needs for information management services for both
paper-based and electronic information by providing staff trained to
perform multiple functions, integrating technical and business processes
and providing consistency across the enterprise.

. Accumulated Knowledge and Expertise in Target Markets--DESI has
accumulated knowledge of the best practices to address the unique needs
of the professional service organizations in its target markets.

. Proven Quality Driven Processes--DESI has developed proven, cost-
effective processes for the delivery of business and information
technology services, including a copyrighted production management system
which permits the Company to monitor the client's needs and the quality
of services provided by tracking use, service levels, turnaround and
efficiency.

. Depth, Experience and Expertise of Service Delivery Personnel--The
Company has been successful in attracting and retaining talented,
motivated employees in critical positions which involve extensive client
interaction, including the client managers who oversee the performance of
the Company's business services and the technical employees who design,
implement and support computer networks and provide other information
technology services.

DESI's principal growth strategy is to become the single-source provider of
integrated information management services to the leading firms in its target
markets. Key elements of the Company's strategy include (i) increasing
penetration in its target markets; (ii) cross-selling its services to existing
clients; (iii) attracting and retaining outstanding employees; (iv) enhancing
its expertise in information management technology; and (v) selectively
acquiring businesses that strengthen service offerings or expand geographic
presence.

R. R. Donnelley & Sons Company is currently the sole stockholder of the
Company and upon completion of the Offering will own 42.8% of the outstanding
Common Stock (34.2% if the over-allotment option granted to the Underwriters is
exercised in full). While R.R. Donnelley in the future may reduce its ownership
interest in the Company, R.R. Donnelley has advised the Company that it has no
plans to do so. In July 1996, the Company declared a dividend of $8.0 million
paid in the form of a promissory note to R.R. Donnelley (the "Dividend Note").
A significant portion of the net proceeds of the Offering received by the
Company will be used to repay the Dividend Note and the advances owed to R.R.
Donnelley and in final payment of certain contingent obligations arising from
the acquisition of LANSystems. See "Use of Proceeds" and "Relationship with
R.R. Donnelley."

The business services currently offered by the Company were operated by R.R.
Donnelley prior to 1996 as a division known as Donnelley Business Services
("DBS"). As of January 1, 1996, R.R. Donnelley contributed the assets and
liabilities of the DBS division to LANSystems and changed its corporate name to
Donnelley Enterprise Solutions Incorporated. See "The Company."

4
<PAGE>

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by:
The Company...................... 1,855,000 shares
R.R. Donnelley................... 1,005,000 shares
----------------------
Total.......................... 2,860,000 shares
Common Stock to be outstanding
after the Offering................ 5,000,000 shares(1)
Use of net proceeds to the Company. Final payment of approximately $8.7 million
for certain contingent obligations arising
from the acquisition of LANSystems; repay-
ment of the $8.0 million aggregate princi-
pal amount of, and interest on, the Divi-
dend Note and the advances owed to R.R.
Donnelley, which advances as of June 30,
1996 totaled approximately $17.6 million,
and for general corporate purposes. The
Company estimates that the advances owed
to R.R. Donnelley will total approximately
$20.7 million as of the completion of the
Offering. See "Use of Proceeds" and "Rela-
tionship with R.R. Donnelley."
Nasdaq National Market Symbol...... DEZI
</TABLE>
- --------
(1) Excludes 400,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Incentive Plan and 1996 Broad-Based Employee Stock
Plan, including 5,000 shares of restricted Common Stock and options to
purchase 312,600 shares of Common Stock (at the initial public offering
price set forth on the cover page of this Prospectus) that the Company
expects to grant to employees in connection with the Offering. See
"Management--Stock Plans" and "Management--Employment Agreements."

5
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA

The following table summarizes selected historical consolidated financial
data of DESI. Income statement data for each of the three years in the period
ended December 31, 1995 have been derived from the audited consolidated
financial statements of DESI contained herein. Income statement data for the
six month periods ended June 30, 1995 and 1996, respectively, and balance sheet
data as of June 30, 1996 have been derived from the unaudited consolidated
financial statements of DESI contained herein. Income statement data for each
of the two years in the period ended December 31, 1992 have been derived from
unaudited information of DESI. The information set forth below should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Unaudited Pro Forma Consolidated
Financial Information" and Consolidated Financial Statements of DESI and notes
thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------- ---------------
1991 1992 1993 1994 1995(1) 1995(1) 1996(1)
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............... $13,652 $17,985 $23,527 $34,745 $65,944 $21,108 $45,243
Cost of revenues....... 11,193 14,075 18,800 27,800 53,900 18,077 35,309
------- ------- ------- ------- ------- ------- -------
Gross profit......... 2,459 3,910 4,727 6,945 12,044 3,031 9,934
Selling expenses....... 1,120 1,657 1,665 2,110 5,563 1,249 4,633
General and
administrative
expenses.............. 1,312 1,648 1,333 1,540 4,866 1,082 3,536
Amortization of
goodwill.............. -- -- -- -- 295 -- 306
------- ------- ------- ------- ------- ------- -------
Earnings from
operations.......... 27 605 1,729 3,295 1,320 700 1,459
Interest expense....... 31 87 184 283 522 230 126
------- ------- ------- ------- ------- ------- -------
Earnings (loss)
before income taxes. (4) 518 1,545 3,012 798 470 1,333
Income taxes........... 4 248 684 1,277 495 208 712
------- ------- ------- ------- ------- ------- -------
Net income (loss).... $ (8) $ 270 $ 861 $ 1,735 $ 303 $ 262 $ 621
======= ======= ======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
----------------------------
PRO FORMA
PRO AS
ACTUAL FORMA(2) ADJUSTED(3)
------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets..................................... $46,339 $55,039 $63,163
Amounts due to LANSystems earnout participants... -- 8,700 --
Debt and advances due to R.R. Donnelley.......... 17,637 25,637 --
Capital lease obligations........................ 2,483 2,483 2,483
Total shareholders' equity....................... 15,757 7,757 50,218
</TABLE>
- --------
(1) Income statement data for the year ended December 31, 1995 and the six
months ended June 30, 1996 include the results of operations of LANSystems,
which the Company acquired in June 1995, beginning July 1, 1995.
(2) Represents the issuance of the Dividend Note in the principal amount of
$8.0 million and additional goodwill in the approximate amount of $8.7
million and the related amounts due to LANSystems earnout participants
resulting from the agreement to modify certain contractual obligations
under the LANSystems acquisition agreement that provided for additional
contingent payments to former LANSystems shareholders and certain
management participants based on specified financial targets for the years
ended December 31, 1995 through 1998.
(3) Adjusts the pro forma balance sheet data to give effect to the Offering
being completed and a significant portion of the estimated net proceeds of
the Offering received by the Company being applied to repay the Dividend
Note and the advances owed to R.R. Donnelley and in final payment of
certain contingent obligations arising from the acquisition of LANSystems,
as described under "Use of Proceeds."

6
<PAGE>

SUMMARY UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME

The pro forma adjustments are based on available information and upon certain
assumptions the Company believes are reasonable. The pro forma consolidated
statements of income do not purport to represent what the Company's results of
operations would actually have been or to project the Company's results of
operations for any future period.

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
------------------- -------------------
AS AS
ACTUAL ADJUSTED(1) ACTUAL ADJUSTED(1)
------- ----------- ------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues............................... $65,944 $79,545 $45,243 $45,243
Cost of revenues....................... 53,900 64,333 35,309 34,986
------- ------- ------- -------
Gross profit....................... 12,044 15,212 9,934 10,257
Selling expenses....................... 5,563 7,918 4,633 4,633
General and administrative expenses.... 4,866 8,138 3,536 3,906
Amortization of goodwill............... 295 1,065 306 533
------- ------- ------- -------
Earnings (loss) from operations.... 1,320 (1,909) 1,459 1,185
Interest expense....................... 522 543 126 126
------- ------- ------- -------
Earnings (loss) before income
taxes............................. 798 (2,452) 1,333 1,059
Income taxes........................... 495 (470) 712 692
------- ------- ------- -------
Net income (loss).................. $ 303 $(1,982) $ 621 $ 367
======= ======= ======= =======
Pro forma net income (loss) per
share (2)......................... $ (.43) $ .08
======= =======
</TABLE>
- --------
(1) For a detailed description of the adjustments to these unaudited pro forma
consolidated statements of income, see "Unaudited Pro Forma Consolidated
Financial Information."
(2) Pro forma net income (loss) per share is computed by dividing pro forma net
income (loss) for the year ended December 31, 1995 and the six months ended
June 30, 1996 by the pro forma weighted average shares outstanding during
such periods of 4,645,000.

7
<PAGE>

RECENT UNAUDITED FINANCIAL DATA

The following table sets forth a summary of certain unaudited financial data
for the Company for the three and nine-month periods ended September 30, 1995
and 1996, respectively. The unaudited financial data set forth below includes,
in the opinion of management of the Company, all adjustments necessary to
present fairly the Company's results of operations for the periods presented.
In the opinion of management of the Company, all of these adjustments are of a
normal and recurring nature. The summary unaudited financial operating results
set forth below are not necessarily indicative of the Company's results for any
future interim period or the year ended December 31, 1996.

<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- ---------------
1995 1996 1995 1996
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues................................ $21,080 $25,780 $42,188 $71,023
Earnings (loss) before interest and
taxes.................................. (74) 1,136 625 2,596
Net income (loss)....................... (162) 474 100 1,096
</TABLE>

For the quarter ended September 30, 1996, the Company's revenues from
business services outsourcing and information technology services were $15.0
million and $10.8 million, respectively, and for the nine months then ended
were $41.6 million and $29.4 million, respectively. The unaudited financial
data for the nine-month period ended September 30, 1995 includes the results of
operations of LANSystems from July 1, 1995. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Quarterly operating
results."

The three and the nine months ended September 30, 1996 include (1) a special
charge of $300,000 related to the departure of Thomas P. Bradbury, former
President, LANSystems division, and (2) $128,000 of interest expense associated
with the Dividend Note. See "Management--Agreement with Former Executive
Officer."

8
<PAGE>

RISK FACTORS

Prospective investors should consider carefully the factors set forth below,
in addition to the other matters set forth in this Prospectus, in evaluating
an investment in the Common Stock offered hereby.

DEPENDENCE ON KEY CLIENTS

The Company's top 20 clients accounted for approximately 70.4% of the
Company's 1995 revenues, with the top two clients accounting for approximately
8.9% and 7.3% of such revenues, respectively. For the six months ended June
30, 1996, the Company's top 20 clients accounted for approximately 62.4% of
the Company's revenues, with the top two clients accounting for approximately
9.1% and 6.2% of such revenues, respectively. Of these top 20 clients in 1996,
the Company provides both business and information technology services to four
clients, business services only to 10 clients and information technology
services only to six clients. The loss of any one of the Company's major
clients could have a material adverse effect on the Company's business,
operating results or financial condition. Because recommendations from
satisfied clients are critical to the Company's success in attracting new
clients, the loss of a significant client as a result of poor performance
could have an adverse impact on the Company. See "Business--Clients" and Note
3 of Notes to Consolidated Financial Statements of DESI.

It is the Company's general policy with respect to the provision of business
services to enter into contracts with terms ranging from three to five years,
although the Company has entered into a limited number of shorter-term
contracts at the request of its clients. The Company provided business
services to 16 of its top 20 clients in 1995. Of the 16 contracts with these
clients, nine expire prior to December 31, 1997, including the contract with
the largest client, which expires in December 1996. Although most of DESI's
business services outsourcing contracts are cancellable only for cause, the
Company generally is willing to renegotiate contracts that no longer meet the
needs of its clients. Notwithstanding the fact that the Company has
successfully renewed each business services outsourcing contract that has come
up for renewal (except for one contract with a client that was acquired),
there can be no assurance that the Company will be able to renew its contracts
with its top business services clients or that any renewed contract will be on
terms as favorable to the Company as those contained in the existing contract.

DEPENDENCE ON ABILITY TO MANAGE GROWTH

DESI is continuing to experience significant growth, which has placed, and
could continue to place, a strain on the Company's managerial and other
resources. From December 1994 through June 1996, the number of the Company's
employees has increased from 505 to 875 and further increases are anticipated
during 1996. In addition, further expansion in the number of production
facilities located at its clients' offices is likely to occur, including
internationally as a result of requests from clients to serve their
international offices. The Company's future performance and profitability will
depend, in large part, on its ability to manage this growth, particularly with
respect to its decentralized workforce, which will require DESI to continue to
improve its operational, financial and other internal systems and the
training, motivation and management of its employees. If the Company is unable
to manage growth effectively or perform its services at anticipated levels,
the Company's business, financial condition or results of operations could be
adversely affected.

SENSITIVITY TO FLUCTUATIONS IN PROFESSIONAL SERVICE ECONOMY

The Company's business and results of operations are sensitive to the state
of the U.S. professional service economy, particularly as it affects the
Company's target markets. The volume of services provided by the Company
generally are lower in periods in which activities of the Company's clients
are reduced by economic or other factors. The resulting decline in the
Company's revenues from a particular client affects the Company's net income
because a large percentage of the

9
<PAGE>

Company's costs are fixed, although this effect historically has been more
than offset by a growth in revenues from other clients. In addition, clients
have imposed pricing pressures on the Company during periods in which their
activities are reduced because of their own reduced levels of profitability,
thereby adversely affecting the Company's gross margins and results of
operations. Again, these pricing pressures have been offset by a growth in
revenues and the Company's ability to attract new clients who desire to reduce
their expenses by outsourcing certain services to the Company. There can be no
assurance that the state of the U.S. professional service economy will not
adversely affect the Company's business, financial condition or results of
operations in the future or that other factors, including those cited above,
will offset any such adverse effect.

RISKS ASSOCIATED WITH PERFORMANCE OF INFORMATION TECHNOLOGY PROJECTS

Most of DESI's engagements to provide information technology services
involve projects that are critical to the operations of its clients'
businesses and that provide benefits that may be difficult to quantify. The
Company's failure or inability to meet a client's expectations in the
performance of a particular project could result in the incurrence by the
Company of a financial loss and could damage the Company's reputation and
adversely affect its ability to attract new business. The majority of the
Company's information technology projects are priced on a fixed-fee basis and
contain scope of work and acceptance criteria for identifying project
completion. Although the Company generally seeks to obtain an increase in its
fees if any significant change in the assumptions upon which the original
estimate was based leads to higher costs than anticipated, there can be no
assurance that the Company will be successful in obtaining any such increase.
See "Business--Services."

FOCUS ON LIMITED TARGET MARKETS

The Company focuses the marketing of its services primarily on large law
firms, investment banks and accounting firms, and, therefore, the number of
potential clients within the Company's target markets is limited. Within these
markets the Company faces several barriers to its ability to increase
revenues. First, the Company's success in this regard will depend, to a large
extent, on its ability to persuade firms that currently perform business
services and information technology functions of the type offered by the
Company through their own in-house departments to outsource those services and
functions to the Company. Second, the Company's success in winning outsourcing
business from those firms that currently outsource various services with
competitors of the Company may be hindered by the significant costs a firm may
incur in switching from one outsourcing service provider to another. A firm is
unlikely to switch providers unless it is not satisfied with the performance
of its provider or unless it believes it can substantially reduce its costs.
Finally, the Company's ability to increase revenues in these markets will
depend on its success in persuading clients to use the Company as their
single-source provider of a number of outsourcing and information technology
services. Because of the limited number of organizations in the Company's
target markets, the need to overcome these barriers with respect to any one
potential client is greater than it would be if the Company's target markets
were larger. No assurance can be given that the Company will be successful in
expanding its presence in its target markets or otherwise increasing its
revenues from its current clients. Although the Company anticipates expanding
its target markets to include other professional service organizations that
have similar needs to those in its current markets, such as commercial banks
and asset management companies, no assurance can be given that the Company
will be successful in this regard. See "Business--Clients" and Note 3 of Notes
to Consolidated Financial Statements of DESI.

ABILITY TO GROW THROUGH INTRODUCTION OF NEW SERVICES, INCLUDING SYSTEMS
MANAGEMENT OUTSOURCING

The Company's business strategies include growth through the introduction of
new services that expand on the Company's expertise in business services
outsourcing and information technology services. In February 1996, the Company
began providing systems management outsourcing services.

10
<PAGE>

These services combine DESI's business services outsourcing and information
technology expertise by offering systems administration, network management
and help-desk support services to clients in DESI's target markets. The
Company's systems management outsourcing services have generated minimal
revenues to date primarily from contracts that are limited in duration and
scope. The systems management outsourcing services are subject to the various
risks inherent in the start-up and development of a new service. There can be
no assurance that DESI will be able to market successfully new services, such
as the systems management outsourcing services, that it will be able to
operate any new service profitably or that the failure to perform such new
services satisfactorily would not adversely affect the Company's reputation as
a premier provider of information management services. See "Business--
Services."

DEPENDENCE ON ABILITY TO ANTICIPATE TECHNOLOGICAL ADVANCES

The success of DESI's information technology services will depend, to a
large extent, on its ability to anticipate and develop solutions that keep
pace with changes in information processing technology, evolving industry
standards and changing client preferences. Although the Company believes that
it has relationships with major vendors of information processing technology
that permit it to do so, there can be no assurance that the Company will be
successful in anticipating and addressing these developments in a timely
manner or that, if so anticipated and addressed, the Company will be
successful in the marketplace. The Company's failure to anticipate and address
these developments could have a material adverse effect on the Company's
business, financial condition or results of operations. In addition, there can
be no assurance that products or technologies developed by third parties will
not render the information technology services of the Company noncompetitive
or obsolete. See "Business--Services."

RISKS ASSOCIATED WITH INTEGRATION OF LANSYSTEMS AND GROWTH THROUGH FUTURE
ACQUISITIONS

The Company's business strategies include growth through acquisitions of
businesses that meet client and market demands for an expanded geographic
presence, new services or enhanced skills. The Company's experience of
acquiring and integrating businesses is limited to its acquisition of
LANSystems in June 1995. Although the Company believes that it has been
successful to date in integrating LANSystems into the Company's operations,
such integration is not complete and there can be no assurance that the
integration of LANSystems' business will be completed successfully or that
DESI's management will be successful in managing the combined operations. The
Company's success in executing its acquisition strategy will depend, in part,
on its ability to identify potential targets that meet the Company's criteria,
including a reputation as a leading service provider with strong client
relationships and a complementary culture. There can be no assurance that the
Company will be successful in identifying potential acquisitions or that, if
identified, the acquisitions will be consummated on acceptable terms or that
any acquired assets or business will be integrated successfully into the
Company's operations. The Company may use Common Stock or preferred stock
(which could result in dilution to the purchasers of Common Stock in the
Offering) or may incur indebtedness or use a combination of stock and
indebtedness for all or a portion of the consideration to be paid in future
acquisitions. Although the Company continuously evaluates acquisition
opportunities and has had discussions with potential acquisition candidates
from time to time, it has no current commitments or agreements with respect to
any material acquisitions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--General" and "Business--
Strategy."

VARIABILITY OF QUARTERLY RESULTS

11
<PAGE>

integrating new businesses. Although most of the Company's long-term contracts
for the provision of business services provide for pricing adjustments to
reflect the Company's actual labor, material and technology costs, these
adjustments occur annually on a historical basis and therefore may add to
fluctuations in quarterly and annual operating results of the Company.

The Company's margins on its information technology services are higher than
those associated with its business services. Accordingly, a change in the
business mix can cause a fluctuation in quarterly and annual operating results
of the Company. Revenues from business services outsourcing comprised 69.3% of
total revenues in 1995 and 58.9% for the first half of 1996 and revenues from
information technology services represented 30.7% of total revenues in 1995
and 41.1% for the first half of 1996. The decline in 1996 in percentage of
revenues represented by business services outsourcing results from the
acquisition of LANSystems in June 1995. Prior to the acquisition, the Company
had no revenues from information technology services.

The Company's revenues derived from individual business services outsourcing
contracts historically have been somewhat seasonal, with the lowest percentage
of revenues being attributed to the third quarter as a result, in part, of
reduced volumes of business services used by clients. Revenues from
information technology services are also seasonal, with the highest percentage
of revenues being attributed to the fourth quarter primarily as a result of
clients' decisions to use funds remaining in their information technology
budgets for projects delayed during the year. The Company experienced net
losses in the third quarter of 1995, resulting primarily from the Company's
expansion to the western region of the United States, new client start-ups and
from costs associated with the acquisition of LANSystems, and in the first
quarter of 1996, resulting primarily from continuing start-up expenses. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Operating Results."

NEED TO ATTRACT AND RETAIN KEY PERSONNEL IN HIGHLY COMPETITIVE MARKETPLACE

The Company's business involves the delivery of professional services and is
labor intensive. The Company's performance depends, to a large extent, on the
continued service of its key technical employees and client managers and its
ability to continue to attract, retain and motivate such personnel.
Competition for such personnel is intense, particularly for highly skilled and
experienced technical personnel who perform the Company's information
technology services. Such technical personnel are in great demand and are
likely to remain a limited resource for the foreseeable future. There can be
no assurance that the Company will be able to attract, retain and motivate
such personnel in the future, and the inability to do so could have a material
adverse effect upon the Company's business, operating results or financial
condition. See "Business--Human Resources."

COMPETITION

The Company's reprographic, facsimile and mailroom outsourcing services
compete with several large national companies, including Pitney Bowes
Management Services and Xerox Business Services, as well as several smaller
regional companies, some of whom provide only certain of such services or
focus on a particular geographic region of the United States. Competition in
the Company's target markets for other business services provided by the
Company, such as word processing, desktop publishing and imaging, is
fragmented with numerous competitors providing only certain of the services.
The Company's information technology services compete with a large number of
market participants, including management consulting firms, big six accounting
firms, systems integrators, facilities management companies and the
professional service groups of large computer manufacturers. There can be no
assurance that the Company will be able to compete successfully with its
existing competitors or with any new competitors. See "Business--Competition."

12
<PAGE>

DEPENDENCE ON SENIOR MANAGEMENT

The Company's success will depend, in part, on its ability to retain its key
executive officers, including Rhonda I. Kochlefl, Chief Executive Officer, and
Leo S. Spiegel, Chief Technology Officer, and the effective performance of
such executive officers. The Company has entered into employment agreements
with Ms. Kochlefl and Mr. Spiegel. The loss of one or more of the Company's
key executive officers could have a material adverse effect on the Company and
its prospects. See "Management--Employment Agreements."

LACK OF OPERATING HISTORY AS A STAND-ALONE ENTITY

Prior to the Offering, the Company operated as a separate business within
R.R. Donnelley and relied on R.R. Donnelley for its financing needs and for a
number of support services, including legal, tax, insurance, benefits
administration, data processing and payroll. In addition, prior to the
Offering, the Company did not have its own stand-alone capital structure,
including levels of indebtedness typically associated with a stand-alone
entity in the Company's industry, and, therefore, did not manage its own
working capital borrowings. Furthermore, prior to the Offering, the Company
relied upon the creditworthiness of R.R. Donnelley to support its financial
needs. Following the Offering, the Company will take responsibility for
providing certain of the services previously provided by R.R. Donnelley and,
in other cases, R.R. Donnelley will continue to provide services to the
Company under the intercompany agreements to be executed at the completion of
the Offering. Although the Company will establish new policies and procedures
applicable to the operation of a public company and expects to enter into a
$22.0 million credit facility prior to completion of the Offering, there can
be no assurance that following the Offering the Company will be able to manage
successfully the additional obligations of being a public company, obtain
access to credit and other financial resources at reasonable rates or arrange
for comparably priced alternative sources for the services which will be
provided to the Company by R.R. Donnelley after the completion of the
Offering. See "Unaudited Pro Forma Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Relationship with R.R. Donnelley."

FINANCIAL STATEMENT PRESENTATION

The Company's consolidated financial statements and other financial data
appearing elsewhere in this Prospectus reflect the results of operations,
financial position and cash flows of the Company on a carve-out basis and are
derived from the historical financial statements and financial data of the
Company. The financial statements have been adjusted to reflect certain
expenses and liabilities incurred by R.R. Donnelley on behalf of the Company.
The Company believes that the assumptions underlying all such adjustments are
reasonable; however, the consolidated financial statements do not necessarily
reflect the expenses and liabilities that would have been incurred by the
Company operating as a stand-alone entity. See Notes to Consolidated Financial
Statements of DESI.

PRINCIPAL STOCKHOLDER; POTENTIAL CONFLICTS OF INTEREST; POSSIBLE FUTURE SALES
OF COMMON STOCK BY R.R. DONNELLEY

Upon completion of the Offering, R.R. Donnelley will hold 42.8% of the
outstanding Common Stock (34.2% if the Underwriters exercise their
overallotment option in full). Consequently, R.R. Donnelley will be able to
significantly influence such actions as the election of directors of the
Company, the approval of matters submitted for stockholder approval or
preventing a potential takeover (even if advantageous to the other
stockholders). However, R.R. Donnelley will not have any rights or preferences
as compared to any other stockholder of the Company, other than those it may
have by reason of the number of shares of Common Stock it owns.

13
<PAGE>

A significant portion of the net proceeds of the Offering received by the
Company will be used in final payment of approximately $8.7 million for
certain contingent obligations arising from the acquisition of LANSystems and
to repay the $8.0 million aggregate principal amount of, and accrued interest
on, the Dividend Note and the advances owed to R.R. Donnelley, which advances
as of June 30, 1996 totaled approximately $17.6 million. See "Use of
Proceeds."

Currently, two of the four members of the Board of Directors of the Company
are officers of R.R. Donnelley. The Company anticipates that, following the
Offering, the Board of Directors will be increased to six members and two
additional directors who are not affiliated with R.R. Donnelley or the Company
will be elected by the Board of Directors to fill the vacancies.

Prior to the Offering, the Company obtained certain services from R.R.
Donnelley, participated in a number of employee benefit plans maintained by
R.R. Donnelley and was included as part of R.R. Donnelley's federal income and
certain other tax returns. To assure the continued provision of these services
after the completion of the Offering, the Company entered into certain
agreements with R.R. Donnelley relating to these matters. None of the
agreements entered into by the Company and R.R. Donnelley resulted from "arm's
length" negotiations. In addition, the Company did not retain separate counsel
from that retained by R.R. Donnelley in negotiating such agreements. The
Company believes, however, that the terms of such agreements are at least as
favorable to it as could be obtained from unaffiliated parties for comparable
services or arrangements. These agreements may be modified in the future and
additional arrangements or transactions may be entered into between
R.R. Donnelley and the Company. Any material modifications and any additional
agreements or transactions will be subject to review and approval by the Board
of Directors of the Company, acting pursuant to a special committee comprised
of directors not otherwise affiliated with the Company or R.R. Donnelley. The
Company intends that, insofar as a determination can be made objectively, each
future agreement or transaction between R.R. Donnelley and the Company will be
on terms at least as favorable to the Company as could be obtained from
unaffiliated parties for comparable services or arrangements. The Company and
R.R. Donnelley currently do not compete directly with one another in any
material respect, although Stream International, an approximately 80%-owned
subsidiary of R.R. Donnelley, provides system integration and help-desk
services to markets generally not targeted by the Company. There can be no
assurance that the Company and R.R. Donnelley, whether through Stream
International or otherwise, will not compete in any material respect in the
future. Any officer of R.R. Donnelley who serves as a director of the Company
may have conflicts of interest in addressing business opportunities and
strategies with respect to which the Company's and R.R. Donnelley's interests
differ. Except with respect to agreements and transactions between the Company
and R.R. Donnelley, the Company and R.R. Donnelley have not adopted any formal
procedures designed to assure that conflicts of interest will not occur or to
resolve any such conflicts that do occur. See "Relationship with R.R.
Donnelley."

Subject to the restrictions described below and to applicable law, after
completion of the Offering, R.R. Donnelley may sell any and all of the shares
of Common Stock then owned by it. No prediction can be made as to the effect,
if any, that future sales of Common Stock, or the availability of Common Stock
for future sale, will have on the market price of the Common Stock prevailing
from time to time.

14
<PAGE>

Sales of substantial amounts of Common Stock, or the perception that such
sales could occur, could adversely affect prevailing market prices for the
Common Stock and the ability of the Company to raise capital by issuing its
equity securities.

R.R. Donnelley has agreed with the Underwriters that it will not offer, sell
or contract to sell, or otherwise dispose of, directly or indirectly, or
announce an offering of, any shares of Common Stock or any securities
convertible into, or exchangeable for, shares of Common Stock for a period of
180 days from the date of this Prospectus without the prior written consent of
Salomon Brothers Inc. Although R.R. Donnelley in the future may effect sales
of Common Stock that would reduce its ownership interest in the Company, R.R.
Donnelley has advised the Company it has no plans to do so. See "Relationship
with R.R. Donnelley," "Shares Eligible for Future Sale" and "Underwriting."

ABSENCE OF PRIOR PUBLIC TRADING MARKET; DETERMINATION OF OFFERING PRICE

Prior to the Offering, there has been no public market for the Common Stock.
Although the Common Stock has been approved for quotation on the Nasdaq
National Market, there can be no assurance that an active public market will
develop for the Common Stock or that, if such a market develops, the market
price will equal or exceed the initial public offering price set forth on the
cover page of this Prospectus. For a discussion of the factors that were
considered in determining the initial public offering price, see
"Underwriting." The prices at which the Common Stock trades after the Offering
will be determined by the marketplace and may be influenced by many factors,
including, among others, the Company's operating and financial performance,
the depth and liquidity of the market for the Common Stock, future sales of
Common Stock (or the perception thereof), investor perception of the Company
and its prospects, the Company's dividend policy and general economic and
market conditions. See "Shares Eligible for Future Sale."

ANTITAKEOVER MATTERS

The Company's First Amended and Restated Certificate of Incorporation and
By-laws contain certain provisions that may delay, defer or prevent a takeover
of the Company. The Company's Board of Directors has the authority to issue up
to 1,000,000 shares of preferred stock and to determine the price, rights,
preferences and restrictions, including voting rights, of these shares,
without any further vote or action by the stockholders of the Company. The
rights of holders of Common Stock will be subject to, and may be adversely
affected by, the rights of holders of any preferred stock that may be issued
in the future. The First Amended and Restated Certificate of Incorporation
also provides for a classified board of directors, with three classes of
directors, each class being elected for three-year, staggered terms, prohibits
the removal of directors except for "cause" and prohibits stockholder action
by written consent (unless R.R. Donnelley holds 50% or more of the issued and
outstanding Common Stock). In addition, the Company's By-laws include
provisions establishing advance notice procedures with respect to stockholder
proposals and director nominations and permits the calling of special
stockholder meetings only by the Board of Directors, the Chairman or the
President. The Company has elected not to be governed by Section 203 of the
General Corporation Law of the State of Delaware, which, if applicable, would
impose a three-year moratorium on certain business combinations between the
Company and an "interested stockholder" (in general, a stockholder owning 15%
or more of the Company's outstanding voting stock). See "Description of
Capital Stock and Corporate Charter."

DILUTION

The purchasers of the shares of Common Stock offered hereby will experience
an estimated immediate dilution of $19.10 per share. The per share purchase
price of the Common Stock offered hereby will exceed the net tangible book
value per share of the Common Stock immediately following the Offering. See
"Dilution." The net tangible assets of the Company as of June 30, 1996
represent approximately 74% of the Company's total assets, which include a
significant amount of goodwill. See "Dilution."

15
<PAGE>

THE COMPANY

R.R. Donnelley began offering reprographic services in 1988 through a
division known as Donnelley Business Services ("DBS"). In 1993, DBS expanded
its outsourcing service offerings to include word processing, desktop
publishing and imaging services. In 1995, DBS broadened its capabilities from
managing paper-based information to include the management of electronic
information through the acquisition of LANSystems, a provider of information
technology services primarily to firms within the same markets targeted by
DBS. As of January 1, 1996, R.R. Donnelley contributed the assets and
liabilities of DBS to LANSystems and changed LANSystems' corporate name to
Donnelley Enterprise Solutions Incorporated (the "Company" or "DESI").
LANSystems was incorporated in Delaware in 1989 as a successor to a business
started in 1983.

The Company's executive offices are located at 161 North Clark Street, Suite
2400, Chicago, Illinois 60601, and its telephone number is (312) 419-7600. The
Company's internet address is http://www.desi.net.

USE OF PROCEEDS

The net proceeds to the Company in the Offering are estimated to be
approximately $42.5 million, after deducting the underwriting discount and
estimated offering expenses payable by the Company. A significant portion of
the net proceeds to the Company will be used, first, in final payment of
approximately $8.7 million for certain contingent obligations to former
shareholders of LANSystems and management participants arising from the
acquisition of LANSystems and, second, to repay amounts owed by the Company to
R.R. Donnelley, which amounts are comprised of: (i) the Dividend Note, in the
principal amount of $8.0 million, which bears interest at the prime rate
payable quarterly and becomes immediately due and payable upon the completion
of the Offering; and (ii) intercompany obligations to R.R. Donnelley, which
consist primarily of operating advances that are payable on demand and do not
bear interest (approximately $17.6 million as of June 30, 1996). The Company
estimates that advances payable to R.R. Donnelley will total approximately
$20.7 million as of the completion of the Offering. Leo S. Spiegel, Senior
Vice President and Chief Technology Officer of the Company, and Thomas P.
Bradbury, former President, LANSystems division, will receive $1,386,600 and
$1,143,827, respectively, of the payments to be made to former shareholders of
LANSystems and management participants. The remaining net proceeds received by
the Company in the Offering (approximately $5.0 million) will be used for
general corporate purposes, including for working capital or acquisitions.
Pending such uses, such net proceeds may be invested in short-term,
investment-grade interest-bearing securities. See Notes 4 and 11 of Notes to
Consolidated Financial Statements of DESI. The Company expects to enter into
the $22.0 million credit facility described in "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" prior to completion of the Offering. Such facility would be
used to provide working capital and for general corporate purposes.

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

16
<PAGE>

CAPITALIZATION

The following table sets forth the actual short-term debt and advances and
total capitalization of the Company as of June 30, 1996 and, as of June 30,
1996 (i) after giving effect to the issuance of the Dividend Note in the
principal amount of $8.0 million and to reflect approximately $8.7 million due
to LANSystems earnout participants resulting from the agreement to modify
certain contractual obligations under the LANSystems acquisition agreement
that provided for additional contingent payments to former LANSystems
shareholders and certain management participants based on specified financial
targets for the years ended December 31, 1995 through 1998, and (ii) pro forma
as adjusted to give effect to the issuance and sale of 1,855,000 shares of
Common Stock offered by the Company hereby and the application of a
significant portion of the estimated net proceeds to the Company from the
Offering in final payment of approximately $8.7 million for the contingent
obligations described in clause (i) above and to repay the Dividend Note and
the advances owed to R.R. Donnelley. See "Use of Proceeds." This table should
be read in conjunction with the Consolidated Financial Statements of DESI and
the Unaudited Pro Forma Consolidated Financial Information and the related
notes thereto appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------
PRO FORMA
PRO AS
ACTUAL FORMA(1) ADJUSTED
------- -------- ---------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C> <C>
Short-term debt and advances:
Amounts due to LANSystems earnout
participants............................... $ -- $ 8,700 $ --
Dividend Note due to R.R. Donnelley......... -- 8,000 --
Advances due to R.R. Donnelley.............. 17,637 17,637 --
Current portion of capital lease
obligations................................ 1,169 1,169 1,169
------- ------- -------
Total short-term debt..................... $18,806 $35,506 $ 1,169
======= ======= =======
Long-term capital lease obligations........... $ 1,314 $ 1,314 $ 1,314
Shareholders' equity:
Common Stock--$.01 par value, 15,000,000
shares authorized; 3,145,000 issued and
outstanding and 5,000,000 shares issued and
outstanding, as adjusted(2)................ 31 31 50
Additional paid-in capital.................. 15,726 7,726 50,168
------- ------- -------
Total shareholders' equity................ 15,757 7,757 50,218
------- ------- -------
Total capitalization...................... $17,071 $ 9,071 $51,532
======= ======= =======
</TABLE>
- --------
(1) After giving pro forma effect to the issuance of the Dividend Note and the
agreement to modify certain contractual obligations under the LANSystems
acquisition agreement that provided for additional contingent payments to
former LANSystems shareholders and certain management participants based
on specified financial targets for the years ended December 31, 1995
through 1998.
(2) Excludes 400,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Incentive Plan and 1996 Broad-Based Employee Stock
Plan, including 5,000 shares of restricted Common Stock and options to
purchase 312,600 shares of Common Stock (at the initial public offering
price set forth on the cover page of this Prospectus) that the Company
expects to grant to employees in connection with the Offering. See
"Management--Stock Plans" and "Management--Employment Agreements."

17
<PAGE>

DIVIDEND POLICY

The Company currently intends to retain earnings to finance the growth of
its business and therefore does not intend to pay any cash dividends for the
foreseeable future. Payment of any cash dividends in the future will depend on
the Company's results of operations, financial condition, cash requirements
and other factors deemed relevant by the Board of Directors of the Company. In
addition, the credit facility the Company expects to enter into prior to
completion of the Offering will contain restrictions on the Company's payment
of cash dividends. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." The
Company has not paid any dividends in the last two fiscal years. The Company
declared and paid a cash dividend of $621,000 as of June 30, 1996, and, in
July 1996, declared a dividend of $8.0 million paid in the form of the
Dividend Note.

DILUTION

The net tangible book value of the Company as of June 30, 1996 was $3.8
million, or $1.19 per share of Common Stock. See "Capitalization." Net
tangible book value per share is equal to the Company's total tangible assets
less total liabilities, divided by the total number of shares of Common Stock
outstanding. After giving effect to the sale of the 1,855,000 shares of Common
Stock offered by the Company hereby (less the underwriting discount and
estimated offering expenses payable by the Company) and the application of the
net proceeds therefrom as if such sale and application occurred on June 30,
1996, the pro forma as adjusted net tangible book value of the Company at such
date would have been approximately $29.5 million or $5.90 per share. This
represents an immediate increase in net tangible book value of $4.71 per share
to R.R. Donnelley and an immediate dilution of $19.10 per share to the
purchasers of shares of Common Stock in the Offering. "Dilution" per share is
determined by subtracting pro forma net tangible book value per share from the
amount paid for a share of Common Stock in the Offering. The following table
illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share...................... $25.00
Net tangible book value per share before the Offering...... 1.19
Increase in net tangible book value per share attributable
to the Offering........................................... 4.71
----
Pro forma net tangible book value per share after giving
effect to the Offering...................................... 5.90
------
Dilution per share to purchasers of Common Stock in the
Offering.................................................... $19.10
======
</TABLE>

18
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected historical and pro forma
consolidated financial data of DESI. Income statement data for each of the
three years in the period ended December 31, 1995 and balance sheet data as of
December 31, 1994 and 1995 have been derived from the audited consolidated
financial statements of DESI contained herein. Income statement data for the
six month periods ended June 30, 1995 and 1996, respectively, and balance
sheet data as of June 30, 1996 have been derived from the unaudited
consolidated financial statements of DESI contained herein. Income statement
data for each of the two years in the period ended December 31, 1992 and
balance sheet data as of December 31, 1991, 1992 and 1993 have been derived
from unaudited information of DESI. The unaudited financial data includes all
adjustments that the Company considers necessary for a fair presentation of
the consolidated financial position and results of operations for the periods
reflected therein. The pro forma consolidated financial information set forth
below includes adjustments based on available information and upon certain
assumptions the Company believes are reasonable. The pro forma consolidated
financial information set forth below does not purport to represent what the
Company's consolidated results of operations or financial position would
actually have been or to project the Company's consolidated results of
operations or financial position for any future period. The information set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Unaudited Pro
Forma Consolidated Financial Information" and Consolidated Financial
Statements of DESI and notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------------------- -------------------------
PRO FORMA PRO FORMA
AS AS
ACTUAL ADJUSTED ACTUAL ADJUSTED
---------------------------------------- --------- --------------- ---------
1991 1992 1993 1994 1995(1) 1995(2) 1995(1) 1996(1) 1996(2)
------- ------- ------- ------- ------- --------- ------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Revenues............... $13,652 $17,985 $23,527 $34,745 $65,944 $79,545 $21,108 $45,243 $45,243
Cost of revenues....... 11,193 14,075 18,800 27,800 53,900 64,333 18,077 35,309 34,986
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit......... 2,459 3,910 4,727 6,945 12,044 15,212 3,031 9,934 10,257
Selling expenses....... 1,120 1,657 1,665 2,110 5,563 7,918 1,249 4,633 4,633
General and
administrative
expenses.............. 1,312 1,648 1,333 1,540 4,866 8,138 1,082 3,536 3,906
Amortization of
goodwill.............. -- -- -- -- 295 1,065 -- 306 533
------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings from
operations.......... 27 605 1,729 3,295 1,320 (1,909) 700 1,459 1,185
Interest expense....... 31 87 184 283 522 543 230 126 126
------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss)
before income taxes. (4) 518 1,545 3,012 798 (2,452) 470 1,333 1,059
Income taxes........... 4 248 684 1,277 495 (470) 208 712 692
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).... $ (8) $ 270 $ 861 $ 1,735 $ 303 $(1,982) $ 262 $ 621 $ 367
======= ======= ======= ======= ======= ======= ======= ======= =======
Pro forma net income
(loss) per share(3)... $ (.43) $ .08
======= =======
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, JUNE 30, 1996
-------------------------------------- ----------------------------------
ACTUAL PRO FORMA
-------------------------------------- AS
1991 1992 1993 1994 1995 ACTUAL PRO FORMA (4) ADJUSTED(5)
------ ------ ------ ------ ------- ------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT
END OF PERIODS):
Total assets........... $2,236 $4,758 $6,826 $9,813 $39,696 $46,339 $55,039 $63,163
Amounts due (to)
LANSystems earnout
participants.......... -- -- -- -- -- -- (8,700) --
Debt and advances due
(to) from
R.R. Donnelley........ 492 (1,450) (2,181) (191) (4,672) (17,637) (25,637) --
Capital lease
obligations........... 687 1,203 2,672 3,845 3,125 2,483 2,483 2,483
Total shareholders'
equity(6)............. -- -- -- -- 15,757 15,757 7,757 50,218
</TABLE>
- -------
(1) Income statement data for the year ended December 31, 1995 and the six
months ended June 30, 1996 includes the results of operations of
LANSystems, which the Company acquired in June 1995, beginning July 1,
1995.

19
<PAGE>

(2) For a detailed description of the adjustments to these unaudited pro forma
consolidated statements of income, see "Unaudited Pro Forma Consolidated
Financial Information."
(3) Pro forma net income (loss) per share is computed by dividing pro forma
net income (loss) for the year ended December 31, 1995 and the six months
ended June 30, 1996 by the pro forma weighted shares outstanding during
such periods of 4,645,000.
(4) Represents the issuance of the Dividend Note in the principal amount of
$8.0 million and additional goodwill in the approximate amount of $8.7
million and the related amounts due to LANSystems earnout participants
resulting from the agreement to modify certain contractual obligations
under the LANSystems acquisition agreement that provided for additional
contingent payments to former LANSystems shareholders and certain
management participants based on specified financial targets for the years
ended December 31, 1995 through 1998.
(5) Adjusts the pro forma balance sheet data to give effect to the Offering
being completed and a significant portion of the estimated net proceeds of
the Offering received by the Company being applied to repay the Dividend
Note and the advances owed to R.R. Donnelley and in final payment of
certain contingent obligations arising from the acquisition of LANSystems,
as described under "Use of Proceeds."
(6) No shareholders' equity is shown as of the periods ended December 31, 1991
through 1994 because the Company was operated as a division of R.R.
Donnelley during such periods.

20
<PAGE>

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The unaudited pro forma consolidated statements of income for the year ended
December 31, 1995 and the six months ended June 30, 1996 set forth below
illustrate: (i) the effects of the historical results of operations (under the
Company's accounting policies) of LANSystems for the period from January 1,
1995 to June 21, 1995, the date on which LANSystems was acquired by the
Company; and (ii) the Offering being completed and a significant portion of
the estimated net proceeds received by the Company therefrom being used in
final payment of approximately $8.7 million for certain contingent obligations
arising from the acquisition of LANSystems and to repay the Dividend Note and
the advances owed to R.R. Donnelley at January 1, 1995. In addition, the pro
forma statements of income illustrate the estimated net operating effects
resulting from the Company being a public entity, which include pricing of
certain services the Company will receive from R.R. Donnelley after the
Offering under certain intercompany agreements, as well as other incremental
public company expenses. The pro forma adjustments are based on available
information and upon certain assumptions the Company believes are reasonable.
The pro forma consolidated statements of income do not purport to represent
what the Company's consolidated results of operations would actually have been
or to project the Company's consolidated results of operations for any future
period.

The unaudited pro forma consolidated balance sheet as of June 30, 1996 set
forth below illustrates the issuance of the Dividend Note in the principal
amount of $8.0 million and additional goodwill in the approximate amount of
$8.7 million and the related amounts due to LANSystems earnout participants
resulting from the agreement to modify certain contractual obligations under
the LANSystems acquisition agreement that provided for additional contingent
payments to former LANSystems shareholders and certain management participants
based on specified financial targets for the years ended December 31, 1995
through 1998. The unaudited pro forma as adjusted consolidated balance sheet
as of June 30, 1996 set forth below illustrates the Offering being completed
and a significant portion of the estimated net proceeds received by the
Company therefrom being applied as described under "Use of Proceeds." The pro
forma consolidated balance sheet does not purport to represent what the
Company's consolidated financial position would actually have been or to
project the Company's consolidated financial position for any future date.

21
<PAGE>

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------
LANSYSTEMS OPERATING
OPERATING STRUCTURE AS
ACTUAL ADJUSTMENTS(1) ADJUSTMENTS(2) OTHER ADJUSTED
------- -------------- -------------- ----- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues................ $65,944 $13,601 $ -- $ -- $79,545
Cost of revenues........ 53,900 10,436 (3) -- 64,333
------- ------- ------ ----- -------
Gross profit......... 12,044 3,165 3 -- 15,212
Selling expenses........ 5,563 2,355 -- -- 7,918
General and
administrative
expenses............... 4,866 2,230 1,042 -- 8,138
Amortization of
goodwill............... 295 -- -- 770(3) 1,065
------- ------- ------ ----- -------
Earnings (loss) from
operations.......... 1,320 (1,420) (1,039) (770) (1,909)
Interest expense........ 522 21 -- -- 543
------- ------- ------ ----- -------
Earnings (loss)
before income taxes. 798 (1,441) (1,039) (770) (2,452)
Income taxes............ 495 (534) (431)(4) -- (470)
------- ------- ------ ----- -------
Net income (loss).... $ 303 $ (907) $ (608) $(770) $(1,982)
======= ======= ====== ===== =======
Pro forma net loss
per share........... $ (.43)(5)
=======
</TABLE>
- --------
(1) Represents the historical results of operations (under the Company's
accounting policies) of LANSystems for the period from January 1, 1995 to
June 21, 1995, the date on which LANSystems was acquired by the Company.
(2) Represents the estimated adjustments necessary to reflect the status of
the Company as an independent public company, such as legal, insurance,
accounting and tax compliance and benefits administration expenses.
(3) Represents the increase in the amortization of goodwill based on total
goodwill of $21,300,000 amortized over a useful life of 20 years. The
increase represents the assumptions that (a) the LANSystems acquisition
occurred on January 1, 1995 and (b) the increases to goodwill after the
acquisition relating to the 1995 earnout of $794,000 and the agreement in
1996 to modify certain contractual obligations under the LANSystems
acquisition agreement for $8,700,000 occurred on January 1, 1995. See
Notes 10 and 11 of Notes to Consolidated Financial Statements of DESI.
(4) Taxes are provided on income at the appropriate statutory rate of 41.5%,
the combined statutory federal and state rate on operating and capital
structure adjustments.
(5) Pro forma net income per share is based on 4,645,000 weighted average
shares of Common Stock outstanding, which includes 3,145,000 actual
weighted average shares outstanding and 1,500,000 weighted average shares
assumed to be outstanding. The 1,500,000 shares assumed to be outstanding
are equivalent to the number of shares that must be sold at the initial
public offering price of $25.00 per share in order to generate proceeds
equivalent to the principal amount of the Dividend Note of $8,000,000, the
advances owed to R.R. Donnelley of $17,637,000 and the amounts due to
LANSystems earnout participants of $8,700,000.

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
----------------------------------------
OPERATING
STRUCTURE AS
ACTUAL ADJUSTMENTS(1) OTHER ADJUSTED
------- -------------- ----- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues............................ $45,243 $ -- $ -- $45,243
Cost of revenues.................... 35,309 (323) -- 34,986
------- ----- ----- -------
Gross profit..................... 9,934 323 -- 10,257
Selling expenses.................... 4,633 -- -- 4,633
General and administrative expenses. 3,536 370 -- 3,906
Amortization of goodwill............ 306 -- 227(2) 533
------- ----- ----- -------
Earnings from operations......... 1,459 (47) (227) 1,185
Interest expense.................... 126 -- -- 126
------- ----- ----- -------
Earnings before income taxes..... 1,333 (47) (227) 1,059
Income taxes........................ 712 (20)(3) -- 692
------- ----- ----- -------
Net income....................... $ 621 $ (27) $(227) $ 367
======= ===== ===== =======
Pro forma net income per share... $ .08(4)
=======
</TABLE>
- --------
(1) Represents the estimated adjustments necessary to reflect the status of
the Company as an independent public company, such as legal, insurance,
accounting and tax compliance and benefits administration expenses.
(2) Represents the increase in the amortization of goodwill based on total
goodwill of $21,300,000 amortized over a useful life of 20 years. The
increase represents the assumption that the increases to goodwill after
the acquisition relating to the 1995 earnout of $794,000 and the agreement
in 1996 to modify certain contractual obligations under the LANSystems
acquisition agreement for $8,700,000 occurred on January 1, 1995. See
Notes 10 and 11 of Notes to Consolidated Financial Statements of DESI.
(3) Taxes are provided on income at the appropriate statutory rate of 41.5%,
the combined statutory federal and state rate on operating and capital
structure adjustments.
(4) Pro forma net income per share is based on 4,645,000 weighted average
shares of Common Stock outstanding, which includes 3,145,000 actual
weighted average shares outstanding and 1,500,000 weighted average shares
assumed to be outstanding. The 1,500,000 shares assumed to be outstanding
are equivalent to the number of shares that must be sold at the initial
public offering price of $25.00 per share in order to generate proceeds
equivalent to the principal amount of the Dividend Note of $8,000,000, the
advances owed to R.R. Donnelley of $17,637,000 and the amounts due to
LANSystems earnout participants of $8,700,000.

22
<PAGE>

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-----------------------------------------------------------------------
DIVIDEND
NOTE AND
LANSYSTEMS
EARNOUT PRO PRO FORMA
ACTUAL OBLIGATION FORMA OFFERING(4) REPAYMENTS(5) AS ADJUSTED
------- ---------- ------- ----------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash.................... $ 298 $ -- $ 298 $42,461 $(34,337) $ 8,422
Accounts receivable(1).. 11,229 -- 11,229 -- -- 11,229
Unbilled receivables.... 5,660 -- 5,660 -- -- 5,660
Inventory............... 4,451 -- 4,451 -- -- 4,451
Prepaid expenses and
other current assets... 466 -- 466 -- -- 466
Income tax receivable... 1,277 -- 1,277 -- -- 1,277
Deferred income taxes... 978 -- 978 -- -- 978
------- ------- ------- ------- -------- -------
Total current assets... 24,359 -- 24,359 42,461 (34,337) 32,483
Property and equipment,
net, at cost........... 9,129 -- 9,129 -- -- 9,129
Deferred income taxes... 791 -- 791 -- -- 791
Goodwill, net........... 11,999 8,700 (2) 20,699 -- -- 20,699
Other noncurrent assets. 61 -- 61 -- -- 61
------- ------- ------- ------- -------- -------
Total assets........... $46,339 $ 8,700 $55,039 $42,461 $(34,337) $63,163
======= ======= ======= ======= ======== =======
LIABILITIES AND
SHAREHOLDERS' EQUITY
Capital lease
obligations, current
portion................ $ 1,169 $ -- $ 1,169 $ -- $ -- $ 1,169
Amounts due to
LANSystems earnout
participants........... -- 8,700 (2) 8,700 -- (8,700) --
Dividend Note........... -- 8,000 (3) 8,000 -- (8,000) --
Advances due to R.R.
Donnelley.............. 17,637 -- 17,637 -- (17,637) --
Accounts payable........ 5,430 -- 5,430 -- -- 5,430
Accrued expenses........ 3,486 -- 3,486 -- -- 3,486
Customer prepayments and
deferred revenues...... 1,546 -- 1,546 -- -- 1,546
------- ------- ------- ------- -------- -------
Total current
liabilities........... 29,268 16,700 45,968 -- (34,337) 11,631
Capital lease
obligations............ 1,314 -- 1,314 -- -- 1,314
------- ------- ------- ------- -------- -------
Total noncurrent
liabilities........... 1,314 -- 1,314 -- -- 1,314
Common Stock--DESI...... 31 -- 31 19 -- 50
Additional paid-in
capital................ 15,726 (8,000)(3) 7,726 42,442 -- 50,168
Retained earnings....... -- -- -- -- -- --
------- ------- ------- ------- -------- -------
Total shareholders'
equity................ 15,757 (8,000) 7,757 42,461 -- 50,218
------- ------- ------- ------- -------- -------
Total liabilities and
shareholders' equity.. $46,339 $ 8,700 $55,039 $42,461 $(34,337) $63,163
======= ======= ======= ======= ======== =======
</TABLE>
- --------
(1) Excludes $6,800,000 of receivables factored to a subsidiary of R.R.
Donnelley that remain uncollected. The arrangement pursuant to which the
Company sold such receivables to a subsidiary of R.R. Donnelley will
terminate upon completion of the Offering. The Company expects to replace
this source of financing with cash flows from operations and the credit
facility described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
(2) Represents additional goodwill and the related amounts due to LANSystems
earnout participants resulting from the agreement to modify certain
contractual obligations under the LANSystems acquisition agreement that
provided for additional contingent payments to former LANSystems
shareholders and certain management participants based on specified
financial targets for the years ended December 31, 1995 through 1998.
(3) Represents the issuance of the Dividend Note by the Company to R.R.
Donnelley.
(4) Represents the estimated net proceeds of the Offering. See "Use of
Proceeds."
(5) Represents the payment of the principal amount of the Dividend Note of
$8,000,000, the payment of advances owed to R.R. Donnelley of $17,637,000
and the payment of amounts due to LANSystems earnout participants of
$8,700,000.

23
<PAGE>

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

GENERAL

Overview

Donnelley Enterprise Solutions Incorporated is a single-source provider of
integrated information management services to professional service
organizations, primarily large law firms, investment banks and accounting
firms. DESI offers its clients the opportunity to focus on their core
businesses by outsourcing a variety of functions, including business services
and information technology services. The Company has experienced substantial
growth by expanding its service offerings, adding new clients, increasing
business with its existing clients and capitalizing on the growing trend
toward outsourcing. In 1995, the Company had revenues of $45.7 million from
business services outsourcing and $20.2 million from information technology
services, representing six months of operations since the June 1995
acquisition of LANSystems. In the first six months of 1996, the Company's
revenues from business services outsourcing and information technology
services were $26.6 million and $18.6 million, respectively.

DESI commenced its outsourcing operations in 1988 as a provider of
reprographic services and has expanded its service offerings to include
networked and color printing, mailroom and facsimile services, word
processing, desktop publishing and imaging. In June 1995, the Company
broadened its capabilities from managing paper-based information to include
the management of electronic information through the acquisition of
LANSystems, which has provided information technology services since 1983,
including systems integration, consulting and software development. Beginning
in February 1996, the Company began providing systems management outsourcing
services.

For the year ended December 31, 1993, the Company had three clients that
accounted for greater than 10.0% of revenues and, in the aggregate, for
approximately 50.0% of revenues. For the year ended December 31, 1994, one
client accounted for approximately 15.0% of DESI's revenues. For the year
ended December 31, 1995, revenues from the Company's top 20 clients accounted
for 70.4% of revenues, with revenues from the top two clients accounting for
8.9% and 7.3%, respectively. For the six months ended June 30, 1996, the
Company's top 20 clients accounted for approximately 62.4% of the Company's
revenues, with the top two clients accounting for approximately 9.1% and 6.2%
of such revenues, respectively. The Company provided business services to 16
of its top 20 clients for 1995. Nine of the contracts with these clients
expire prior to December 31, 1997, including the contract with the largest
client, which expires in December 1996. Although most of the Company's
business outsourcing contracts are cancellable only for cause, DESI is
generally willing to renegotiate contracts that no longer meet the needs of
its clients.

The Company's revenues are derived primarily from (i) monthly fees under its
business services outsourcing contracts, (ii) fees that are contingent on the
completion of information technology projects, (iii) the resale of hardware or
software products and the provision of subcontracted labor in connection with
the delivery of information technology services and (iv) monthly fees under
information technology maintenance contracts. The Company typically enters
into contracts with its business services clients that have terms ranging from
three to five years. These contracts typically provide for monthly minimum
payments based on the client's historical volumes. Substantially all of the
Company's business services outsourcing contracts are priced on a per unit
basis for each service provided and allow annual increases or decreases of the
unit costs for each of the outsourcing services provided in order to reflect
actual costs of labor and supplies. The majority of the Company's information
technology projects are priced on a fixed-fee basis, although some work is
contracted on a time-and-materials basis. Contracts for information technology
projects typically include scope of work and acceptance criteria for
identifying project completion. The Company typically seeks to obtain an
increase in its fees if a client makes any significant change to the original
scope of a project. Payment terms for these contracts include a down payment,
and invoices are submitted in accordance with the achievement of negotiated
milestones or dates during the projects.

24
<PAGE>

Approximately one-half of the revenues associated with a typical information
technology project are from the resale of hardware or software products. The
Company generally provides such products and labor only as an accommodation to
its clients as required for particular projects. The Company's maintenance
contracts are priced on an annual basis with payments made in advance. The
Company intends to enter into systems management contracts with multi-year
terms, which will be invoiced on a monthly basis.

DESI's cost of revenues associated with business services outsourcing
revenues are comprised of wages, supplies, start-up costs and costs associated
with capital leases of equipment. DESI's cost of revenues associated with its
information technology services are comprised of computer equipment and
software, labor costs, an overhead allocation and purchasing expenses. The
Company's margins on its information technology services are higher than those
associated with its business services. The Company typically enjoys higher
margins on its newer business service offerings (word processing, desktop
publishing and imaging) after an initial start-up period than on its other
document services. These relatively higher margins, however, tend to decline
as competition increases. The Company's margins on resold products are lower
than those for business and information technology services.

DESI's selling expenses are comprised of sales and administrative salaries,
commissions, travel and entertainment and an overhead allocation related to
branch sales offices. Selling expenses as a percentage of revenues for
information technology services are significantly higher than for business
outsourcing services due to the long-term nature of DESI's business
outsourcing contracts.

DESI's research and development activities, the costs of which are included
in general and administrative expenses, consist of software and hardware
product evaluation, trial integration of purchased hardware and software, user
productivity benchmarking and the development of custom integration software.

The Company's results of operations are sensitive to the state of the U.S.
professional service economy, particularly as it affects the Company's target
markets. The volume of services provided by the Company generally are lower in
periods in which activities of the Company's clients are reduced by economic
or other factors. The resulting decline in the Company's revenues from a
particular client affects the Company's net income because a large percentage
of the Company's costs are fixed, although this effect historically has been
more than offset by a growth in revenues from other clients. In addition,
clients have imposed pricing pressures on the Company during periods in which
their activities are reduced because of their own reduced levels of
profitability, thereby adversely affecting the Company's gross margins and
results of operations. Again, these pricing pressures have been offset by a
growth in revenues and the Company's ability to attract new clients who desire
to reduce their expenses by outsourcing certain services to the Company.

Relationship with R.R. Donnelley

DESI has operated as a separate business within R.R. Donnelley. It has
relied on R.R. Donnelley for its financing needs (see further discussion under
"--Liquidity and Capital Resources") and for a number of support services,
including legal, tax, insurance, benefits administration, data processing and
payroll.

As of June 30, 1996, the Company had advances payable to R.R. Donnelley
totaling approximately $17.6 million. The Company estimates that advances
payable to R.R. Donnelley will total approximately $20.7 million as of the
completion of the Offering. The advances payable to R.R. Donnelley were used
to fund operating and investing activities, net of cash advanced to R.R.
Donnelley from operating cash flows generated by the Company and receivables
resulting from certain sales through a subsidiary of R.R. Donnelley. See Note
4 of Notes to the Consolidated Financial Statements of DESI. In July 1996, the
Company declared a dividend of $8.0 million, payable to R.R. Donnelley as the
sole stockholder in the form of the Dividend Note, which is payable upon
demand or the completion of the Offering and bears interest at the prime rate
payable quarterly. A significant portion of the net proceeds received by the
Company from the Offering will be used to repay the aggregate principal amount
of, and interest on, the Dividend Note and such advances and in final payment
of approximately $8.7 million for certain contingent obligations arising from
the acquisition of LANSystems.

25
<PAGE>

The consolidated financial statements discussed below reflect the results of
operations, financial position and cash flows of the Company on a carve-out
basis; that is, the financial statements have been adjusted to reflect certain
expenses and liabilities incurred by R.R. Donnelley on behalf of the Company.
The Company believes that the assumptions underlying all such adjustments are
reasonable; however, the consolidated financial statements do not necessarily
reflect the results of operations, financial position and cash flows of the
Company had the Company operated as a separate entity during the periods
presented. Income taxes reflected in the consolidated financial statements
were determined as if the Company had filed a separate return.

Acquisition of LANSystems

LANSystems was acquired on June 21, 1995 for cash of approximately $16.6
million and certain contingent payment obligations ("earnout"). The
acquisition was accounted for as a purchase, with the excess of the purchase
price over the fair market value of net assets acquired being allocated to
goodwill in the amount of approximately $11.8 million. The goodwill is being
amortized over its estimated useful life of 20 years. LANSystems was acquired
by R.R. Donnelley and, as such, the Company was not required to provide cash
for the acquisition. The earnout provisions provided for contingent payments
of up to $12.9 million payable to former LANSystems shareholders and
management participants based on the achievement of specified financial
targets for the years ended December 31, 1995 through 1998. Payments
aggregating approximately $0.9 million have been made to date in respect of
the earnout. Because immediate payment of the maximum remaining earnout would
be triggered by completion of the Offering in 1996, R.R. Donnelley and DESI
sought to modify the earnout. Earnout participants having the right to
approximately 99% of the earnout have agreed to a modification pursuant to
which they will be entitled to payment on the earlier of completion of the
Offering or October 31, 1996 of approximately $8.7 million in final
satisfaction of the earnout payments due to them under the acquisition
agreement. Earnout participants who have not agreed, and who do not
subsequently agree, to this modification will be entitled to receive the
maximum remaining amount of the earnout, aggregating approximately $100,000,
upon completion of the Offering. Payments made to the earnout participants
will be treated as additional purchase price for LANSystems, resulting in an
increase in goodwill of approximately $8.7 million, which will be amortized
over the remaining useful life (approximately 19 years). See "Unaudited Pro
Forma Consolidated Financial Information."

RESULTS OF OPERATIONS

The following table sets forth certain items from the Company's consolidated
statements of income as a percentage of revenues for the periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
--------------------- ---------------
1993 1994 1995(1) 1995(1) 1996(1)
----- ----- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues
Business services outsourcing........... 100.0% 100.0% 69.3% 100.0% 58.9%
Information technology.................. -- -- 30.7 -- 41.1
----- ----- ----- ----- -----
Total revenues........................ 100.0 100.0 100.0 100.0 100.0
Cost of revenues.......................... 79.9 80.0 81.7 85.6 78.0
----- ----- ----- ----- -----
Gross profit.......................... 20.1 20.0 18.3 14.4 22.0
Selling expenses.......................... 7.1 6.1 8.4 5.9 10.3
General and administrative expenses....... 5.7 4.4 7.4 5.1 7.8
Amortization of goodwill.................. -- -- 0.5 -- 0.7
----- ----- ----- ----- -----
Earnings from operations.............. 7.3 9.5 2.0 3.4 3.2
Interest expense.......................... 0.8 0.8 0.8 1.1 0.3
----- ----- ----- ----- -----
Earnings before income taxes.......... 6.5 8.7 1.2 2.3 2.9
Income taxes.............................. 2.9 3.7 0.7 1.0 1.5
----- ----- ----- ----- -----
Net income............................ 3.6% 5.0% 0.5% 1.3% 1.4%
===== ===== ===== ===== =====
</TABLE>
- --------
(1) The results of operations of LANSystems are included in DESI's
consolidated statements of income since July 1, 1995.

26
<PAGE>

Six months ended June 30, 1996 compared to six months ended June 30, 1995

Revenues for the six months ended June 30, 1996 totaled $45.2 million, a
114.3% increase over 1995 revenues of $21.1 million. This $24.1 million
increase was comprised of a $5.5 million, or 26.0%, increase in business
services outsourcing revenues and $18.6 million in information technology
services revenues attributable to the June 1995 acquisition of LANSystems.
Business services outsourcing growth was due to a $2.1 million increase in
revenues from new clients and a $3.4 million increase in revenues from
existing clients. Revenues from information technology services for the first
six months of 1996 were comprised of $9.3 million from the resale of hardware
and software products and $9.3 million from services.

Cost of revenues of $35.3 million decreased as a percentage of revenues to
78.0% from 85.6% in 1995 because of the inclusion of LANSystems, which has a
lower cost of revenues as a percentage of revenues, improved margins
associated with business services outsourcing revenues relating to client
sites that were opened in 1995 and implementation of a cost-management plan to
improve the business services cost structure. The cost-management plan
included the controlled reduction of staff at certain client sites and the
discontinuance of the Company's participation in the R.R. Donnelley retiree
medical and group life and pension benefits program effective May 1, 1996.

Selling expenses increased $3.4 million, or 270.9%, from 1995 and as a
percentage of revenues increased to 10.3% in 1996 from 5.9% in 1995. The
increase in selling expenses as a percentage of revenues was primarily due to
the acquisition of LANSystems ($2.8 million), because selling expenses as a
percentage of revenues for information technology services is significantly
higher than for business outsourcing services due to the long-term nature of
business services outsourcing contracts. In addition, the Company recorded
higher selling expenses related to the initiation of systems management
services and an overall increase in the number of sales personnel to support
future revenue growth.

General and administrative expenses grew $2.5 million, or 226.8%, from 1996
and as a percentage of revenues grew to 7.8% in 1996 from 5.1% in 1995. The
increase was primarily due to the inclusion of LANSystems ($1.5 million) and
the hiring of additional personnel to support future revenue growth.

Amortization of goodwill in 1996 was $0.3 million, compared to no such
expense in 1995. The increase was due to the LANSystems acquisition.

Interest expense, all of which related to capital leases, decreased by $0.1
million because the Company had lower average outstanding levels of capital
lease obligations in 1996.

The Company's effective income tax rate increased to 53.4% in 1996 from
43.7% in 1995. The effective tax rate exceeds the U.S. federal statutory rate
primarily due to the effect of nondeductible goodwill amortization and state
taxes. The increase in the effective tax rate in 1996 reflects the effect of
nondeductible goodwill amortization, offset in part by the increase in pretax
income.

Net income increased $0.4 million, or 137.0%, to $0.6 million in 1996 as a
result of the foregoing factors.

Year ended December 31, 1995 compared to year ended December 31, 1994

Revenues for the year ended December 31, 1995 totaled $66.0 million, a 89.8%
increase over 1994 revenues of $34.7 million. This $31.3 million increase was
comprised of a $11.0 million, or 31.5%, increase in business services
outsourcing revenues and $20.2 million in information technology services
revenues attributable to the June 1995 acquisition of LANSystems. Business
services outsourcing growth was due to a $7.6 million increase in revenues
from new clients and a $3.4 million increase in revenues from existing
clients. Revenues from information technology services were comprised of $13.4
million from the resale of hardware and software products and $6.9 million
from services.

27
<PAGE>

Cost of revenues of $53.9 million increased as a percentage of revenues to
81.7% from 80.0% in 1994 because of a reduction in color print volumes,
competitive pressures, start-up costs associated with new business services
outsourcing clients, geographical expansion to the western region of the
United States and higher paper prices in 1995, offset in part by the inclusion
of LANSystems.

Selling expenses increased $3.5 million, or 163.7%, from 1994 and as a
percentage of revenues increased to 8.4% in 1995 from 6.1% in 1994. Selling
expenses as a percentage of revenues increased primarily due to the LANSystems
acquisition ($2.8 million), the annualization of a new office opened in 1994
and the hiring of additional sales personnel to support future revenues
growth.

General and administrative expenses grew $3.3 million, or 216.0%, from 1994
and as a percentage of revenues grew to 7.4% in 1995 from 4.4% in 1994. The
increase was primarily due to the LANSystems acquisition ($2.5 million) and an
investment in personnel to support revenue growth.

Amortization of goodwill was $0.3 million, compared to no such expense in
1994. The increase was due to the LANSystems acquisition.

Interest expense, all of which related to capital leases, increased by $0.2
million because the Company had higher average outstanding levels of capital
lease obligations in 1995, which resulted from additional client sites.

The Company's effective income tax rate increased to 62.0% in 1995 from
42.4% in 1994. The effective tax rate exceeds the U.S. federal statutory rate
due to the effect of nondeductible goodwill amortization and state taxes. The
increase in the effective tax rate in 1995 reflects the effect of
nondeductible goodwill amortization and the decrease in pretax income.

Net income decreased $1.4 million, or 81.4%, to $0.3 million in 1995 as a
result of the foregoing factors.

Year ended December 31, 1994 compared to year ended December 31, 1993

Revenues for the year ended December 31, 1994 totaled $34.7 million, a 47.7%
increase over 1993 revenues of $23.5 million. This $11.2 million increase was
due to a $10.7 million increase in revenues to new clients and a $0.5 million
increase in revenues to existing clients.

Cost of revenues increased in 1994 as a percentage of revenues to 80.0% from
79.9% in 1993, which is not significant.

Selling expenses decreased as a percentage of revenues to 6.1% in 1994 from
7.1% in 1993. The decrease in selling expenses as a percentage of revenues
resulted from the more efficient use of the time and efforts of sales
representatives.

General and administrative expenses grew $0.2 million, or 15.5% from 1993,
and decreased as a percentage of revenues to 4.4% in 1994 from 5.7% in 1993.
The increase in general and administrative expenses was primarily due to the
hiring of additional employees made necessary as a result of revenue growth.

Interest expense, all of which related to capital leases, increased by $0.1
million because the Company had higher average outstanding levels of capital
lease obligations in 1994, which resulted from additional client sites.

The Company's effective income tax rate decreased to 42.4% in 1994 from
44.3% in 1993. The effective tax rate exceeds the U.S. federal statutory rate
primarily due to the effect of state taxes. The decrease in the effective tax
rate in 1994 reflects the increase in pretax income, which reduces the
relative effect of the nondeductible items.

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<PAGE>

Net income increased $0.9 million, or 101.4%, to $1.7 million in 1994 as a
result of the foregoing factors.

Quarterly operating results

The following table sets forth selected unaudited consolidated statement of
income information for the Company on a quarterly basis for the years ended
December 31, 1993, 1994 and 1995 and for the three months ended March 31 and
June 30, 1996:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------------------
1993 1994 1995 1996
--------------------------- --------------------------- ---------------------------- --------------
MAR 31 JUN 30 SEP 30 DEC 31 MAR 31 JUN 30 SEP 30 DEC 31 MAR 31 JUN 30 SEP 30 DEC 31 MAR 31 JUN 30
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Business services
outsourcing
revenues........ $5.20 $5.55 $6.03 $6.75 $8.13 $8.39 $8.95 $9.28 $10.88 $10.23 $11.74 $12.84 $12.89 $13.75
Information
technology
revenues........ -- -- -- -- -- -- -- -- -- -- 9.34 10.92 7.56 11.04
----- ----- ----- ----- ----- ----- ----- ----- ------ ------ ------ ------ ------ ------
Total revenues.. 5.20 5.55 6.03 6.75 8.13 8.39 8.95 9.28 10.88 10.23 21.08 23.76 20.45 24.79
Earnings (loss)
from
operations..... 0.29 0.34 0.50 0.60 0.64 0.75 0.79 1.11 0.33 0.37 (0.07) 0.69 0.08 1.38
Net income
(loss)......... $0.14 $0.16 $0.25 $0.31 $0.33 $0.40 $0.42 $0.58 $ 0.10 $ 0.16 $(0.16) $ 0.20 $(0.07) $ 0.69
===== ===== ===== ===== ===== ===== ===== ===== ====== ====== ====== ====== ====== ======
</TABLE>

The Company's quarterly operating results have been subject to variation,
and will continue to be subject to variation, depending upon factors such as
the mix of business among the Company's services; the cost of materials, labor
and technology, particularly in connection with the delivery of business
services; the costs associated with initiating new outsourcing contracts or
opening new offices; the economic condition of the Company's target markets;
and the costs of acquiring and integrating new businesses. Although most of
the Company's long-term contracts for the provision of business services
provide for pricing adjustments to reflect the Company's actual labor,
material and technology costs, these adjustments occur annually on a
historical basis and therefore may add to fluctuations in quarterly and annual
operating results of the Company. The Company's revenues derived from
individual business services outsourcing contracts historically have been
somewhat seasonal, with the lowest percentage of revenues being attributed to
the third quarter as a result, in part, of reduced volumes of business service
used by clients. Revenues from information technology services are also
seasonal, with the highest percentage of revenues being attributed to the
fourth quarter primarily as a result of clients' decisions to use funds
remaining in their information technology budgets for projects delayed during
the year. The Company experienced net losses in the third quarter of 1995,
resulting primarily from the Company's expansion to the western region of the
United States, new client start-ups and from costs associated with the
acquisition of LANSystems, and in the first quarter of 1996, resulting
primarily from continuing start-up expenses.

In connection with the departure of Thomas P. Bradbury, former President,
LANSystems division, the Company has recorded a charge of $300,000 in the
third quarter of 1996. See "Management--Agreement with Former Executive
Officer."

LIQUIDITY AND CAPITAL RESOURCES

The Company has funded its operations, capital expenditures and acquisitions
through cash flows from operations, amounts advanced interest-free from R.R.
Donnelley and the sale of its business services outsourcing accounts
receivable to a subsidiary of R.R. Donnelley. These receivables were sold
without recourse and the Company was not charged any factoring cost. During
the years ended December 31, 1993, 1994 and 1995, the Company factored $22.1
million, $33.9 million and $44.8 million of receivables, respectively.
Factored receivables that remain uncollected were $6.2 million, $14.6 million
and $6.8 million at December 31, 1994 and 1995, and June 30, 1996, and are
excluded from DESI's consolidated balance sheets. The arrangement pursuant to
which the Company sold such receivables to a subsidiary of R.R. Donnelley will
terminate upon completion of the Offering.

Cash flows from operations decreased 41.1% in 1995 to $3.9 million compared
to $6.7 million in 1994 and $1.4 million in 1993. Capital expenditures
increased $2.0 million to $4.1 million in 1995 from $2.1 million in 1994
primarily due to the Company's expansion to the western region of the United
States. In 1995, the Company had high levels of spending associated with new
client site start-ups.

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<PAGE>

The Company had a net usage of cash from operating activities of $9.1
million during the six months ended June 30, 1996 primarily due to changes in
working capital. Specifically, unbilled receivables increased by $4.2 million
and customer prepayments decreased by $2.7 million. The increase in unbilled
receivables is primarily due to the timing of the invoicing to business
services outsourcing clients for June services. Customer prepayments decreased
as one client prepaid a significant portion of 1996 services in December 1995.
For the six months ended June 30, 1996, the $11.7 million of cash provided by
financing activities was primarily used to fund the $9.1 million of cash used
in operating activities and the $2.1 million of capital expenditures. The
Company's capital expenditures primarily consisted of equipment at client
sites. For the remainder of 1996, the Company anticipates spending
approximately $2.5 million to $3.0 million.

Advances owed to R.R. Donnelley at June 30, 1996 are payable on demand or
become due and payable immediately upon completion of the Offering. A
significant portion of the net proceeds of the Offering will be used in final
payment of approximately $8.7 million for certain contingent obligations
arising from the acquisition of LANSystems and to repay the advances from R.R.
Donnelley and the Dividend Note. See "Use of Proceeds." The remaining net
proceeds received by the Company in the Offering will be used for general
corporate purposes, including for working capital or acquisitions.

Because the Company's ability to factor receivables to a subsidiary of R.R.
Donnelley and to otherwise receive advances from R.R. Donnelley will be
terminated upon completion of the Offering, the Company expects to enter into
a credit agreement with one or more banks (the "Credit Facility") to provide
it with its financing needs for working capital and general corporate purposes
(including permitted acquisitions). The Company has received a commitment
letter for a facility under which it will be entitled to borrow up to $22.0
million on a revolving credit basis after certain conditions precedent are
satisfied, including the completion of the Offering and the repayment of all
advances the Company owes to R.R. Donnelley and all of the Company's earnout
payment obligations relating to its acquisition of LANSystems. Amounts
available under the Credit Facility will not exceed a percentage of the
Company's billed and unbilled accounts receivable, and borrowings under the
Credit Facility will mature in three years and bear interest (i) at the prime
rate announced by the bank acting as agent under the Credit Facility or (ii)
at the applicable LIBOR rate plus, depending on the Company's fixed charge
coverage ratio, up to 125 basis points per annum. In addition, the Company
will pay a commitment fee of 20 to 30 basis points per annum, depending on its
fixed charge coverage ratio. The Credit Facility will contain customary
financial and other covenants, including requirements to maintain a minimum
consolidated net worth, a minimum fixed charge coverage ratio and a maximum
leverage ratio, and restrictions on liens, investments, dividends,
indebtedness, acquisitions and transactions with affiliates. The Company has
historically not paid interest with respect to the advances it received from
R.R. Donnelley. Therefore, the Company's interest expense, which historically
has related solely to capital leases, will increase as the Company borrows
under the Credit Facility.

The Company believes that, subsequent to the Offering, net proceeds received
by the Company from the Offering, the $22.0 million Credit Facility and cash
flows from operations will be sufficient to fund its ongoing operations during
the term of the Credit Facility and for continued growth and investment. The
Company expects the Credit Facility to be available for seasonal cash needs
and acquisitions.

30
<PAGE>

BUSINESS

Donnelley Enterprise Solutions Incorporated is a single-source provider of
integrated information management services to professional service
organizations, primarily large law firms, investment banks and accounting
firms. DESI offers its clients the opportunity to focus on their core
businesses by outsourcing a variety of functions, including business services
and information technology services. The Company has experienced substantial
growth by expanding its service offerings, adding new clients, increasing
business with its existing clients and capitalizing on the growing trend
toward outsourcing. In 1995, the Company had revenues of $45.7 million from
business services outsourcing and $20.2 million from information technology
services, representing six months of operations following the June 1995
acquisition of LANSystems. In the first six months of 1996, the Company's
revenues from business services outsourcing and information technology
services were $26.6 million and $18.6 million, respectively.

DESI commenced outsourcing operations in 1988 as a provider of reprographic
services and expanded its service offerings to include networked and color
printing, mailroom and facsimile services, word processing, desktop publishing
and imaging. In June 1995, the Company broadened its capabilities from
managing paper-based information to include the management of electronic
information through the acquisition of LANSystems, which has provided
information technology services since 1983, including systems integration,
consulting and software development. Beginning in February 1996, the Company
began providing systems management outsourcing services, which include on-site
management and administration of servers and desktops and operation of the
help-desk function.

Business Services Outsourcing. The Company provides business services
through Company personnel, equipment and systems located at a client's
offices. Among the outsourcing services offered by the Company are the
following:

Document Services. The Company provides reprographic, networked and color
printing, mailroom and facsimile services. The hours during which these
services are provided vary by client, although 24-hour weekday and
scheduled weekend service is common. Client managers are located on-site in
order to ensure quality control, maximize efficiency and coordinate
resources.

Word Processing and Desktop Publishing. DESI provides word processing,
desktop publishing and graphic design services. The proficiency of the
Company's employees with current software applications enables them to
assist clients in generating time-sensitive documents and creating
documents for use in litigation, new-business presentations and other
client proposals. The mission-critical nature of these documents makes
accuracy in their production of paramount importance.

Imaging. The Company provides imaging, database design and litigation
support services. DESI uses a variety of digital storage, indexing and
retrieval technologies that allow clients to eliminate the need for paper
files, identify and retrieve relevant information quickly and generate
paper copies of the desired information. In addition to document scanning
and database creation, the Company delivers electronic images of documents
on a variety of media.

Information Technology Services. DESI assists its clients in the design,
development, procurement, implementation and maintenance of information
systems and offers continuing on-site support and the ability to outsource the
management of such systems. DESI's information technology services include the
following:

Systems Integration. DESI designs, implements and supports computer
networks that facilitate communications over local-area, wide-area and
public networks, both domestically and worldwide. Systems integration
services provided by the Company range from the development of turnkey
networks to periodic system support for end-users in multi-vendor, multi-
protocol environments.

31
<PAGE>

Consulting. DESI provides consulting services which assist its clients in
making technology decisions ranging from strategic to tactical. Primary
areas of expertise include information systems architecture, network
audits, relocation planning, project management and disaster recovery
planning.

Systems Management. DESI offers systems management outsourcing services
that include on-site management and administration of servers and desktops
included in the network, operation of the help-desk function and management
of the network's telecommunications support systems. DESI began providing
systems management outsourcing services in February 1996 to combine its
outsourcing and information technology expertise. See "Risk Factors--
Ability to Grow through Introduction of New Services, including Systems
Management Outsourcing."

Software Development. The Company's software development services include
custom utilities, application and data integration and rapid application
development.

MARKET OVERVIEW

The demand for business services outsourcing and information technology
services is accelerating as more businesses seek outside expertise in the
management of increasingly complex and crucial business and technology
requirements. The challenges posed by the application of distributed
networking strategies to manual, labor-intensive business processes are
driving forces in both the business services outsourcing and information
technology services arenas. Increasing amounts of paper-based information are
available in a variety of electronic formats for sharing and delivery over
distributed networks making it crucial for businesses to manage their flow of
documents and electronic information in an integrated and efficient manner.
There is a growing trend for businesses to establish relationships with
outside experts for both business services and information technology
functions in order to address the changing business environment. This trend is
driven by the need for:

. improved focus on core business competencies;

. access to high-quality employees trained in the latest technologies;

. increased efficiencies through streamlined business processes;

. expedited delivery of new services and leading-edge technologies; and

. greater flexibility over information resources and associated costs.

The Company believes that the trend toward outsourcing will continue. As
reported in InformationWeek, nearly 90% of the multinational firms surveyed by
an independent consulting firm reported they had outsourced some business
services in 1995, compared with fewer than 60% in 1992. Outsourcing business
services such as reprographics, word processing, desktop publishing and
imaging allows firms to transfer fixed capital investments to variable costs
and produce administrative economies of scale.

The Company believes that a number of factors will cause continued growth in
the demand for information technology services involving systems integration,
consulting, systems management outsourcing and software development. These
factors include the need to keep pace with rapidly changing technologies,
focus on longer-term technology plans and supplement internal resources with
highly skilled technical expertise. International Data Corporation, a research
firm, projects outsourcing of network services will grow to approximately
$17.7 billion in 2000 from approximately $7.24 billion in 1995.

Continuing investment in emerging technologies and business-process
improvements is a strategic imperative to the firms in the Company's target
markets, which are composed of highly skilled service professionals whose own
clients demand accurate information delivered in a timely manner. The need of
professional service organizations to focus on their core competencies and to
have

32
<PAGE>

sufficient flexibility and resources to satisfy their clients' changing
requirements is increasingly difficult to meet through in-house information
systems departments. The Company believes that its integrated information
management solutions help clients better align their business and technology
objectives.

COMPETITIVE STRENGTHS

The Company believes that its competitive strengths will enable it to
continue to compete effectively in its markets. These strengths include:

Established Premier Client Base in Target Markets

DESI has well-established relationships with a number of industry leaders in
its target markets. Its relationship with such clients as Sidley & Austin,
Morgan Stanley & Co. Incorporated, Ernst & Young LLP, Shearman & Sterling and
Lehman Brothers Inc. began in 1989, 1990, 1992, 1993 and 1995, respectively.
In 1995, the Company provided services to 30 of the 100 largest law firms and
six of the 10 largest investment banks. These relationships with high-quality
professional service organizations have been an important factor in enabling
the Company to add new clients of similar quality.

Comprehensive Array of Service Offerings

DESI offers a comprehensive array of information management services that
span both paper-based and electronic information. By managing information in
either form, the Company can assist its clients in maximizing the efficiency
and productivity of their professionals. The Company recommends information
infrastructure changes, designs and implements the changes and manages the
resulting system, thereby offering a combination of services usually requiring
multiple providers and procurements. The Company is capable of providing
substantially all of the information management services that a client needs
by providing staff to perform multiple functions, integrating technical and
business processes and providing consistency across the enterprise. This
capability significantly benefits its clients by giving the client one
provider to hold responsible. The Company believes that its comprehensive
service offerings differentiate it from its primary competitors and give it a
significant competitive advantage.

Accumulated Knowledge and Expertise in Target Markets

DESI's focus on marketing its services primarily to large law firms,
investment banks and accounting firms has enabled it to obtain a thorough
understanding of the information management needs of such firms and to develop
successful solutions to meet these needs. The Company has accumulated
knowledge of the best practices to address the unique needs of professional
service organizations, such as construction of complex litigation
documentation, production of client presentation materials and development of
customized desktop interfaces that reflect the work habits of its clients'
professionals. The ability of the Company's clients to provide consistent,
high-quality service is greatly dependent upon their ability to deliver
complex documents under significant time pressure. The Company believes that
its understanding of its clients' needs and expertise in providing solutions
to meet such needs constitute a significant competitive advantage and enhance
the ability of its clients to perform services in a professional and timely
manner.

Proven Quality Driven Processes

DESI has developed proven, cost effective processes for the delivery of
business and information technology services. Through over eight years of
experience of implementing outsourcing services, the Company has refined its
procedures for the important initial stage of transitioning a client to the
Company's business services. The Company has developed a copyrighted
production management system which permits the Company to monitor the client's
needs and the quality of services provided

33
<PAGE>

by tracking use, service levels, turnaround and efficiency. In addition, DESI
has deployed numerous information technology projects using project management
methodologies, including resource and schedule planning, testing and
escalation processes to execute large-scale global integration solutions.
DESI's systems management services can also track system performance
parameters of a network in order to enable the client to anticipate and avoid
problems and address training and software needs of its employees.

Depth, Experience and Expertise of Service Delivery Personnel

The Company has been successful in attracting and retaining talented,
motivated employees in critical positions which involve extensive client
interaction, including the client managers who oversee the performance of the
Company's business services and the technical employees who design, implement
and support computer networks and provide other information technology
services. In business services, the average tenure of the Company's client
managers across the United States is four years. In information technology
services, the Company's approximately 130 technical employees have accumulated
over 150 industry certifications in recognition of their proficiency with
various information technology products supplied by their vendors.

The technological expertise of the Company's employees is evidenced by a
variety of industry distinctions the Company has received, including being a
member of the Microsoft Solutions Advisory Council, which is comprised of 34
companies from a total of over 10,000 Microsoft Solutions providers, and one
of 45 companies selected for Novell Enterprise Consulting Program. The
Microsoft Solutions Advisory Council includes integrators, training companies
and developers who are selected based on their reputation, representation
within different industry sectors and technical expertise. Companies selected
to participate in the Novell Enterprise Consulting Program must have a
national focus, demonstrate proven technical expertise and provide Novell with
volume forecast and quarterly engagement reports. As a result of DESI's
participation in these programs, the Company obtains access to products before
they are released, skills transfer workshops and seminars and project support
services.

STRATEGY

Increasing Penetration in Target Markets

DESI seeks to increase its client base by further penetrating the markets it
currently serves. Large law firms, investment banks and accounting firms all
share the characteristic of delivering time-critical professional services
that involve creation and production of complicated documents using computer
networks. The Company believes that there are significant opportunities for
growth within the Company's target markets as many of the firms in such
markets have outsourced very few, if any, of their information management
services. The Company also anticipates expanding its target markets to include
other firms that have similar client needs, such as commercial banks and asset
management companies.

Cross-Selling Services to Existing Clients

DESI believes that there are significant expansion opportunities with its
existing clients as demand for more comprehensive information management
services increases. The Company intends to use its in-depth knowledge of the
workflow and business needs of the firms in its target markets to provide
complete information management solutions. The Company believes that the
cross-selling of services further strengthens the Company's relationship with
its clients and reduces the chances a client will switch service providers.

34
<PAGE>

Attracting and Retaining Outstanding Employees

DESI is committed to maintaining a leadership position in information
management technology by attracting and retaining high-quality technical
personnel and by ensuring that they stay current with state-of-the-art
hardware and software. DESI seeks to achieve this goal by providing a
motivational and interactive work environment that features continuous and
extensive professional development opportunities and bonuses based on client
satisfaction, as well as a decentralized organizational structure that
emphasizes decision-making at the client manager level. In addition, DESI will
use stock options available under its 1996 Stock Incentive Plan to provide
incentives to its employees and increase their identification with the success
of the Company.

Enhancing its Expertise in Information Management Technology

DESI is committed to continuous product research in order to anticipate
technology trends and important market shifts for various technology standards
affecting the businesses of its clients. The Company will continue to evaluate
new products under its policy of "vendor neutrality" in order to identify the
"best of class" products available, thereby permitting it to recommend
information management solutions that are optimal for its clients without
being tied to the hardware or software offerings of a particular vendor. The
Company also intends to continue to participate on the product advisory boards
of various software developers in order to maintain influence and gain insight
into product strategies.

Selectively Acquiring Businesses that Strengthen Service Offerings or Expand
Geographic Presence

DESI will continue to explore selective acquisitions in response to client
feedback and market demands. The Company may make acquisitions in order to
expand the Company's geographic presence, add services to the portfolio
already offered or enhance skills in a particular area. In any such
acquisition, DESI will seek companies with a reputation as a premier service
provider with strong client relationships and a culture complementary to that
of the Company.

SERVICES

Business Services Outsourcing

The Company's outsourcing portfolio encompasses a comprehensive array of
business services, including documents services, word processing and desktop
publishing and imaging services.

Document Services. The Company provides reprographic, networked and color
printing, mailroom and facsimile services through sites located at the
client's offices. Operations are typically 24-hours a day on weekdays with
scheduled weekend services. The reprographic operations typically encompass
black and white copying, electronic print, color print and binding services.
The critical documents produced include legal briefs, wills, contracts,
investment bank pitch books, presentations, tax filings and litigation
documents. The Company's average client site includes 15 document-production
employees, for whom a typical job may entail the reproduction of a 50 page
document with five color inserts, spiral binding and turn-around time of less
than two hours. Monthly volumes per client site range from 500,000 to
10,000,000 pages. Reprographic services are billed monthly on a unit basis,
with a minimum volume requirement.

Mailroom services include sorting and delivery, overnight express and
messenger support. Facsimile services include both manual and electronic fax
transmission and receipt. The Company implements and administers the client's
fax server environment and integrates this capability with the client's
network. Both mail services and facsimile services typically are billed
monthly to the client as a fixed management fee plus overtime expenses.

Word Processing and Desktop Publishing. The Company provides on-site word
processing, proof-reading, desktop publishing and graphics design services.
Documents range from high-volume text,

35
<PAGE>

complex numerical tables and regulatory-compliance documents to client
newsletters, presentations and marketing brochures. Operations are typically
multi-shift, employing between 10 and 25 operators who produce client
documentation within a turnaround period of less than 24 hours. Word
processing services are priced on a per page, per hour or per project basis
with a minimum monthly management fee.

Imaging. The Company provides on-site imaging services and production
support such as scanning, document indexing, storage and retrieval. The
Company provides a complete turnkey service, including integration, database
development, project management and system administration. The Company's
services enable clients to process information more efficiently, store
documents electronically and retrieve information at the desktop or remotely.
A typical operation includes a cross-trained staff of 12 employees performing
each of the imaging tasks, who scan and index 50,000 pages per month. The
Company supplies and networks multiple servers located at the client's offices
as well as at other offices, such as that of a client's co-counsel. Imaging
services are billed monthly on a per unit basis.

Contracts and Pricing. Client engagements typically involve contracts
ranging from three to five years in duration, although the Company has entered
into a limited number of shorter-term contracts at the request of its clients.
The majority of DESI's contracts are cancellable only for cause, but the
Company generally is willing to renegotiate contracts that no longer meet the
needs of its clients. The Company believes that this policy is beneficial in
that it improves client relationships and promotes the efficient use of the
Company's resources. Substantially all of the Company's outsourcing contracts
are priced on a per unit basis for each service provided. Furthermore,
substantially all of the Company's current outsourcing contracts include a
minimum amount of services the client agrees to use, with the minimum
generally related to the historical volumes of the client. The Company is able
to increase or decrease the unit costs for each of the outsourcing services
provided pursuant to a particular contract on the anniversary date of such
contract in order to reflect actual costs of labor and supplies. The typical
outsourcing contract also provides that DESI will supply all of the equipment
necessary for the delivery of its services, the bulk of which the Company
leases from third-party vendors.

Information Technology Services

The Company provides systems integration, consulting, systems management
outsourcing and software development services to clients in its target
markets.

Systems Integration. The Company provides network design, installation,
configuration and on-going maintenance for distributed computing environments.
The project range includes networks consisting of between 250 and 5,000 users,
often in multiple offices connected by a wide-area network. Projects vary in
scope and duration. Projects involving a single office typically are completed
in three to six months while large projects involving major infrastructure,
operating system upgrades and multiple applications in multiple locations,
some of which may be located outside of the United States, typically span 12
to 18 months. Revenues from many projects are derived approximately one-half
from engineering services and one-half from the resale of hardware or software
products and subcontracted labor. The Company also enters into maintenance
contracts on network equipment and servers with a majority of clients for
which the Company has completed a major systems integration project. Many
clients have elected coverage for 24 hours per day, seven days per week.

Consulting. DESI provides consulting services which assist its clients in
making technology decisions ranging from strategic to tactical. Most
engagements lead to follow-on business from implementation projects.
Engagements range from three weeks to one year, with a typical engagement
being completed in eight weeks. Primary areas of expertise include information
systems architecture, network audits, relocation planning, project management
and disaster recovery planning.

Systems Management Outsourcing. The Company offers a complete range of
systems management services, including help-desk support, network management,
server administration, end-

36
<PAGE>

user training, personal computer repair and telephone switch administration.
The functions are performed at the client's offices. DESI uses proactive
monitoring and the best industry practices in providing a reliable computing
environment and responsive end-user assistance. The Company offers its systems
management services pursuant to multi-year contracts, which may include
hardware and software upgrades at the beginning or throughout the contract to
reflect product cycles of computing equipment. The Company began providing
systems management outsourcing services in February 1996 to combine its
business services outsourcing and information technology services expertise.
The Company's systems management outsourcing services have generated minimal
revenues to date primarily from contracts that are limited in duration and
scope. See "Risk Factors--Ability to Grow through Introduction of New
Services, including Systems Management Outsourcing."

Software Development. The Company offers software development services that
include custom utilities, application and data integration and rapid
application development. Custom utilities developed in the C and C++
programming languages are designed to take advantage of system-level features
and enhance program functionality. In the area of application and data
integration, the Company specializes in developing solutions for moving data
from different computing platforms as well as in and out of various
applications. The Company's software development team uses a variety of
programming languages, such as Microsoft Visual Basic and Borland's Delphi, to
facilitate rapid application development in client/server database
environments. In addition, Lotus Notes, Microsoft Exchange Server and Novell,
lnc.'s GroupWise are used to create workflow and groupware solutions.

Contracts and Pricing. The majority of the Company's systems integration
projects are priced on a fixed-fee basis, although some work is contracted on
a time and materials basis. Cost-based pricing is developed using pre-
negotiated purchase prices for computer and network hardware. Contracts
typically include a scope of work and acceptance criteria for identifying
project completion. Payment terms include a downpayment, and invoices are
submitted in accordance with the achievement of negotiated milestones or dates
during the projects. The Company's maintenance contracts are priced on an
annual basis with payments made in advance. Systems management contracts
generally will have multi-year terms and will be invoiced monthly.

CLIENTS

DESI has been successful in establishing strong relationships with a
significant number of the leading firms in its target markets, including the
law firms of Shearman & Sterling and Sidley & Austin, the investment banks of
Lehman Brothers Inc. and Morgan Stanley & Co. Incorporated and the accounting
firm of Ernst & Young LLP. Revenues from these five clients accounted for
approximately 28.9% of the Company's 1995 revenues and approximately 25.4% of
the Company's revenues for the first six months of 1996. In 1995, the Company
provided services to 30 of the 100 largest law firms as ranked by the American
Lawyer for 1995 and six of the 10 largest investment banks ranked by dollar
volume of public debt and equity issuances for 1995 as reported by Securities
Data Corporation. The Company also anticipates targeting firms within the
commercial banking and asset management industries. DESI believes that these
markets, because they consist of sophisticated professional service
organizations for which document and computer processing are critical, can
benefit from the knowledge that the Company has accumulated in its current
markets and will therefore provide an opportunity to expand DESI's potential
client base without compromising its ability to maintain its high-quality
standards and utilize its proven processes and experience. See "Risk Factors--
Dependence on Key Clients," "--Sensitivity to Fluctuations in Professional
Service Economy" and""--Focus on Limited Target Markets."

In the first six months of 1996, approximately 27.3% of DESI's revenues came
from business and information technology services provided to firms outside of
its target markets. As a result of its focus on its target markets, the
Company expects this percentage to decrease in the future.

37
<PAGE>

As of June 30, 1996, DESI provided business services outsourcing under
approximately 50 contracts, at over 40 client office locations, most of which
are located in New York, San Francisco, Chicago, Los Angeles, Washington, D.C.
and certain other major cities in the United States. In the 12 months ended
December 31, 1995, the Company provided information technology services to
approximately 250 clients. The Company has implemented projects in offices
located in many major European and Asian financial centers.

SALES AND MARKETING

The Company markets its services primarily through 24 account executives,
special account managers and sales managers who are responsible for existing
clients as well as future client development. In addition, DESI's senior
management plays an active and ongoing role in the sales process.

The Company targets high-level decision makers within a particular
professional service organization who share a commitment to the delivery of
quality service. The typical contract for business services outsourcing is
signed between six and nine months after discussions begin with a potential
client. The sales cycle with regard to information technology services is
typically between three and six months. The Company believes that it is
important to involve seasoned account executives, as well as its executive
officers, in the sales process.

The Company also employs a variety of business development and direct
marketing techniques in order to augment the work done by its own sales force,
increase industry awareness and generate interest in its services. Targeted
telemarketing, an automated prospect database, regular direct mail initiatives
and regular participation in industry trade shows and conferences in its
target markets have been effective historically. The Company also co-sponsors
executive business briefings and cooperative marketing programs with vendor
partners, such as Microsoft Corporation, Novell, Inc. and PC Docs Inc.
Finally, several of the Company's senior executives serve as industry
spokespersons and frequently author articles on industry trends, service
issues and emerging technologies, as well as contributing to LANSystems'
Research technical publication.

COMPETITION

The Company believes that the primary competitive factors in the business
services outsourcing and information technology services markets include
reputation, a proven track record in industries served, an in-depth knowledge
of clients' businesses, strong technical expertise, project management
experience and an ability to streamline business processes. Although price is
a competitive factor within the Company's markets, it is not the principal
basis on which the Company competes because the Company's strategy is to be a
premier provider of business services outsourcing and information technology
services to firms in its target markets, which depend on high-quality, timely
work product and technical expertise.

The Company competes with the in-house capabilities of those firms in the
Company's target markets that perform their own business services and
information technology functions of the types offered by the Company.

The Company's business services compete with numerous national and regional
companies. The Company's document services compete with several large national
companies, including Pitney Bowes Management Services and Xerox Business
Services, as well as several smaller regional companies, some of whom provide
only certain of such services or focus on a particular geographic region of
the United States. Competition in the Company's target markets for other
business services provided by the Company, such as word processing, desktop
publishing and imaging, is fragmented with numerous competitors providing only
certain of the services. Competitors in these areas include Tascor
Incorporated in word processing and desktop publishing and Quorum Corp., Aspen
Systems Corp., Litigation Information Technologies and Arthur Andersen LLP in
imaging.

38
<PAGE>

The market for the Company's information technology services is subject to
rapid change and is highly competitive. Within this market, the Company
competes with a large number of participants, with no single organization
having a dominant market share of the Company's target markets. Competition
for information technology services comes from a large number of market
participants, including management consulting firms, big six accounting firms,
systems integrators, facilities management companies and the professional
service groups of large computer manufacturers such as International Business
Machines Corp. ("IBM") and Hewlett Packard Co. Within the systems integration
arena, the Company competes primarily with national firms with legal-industry
focus, including Systems Research and Application Corp. and TechLaw Automation
Partners; other national firms that do not focus on the legal market, such as
Entex Information Services, Inc. and Vanstar Corp.; and numerous regional
firms, many of which serve only their respective local markets. The Company's
systems management outsourcing services face competition from traditional
mainframe outsourcing firms such as Electronic Data Systems Corp., Computer
Sciences Corp., IBM's Integrated Systems Solutions Corporation, AT&T Solutions
and MCI Systemhouse.

Many participants in the business services outsourcing and information
technology services markets have significantly greater financial, technical
and marketing resources; greater name recognition; and generate greater
information technology services and outsourcing revenues than does DESI. The
Company believes, however, that its competitive strengths, including its
reputation as a high-quality provider of business services outsourcing and
information technology services and its knowledge and expertise in the markets
that it serves, have enabled it to be successful in persuading firms in its
target markets to use certain services offered by the Company and competing
with its current competitors. See "Risk Factors--Competition."

HUMAN RESOURCES

The Company's business involves the delivery of professional services and is
labor intensive. The Company's performance depends, to a large extent, on the
continued service of its key technical personnel and client management
personnel and its ability to continue to attract, retain and motivate such
personnel. Competition for such personnel is intense, particularly for highly
skilled and experienced technical personnel who perform the Company's
information technology services. The Company provides its employees a
motivational and interactive work environment that features continuous and
extensive professional development opportunities and bonuses based on client
satisfaction, as well as a flat organizational structure that emphasizes
decision-making at the client manager level. See "Risk Factors--Need to
Attract and Retain Key Personnel in Highly Competitive Marketplace."

The Company has a comprehensive recruitment program in place to attract
highly qualified employees for both business services outsourcing and
information technology services. To strengthen its expertise in its target
markets, the Company often recruits individuals with hands-on experience and
proven industry knowledge in the legal, investment banking and accounting
industries. The Company augments ongoing advertisements in national newspapers
and industry-trade publications with a company-wide employee referral program
and regular participation in job fairs and legal-specific trade shows and
conferences. The Company is a member of the On-line Career Center and uses
this vehicle to post jobs and receive resumes via the Internet. The Company
engages in selective recruiting at colleges with strong engineering programs.
In addition, the Company belongs to the Technical Recruiter's Association in
New York and employs the assistance of outside recruitment firms on a limited
basis.

The Company has a diversified training program that includes vendor-specific
certification, review of best practices and an extensive mentor program. As
part of the Company's rigorous in-house training, new employees participate in
a variety of courses such as Customized Workflow Training, Understanding a Law
Firm, Quality Assurance, Problem Resolution and Team Building. In addition,

39
<PAGE>

employees attend mandatory human resources training seminars, including
seminars concerning diversity, sexual harassment and performance leadership.

As of July 1, 1996, the Company had approximately 875 employees.
Approximately 700 persons were dedicated to providing business services,
including approximately 630 engaged in providing on-site services to clients,
of whom approximately 560 were hourly employees. Approximately 160 persons
were dedicated to providing information technology services, including
approximately 130 technical employees. None of the Company's personnel is
covered by a collective bargaining agreement. The Company believes that its
relations with its employees are good.

FACILITIES

The principal executive offices of the Company are located in Chicago,
Illinois, where the Company leases a 14,000 square foot facility pursuant to a
lease expiring in May 2002. The Company provides its outsourcing services
primarily through locations at its clients' offices. Such locations are
generally provided by the client without a lease and at no cost to the
Company. The Company leases an 11,400 square foot facility in New York, New
York pursuant to a lease expiring in April 2002, and a 7,020 square foot
facility in San Diego, California pursuant to a month-to-month lease, where
the Company houses certain of its managerial and technical employees for its
information technology services. The Company has 13 regional sales offices,
most of which are subject to short-term leases of not more than three years.
The Company believes that its existing facilities are adequate for its current
needs. The Company anticipates that additional space may be required as
business expands and believes that it will be able to obtain such additional
space as needed.

REGULATION

DESI's business is not currently subject to direct regulation by any
government agency, other than regulations applicable to businesses generally.
The results of operations of the Company may be affected, however, by new or
changed federal or state laws or regulations that define the standard work
week, prescribe overtime pay obligations or apply to other employee-related
expenses. While most of the Company's long-term contracts provide for variable
pricing of the Company's labor costs, these adjustments occur annually on a
historical basis and therefore any additional expenses resulting from new or
changed federal or state laws or regulations may not be recovered for one year
after such laws or regulations are enacted. See "Risk Factors--Variability of
Quarterly Results."

LITIGATION

The Company is subject to various claims and legal actions which arise in
the ordinary course of business. The Company believes such claims and legal
actions, individually and in the aggregate, will not have a material adverse
effect on the business or financial condition of the Company.

40
<PAGE>

MANAGEMENT

DIRECTORS

The Board of Directors currently consists of four members elected by R.R.
Donnelley. The Board of Directors is divided into three classes serving
staggered terms as follows: Class I, comprised of one person and serving for a
term expiring at the 1997 Annual Meeting of Stockholders; Class II, comprised
of one person and serving for a term expiring at the 1998 Annual Meeting of
Stockholders; and Class III, comprised of two persons and serving for a term
expiring at the 1999 Annual Meeting of Stockholders. Following the expiration
of the initial term, directors will serve for three year terms. The Company
expects that two independent directors will be added to the Board following
the completion of the Offering, and that such directors will serve on the
Audit Committee and the Compensation Committee of the Board of Directors. No
individuals have currently been identified to serve as such independent
directors. Information with respect to those individuals who currently serve
as directors of the Company is set forth below.

<TABLE>
<CAPTION>
INITIAL TERM
NAME AGE EXPIRES (CLASS) POSITION
---- --- --------------- --------
<C> <C> <C> <S>
Rhonda I. Kochlefl 37 1999 (III) Chairman, President and Chief
Executive Officer and Director
Daniel I. Malina 37 1997 (I) Director
Leo S. Spiegel 35 1998 (II) Senior Vice President and Chief
Technology Officer and Director
W. Ed Tyler 43 1999 (III) Director
</TABLE>

Rhonda I. Kochlefl has been the Chairman, President and Chief Executive
Officer of the Company since February 1996. From January 1995 to February
1996, she was the President of DBS, and, from June 1995 to February 1996, she
was the Chairman of LANSystems. From 1993 to January 1995, she was Vice
President, Division Director of DBS. From 1988 to 1991, she was General
Manager for the eastern region of DBS, for which she was responsible for all
sales and operations. Ms. Kochlefl has been a director of the Company since
February 1996.

Daniel I. Malina has been a Vice President, Corporate Development of R.R.
Donnelley since March 1996. He served as Director, Corporate Development of
R.R. Donnelley from November 1994 to March 1996. Mr. Malina joined R.R.
Donnelley in 1994. Prior to joining R.R. Donnelley, he was with Bell & Howell,
an information services company specializing in mail-processing systems,
document management products and electronic database publishing systems, as
Vice President and General Manager of its NB/Microseal Division. Prior to
serving in that capacity, he served at Bell & Howell as Director, Business
Development from January 1991 to January 1994. Mr. Malina has been a director
of the Company since July 1996.

Leo S. Spiegel has served as the Senior Vice President and Chief Technology
Officer of the Company since February 1996. He served as a director and the
co-founder, Chief Technology Officer and Executive Vice President of
LANSystems from May 1991 until its acquisition by R.R. Donnelley in June 1995.
From June 1989 until May 1991, he was a director and the co-founder and
Executive Vice President of Sales and Marketing of LANSystems. Prior to June
1989 he was the founder, Chairman and President of Integrated Analysis, Inc.,
which merged with LANSystems in 1989. Mr. Spiegel has been a director of the
Company since February 1996.

W. Ed Tyler has been Executive Vice President and Sector President,
Information Management Sector of R.R. Donnelley since January 1996. Mr. Tyler
joined R.R. Donnelley in 1974 and has held a number of positions, including
President, Documentation Services and President, Networked Services Sector.
Mr. Tyler has been a director of the Company since February 1996.

41
<PAGE>

COMMITTEES OF THE BOARD OF DIRECTORS

The Audit Committee will be responsible for reviewing with management the
financial controls, accounting and audit and reporting activities of the
Company. The Committee will review the qualifications of the Company's
independent auditors, make recommendations to the Board of Directors as to the
selection of independent auditors, review the scope, fees and results of any
audit and review non-audit services and related fees provided by the
independent auditors. The members of the Audit Committee have not yet been
appointed. The Company intends to appoint the two independent directors to
this committee.

The Compensation Committee will be responsible for the administration of all
salary and incentive compensation plans for the officers and key employees of
the Company, including bonuses. The Committee will also administer the
Company's Stock Incentive Plan. The members of the Compensation Committee have
not yet been appointed. The Company intends to appoint the two independent
directors to this committee.

The Board of Directors does not have a nominating committee. The selection
of nominees for the Board of Directors will be made by the entire Board of
Directors.

EXECUTIVE OFFICERS

Information with respect to those individuals who currently serve as
executive officers of the Company is set forth below, except that information
with respect to Rhonda I. Kochlefl and Leo S. Spiegel is set forth above under
"--Directors." The Company and Thomas P. Bradbury, who served as President,
LANSystems division, have announced that Mr. Bradbury left the Company on
October 11, 1996. See "Management--Agreement with Former Executive Officer."
Executive officers of the Company are appointed annually by the Board of
Directors and serve until their successors have been duly elected and
qualified.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Rhonda I. Kochlefl 37 Chairman, President and Chief Executive Officer
and Director
Luke F. Botica 46 Senior Vice President and Chief Financial Officer
Leo S. Spiegel 35 Senior Vice President and Chief Technology Officer
and Director
Linda A. Finkel 36 President, DBS division
David J. Shea 40 Senior Vice President and General Manager, Systems
Management division
</TABLE>

Luke F. Botica has been Senior Vice President and Chief Financial Officer of
the Company since April 1996. From July 1995 to March 1996, he served as
Executive Vice President, Chief Financial Officer, Treasurer and Secretary of
Dames & Moore, Inc., an international engineering and professional services
company. From June 1993 to January 1995, he served as the Senior Vice
President--Finance, Chief Financial Officer, Treasurer and Secretary for
Allied Waste Industries, Inc., a solid waste management company. From
September 1990 to April 1993, he served as the Vice President--Finance,
Corporate Development and Planning for Chemical Waste Management, Inc., a
hazardous waste management company.

42
<PAGE>

Linda A. Finkel has been President of the DBS division of DESI since
February 1996. From 1994 to 1996, she served as the Vice President/General
Manager for the central region of DBS. She joined R.R. Donnelley in 1982 and
held various positions with R.R. Donnelley, including that of information
services account executive.

David J. Shea has been Senior Vice President and General Manager of the
Systems Management division of DESI since July 1996. From January 1995 to July
1996, he was the Vice President and General Manager of the eastern region of
DBS and eastern region General Manager of DBS from November 1993 to January
1995. From 1990 to 1993, he was Client Solutions Executive and Consulting
Practice Manager of Integrated Systems Solutions Corporation, a systems
outsourcing subsidiary of IBM.

COMPENSATION OF DIRECTORS

Directors do not currently receive an annual retainer or other compensation
for serving as directors. It is anticipated that, following completion of the
Offering, directors who do not receive compensation as officers or employees
of the Company will be compensated for serving as directors, including an
annual retainer fee and a fee for each meeting of the Board of Directors that
they attend.

EXECUTIVE COMPENSATION

The following table sets forth compensation information for the Company's
Chief Executive Officer and the other four most highly compensated executive
officers of the Company serving as such on December 31, 1995. The stock
options reflected in the table represent options to purchase shares of common
stock, par value $1.25 per share, of R.R. Donnelley ("R.R. Donnelley Common
Stock").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------- ------------
AWARDS
------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION OPTIONS/ COMPENSATION
POSITION YEAR ($) ($) ($) SARS (#) $(3)
- ------------------ ---- ------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Rhonda I. Kochlefl...... 1995 186,625 45,724 5,925 5,000 --
Chairman, President and
Chief Executive Officer
Leo S. Spiegel.......... 1995 204,470 122,445(2) -- 4,000 356,412
Senior Vice President
and Chief Technology
Officer
Thomas P. Bradbury...... 1995 255,668 156,385(2) -- 4,000 588,712
Former President,
LANSystems division(1)
Linda A. Finkel......... 1995 123,574 26,972 4,787 3,000 --
President, DBS division
David J. Shea........... 1995 126,492 22,136 4,024 3,000 --
Senior Vice President
and General Manager,
Systems Management
division
</TABLE>
- --------
(1) Mr. Bradbury has ceased being President, LANSystems division effective
October 4, 1996. See "Management--Agreement with Former Executive
Officer."
(2) Includes $40,670 and $54,227 paid in March 1996 to Messrs. Spiegel and
Bradbury, respectively, under the provisions of the LANSystems earnout
that relate to achievement in 1995 of specified financial targets.
(3) Amounts shown represent payments made to Messrs. Spiegel and Bradbury (i)
at the closing of the acquisition of LANSystems in June 1995 in respect of
their LANSystems common stock options and (ii) in March 1996 under
provisions of the LANSystems earnout that relate to such options and the
achievement in 1995 of specified financial targets.

43
<PAGE>

OPTION/SAR GRANTS IN 1995

The following table sets forth information for the individuals named in the
Summary Compensation Table regarding grants in 1995 of options to purchase
R.R. Donnelley Common Stock.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------
NUMBER OF
SECURITIES PERCENT OF
UNDERLYING TOTAL OPTIONS
OPTIONS/SARS GRANTED TO EXERCISE OR GRANT DATE
GRANTED EMPLOYEES BASE PRICE EXPIRATION PRESENT VALUE
NAME (#)(1) IN 1995(2) ($/SH) DATE ($)(3)
- ---- ------------ ------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Rhonda I. Kochlefl..... 5,000 0.10 38.0625 12/14/2005 64,950
Leo S. Spiegel......... 4,000 0.08 38.0625 12/14/2005 51,960
Thomas P. Bradbury...... 4,000 0.08 38.0625 12/14/2005 51,960
Linda A. Finkel......... 3,000 0.06 38.0625 12/14/2005 38,970
David J. Shea........... 3,000 0.06 38.0625 12/14/2005 38,970
</TABLE>
- --------
(1) Options become exercisable (at fair market value on the date of grant)
over a four year period, with 20% of the shares becoming exercisable at
the beginning of each of the second, third and fourth years following the
date of grant and with the remaining portion of the option becoming
exercisable at the end of the fourth year, unless the vesting schedule is
accelerated to become fully exercisable upon death, retirement, disability
or a change in control as defined in R.R. Donnelley's 1995 Stock Incentive
Plan.
(2) Represents the percentage of total options to purchase R.R. Donnelley
Common Stock granted in 1995 to employees of R.R. Donnelley and its
subsidiaries.
(3) The Black-Scholes option pricing method has been used to calculate present
value as of date of grant, December 15, 1995. The present value as of the
date of grant, calculated using the Black-Scholes method, is based on
assumptions about future interest rates, stock price volatility and
dividend yield. The Black-Scholes model is a complicated mathematical
formula widely used to value exchange traded options. However, stock
options granted by R.R. Donnelley to its officers and those of its
subsidiaries differ from exchange traded options in three key respects:
options granted by R.R. Donnelley to its officers and those of its
subsidiaries are long-term, non-transferable and subject to vesting
restrictions while exchange traded options are short-term and can be
exercised or sold immediately in a liquid market. The Black-Scholes model
relies on several key assumptions to estimate the present value of
options, including the volatility of and dividend yield on the security
underlying the option, the risk-free rate of return on the date of grant
and the term of the option. In calculating the grant date present values
set forth in the table, a factor of 21.177% has been assigned to the
volatility of the Common Stock; based on daily stock market quotations for
the twelve months preceding the date of grant, the yield on the R.R.
Donnelley Common Stock has been set at 1.89%; and based upon its annual
dividend rate of $.72 per share at the date of grant, the risk-free rate
of return has been fixed at 5.71%, the rate for a ten year U.S. Treasury
Note on the date of grant as reported in the Federal Reserve Statistical
Release, and the exercise of the options has been assumed to occur at the
end of the actual option term of ten years. There is no assurance that
these assumptions will prove to be true in the future. Consequently, the
grant date present values set forth in the table are only theoretical
values and may not accurately determine present value. The actual value,
if any, that may be realized by each individual will depend on the market
price of R.R. Donnelley Common Stock on the date of exercise.

44
<PAGE>

YEAR-END OPTION/SAR VALUES

The following table sets forth certain information for the individuals named
in the Summary Compensation Table regarding their holdings of unexercised
options to purchase R.R. Donnelley Common Stock as of December 31, 1995. None
of such individuals exercised any options to purchase R.R. Donnelley Common
Stock in 1995.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS
12/31/95 (#) AT 12/31/95 ($)(1)
------------------------- -------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------------------- -------------------------
<S> <C> <C>
Rhonda I. Kochlefl.......... 11,600/16,400 145,200/117,050
Leo S. Spiegel.............. 0/ 4,000 0/ 4,500
Thomas P. Bradbury.......... 0/ 4,000 0/ 4,500
Linda A. Finkel............. 1,000/ 6,000 10,050/ 34,575
David J. Shea............... 600/ 5,400 6,450/ 29,175
</TABLE>
- --------
(1) The value is calculated based on the aggregate amount of the excess of the
average of the high and low prices of R.R. Donnelley Common Stock as
reported in the New York Stock Exchange Composite Transactions Report for
December 29, 1995 over the relevant exercise price(s).

RETIREMENT BENEFIT PLAN

DESI currently does not maintain any defined benefit plans. Prior to May 1,
1996, DESI was a participating employer in R.R. Donnelley's Retirement Benefit
Plan, under which employees who met the eligibility requirements accrued in
1995 and in 1996 through April 30 an annual retirement benefit computed at the
rate of 1.5% on compensation up to "covered compensation," and 2% on
compensation in excess of "covered compensation" but not in excess of $150,000
(the maximum amount of compensation for 1995 on which benefits can accrue
under current law). The compensation covered by the Plan includes wages and
salaries, supplementary compensation and commissions. An employee's "covered
compensation" for a year is the average of the Social Security wage bases for
the 35-year period ending with such year. Benefits are paid monthly after
retirement for the life of the participant (straight life annuity amount) or,
if the participant is married or has elected an optional benefit form, in an
actuarially reduced amount for the life of the participant and the
participant's surviving spouse or other surviving person named as a contingent
member. Benefits under the Retirement Benefit Plan are limited to the extent
required by provisions of the Internal Revenue Code and the Employee
Retirement Income Security Act of 1974. If payment of actual retirement
benefits is limited by such provisions, an amount equal to any reduction in
retirement benefits will be paid as a supplemental benefit under the Unfunded
Supplemental Benefit Plan.

Effective January 1, 1997, the Company intends to offer employees a 401(k)
savings plan with the Company matching a portion of the amounts contributed by
employees.

The following table contains information concerning annual benefits payable
pursuant to the Retirement Benefit Plan on a straight life annuity basis upon
retirement at age 65 for the individuals named in the Summary Compensation
Table. These benefits include the annual benefits to be paid at age 65
computed on service through April 30, 1996. As of April 30, 1996, DESI
employees ceased to accrue any additional benefits under R.R. Donnelley's
Retirement Benefit Plan.

<TABLE>
<CAPTION>
ANNUAL BENEFITS
TO BE PAID AT AGE 65
ON THE BASIS OF
SERVICE THROUGH
INDIVIDUAL APRIL 30, 1996 ($)
- ---------- --------------------
<S> <C> <C> <C>
Rhonda I. Kochlefl................................. $25,233
Leo S. Spiegel..................................... 6,192
Thomas P. Bradbury................................. 7,823
Linda A. Finkel.................................... 19,103
David J. Shea...................................... 6,503
</TABLE>

45
<PAGE>

EMPLOYMENT AGREEMENTS

Ms. Kochlefl has entered into a four-year employment agreement with the
Company commencing on the closing of the Offering. The agreement provides for
an annual base salary of $300,000 with a pro-rated bonus opportunity for 1996
to earn up to 100% of base salary if certain pre-established net income
criteria are met by the Company. Bonus opportunities for 1997 and later years
will be determined by the Board of Directors of the Company or a committee of
the Board. Ms. Kochlefl will be granted, subject to the closing of the
Offering, options to purchase 60,000 shares of Common Stock at a purchase
price equal to the initial public offering price and 5,000 shares of Common
Stock in the form of restricted stock. See "--Stock Plans."

Mr. Spiegel has also entered into a four-year employment agreement with the
Company commencing on the closing of the Offering. The agreement provides for
an annual base salary of $250,000 with a pro-rated bonus opportunity for 1996
to earn up to 80% of base salary if certain pre-established net income
criteria are met by the Company. Bonus opportunities for 1997 and later years
will be determined by the Board of Directors of the Company or a committee of
the Board. Mr. Spiegel will be granted, subject to the closing of the
Offering, options to purchase 40,000 shares of Common Stock at a purchase
price equal to the initial public offering price. See "--Stock Plans."

Each of Ms. Kochlefl's and Mr. Spiegel's employment agreement provides for a
severance payment of up to 45 months' base salary, depending on the date of
severance, where termination is by the Company for any reason other than for
cause or by the executive upon breach by the Company of the agreement or for
good reason. In addition, 100% of all options and restricted stock awards held
by the executive will vest on such termination. A severance payment will not
be payable and options and restricted stock awards will not vest where
termination is by the Company for cause, by the executive for any reason other
than upon breach by the Company of the agreement or for good reason, or by
reason of the executive's retirement or death. In Ms. Kochlefl's case, any
severance payment would be made in a single payment at termination. In Mr.
Spiegel's case, severance payments would be made monthly. Each agreement also
contains customary provisions providing for the non-disclosure of confidential
information and an agreement not to compete with the Company for a period of
24 months after the termination of the agreement.

It is expected that the Company will enter into employment agreements with
each of Mr. Botica and Ms. Finkel commencing on the closing of the Offering.
The Company has included the anticipated costs of such employment agreements
in the unaudited pro forma consolidated statements of income included
elsewhere in this Prospectus.

AGREEMENT WITH FORMER EXECUTIVE OFFICER

The Company and Thomas P. Bradbury, who served as President, LANSystems
division, have announced that Mr. Bradbury left the Company on October 11,
1996. Mr. Bradbury's departure, which was on an amicable basis, resulted in
his responsibilities being assumed by Ms. Kochlefl pending the hiring of his
replacement, which is expected to occur by the end of the year. The Company
and Mr. Bradbury have entered into an agreement pursuant to which the Company
agrees to continue to pay Mr. Bradbury his salary through June 21, 1997, pay
him a pro-rated bonus for 1996 and permit him to participate in the Company's
employee benefit plans through such date. The Company has recorded a charge of
$300,000 in the third quarter of 1996 in respect of the foregoing severance
arrangement.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Both Mr. Spiegel and Mr. Bradbury, in their capacity as officers of LAN
Systems, Inc., played a significant role in the negotiation of the agreement
pursuant to which LANSystems was acquired.

46
<PAGE>

Mr. Spiegel has received, or is expected to receive, the following payments
in respect of such acquisition. At the closing of the acquisition, Mr. Spiegel
received $1,603,500 in respect of his ownership of common stock and options in
LAN Systems, Inc. and $125,000 in partial payment of a noncompetition
agreement included in the employment agreement he entered into with the
Company at such closing. From the closing through June 30, 1996, Mr. Spiegel
received a payment of $92,318 in respect of the earnout obligations included
in the LANSystems purchase agreement and $125,000 as a second installment
related to his noncompetition agreement. Mr. Spiegel is entitled to a final
payment of $250,000 in respect of his noncompetition agreement in January
1997.

Mr. Bradbury has received the following payments in respect of the
acquisition of LANSystems. At the closing of the acquisition, Mr. Bradbury
received $567,500 in respect of his ownership of options in LAN Systems, Inc.
and $250,000 in partial payment of a noncompetition agreement included in the
employment agreement he entered into with the Company at the closing. From the
closing through June 30, 1996, Mr. Bradbury received a payment of $75,439 in
respect of the earnout obligations included in the LANSystems purchase
agreement and $250,000 as a second and final installment related to his
noncompetition agreement.

Messrs. Spiegel and Bradbury are among the representatives of the earnout
participants and have accepted the modification of the earnout obligations
described under "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Acquisition of LANSystems" and will receive
$1,386,600 and $1,143,827, respectively, pursuant to that modification.

STOCK PLANS

In connection with the Offering, the Board of Directors of the Company has
adopted the Company's 1996 Stock Incentive Plan and the Company's 1996 Broad-
Based Employee Stock Plan. The Company has reserved for issuance under the
1996 Stock Incentive Plan and the 1996 Broad-Based Employee Stock Plan an
aggregate of 400,000 shares of Common Stock. Options to purchase Common Stock
have been granted under the 1996 Stock Incentive Plan, subject to closing of
the Offering, as follows: 60,000 options to Rhonda I. Kochlefl; 40,000 options
to Leo S. Spiegel; 30,000 options to Luke F. Botica; 30,000 options to Linda
A. Finkel; 15,000 options to David J. Shea; and 123,350 options to other
employees of the Company; and 5,000 shares of restricted Common Stock have
been granted, subject to the closing of the Offering, to Ms. Kochlefl under
the 1996 Stock Incentive Plan. Each such option will have an exercise price
equal to the initial public offering price and will have a 10-year term. Such
options will become exercisable as follows: in respect of officers of the
Company (including the individuals named above), one-quarter of the shares of
Common Stock subject to the option on each of the first four anniversaries of
the closing of the Offering; in respect of certain managers of the Company,
30% of the shares on each of the first two anniversaries of the closing and
the remainder on the third anniversary of the closing; and, in respect of
certain other employees of the Company, one-half of the shares on each of the
first two anniversaries of the closing of the Offering. The shares of
restricted Common Stock will vest with respect to one-quarter of the shares on
each of the first four anniversaries of the closing of the Offering. The
Company expects to grant an aggregate of 14,250 shares of Common Stock under
the 1996 Broad-Based Employee Stock Plan upon closing of the Offering through
the grant of options to purchase 25 shares of Common Stock to each hourly
employee of the Company as of the date of closing. Each such option will have
an exercise price equal to the initial public offering price, will have a 10-
year term and will become exercisable on the second anniversary of the closing
of the Offering.

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<PAGE>

OWNERSHIP OF CAPITAL STOCK

SECURITY OWNERSHIP OF COMPANY BY MANAGEMENT

Prior to the completion of the Offering, no director or executive officer of
the Company beneficially owns any equity securities of the Company. The
Company has granted, subject to the completion of the Offering, to certain
executive officers and other key employees of the Company, options to purchase
Common Stock under the 1996 Stock Incentive Plan. See "Management--Employment
Agreements" and "--Stock Plans."

SOLE STOCKHOLDER OF THE COMPANY

The following table sets forth certain information regarding the beneficial
ownership by R.R. Donnelley of the Common Stock (i) immediately prior to the
Offering and (ii) as adjusted to reflect the sale of the shares of Common
Stock offered hereby (assuming the Underwriters' over-allotment option is not
exercised). R.R. Donnelley has or will have sole voting and investment power
with respect to all shares indicated as beneficially owned by R.R. Donnelley.

<TABLE>
<CAPTION>
PRIOR TO OFFERING AFTER OFFERING
------------------ ------------------
PERCENT PERCENT
NAME AND ADDRESS NUMBER OF CLASS NUMBER OF CLASS
---------------- --------- -------- --------- --------
<S> <C> <C> <C> <C>
R. R. Donnelley & Sons Company ..... 3,145,000 100% 2,140,000 42.8%
77 West Wacker Drive
Chicago, Illinois 60601
</TABLE>

PRINCIPAL STOCKHOLDERS OF R.R. DONNELLEY

The following table lists the beneficial ownership of R.R. Donnelley Common
Stock with respect to all persons known to the Company to be the beneficial
owner of more than 5% of R.R. Donnelley Common Stock. The information shown
was furnished by Northern Trust Corporation. The percentage of outstanding
R.R. Donnelley Common Stock owned by Northern Trust Corporation is based on
outstanding shares of R.R. Donnelley Common Stock as of December 31, 1995.

<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
------------------- ----------------------- --------
<S> <C> <C>
Northern Trust Corporation............... 16,454,020(1) 10.69%
50 South LaSalle Street
Chicago, Illinois 60675
</TABLE>
- --------
(1) Northern Trust Corporation is the parent holding Company for The Northern
Trust Company and other affiliates and files one Schedule 13G to report
beneficial ownership by all such entities of R.R. Donnelley Common Stock.
Includes shares as to which Northern Trust Corporation has or shares
investment and voting power as follows: sole investment power, 5,143,910
shares (3.34%); shared investment power, 9,735,909 shares (6.32%); sole
voting power, 10,100,383 shares (6.56%); shared voting power, 2,576,123
shares (1.67%).

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<PAGE>

BENEFICIAL OWNERSHIP OF R.R. DONNELLEY COMMON STOCK BY DIRECTORS AND EXECUTIVE
OFFICERS OF THE COMPANY

The following table sets forth, as of June 30, 1996, the number of shares of
R.R. Donnelley Common Stock beneficially owned by each director of the
Company, each of the individuals named in the Summary Compensation Table and
all directors and executive officers of the Company as a group. Unless
otherwise indicated, the beneficial owner has sole voting and investment power
with respect to the indicated shares. The aggregate amount of all R.R.
Donnelley Common Stock beneficially owned by such directors and executive
officers represents less than one percent of the outstanding R.R. Donnelley
Common Stock.

<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL
NAME OF BENEFICIAL OWNER OWNERSHIP (1)
------------------------ -------------
<S> <C>
Rhonda I. Kochlefl......................................... 13,895
Leo S. Spiegel............................................. 225
Thomas P. Bradbury......................................... 275
Linda A. Finkel............................................ 2,193
David J. Shea.............................................. 1,148
Daniel I. Malina........................................... 2,391
W. Ed Tyler................................................ 148,950
Directors and executive officers as a group (eight
persons).................................................. 169,077
</TABLE>
- --------
(1) Includes shares which could be acquired by exercise of stock options as
follows: Ms. Kochlefl, 11,600 shares; Ms. Finkel, 1,000 shares; Mr. Shea,
600 shares; Mr. Malina, 2,000 shares; and Mr. Tyler, 101,200 shares.

RELATIONSHIP WITH R.R. DONNELLEY

GENERAL

Prior to the Offering, the Company was a wholly owned subsidiary of R.R.
Donnelley. R.R. Donnelley is a world leader in managing, reproducing and
distributing print and digital information for the publishing, retailing,
merchandising and information-technology markets and specializes in the
production of catalogs, inserts, magazines, books, directories and financial
and computer documentation. The Offering is a part of the execution by R.R.
Donnelley of its stated objective to sharpen its strategic focus on U.S.
commercial printing, international growth and digital content management and
distribution infrastructure.

Upon completion of the Offering, R.R. Donnelley will own 2,140,000 shares of
Common Stock, representing 42.8% of the outstanding shares of Common Stock
(34.2%, if the Underwriters exercise their over-allotment option in full), and
will be the Company's largest stockholder. Consequently, R.R. Donnelley will
be able to significantly influence such actions as the election of directors
of the Company, the approval of matters submitted for stockholder approval or
preventing a potential takeover. Currently, two of the four members of the
Board of Directors of the Company are officers of R.R. Donnelley. The Company
anticipates that, following the Offering, the Board of Directors will be
increased to six members and two additional directors who are not affiliated
with R.R. Donnelley or the Company will be elected by the Board of Directors
to fill the vacancies.

Prior to the Offering, the Company funded its operations and capital
expenditures through advances from R.R. Donnelley and by selling certain
accounts receivable to a subsidiary of R.R. Donnelley. A significant portion
of the net proceeds of the Offering to the Company will be used in final
payment of approximately $8.7 million for certain contingent obligations
arising from the acquisition of LANSystems and to repay the Dividend Note and
the advances owed to R.R. Donnelley. See "Use of Proceeds" and Notes 4 and 11
of Notes to Consolidated Financial Statements of DESI.

49
<PAGE>

The Company sells information technology services and products to R.R.
Donnelley. These sales approximated $955,000 and $1,665,000 for the period
July 1, 1995 through December 31, 1995 and the six-month period ended June 30,
1996, respectively. The receivables from R.R. Donnelley related to these sales
are reflected in advances due to related party discussed in Note 8 of the
Notes to Consolidated Financial Statements of DESI.

Prior to the Offering, the Company has funded its operations and capital
expenditures and its acquisition of LANSystems, in part, through amounts
advanced from R.R. Donnelley and the sale of its business services outsourcing
accounts receivable to a subsidiary of R.R. Donnelley. The arrangement
pursuant to which the Company sold certain receivables to a subsidiary of R.R.
Donnelley will terminate upon completion of the Offering and the Company
anticipates satisfying its financing needs through a $22.0 million credit
facility the Company expects to enter into prior to completion of the Offering
and from cash flow from operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources." In addition, prior to the Offering, the Company obtained certain
services from R.R. Donnelley, participated in a number of employee benefit
plans maintained by R.R. Donnelley and was included as part of R.R.
Donnelley's federal income tax and certain other tax returns. The Company
entered into certain agreements with R.R. Donnelley relating to these matters.
None of these agreements resulted from "arm's length" negotiations. The
Company estimates that the aggregate amount to be paid by the Company to R.R.
Donnelley under the Transition Services Agreement and the Benefit
Administration Services Agreement described below during the remainder of 1996
following the completion of the Offering will be at least $620,000, which
includes $100,000 for certain services under the Transition Services Agreement
and $520,000 for costs of benefits provided under certain of R.R. Donnelley's
employee benefit plans pursuant to the Benefit Administration Services
Agreement. The Company will no longer participate in any of R.R. Donnelley's
plans after December 31, 1996 and, therefore, it is expected that there will
be no amounts payable in 1997 under the Benefit Administration Services
Agreement. Amounts payable under the Transition Services Agreement in 1997
will be at least $350,000, unless the Company chooses to terminate any of the
available services. Additional amounts may be payable depending on the
Company's usage of the various services being made available by R.R. Donnelley
under such agreements.

The following summary description of the agreements between the Company and
R.R. Donnelley does not purport to be complete and is qualified in its
entirety by reference to the agreements, copies of which are filed as exhibits
to the Registration Statement of which this Prospectus is a part.

TRANSITION SERVICES AGREEMENT

R.R. Donnelley currently provides certain administrative services to the
Company. Charges for these services have been allocated by R.R. Donnelley to
the Company based on various formulas which reasonably approximate the actual
costs incurred. The expenses recorded by the Company for these allocations
were approximately $400,000, $500,000, $650,000 and $381,000 for the years
ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1996,
respectively. See Note 4 of Notes to Consolidated Financial Statements of
DESI.

The Company and R.R. Donnelley have entered into the Transition Services
Agreement, pursuant to which R.R. Donnelley or its affiliates have agreed to
perform certain legal, tax, data processing, risk management, credit and
collection, cash management and banking and accounts payable services for the
Company. The Company will be charged fees and expenses for such services that
the Company believes are at least as favorable to it as could be obtained from
unaffiliated parties for comparable services or arrangements. No assurances
can be made, however, that the Company could not obtain such services at lower
prices from a third party. Pursuant to the terms of the Transition Services

50
<PAGE>

Agreement, the Company will indemnify R.R. Donnelley and its affiliates for
certain losses and expenses arising out of or relating to (i) the provision of
services under the Transition Services Agreement, including, in particular,
data center services; (ii) certain guarantees maintained by R.R. Donnelley for
DESI's benefit pursuant to the Transition Services Agreement; (iii) the use by
the Company of certain facilities leased by R.R. Donnelley; or (iv) continuing
obligations of R.R. Donnelley under certain of the Company's business services
outsourcing contracts, provided that the Company need not provide such
indemnity in the case of clauses (i) and (iii) above if such losses and
expenses are finally judicially determined to have resulted from the gross
negligence or willful misconduct of R.R. Donnelley in providing such services.
The Transition Services Agreement will be in effect for the period commencing
upon closing of the Offering and ending on December 31, 1997, except with
respect to tax services and cash management and banking services, the
provision of which will end on January 31, 1998 and March 31, 1997,
respectively. The Company will have the right to terminate certain services
provided under the Transition Services Agreement upon 30 days' notice.

BENEFIT ADMINISTRATION SERVICES AGREEMENT

The Company currently participates in various employee benefit plans which
are sponsored by R.R. Donnelley. These programs include medical, dental, life
insurance and workers compensation. The Company has reimbursed R.R. Donnelley
for its proportionate cost of these programs based on historical experience
and relative headcount. The Company recorded expense related to the
reimbursement of these costs of approximately $636,000, $967,000, $2,000,000
and $1,500,000 in the years ended December 31, 1993, 1994 and 1995 and the six
months ended June 30, 1996, respectively. See Note 4 of Notes to Consolidated
Financial Statements of DESI.

The Company also participates in a stock purchase plan for selected managers
and key employees sponsored by R.R. Donnelley. Under the plan, the Company is
required to contribute an amount equal to 70% of participants' contributions
(which are limited to 5% of compensation considered for plan purposes), of
which 50% is applied to the purchase of R.R. Donnelley Common Stock and 20% is
paid in cash. Amounts charged to expense by the Company for this plan were
$56,000, $28,000 and $135,000 for the years ended December 31, 1993, 1994 and
1995, respectively. See Note 4 of Notes to Consolidated Financial Statements
of DESI.

The Company and R.R. Donnelley have entered into the Benefit Administration
Services Agreement. Under this agreement, (i) R.R. Donnelley will permit the
Company to continue to participate in the Donnelley Deferred Compensation and
Voluntary Savings Plan and certain welfare plans of R.R. Donnelley until
December 31, 1996; and (ii) the Company will cease being a participant in all
other R.R. Donnelley plans in which it currently participates, including the
R.R. Donnelley stock purchase plan.

The Benefit Administration Services Agreement also provides that the Company
will reimburse R.R. Donnelley for (1) certain costs of benefits provided under
R.R. Donnelley's employee benefit plans for Company employees during the
period in which the Company continues to participate in such plans following
the Offering and (2) the Company's pro rata share of administration and plan
asset management expenses incurred in the operation of these plans during such
period.

TAX ALLOCATION AND INDEMNIFICATION AGREEMENT

The Company is currently included in the consolidated federal income tax
return of R.R. Donnelley and files on a combined basis with R.R. Donnelley in
certain states. Thus, rather than paying income taxes directly in these
jurisdictions, the Company currently makes tax sharing payments to R.R.
Donnelley pursuant to R.R. Donnelley's tax allocation policy. In general, R.R.
Donnelley's tax allocation policy provides that the consolidated or combined
tax liability is allocated among the entities in the

51
<PAGE>

consolidated or combined group based principally upon taxable income, credits,
preferences and other amounts directly related to each entity. Upon completion
of the Offering, the Company will no longer be permitted to be included in
such consolidated and combined tax returns. Instead, it will file its own
federal, state and local income tax returns and pay its own taxes on a
separate Company basis. Pursuant to a Tax Allocation and Indemnification
Agreement entered into by the Company and R.R. Donnelley, however, the Company
remains obligated to pay to R.R. Donnelley any income taxes shown on such
consolidated and combined tax returns, generally to the extent attributable to
the Company, for calendar year 1995 and for the tax period (the "Interim
Period") beginning on January 1, 1996 and ending on the date of the completion
of the Offering (to the extent that it has not previously paid such amounts to
R.R. Donnelley). Under federal regulations, the Company will be subject to
several liability for the consolidated federal income taxes for any tax year
(including the Interim Period) in which it was a member of the R.R. Donnelley
federal consolidated group (whether or not such taxes are attributable to the
Company). R.R. Donnelley has agreed to indemnify the Company against such
liability and any similar liability under state and local law. R.R. Donnelley
has also agreed to indemnify the Company against any increase in the Company's
taxes (whether or not related to taxes paid on a consolidated or combined
basis) for periods ending on or prior to the date of completion of the
Offering that results from an action of a taxing authority or a court (except
to the extent such increase provides tax benefits to the Company for periods
beginning after such date, in which case the sum of such tax benefits will be
retained by R.R. Donnelley or paid by the Company to R.R. Donnelley) to the
extent the aggregate amount of such taxes exceeds $100,000.

DESCRIPTION OF CAPITAL STOCK AND CORPORATE CHARTER

The authorized capital stock of the Company consists of 15,000,000 shares of
Common Stock, par value $.01 per share, and 1,000,000 shares of preferred
stock, par value $.01 per share (the "Preferred Stock"). The following summary
description of the capital stock, First Amended and Restated Certificate of
Incorporation and By-laws of the Company does not purport to be complete and
is qualified in its entirety by reference to the Company's First Amended and
Restated Certificate of Incorporation and By-laws, copies of which are filed
as exhibits to the Registration Statement of which this Prospectus is a part
(see "Available Information"), and to the Delaware General Corporation Law
("DGCL").

COMMON STOCK

Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights
of outstanding Preferred Stock. See "Dividend Policy." Upon the liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to receive ratably the net assets of the Company available after the
payment of all debts and other liabilities and subject to the prior rights of
holders of any outstanding Preferred Stock. Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of Common Stock are, and the shares offered by the Company in the
Offering will be, when issued and paid for, fully paid and nonassessable. The
rights, preferences and privileges of holders of Common Stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
series of Preferred Stock which the Company may designate and issue in the
future.

PREFERRED STOCK

The Board of Directors has the authority, subject to certain limitations
prescribed by law, without further vote or action by the stockholders, to
issue from time to time the Preferred Stock in one or more

52
<PAGE>

classes or series and to fix or alter the designations, powers, preferences,
rights and any qualifications, limitations or restrictions of the shares of
each such class or series thereof, including the dividend rates, conversion
rights, voting rights, terms of redemption (including sinking fund
provisions), liquidation preferences and the number of shares constituting
each such class or series. The issuance of Preferred Stock, while providing
flexibility in connection with possible acquisitions or other corporate
purposes, may have the effect of delaying, deferring or preventing a change of
control of the Company. The Company has no present plans to issue any shares
of Preferred Stock.

CERTAIN CHARTER AND BY-LAW PROVISIONS

Certain provisions of the Company's First Amended and Restated Certificate
of Incorporation and By-laws, summarized in the following paragraphs, may be
considered to have an anti-takeover effect and may delay, deter or prevent a
tender offer, proxy contest or other takeover attempt that a stockholder might
consider to be in such stockholder's best interest, including such an attempt
as might result in payment of a premium over the market price for shares held
by stockholders.

Classified Board of Directors

The Company's First Amended and Restated Certificate of Incorporation
provides for the Board of Directors to be divided into three classes of
directors serving staggered three-year terms. As a result, approximately one-
third of the Board of Directors will be elected each year. Classification of
the Board of Directors expands the time required to change the composition of
a majority of directors and may tend to discourage a proxy contest or other
takeover bid for the Company. Moreover, under the DGCL, in the case of a
corporation having a classified board of directors, the stockholders may
remove a director only for cause. These provisions, when coupled with
provisions of the Company's First Amended and Restated Certificate of
Incorporation authorizing only the Board of Directors to fill vacant
directorships, will preclude stockholders of the Company from removing
incumbent directors without cause and simultaneously gaining control of the
Board of Directors by filling the vacancies with their own nominees.

Special Meetings of Stockholders

The Company's By-laws provide that special meetings of stockholders may be
called by the Chairman of the Board or the President and shall be called by
the President or the Secretary at the request in writing of a majority of the
Board of Directors of the Company.

Advance Notice Requirements for Stockholder Proposals and Director
Nominations

The Company's By-laws provide that stockholders seeking to bring business
before a meeting of stockholders, or to nominate candidates for election as
directors at a meeting of stockholders, must provide timely notice thereof in
writing. To be timely, a stockholder's notice must be delivered to, or mailed
and received at, the principal executive office of the Company, not less than
60 days nor more than 90 days prior to the scheduled meeting (or, if a special
meeting, not later than the close of business on the tenth day following the
earlier of (i) the day on which such notice of the date of the meeting was
mailed, or (ii) the day on which public disclosure of the date of the special
meeting was made). The By-laws also specify certain requirements pertaining to
the form and substance of a stockholder's notice. These provisions may
preclude some stockholders from making nominations for directors at an annual
or special meeting or from bringing other matters before the stockholders at a
meeting.

53
<PAGE>

No Action by Written Consent of the Stockholders

The Company's First Amended and Restated Certificate of Incorporation does
not allow the stockholders of the Company to take action by written consent if
R.R. Donnelley holds less than 50% of the issued and outstanding Common Stock.

Delaware Takeover Statute

Section 203 of the DGCL ("Section 203") prohibits a public Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which such person became an interested stockholder unless: (i) prior to such
date, the Board of Directors approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder; or (ii) upon becoming an interested stockholder, the stockholder
then owned at least 85% of the voting stock, as defined in Section 203; or
(iii) subsequent to such date, the business combination is approved by both
the Board of Directors and by holders of at least 66 2/3% of the corporation's
outstanding voting stock, excluding shares owned by the interested
stockholder. For these purposes, the term "business combination" includes
mergers, asset sales and other similar transactions with an "interested
stockholder." An "interested stockholder" is a person who, together with
affiliates and associates, owns (or, within the prior three years, did own)
15% or more of the corporation's voting stock. Pursuant to the First Amended
and Restated Certificate of Incorporation, the Company has expressly elected
not to be governed by Section 203.

Limitations of Liability

The Company's First Amended and Restated Certificate of Incorporation
contains a provision that is designed to limit the directors' liability to the
extent permitted by the DGCL and any amendments thereto. Specifically,
directors will not be held liable to the Company or its stockholders for an
act or omission in such capacity as a director, except for liability as a
result of: (i) a breach of the duty of loyalty to the Company or its
stockholders, (ii) actions or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) payment of an
improper dividend or improper repurchase of the Company's stock under Section
174 of the DGCL, or (iv) actions or omissions pursuant to which the director
will receive an improper personal benefit. The principal effect of the
limitation of liability provision is that a stockholder is unable to prosecute
an action for monetary damages against a director of the Company unless the
stockholder can demonstrate one of the specified bases for liability. This
provision, however, does not eliminate or limit director liability arising in
connection with causes of action brought under the federal securities laws.
The Company's First Amended and Restated Certificate of Incorporation does not
eliminate its directors' duty of care. The inclusion of this provision in the
Company's First Amended and Restated Certificate of Incorporation may,
however, discourage or deter stockholders or management from bringing a
lawsuit against directors for a breach of their fiduciary duties, even though
such an action, if successful, might otherwise have benefited the Company and
its stockholders. This provision should not affect the availability of
equitable remedies such as injunction or rescission based upon a director's
breach of the duty of care.

Indemnification

The Company's By-laws also provide that the Company will indemnify its
directors and officers to the fullest extent permitted by Delaware law. The
Company is generally required to indemnify its directors and officers for all
judgments, fines, settlements, legal fees and other expenses incurred in
connection with pending or threatened legal proceedings because of the
director's or officer's position with the Company or another entity that the
director or officer serves at the Company's request, subject to certain
conditions, and to advance funds to its directors and officers to enable them
to defend against such proceedings. To receive indemnification, the director
or officer must have been successful in the legal proceedings or acted in good
faith and in what was reasonably believed to be a lawful manner in the
Company's best interest.

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<PAGE>

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.

PRINCIPAL AND SELLING STOCKHOLDER

R.R. Donnelley is currently the sole stockholder of the Company. Upon
completion of the Offering, R.R. Donnelley will own 42.8% of the outstanding
Common Stock of the Company (34.2% if the Underwriters exercise their over-
allotment option in full). See "Ownership of Capital Stock--Sole Stockholder
of the Company."

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have outstanding 5,000,000
shares of Common Stock. Of these shares, the 2,860,000 shares to be sold in
the Offering (3,289,000 shares if the overallotment option granted to the
Underwriters is exercised in full) will be freely tradeable without
restrictions or further registration under the Securities Act of 1933, as
amended (the "Securities Act"), except for any shares purchased by an
"affiliate" of the Company which will be subject to the resale limitations of
Rule 144 ("Rule 144") under the Securities Act of 1933, as amended (the
"Securities Act"). The remaining 2,140,000 outstanding shares of Common Stock
(1,711,000 shares if the Underwriters exercise their over-allotment option in
full) are deemed "restricted securities" within the meaning of Rule 144. These
"restricted securities" may not be sold in the absence of registration under
the Securities Act other than in accordance with Rule 144 or another exemption
from registration.

In general, under Rule 144 as currently in effect, a person (including an
"affiliate" (as that term is defined under the Securities Act)) who
beneficially owns shares that are "restricted securities" as to which at least
two years have elapsed since the later of the date of acquisition of such
securities from the issuer or from an affiliate of the issuer, and any
affiliate who owns shares that are not "restricted securities," is entitled to
sell, within any three-month period, a number of shares that does not exceed
the greater of one percent of the then outstanding shares of Common Stock
(50,000 shares following completion of the Offering) or the average weekly
trading volume in the Common Stock in composite trading on all exchanges
during the four calendar weeks preceding such sale. A person (or persons whose
shares are aggregated) who is not deemed an "affiliate" of the Company and who
has beneficially owned restricted securities as to which at least three years
have elapsed since the later of the date of the acquisition of such securities
from the issuer or from an affiliate of the issuer is entitled to sell such
shares under Rule 144 without regard to the volume limitations described
above. The foregoing summary of Rule 144 is not intended to be a complete
description thereof.

Prior to the Offering, there has been no public market for the Common Stock,
and no prediction can be made as to the effect, if any, that market sales of
share of Common Stock, or the availability of such shares for sale, will have
on the market price of the Common Stock prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Stock in the public
market, or the perception that such sales could occur, could adversely affect
prevailing market prices for the Common Stock. Although R.R. Donnelley in the
future may effect sales or other dispositions of Common Stock that would
reduce its ownership interest in the Company, R.R. Donnelley has advised the
Company it has no plans to do so. See "Relationship with R.R. Donnelley." In
connection with the Offering, subject to certain exceptions, the Company and
R.R. Donnelley have agreed not to offer, sell, or otherwise dispose of,
directly or indirectly, or announce an offering of, any shares of Common Stock
or any securities convertible into, or exchangeable for, shares of Common
Stock for a period of 180 days after the date of this Prospectus without the
prior written consent of Salomon Brothers Inc. See "Underwriting."

55
<PAGE>

STOCK OPTIONS AND RESTRICTED STOCK

In connection with the Offering, the Company expects to grant certain
employees 5,000 shares of restricted Common Stock and options to acquire up to
an aggregate of 312,600 shares of Common Stock at the initial public offering
price set forth on the cover page of this Prospectus. A total of 87,400
additional shares of Common Stock will be available for future grants under
the Company's 1996 Stock Incentive Plan and the 1996 Broad-Based Employee
Stock Plan. See "Management--Stock Plans."

The Company intends to file one or more registration statements on Form S-8
under the Securities Act to register all shares of Common Stock issuable under
the Company's 1996 Stock Incentive Plan and the 1996 Broad-Based Employee
Stock Plan, and such registration statements are expected to become effective
upon filing. Shares covered by these registration statements will thereupon be
eligible for sale in the public markets.

UNDERWRITING

Subject to the terms and conditions set forth in an underwriting agreement
among the Company, R.R. Donnelley and the Underwriters (the "Underwriting
Agreement"), the Company and R.R. Donnelley have severally agreed to sell to
each of the Underwriters named below (the "Underwriters"), for whom Salomon
Brothers Inc, Montgomery Securities and J.P. Morgan Securities Inc. are acting
as representatives (the "Representatives"), and each of the Underwriters has
severally agreed to purchase from the Company and R.R. Donnelley, the number
of shares of Common Stock set forth opposite its name below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Salomon Brothers Inc............................................ 529,000
Montgomery Securities........................................... 528,000
J.P. Morgan Securities Inc...................................... 528,000
Bear, Stearns & Co. Inc......................................... 60,000
Alex. Brown & Sons Incorporated................................. 60,000
Cazenove Inc.................................................... 60,000
Donaldson, Lufkin & Jenrette Securities Corporation............. 60,000
A.G. Edwards & Sons, Inc........................................ 60,000
Goldman, Sachs & Co............................................. 60,000
Lehman Brothers................................................. 60,000
Morgan Stanley & Co. Incorporated............................... 60,000
Nesbitt Burns Securities Inc.................................... 60,000
Oppenheimer & Co., Inc.......................................... 60,000
Robertson, Stephens & Company LLC............................... 60,000
Smith Barney Inc................................................ 60,000
Advest Inc...................................................... 45,000
Dain Bosworth Incorporated...................................... 45,000
Everen Securities, Inc.......................................... 45,000
Fahnestock & Co. Inc............................................ 45,000
McDonald & Company Securities, Inc.............................. 45,000
Raymond James & Associates, Inc................................. 45,000
The Robinson-Humphrey Company, Inc.............................. 45,000
Soundview Financial Group, Inc.................................. 45,000
Sutro & Co. Incorporated........................................ 45,000
The Chicago Corporation......................................... 30,000
David A. Noyes & Company........................................ 30,000
Punk, Ziegel & Knoell, L.P...................................... 30,000
Ragen Mackenzie Incorporated.................................... 30,000
Rauscher Pierce Refsnes, Inc.................................... 30,000
---------
Total....................................................... 2,860,000
=========
</TABLE>

56
<PAGE>

In the Underwriting Agreement, the Underwriters have severally agreed,
subject to the terms and conditions set forth therein, to purchase all of the
shares of Common Stock offered hereby (other than those subject to the over-
allotment option described below) if any such shares are purchased. In the
event of a default by any Underwriter, the Underwriting Agreement provides
that, in certain circumstances, the purchase commitments of the non-defaulting
Underwriters may be increased or the Underwriting Agreement may be terminated.

The Company and R.R. Donnelley have been advised by the Representatives that
the several Underwriters propose initially to offer the shares of Common Stock
to the public at the public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in
excess of $0.975 per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $0.100 per share to certain other
dealers. After the public offering, the public offering price and such
concessions may be changed.

R.R. Donnelley has granted the Underwriters an option, exercisable within 30
days of the date of this Prospectus, to purchase up to an additional 429,000
shares of Common Stock at the initial price to the public set forth on the
cover page of this Prospectus, solely to cover over-allotments. To the extent
that the Underwriters exercise such option, in whole or in part, each
Underwriter will have a firm commitment, subject to certain conditions, to
purchase the same proportion of the option shares as the number of shares of
Common Stock to be purchased by such Underwriter in the above table bears to
the total number of shares of Common Stock offered by the Underwriters hereby.

The Underwriting Agreement provides that the Company and R.R. Donnelley,
jointly and severally, will indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act, or contribute to
payments the Underwriters may be required to make in respect thereof.

The Underwriters have informed the Company and R.R. Donnelley that they do
not intend to confirm sales to any account over which they exercise
discretionary authority.

The Company and R.R. Donnelley have each agreed with the Underwriters that
they will not offer, sell or contract to sell, or otherwise dispose of,
directly or indirectly, or announce an offering of, any shares of Common Stock
or any securities convertible into, or exchangeable for, shares of Common
Stock for a period of 180 days from the date of this Prospectus, without the
prior written consent of Salomon Brothers Inc, except grants of options and
issuances and sales of Common Stock issued pursuant to any employee or
director stock option plan, stock ownership plan or stock purchase plan in
effect on the date the Underwriting Agreement is executed.

Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price of the Common Stock was determined by
negotiation among the Company, R.R. Donnelley and the Representatives. Among
the factors considered in determining the initial public offering price were
the Company's financial and operating history and condition, the future
prospects of the Company and its industry in general, an assessment of the
management of the Company, the general conditions of the securities market at
the time of the Offering and the market prices of securities and certain
financial and operating information of companies engaged in activities similar
to those of the Company. There can be no assurance that the prices at which
the Common Stock will sell in the public market after the Offering will not be
lower than the price at which they were sold in the Offering by the
Underwriters.

Montgomery Securities is a client of the Company. Morgan Guaranty Trust
Company of New York, an affiliate of J.P. Morgan Securities Inc., is a client
of the Company and a lender to the Selling Stockholder.

57
<PAGE>

At the request of the Company, the Underwriters have reserved up to 86,700
shares of the shares of Common Stock offered by the Company hereby for sale at
the public offering price set forth on the cover page of this Prospectus to
certain directors, officers and employees of the Company and certain of their
family members. The number of shares of Common Stock offered by the Company
hereby that are available for sale to the general public will be reduced to
the extent such persons purchase such reserved shares. Any reserved shares not
so purchased will be offered by the Underwriters to the general public on the
same basis as the other shares offered hereby. All purchasers of the shares of
Common Stock reserved pursuant to this paragraph who are also directors or
senior officers of the Company will be required to enter into agreements
identical to those described in the immediately preceding paragraph
restricting the transferability of such shares for a period of 180 days after
the date of this Prospectus.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Sidley & Austin, Chicago, Illinois. H. Blair White,
Counsel to Sidley & Austin, is a director of R.R. Donnelley, currently the
sole stockholder of the Company. Mr. White beneficially owns 31,600 shares of
R.R. Donnelley Common Stock. Certain legal matters in connection with this
Offering will be passed upon for the Underwriters by Winston & Strawn,
Chicago, Illinois. Sidley & Austin and Winston & Strawn are both clients of
the Company, with Sidley & Austin being the Company's largest client.

EXPERTS

The (a) consolidated financial statements and financial statement schedule
of the Company as of December 31, 1994 and 1995 and for each of the three
years in the period ended December 31, 1995, and (b) consolidated financial
statements of LAN Systems, Inc. as of December 31, 1994 and for each of the
two years in the period ended December 31, 1994 and the period from January 1,
1995 through
June 21, 1995, each appearing in this Prospectus and in the Registration
Statement mentioned below, have been audited by Arthur Andersen LLP,
independent public accountants, as set forth in their reports thereon
appearing elsewhere in this Prospectus and in the Registration Statement, and
are included in reliance upon such reports given upon the authority of such
firm as experts in auditing and accounting.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement," which term shall include the amendments, exhibits and schedule
thereto), pursuant to the Securities Act and the rules and regulations
promulgated thereunder, with respect to the Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all the information set forth in the Registration Statement, certain
parts of which are omitted from the Prospectus in accordance with the rules
and regulations of the Commission, and to which reference is hereby made.

After completion of the Offering, the Company will be subject to the
information and reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and, in accordance therewith, will be
required to file proxy statements, reports and other information with the
Commission. The Registration Statement, as well as any such report, proxy
statement and other information filed by the Company with the Commission, may
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at 7 World
Trade

58
<PAGE>

Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
can be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
maintains a web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.

The Company intends to furnish to its stockholders annual reports containing
consolidated financial statements audited by an independent public accounting
firm and quarterly reports for the first three quarters of each fiscal year
containing interim unaudited consolidated financial information.

Statements made in this Prospectus concerning the provisions of any
contract, agreement or other document referred to herein are not necessarily
complete. With respect to each such statement concerning a contract, agreement
or other document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission, reference is made to such exhibit or
other filing for a more complete description of the matter involved, and each
such statement is qualified in its entirety by such reference.

The following trademarks are mentioned in this Prospectus: Microsoft
Windows, Visual Basic, Microsoft Exchange Server and Windows Solutions, which
are registered trademarks of Microsoft Corporation; Lotus Notes, which is a
registered trademark of Lotus Development Corporation; GroupWise, which is a
registered trademark of Novell, Inc.; PC DOCS, which is a registered trademark
of PC Docs Inc.; and InformationWeek, which is a registered trademark of CMP
Publications, Inc.

59
<PAGE>

DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements of Donnelley Enterprise Solutions
Incorporated:
Report of Independent Public Accountants................................ F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995, and
unaudited as of June 30, 1996.......................................... F-3
Consolidated Income Statements for the Years Ended December 31, 1993,
1994 and 1995, and unaudited for the Six Months Ended June 30, 1995,
and June 30, 1996...................................................... F-4
Consolidated Statements of Changes in Shareholder's Equity for the Years
Ended December 31, 1993, 1994 and 1995, and unaudited for the Six
Months Ended June 30, 1996............................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1993, 1994 and 1995, and unaudited for the Six Months Ended June 30,
1995, and June 30, 1996................................................ F-6
Notes to Consolidated Financial Statements.............................. F-7
Consolidated Financial Statements of Completed Acquisition:
LAN Systems, Inc. and Subsidiaries:
Report of Independent Public Accountants................................ F-16
Consolidated Balance Sheet as of December 31, 1994...................... F-17
Consolidated Income Statements for the Years Ended December 31, 1993 and
1994, and the Period January 1, 1995 through June 21, 1995............. F-18
Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended December 31, 1993 and 1994, and the Period January 1, 1995
through June 21, 1995.................................................. F-19
Consolidated Statements of Cash Flows for the Years Ended December 31,
1993 and 1994, and the Period January 1, 1995 through June 21, 1995.... F-20
Notes to Consolidated Financial Statements.............................. F-21
</TABLE>
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholder of
Donnelley Enterprise Solutions Incorporated:

We have audited the accompanying consolidated balance sheets of DONNELLEY
ENTERPRISE SOLUTIONS INCORPORATED (a Delaware corporation) as of December 31,
1995 and 1994, and the related consolidated income statements, changes in
shareholder's equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial statements referred to above present fairly,
in all material respects, the financial position of Donnelley Enterprise
Solutions Incorporated as of December 31, 1995 and 1994, and the results of
its operations and cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting
principles.

Arthur Andersen LLP

Chicago, Illinois,
July 3, 1996
(except for the matters discussed in Note 11,
as to which the date is October 11, 1996)

F-2
<PAGE>

DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------- JUNE 30,
ASSETS 1994 1995 1996
------ ------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash and equivalents.............................. $ -- $ 652 $ 298
Accounts receivable, less allowances for doubtful
accounts of $0 in 1994, $607 in 1995 and $538 in
1996............................................. 727 9,674 11,229
Unbilled receivables.............................. 1,024 1,473 5,660
Inventories....................................... 284 3,574 4,451
Prepaid expenses and other current assets......... 207 488 466
Income tax receivable............................. -- 1,188 1,277
Deferred income taxes............................. 127 1,222 978
------ ------- -------
Total current assets............................ 2,369 18,271 24,359
Property and equipment, net, at cost................ 7,192 9,075 9,129
Deferred income taxes............................... 252 780 791
Goodwill, net....................................... -- 11,511 11,999
Other noncurrent assets............................. -- 59 61
------ ------- -------
Total assets.................................... $9,813 $39,696 $46,339
====== ======= =======
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities:
Capital lease obligations, current portion........ $1,301 $ 1,347 $ 1,169
Advances due to related party..................... 191 4,672 17,637
Accounts payable.................................. 1,344 6,321 5,430
Accrued salary and benefits....................... 1,219 3,046 2,406
Accrued other expenses............................ 120 1,652 1,080
Customer prepayments.............................. 3,094 3,538 793
Deferred revenues................................. -- 1,332 753
------ ------- -------
Total current liabilities....................... 7,269 21,908 29,268
------ ------- -------
Noncurrent Liabilities:
Capital lease obligations......................... 2,544 1,778 1,314
Other noncurrent liabilities...................... -- 253 --
------ ------- -------
Total noncurrent liabilities.................... 2,544 2,031 1,314
------ ------- -------
Shareholder's equity:
Common stock--DESI, $.01 par value, 15,000,000
authorized shares; 3,145,000 issued and
outstanding at December 31, 1995 and June 30,
1996............................................. -- 31 31
Preferred stock--DESI, $.01 par value, 1,000,000
authorized shares; none issued and outstanding... -- -- --
Additional paid-in capital........................ -- 15,726 15,726
Retained earnings................................. -- -- --
------ ------- -------
Total shareholder's equity...................... -- 15,757 15,757
------ ------- -------
Total liabilities and shareholder's equity...... $9,813 $39,696 $46,339
====== ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>

DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED

CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------- ---------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................ $23,527 $34,745 $65,944 $21,108 $45,243
Cost of revenues........................ 18,800 27,800 53,900 18,077 35,309
------- ------- ------- ------- -------
Gross profit........................ 4,727 6,945 12,044 3,031 9,934
Selling expenses........................ 1,665 2,110 5,563 1,249 4,633
General and administrative expenses..... 1,333 1,540 4,866 1,082 3,536
Amortization of goodwill................ -- -- 295 -- 306
------- ------- ------- ------- -------
Earnings from operations............ 1,729 3,295 1,320 700 1,459
Interest expense........................ 184 283 522 230 126
------- ------- ------- ------- -------
Earnings before income taxes........ 1,545 3,012 798 470 1,333
Income taxes............................ 684 1,277 495 208 712
------- ------- ------- ------- -------
Net income.......................... $ 861 $ 1,735 $ 303 $ 262 $ 621
======= ======= ======= ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED SHAREHOLDER'S
STOCK CAPITAL EARNINGS EQUITY
------ ---------- -------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1992.......... $-- $ -- $ -- $ --
Current-year earnings............... -- -- 861 861
Repayments to related party......... -- -- (861) (861)
---- ------- ------ -------
Balance at December 31, 1993.......... -- -- -- --
Current-year earnings............... -- -- 1,735 1,735
Repayments to related party......... -- -- (1,735) (1,735)
---- ------- ------ -------
Balance at December 31, 1994.......... -- -- -- --
Current-year earnings............... -- -- 303 303
Contribution of LANSystems from
related party...................... 31 15,726 -- 15,757
Repayments to related party......... -- -- (303) (303)
---- ------- ------ -------
Balance at December 31, 1995.......... 31 15,726 -- 15,757
Current-period earnings
(unaudited)........................ -- -- 621 621
Dividend to related party
(unaudited)........................ -- -- (621) (621)
---- ------- ------ -------
Balance at June 30, 1996 (unaudited).. $ 31 $15,726 $ -- $15,757
==== ======= ====== =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ------------------
1993 1994 1995 1995 1996
------ ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows provided by (used
in) operating activities:
Net income................... $ 861 $ 1,735 $ 303 $ 262 $ 621
Depreciation and
amortization................ 1,516 2,297 3,446 1,528 2,109
Amortization of goodwill..... -- -- 295 -- 306
Net changes in assets and
liabilities................. (989) 2,653 (109) (3,053) (12,135)
------ ------- -------- -------- --------
Net cash provided by
(used in) operating
activities.............. 1,388 6,685 3,935 (1,263) (9,099)
------ ------- -------- -------- --------
Cash flows used in investing
activities:
Capital expenditures......... (787) (2,081) (4,084) (1,007) (2,139)
Acquisition of LANSystems by
related party............... -- -- (16,633) (16,633) (794)
------ ------- -------- -------- --------
Net cash used in
investing activities.... (787) (2,081) (20,717) (17,640) (2,933)
------ ------- -------- -------- --------
Cash flows (used for) provided
by financing activities:
Advances from (to) related
parties, net................ 731 (1,990) 4,481 4,007 12,965
Repayments/dividend to
related party............... (861) (1,735) (303) (262) (621)
Contribution of LANSystems
from related party.......... -- -- 15,757 15,757 --
Principal payments on capital
leases...................... (471) (879) (1,301) (599) (666)
Principal payments on
borrowings.................. -- -- (1,200) -- --
------ ------- -------- -------- --------
Net cash (used for)
provided by financing
activities.............. (601) (4,604) 17,434 18,903 11,678
------ ------- -------- -------- --------
Net increase (decrease) in cash
and equivalents............... $ -- $ -- $ 652 $ -- $ (354)
Cash and equivalents, at
beginning of period........... -- -- -- -- 652
------ ------- -------- -------- --------
Cash and equivalents, at end of
period........................ $ -- $ -- $ 652 $ -- $ 298
====== ======= ======== ======== ========
The changes in assets and
liabilities, net of balances
assumed through acquisitions,
were as follows:
Decrease (increase) in
assets--
Receivables, net........... $ (510) $ (964) $ (1,667) $ (2,277) $ (5,742)
Inventories................ (36) (62) 543 82 (877)
Prepaid expenses and other. (178) (5) (24) -- 22
Income tax receivable...... -- -- (196) -- (89)
Deferred income taxes...... (133) (120) (496) (79) 233
Other noncurrent assets.... -- -- (3) -- (2)
Increase (decrease) in
liabilities--
Accounts payable........... 166 385 671 752 (891)
Accrued salary and
benefits.................. 70 368 1,081 46 (640)
Accrued other expenses..... (368) (43) 1,214 644 (572)
Customer prepayments....... -- 3,094 444 (164) (2,745)
Deferred revenues.......... -- -- (1,917) (2,307) (579)
Other noncurrent
liabilities............... -- -- 241 250 (253)
------ ------- -------- -------- --------
Net change in assets and
liabilities............. $ (989) $ 2,653 $ (109) $ (3,053) $(12,135)
====== ======= ======== ======== ========
Cash paid during the period
for:
Interest..................... $ 184 $ 283 $ 522 $ 230 $ 126
Income taxes................. -- -- 86 -- 246
====== ======= ======== ======== ========
Supplemental non-cash investing
and financing activities:
Capital leases............... $1,939 $ 2,052 $ 581 $ 486 $ 24
====== ======= ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.

F-6
<PAGE>

DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND NATURE OF OPERATIONS:

Donnelley Business Services ("DBS") was an unincorporated business unit of
R. R. Donnelley & Sons Company ("R.R. Donnelley") from its organization in
1988 through December 31, 1995. On June 21, 1995, R.R. Donnelley acquired LAN
Systems, Inc. ("LANSystems") in a business combination accounted for as a
purchase (see Note 10 for further discussion). Following the acquisition,
LANSystems was a wholly owned subsidiary of R.R. Donnelley and was operated
together with DBS. Effective January 1, 1996, R.R. Donnelley contributed the
assets and liabilities of DBS to LANSystems and LANSystems changed its name to
Donnelley Enterprise Solutions Incorporated ("DESI"). The accompanying
financial statements have been restated to reflect the consolidation of
entities under common control by R.R. Donnelley since the date of acquisition
of LANSystems. LANSystems is included in the results of operations of the
accompanying financial statements since July 1, 1995. DESI and its wholly
owned subsidiaries are collectively referred to herein as the "Company."

The Company is a single-source provider of integrated information management
services to professional service providers, primarily large law firms,
investment banking firms and accounting firms. The Company operates entirely
within the information management services segment. Within this segment, the
Company offers two general categories of services: business services
outsourcing and information technology services. The Company's business
services outsourcing offerings include document services, such as
reprographic, networked and color printing, mailroom and facsimile services;
word processing and desktop publishing; and imaging. The Company's information
technology services include systems integration, consulting, systems
management outsourcing and software development.

2. SIGNIFICANT ACCOUNTING POLICIES:

Basis of Consolidation

The consolidated financial statements include all accounts of the Company.
All material intercompany balances and transactions are eliminated in
consolidation.

Unaudited Financial Statements

The unaudited consolidated income statements and cash flows for the six
months ended June 30, 1995 and 1996, the unaudited consolidated balance sheet
as of June 30, 1996, and the unaudited consolidated statement of changes in
shareholder's equity for the six months ended June 30, 1996 include, in the
opinion of management, all adjustments necessary to present fairly the
Company's consolidated financial position, results of operations and cash
flows. In the opinion of management, all these adjustments are of a normal and
recurring nature. Operating results for the six months ended June 30, 1996,
are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 1996.

Revenue Recognition and Deferred Revenues

Business Services Outsourcing--The Company recognizes revenues related to
its outsourcing business upon rendering of service. All outsourcing contracts
are billed on a monthly basis. At December 31, 1994 and 1995, and June 30,
1996, unbilled revenues amounted to $1,024,000, $150,000 and $3,892,000,
respectively.

Information Technology Services--For material information technology
projects with a duration of three months or longer that require installation,
system design and integration, the Company recognizes revenue under the
percentage-of-completion method, using labor costs incurred to date in

F-7
<PAGE>

DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
relation to estimated total labor costs of the contracts to measure stage of
completion. The cumulative effects of revisions of estimated total labor costs
and revenues are recorded in the period in which the facts requiring the
revision become known. When a loss is anticipated on a contract, the full
amount thereof is provided currently. Claims, including change orders, are
reflected at estimated recoverable amounts. At December 31, 1995 and June 30,
1996, estimated revenue in excess of billings on uncompleted contracts
amounted to $1,323,000 and $1,768,000, respectively.

For all other information technology projects, the Company recognizes
revenue upon substantial completion of the project.

Amounts billed for systems maintenance contracts are recorded as deferred
revenue and recognized in revenue over the term of the contract on a straight-
line basis.

Inventories

Inventories consist of materials and supplies and are carried at the lower
of weighted average cost or market.

Property and Equipment--Capitalization and Depreciation

Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based on useful lives of 2 to 5 years. Maintenance
and repair costs are charged to expense as incurred. When properties are
retired or disposed, the costs and related depreciation reserves are
eliminated and the resulting profit or loss is recognized in income.

Leasehold improvements are amortized over the life of the related lease.
Leased capitalized assets are depreciated over the life of the related lease
or the normal useful life of the asset, whichever is lower.

Goodwill--Capitalization and Amortization

Goodwill consists of the excess of purchase price over the fair market value
of net assets acquired as a result of the acquisition of LANSystems on June
21, 1995. The goodwill is amortized over its estimated useful life of 20
years. Accumulated amortization at December 31, 1995, and June 30, 1996, was
$295,000 and $601,000, respectively.

Impairment of Long-Lived Assets

The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
121--"Accounting for the Impairment of Long-Lived Assets" effective January 1,
1995. In accordance with the requirements of SFAS No. 121, the Company
periodically assesses whether events or circumstances have occurred that may
indicate the carrying value of its long-lived assets may not be recoverable.
When such events or circumstances indicate the carrying value of an asset may
be impaired, the Company uses an estimate of the future undiscounted cash
flows to be derived from the asset over the remaining useful life of the asset
to assess whether or not the asset is recoverable. If the future undiscounted
cash flows to be derived over the life of the asset do not exceed the asset's
net book value, the Company recognizes an impairment loss for the amount by
which the net book value of the asset exceeds its estimated fair market value.
The Company has not recognized any material impairment losses for the year
ended December 31, 1995 and the six month period ended June 30, 1996.

F-8
<PAGE>

DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Research and Development

Research and development expenditures are charged to earnings as incurred
and amounted to $863,000, $895,000, $1,274,000, $342,000 and $520,000 for the
years ended December 31, 1993, 1994 and 1995, and the six months ended June
30, 1995 and 1996, respectively. These costs are reflected in the Company's
consolidated statements of income as general and administrative expenses.

Income Taxes

For all periods presented, the Company is included in the consolidated
federal income tax return of R.R. Donnelley. The consolidated tax provision is
presented as if the Company filed a separate tax return. Deferred taxes are
provided when tax laws and financial accounting standards differ with respect
to the amount of income calculated in a given year and the bases of assets and
liabilities, in accordance with SFAS No. 109--"Accounting for Income Taxes."
Income taxes are paid by R.R. Donnelley on behalf of the Company.

Effective January 1, 1993, the Company adopted SFAS No. 109. The impact of
the adoption was not material to the Company's financial position or results
of operations.

Use of Estimates and Assumptions

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

3. SIGNIFICANT CLIENTS:

A majority of the Company's revenues are attributable to clients operating
in the professional services industry. For the year ended December 31, 1993,
there were three clients that accounted for greater than 10% of revenues.
Individually, these clients accounted for approximately 27%, 12% and 11% of
the Company's revenues for such year. For the year ended December 31, 1994,
one client accounted for approximately 15% of the Company's revenues. For the
year ended December 31, 1995 and the six months ended June 30, 1996, no
clients accounted for greater than 10% of the Company's revenues.

4. TRANSACTIONS WITH R. R. DONNELLEY & SONS COMPANY:

Related-party transactions with R.R. Donnelley not disclosed elsewhere in
the financial statements are as follows:

Accounts Receivable Sold Without Recourse

The Company sells certain accounts receivable, without recourse, to R.R.
Donnelley Receivables, Inc. ("DRI"), a wholly owned subsidiary of R.R.
Donnelley. The amount of the receivables sold was directly offset against the
advances due to related party. The Company was not charged for any factoring
costs related to these receivables and, therefore, the financial statements do
not include any charge for factoring costs. During the years ended December
31, 1993, 1994 and 1995, the Company factored $22.1 million, $33.9 million and
$44.8 million of receivables to DRI, respectively. Factored receivables that
remain uncollected by DRI were $6.2 million, $14.6 million and $6.8 million at
December 31, 1994 and 1995, and June 30, 1996, and are excluded from the
accompanying consolidated balance sheets.

F-9
<PAGE>

DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Employee Benefit Programs

The Company's employees participate in various employee benefit programs
that are sponsored by R.R. Donnelley, including those employees acquired in
connection with the acquisition of LANSystems who began participating in all
such programs other than the defined benefit pension plan as of January 1,
1996 and, with respect to the defined benefit pension plan, as of June 21,
1995. The employee benefit programs sponsored by R.R. Donnelley include
medical, dental and life insurance, workers' compensation and a defined
benefit pension plan. The Company reimburses R.R. Donnelley for its
proportionate cost of these programs based on historical experience and
relative headcount. The Company recorded expense related to the reimbursement
of these costs of approximately $0.6 million, $0.9 million and $1.9 million in
the years ended December 31, 1993, 1994 and 1995, respectively. The costs are
charged to cost of revenues, selling expense and general and administrative
expense based on the number of employees in each of these categories. The
Company believes its allocation of the proportionate cost is reasonable. R.R.
Donnelley is liable for all payments under these programs and, thus, no
liability for these benefits has been reflected on the accompanying
consolidated balance sheet.

The weighted average discount rate used in determining the actuarial present
value of the benefit obligation for the defined benefit pension plan was 7.5%,
8.5% and 7.25% for the years ended December 31, 1993, 1994 and 1995,
respectively. The rate of increase in future compensation levels assumed was
5% for 1993 and 4% for 1994 and 1995. The expected long-term rate of return on
plan assets was 9.5% for all three years.

On May 1, 1996, the Company terminated its participation in the R.R.
Donnelley defined benefit pension plan. R.R. Donnelley has retained all assets
and liabilities related to the plan.

Effective January 1, 1997, the Company intends to offer employees a 401(k)
savings plan with the Company matching a portion of the amounts contributed by
employees.

Postretirement Medical and Life Insurance Benefits

The Company's employees participate in a postretirement benefit program
sponsored by R.R. Donnelley, including those employees acquired in connection
with the acquisition of LANSystems, who began participating as of January 1,
1996. This plan provides certain postretirement medical and life insurance
benefits. The Company reimburses R.R. Donnelley for its proportionate cost of
these programs based on an estimation of the proportionate costs attributable
to its employees. The Company recorded expense related to the reimbursement of
these costs of approximately $36,000, $67,000 and $101,000 in the years ended
December 31, 1993, 1994 and 1995, respectively. R.R. Donnelley is liable for
all payments under these programs and, thus, no liability for these benefits
has been reflected on the accompanying consolidated balance sheet.

On May 1, 1996, the Company terminated its participation in the R.R.
Donnelley postretirement medical and life insurance benefits plan. R.R.
Donnelley has retained all liabilities related to the plan.

Corporate Services

R.R. Donnelley provides certain support services to the Company including
legal, tax, benefits administration, data processing, internal audit and
payroll services. These charges are allocated by R.R. Donnelley to the Company
based on various formulas which reasonably approximate the actual costs
incurred. The corporate assessments recorded by the Company for these
allocations in the

F-10
<PAGE>

DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
accompanying consolidated income statements were approximately $400,000,
$500,000 and $650,000 for the years ended December 31, 1993, 1994 and 1995,
respectively. The amounts allocated by R.R. Donnelley are not necessarily
indicative of the actual costs which may have been incurred had the Company
operated as an entity unaffiliated with R.R. Donnelley. However, the Company
believes that the allocation is reasonable and in accordance with the
Securities and Exchange Commission's Staff Accounting Bulletin No. 55.

Sales Through R.R. Donnelley

The Company sells services to clients who are also clients of R.R.
Donnelley. For some of these sales, an R.R. Donnelley salesman will assist the
Company in making the initial client contact and executing the transaction. To
compensate for these services, the Company pays a commission fee to the
respective R.R. Donnelley salesman. Management believes these commission fees
approximate the actual costs which may have been incurred had the Company
operated as an entity unaffiliated with R.R. Donnelley. Total commissions
expense related to these sales approximated $0, $77,000 and $65,000 for the
years ended December 31, 1993, 1994 and 1995, respectively. The sales for
which these commissions relate approximated $0, $5,653,000 and $6,027,000,
respectively. The Company sells information technology services and products
to R.R. Donnelley. These sales approximated $955,000 and $1,665,000 for the
period July 1, 1995 through December 31, 1995 and the six-month period ended
June 30, 1996, respectively. The receivables from R.R. Donnelley related to
these sales are reflected in the advances due to related party discussed in
Note 8.

Stock Purchase Plan

The Company participates in a stock purchase plan for selected managers and
key staff employees which is sponsored by R.R. Donnelley. Under the plan, the
Company is required to contribute an amount equal to 70% of participants'
contributions, of which 50% is applied to the purchase of R.R. Donnelley
common stock and 20% is paid in cash. Amounts charged to expense by the
Company for this plan were $56,000, $28,600 and $135,000 for the years ended
December 31, 1993, 1994 and 1995, respectively. Effective July 1, 1995,
employees acquired in connection with the acquisition of LANSystems
participate in these stock purchase plan benefits. Concurrent with an initial
public offering of the Company's stock this plan will be terminated.

Impact of Operating as a Stand-Alone Entity

The accompanying financial statements reflect the Company's costs of doing
business, including expenses incurred by R.R. Donnelley on the Company's
behalf in accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 55. However, the Company estimates it would have incurred
increased expenses as a stand-alone company as well as other incremental
public company expenses. The estimated pro forma impact of all of the above
adjustments would have reduced pretax income by approximately $1,039,000 and
$47,000 for the year ended December 31, 1995 and the six months ended June 30,
1996, respectively.

F-11
<PAGE>

DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5. PROPERTY AND EQUIPMENT:

Property and equipment consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Machinery and equipment..................... $ 6,369 $10,722 $ 12,607
Capital leases.............................. 6,134 6,715 6,739
Leasehold improvements...................... 424 757 762
------- ------- --------
Total property and equipment............ 12,927 18,194 20,108
Accumulated depreciation and amortization... (5,735) (9,119) (10,979)
------- ------- --------
Net property and equipment.............. $ 7,192 $ 9,075 $ 9,129
======= ======= ========
</TABLE>

Depreciation and amortization expense of property and equipment included in
the accompanying consolidated income statements was $1,516,000, $2,297,000,
$3,446,000, $1,528,000 and $2,109,000 for the years ended December 31, 1993,
1994 and 1995, and the six months ended June 30, 1995 and 1996, respectively.

6. LEASE OBLIGATIONS:

The Company leases office space and various office equipment. These leases
are mainly accounted for as operating leases. Rental costs under operating
lease agreements approximated $2,690,000, $3,928,000 and $6,065,000 for the
years ended December 31, 1993, 1994 and 1995, respectively.

The Company leases a significant amount of equipment used at its business
services outsourcing sites. The leases are mainly accounted for as capital
leases. The gross amounts of property and equipment representing capital
leases in the accompanying consolidated balance sheets at December 31, 1994
and 1995 and June 30, 1996 were approximately $6,134,000, $6,715,000 and
$6,739,000, respectively. Similar amounts for accumulated amortization were
$2,471,000, $3,831,000 and $4,490,000 respectively. Amortization of capital
lease assets is included in depreciation and amortization expense of property
and equipment.

Minimum future lease obligations at December 31, 1995, are as follows (in
thousands):

<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
Period ending December 31--
1996.................................................. $1,328 $1,591
1997.................................................. 955 1,086
1998.................................................. 628 602
1999.................................................. 500 291
2000 and thereafter................................... 974 14
------ ------
Total minimum payments.............................. $4,385 $3,584
======
Less: Amount representing interest...................... 459
------
Present value of minimum lease payments................. $3,125
======
</TABLE>

F-12
<PAGE>

DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

7. COMMITMENTS AND CONTINGENCIES:

The Company is party to certain litigation arising in the ordinary course of
business which, in the opinion of management, will not have a material adverse
effect on the operations or financial position of the Company.

8. ADVANCES DUE TO A RELATED PARTY:

Advances due to related party represent advances from R.R. Donnelley to fund
operating and investing activities, net of cash advanced to R.R. Donnelley
from operating cash flows generated by the Company. Advances owed to R.R.
Donnelley are non-interest bearing and are payable on demand or become due and
payable immediately upon completion of an initial public offering of the
Company's Common Stock.

9. INCOME TAXES:

The components of the provision for income taxes are as follows (in
thousands):

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------------- ------------
1993 1994 1995 1995 1996
---- ------ ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal--
Current..................................... $657 $1,133 $ 884 $ 229 $ 464
Deferred.................................... (97) (87) (478) (58) 120
State--
Current..................................... 160 264 107 58 15
Deferred.................................... (36) (33) (18) (21) 113
---- ------ ----- ----- -----
Total provision........................... $684 $1,277 $ 495 $ 208 $ 712
==== ====== ===== ===== =====
</TABLE>

A reconciliation of the effective tax rate from the statutory U.S. federal
income tax rate of 34% is as follows:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
---------------- ------------
1993 1994 1995 1995 1996
---- ---- ---- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal rate.................................... 34.0% 34.0% 34.0% 34.0% 34.0%
State taxes, net of federal benefit............. 8.0 7.7 11.2 7.9 9.6
Goodwill amortization........................... -- -- 11.3 -- 6.3
Meals and entertainment......................... 2.3 0.7 5.4 1.8 3.4
Other........................................... -- -- 0.1 -- 0.1
---- ---- ---- ----- -----
Effective tax rate.......................... 44.3% 42.4% 62.0% 43.7% 53.4%
==== ==== ==== ===== =====
</TABLE>

F-13
<PAGE>

DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following summarizes the estimated tax effect of significant cumulative
temporary differences that are included in the net deferred income tax asset,
which is classified between current and long-term in the accompanying
consolidated balance sheets (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1994 1995 1996
------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Vacation liability............................ $ 86 $ 50 $ 234
Payroll and related liabilities............... 17 442 188
Allowance for doubtful accounts............... -- 252 223
Inventory..................................... -- 396 485
Percentage of completion...................... -- (33) (339)
Miscellaneous, other.......................... 24 115 187
----- ------- ------
Total net current deferred tax asset...... 127 1,222 978
----- ------- ------
Accumulated depreciation...................... 252 573 688
Reserves and accruals not deductable until
paid......................................... -- 213 124
Miscellaneous, other.......................... -- (6) (21)
----- ------- ------
Total net noncurrent deferred tax asset... 252 780 791
----- ------- ------
Total..................................... $ 379 $ 2,002 $1,769
===== ======= ======
</TABLE>

The Company has not provided a valuation allowance for deferred tax assets
because, although realization is not assured, the Company believes it is more
likely than not that such tax assets will be recognized through reversals of
taxable timing differences and taxable income in future periods.

Taxes payable are included in advances due to R.R. Donnelley.

10. ACQUISITION OF LANSYSTEMS:

As discussed in Note 1, LANSystems was acquired on June 21, 1995 for cash of
approximately $16.6 million and certain contingent payment obligations
("earnout"). The acquisition was accounted for as a purchase, with the excess
of the purchase price over the fair market value of net assets acquired being
allocated to goodwill in the amount of approximately $11.8 million. The
goodwill is being amortized over its estimated useful life of 20 years.

The earnout provisions provided for contingent payments of up to $12.9
million payable to former LANSystems shareholders and management participants
based on the achievement of specified financial targets for the years ended
December 31, 1995 through 1998. In the six months ended June 30, 1996,
$794,000 was recorded as additional goodwill related to the 1995 earnout.

The following unaudited pro forma income statements were prepared to
illustrate the estimated effects of the acquisition as if it had occurred on
January 1, 1994. The pro forma adjustments are based on the available
information and upon certain assumptions the Company believes are reasonable.
The pro forma income statements do not purport to represent what the Company's
income statements would actually have been if such transaction in fact had
occurred on January 1, 1994, or to project the Company's income statements for
any future period. The information below reflects an

F-14
<PAGE>

DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
adjustment for the amortization of goodwill based on the new cost basis of the
Company, as well as an adjustment to the income tax provision to reflect the
tax effect of the aforementioned adjustment.

<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Revenues............................................... $65,326 $79,545
Cost of revenues....................................... 48,799 64,336
------- -------
Gross profit....................................... 16,527 15,209
Selling expenses....................................... 6,501 7,918
General and administrative expenses.................... 4,728 7,096
Amortization of goodwill............................... 1,065 1,065
------- -------
Earnings (loss) from operations.................... 4,233 (870)
Interest expense....................................... 335 543
------- -------
Earnings (loss) before income taxes................ 3,898 (1,413)
Income taxes........................................... 2,139 (63)
------- -------
Net income (loss).................................. $ 1,759 $(1,350)
======= =======
</TABLE>

11. SUBSEQUENT EVENTS:

Effective January 1, 1996, R.R. Donnelley contributed the assets and
liabilities of DBS into LANSystems and this wholly owned subsidiary was
renamed Donnelley Enterprise Solutions Incorporated. This contribution between
entities under R.R. Donnelley's common control resulted in the historical
costs bases of DBS (prior to the contribution) being carried over to DESI with
no gain or loss recognized as a result of the transaction.

In July 1996, the Company declared a dividend of $8.0 million paid in the
form of a promissory note to R.R. Donnelley, which is payable on demand or an
initial public offering of the Company's Common Stock and bears interest at
the prime rate per annum payable quarterly.

In July 1996, R.R. Donnelley and DESI sought to modify the LANSystems
earnout because immediate payment of the maximum remaining earnout would be
triggered by completion of an initial public offering of DESI's common stock
in 1996. Earnout participants having the right to approximately 99% of the
earnout have agreed to a modification pursuant to which they will be entitled
to payment on the earlier of completion of such a public offering or October
31, 1996 of approximately $8.7 million in final satisfaction of the earnout
payments due under the acquisition agreement. Earnout participants who have
not agreed, and who do not subsequently agree, to this modification will be
entitled to receive the maximum remaining amount of the earnout, aggregating
approximately $100,000, upon completion of such offering. Payments made to the
earnout participants will be treated as additional purchase price for
LANSystems, resulting in an increase in goodwill, which will be amortized over
the remaining useful life (approximately 19 years).

In August 1996, the Company filed a registration statement with the
Securities and Exchange Commission for an initial public offering of the
Company's Common Stock.

In September 1996, each outstanding share of Common Stock, par value $1.00
per share, of DESI was reclassified into 31,450 shares of Common Stock, par
value $.01 per share; the authorized number of Common Stock was increased from
1,000 to 15,000,000; and 1,000,000 shares of Preferred Stock, $.01 par value
per share, were authorized. The reclassification has been retroactively
reflected in the accompanying financial statements.

F-15
<PAGE>

DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company and Thomas P. Bradbury, who served as President, LANSystems
division, have announced that Mr. Bradbury left the Company on October 11,
1996. The Company and Mr. Bradbury have entered into an agreement pursuant to
which the Company agrees to continue to pay Mr. Bradbury his salary through
June 21, 1997, pay him a pro-rated bonus for 1996 and permit him to
participate in the Company's employee benefit plans through such date. The
Company has recorded a charge of $300,000 in the third quarter of 1996 in
respect of the foregoing severance arrangement.

The Company has received a commitment letter for a facility under which it
will be entitled to borrow up to $22.0 million on a revolving credit basis
after certain conditions precedent are satisfied, including the completion of
the Offering and the repayment of all advances the Company owes to
R.R. Donnelley and all of the Company's earnout payment obligations relating
to its acquisition of LANSystems. Amounts available under such facility will
not exceed a percentage of the Company's billed and unbilled accounts
receivable, and borrowings will mature in three years and bear interest (i) at
the prime rate announced by the bank acting as agent under the facility or
(ii) at the applicable LIBOR rate plus, depending on the Company's fixed
charge coverage ratio, up to 125 basis points per annum. In addition, the
Company will pay a commitment fee of 20 to 30 basis points per annum,
depending on its fixed charge coverage ratio. The facility will contain
customary financial and other covenants, including requirements to maintain a
minimum consolidated net worth, a minimum fixed charge coverage ratio and a
maximum leverage ratio, and restrictions on liens, investments, dividends,
indebtedness, acquisitions and transactions with affiliates.

F-16
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholder of
LAN Systems, Inc.:

We have audited the accompanying consolidated balance sheet of LAN Systems,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1994 and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the two years then ended and for the period from January 1, 1995
through June 21, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LAN Systems, Inc. and
subsidiaries as of December 31, 1994, and the results of their operations and
their cash flows for each of two years then ended and for the period from
January 1, 1995 through June 21, 1995, in conformity with generally accepted
accounting principles.

As discussed in Note 5 to the consolidated financial statements effective
January 1, 1993, the Company changed its method of accounting for income
taxes.

Arthur Andersen LLP
New York, New York
March 19, 1996

F-17
<PAGE>

LAN SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994

ASSETS

<TABLE>
<S> <C>
Current assets:
Cash and equivalents............................................. $ 3,355,819
Accounts receivable, less allowance for doubtful accounts of
$200,000........................................................ 6,554,922
Inventories...................................................... 3,634,949
Prepaid expenses and other current assets........................ 168,971
Deferred income taxes............................................ 484,974
-----------
Total current assets........................................... 14,199,635
Property and equipment, net, at cost............................... 930,812
Deferred income taxes.............................................. 135,539
Other noncurrent assets............................................ 55,734
-----------
Total assets....................................................... $15,321,720
===========
</TABLE>

LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C>
Current liabilities:
Accounts payable................................................. $ 5,052,325
Accrued salary and benefits...................................... 978,462
Accrued other expenses........................................... 1,384,767
Deferred revenue................................................. 2,970,906
-----------
Total current liabilities...................................... 10,386,460
-----------
Long-term debt..................................................... 250,000
Other noncurrent liabilities....................................... 19,821
Redeemable preferred stock......................................... 5,670,156
Shareholders' equity:
Preferred and common stock warrants.............................. 28,939
Common stock, par value $.001; authorized 2,500,000 shares....... 962
Accumulated deficit.............................................. (1,033,618)
Common stock in treasury, at cost................................ (1,000)
-----------
Total shareholders' equity..................................... (1,004,717)
-----------
Total liabilities and shareholders' equity..................... $15,321,720
===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-18
<PAGE>

LAN SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND PERIOD ENDED JUNE 21, 1995

<TABLE>
<CAPTION>
JANUARY 1,
1995 TO
JUNE 21,
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues................................. $28,824,870 $30,580,638 $13,601,355
Cost of revenues......................... 20,867,991 20,998,774 10,436,355
----------- ----------- -----------
Gross profit......................... 7,956,879 9,581,864 3,165,000
Selling expenses......................... 4,036,937 4,390,725 2,354,995
General and administrative expenses...... 2,886,705 3,188,222 2,229,715
----------- ----------- -----------
Earnings (loss) from operations...... 1,033,237 2,002,917 (1,419,710)
Interest expense (income), net........... (17,667) 51,867 21,010
----------- ----------- -----------
Income (loss) before income taxes and
cumulative effect of a change in
accounting principle................ 1,050,904 1,951,050 (1,440,720)
Income taxes (benefit) provision......... 492,226 858,000 (534,000)
----------- ----------- -----------
Income (loss) before cumulative
effect of a change in accounting
principle........................... 558,678 1,093,050 (906,720)
Cumulative effect of a change in
accounting principle.................... 104,830 -- --
----------- ----------- -----------
Net income (loss).................... $ 663,508 $ 1,093,050 $ (906,720)
=========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-19
<PAGE>

LAN SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND PERIOD ENDED JUNE 21, 1995

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------- PAID-IN TREASURY ACCUMULATED
WARRANTS SHARES AMOUNT CAPITAL STOCK DEFICIT TOTAL
-------- --------- ------ ---------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1992................... $ 2,645 960,086 $ 960 $ -- $(1,000) $(1,208,164) $(1,205,559)
Net income.............. -- -- -- -- -- 663,508 663,508
Exercise of stock
options................ -- 380 -- 380 -- -- 380
Accretion of dividends
on preferred stock..... -- -- -- (380) -- (816,566) (816,946)
Reclassification of
preferred stock
redeemed in 1994....... -- -- -- -- -- -- --
------- --------- ------ -------- ------- ----------- -----------
Balance, December 31,
1993................... 2,645 960,466 960 -- (1,000) (1,361,222) (1,358,617)
Net income.............. -- -- -- -- -- 1,093,050 1,093,050
Exercise of stock
options................ -- 1,270 2 1,358 -- -- 1,360
Accretion of dividends
on preferred stock..... -- -- -- (1,358) -- (765,446) (766,804)
Dividends on preferred
stock redeemed in 1994. -- -- -- -- -- -- --
Redemptions of preferred
stock.................. -- -- -- -- -- -- --
Issuance of common stock
warrants............... 26,294 -- -- -- -- -- 26,294
------- --------- ------ -------- ------- ----------- -----------
Balance, December 31,
1994................... 28,939 961,736 962 -- (1,000) (1,033,618) (1,004,717)
Net loss................ -- -- -- -- -- (906,720) (906,720)
Exercise of stock
options................ -- 53,500 53 106,047 -- -- 106,100
Accretion of dividends
on preferred stock..... -- -- -- (106,047) -- (248,025) (354,072)
------- --------- ------ -------- ------- ----------- -----------
Balance, June 21, 1995.. $28,939 1,015,236 $1,015 $ -- $(1,000) $(2,188,363) $(2,159,409)
======= ========= ====== ======== ======= =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-20
<PAGE>

LAN SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND PERIOD ENDED JUNE 21, 1995

<TABLE>
<CAPTION>
JANUARY 1,
1995 TO
1993 1994 JUNE 21, 1995
----------- ----------- -------------
<S> <C> <C> <C>
Cash flows (used in) from operating
activities:
Net (loss) income.................... $ 663,508 $ 1,093,050 $ (906,720)
Adjustments to reconcile net income
to net cash provided by operating
activities-
Depreciation and amortization...... 348,488 405,246 589,933
Provision for allowance for
doubtful accounts................. -- 60,000 14,000
(Increase) decrease in deferred
income taxes...................... 114,267 (201,806) (240,870)
Cumulative effect of a change in
accounting principle.............. (104,830) -- --
Changes in assets and liabilities-
Increase in accounts receivable.. (2,560,725) (765,583) (1,187,832)
Increase in inventories.......... (428,721) (1,343,054) (197,545)
(Increase) decrease in prepaid
expenses and other current
assets.......................... 189,478 (94,900) (383,838)
(Increase) decrease in other
noncurrent assets............... (283) 1,538 (344)
(Decrease) increase in accounts
payable......................... 626,588 1,586,804 (746,066)
(Decrease) increase in accrued
salary and benefits............. 344,423 192,273 (232,405)
(Decrease) increase in accrued
other expenses.................. 382,586 233,585 (765,063)
Increase in deferred revenue..... 1,189,875 757,216 277,613
Decrease in other noncurrent
liabilities..................... (16,380) (16,380) (8,190)
----------- ----------- -----------
Net cash (used in) provided by
operating activities.......... 748,274 1,907,989 (3,787,327)
----------- ----------- -----------
Cash flows used in investing
activities:
Purchase of property and equipment..... (414,850) (452,147) (323,202)
----------- ----------- -----------
Net cash used in investing
activities.................... (414,850) (452,147) (323,202)
----------- ----------- -----------
Cash flows from financing activities:
Issuance of long-term debt........... -- 750,000 --
Proceeds from short-term borrowings.. -- 700,000 1,200,000
Payments on borrowings............... (44,835) (915,363) (551,390)
Redemption of preferred stock........ -- (1,055,168) --
Issuance of common stock warrants.... -- 26,294 --
Proceeds from exercise of stock
options............................. 380 1,360 106,100
----------- ----------- -----------
Net cash provided by (used in)
financing activities.......... (44,455) (492,877) 754,710
----------- ----------- -----------
Net (decrease) increase in
cash.......................... 288,969 962,965 (3,355,819)
Cash, beginning of year................ 2,103,885 2,392,854 3,355,819
----------- ----------- -----------
Cash, end of period.................... $ 2,392,854 $ 3,355,819 $ --
=========== =========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the period for-
Interest........................... $ 4,751 $ 61,356 $ 37,175
Income taxes....................... 175,009 502,051 434,337
Supplemental Schedule of Noncash
Investing and Financing Activities:
Accretion of dividends on preferred
stock............................... 816,946 766,804 354,072
</TABLE>

See accompanying notes to consolidated financial statements.

F-21
<PAGE>

LAN SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND PERIOD ENDED JUNE 21, 1995

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

LAN Systems, Inc. ("LANSystems") provides information technology services
comprised of systems integration, consulting and software development
services. LANSystems operates in a marketplace characterized by rapid
technological developments and discoveries which often result in partial or
total obsolescence of computer based products, including software.

Principles of Consolidation

The consolidated financial statements included herein are for the two years
as of and ended December 31, 1993 and 1994 and for the period from January 1,
1995 through June 21, 1995 (hereafter referred to as "the period").

The consolidated financial statements include the accounts of LANSystems and
its wholly owned subsidiaries. All material intercompany balances and
transactions have been eliminated.

Revenue Recognition

For material projects with a duration of three months or longer that require
installation, system design and integration, LANSystems records revenue under
the percentage-of-completion method, using labor costs incurred to date in
relation to estimated total labor costs of the contracts to measure the stage
of completion. The cumulative effects of revisions of estimated total labor
costs and revenues are recorded in the period in which the facts requiring the
revision become known. When a loss is anticipated on a contract, the full
amount thereof is provided currently. Claims, including change orders, are
reflected at estimated recoverable amounts. At December 31, 1994, estimated
revenue in excess of billings on uncompleted contracts amounts to
approximately $153,000.

For all other projects, LANSystems records revenue upon substantial
completion of the project.

Amounts billed for maintenance contracts are credited to deferred revenue
and recognized in revenue over the term of the contract on a straight-line
basis.

Cash

As of December 31, 1994, LANSystems has $125,000 of restricted cash which
serves as collateral for an irrevocable letter of credit issued in lieu of a
cash security deposit for certain leased office facilities.

Inventories

Inventory is valued at the lower of cost (weighted average) or market.

Property and Equipment

Property and equipment are carried at cost less accumulated depreciation and
amortization. These assets are depreciated using the straight-line method over
three to five years. Leasehold improvements are amortized over the life of the
related lease.

F-22
<PAGE>

LAN SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Research and Development

Research and development expenditures are charged to earnings as incurred
and amounted to $520,200, $434,176 and $236,594, for the years ended December
31, 1993 and 1994, and the period from January 1, 1995 through June 21, 1995,
respectively. These costs are reflected in LANSystem's consolidated statements
of income as general and administrative expenses.

Utilization of Estimates

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

2. PREFERRED STOCK AND WARRANTS

LANSystems issued two classes of preferred stock with detachable warrants,
each with a $1.00 par value, and 500,000 shares authorized. At December 31,
1994 and June 21, 1995 the Company had 550,189 shares of Preferred Stock
outstanding. In December 1988, LANSystems issued 337,500 shares of Class A
Preferred Stock for $1,350,000. In October 1989, LANSystems issued 322,727
shares of Class B Preferred Stock for $1,775,645. (The Class A Preferred Stock
and Class B Preferred Stock are referred to, collectively, as the "Preferred
Stock".) The Preferred Stock, which accrues dividends at a rate of 15% per
annum, has voting rights equivalent to those provided to common shareholders
and is convertible at the option of the holder into common stock on a one-for-
one basis.

A detachable warrant to purchase one share of Preferred Stock was issued for
every five shares of Preferred Stock purchased. The exercise prices for the
warrants are $4 per share for Class A Preferred Stock and $5.50 per share for
the Class B Preferred Stock. All warrants expire ten years from the date of
issuance, or the day prior to the conversion or redemption of all of the
Preferred Stock, whichever is earlier.

The Preferred Stock may be redeemed, at the option of the holder, at an
amount equal to the greater of (a) the liquidation amount, as defined by the
agreement, or (b) fifteen times the average after tax earnings per common
share of LANSystems for the prior two years. The redemption of Preferred Stock
was limited to a maximum of one-third of the total shares in 1994, two-thirds
of the then outstanding shares in 1995 and, if redeemed after January 1, 1996,
the total amount of shares outstanding. As of December 31, 1994, the
liquidation amount per share of Class A Preferred Stock and Class B Preferred
Stock is $9.25 and $11.41, respectively.

On March 15, 1994, LANSystems and the preferred stockholders entered into an
agreement to modify the original terms of redemption. On that date, LANSystems
redeemed 56,250 shares of Class A and 53,788 shares of Class B Preferred Stock
for $8.24 and $11 per share, respectively. The preferred stockholders waived
their rights to any additional redemptions until January 1, 1996, at which
time all outstanding shares may be redeemed based on the redemption
calculation discussed in the preceding paragraph. In exchange for the waiver
of redemption rights, LANSystems issued warrants to the preferred stockholders
to purchase 175,000 shares of common stock at an exercise price of $3.50 per
share, subject to adjustments as defined in the agreement. The warrants expire
on March 1, 1999 and contain certain antidilution provisions.

F-23
<PAGE>

LAN SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

As of December 31, 1994, preferred stock, which has been classified as a
liability on the accompanying balance sheet, consists of the following:

<TABLE>
<CAPTION>
CLASS A CLASS B
---------- ----------
<S> <C> <C>
Original issuance price............................ $1,125,000 $1,479,165
Accumulated dividend accretion..................... 1,476,562 1,589,429
---------- ----------
$2,601,562 $3,068,594
========== ==========
</TABLE>

As discussed in Note 10, subsequent to June 21, 1995 LANSystems was acquired
by R. R. Donnelley & Sons Company ("R.R. Donnelley") whereby the outstanding
preferred stock and preferred stock warrants were converted into rights to
receive a fixed cash payment.

3. FINANCING ARRANGEMENTS AND LONG-TERM DEBT

LANSystems had a $1,500,000 working capital credit agreement with a bank
which originally extended through April 5, 1996. This credit agreement was
terminated at the date of acquisition of LANSystems by R.R. Donnelley.
Borrowings under the line bear interest at the prime rate plus 1.5% and are
secured by all assets of LANSystems. The agreement requires that LANSystems,
among other things, maintain certain financial ratios. As of December 31,
1994, LANSystems had no borrowings under the line of credit.

In connection with the redemption of preferred stock in March 1994,
LANSystems borrowed $750,000 from a bank bearing interest at the prime rate
plus 2.0% payable in thirty equal monthly installments from April 1994 through
September 1996.

As of December 31, 1994, long-term debt consists of the following:

<TABLE>
<S> <C>
Note payable to bank............................................. $550,000
Other............................................................ 1,390
--------
551,390
Less--Current portion............................................ 301,390
--------
$250,000
========
</TABLE>

As of December 31, 1994, long-term debt matures as follows:

For the years ended December 31, 1993 and 1994, and the period ended June
21, 1995 total interest expense was $68,774, $4,751 and $37,428, respectively.
On June 21, 1995, LANSystems paid the outstanding long-term debt balance.
Subsequent to June 21, 1995 LANSystems paid off all amounts outstanding under
the working capital credit agreement.

4. COMMITMENTS

LANSystems leases office facilities under noncancelable operating leases
which expire at various dates through 2002. Future minimum lease payments
under operating leases as of June 21, 1995 are:

<TABLE>
<S> <C>
Period ended December 31, 1995................................ $ 349,727
Year ending December 31:
1996........................................................ 669,382
1997........................................................ 500,525
1998........................................................ 384,786
1999........................................................ 364,038
Thereafter.................................................. 645,439
----------
$2,913,897
==========
</TABLE>

F-24
<PAGE>

LAN SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Rent expense for operating leases for the years ended December 31, 1993 and
1994, and the period ended June 21, 1995 was $639,672, $720,843 and $338,215,
respectively.

5. INCOME TAXES

Effective January 1, 1993, LANSystems changed its method of accounting for
income taxes from the deferred method to the liability method as required by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"). As permitted under SFAS No. 109, LANSystems adopted
this method of accounting via a cumulative effect of a change in accounting
principle.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.

The components of the (benefit) provision for taxes for the years ended
December 31, 1993 and 1994, and the period ended June 21, 1995 are as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31
------------------- PERIOD ENDED
1993 1994 JUNE 21, 1995
--------- --------- -------------
<S> <C> <C> <C>
Federal................................. $ 258,278 $ 623,000 $(377,000)
State................................... 233,948 235,000 (157,000)
--------- --------- ---------
Total tax (benefit) provision....... $ 492,226 $ 858,000 $(534,000)
========= ========= =========
</TABLE>

The current and deferred portions of the income tax (benefit) provision are
as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31
------------------- PERIOD ENDED
1993 1994 JUNE 21, 1995
-------- ---------- -------------
<S> <C> <C> <C>
Current................................ $377,959 $1,059,806 $(290,253)
Deferred............................... 114,267 (201,806) (243,747)
-------- ---------- ---------
Total tax (benefit) provision...... $492,226 $ 858,000 $(534,000)
======== ========== =========
</TABLE>

A reconciliation of the effective tax rate from statutory U.S. federal
income tax rate of 34% is as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31
-------------------- PERIOD ENDED
1993 1994 JUNE 21, 1995
--------- --------- -------------
<S> <C> <C> <C>
Federal rate.......................... 34.0% 34.0% (34.0)%
State taxes, net of federal benefit... 9.7 8.0 (7.2)
Meals and entertainment............... 0.9 1.8 1.3
Other................................. 2.2 0.2 2.9
--------- --------- -----
Effective tax rate................ 46.8% 44.0% (37.0)%
========= ========= =====
</TABLE>

F-25
<PAGE>

LAN SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

As of December 31, 1994, total current and noncurrent deferred tax assets
(liabilities) are as follows:

<TABLE>
<S> <C>
Allowance for doubtful accounts................................. $ 83,094
Inventory....................................................... 290,679
Vacation liability.............................................. 8,461
Payroll and related liabilities................................. 83,094
Miscellaneous, other............................................ 19,646
--------
Total net current deferred tax asset........................ 484,974
Accumulated depreciation........................................ 135,539
--------
Total net noncurrent deferred tax asset..................... 135,539
--------
$620,513
========
</TABLE>

LANSystems has not provided a valuation allowance for deferred tax assets.
Although realization is not assured, LANSystems believes it is more likely
than not that such tax assets will be recognized through reversals of taxable
timing differences and taxable income in future periods.

6. STOCK OPTIONS

In January 1990, the Board of Directors approved the 1990 Stock Plan (the
"Plan") which enables directors, officers, and employees of LANSystems to be
granted stock options, to be provided awards of common stock, and to make
direct purchases of common stock. Depending upon the type of option issued,
options expire up to ten years and one day from the date of grant and are
fully exercisable on the date of grant or in such installments as the Stock
Plan Committee may specify. In the opinion of management, all options issued
have an exercise price equal to or greater than the fair market value of
LANSystems' common stock on the date of the grant:

Transactions under the Plan are summarized below:
<TABLE>
<CAPTION>
SHARES EXERCISE PRICE
------- --------------
<S> <C> <C>
Balance, December 31, 1992........................ 373,740 $1.00-$2.00
Options granted................................. 116,700 1.00- 1.50
Options exercised............................... (380) 1.00
Options canceled................................ (8,580) 1.00- 1.50
-------
Balance, December 31, 1993........................ 481,480 1.00- 2.00
Options granted................................. 69,900 1.50- 2.00
Options exercised............................... (1,270) 1.00- 1.50
Options canceled................................ (15,790) 1.00- 2.00
-------
Balance, December 31, 1994........................ 534,320 1.00- 2.00
=======
</TABLE>

As of December 31, 1994, the aggregate number of shares which may be issued
pursuant to the Plan is 710,000, of which 118,610 are available for issuance.
Options exercisable as of December 31, 1994, were 325,020.

As discussed in Note 10, subsequent to June 21, 1995, common stock options
were converted into the right to receive fixed and contingent cash payments.

F-26
<PAGE>

LAN SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

7. COMMON STOCK AND WARRANTS

In connection with the issuance of common stock warrants to preferred
stockholders in March 1994, a common stockholder exercised antidilution rights
and purchased warrants to purchase 9,291 shares of common stock for $26,294.
The warrants have an exercise price of $3.50 per share, subject to adjustment
as defined in the agreement, and expire on March 1, 1999.

As of December 31 ,1994, common stock of LANSystems was reserved as follows:

<TABLE>
<S> <C>
Class A and Class B Preferred Stock (for conversion).......... $ 682,234
Stock options................................................. 652,930
Common stock warrants......................................... 184,291
----------
$1,519,455
==========
</TABLE>

As discussed in Note 10, subsequent to June 21, 1995, common stock and
warrants were converted into the right to receive fixed and contingent cash
payments.

8. RELATED PARTY TRANSACTIONS

LANSystems maintains a total of $4,000,000 of insurance on the lives of two
officers for which LANSystems is the beneficiary.

9. MAJOR CUSTOMERS

For the year ended December 31, 1993, one client accounted for 10% of
LANSystems' revenues. For the year ended December 31, 1994 and the period
ended June 21, 1995, no single client accounted for more than 10% of
LANSystems' revenues.

10. SUBSEQUENT EVENT

On June 21, 1995, R.R. Donnelley acquired LANSystems for cash and certain
contingent payment obligations ("earnout"), pursuant to a merger of a
subsidiary of R.R. Donnelley with and into LANSystems. The agreement by which
R.R. Donnelley acquired LANSystems provides for earnout payments of up to
$12.9 million payable to former shareholders and certain management
participants based on the achievement of specified earnings targets for the
period ended December 31, 1995 and for the years ended December 31, 1996
through 1998. The earnout payment may be accelerated up to the maximum earnout
upon the occurrence of a change of control, as defined in the agreement.

F-27
<PAGE>

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR IN-
CORPORATED BY REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFOR-
MATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE COMPANY OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPEC-
TUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IM-
PLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAK-
ING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH SOLICITATION.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Recent Unaudited Financial Data........................................... 8
Risk Factors.............................................................. 9
The Company............................................................... 16
Use of Proceeds........................................................... 16
Capitalization............................................................ 17
Dividend Policy........................................................... 18
Dilution.................................................................. 18
Selected Consolidated Financial Data...................................... 19
Unaudited Pro Forma Consolidated Financial Information.................... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 24
Business.................................................................. 31
Management................................................................ 41
Ownership of Capital Stock................................................ 48
Relationship with R.R. Donnelley.......................................... 49
Description of Capital Stock and
Corporate Charter........................................................ 52
Principal and Selling Stockholder......................................... 55
Shares Eligible for Future Sale........................................... 55
Underwriting.............................................................. 56
Legal Matters............................................................. 58
Experts................................................................... 58
Additional Information.................................................... 58
Index to Financial Statements............................................. F-1
</TABLE>

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

UNTIL NOVEMBER 24, 1996 (25 DAYS FROM THE DATE OF THIS PROSPECTUS), ALL DEAL-
ERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN AD-
DITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UN-
DERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2,860,000 SHARES

[LOGO OF DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED]

COMMON STOCK
($.01 PAR VALUE)

SALOMON BROTHERS INC

MONTGOMERY SECURITIES

J.P. MORGAN & CO.

PROSPECTUS

DATED OCTOBER 30, 1996