DONNELLEY ENTERPRISE SOLUTIONS INC, S-1/A, 1996-09-30

DONNELLEY ENTERPRISE SOLUTIONS INC
S-1/A, 1996-09-30
MANAGEMENT SERVICES

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1996

REGISTRATION NO. 333-10127
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

AMENDMENT NO. 1

TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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

DELAWARE 7389 13-3160717
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)

INCORPORATION OR 161 NORTH CLARK STREET, SUITE 2400
ORGANIZATION) CHICAGO, ILLINOIS 60601
(312) 419-7600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

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

RHONDA I. KOCHLEFL
DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED
161 NORTH CLARK STREET, SUITE 2400
CHICAGO, ILLINOIS 60601
(312) 419-7600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES TO:
DEBORAH M. REGAN DENNIS V. OSIMITZ ROBERT F. WALL
R. R. DONNELLEY & SONS SIDLEY & AUSTIN WINSTON & STRAWN
COMPANY ONE FIRST NATIONAL 35 WEST WACKER DR.
77 WEST WACKER DRIVE PLAZA CHICAGO, ILLINOIS
CHICAGO, ILLINOIS 60601 CHICAGO, ILLINOIS 60601
(312) 326-8000 60603 (312) 558-5600

(312) 853-7000
---------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]

CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) FEE(3)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value....... 2,990,000 shares $26.00 $77,740,000 $26,808
</TABLE>
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(1) Includes 390,000 shares, and the estimated aggregate proceeds therefrom,
which the Underwriters have an option to purchase from the Selling
Stockholder named in this Registration Statement to cover over-allotments,
if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) promulgated under the Securities Act of 1933.

(3) The Registrant paid the filing fee with the original filing of the
Registration Statement on August 14, 1996.

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION

SEPTEMBER 30, 1996

PROSPECTUS

2,600,000 SHARES

DONNELLEY ENTERPRISE [LOGO]
SOLUTIONS INCORPORATED

COMMON STOCK
($.01 PAR VALUE)

Of the 2,600,000 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 745,000 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 48.0% of
the outstanding Common Stock (40.2% if the Underwriters exercise their over-
allotment option in full).

Prior to the Offering, there has been no public market for the Common Stock. It
is currently estimated that the initial public offering price of the Common
Stock will be between $24.00 and $26.00 per share. See "Underwriting" for
information relating to the factors to be considered in determining the initial
public offering price.
LOGO

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

SEE "RISK FACTORS" BEGINNING ON PAGE 8 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.

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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO
PUBLIC DISCOUNT COMPANY(1) SELLING STOCKHOLDER
<S> <C> <C> <C> <C>
Per Share................. $ $ $ $
Total(2).................. $ $ $ $
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</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 390,000 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
$ , $ and $ , 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
, 1996.

SALOMON BROTHERS INC

MONTGOMERY SECURITIES

J.P. MORGAN & CO.

The date of this Prospectus is , 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 leading 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 leading 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.
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 48.0% of the outstanding
Common Stock (40.2% 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................... 745,000 shares
----------------------
Total.......................... 2,600,000 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. See
"Use of Proceeds" and "Relationship 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 approximately 308,000 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 assumed 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

(ii) the increase in the amortization of goodwill related to the acquisition of
LANSystems; and (iii) the Offering being completed and a significant portion of
the assumed net proceeds received by the Company therefrom being applied as
described under "Use of Proceeds." 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 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>

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 Company's excellent record in retaining
business services clients, 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 568 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

8
<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
operation. 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.

NEED TO ATTRACT AND RETAIN KEY PERSONNEL IN HIGHLY COMPETITIVE MARKETPLACE

9
<PAGE>

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."

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. 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."

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."

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."

10
<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 expects to enter 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."

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 premier 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

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

11
<PAGE>

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."

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 48.0% of the
outstanding Common Stock (40.2% 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.

12
<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 will enter into certain
agreements with R.R. Donnelley relating to these matters. None of the
agreements to be 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.

13
<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."

14
<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 premier 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, assuming an initial public offering price of
$25.00 per share and after deducting the estimated underwriting discount and
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). Leo S.
Spiegel, Senior Vice President and Chief Technology Officer of the Company,
and Thomas P. Bradbury, 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 $8.1 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 intends 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.

15
<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 at an assumed initial public
offering price of $25.00 and the application of a significant portion of the
assumed 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 approximately 308,000 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," "Management--Employment Agreements" and
Notes to Consolidated and Combined Financial Statements of DESI.

16
<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 intends to enter into prior to
completion of the Offering may 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 estimated underwriting discount
and 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>
Assumed 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>

17
<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.

18
<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 assumed 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.

19
<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 assumed 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 assumed 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.

20
<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 to the 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 to the 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.

21
<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 assumed 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
approximately $8.7 million.

22
<PAGE>

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

GENERAL

Overview

Donnelley Enterprise Solutions Incorporated is a leading 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.

23
<PAGE>

Approximately one-half of the revenues associated with a typical information
technology project are from the resale of hardware or software products and
subcontracted labor. 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 and
subcontracted labor 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 service 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 operation. 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 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.

24
<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.

25
<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 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, 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 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 $20.3 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 subcontracted
labor and $6.9 million from services.

26
<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, 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 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.

27
<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.

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.

28
<PAGE>

The Company had a net usage of cash from operating activities of $6.5
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 a syndicate of banks (the "Credit Facility") to
provide it with its financing needs, including for working capital and general
corporate purposes. The Company expects the Credit Facility to entitle it to
borrow up to $22.0 million on a revolving credit basis, including a sub-
facility for letters of credit of up to $2 million, after certain conditions
precedent are satisfied, including the completion of the Offering. Borrowings
under the Credit Facility will mature in three years and will bear interest
(i) at the prime rate announced by the bank acting as agent for the syndicate
or (ii) at the applicable LIBOR rate plus, depending on the Company's leverage
ratio and fixed charge coverage ratio, up to 125 basis points per annum. In
addition, the Company will pay a facility fee of to basis points
per annum, depending on the foregoing financial ratio. The Credit Facility
will contain certain covenants, including among other things, requirements to
maintain a minimum net worth, a leverage ratio and a fixed charge ratio and
restrictions on liens, investments, sales of assets 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.

29
<PAGE>

BUSINESS

Donnelley Enterprise Solutions Incorporated is a leading 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.

30
<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. The Gartner Group, a research firm,
projects outsourcing of the management of desktops and networks will grow to
approximately $10.7 billion in 2000 from approximately $2.7 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

31
<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

32
<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. LANSystems
has been designated a Novell "Platinum" Reseller since the inception of that
distinction in 1986 and received the PC DOCS document management software "Top
Reseller Award" in 1994 and 1995.

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.

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

33
<PAGE>

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,

34
<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. 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-

35
<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. In 1995, the Company provided services to 30 of the
100 largest law firms as ranked by the American Lawyer 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 1995, approximately 24.7% 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.

36
<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.

37
<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,

38
<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.

39
<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 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.

40
<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." 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
Thomas P. Bradbury 49 President, LANSystems division
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.

Thomas P. Bradbury has served as the President of the LANSystems division of
DESI since the acquisition of LANSystems in June 1995. From May 1991 until
June 1995 he was President, Chief Executive Officer and Chairman of the Board
of Directors of LANSystems. From February 1990 to May 1991 he served as
Executive Vice President and Chief Operating Officer of LANSystems.

41
<PAGE>

Linda A. Finkel has been President of the DBS division of DESI since January
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 (#) $(2)
- ------------------ ---- ------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Rhonda I. Kochlefl...... 1995 186,625 45,724 9,644 5,000 --
Chairman, President and
Chief Executive Officer
Leo S. Spiegel.......... 1995 204,470 122,445(1) 3,946 4,000 356,412
Senior Vice President
and Chief Technology
Officer
Thomas P. Bradbury...... 1995 255,668 156,385(1) 4,813 4,000 588,712
President, LANSystems
division
Linda A. Finkel......... 1995 123,574 26,972 4,972 3,000 --
President, DBS division
David J. Shea........... 1995 126,492 22,136 5,210 3,000 --
Senior Vice President
and General Manager,
Systems Management
division
</TABLE>
- --------

(1) 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.

(2) 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.

42
<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.

43
<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>

44
<PAGE>

EMPLOYMENT AGREEMENTS

It is expected that Ms. Kochlefl will enter 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."

It is also expected that Mr. Spiegel will enter 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 will provide
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.

Mr. Bradbury entered into an employment agreement with the Company in
connection with R.R. Donnelley's acquisition of LANSystems in 1995. The
agreement provides for Mr. Bradbury's employment by the Company as President
of its LANSystems division through June 1997. The agreement provides Mr.
Bradbury with a minimum annual salary of $275,000 and the opportunity to earn
a pro-rated bonus up to 41% of his annual salary upon satisfaction of certain
pre-determined profit criteria for the Company. The agreement also contains
customary provisions providing for the non-disclosure of confidential
information of the Company and R.R. Donnelley and an agreement not to compete
with the Company or any affiliate of the Company within North America for a
period ending one year after the termination of Mr. Bradbury's employment with
the Company.

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.

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

45
<PAGE>

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: options to Rhonda I. Kochlefl; options to Leo
S. Spiegel; options to Luke F. Botica; options to Linda A Finkel;
options to David J. Shea; and approximately 118,500 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, will have a 10-year term and will become
exercisable with respect to 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. 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 approximately
30,000 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.

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

46
<PAGE>

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% 2,400,000 48.0%
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%).

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
------------------------ ----------
<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>

47
<PAGE>

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 2,400,000 shares of
Common Stock, representing 48.0% of the outstanding shares of Common Stock
(40.2%, 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.

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. In addition,
prior to the completion of the Offering, the Company will enter into certain
agreements with R.R. Donnelley relating to these matters. None of these
agreements resulted from "arm's length" negotiations.

The following summary description of the agreements to be entered into
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.

48
<PAGE>

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.

Prior to completion of the Offering, the Company and R.R. Donnelley will
enter into the Transition Services Agreement, pursuant to which R.R. Donnelley
or its affiliates will agree 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 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; and (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 clause (i) 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.

Prior to completion of the Offering, the Company and R.R. Donnelley will
enter 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 the welfare plans of R.R. Donnelley until December 31, 1996; and (ii) the
Company will cease being a participant in the R.R. Donnelley stock purchase
plan.

49
<PAGE>

The Benefit Administration Services Agreement will also provide that the
Company will reimburse R.R. Donnelley for (1) the actual cost 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 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 to be entered into by the
Company and R.R. Donnelley prior to completion of the Offering, however, the
Company will remain 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). In addition, if the income tax liability
shown on any such consolidated or combined tax return for the period beginning
July 1, 1996 and ending on the date of the completion of the Offering and
attributable to the Company is adjusted as a result of an action of a taxing
authority or a court, then the Company will pay to R.R. Donnelley the full
amount of any increase in such tax liability (together with any applicable
interest and penalties). 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 through June 30, 1996 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 June
30, 1996, 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).

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

50
<PAGE>

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 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.

51
<PAGE>

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.

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

52
<PAGE>

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.

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 approximately 48.0% of the
outstanding Common Stock of the Company (approximately 40.2% 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 2,600,000 shares to be sold in
the Offering (2,990,000 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 2,400,000 outstanding shares of Common Stock
(2,010,000 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

53
<PAGE>

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."

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 approximately 308,000 shares of Common Stock at the initial
public offering price set forth on the cover page of this Prospectus.
Approximately 87,000 additional shares of Common Stock would 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 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.

54
<PAGE>

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............................................
Montgomery Securities...........................................
J.P. Morgan Securities Inc......................................
---------
Total....................................................... 2,600,000
=========
</TABLE>

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 $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ 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 390,000
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.

55
<PAGE>

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.

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. 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.

56
<PAGE>

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 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.

57
<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>

F-1
<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 September 27, 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 discussions). 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 leading 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>

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-16
<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-17
<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-18
<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-19
<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-20
<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-21
<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-22
<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-23
<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-24
<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-25
<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-26
<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
Risk Factors.............................................................. 8
The Company............................................................... 15
Use of Proceeds........................................................... 15
Capitalization............................................................ 16
Dividend Policy........................................................... 17
Dilution.................................................................. 17
Selected Consolidated Financial Data...................................... 18
Unaudited Pro Forma Consolidated Financial Information.................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 23
Business.................................................................. 30
Management................................................................ 40
Ownership of Capital Stock................................................ 46
Relationship with R.R. Donnelley.......................................... 48
Description of Capital Stock and
Corporate Charter........................................................ 50
Principal and Selling Stockholder......................................... 53
Shares Eligible for Future Sale........................................... 53
Underwriting.............................................................. 55
Legal Matters............................................................. 56
Experts................................................................... 57
Additional Information.................................................... 57
Index to Financial Statements............................................. F-1
</TABLE>

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

UNTIL , 1996 (25 DAYS FROM THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECT-
ING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

2,600,000 SHARES

[LOGO OF DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED]

COMMON STOCK
($.01 PAR VALUE)

SALOMON BROTHERS INC

MONTGOMERY SECURITIES

J.P. MORGAN & CO.

PROSPECTUS

DATED , 1996
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The expenses (other than the underwriting discount) payable in connection
with the sale of the Common Stock offered hereby (including the Common Stock
which may be issued pursuant to an over-allotment option) are as follows:

<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
SEC registration fee........................................... $ 27,838
NASD filing fee................................................ 8,573
Nasdaq National Market fee..................................... 44,500
Printing and engraving expenses................................ 150,000*
Legal fees and expenses........................................ 250,000*
Accounting fees and expenses................................... 200,000*
Directors' and Officers' insurance............................. 127,000
Blue Sky fees and expenses (including legal fees and expenses). 20,000*
Transfer agent and registrar fees and expenses................. 25,000*
Miscellaneous.................................................. 47,089*
--------
Total...................................................... $900,000*
========
</TABLE>
- --------
* Estimated.

The Registrant will pay all expenses shown above.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Reference is made to Section 145 ("Section 145") of General Corporation Law
of the State of Delaware (the "Delaware GCL") which provides for
indemnification of directors and officers in certain circumstances.

In accordance with Section 102(b)(7) of the Delaware GCL, the Registrant's
First Restated Certificate of Incorporation provides that directors shall not
be personally liable for monetary damages for breaches of their fiduciary duty
as directors except for (i) breaches of their duty of loyalty to the
Registrant or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or knowing violations of law, (iii)
certain transactions under Section 174 of the Delaware GCL (unlawful payment
of dividends) or (iv) transactions from which a director derives an improper
personal benefit.

The First Restated Certificate of Incorporation of the Registrant provides
for indemnification of directors and officers to the full extent provided by
the Delaware GCL, as amended from time to time. It states that the
indemnification provided therein shall not be deemed exclusive. The Registrant
may maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Registrant, or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the Registrant would have the power to
indemnify such person against such expense, liability or loss, under the
provisions of the Delaware GCL.

The underwriting agreement provides for indemnification of directors and
officers of the Registrant by the Underwriters against certain liabilities.

Pursuant to Section 145 and the First Amended and Restated Certificate of
Incorporation, the Registrant maintains directors' and officers' liability
insurance coverage.

II-1
<PAGE>

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

In the three years preceding the filing of this Registration Statement, the
Registrant has not issued any securities that were not registered under the
Securities Act of 1933, as amended. In September 1996, the Registrant filed
its First Amended and Restated Certificate of Incorporation with the Delaware
Secretary of State, pursuant to which each of the issued and outstanding
shares of Common Stock, par value $1.00 per share, of the Registrant will be
reclassified into 31,450 shares of Common Stock, par value $.01 per share, of
the Registrant.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS:

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
1.1** Form of Underwriting Agreement.
3.1 First Amended and Restated Certificate of Incorporation of
the Registrant.
3.2 By-laws of the Registrant.
5.1* Opinion of Sidley & Austin.
10.1 Form of Transition Services Agreement between the Regis-
trant and R.R. Donnelley.
10.2 Form of Benefit Administration Services Agreement between
the Registrant and R.R. Donnelley.
10.3 Form of Tax Allocation and Indemnification Agreement be-
tween the Registrant and R.R. Donnelley.
10.4* Employment Agreement dated , 1996 between Rhonda
I. Kochlefl and the Registrant.
10.5* Employment Agreement dated , 1996 between Leo S.
Spiegel and the Registrant.
10.6* Employment Agreement dated May 29, 1995 between Thomas P.
Bradbury and the Registrant.
10.7* 1996 Stock Incentive Plan.
10.8* 1996 Broad-Based Employee Stock Plan.
10.9 Agreement of Merger dated as of May 29, 1995 among R. R.
Donnelley & Sons Company, Donnelley DBS, Inc. and LAN Sys-
tems, Inc.
10.10* Form of Credit Agreement among the Registrant, as Borrow-
er, and the Banks named therein.
21.1** Subsidiaries of the Registrant.
23.1 Consents of Arthur Andersen LLP.
23.2* Consent of Sidley & Austin (included in Exhibit 5.1).
24.1** Powers of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by pre-effective amendment to this Registration Statement.

** Previously filed.

(b) FINANCIAL STATEMENT SCHEDULES:

The following financial statement schedule is included as part of this
Registration Statement immediately following the signature page:

Schedule II--Valuation and Qualifying Accounts

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

II-2
<PAGE>

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
of 1993, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to provisions described in Item
14 above, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.

The undersigned Registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser; (2) that for
purposes of determining any liability under the Act, the information omitted
from the form of prospectus filed as part of a registration statement in
reliance upon Rule 430A and contained in the form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be
deemed to be part of this registration statement as of the time it was
declared effective; and (3) that for the purpose of determining any liability
under the Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

II-3
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT AMENDMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN CHICAGO, ILLINOIS ON
SEPTEMBER 30, 1996.

Donnelley Enterprise Solutions Incorporated

/s/ Rhonda I. Kochlefl
By: _________________________________
Name: Rhonda I. Kochlefl
Title: Chairman, President and
Chief Executive Officer

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AMENDMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<S> <C> <C>
/s/ Rhonda I. Kochlefl Chairman, President and September 30, 1996
____________________________________ Chief Executive Officer
Rhonda I. Kochlefl and Director (principal
executive officer)

* Senior Vice President and September 30, 1996
____________________________________ Chief Financial Officer
Luke F. Botica (principal financial and
accounting officer)

* Senior Vice President and September 30, 1996
____________________________________ Chief Technology Officer
Leo S. Spiegel and Director

* Director September 30, 1996
____________________________________
Daniel I. Malina

* Director September 30, 1996
____________________________________
W. Ed Tyler
</TABLE>

/s/ Rhonda I. Kochlefl
*By: ___________________________
Rhonda I. Kochlefl
Attorney-in-Fact

II-4
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Donnelley Enterprise Solutions
Incorporated included in this registration statement and have issued our
report thereon dated July 3, 1996 (except for the matters discussed in Note 11
as to which the date is September 27, 1996). Our audit was made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The schedules listed in the accompanying index above are presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.

Arthur Andersen LLP

Chicago, Illinois

July 3, 1996

S-1
<PAGE>

DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

<TABLE>
<CAPTION>
DEDUCTIONS--
ADDITIONS WRITE-OFFS
BALANCE ----------------------- OF TRADE BALANCE
AT THE CHARGES TO RECEIVABLES, AT END
ALLOWANCES FOR DOUBTFUL BEGINNING CHARGES TO OTHER NET OF OF
ACCOUNTS OF PERIOD EXPENSES(1) ACCOUNTS(2) RECOVERIES PERIOD
----------------------- --------- ----------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C>
For the Year Ended
December 31, 1993...... -- -- -- -- --
For the Year Ended
December 31, 1994...... -- -- -- -- --
For the Year Ended
December 31, 1995...... -- $413 $217 $(23) $607
</TABLE>
- --------
(1) These amounts represent provisions for doubtful accounts that are included
in general and administrative expenses.
(2) These amounts represent additions to the reserve resulting from the
purchase of LAN Systems, Inc. by R. R. Donnelley & Sons Company in 1995.

S-2

<PAGE>
EXHIBIT 3.1

FIRST AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED

Donnelley Enterprise Solutions Incorporated, a Delaware corporation (the
"Corporation"), HEREBY CERTIFIES that:

1. The name of the Corporation is Donnelley Enterprise Solutions
Incorporated. The Corporation was originally incorporated under the name "LAN
Systems, Inc.," pursuant to an original Certificate of Incorporation filed with
the Secretary of State on June 14, 1989.

2. This First Amended and Restated Certificate of Incorporation was duly
proposed by the Board of Directors and adopted by its stockholder on September
23, 1996 in accordance with Sections 228, 242 and 245 of the Delaware General
Corporation Law (the "DGCL").

3. The text of the Certificate of Incorporation as heretofore amended is
hereby amended and restated to read as herein set forth in full:

FIRST: The name of the Corporation is Donnelley Enterprise Solutions
Incorporated.

SECOND: The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle in the State of Delaware. The name of the
Corporation's registered agent at such address is The Corporation Trust Company.

THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the DGCL.

FOURTH: A. The total number of shares of all classes of capital stock
which the Corporation shall have the authority to issue is 15,000,000 shares of
Common Stock, each with a par value of $.01 per share, and 1,000,000 shares of
Preferred Stock, each with a par value of $.01 per share. At the time at which
this First Restated Certificate of Incorporation is filed with the Secretary of
State of the State of Delaware (the "Filing Time"), each share of Common Stock,
par value $1.00 per share, of the Corporation that shall be issued and
outstanding or held for any purpose in the treasury of the Corporation
immediately prior thereto shall be reclassified by changing such share into
31,450 shares of Common Stock, par value $.01 per share.

<PAGE>

B. The Board of Directors is expressly authorized at any time and from
time to time to provide for the issuance of all or any shares of the Preferred
Stock in one or more classes or series, and to fix for each such class or series
such voting powers, full or limited, or no voting powers, and such distinctive
designations, preferences and relative, participating, optional or other special
rights and such qualifications, limitations or restrictions thereof, as shall be
stated and expressed in the resolution or resolutions adopted by the Board of
Directors providing for the issuance of such class or series and to the fullest
extent as may now or hereafter be permitted by the DGCL, including, without
limitation, the authority to provide that any such class or series may be (i)
subject to redemption at such time or times and at such price or prices; (ii)
entitled to receive dividends (which may be cumulative or non-cumulative) at
such rates, on such conditions, at such times, and payable in preference to, or
in such relation to, the dividends payable on any other class or classes or any
other series; (iii) entitled to such rights upon the dissolution of, or upon any
distribution of the assets of, the Corporation; or (iv) convertible into, or
exchangeable for, shares of any other class or classes of stock, or of any other
series of the same or any other class or classes of stock, or other securities
or property, of the Corporation at such price or prices or at such rates of
exchange and with such adjustments; all as may be stated in such resolution or
resolutions. Unless otherwise provided in such resolution or resolutions,
shares of Preferred Stock of such class or series which shall be issued and
thereafter acquired by the Corporation through purchase, redemption, exchange,
conversion or otherwise shall return to the status of authorized but unissued
Preferred Stock.

FIFTH: A. The business and affairs of the Corporation shall be managed by
or under the direction of a Board of Directors consisting of not less than one
nor more than 15 directors, the exact number of directors to be determined from
time to time by resolution adopted by affirmative vote of a majority of the
entire Board of Directors. The directors shall be divided into three classes,
designated Class I, Class II and Class III. Each class shall consist, as nearly
as may be possible, of one-third of the total number of directors constituting
the entire Board of Directors. Class I directors shall be elected initially for
a one-year term, Class II directors initially for a two-year term and Class III
directors initially for a three-year term. At each succeeding annual meeting of
stockholders beginning in 1997, successors to the class of directors whose term
expires at that annual meeting shall be elected for a three-year term. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as possible, and any additional director of any class elected to
fill a vacancy

-2-
<PAGE>

resulting from an increase in such class shall hold office for a term that shall
coincide with the remaining term of that class, but in no case will a decrease
in the number of directors shorten the term of any incumbent director. A
director shall hold office until the annual meeting for the year in which his or
her term expires and until his or her successor shall be elected and shall
qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Any vacancy on the Board of Directors
may be filled only by a majority of the directors then in office, even if less
than a quorum, or a sole remaining director.

Any director elected to fill a vacancy not resulting from an increase in
the number of directors shall have the same remaining term as that of his or her
predecessor.

B. A director may be removed only by the holders of a majority of shares
of Common Stock then entitled to vote at an election of directors and only for
cause.

SIXTH: A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL or (iv) for any
transaction from which the director derived an improper personal benefit. If
the DGCL is amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the Corporation shall be eliminated or limited to the fullest extent
permitted by the DGCL, as so amended. Any repeal or modification of this
Article SIXTH by the stockholders of the Corporation shall not adversely affect
any right or protection of a director of the Corporation existing at the time of
such repeal or modification.

SEVENTH: A. The Corporation shall indemnify to the fullest extent
permitted under and in accordance with the DGCL any person who was or is a party
to (or witness in) or is threatened to be made a party to (or witness in) any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he or she is or was or has
agreed to become a director, officer, employee or agent of the Corporation, or
is or was serving (or who has agreed to serve) at the request of the Corporation
as a director, officer, trustee, employee or agent of or in any other capacity
with respect to another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement

-3-
<PAGE>

actually and reasonably incurred by him or her in connection with such action,
suit or proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.

B. Expenses (including attorneys' fees) incurred in defending a civil,
criminal, administrative or investigative action, suit or proceeding (1) in the
case of any action, suit or proceeding against a director of the Corporation
shall or (2) in the case of any action, suit or proceeding against an officer,
employee or agent of the Corporation may, as authorized by the Board of
Directors, be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of the indemnified person to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified by the Corporation
as authorized in this Article SEVENTH.

C. The indemnification and other rights set forth in this Article SEVENTH
shall not be exclusive of any provisions with respect thereto in the By-laws of
the Corporation or any other contract or agreement between the Corporation and
any officer, director, employee or agent of the Corporation.

D. Neither the amendment nor repeal of Section A, B or C of this Article
SEVENTH nor the adoption of any provision of this First Restated Certificate of
Incorporation inconsistent with Section A, B or C of this Article SEVENTH shall
eliminate or reduce the effect of Sections A, B and C of this Article SEVENTH in
respect of any matter occurring prior to such amendment, repeal or adoption of
an inconsistent provision or in respect of any cause of action, suit or claim
relating to any such matter which would have given rise to a right of
indemnification or right to receive expenses pursuant to Section A, B or C of
this Article SEVENTH if such provision had not been so amended or repealed or if
a provision inconsistent therewith had not been so adopted.

EIGHTH: Any action required or permitted to be taken by the stockholders
of the Corporation may be effected without a meeting of such stockholders by a
consent in writing by such stockholders in accordance with Section 228 of the
DGCL; provided, however, that after the first date on which R. R. Donnelley &
Sons Company, a Delaware corporation ("R.R. Donnelley"), ceases to beneficially
own 50 percent or more of the aggregate voting power of the then outstanding
Common Stock and Preferred Stock entitled to vote together with the Common Stock
as a single class in the election of directors (excluding, for purposes of the
foregoing calculation, shares of Common Stock beneficially owned by R.R.
Donnelley but not for its own account, such as beneficial ownership arising by
virtue of some entity that is an affiliate of R.R. Donnelley being a sponsor or
advisor

-4-
<PAGE>

of a mutual or similar fund that beneficially owns shares of Common Stock), any
action required or permitted to be taken by the stockholders of the Corporation
shall be effected only at a duly called annual or special meeting of such
stockholders and shall not be effected by a consent in writing by such
stockholders in lieu of such a meeting.

NINTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, amend or
repeal the By-laws of the Corporation, subject to any specific limitation on
such power contained in any By-laws adopted by the stockholders of the
Corporation and subject to the provisions in this First Restated Certificate of
Incorporation. Elections of directors need not be by written ballot unless the
By-laws of the Corporation so provide.

TENTH: In accordance with Section 203(b)(3) of the DGCL, the Corporation
expressly elects not to be governed by Section 203 of the DGCL; provided, that
in no event shall this Article TENTH apply to any business combination between
the Corporation and any person who became an interested stockholder of the
Corporation prior to the Filing Time.

ELEVENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this First Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon the stockholders herein are granted subject to this
reservation.

IN WITNESS WHEREOF, the Corporation has caused this First Amended and
Restated Certificate of Incorporation to be signed on this __th day of ____,
1996 in its name by a duly authorized officer.

DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED

By: _______________________________
Chairman, President and Chief
Executive Officer

ATTEST:

By: __________________________
Secretary

-5-

<PAGE>
EXHIBIT 3.2

BY-LAWS

DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED

ARTICLE I

Stockholders Meetings

Section 1.1. Annual Meetings. (a) An annual meeting of stockholders
shall be held for the election of directors at such date, time and place as may
be fixed by resolution of the Board of Directors from time to time. Subject to
paragraph (b) of this Section 1.1, any other proper business may be transacted
at an annual meeting.

(b) Only such business shall be conducted at an annual meeting of
stockholders as shall have been properly brought before the meeting. For
business to be properly brought before the meeting, it must be: (i) authorized
by the Board of Directors and specified in the notice, or a supplemental notice,
of the meeting, (ii) otherwise brought before the meeting by or at the direction
of the Board of Directors or the chairman of the meeting or (iii) otherwise
properly brought before the meeting by a stockholder. For business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given written notice thereof to the Secretary, delivered or mailed to and
received at the principal executive offices of the Corporation (x) not less than
60 days nor more than 90 days prior to the meeting, or (y) if less than 70 days'
notice of the meeting or prior public disclosure of the date of the meeting is
given or made to stockholders, not later than the earlier of the close of
business on the tenth day following the day on which the notice of the meeting
was mailed or the day on which such public disclosure was made. A stockholder's
notice to the Secretary shall set forth as to each item of business the
stockholder proposes to bring before the meeting (1) a brief description of such
item and the reasons for conducting such business at the meeting, (2) the name
and address, as they appear on the Corporation's records, of the stockholder
proposing such business, (3) the class and number of shares of stock of the
Corporation which are beneficially owned by the stockholder (for purposes of the
regulations under Sections 13 and 14 of the Securities Exchange Act of 1934, as
amended), and (4) any
<PAGE>

material interest of the stockholder in such business. No business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The chairman of the meeting at which any business
is proposed by a stockholder shall, if the facts warrant, determine and declare
to the meeting that such business was not properly brought before the meeting in
accordance with the provisions of this paragraph (b), and, in such event, the
business not properly before the meeting shall not be transacted.

Section 1.2. Special Meetings. Special meetings of stockholders for
any purpose or purposes may be called at any time only by the Chairman of the
Board, if any, or the President, and shall be called by the President or the
Secretary at the written request of a majority of the Board of Directors, and by
no other person. The business transacted at a special meeting of stockholders
shall be limited to the purpose or purposes for which such meeting is called,
except as otherwise determined by the Board of Directors or the chairman of the
meeting.

Section 1.3. Notice of Meetings. A written notice of each annual or
special meeting of stockholders shall be given stating the place, date and time
of the meeting, and, in the case of a special meeting, the purpose or purposes
for which the meeting is called. Unless otherwise provided by law, the
Certificate of Incorporation or these By-laws, such notice of meeting shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the mail, postage prepaid,
directed to the stockholder at such stockholder's address as it appears on the
records of the Corporation.

Section 1.4. Adjournments. Any annual or special meeting of
stockholders may be adjourned from time to time to reconvene at the same or some
other place, and notice need not be given of any such adjourned meeting if the
date, time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting any business may be transacted
which might have been transacted at the original meeting. If the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the adjourned meeting in
accordance with Section 1.3.

Section 1.5. Quorum. Except as otherwise provided by law, the
Certificate of Incorporation or these By-laws, the presence in person or by
proxy of the holders of stock having a majority of the votes which could be cast
by the holders of all outstanding stock entitled to vote at the meeting shall
constitute a quorum at each meeting of stockholders. In the absence of a quorum,
the stockholders so present may, by the

-2-
<PAGE>

affirmative vote of the holders of stock having a majority of the votes which
could be cast by all such holders, adjourn the meeting from time to time in the
manner provided in Section 1.4 until a quorum is present. If a quorum is present
when a meeting is convened, the subsequent withdrawal of stockholders, even
though less than a quorum remains, shall not affect the ability of the remaining
stockholders lawfully to transact business.

Section 1.6. Organization. Meetings of stockholders shall be
presided over by the Chairman of the Board, if any, or if there is none or in
his or her absence, by the President, or in his or her absence, by a chairman
designated by the Board of Directors, or in the absence of such designation by a
chairman chosen at the meeting. The Secretary shall act as secretary of the
meeting, but in his or her absence the chairman of the meeting may appoint any
person to act as secretary of the meeting.

Section 1.7. Voting. (a) Except as otherwise provided by the
Certificate of Incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
such stockholder which has voting power on the matter in question.

(b) Voting at meetings of stockholders need not be by written ballot.
Unless otherwise provided in the Certificate of Incorporation, directors shall
be elected by a plurality of the votes cast in the election of directors. Each
other question shall, unless otherwise provided by law, the Certificate of
Incorporation or these By-laws, be decided by the vote of the holders of stock
having a majority of the votes which could be cast by the holders of all stock
entitled to vote on such question which are present in person or by proxy at the
meeting.

(c) Stock of the Corporation standing in the name of another
corporation and entitled to vote may be voted by such officer, agent or proxy as
the by-laws or other internal regulations of such other corporation may
prescribe or, in the absence of such provision, as the board of directors or
comparable body of such other corporation may determine.

(d) Stock of the Corporation standing in the name of a deceased
person, a minor, an incompetent or a debtor in a case under Title 11, United
States Code, and entitled to vote may be voted by an administrator, executor,
guardian, conservator, debtor-in-possession or trustee, as the case may be,
either in person or by proxy, without transfer of such shares into the name of
the official or other person so voting.

-3-
<PAGE>

(e) A stockholder whose voting stock of the Corporation is pledged
shall be entitled to vote such stock unless on the transfer records of the
Corporation the pledgor has expressly empowered the pledgee to vote such shares,
in which case only the pledgee, or such pledgee's proxy, may represent such
shares and vote thereon.

(f) If voting stock is held of record in the names of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, tenants by the entirety or otherwise, or if two or more persons have
the same fiduciary relationship respecting the same shares, unless the Secretary
is given written notice to the contrary and is furnished with a copy of the
instrument or order appointing them or creating the relationship wherein it is
so provided, their acts with respect to voting shall have the following effect:
(i) if only one votes, such act binds all; (ii) if more than one votes, the act
of the majority so voting binds all; and (iii) if more than one votes, but the
vote is evenly split on any particular matter each faction may vote such stock
proportionally, or any person voting the shares, or a beneficiary, if any, may
apply to the Court of Chancery of the State of Delaware or such other court as
may have jurisdiction to appoint an additional person to act with the persons so
voting the stock, which shall then be voted as determined by a majority of such
persons and the person appointed by such Court. If the instrument so filed shows
that any such tenancy is held in unequal interests, a majority or even split for
the purpose of this subsection shall be a majority or even split in interest.

(g) Stock of the Corporation belonging to the Corporation, or to
another corporation a majority of the shares entitled to vote in the election of
directors of which are held by the Corporation, shall not be voted at any
meeting of stockholders and shall not be counted in the total number of
outstanding shares for the purpose of determining whether a quorum is present.
Nothing in the Section 1.7 shall limit the right of the Corporation to vote
shares of stock of the Corporation held by it in a fiduciary capacity.

Section 1.8. Proxies. (a) Each stockholder entitled to vote at a
meeting of stockholders may authorize another person or persons to act for such
stockholder by proxy filed with the Secretary before or at the time of the
meeting. No such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period. A duly executed proxy shall
be irrevocable if it states that it is irrevocable and if, and only as long as,
it is coupled with an interest sufficient in law to support an irrevocable
power. A stockholder may revoke any proxy that is not irrevocable by attending
the meeting and voting in person or by filing with the Secretary an instrument
in writing revoking the proxy or another duly executed proxy bearing a later
date.

-4-
<PAGE>

(b) A stockholder may authorize another person or persons to act for
such stockholder as proxy (i) by executing a writing authorizing such person or
persons to act as such, which execution may be accomplished by such stockholder
or such stockholder's authorized officer, director, partner, employee or agent
(or, if the stock is held in a trust or estate, by a trustee, executor or
administrator thereof) signing such writing or causing his or her signature to
be affixed to such writing by any reasonable means, including, but not limited
to, facsimile signature, or (ii) by transmitting or authorizing the transmission
of a telegram, cablegram, telecopy or other means of electronic transmission (a
"Transmission") to the person who will be the holder of the proxy or to a proxy
solicitation firm, proxy support service organization or like agent duly
authorized by the person who will be the holder of the proxy to receive such
Transmission; provided that any such Transmission must either set forth or be
submitted with information from which it can be determined that such
Transmission was authorized by such stockholder.

(c) Any inspector or inspectors appointed pursuant to Section 1.9
shall examine Transmissions to determine if they are valid. If no inspector or
inspectors are so appointed, the Secretary or such other person or persons as
shall be appointed from time to time by the Board of Directors shall examine
Transmissions to determine if they are valid. If it is determined a Transmission
is valid, the person or persons making that determination shall specify the
information upon which such person or persons relied. Any copy, facsimile
telecommunication or other reliable reproduction of such a writing or
Transmission may be substituted or used in lieu of the original writing or
Transmission for any and all purposes for which the original writing or
Transmission could be used; provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or Transmission.

Section 1.9. Voting Procedures and Inspectors of Elections. (a) The
Board of Directors shall, in advance of any meeting of stockholders, appoint one
or more inspectors (individually an "Inspector," and collectively the
"Inspectors") to act at such meeting and make a written report thereof. The
Board of Directors may designate one or more persons as alternate Inspectors to
replace any Inspector who shall fail to act. If no Inspector or alternate is
able to act at such meeting, the chairman of the meeting shall appoint one or
more other persons to act as Inspectors. Each Inspector, before entering upon
the discharge of his or her duties, shall take and sign an oath faithfully to
execute the duties of Inspector with strict impartiality and according to the
best of his or her ability.

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<PAGE>

(b) The Inspectors shall (i) ascertain the number of shares of stock
of the Corporation outstanding and the voting power of each, (ii) determine the
number of shares of stock of the Corporation present in person or by proxy at
such meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the Inspectors and
(v) certify their determination of the number of such shares present in person
or by proxy at such meeting and their count of all votes and ballots. The
Inspectors may appoint or retain other persons or entities to assist them in the
performance of their duties.

(c) The date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote at a meeting shall be
announced at such meeting. No ballots, proxies or votes, nor any revocations
thereof or changes thereto, shall be accepted by the Inspectors after the
closing of the polls unless the Court of Chancery of the State of Delaware upon
application by any stockholder shall determine otherwise.

(d) In determining the validity and counting of proxies and ballots,
the Inspectors shall be limited to an examination of the proxies, any envelopes
submitted with such proxies, any information referred to in paragraphs (b) and
(c) of Section 1.8, ballots and the regular books and records of the
Corporation, except that the Inspectors may consider other reliable information
for the limited purpose of reconciling proxies and ballots submitted by or on
behalf of banks, brokers, their nominees or similar persons which represent more
votes than the holder of a proxy is authorized by a stockholder of record to
cast or more votes than such stockholder holds of record. If the Inspectors
consider other reliable information for the limited purpose permitted herein,
the Inspectors, at the time they make their certification pursuant to paragraph
(b) of this Section 1.9, shall specify the precise information considered by
them, including the person or persons from whom such information was obtained,
when and the means by which such information was obtained and the basis for the
Inspectors' belief that such information is accurate and reliable.

Section 1.10. Fixing Date of Determination of Stockholders of Record.
(a) In order that the corporation may determine the stockholders entitled (i)
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, (ii) to receive payment of any dividend or other distribution or
allotment of any rights, (iii) to exercise any rights in respect of any change,
conversion or exchange of stock or (iv) to take, receive or participate in any
other action, the Board of Directors may fix a record date, which shall not be
earlier than the date upon which the resolution fixing the record date is
adopted by the Board of Directors and which (1) in the case of a

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determination of stockholders entitled to notice of or to vote at any meeting of
stockholders or adjournment thereof, shall, unless otherwise required by law, be
not more than 60 nor less than 10 days before the date of such meeting; and (2)
in the case of any other action, shall be not more than 60 days before such
action.

(b) If no record date is fixed, (i) the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; and (ii) the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.

(c) A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting, but the Board of Directors may fix a new record date for the adjourned
meeting.

Section 1.11. List of Stockholders Entitled to Vote. The Secretary
shall prepare, at least 10 days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least 10 days prior to the meeting, either at
a place within the city where the meeting is to be held, which place shall be
specified in the notice of meeting, or, if not so specified, at the place where
the meeting is to be held. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof and may be inspected by
any stockholder who is present. The stock ledger shall be the only evidence as
to who are the stockholders entitled to examine the stock ledger, the list of
stockholders or the books of the Corporation, or to vote in person or by proxy
at any meeting of stockholders.

ARTICLE II

Board of Directors

Section 2.1. Number. The Board of Directors shall consist of not
less than one nor more than 15 directors, the number thereof to be determined
from time to time by resolution of the Board of Directors.

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Section 2.2. Election; Resignation; Vacancies. (a) At each annual
meeting at which the term of office of a class of directors expires, the
stockholders shall elect directors of such class each to hold office until the
annual meeting at which the terms of office of such class of directors expire
and the election and qualification of his or her successor, or until his earlier
death, resignation or removal.

(b) Only persons who are nominated in accordance with the procedures
set forth in this paragraph (b) shall be eligible for election as directors of
the Corporation. Nominations of persons for election to the Board of Directors
may be made at a meeting of stockholders by the Board of Directors or by any
stockholder of the Corporation entitled to vote in the election of directors at
the meeting who complies with the notice procedures set forth in this paragraph
(b). Any nomination by a stockholder must be made by written notice to the
Secretary delivered or mailed to and received at the principal executive offices
of the Corporation (i) not less than 60 days nor more than 90 days prior to the
meeting, or (ii) if less than 70 days' notice of the meeting or prior public
disclosure of the date of the meeting is given or made to stockholders, not
later than the close of business on the tenth day following the day on which the
notice of the meeting was mailed or, if earlier, the day on which such public
disclosure was made. A stockholder's notice to the Secretary shall set forth (x)
as to each person whom the stockholder proposes to nominate for election or re-
election as a director: (1) the name, age, business address and residence
address of such person, (2) the principal occupation or employment of such
person, (3) the class and number of shares of stock of the Corporation which are
beneficially owned by such person (for the purposes of the regulations under
Sections 13 and 14 of the Securities Exchange Act of 1934, as amended), and (4)
any other information relating to such person that would be required to be
disclosed in solicitations of proxies for the election of such person as a
director of the Corporation pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended, and such person's written consent to being
named in any proxy statement as a nominee and to serving as a director if
elected; and (y) as to the stockholder giving notice (5) the name and address,
as they appear on the Corporation's records, of such stockholder and (6) the
class and number of shares of stock of the Corporation which are beneficially
owned by such stockholder (determined as provided in clause (x)(3) above). At
the request of the Board of Directors any person nominated by the Board of
Directors for election as a director shall furnish to the Secretary that
information required to be set forth in a stockholder's notice of nomination
which pertains to the nominee. The chairman of the meeting at which a
stockholder nomination is presented shall, if the facts warrant, determine and
declare to the meeting that such nomination was not made in accordance with the
procedures prescribed by this paragraph (b), and, in such event, the defective
nomination shall be disregarded.

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<PAGE>

(c) Any director may resign at any time by giving written notice to
the Chairman of the Board, if any, the President or the Secretary. Unless
otherwise stated in a notice of resignation, it shall take effect when received
by the officer to whom it is directed, without any need for its acceptance.

(d) Any newly created directorship or any vacancy occurring in the
Board of Directors for any reason may be filled by a majority of the remaining
directors, although less than a quorum, or a sole remaining director. Each
director elected to replace a former director shall hold office until the
expiration of the term of office of the director whom he or she has replaced and
the election and qualification of his or her successor, or until his or her
earlier death, resignation or removal. A director elected to fill a newly
created directorship shall serve until the annual meeting at which the terms of
office of the class of directors to which he or she is assigned expire and the
election and qualification of his or her successor, or until his or her earlier
death, resignation or removal.

Section 2.3. Regular Meetings. A regular annual meeting of the Board
of Directors shall be held, without call or notice, immediately after and at the
same place as the annual meeting of stockholders, for the purpose of organizing
the Board of Directors, electing officers and transacting any other business
that may properly come before such meeting. Additional regular meetings of the
Board of Directors may be held without call or notice at such times as shall be
fixed by resolution of the Board of Directors.

Section 2.4. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, if any, the President, the
Secretary or by any member of the Board of Directors. Notice of a special
meeting of the Board of Directors shall be given by the person or persons
calling the meeting at least 24 hours before the special meeting. The purpose or
purposes of a special meeting need not be stated in the call or notice.

Section 2.5. Organization. Meetings of the Board of Directors shall
be presided over by the Chairman of the Board, if any, or if there is none or in
his or her absence, by the President, or in his or her absence by a chairman
chosen at the meeting. The Secretary shall act as secretary of the meeting, but
in his or her absence the chairman of the meeting may appoint any person to act
as secretary of the meeting. A majority of the directors present at a meeting,
whether or not they constitute a quorum, may adjourn such meeting to any other
date, time or place without notice other than announcement at the meeting.

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<PAGE>

Section 2.6. Quorum; Vote Required for Action. At all meetings of
the Board of Directors a majority of the whole Board of Directors shall
constitute a quorum for the transaction of business. Unless the Certificate of
Incorporation or these By-laws otherwise provide, the vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.

Section 2.7. Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, designate one or more
committees, each committee to consist of one or more directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of the committee, the member or members present at any meeting and not
disqualified from voting, whether or not a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in place of any
such absent or disqualified member. Any such committee, to the extent permitted
by law and provided in the resolution of the Board of Directors designating such
committee, or an amendment to such resolution, shall have and may exercise all
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it.

Section 2.8. Telephonic Meetings. Directors, or any committee of
directors designated by the Board of Directors, may participate in a meeting of
the Board of Directors or such committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to this
Section 2.8 shall constitute presence in person at such meeting.

Section 2.9. Informal Action by Directors. Unless otherwise
restricted by the Certificate of Incorporation or these By-laws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board of Directors or such committee, as the case may be, consent thereto in
writing (which may be in counterparts), and the written consent or consents are
filed with the minutes of proceedings of the Board of Directors or such
committee.

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<PAGE>

Section 2.10. Committee Rules. Unless the Board of Directors
otherwise provides, each committee designated by the Board of Directors may
make, alter and repeal rules for the conduct of its business. In the absence of
such rules each such committee shall conduct its business in the same manner as
the Board of Directors conducts its business pursuant to this Article II.

Section 2.11 Reliance upon Records. Every director, and every
member of any committee of the Board of Directors, shall, in the performance of
his or her duties, be fully protected in relying in good faith upon the records
of the Corporation and upon such information, opinions, reports or statements
presented to the Corporation by any of its officers or employees, or committees
of the Board of Directors, or by any other person as to matters the director or
member reasonably believes are within such other person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Corporation, including, but not limited to, such records, information, opinions,
reports or statements as to the value and amount of the assets, liabilities
and/or net profits of the Corporation, or any other facts pertinent to the
existence and amount of surplus or other funds from which dividends might
properly be declared and paid, or with which the Corporation's capital stock
might properly be purchased or redeemed.

Section 2.12 Interested Directors. A director who is directly or
indirectly a party to a contract or transaction with the Corporation, or is a
director or officer of or has a financial interest in any other corporation,
partnership, association or other organization which is a party to a contract or
transaction with the Corporation, may be counted in determining whether a quorum
is present at any meeting of the Board of Directors or a committee thereof at
which such contract or transaction is considered or authorized, and such
director may participate in such meeting and vote on such authorization to the
extent permitted by applicable law, including Section 144 of the General
Corporation Law of the State of Delaware.

Section 2.13 Compensation. Unless otherwise restricted by the
Certificate of Incorporation, the Board of Directors shall have the authority to
fix the compensation of directors. The directors shall be paid their reasonable
expenses, if any, of attendance at each meeting of the Board of Directors or a
committee thereof and may be paid a fixed sum for attendance at each such
meeting and an annual retainer or salary for services as a director or committee
member. No such payment shall preclude any director from serving the Corporation
in any other capacity and receiving compensation therefor.

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<PAGE>

Section 2.14 Presumption of Assent. Unless otherwise provided by
the laws of the State of Delaware, a director who is present at a meeting of the
Board of Directors or a committee thereof at which action is taken on any matter
shall be presumed to have assented to the action taken unless his or her dissent
shall be entered in the minutes of such meeting or unless he or she shall file
his or her written dissent to such action with the person acting as secretary of
such meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary immediately after the adjournment of such
meeting. Such right to dissent shall not apply to a director who voted in favor
of such action.

ARTICLE III

Officers

Section 3.1. Executive Officers; Election; Qualification; Term of
Office. The Board of Directors may elect, if it so determines, a Chairman of
the Board from among its members. The Board of Directors shall elect a President
and a Secretary and may also elect one or more Executive Vice Presidents, Senior
Vice Presidents, Vice Presidents, Assistant Secretaries or Assistant Treasurers.
Any number of offices may be held by the same person. Each officer shall hold
office until the first meeting of the Board of Directors after the annual
meeting of stockholders next succeeding his or her election, and until his or
her successor is elected and qualified or until his or her earlier death,
resignation or removal.

Section 3.2. Resignation; Removal; Vacancies. Any officer may resign
at any time by giving written notice to the Chairman of the Board, if any, the
President or the Secretary. Unless otherwise stated in a notice of resignation,
it shall take effect when received by the officer to whom it is directed,
without any need for its acceptance. The Board of Directors may remove any
officer with or without cause at any time, but such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation. A vacancy occurring in any office of the Corporation may be filled
for the unexpired portion of the term thereof by the Board of Directors at any
regular or special meeting.

Section 3.3. Powers and Duties of Executive Officers. The officers
of the Corporation shall have such powers and duties in the management of the
Corporation as may be prescribed by the Board of Directors and, to the extent
not so provided, as generally pertain to their respective offices, subject to
the control of the Board of Directors. The Board of Directors may

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require any officer, agent or employee to give security for the faithful
performance of his or her duties.

Section 3.4. Chief Executive Officer. Unless the Board of Directors
elects a Chairman of the Board who is designated as such, the President shall be
the Chief Executive Officer of the Corporation and shall in general supervise
and control all of the business affairs of the Corporation, subject to the
direction of the Board of Directors. The President may execute, in the name and
on behalf of the Corporation, any deeds, mortgages, bonds, contracts or other
instruments which the Board of Directors or a committee thereof has authorized
to be executed, except in cases where the execution shall have been expressly
delegated by the Board of Directors or a committee thereof to some other officer
or agent of the Corporation.

The President may appoint persons assigned to a particular division or
other business unit of the Corporation as officers of such division or business
unit and having such titles as the President shall deem appropriate; provided
that the president or other equivalent senior officer of such division or
business unit shall be elected by the Board of Directors. Any such officer
appointed by the President may be removed by the President whenever in his or
her judgment the best interests of the Corporation would be served thereby. The
term of office, compensation, powers and duties and other terms of employment of
appointed officers shall be such as the President may from time to time deem
proper, and the authority of such officers shall be limited to acts pertaining
to the business of such division or business unit.

Section 3.5. Secretary. In addition to such other duties, if any, as
may be assigned to the Secretary by the Board of Directors, the Chairman of the
Board, if any, or the President, the Secretary shall (i) keep the minutes of
proceedings of the stockholders, the Board of Directors and any committee of the
Board of Directors in one or more books provided for that purpose; (ii) see that
all notices are duly given in accordance with the provisions of these By-laws or
as required by law; (iii) be the custodian of the records and seal of the
Corporation; (iv) affix or cause to be affixed the seal of the Corporation or a
facsimile thereof, and attest the seal by his or her signature, to all
certificates for shares of stock of the Corporation and to all other documents
the execution of which under seal is authorized by the Board of Directors; and
(v) unless such duties have been delegated by the Board of Directors to a
transfer agent of the Corporation, keep or cause to be kept a register of the
name and address of each stockholder, as the same shall be furnished to the
Secretary by such stockholder, and have general charge of the stock transfer
records of the Corporation.

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ARTICLE IV

Stock Certificates and Transfers

Section 4.1. Certificate. Every holder of stock shall be entitled to
have a certificate signed by or in the name of the Corporation by the Chairman
of the Board, if any, or the President or a Vice President, and by the Secretary
or an Assistant Secretary, of the Corporation, certifying the number of shares
owned by such stockholder in the Corporation. Any of or all the signatures on
the certificate may be facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such officer, transfer agent or registrar continued to be such
at the date of issue.

Section 4.2. Lost, Stolen or Destroyed Certificates; Issuance of New
Certificates. The Corporation may issue a new certificate for stock in the
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or such stockholder's legal representative, to
give the Corporation a bond sufficient to indemnify it against any claim that
may be made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate.

Section 4.3 Transfers of Stock. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for stock of the
Corporation duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer or, if the relevant stock certificate is
claimed to have been lost, stolen or destroyed, upon compliance with the
provisions of Section 4.2, and upon payment of applicable taxes with respect to
such transfer, and in compliance with any restrictions on transfer applicable to
such stock certificate or the shares represented thereby of which the
Corporation shall have notice and subject to such rules and regulations as the
Board of Directors may from time to time deem advisable concerning the transfer
and registration of stock certificates, the Corporation shall issue a new
certificate or certificates for such stock to the person entitled thereto,
cancel the old certificate and record the transaction upon its books. Transfers
of stock shall be made only on the books of the Corporation by the registered
holder thereof or by such holder's attorney or successor duly authorized as
evidenced by documents filed with the Secretary or transfer agent of the
Corporation. Whenever any transfer of stock shall be made for collateral
security, and not absolutely, it shall be so expressed in the entry of transfer
if, when the certificate or certificates

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representing such stock are presented to the Corporation for transfer, both the
transferor and transferee request the Corporation to do so.

Section 4.4 Stockholders of Record. The Corporation shall be
entitled to treat the holder of record of any stock of the Corporation as the
holder thereof and shall not be bound to recognize any equitable or other claim
to or interest in such stock on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise required by the
laws of the State of Delaware.

ARTICLE V

Notices

Section 5.1. Manner of Notice. Except as otherwise provided by law,
the Certificate of Incorporation or these By-laws, whenever notice is required
to be given to any stockholder, director or member of any committee of the Board
of Directors, such notice may be given by personal delivery or by depositing it,
in a sealed envelope, in the United States mails, first class, postage prepaid,
addressed, or by delivering it to a telegraph company, charges prepaid, for
transmission, or by transmitting it via telecopier, to such stockholder,
director or member, either at the address of such stockholder, director or
member as it appears on the records of the Corporation or, in the case of such a
director or member, at his or her business address; and such notice shall be
deemed to be given at the time when it is thus personally delivered, deposited,
delivered or transmitted, as the case may be. Such requirement for notice shall
also be deemed satisfied, except in the case of stockholder meetings, if actual
notice is received orally or by other writing by the person entitled thereto as
far in advance of the event with respect to which notice is being given as the
minimum notice period required by law or these By-laws.

Section 5.2. Dispensation with Notice. (a) Whenever notice is
required to be given by law, the Certificate of Incorporation or these By-laws
to any stockholder to whom (i) notice of two consecutive annual meetings of
stockholders, and all notices of meetings of stockholders or of the taking of
action by stockholders by written consent without a meeting to such stockholder
during the period between such two consecutive annual meetings, or (ii) all, and
at least two, payments (if sent by first class mail) of dividends or interest on
securities of the Corporation during a 12-month period, have been mailed
addressed to such stockholder at the address of such stockholder as shown on the
records of the Corporation and have been returned undeliverable, the giving of
such notice to such stockholder shall not be required. Any action or meeting
which shall be

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<PAGE>

taken or held without notice to such stockholder shall have the same force and
effect as if such notice had been duly given. If any such stockholder shall
deliver to the Corporation a written notice setting forth the then current
address of such stockholder, the requirement that notice be given to such
stockholder shall be reinstated.

(b) Whenever notice required to be given by law, the Certificate of
Incorporation or these By-laws to any person with whom communication is
unlawful, the giving of such notice to such person shall not be required, and
there shall be no duty to apply to any governmental authority or agency for a
license or permit to give such notice to such person. Any action or meeting
which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given.

Section 5.3. Waivers of Notice. Any written waiver of notice, signed
by the person entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of any regular special meeting of the stockholders, directors, or
members of a committee or directors need be specified in any written waiver of
notice.

ARTICLE VI

General

Section 6.1. Fiscal Year. The fiscal year of the Corporation shall
begin on January 1 and end on December 31 of each year.

Section 6.2. Seal. The corporate seal shall have the name of the
Corporation inscribed thereon and shall be in such form as may be approved from
time to time by the Board of Directors.

Section 6.3. Form of Records. Any records maintained by the
Corporation in the regular course of its business, including its stock ledger,
books of account, and minute books, may be kept on, or be in the form of
photographs, microphotographs, or any other information storage device, provided
that the records so kept can be converted into clearly legible form within a
reasonable time. The Corporation shall so convert any records so kept upon the
request of any person entitled to inspect the same.

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Section 6.4. Amendment of By-Laws. These By-laws may be altered or
repealed, and new By-laws made, by the Board of Directors, but the stockholders
may make additional By-laws and may alter and repeal any By-laws whether adopted
by them or otherwise.

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<PAGE>
EXHIBIT 10.1

TRANSITION SERVICES AGREEMENT

TRANSITION SERVICES AGREEMENT dated as of _________, 1996 (this
"Agreement") by and between R. R. Donnelley & Sons Company, a Delaware
corporation ("R.R. Donnelley"), and Donnelley Enterprise Solutions Incorporated,
a Delaware corporation (the "Company").

W I T N E S S E T H

WHEREAS, R.R. Donnelley is currently the owner of all outstanding
shares of common stock of the Company;

WHEREAS, the Company intends to make a public offering (the
"Offering") of shares of its common stock in a transaction that, upon closing of
the Offering (the "Closing Date"), will result in R.R. Donnelley owning [less
than a majority of] the outstanding shares of common stock of the Company;

WHEREAS, R.R. Donnelley has heretofore provided certain services to
the Company, and the Company desires that R.R. Donnelley continue to provide
certain services to the Company for a period of time following the Closing Date;

NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the parties hereto agree as follows:

SECTION 1. DEFINITIONS. The following terms have the meanings
specified or referred to in this Section 1 and shall be equally applicable to
the singular and plural forms.

"AFFILIATE" means, with respect to either the Company or R.R.
Donnelley, any individual, corporation, partnership, joint venture, limited
liability company, association, joint-stock company, trust or unincorporated
organization which directly or indirectly controls, is controlled by or is under
common control with the Company or R.R. Donnelley, respectively.

"BUSINESS" means the business of the Company and its subsidiaries as
conducted immediately prior to the Closing Date.

"CASH MANAGEMENT SERVICES" means those Services set forth under the
heading "Cash Management/Banking" in Exhibit 1 hereto.
<PAGE>

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

"EXPENSES" has the meaning set forth in Section 11(a).

"LOSSES" has the meaning set forth in Section 11(a).

"OTHER AGREEMENTS" means the Tax Allocation and Indemnification
Agreement dated the date hereof between R.R. Donnelley and the Company and the
Benefit Administration Services Agreement dated the date hereof between R.R.
Donnelley and the Company.

"OTHER INDEMNIFIED PARTIES" shall mean and include (i) R.R.
Donnelley's Affiliates, (ii) the respective directors, officers, agent and
employees of and counsel to R.R. Donnelley and its Affiliates, (iii) each other
person, if any, controlling R.R. Donnelley or any of its Affiliates and (iv) the
successors, assigns, heirs and personal representatives of any of the foregoing.

"SEC" means the Securities and Exchange Commission.

"SECURITIES ACT" means the Securities Act of 1933, as amended.

"TAX SERVICES" means those Services set forth under the heading
"Taxes" in Exhibit 1 hereto.

"TRANSITION PERIOD" means (i) for all Services other than Tax Services
and Cash Management Services the period commencing on the Closing Date and
ending on December 31, 1997, (ii) for Tax Services the period commencing on the
Closing Date and ending on January 31, 1998 and (iii) for Cash Management
Services the period commencing on the Closing Date and ending on March 31, 1997,
unless the Transition Period is extended as provided in Section 13(a).

SECTION 2. PERFORMANCE OF SERVICES BY R.R. DONNELLEY.

(a) Subject to the terms and conditions set forth herein, from the
Closing Date hereof until the end of the Transition Period, R.R. Donnelley shall
provide and cause to be provided to the Company and its subsidiaries, with
respect to the Business, the services described in Exhibit 1 hereto (the
"Services"). Notwithstanding the foregoing, at any time after the Closing Date,
the Company may terminate from time to time any category or categories of
Services listed in Exhibit 1 by identifying which category or categories of
Services it elects to terminate by written notice to R.R. Donnelley received by
R.R. Donnelley at least 30 days prior to the effective date of any such
termination.

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<PAGE>

(b) Unless otherwise expressly agreed to in writing by the parties
hereto, the Services will be provided to the Company at a level and in a manner
consistent with the level at which such Services are currently provided by R.R.
Donnelley and its subsidiaries in connection with the operation of the Business.
Notwithstanding the foregoing, R.R. Donnelley shall have no obligation to
provide or cause to be provided any particular Service if R.R. Donnelley
reasonably determines that (i) due to any change in circumstances or new
developments affecting the Business after the date hereof, the provision of all
or any portion of such Service would unreasonably interfere with the conduct of
R.R. Donnelley's or any of its Affiliates' business activities or (ii) the
provision of the Services would cause R.R. Donnelley or any of its Affiliates to
be in violation of any software license or other similar agreement under which
R.R. Donnelley or any of its Affiliates is a party or otherwise bound. R.R.
Donnelley and the Company shall cooperate in planning the scope and timing of
the Services provided by R.R. Donnelley under this Agreement so as to lessen or
eliminate any such interference, and R.R. Donnelley shall notify the Company of
any determination that it has made pursuant to the preceding sentence and
cooperate with the Company, to lessen disruption that might occur to the Company
by reason of R.R. Donnelley's not providing a particular Service following such
determination. Neither R.R. Donnelley nor any of its Affiliates will be
obligated to provide any services to the Company and its subsidiaries
(including, without limitation, the providing of any financing or credit
facility or the making of any guaranties), except to the extent described in
this Section 2 or as provided in the Other Agreements.

(c) The Services shall be provided hereunder on an as needed basis in
a manner consistent with past practice; provided, that with respect to Services
not performed in the daily operations of the Business in the ordinary course
consistent with past practice, the Company shall specifically request such
services in writing. The Services shall be provided hereunder in a time frame
consistent with R.R. Donnelley's past practice and such that the Services
respond to new developments in a timely manner, consistent with R.R. Donnelley's
past practice. R.R. Donnelley and its Affiliates may reasonably supplement,
modify, substitute or otherwise alter the Services from time to time in a manner
consistent with supplements, modifications, substitutions or alterations made
with respect to similar services provided or otherwise made available by R.R.
Donnelley to its operating divisions or subsidiaries, so long as R.R. Donnelley
provides the Company with reasonable advance notice of such modifications,
substitutions or alterations, to enable the Company to obtain replacement
services therefor.

(d) The Company and R.R. Donnelley acknowledge and agree that the
scope and duration of the Services may vary

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throughout the term of this Agreement, provided, that the level at which any
Services are provided hereunder shall not increase materially except in
accordance with Section 3(c). At any time, and from time to time, during the
term of this Agreement, the Company may, by providing written notice to R.R.
Donnelley, elect to reduce the scope and duration of the any of the Services;
provided, that except upon termination as provided in the last sentence of
Section 2(a), the fees referenced in Section 3(a) will not be adjusted as the
result of such a reduction to Services.

SECTION 3. PAYMENT FOR SERVICES. (a) The fee to be paid by the Company
to R.R. Donnelley for each of the Services provided hereunder shall be the
amount listed in Exhibit 1 for each category; provided, that in the event the
Company terminates any group of Services listed in Exhibit 1, the fee for such
Services shall no longer be payable following the effective date of such
termination. The Company shall also pay to R.R. Donnelley any and all out-of-
pocket costs and expenses of R.R. Donnelley incurred for the services of outside
advisers and consultants provided in connection with the Services provided
hereunder consistent with past practice, provided that, except as contemplated
in Exhibit 1, R.R. Donnelley will not engage any such advisor or consultant
without prior notification to the Company.

(b) R.R. Donnelley shall on a monthly basis submit to the Company for
payment its billing invoice setting forth the amount of fees for Services
rendered as described in subsection (a) above not theretofore paid by the
Company. Payment by the Company to R.R. Donnelley in respect of any such invoice
shall be made within 15 days after the date of receipt of such invoice.

(c) The Company acknowledges that time is of the essence with respect
to all payments under this Section and agrees to pay interest on the balance of
any amount payable hereunder unpaid when due at an annual rate of 15% from the
date an invoice with respect to which such payment obligation related was
received by the Company until the date of payment.

(d) In the event that the Company and its subsidiaries so expand their
operations during the Transition Period through the acquisition of new
businesses or companies, or growth in the Company's business materially
exceeding budgeted growth, that the services required by the Company and its
subsidiaries with respect to the Business exceed the scope or extent of the
Services provided hereunder, then R.R. Donnelley shall consider providing such
extra services, and to the extent R.R. Donnelley agrees to provide such
services, R.R. Donnelley and the Company shall negotiate in good faith an
adjustment to the fees payable pursuant to Section 3(a) which is proportionate
to the increase in the scope and extent of Services provided hereunder.

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<PAGE>

SECTION 4. STAFFING PLANS. Neither the Company nor any of its
Affiliates shall be precluded from obtaining any of the Services from providers
other than R.R. Donnelley; provided that the Company has given R.R. Donnelley
not less than 30 days prior written notice of the discontinuance of such
Services; and provided that, except upon termination as set forth in the last
sentence of Section 2(a), the fees referenced in Section 3(a) will not be
adjusted as the result of Services being provided by third party providers. The
Company shall keep R.R. Donnelley generally informed of its plans in this regard
in order for R.R. Donnelley to make any appropriate adjustments in R.R.
Donnelley's staffing and hiring plans.

SECTION 5. DISCLAIMER. Neither R.R. Donnelley nor any of its
Affiliates makes any representation or warranty, express or implied, as to
whether the Services to be provided hereunder are sufficient for the operation
of the Business on or after the Closing Date, and neither R.R. Donnelley nor any
of its Affiliates nor any employees of R. R. Donnelley or any of its Affiliates
shall have any liability to the Company or its Affiliates for the Services
provided hereunder except to the extent caused by the gross negligence or
willful misconduct of R.R. Donnelley or its Affiliates.

SECTION 6. CONFIDENTIALITY. R.R. Donnelley agrees to hold, and to use
reasonable efforts to cause its employees and representatives to hold, in strict
confidence all information concerning the Company and its Affiliates furnished
to or obtained by R.R. Donnelley in the course of providing the Services
contemplated hereby to the Company and its Affiliates which is marked
"Confidential" (except to the extent that such information has been (A) in the
public domain through no fault of R.R. Donnelley or (B) lawfully acquired by
R.R. Donnelley from sources other than the Company and its Affiliates), and R.R.
Donnelley shall not disclose or release any such confidential information to any
person, except its employees, representatives and agents who have a need to know
such information in connection with R.R. Donnelley's performance hereunder,
unless (i) such disclosure or release is compelled by the judicial or
administrative process, (ii) in the opinion of counsel to R.R. Donnelley, such
disclosure or release is necessary or desirable in light of other requirements
of law or the requirements of any governmental entity including, without
limitation, disclosure requirements under the Securities Act of 1934, as
amended, or (iii) in the opinion of R.R. Donnelley, such disclosure and release
is appropriate and customary for the proper administration of R.R. Donnelley's
and its Affiliates' responsibilities and duties in respect of matters of
foreign, federal, state or local taxation.

SECTION 7. GUARANTIES. The Company acknowledges that R.R. Donnelley
has heretofore delivered, and may prior to the

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<PAGE>

Closing Date deliver, guaranties of payment or performance of certain
obligations of the Company or one of its Affiliates (the "Guaranteed
Obligations"). R.R. Donnelley agrees to maintain all of the guaranties that it
delivered with respect to the Guaranteed Obligations prior to the Closing Date
but only to the extent provided in the guaranties of the Guaranteed Obligations
delivered prior to the Closing Date. The Company agrees not to amend or modify
the terms of any agreement or instrument that evidences a Guaranteed Obligation
in such a manner that increases the potential liability of R.R. Donnelley
without the written consent of R.R. Donnelley, which consent may be withheld in
the sole discretion of R.R. Donnelley.

SECTION 8. NON-SOLICITATION OF EMPLOYEES. (a) For a period of one year
following the Closing Date, neither R.R. Donnelley nor any of its Affiliates
will, without the prior written approval of the Company, directly or indirectly
solicit, induce or attempt to persuade any person who is an employee of the
Company or any of its subsidiaries on the date hereof or at any time hereafter
to terminate his or her employment with the Company or such subsidiary of the
Company, except R.R. Donnelley or any of its Affiliates may hire employees who
respond to general advertisements or who otherwise make initial contact with
them.

(b) For a period of one year following the Closing Date, neither the
Company nor any of its Affiliates will, without the prior written approval of
R.R. Donnelley, directly or indirectly solicit, induce or attempt to persuade
any person who is an employee of R.R. Donnelley or any of its subsidiaries on
the date hereof or at any time hereafter to terminate his or her employment with
R.R. Donnelley or such subsidiary of R.R. Donnelley, except the Company or any
of its Affiliates may hire employees who respond to general advertisements or
who otherwise make initial contact with them.

SECTION 9. USE OF REAL ESTATE. (a) As of the date hereof, the Company
is using office space in the facilities leased by R.R. Donnelley that are listed
in Exhibit 2 hereto (the "Shared Facilities"). R.R. Donnelley agrees to permit
the Company to continue to use the portion of each Shared Facility used by the
Company as of the date hereof (including common areas) until the expiration date
set forth for each Shared Facility in Exhibit 2, except with respect to the New
York facility, which the Company may use until December 31, 1996, but in no
event for a period ending after the expiration of the term of the lease relating
to such Shared Facility (without giving effect to any extensions of such lease).
In consideration for such agreement, the Company agrees to pay to R.R. Donnelley
in the case of Dallas and San Francisco, (i) for each month that the Company is
entitled to use such portion of a Shared Facility an amount in respect of such
Shared Facility equal to the product of

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<PAGE>

(a) the amount payable by R.R. Donnelley as monthly rent (the "Base Rent") for
such Shared Facility (including taxes, utilities and other additional rent
required under the particular lease), as adjusted from time to time, times (b) a
fraction, the numerator of which is the number set forth in Exhibit 2 hereto
under the heading "RSF Company" for each Shared Facility and the denominator of
which is the total square footage of such Shared Facility and (ii) for each
three-month period that the Company is entitled to use such portion of a Shared
Facility, an amount in respect of the cost of operating such Shared Facility,
including, but not limited to, telephone, reception, utility and catering
services (the "Services Amount"), equal to the product of (a) the total amount
payable by R.R. Donnelley for those services used by the Company at a Shared
Facility, times (b) a fraction, the numerator of which is the average number of
employees of the Company using space at such Shared Facility during such three-
month period and the denominator of which is the average total number of persons
using space at such Shared Facility during such three-month period; and in the
case of New York, the amount of $17,467 per month, as set forth in Exhibit 2.
Exhibit 2 sets forth the Base Rent payable by the Company with respect to each
Shared Facility as of the date hereof.

(b) R.R. Donnelley shall (i) on a monthly basis submit to the Company
for payment its billing invoice setting forth the Base Rent not theretofore paid
by the Company and (ii) on a quarterly basis submit to the Company for payment
its billing invoice setting forth the Services Amount not theretofore paid by
the Company. Payment by the Company to R.R. Donnelley in respect of any such
invoice shall be made within 15 days after the date of such invoice.

SECTION 10. FINANCIAL AND OTHER INFORMATION. (a) Equity Accounting
Period. The Company agrees that, during any period in which R.R. Donnelley owns
at least 20% of the voting power of the capital stock of the Company then
outstanding or 20% of the capital stock of the Company then outstanding, or in
which R.R. Donnelley is required to account for its investment in the Company
under the equity method of accounting (determined in accordance with generally
accepted accounting principles consistently applied):

(i) Maintenance of Books and Records. The Company shall, and shall
cause each of its consolidated subsidiaries to, maintain a system of internal
accounting controls that shall

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<PAGE>

provide reasonable assurance that: (1) the Company's and such subsidiaries'
books, records and accounts fairly reflect transactions and dispositions of
assets, and (2) the specific objectives of accounting control are achieved.

(ii) Monthly Financial Information. As soon as practicable, but in any
event within five business days after the end of each month in each fiscal year
of the Company, the Company shall deliver to R.R. Donnelley its pre- and after-
tax net income for the month and the year to date period for the Company and its
subsidiaries.

(iii) Unaudited Quarterly Financial Statements. As soon as
practicable, but in any event within 35 days after the end of each of the first
three fiscal quarters in each fiscal year of the Company, the Company shall
deliver to R.R. Donnelley drafts of (1) the consolidated financial statements of
the Company and its subsidiaries (and notes thereto) for such periods and for
the period from the beginning of the current fiscal year to the end of such
quarter, setting forth in each case in comparative form for each such fiscal
quarter of the Company the consolidated figures (and notes thereto) for the
corresponding quarter and periods of the previous fiscal year and all in
reasonable detail and prepared in accordance with Article 10 of Regulation S-X
of the General Rules and Regulations under the Securities Act ("Regulation S-
X"), and (2) a discussion and analysis by management of the Company's and it
subsidiaries' financial condition and results of operations for such fiscal
period, including, without limitation, an explanation of any material adverse
change, all in reasonable detail and prepared in accordance with Item 303(b) of
Regulation S-K of the General Rules and Regulations under the Securities Act
("Regulation S-K"). The foregoing requirement may be satisfied by the delivery
of a draft Quarterly Report on Form 10-Q. The information set forth in (1) and
(2) above is herein referred to as the "Quarterly Financial Statements." The
Company shall deliver to R.R. Donnelley all revisions to such drafts as soon as
any such revisions are prepared or made. No later than two business days prior
to the date the Company publicly files the Quarterly Financial Statements with
the SEC or otherwise, the Company shall deliver to R.R. Donnelley the final form
of the Quarterly Financial Statements to be filed with the SEC.

(iv) Audited Annual Financial Information. As soon as is practicable,
but in any event within 60 days after the end of each fiscal year of the
Company, the Company shall deliver to R.R. Donnelley drafts of (1) the
consolidated financial statements of the Company (and notes thereto) for such
year, setting forth in comparative form the consolidated figures (and notes
thereto) for the previous fiscal year and all in reasonable detail and prepared
in accordance with Regulation S-X and (2) a discussion and analysis by
management of the Company's and its

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<PAGE>

subsidiaries' financial condition and results of operations for such year,
including, without limitation, an explanation of any material adverse change,
all in reasonable detail and prepared in accordance with item 303(a) of
Regulation S-K. The foregoing requirement may be satisfied by the delivery of a
draft Annual Report on Form 10-K. The information set forth in (1) and (2)
above is herein referred to as the "Annual Financial Statement." The Company
shall deliver to R.R. Donnelley all revisions to such drafts as soon as any such
revisions are prepared or made. The Company shall deliver to R.R. Donnelley,
within 90 days after the end of each fiscal year of the Company, the final form
of the Annual Financial Statements accompanied by a report thereon by the
Company's independent certified public accountants.

(v) Public Information and SEC Reports. Except as more particularly
described in paragraphs (iii) and (iv) above, the Company and each of its
subsidiaries that files information with the SEC shall deliver to R.R. Donnelley
(to the attention of its Corporate Secretary) as soon as substantially final
drafts are prepared all reports, notices and proxy and information statements to
be sent or made available by the Company or any of its subsidiaries to their
securityholders and all regular, periodic and other reports filed under Section
13, 14 and 15 of the Exchange Act (including Reports on Forms 10-K, 10-Q and 8-K
and Annual Reports to Shareholders), and all registration statements and
prospectuses to be filed by the Company or any of its subsidiaries with the SEC
or any securities exchange pursuant to the listed company manual (or similar
requirements) of such exchange (collectively, the "Company Public Documents"),
and, as soon as practicable, but in no event later than one business day prior
to the date the same are printed, sent or filed, whichever is earliest, final
copies of all Company Public Documents.

No later than immediately prior to issuance, the Company shall deliver
to R.R. Donnelley copies of all press releases and other statements to be made
available by the Company or any of its subsidiaries to the public relating to
information concerning material developments in the business, properties,
results of operations, financial condition or prospects of the Company or any of
its subsidiaries. No report, registration, information or proxy statement,
prospectus or other document that refers, or contains information with respect,
to R.R. Donnelley shall be filed with the SEC or otherwise made public by the
Company or any of its subsidiaries without notice to and the consent (written or
oral) of R.R. Donnelley with respect to those portions of such document that
contain information with respect to R.R. Donnelley, which consent will not be
unreasonably withheld, delayed or conditioned, provided, however, that the
Company need not obtain the consent of R.R. Donnelley for descriptions of
intercompany agreements between itself and R.R. Donnelley to the extent that
such descriptions are substantially

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<PAGE>

identical to the descriptions contained in the registration statement relating
to the Offering.

(vi) Earnings Releases. R.R. Donnelley agrees that, unless required by
law, rule or regulation or unless the Company shall have consented thereto, R.R.
Donnelley shall not release any monthly financial information of the Company or
any of its subsidiaries under any circumstances and R.R. Donnelley shall not
release to the general public any quarterly or annual financial information of
the Company or any of its subsidiaries (the "Company Information") delivered to
R.R. Donnelley pursuant to this Section 10 prior to the time that the Company
publicly releases financial information of the Company for the relevant period.
The Company and R.R. Donnelley shall consult on the timing of their annual and
quarterly earnings releases and shall give each other an opportunity to review
the information therein relating to the Company and its subsidiaries and to
comment thereon. In the event that R.R. Donnelley is required by law to publicly
release such Company Information prior to the public release of R.R. Donnelley's
financial information, R.R. Donnelley shall give the Company notice of such
release of Company Information as soon as practicable but in no event later than
immediately prior to such release of Company Information.

(vii) R.R. Donnelley Public Filings. The Company shall cooperate fully
with R.R. Donnelley to the extent reasonably requested by R.R. Donnelley in the
preparation of R.R. Donnelley's public earnings releases, quarterly reports on
Form 10-Q, Annual Reports to Shareholders, Annual Reports on Form 10-K, any
Current Reports on Form 8-K and any other proxy, information and registration
statements, reports, notices, prospectuses and any other filings made by R.R.
Donnelley with the SEC, any national securities exchange or otherwise made
publicly available (collectively, "R.R. Donnelley Public Filings"). The Company
agrees to provide to R.R. Donnelley such information concerning the Company as
R.R. Donnelley reasonably requests in writing in connection with any such R.R.
Donnelley Public Filings. Following request by R.R. Donnelley, such information
concerning the Company shall be provided by the Company in a timely manner to
enable R.R. Donnelley to prepare, print and release such R.R. Donnelley Public
Filings on such date as R.R. Donnelley shall have determined and notified the
Company thereof. If and to the extent reasonably requested in advance by R.R.
Donnelley, the Company shall review all drafts of such R.R. Donnelley Public
Filings prior to any printing or public release thereof, and certify (through an
appropriate executive officer) that the information relating to the Company in
such R.R. Donnelley Public Filing is accurate. R.R. Donnelley shall reimburse
the Company for any and all out-of-pocket costs and expenses of outside advisors
incurred by the Company in connection with providing such certificate.

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<PAGE>

(viii) Coordination of Auditors' Opinions. For so long as each party
hereto maintains its fiscal year end as it exists on the date hereof, the
Company shall use its reasonable efforts to enable its independent certified
public accountants (the "Company's Auditors") to complete their audit such that
they will date their opinion on the Company's audited annual financial
statements (the "Company Annual Financial Statements") (1) within 31 days of the
end of the Company's fiscal year or (2) within five business days of the date
that R.R. Donnelley's independent certified public accountants ("R.R.
Donnelley's Auditors") date their opinion on R.R. Donnelley's audited annual
financial statements (together with R.R. Donnelley's Annual Report to
Shareholders, the "R.R. Donnelley Annual Statements"), whichever is earlier, and
to enable R.R. Donnelley to meet its timetable for the printing, filing and
public dissemination of the R.R. Donnelley Statements.

(ix) Cooperation in Preparation of R.R. Donnelley Annual Statements.
The Company shall provide to R.R. Donnelley on a timely basis all information
that R.R. Donnelley reasonably needs to meet its schedule for the preparation,
printing, filing and public dissemination of the R.R. Donnelley Annual
Statements. In this respect, the Company shall provide all required financial
information with respect to the Company and its consolidated subsidiaries to the
Company's Auditors in a sufficient and reasonable time and in reasonably
sufficient detail to permit the Company's Auditors to take all steps and perform
all review necessary to provide sufficient assistance to R.R. Donnelley's
Auditors with respect to information to be included or contained in the R.R.
Donnelley Annual Statements, such assistance to R.R. Donnelley's Auditors to be
in conformity with current and past practices.

(x) Access to Personnel and Working Papers. The Company shall
authorize the Company's Auditors to make available to R.R. Donnelley's Auditors,
at R.R. Donnelley's expense, both the personnel who performed or are performing
the annual audit of the Company and work papers related to the annual audit of
the Company, in all cases within a reasonable time after the Company's Auditors'
opinion date, so that R.R. Donnelley's Auditors are able to perform the
procedures they consider reasonably necessary to take responsibility for the
work of the Company's Auditors as it relates to R.R. Donnelley's Auditors'
report on R.R. Donnelley's statements, all within sufficient time to enable R.R.
Donnelley to meet its timetable for the printing, filing and public
dissemination of the R.R. Donnelley Annual Statements.

(b) Ten Percent Period. The Company agrees that, during any period in
which R.R. Donnelley holds at least 10% but less than 20% of the voting power of
the capital stock of the Company then outstanding, the Company shall furnish to
R.R.

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<PAGE>

Donnelley as soon as publicly available, copies of all financial statements,
reports, notices and proxy statements sent by the Company in a general mailing
to all its shareholders, of all reports on Forms 10-K, 10-Q and 8-K and of all
final prospectuses filed pursuant to Rule 424 under the Securities Act.

SECTION 11. INDEMNIFICATION. (a) The Company hereby agrees to
indemnify and hold harmless R.R. Donnelley and each of the Other Indemnified
Parties, to the fullest extent lawful, from and against any and all losses,
claims, damages or liabilities (collectively, "Losses") and expenses (including
all fees and expenses of R.R. Donnelley's and each of the Other Indemnified
Parties' counsel, investigators, expert witnesses, accountants and other
professionals, reasonable travel and other out-of-pocket expenses) incurred at
the Company's request or otherwise incurred in connection with the investigation
of any pending or threatened claims or preparation for any pending or threatened
litigation or other proceedings or the renegotiation of any license agreements
relating to Data Center Services, (collectively, "Expenses") arising out of or
relating to (i) the provision of the Services hereunder by R.R. Donnelley or any
of the Other Indemnified Parties; (ii) any Guaranteed Obligation, (iii) the use
by the Company of the Shared Facilities; (iv) the provision of Data Center
Services to the Company pursuant to the Data Agreement (as defined in Exhibit 1
hereto) or (v) contracts relating to the operations of the Company to which RR
Donnelley is a party; provided, however, that the Company shall have no
obligation to indemnify and hold harmless R.R. Donnelley or any of the Other
Indemnified Parties (A) under clause (i) above in respect of Losses or Expenses
which are finally judicially determined to have resulted solely from the gross
negligence or willful misconduct of R.R. Donnelley in providing any Services
hereunder or (B) under clause (iv) above in respect of Expenses relating to the
Computer Associates Agreements (as defined in Exhibit 1 hereto) to the extent
that the aggregate amount of such Expenses exceeds $38,000. To the extent not
prohibited by considerations of conflicts of interest, R.R. Donnelley and the
Other Indemnified Parties shall use such legal counsel as shall be selected by
R.R. Donnelley. Expenses shall be reimbursed or advanced when and as incurred
promptly upon submission by R.R. Donnelley of statements to the Company.

(b) If for any reason (other than those set forth in the proviso
appearing in the preceding subsection (a)) the foregoing indemnification is
unavailable to R.R. Donnelley or any of the Other Indemnified Parties or is
insufficient to hold it or them harmless, then the Company shall contribute to
the amount paid or payable by R.R. Donnelley or any of the Other Indemnified
Parties as a result of such Loss and Expense in such proportion as is
appropriate to reflect not only the relative benefits received by the Company,
on the one hand, but also the relative

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<PAGE>

fault of the Company and R.R. Donnelley or the Other Indemnified Parties, as
well as any relevant equitable considerations.

(c) The reimbursement, indemnity and contribution obligations of the
Company hereunder shall be in addition to any liability which the Company may
otherwise have.

(d) The Company shall provide to R.R. Donnelley a Certificate of
Insurance evidencing coverage for comprehensive general liability, including
contractual liability, in an amount of at least $2 million per occurrence for
bodily injury and property damage naming R.R. Donnelley as an additional
insured. The Company agrees to keep such insurance in full force and effect for
as long as the Company is using any Shared Facility.

SECTION 12. SET-OFF. Notwithstanding anything herein to the contrary,
including, without limitation, any indemnification provided for under Section 11
hereof, R.R. Donnelley shall have the right to set-off, at any time and from
time to time, against any amount owing by the Company to R.R. Donnelley in
connection with any cause, matter or thing arising under or in connection with
(i) any provision of this Agreement or (ii) any provision of any of the Other
Agreements, any amount from time to time owing by R.R. Donnelley to the Company
in connection with any cause, matter or thing arising under or in connection
with (y) any provision of this Agreement or (z) any provision of any Other
Agreement.

SECTION 13. EXTENSION OF TRANSITION PERIOD; TERMINATION. (a) In the
event that the Company desires to negotiate with R.R. Donnelley for the
continuance of any Services beyond the end of the Transition Period, the Company
shall notify R.R. Donnelley of such desire not later than 45 days prior to the
termination of such Service. Neither R.R. Donnelley nor any of its Affiliates
shall be obligated to provide Services on behalf of the Company following the
expiration of this Agreement except to the extent the Company and R.R. Donnelley
have executed and delivered an extension of this Agreement or a separate
agreement which provides the terms and conditions of the performance of such
Services. Notwithstanding the foregoing, the Company may extend the Transition
Period as it relates to Tax Services for one year, provided that the Company
requests such renewal in writing not later than November 1, 1997 and R.R.
Donnelley does not reject such request within 15 days of receipt thereof. In the
event that the Company extends the Transition Period as it relates to Tax
Services as provided in the preceding sentence, the fee to be paid by the
Company to R.R. Donnelley for such Tax Services shall be that set forth for the
"Renewal Period" in Exhibit 1.

(b) This Agreement shall terminate with respect to the Services upon
the expiration of the Transition Period, unless

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earlier terminated pursuant to this Section. Anything contained in this
Agreement to the contrary notwithstanding, this Agreement may be terminated at
any time:

(i) by the mutual consent of the Company and R.R. Donnelley;

(ii) by the Company in the event of any material breach or default by
R.R. Donnelley of any of R.R. Donnelley's agreements, representations, or
warranties contained herein and the failure of R.R. Donnelley to cure such
breach or default within ten (10) days after receipt of written notice from
the Company requesting such breach or default to be cured; or

(iii) by R.R. Donnelley in the event of any material breach or default
by the Company of any of the Company's agreements, representations, or
warranties contained herein and the failure of the Company to cure such
breach or default within ten (10) days after receipt of notice from R.R.
Donnelley requesting such breach or default to be cured.

SECTION 14. CERTAIN AGREEMENTS AND INDEMNITIES TO SURVIVE TERMINATION
OF AGREEMENT. The provisions of Sections 5, 6, 10 and 11 hereof shall survive
any termination of this Agreement.

SECTION 15. ASSIGNMENT; RIGHT OF R.R. DONNELLEY TO ASSIGN TO
SUBSIDIARIES. This Agreement and all the provisions hereof shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns, but neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assignable or transferable by either
party (except by operation of law in connection with a merger involving, or sale
of substantially all of the assets of, such party) without the prior written
consent of the other party hereto; provided, however, that R.R. Donnelley, at
all times, without regard to the foregoing requirement to obtain the prior
written consent of the Company, may assign any or all of its rights, duties,
responsibilities and obligation hereunder to one or more of its Affiliates.

SECTION 16. COMPLETE AGREEMENT; CONSTRUCTION. This Agreement and the
Exhibit attached hereto shall constitute the entire agreement between the
parties with respect to the subject matter hereof and shall supersede all
previous negotiations, commitments and writings with respect to such subject
matter (it being understood, however, that the Other Agreements set forth
certain additional understandings between R.R. Donnelley and the Company
regarding their relationship after the Closing Date).

-14-
<PAGE>

SECTION 17. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois, without regard
to the principles of conflicts of laws thereof.

SECTION 18. NOTICES. All notices and other communi-cations required or
permitted hereunder shall be in writing and shall be deemed given or delivered
when delivered personally or when sent by registered or certified mail or by
private courier addressed as follows:

to R.R. Donnelley:

R.R. Donnelley & Sons Company
77 West Wacker Drive
Chicago, IL 60601
Attention: Legal Department

to the Company:

Donnelley Enterprise Solutions Incorporated
161 N. Clark Street, Suite 2400
Chicago, IL 60601
Attention: Chief Financial Officer

SECTION 19. AMENDMENTS. This Agreement may not be modified or amended
except by an agreement in writing signed by the parties.

SECTION 20. WAIVERS. The failure of any party hereto at any time to
require strict performance by the other party hereto of any provision hereof
shall not waive or diminish such party's right to demand strict performance
thereafter of that or any other provision hereof.

SECTION 21. NO THIRD PARTY BENEFICIARIES. Except for the provisions of
Sections 5 and 11 hereof, this Agreement is solely for the benefit of the
parties and does not confer upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.

SECTION 22. TITLES AND HEADINGS. Titles and headings to sections
herein are inserted for convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement.

SECTION 23. PARTIAL INVALIDITY. Wherever possible, each provision
hereof shall be interpreted in such manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect,

-15-
<PAGE>

such provision shall be ineffective to the extent, but only to the extent, of
such invalidity, illegality or unenforceability without invalidating the
remainder of such invalid, illegal or unenforceable provision or provisions or
any other provisions hereof, unless such a construction would be unreasonable.

SECTION 24. FORCE MAJEURE. R.R. Donnelley shall be excused from
performance hereunder for any period and to the extent that it is prevented from
performing any services pursuant hereto, in whole or in part, as a result of
delays caused by the other party or an act of God, war, civil disturbance, court
order, labor dispute or other cause beyond its reasonable control and such
nonperformance shall not be a default hereunder or a ground for termination
hereof. In the event that R.R. Donnelley is excused from performance hereunder
pursuant to this Section, then R.R. Donnelley shall take all reasonable actions
to resume performance of its obligations hereunder as soon as feasible;
provided, however, that nothing in this Section will be construed to require the
settlement of any strike, walkout or other labor dispute on terms which, in the
reasonable judgement of R.R. Donnelley, are contrary to its interest. It is
understood that the settlement of a strike, walkout or other labor dispute will
be entirely within the discretion of R.R. Donnelley.

SECTION 25. RELATIONSHIP OF PARTIES; R.R. DONNELLEY EMPLOYEES. (a)
Nothing herein contained shall be deemed or construed by the Company or R.R.
Donnelley or for any other party as creating the relationship of principal and
agent or of a partnership or joint venture among the parties hereto.

(b) All employees and representatives of R.R. Donnelley providing Services
hereunder to the Company and its subsidiaries during the term of this Agreement
shall be deemed for purposes of all compensation and employee benefits to be
employees or representatives solely of R.R. Donnelley or its Affiliates and not
to be employees or representatives of the Company or any of its Affiliates or to
be independent contractors thereof. In performing their respective duties
hereunder, all such employees and representatives of R.R. Donnelley or its
Affiliates shall be under the direction, control and supervision of R.R.
Donnelley (and not of the Company or its Affiliates) and R.R. Donnelley shall
have the sole right to exercise all authority with respect to the employment
(including termination of employment), assignment and compensation of such
employees and representatives.

SECTION 26. EXECUTION IN COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall be considered an original
instrument, but all of which shall be considered one and the same agreement, and
shall become binding when one or more counterparts have been signed by the each
of the

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<PAGE>

parties hereto and delivered to each of R.R. Donnelley and the Company.

* * * * * * * * *

-17-
<PAGE>

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.

R.R. DONNELLEY & SONS COMPANY

By:
------------------------------
Name:
Title:

DONNELLEY ENTERPRISE
SOLUTIONS INCORPORATED

By:
------------------------------
Name:
Title

-18-
<PAGE>

Exhibit 1
---------

SERVICES
--------

LEGAL Fee: $195 per hour

Legal services for defending employee charges and lawsuits, advising on employee
hirings, separations and employment policies, advising on employee benefit
plans, negotiating customer and supplier contracts and patent and trademark
matters. All fees charged by outside counsel will be charged directly to the
Company.

TAXES Fee: $10,000 per month for
Routine Work
$180 per hour for
Non-Routine work
Renewal
Period Fee: $15,000 per month for
Routine work
$180 per hour for
Non-Routine work

ROUTINE WORK: Filing and related tax payments for 1996 federal and state
income tax returns due in 1997, including necessary depreciation, amortization
and apportionment details supporting such returns; filing and related tax
payments for 1997 estimated income tax payments; consolidation tax accounting
support for 1996 earnings and federal and state income tax audit work that
routinely and reasonably falls within the particular reporting period; sales,
use and payroll tax return computation and filing falling within the period; up
to 25 hours per month of consultation on sales, use, payroll, compensation and
benefit tax matters. All tax liability, interest and penalty payments remain a
responsibility of the Company.

NON-ROUTINE WORK: All work not specifically included as Routine Work.

Out of Pocket cost and expenses for travel and outside advisors will be billed
to the Company in addition to the above fee. Work requested beyond the scope of
that described above (such as work on acquisitions, reorganizations) will be
considered based on resources available to R.R. Donnelley.
<PAGE>

DATA CENTER SERVICES Fee: $4,000.00 per month

Data center services for the Business similar to those currently provided to the
Company by Metromail Corporation pursuant to the Data Center Services Agreement
(the "Data Agreement") dated June 19, 1996 between R.R. Donnelley and Metromail
Corporation will continue to be provided to the Company pursuant to Section 2.2
of the Data Agreement; provided, however, that data center services that require
the use of software licensed from Computer Associates under various agreements
(the "Computer Associates Agreements") shall only be provided to the Company for
a period of nine months from the Closing Date. Such services include, without
limitation sales tax, payroll, payroll tax and purchase order and accounts
payable processing, as well as accounting and general ledger services, each as
more fully described in Schedule B to the Data Agreement. Additions to the data
center services will be negotiated separately pursuant to Section 9.4 of the
Data Agreement.

RISK MANAGEMENT SERVICES Fee: $625.00 per month to be
pro-rated for any partial
months

Risk management services for employees and facilities of the Business similar to
that currently provided by R.R. Donnelley to the Company on a contract basis.
Such services will consist of, among other things, (i) identification and
quantification of loss exposures, (ii) implementation of a comprehensive
insurance program, including negotiation of insurance coverage oversight and
monitoring of insurance claims as appropriate for worker's compensation and
other claims, (iii) maintenance of insurance related data, (iv) filing of
appropriate insurance and regulatory reports, (v) arranging for, monitoring and
controlling payments for insurance related services, (vi) developing safety
programs and assisting with their implementation and (vii) advising on risk
management, health and safety issues. Additions to the program or changes which
involve R.R. Donnelley assistance will be negotiated separately. Any insurance
coverage cost shall be paid by the Company. The Company shall be responsible
for its on site, day-to-day safety program and for providing R.R. Donnelley with
required underwriting, exposure, loss and other data necessary for R.R.
Donnelley to operate and manage the Company's risk management and safety
program.
<PAGE>

CREDIT AND COLLECTION Fee: 0.375% of total Company
billings processed

Credit investigation, analysis and credit line establishment for the Business
other than LanSystems Division customers; engagement of collection agencies or
attorneys to secure payment from Company customers (any legal or out-of-pocket
expenses to be paid directly by the Company); receipt of payments in the R.R.
Donnelley-managed lockbox, with forwarding of proceeds (less processing fee)
each week for the previous week's collections; reporting on a weekly and monthly
basis of billings and receipts, including a monthly dispute report, twice
monthly accounts receivable aging report, a monthly uncollectible (sales write-
off) report, and to the extent allowed using software available as of the date
hereof for so long as R.R. Donnelley maintains such software and the Company may
utilize such software without additional charge, "view only" access to R.R.
Donnelley's on-line receivable system for Company accounts only. All write-
offs, additional software licensing fees required (if any) or dial-in expenses
shall be at the expense of the Company.

CASH MANAGEMENT/BANKING Fee: $2,000.00 per month

Cash management and banking services for the Business similar to those currently
provided to the Company by R.R. Donnelley. Such services include but are not
limited to maintaining corporate accounts, which maintenance consists of funding
accounts automatically, acquiring daily clearing and balance information,
processing and paying payrolls, transferring certain electronic tax payments and
depositing accounts receivable lockbox checks.

ACCOUNTS PAYABLE Fee: $6,500.00 per month

Accounts payable services for the Business similar to those currently provided
to the Company by R.R. Donnelley. Such services will consist of, among other
things, (i) maintenance of a vendor master file, (ii) receipt and opening of all
vendor mail, (iii) processing of all vendor invoices, (iv) invoice exception
reporting and resolution, (v) monthly financial reporting and (vi) vendor
relations.

<PAGE>

Exhibit 2
---------

LOCATIONS SHARED W/RRD
- ---------------------- City & RSF ANNUALIZED PROP. MONTHLY
LEASE ID ADDRESS STATE EXPIRATION RSF ANNUALIZED (STARSHIP) (STARSHIP) SHARE RENT
- -------- ------- ------- ---------- --- ---------- ---------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
R2070 3500 Maple Avenue Dallas TX 11/30/90 13,364 195,259 1,136 16,596 8.50% **
R1110 555 California Street San Francisco CA 10/31/98 10,136 366,900 79 2,862 0.78% $______

R2470 99 Park Avenue New York NY 12/31/09 72,000 2,026,051 n/a 209,604 10,35% $17,467
SUB-TOTAL 96,500 2,588,200 1,215 229,062
</TABLE>

<PAGE>
EXHIBIT 10.2
================================================================================

BENEFIT ADMINISTRATION SERVICES AGREEMENT

DATED AS OF SEPTEMBER 26, 1996

BETWEEN

R. R. DONNELLEY & SONS COMPANY

AND

DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED

===============================================================================

<PAGE>

TABLE OF CONTENTS
-----------------
PAGE
----
<S> <C>

ARTICLE 1 - DEFINITIONS..................................................... 1

ARTICLE 2 - EMPLOYEE BENEFITS.................................................

Section 2.1. Provision of Employee Benefits.............................
Section 2.2. Corporate Action...........................................
Section 2.3. Legal Requirements.........................................
Section 2.4. Donnelley's Right to Amend Plans...........................

ARTICLE 3 - SAVINGS PLAN......................................................

Section 3.1. Participation in Donnelley Savings Plan....................
Section 3.2. Transfer of Account Balances from
Donnelley Savings Plan to DESI
Savings Plan.............................................

ARTICLE 4 - WELFARE BENEFITS.................................................

Section 4.1. Welfare Benefits Provided Under Donnelley
Plans....................................................
Section 4.2. DESI's Participation in Donnelley
Cafeteria Plans..........................................
Section 4.3. Payment of Welfare Plan Costs..............................

ARTICLE 5 - MISCELLANEOUS PLANS AND AGREEMENTS................................

Section 5.1. Stock Purchase Plan........................................
Section 5.2. Donnelley Shares Plan......................................
Section 5.3. Workers' Compensation......................................
Section 5.4. Monthly Investment Plan....................................
Section 5.5. Donnelley Pension Plan and Tax Credit Stock Ownership Plan.
Section 5.6. Vacation Pay Policy........................................
Section 5.7. SERP.......................................................
Section 5.8. DESI's Use of Certain Systems and
Vendors..................................................
Section 5.9. Savings and Loan...........................................

ARTICLE 6 - ADMINISTRATION OF PLANS...........................................

Section 6.1. Plan Administration........................................
Section 6.2. Information to Be Provided to Donnelley....................
Section 6.3. Expenses...................................................
Section 6.4. Indemnification............................................
Section 6.5. Consulting Advice by Donnelley.............................
Section 6.6. Timely Payment.............................................
Section 6.7. Dispute Resolution.........................................

ARTICLE 7 - TERMINATION OF DESI'S PARTICIPATION IN
DONNELLEY PLANS................................................

ARTICLE 8 - MISCELLANEOUS.....................................................
</TABLE>
<PAGE>

<S> <C>
Section 8.1. No Rights.......................................................
Section 8.2. Corporate Action; Delegation of Authority.......................
Section 8.3. Notices.........................................................
Section 8.4. Survival of Agreement...........................................
Section 8.5. Binding Effect..................................................
Section 8.6. Governing Law...................................................
Section 8.7. Waivers; Amendment..............................................
Section 8.8. Severability....................................................
Section 8.9. Counterparts....................................................
</TABLE>
<PAGE>

BENEFIT ADMINISTRATION SERVICES AGREEMENT

THIS BENEFIT ADMINISTRATION SERVICES AGREEMENT (this "Agreement"), dated as
of September 26, 1996, is by and between Donnelley (as hereinafter defined) and
DESI (as hereinafter defined) (collectively the "Parties").

RECITALS
--------

WHEREAS, Donnelley is currently the owner of all outstanding shares of
common stock of DESI; and

WHEREAS, DESI intends to make a public offering of shares of its common
stock in a transaction that, upon closing of such offering, will result in
Donnelley owning less than a majority of the outstanding shares of common stock
of DESI; and

WHEREAS, the Parties intend that certain employee benefits be provided to
certain employees of DESI under certain Donnelley employee benefit plans or
programs following the date on which DESI is no longer a member of the Donnelley
Group (as hereinafter defined); and

WHEREAS, Donnelley and DESI intend to cause certain of their respective
plans to transfer accrued liabilities and assets relating to such liabilities
between such plans; and

<PAGE>

WHEREAS, Donnelley and DESI wish to enter into this Agreement in order to
effect such intentions.

NOW, THEREFORE, in consideration of the mutual promises contained herein
and other valuable consideration, the sufficiency of which is acknowledged, the
Parties agree as follows:

ARTICLE 1

DEFINITIONS

For purposes of this Agreement the following terms shall have the following
meanings (all terms defined in this Article I or in other provisions of this
Agreement in the singular to have the same meanings when used in the plural and
vice versa):

"Affected DESI Employee" means any person whose relationship with DESI is,
as of the IPO Date, under common law that of an employee.

"Agreement" means this Agreement.

"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended, and any applicable state law requiring continuation coverage
under a medical plan.

"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute.

"DESI" means Donnelley Enterprise Solutions Incorporated, a Delaware
corporation, and any corporation which shall succeed to substantially all of
the business of such corporation.

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<PAGE>

"DESI Group" means DESI and (a) any corporation which is a member of the
same controlled group of corporations (within the meaning of section 414(b)
of the Code) as DESI, (b) a trade or business (whether or not incorporated)
under common control (within the meaning of section 414(c) of the Code) with
DESI, (c) any organization (whether or not incorporated) which is a member of
an affiliated service group (within the meaning of section 414(m) of the
Code) which includes DESI, a corporation described in clause (a) of this
definition or a trade or business described in clause (b) of this definition,
or (d) any other entity which is required to be aggregated with DESI pursuant
to regulations promulgated under section 414(o) of the Code.

"DESI Indemnified Parties" shall mean any DESI Group member, its officers,
directors, agents and employees, each of DESI's employee benefit plans and
any contract administrator or service provider for any DESI employee benefit
plan (and the agents and employees of such administrators and providers).

"DESI Medical Plans" shall mean the medical and dental plans established by
DESI which provide benefits which are comparable to the benefits provided
under the R. R. Donnelley & Sons Company Comprehensive Medical Plan
(excluding the portion which provides post-retirement medical benefits) and
the Donnelley Dental Benefit Plan.

"DESI Savings Plan" means the Donnelley Enterprise Solutions Incorporated
Savings Plan.

"DESI Welfare Plans" means the welfare benefit plans established by DESI
which correspond to benefits provided under the Donnelley Welfare Plans.

"Donnelley" means R. R. Donnelley & Sons Company, a Delaware corporation,
and any corporation which shall succeed to substantially all of the business
of such corporation.

"Donnelley Cafeteria Plans" means the Donnelley Health Care Flexible
Spending Arrangement and the Donnelley Dependent Care Assistance Plan.

"Donnelley Group" means Donnelley and (a) any corporation which is a member
of the same controlled group of corporations (within the meaning of section
414(b) of the Code) as Donnelley, (b) a trade or business (whether or not
incorporated) under common control (within the meaning of section 414(c) of
the Code) with Donnelley, (c) any organization (whether or not incorporated)
which is a member of an affiliated service group (within the meaning of
section 414(m) of the Code) which includes Donnelley, a

-3-
<PAGE>

corporation described in clause (a) of this definition or a trade or business
described in clause (b) of this definition, or (d) any other entity which is
required to be aggregated with Donnelley pursuant to regulations promulgated
under section 414(o) of the Code.

"Donnelley Indemnified Parties" means any Donnelley Group member, its
officers, directors, agents and employees, each Donnelley Plan and any
contract administrator or service provider for any Donnelley Plan (and the
agents and employees of such administrators and providers).

"Donnelley Plan" means any employee benefit plan or program maintained by
Donnelley.

"Donnelley Retiree Welfare Plan" means the post-retirement medical portion
of the R. R. Donnelley & Sons Company Comprehensive Medical Plan and the
post-retirement life insurance portion of the Donnelley Basic Survivor
Optional Life AD&D and Dependent Life Plan.

"Donnelley Savings Plan" means the Donnelley Deferred Compensation and
Voluntary Savings Plan.

"Donnelley Stock" means common stock of Donnelley.

"Donnelley Welfare Plans" means the R. R. Donnelley & Sons Company
Comprehensive Medical Plan (excluding the portion which provides post-
retirement medical benefits), Donnelley Dental Benefit Plan, Donnelley Basic
Survivor Optional Life AD&D and Dependent Life Plan (excluding the portion
which provides post-retirement life insurance benefits), Donnelley Travel
Accident Insurance Plan, Long Term Disability Income Plan of R. R. Donnelley
& Sons Company, Sick Benefit Plan, Separation Pay Plan, Employee Assistance
Plan and Educational Assistance Plan.

"Effective Date" means the date as of which this Agreement is dated.

"ERISA" means the Employee Retirement Income Security Act of 1974 as
amended.

"IPO Date" means the date on which DESI ceases to be a member of the
Donnelley Group.

"Losses" means all losses, claims, damages, liabilities, costs and expenses
(including reasonable legal fees and reasonable costs and expenses incurred
to defend against any claim, suit or action).

"Party" means Donnelley or DESI.

-4-
<PAGE>

ARTICLE 2

EMPLOYEE BENEFITS

SECTION 2.1. PROVISION OF EMPLOYEE BENEFITS. The employee benefits
described in Articles 3, 4 and 5 of this Agreement shall be provided by
Donnelley for the time periods provided in such articles to any person who on or
after the IPO Date is or becomes an employee of DESI subject to such employee's
satisfaction of each Donnelley Plan's eligibility requirements, the terms and
conditions of each such plan and the terms and conditions of such articles.

SECTION 2.2. CORPORATE ACTION. Donnelley and DESI shall each take all
action necessary, pursuant to the terms of the Donnelley Plans or otherwise, to
cause DESI to continue as a participating employer in the Donnelley Plans, and
permit the participation by employees of DESI in such plans, to the extent
described in this Agreement.

SECTION 2.3. LEGAL REQUIREMENTS. Notwithstanding any other provision of
this Agreement to the contrary, Donnelley may restrict any employee of DESI from
participating in or may limit such employee's benefits under any Donnelley Plan
if Donnelley determines in good faith that such restriction or limitation is
reasonably necessary to preserve the tax-favored status of such plan or to
maintain such plan's compliance with ERISA or any other applicable legal
requirement (including any non-

-5-
<PAGE>

discrimination requirement). Donnelley shall promptly notify DESI if Donnelley
is considering any such action.

SECTION 2.4. DONNELLEY'S RIGHT TO AMEND PLANS. Except to the extent
limited by law, nothing contained in this Agreement shall preclude Donnelley
from amending any Donnelley Plans. Donnelley shall provide notice to DESI if
Donnelley adopts any material amendment to any Donnelley Plan during the period
in which DESI is a participating employer in such plan and where such amendment
applies to employees of DESI.

ARTICLE 3

SAVINGS PLAN

SECTION 3.1. PARTICIPATION IN DONNELLEY SAVINGS PLAN. For the period
beginning on the IPO Date and ending on December 31, 1996, DESI shall continue
to be a participating employer in the Donnelley Savings Plan. DESI shall take
all action necessary to establish the DESI Savings Plan (including, but not
limited to, all action necessary to enable DESI to administer such plan and to
obtain a favorable determination letter from the Internal Revenue Service with
respect to such plan) as soon as administratively practicable. Effective on
January 1, 1997, DESI shall no longer be a participating employer in the
Donnelley Savings Plan and shall take all action necessary to effectuate its
withdrawal as a participating employer under the terms of the Donnelley Savings
Plan.

-6-
<PAGE>

SECTION 3.2. TRANSFER OF ACCOUNT BALANCES FROM DONNELLEY SAVINGS PLAN TO
DESI SAVINGS PLAN. Subject to applicable law and the provisions of the Donnelley
Savings Plan, effective as of the first day of the calendar month following the
calendar month in which DESI establishes and is able to administer the DESI
Savings Plan, or effective as of any other date as agreed to in writing by the
plan administrator for the Donnelley Savings Plan and the plan administrator for
the DESI Savings Plan, the account balances (including, without limitation,
outstanding loans) of all Donnelley Savings Plan participants who are (a)
Affected DESI employees or (b) DESI employees who become participants in the
Donnelley Savings Plan after the IPO Date and prior to January 1, 1997 shall be
spun off from the Donnelley Savings Plan and merged into the DESI Savings Plan;
provided, however, that if any person described in clause (a) or (b) above
terminates employment prior to January 1, 1997, such person shall be treated as
a terminated participant under the Donnelley Savings Plan and shall not have his
or her account balance transferred to the DESI Savings Plan.

ARTICLE 4

WELFARE BENEFITS

SECTION 4.1. WELFARE BENEFITS PROVIDED UNDER DONNELLEY PLANS. During the
period beginning on the IPO Date and ending on December 31, 1996, DESI shall
continue to be a participating employer in the Donnelley Welfare Plans. DESI
shall take all

-7-
<PAGE>

action necessary to terminate its participation in and to withdraw as a
participating employer under all of the Donnelley Welfare Plans as of December
31, 1996.

Effective January 1, 1997, DESI shall establish the DESI Medical Plans. Any
DESI employee who is covered under the R. R. Donnelley & Sons Company
Comprehensive Medical Plan and/or the Donnelley Dental Benefit Plan on December
31, 1996 shall not be excluded from coverage under the DESI Medical Plans due to
a preexisting condition limitation under such plans to the extent such
limitation would entitle such employee to elect COBRA coverage under the R. R.
Donnelley & Sons Company Comprehensive Medical Plan and/or the Donnelley Dental
Benefit Plan.

Donnelley shall amend the Donnelley Retiree Welfare Plan to provide that no
person who, as of April 30, 1996, had satisfied the age and service requirements
for receiving benefits under such plan shall be eligible to commence receipt of
such benefits under such plan while employed by DESI, a member of the DESI Group
or a member of the Donnelley Group.

SECTION 4.2. DESI'S PARTICIPATION IN DONNELLEY CAFETERIA PLANS. DESI shall
continue to be a participating employer in the Donnelley Cafeteria Plans during
the period beginning on the IPO Date and ending on December 31, 1996. DESI shall
take all action necessary to withdraw as a participating employer in the
Donnelley Cafeteria Plans effective December 31,

-8-
<PAGE>

1996. Donnelley shall receive all amounts deducted from DESI participants'
paychecks to be contributed to the Donnelley Cafeteria Plans.

SECTION 4.3. PAYMENT OF WELFARE PLAN COSTS. (a) With respect to each
DESI employee who participates in the Donnelley Welfare Plans and the Donnelley
Cafeteria Plans, DESI shall pay Donnelley the costs described in Section 6.3.
DESI shall pay all costs associated with the provision of long-term disability
benefits to any DESI employee who (1) is eligible to receive sick benefits on
December 31, 1996 and (2) who after such date becomes entitled to receive long-
term disability benefits. DESI shall not pay Donnelley any amount with respect
to the provision of benefits under its or Donnelley's Sick Benefit Plan,
Separation Pay Plan or Educational Assistance Plan, but instead shall pay
directly the cost to provide such benefits.

DESI shall pay all costs associated with the provision of benefits to any
dependent of any employee or former employee to the extent DESI is required to
pay costs associated with the provision of welfare benefits to such employee or
former employee. Donnelley shall pay all costs associated with the provision of
benefits to any dependent of any employee or former employee to the extent
Donnelley is required to pay costs associated with the provision of welfare
benefits to such employee or former employee.

-9-
<PAGE>

(b) Notwithstanding the foregoing:

(1) Donnelley shall pay all claims under the R. R. Donnelley & Sons
Company Comprehensive Medical Plan and the Donnelley Dental Benefit
Plan which as of December 31, 1996 have been incurred but not reported
relating to DESI employees, but only if claims for such costs are
submitted in written form to Donnelley during the six-month period
beginning on January 1, 1997.

(2) Donnelley shall pay all costs associated with the provision of
benefits under the terms of the Donnelley Retiree Welfare Plan for all
persons who as of April 30, 1996 had satisfied the age and service
eligibility requirements for receiving benefits under such plan.

(3) Donnelley shall pay all costs associated with the provision of
benefits to any employee or former employee of DESI who as of December
31, 1996 is receiving long-term disability benefits under the Long
Term Disability Income Plan of R. R. Donnelley & Sons Company.

-10-
<PAGE>

before, on or after the IPO Date) to the R. R. Donnelley & Sons Company Welfare
Benefit Trust or the R. R. Donnelley & Sons Company Post-Retirement Medical
Benefit Trust.

ARTICLE 5

MISCELLANEOUS PLANS AND AGREEMENTS

SECTION 5.1. STOCK PURCHASE PLAN. On the IPO Date, DESI shall cease
being a participating employer in the R. R. Donnelley & Sons Company Stock
Purchase Plan, and after such date, DESI employees shall no longer be eligible
to purchase Donnelley Stock under the terms of such plan.

SECTION 5.2. DONNELLEYSHARES PLAN. Each Affected DESI Employee who has
been granted under the DonnelleyShares Stock Option Plan options to acquire
Donnelley Stock, which options vest after the IPO Date shall receive within a
reasonable period of time after the IPO Date a cash payment equal to the excess,
if any, of the Fair Market Value (as hereinafter defined) of the shares subject
to such options over the exercise price of such options. For purposes of the
preceding sentence, Fair Market Value shall be the greater of (1) the average of
the high and low transaction prices (as reported in the New York Stock Exchange-
Composite Transactions) in trading of Donnelley Stock on the IPO Date, and (2)
the average of the closing prices (as reported in the New York Stock Exchange-
Composite Transactions) in trading of Donnelley Stock during the 30 calendar day
period ending on the

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<PAGE>

IPO Date. The cost of this cash payment shall be borne by Donnelley.

SECTION 5.3. WORKERS' COMPENSATION. (a) Donnelley shall retain the
responsibility for all claims relating to DESI employees and former DESI
employees relating to incidents occurring up to but not including the IPO Date
(including, but not limited to, claims which are filed after the IPO Date but
which relate to incidents occurring prior to the IPO Date). Any amount by which
actual claims expenses vary from the reserve established by Donnelley for such
expenses for periods prior to the IPO Date shall be retained by Donnelley.

(b) DESI shall assume responsibility for all claims relating to DESI
employees and former employees relating to incidents beginning on the IPO Date.
DESI shall take all action necessary to effect timely return to work for all
DESI employees and former DESI employees who are on a leave of absence from
employment during which they were entitled to receive workers' compensation
(including, but not limited to, persons with respect to whom Donnelley has the
liability to pay workers' compensation claims).

SECTION 5.4. MONTHLY INVESTMENT PLAN. As of the first payroll occurring
after the IPO Date, DESI shall cease deducting amounts from compensation on
behalf of its employees for the

-12-
<PAGE>

purchase of Donnelley Stock under the Donnelley Monthly Investment Plan.

SECTION 5.5. DONNELLEY PENSION PLAN AND TAX CREDIT STOCK OWNERSHIP PLAN.
Each Affected DESI Employee shall be treated as having terminated employment
with an "Employer" as defined in the Donnelley Tax Credit Stock Ownership Plan
and the Retirement Benefit Plan of R. R. Donnelley & Sons Company as of the IPO
Date.

SECTION 5.6. VACATION PAY POLICY. After the IPO Date, it is expected
that DESI shall maintain for its employees a vacation pay policy. DESI shall be
responsible for costs incurred to provide vacation pay to DESI employees whether
incurred before, on or after the IPO Date.

SECTION 5.7. SERP. No amounts shall be transferred between the Parties
(or between any plans maintained by either Party) with respect to any amounts
accrued by any person under any supplemental employee retirement programs
maintained by either Party.

SECTION 5.8. DESI'S USE OF CERTAIN SYSTEMS AND VENDORS. For the period
beginning on the IPO Date and ending on December 31, 1996, DESI shall continue
to use PeopleSoft, the HR and Benefits Administration System, the Donnelley
Payroll System and CobraServ (a division of Applied Benefits Research, Inc.);

-13-
<PAGE>

DESI shall be responsible for any costs and shall take all action necessary to
enter into any contracts needed in order to effect continuing use of such
systems; provided, however, that Donnelley shall consult with DESI regarding any
expenses which are discretionary and not required in the ordinary course of
business.

Section 5.9. Savings and Loan. DESI shall continue to deduct amounts from
compensation on behalf of its employees and shall forward such amounts from each
payroll period to the Lakeside Press Savings and Loan Association for the
repayment of loans while such loans remain outstanding. In the case of any
employee who terminates employment, DESI shall deduct any amount, up to 100% of
such final pay, which is necessary to pay any outstanding loan balance and shall
forward such amount to the Lakeside Press Savings and Loan Association for the
repayment of such outstanding loan. Notwithstanding anything herein to the
contrary, the Parties agree that no DESI employee shall be eligible to take out
new loans from the Lakeside Press Savings and Loan Association following the
filing of the Form S-1 with the Securities and Exchange Commission with respect
to the IPO.

ARTICLE 6

ADMINISTRATION OF PLANS

Section 6.1. Plan Administration. DESI shall provide whatever assistance
is appropriate for an employer participating

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<PAGE>

in the Donnelley Plans. Nothing in this Agreement shall obligate Donnelley to
undertake any additional administrative responsibilities with respect to the
provision of benefits to DESI employees other than the administrative
responsibilities which it routinely performs for its subsidiaries which have
adopted its benefit plans or which it provided prior to the IPO Date with
respect to the DESI employees.

Section 6.2. Information to be Provided to Donnelley. To the extent not
contrary to law, DESI shall provide any information which Donnelley may request,
including but not limited to information relating to dates of termination of
employment, in order to provide benefits to any eligible DESI employee under the
terms and conditions described herein and under the applicable Donnelley Plans.
Any such information relating to an employee's termination of employment shall
be provided by DESI to Donnelley as soon as available to DESI. Notwithstanding
anything herein to the contrary, Donnelley shall not be responsible for the
payment of benefits to the extent DESI does not disclose any information needed
by Donnelley to provide such benefits until Donnelley receives such information.

Section 6.3. Expenses. DESI shall pay the amounts set forth on Exhibit A
to cover (1) all ordinary claims costs that Donnelley incurs in providing
benefits after the IPO Date under any Donnelley Plan for the employees of DESI,
and (2) DESI's pro rata share of ordinary administration and plan asset
management

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<PAGE>

expenses incurred in the operation of all employee benefits plans with respect
to the period after the IPO Date in which DESI is a participating employer in
such plans. In addition to paying the amounts set forth in Exhibit A, DESI shall
pay any extra-ordinary costs, expenses or liabilities incurred by Donnelley in
connection with Donnelley's administration of the Donnelley Plans on behalf of
DESI, including, but not limited to, costs of amending plans to reflect coverage
of the employees of DESI, any conversion of any Donnelley Plan to multiple
employer plan status, costs of preparing any extra-ordinary communications to
DESI employees concerning their employee benefits, costs of determining DESI's
share of plan contributions and running DESI's average deferral and average
contribution percentage tests under the Donnelley Savings Plan. Donnelley shall
consult with DESI regarding any such extra-ordinary costs, expenses or
liabilities which are discretionary.

Section 6.4. Indemnification. (a) DESI shall indemnify and hold
harmless the Donnelley Indemnified Parties for all Losses sustained in
connection with the benefits provided or the actions taken or omitted to be
taken in connection with this Agreement, or otherwise relating to the provision
of employee benefits to employees or former employees of DESI, their
beneficiaries, alternate payees or any other person claiming benefits through
them (except to the extent such Losses are specifically allocated to Donnelley
pursuant to Section 6.4(b) or (c)), including without limitation Losses arising
in connection

-16-
<PAGE>

with (1) DESI's reduction, elimination or failure to provide any benefit
previously provided to its employees, (2) the provision of benefits to DESI
employees under the R. R. Donnelley & Sons Company Comprehensive Medical Plan,
(3) the transfer of account balances from the Donnelley Savings Plan to the DESI
Savings Plan where such Losses are incurred as a result of (i) any act or
omission by DESI (or DESI's representative) or (ii) a determination by the
Internal Revenue Service that the DESI Savings Plan is not a tax-qualified plan,
or (4) any Donnelley Plan becoming a multiple employer plan due to DESI's
continued participation in such plan following the IPO Date (including, but not
limited to, any Donnelley Plan becoming a multiple employer welfare
arrangement).

(b) Donnelley shall indemnify and hold harmless the DESI Indemnified
Parties for all Losses sustained in connection with Donnelley's reduction,
elimination or failure to provide any benefit previously provided to its
employees (or employees of its subsidiaries).

(c) In the event that any Party retains the services of an attorney to
enforce any term of this Agreement, or to obtain a remedy for a breach of this
Agreement, the prevailing Party shall be entitled to recover its reasonable
costs and attorney fees, including the costs and attorney fees on appeal, if
any.

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<PAGE>

Section 6.5. Consulting Advice by Donnelley. In the event that Donnelley
provides advice as a consultant to DESI on or after the IPO Date regarding the
establishment or administration of DESI's benefit plans, DESI shall pay
Donnelley a reasonable fee for such consulting advice and shall reimburse
Donnelley for all actual expenses incurred by Donnelley in providing such
advice.

Section 6.6. Timely Payment. Each Party shall be required to pay any
amount due to the other Party pursuant to this Agreement in a timely manner on
the date on which such payment is due, and if no due date is specified, within
30 days after the date on which the Party to whom payment is owed makes written
demand for such payment from the other Party.

Section 6.7. Dispute Resolution. The Parties agree to attempt to resolve
any dispute, controversy or claim between the Parties relating to the
implementation or administration of this Agreement or any obligations or related
services to be provided hereunder in good faith. In the event that any such
dispute, controversy or claim can not be resolved by the Parties'
representatives initially involved in the dispute, senior management of the
Parties shall confer to resolve such dispute, controversy or claim.

-18-
<PAGE>

ARTICLE 7

TERMINATION OF DESI'S PARTICIPATION IN
DONNELLEY PLANS

Notwithstanding anything herein to the contrary, Donnelley (1) may
terminate any Donnelley Plan, or (2) may terminate the participation of DESI,
and any or all of DESI's employees in any Donnelley Plan, to the extent
necessary to comply with any applicable law. Donnelley shall make reasonable
efforts to inform DESI of such termination as soon as practicable.

ARTICLE 8

MISCELLANEOUS

SECTION 8.1. NO RIGHTS. This Agreement shall not give any employee
or any person any right to continued employment or to any employee benefits.
This Agreement shall not give any person other than a Party any rights,
including in particular any third-party beneficiary or other right to enforce
any provision of this Agreement or to receive damages for a breach of any such
provision. Nothing in this Agreement shall obligate Donnelley, DESI or any of
their respective direct or indirect subsidiaries to assist any DESI employee to
enforce any rights such employee may have with respect to any of the employee
benefits described in this Agreement.

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<PAGE>

SECTION 8.2. CORPORATE ACTION; DELEGATION OF AUTHORITY. Any action
taken by an officer at the level of Vice-President or above shall be considered
to be action taken by either Donnelley or DESI for purposes of this Agreement.
Without limiting the foregoing, the Chief Executive Officer of Donnelley or DESI
may delegate in writing to any other person the authority to act on behalf of
Donnelley or DESI, respectively, with respect to actions required under the
terms of this Agreement.

SECTION 8.3. NOTICES. Any written notice or communication to any
Party required or permitted under this Agreement shall be deemed to have been
duly given and received (1) on the date of service, if served personally or sent
by telex or telecopier transmission to the Party to whom notice is to be given
with oral confirmation of receipt, (2) on the fourth day after mailing, if
mailed by first class registered or certified mail, postage prepaid and return
receipt requested, and addressed to the Party to whom notice is to be given at
the address stated opposite its name below or at the most recent address
specified by written notice given to the other Parties, or (3) on the next day
if sent by a nationally recognized courier for next day service and so addressed
and if there is evidence of acceptance by receipt. Such notices or other
communications shall be sent to the following addresses:

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<PAGE>

Party Address
----- -------

Donnelley R. R. Donnelley & Sons Company
77 West Wacker Drive
Chicago, IL 60601
Attention: Assistant General
Counsel

DESI Donnelley Enterprise
Solutions Incorporated
161 North Clark Street
Chicago, IL 60601
Attention: Chief Executive
Officer

SECTION 8.4. SURVIVAL OF AGREEMENT. All provisions of this Agreement
shall be considered to have been relied upon by the Parties and shall survive
and remain in full force and effect, notwithstanding the initial public offering
of common stock of DESI. All provisions of this Agreement which by their nature
should survive termination of this Agreement shall so survive.

SECTION 8.5 BINDING EFFECT. This Agreement shall become effective
when it shall have been executed by each Party, and thereafter shall be binding
upon and inure to the benefit of such persons and their respective successors,
permitted assigns and legal representatives.

SECTION 8.6. GOVERNING LAW. The Parties hereby agree that, to the
extent not preempted by ERISA, this Agreement shall be construed in accordance
with and governed by the internal laws of the State of Illinois.

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<PAGE>

SECTION 8.7. WAIVERS; AMENDMENT. Neither this Agreement nor any
provision hereof may be waived, amended or modified except pursuant to an
agreement or agreements in writing executed by both Parties.

SECTION 8.8. SEVERABILITY. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.

SECTION 8.9. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original but all of which,
when taken together, shall constitute but one contract.

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<PAGE>

IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
executed by their respective authorized officers as of the date first set forth
above.

R. R. DONNELLEY & SONS COMPANY

By
----------------------------
Name:
-------------------------

Title:
------------------------

DONNELLEY ENTERPRISE
SOLUTIONS INCORPORATED

By
----------------------------
Name:
-------------------------
Title:
------------------------

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<PAGE>

EXHIBIT A

The following are estimated amounts for claims that shall be charged
to DESI for the following employee benefits provided under Donnelley Plans until
December 31, 1996. DESI shall pay the following amounts to Donnelley in cash on
a monthly basis:
<TABLE>
<CAPTION>

<S> <C>
Savings Plan $ 4,000
Survivor/Group Life 15,917
Optional Life; Ee. AD&D; Dep. Life & AD&D 3,667
Travel & Workplace Accident 750
Medical 79,250
HMO 125,917
Employee Assistance Plan (EAP) 1,917
Long Term Disability 5,083
Dental 19,750
--------

Total $256,251
</TABLE>

Donnelley shall provide the following routine Benefits Administration
Services through 12/31/96 to DESI. The listed monthly rates are estimates:

<S> <C>
Communications $ 3,667
Systems (ChoiceLine, People Soft, Maint.) 3,917
Legal Fees 667
Plan Audits 417
Filing Fees 417
Vendor Management 333
Data Processing (inc. enrollment tapes) 500
Benefit Administration Support - Corp. 833
Benefit Administration Support - BIC 3,667
Clinical Services 333
COBRA; FSA; DCP processing 750
-------

Total $15,500
</TABLE>

The total monthly charge for the above benefits and services shall be
$271,751 pro-rated for portions of any month, and payable as of the beginning of
the month for which services are performed and benefits provided. DESI shall be
responsible for collecting any amounts payable by employees and their
beneficiaries and, subject to Section 4.2, shall be entitled to retain such
amounts.

Any payments not received within 15 days after the date on which due
shall be charged interest at a rate of 15% per annum. Donnelley may adjust the
amounts set forth in this Exhibit A to the extent that the actual cost to
provide benefits and services varies from the amounts specified in this
schedule; provided, however, that there shall be no true-up of claims amounts
paid under the Donnelley Medical Plan.

This schedule shall be effective beginning on the IPO Date.

<PAGE>
EXHIBIT 10.3

DRAFT OF 9/26/96
----------------

TAX ALLOCATION AND INDEMNIFICATION AGREEMENT
--------------------------------------------

TAX ALLOCATION AND INDEMNIFICATION AGREEMENT dated as of _______, 1996
(this "Agreement") between R.R. Donnelley & Sons Company, a Delaware corporation
("RRD"), and Donnelley Enterprise Solutions Incorporated, a Delaware corporation
(the "Company").

W I T N E S E T H:
- - - - - - - - -

WHEREAS, RRD is the owner of all of the issued and outstanding capital
stock of the Company;

WHEREAS, RRD and the Company are members of an "affiliated group" (as
defined in Section 1504(a) of the Code) of which RRD is the common parent;

WHEREAS, as a result of the initial public offering of the Common
Stock of the Company pursuant to the Underwriting Agreement among the Company,
Salomon Brothers Inc, Montgomery Securities and J.P. Morgan Securities Inc. (the
"Underwriting Agreement"), it is expected that RRD and the Company will no
longer be members of an affiliated group; and

WHEREAS, RRD and the Company desire to set forth their rights and
obligations with respect to certain tax liabilities;

NOW, THEREFORE, in consideration of the agreements and mutual
covenants contained herein, the parties hereto agree as follows:

Section 1. Definitions. As used in this Agreement, the following terms
shall have the following meaning:

"Affiliate" shall mean, with respect to any entity, any other
individual, corporation, partnership, joint venture, limited liability
company, association, joint-stock company, trust or unincorporated
organization which directly or indirectly controls, is controlled by or is
under common control with such entity.

"Balance Sheet" shall mean the balance sheet of the Company and
the Subsidiaries as of June 30, 1996, included in Amendment No. 1 to the
Registration Statement on Form S-1 filed by the Company with the Securities
and Exchange Commission.

"Balance Sheet Date" shall mean June 30, 1996.

"Code" shall mean the Internal Revenue Code of 1986, as amended.

<PAGE>

"Combined Group" shall mean the "affiliated group" (as defined in
Section 1504(a) of the Code) of which RRD is the common parent and any
other group of corporations that, at any time on or before the Closing
Date, files or has filed Tax Returns on a combined, consolidated or unitary
basis with the Company or the Subsidiaries (other than such a group which
includes or has included the Company and/or one or more of the
Subsidiaries, but no other corporation).

"Company Group Member" shall mean the Company and the
Subsidiaries (and, after the Closing Date, any Affiliate thereof) and their
respective successors and assigns.

"Closing Date" shall mean the date of the closing of the initial
public offering of the Common Stock of the Company pursuant to the
Underwriting Agreement.

"Interim Period" shall mean the period beginning the calendar day
after the Balance Sheet Date and ending on and including the Closing Date.

"RRD Group Member" shall mean RRD and any Affiliates of RRD
(other than the Company and the Subsidiaries) and their respective
successors and assigns.

"Subsidiaries" shall mean Integrated Analysis, Inc. and
LANSystems (U.K.) Ltd.

"Tax" (and, with correlative meaning, "Taxes" and "Taxable")
shall mean any federal, state, local or foreign income, gross receipts,
property, sales, use, license, excise, franchise, employment, payroll,
withholding, alternative or add-on minimum, ad valorem, value added,
transfer or excise tax, or any other tax, custom, duty, governmental fee or
other like assessment or charge of any kind whatsoever, together with any
interest or penalty, imposed by any governmental authority.

"Tax Package" has the meaning set forth in Section 3(c).

"Tax Return" shall mean any return, report or similar statement
required to be filed with respect to any Tax (including any attached
schedules), including, without limitation, any information return, claim
for refund, amended return or declaration of estimated Tax.

Section 2. Liability for Taxes. (a) RRD shall be liable for, and
indemnify each Company Group Member against, all (i) Taxes imposed on the
Company or any Subsidiary solely as a result of being a member of a Combined
Group pursuant to Treas. Reg. (S) 1.1502-6 or similar provisions of state and
local law and

2
<PAGE>

(ii) Taxes imposed on the Company or any Subsidiary, or for which the Company or
any Subsidiary may otherwise be liable, for any taxable year or period (or
portion thereof) that ends on or before the Balance Sheet Date; provided,
however, that RRD shall not be liable for, and shall not indemnify any Company
Group Member against, any Taxes shown as a liability or reserve on the Balance
Sheet. Except to the extent shown as an asset on the balance sheet, RRD shall be
entitled to any refund of (or credit for) Taxes attributable to RRD or any of
its Affiliates (including the Company and each of the Subsidiaries) allocable to
any taxable year or period (or portion thereof) that ends on or before the
Balance Sheet Date, and the Company agrees to remit any such refund paid to it
to RRD.

(b) The Company shall be liable for, and indemnify each RRD Group
Member against, all Taxes imposed on the Company or any Subsidiary, or for which
the Company or any Subsidiary may otherwise be liable (including, without
limitation, any Taxes shown as a liability or reserve on the Balance Sheet);
provided, however, that the Company shall not be liable for, and shall not
indemnify any RRD Group Member against, any Taxes for which RRD is expressly
liable pursuant to Section 2(a) of this Agreement. Except as provided in Section
2(a) or 2(d) of this Agreement, the Company shall be entitled to any refund of
(or credit for) Taxes attributable to the Company or any Subsidiary for any
taxable year or period (or portion thereof).

(c) For purposes of Sections 2(a) and 2(b) of this Agreement, the
allocation of Taxes of a Combined Group to the Company and the Subsidiaries for
the taxable year or period (or portion thereof) ending on the Balance Sheet Date
and for the Interim Period shall be determined consistent with RRD's current tax
sharing arrangement. Further, whenever it is necessary to determine the
liability for Taxes of the Company or any Subsidiary for a partial taxable year
or period (including a partial period ending on the Balance Sheet Date or the
Interim Period), the determination of the Taxes of the Company or such
Subsidiary for the portion of such period shall be determined on a "closing of
the books basis" by assuming that the books of the Company or such Subsidiary
were closed at the close of such period, except that Taxes (such as property
Taxes) imposed on a periodic bais shall be allocated on a daily basis and
deductions (such as depreciation) allowable on a periodic basis shall be
allocated on a daily basis.

(d) Notwithstanding Section 2(a) of this Agreement, if, as a result of
any action, suit, investigation, audit, claim, assessment or amended Tax Return,
there is any change after the Balance Sheet Date in an item of income, gain,
loss, deduction, credit or amount of Tax that results in an increase in a Tax
liability for which RRD would otherwise be liable pursuant to Section 2(a), and
such change results in a potential decrease

3
<PAGE>

(the "Decrease Amount") in the Tax liability of the Company, any Subsidiary or
any Affiliate thereof for any taxable year or period (or portion thereof)
beginning after the Balance Sheet Date, then RRD shall be entitled to the full
amount of such Decrease Amount (whether through (i) a retention by RRD of any
Tax refund, reduction in Taxes, Tax credit, or other benefit equal to such
Decrease Amount; (ii) a payment by the Company of an amount equal to the
Decrease Amount; (iii) an offset by RRD of amounts otherwise payable by RRD to
the Company; (iv) a combination of the foregoing; or (v) other means). The
Decrease Amount shall be determined by assuming that (i) the Company, any
Subsidiary or any Affiliate thereof is subject to Tax at the highest marginal
rate in effect for all affected taxing jurisdictions at the time the Decrease
Amount is determined, and (ii) the potential decrease in Tax liability will be
recognized by the Company, any Subsidiary or any Affiliate thereof immediately.

(e) The Company shall pay, and shall indemnify RRD against, any real
property transfer or gains Tax, sales Tax, use Tax, stamp Tax, stock transfer
Tax, or other similar Tax imposed on the transactions contemplated by this
Agreement.

Section 3. Tax Returns. (a) RRD shall file or cause to be filed when
due all Tax Returns of any Combined Group and shall remit or cause to be
remitted any Taxes due in respect of such Tax Returns. The Company shall file or
cause to be filed when due all Tax Returns that are required to be filed after
the Closing Date by or with respect to the Company and each Subsidiary (other
than the Tax Returns of any Combined Group) and shall remit or cause to be
remitted any Taxes due in respect of such Tax Returns (it being understood that
the Company may cause such Tax Returns to be filed and such Taxes to be remitted
through RRD pursuant to the Transition Services Agreement dated as of _______,
1996). RRD or the Company shall pay the other party for the Taxes for which RRD
or the Company, respectively, is liable pursuant to Sections 2(a), 2(b), or 2(e)
of this Agreement but which are payable with any Tax Return to be filed by the
other party pursuant to this Section 3(a) upon the written request of the party
entitled to payment, setting forth in detail the computation of the amount owed
by RRD or the Company, as the case may be, but in no event earlier than 10 days
prior to the due date for the payment of such Taxes. All Tax Returns which the
Company is required to file or cause to be filed in accordance with this Section
3(a) shall be prepared and filed in a manner consistent with past practice and,
on such Tax Returns, no position shall be taken, election made or method adopted
that is inconsistent with positions taken, elections made or methods used in
preparing and filing similar Tax Returns in prior periods.

4
<PAGE>

(b) Neither the Company, any Subsidiary or, after the Closing Date,
any Affiliate thereof shall (or shall cause or permit the Company or any
Subsidiary to) amend, refile or otherwise modify any Tax Return relating in
whole or in part to the Company or any Subsidiary with respect to any taxable
year or period ending on or before the Balance Sheet Date without the prior
written consent of RRD, which consent may be withheld in the sole discretion of
RRD.

(c) The Company shall promptly prepare (and cause each Subsidiary to
prepare) and provide to RRD a package of Tax information materials, including,
without limitation, schedules and work papers (the "Tax Package") required by
RRD to enable RRD to prepare and file all Tax Returns required to be prepared
and filed by it pursuant to Section 3(a). The Tax Package shall be completed in
accordance with past practice, including past practice as to providing such
information and as to the method of computation of separate taxable income or
other relevant measure of income of the Company. The Company shall cause the Tax
Package to be delivered to RRD within 60 days after requested by RRD.

Section 4. Contest Provisions. RRD shall have the sole right to
represent the Company's and each Subsidiary's interests in any Tax audit or
administrative or court proceeding relating to taxable periods ending on or
before or including the Balance Sheet Date, and to employ counsel of its choice
at its expense. None of the Company or any of its Affiliates may settle any Tax
claim for any taxable year or period ending on or before or including the
Balance Sheet Date which may be the subject of indemnification by RRD under
Section 2(a) of this Agreement without the prior written consent of RRD, which
consent may be withheld in the sole discretion of RRD.

Section 5. Assistance and Cooperation. After the Closing Date, each of
RRD and the Company shall (and cause their respective Affiliates to):

(a) assist the other party in preparing any Tax Returns which such
other party is responsible for preparing and filing in accordance with
Section 3(a) of this Agreement;

(b) cooperate fully in preparing for any audits of, or disputes with
taxing authorities regarding, any Tax Returns of the Company and each
Subsidiary;

(c) make available to the other and to any taxing authority as
reasonably requested all information, records, and documents relating to
Taxes of the Company and each Subsidiary;

5
<PAGE>

(d) provide timely notice to the other in writing of any pending or
threatened Tax audits or assessments of the Company and each Subsidiary for
taxable periods for which the other may have a liability under this
Agreement;

(e) furnish the other with copies of all correspondence received from
any taxing authority in connection with any Tax audit or information
request with respect to any such taxable period; and

(f) timely sign and deliver such certificates or forms as may be
necessary or appropriate to establish an exemption from (or otherwise
reduce), or file Tax Returns or other reports with respect to, Taxes
described in Section 2(e) of this Agreement (relating to sales, transfer
and similar Taxes).

Section 6. General Provisions.
------------------

(a) Effectiveness. This Agreement will be effective from and after the
Closing Date.

(b) Entire Agreement; Binding Effect. This Agreement (i) constitutes
the entire agreement and supersedes all other agreements and understandings,
both written and oral, between the parties with respect to the subject matter
hereof and (ii) shall not be assigned by either party (by operation of law or
otherwise) without the prior written consent of the other party.

(c) Severability. In case any one or more of the provisions contained
in this Agreement should be invalid, illegal or unenforceable, the
enforceability of the remaining provisions hereof will not in any way be
affected or impaired thereby.

(d) Applicable Law. This Agreement shall be governed by and be
construed in accordance with the laws of the State of Illinois, without giving
effect to the principles thereof relating to conflicts of laws.

(e) Notices. All notices, requests and other communications hereunder
shall be in writing and shall be deemed given if delivered personally, if
telecopied (only if confirmed), if sent by FedEx or other overnight courier or
delivery service or if mailed by registered or certified mail (postage prepaid,
return receipt requested) to the parties at the following addresses or facsimile
numbers:

(a) If to RRD:

R.R. Donnelley & Sons Company
77 West Wacker Drive
Chicago, IL 60601

6
<PAGE>

Facsimile No.: (312) 326-8708
Attention: Paul F. Grossman, Director
Federal & International Taxes

(b) If to the Company:

Donnelley Enterprise Solutions, Incorporated
161 North Clark Street, Suite 2400
Chicago, Illinois 60601
Facsimile No.: [ ]
Attention: [ ]

The address or facsimile number of a party, for the purposes of this Section
6(e), may be changed by giving written notice to the other party of such change
in the manner provided herein for giving notice. Unless and until such written
notice is received, the addresses and facsimile numbers provided herein shall be
deemed to continue in effect for all purposes hereunder.

(f) Amendment and Waiver. No amendment of any provision of this
Agreement shall in any event be effective, unless the same shall be in writing
and signed by the parties hereto. Any failure of any party to comply with any
obligation, agreement or condition hereunder may only be waived in writing by
the other party, but such waiver shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure. No failure by any party to
take any action against any breach of this Agreement or default by the other
party shall constitute a waiver of such party's right to enforce any provision
hereof or to take any such action.

(g) Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and, subject to the Section
6(b) hereof, their respective successors and assigns, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.

(h) Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all of
which together shall constitute one and the same instrument.

(i) Headings; Pronouns and Conjunctions. The section and other
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Unless
otherwise indicated herein or the context otherwise requires, the singular shall
include the plural and the plural shall include the singular. The word "or"
shall not be deemed inclusive.

<PAGE>

EXHIBIT 10.9
------------

CONFORMED COPY
--------------

AGREEMENT OF MERGER

DATED AS OF MAY 29, 1995

AMONG

R.R. DONNELLEY & SONS COMPANY,

DONNELLEY DBS, INC.

AND

LAN SYSTEMS, INC.
<PAGE>

TABLE OF CONTENTS

ARTICLE I

DEFINITIONS............................. 1
1.1. Definitions......................................................... 1

ARTICLE II

THE MERGER............................. 13
2.1. Surviving Corporation.............................................. 13
2.2. Effects of the Merger ............................................. 13
2.3. Certificate of Incorporation, By-Laws, Directors
and Officers........................................................ 14

ARTICLE III

CONVERSION OF SHARES, WARRANTS AND OPTIONS............. 15
3.1. Conversion Terms.................................................... 15
3.2. Maximum Fixed Cash Merger Consideration; Maximum
Earn-Out Payments.................................................... 18
3.3. Business Earn-Out Payments.......................................... 19
3.4. I/S Outsourcing Business Earn-Out Payments.......................... 20
3.5. Synergy Earn-Out Payments........................................... 20
3.6. Common Stock Warrant Earn-Out Payment............................... 21
3.7. Operations After the Effective Time................................. 22
3.8. Calculation of Earn-Out Payments.................................... 23
3.9. Participation of Management Participants in
Certain Earn-Out..................................................... 25
3.10. Non-assignability; Delivery of Earn-Out Payments................... 27
3.11. Set-Off............................................................ 28
3.12. Change of Control.................................................. 31
3.13. Delivery of Certificates and Agreements; Payment
of Cash.............................................................. 32
3.14. Lost Certificates.................................................. 33
3.15. Dissenter's Rights................................................. 34

ARTICLE IV

CLOSING............................... 34
4.1. Closing Date........................................................ 34
4.2. Filing Certificate of Merger and Effectiveness...................... 35
4.3. Parent's Deliveries................................................. 35
4.4. Mergerco's Deliveries............................................... 36
4.5. The Company's Deliveries............................................ 36

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE COMPANY........... 37
5.1. Organization and Capital Structure.................................. 37

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<PAGE>

5.2. Subsidiaries and Investments......................................... 39
5.3. Authority............................................................. 41
5.4. Financial Statements................................................. 42
5.5. Operations Since Balance Sheet Date.................................. 42
5.6. No Undisclosed Liabilities........................................... 44
5.7. Taxes................................................................ 44
5.8. Availability of Assets............................................... 47
5.9. Governmental Permits................................................. 47
5.10. Real Property....................................................... 47
5.11. Real Property Leases................................................ 47
5.12. Condemnation........................................................ 48
5.13. Personal Property................................................... 48
5.14. Personal Property Leases............................................ 48
5.15. Intellectual Property............................................... 48
5.16. Accounts Receivable; Inventories.................................... 48
5.17. Title to Property................................................... 49
5.18. Employee Benefit Plans.............................................. 49
5.19. Employee Relations.................................................. 52
5.20. Contracts; Product Warranties....................................... 53
5.21. Status of Contracts................................................. 54
5.22. No Violation, Litigation or Regulatory Action....................... 55
5.23. Environmental Matters............................................... 55
5.24. Insurance........................................................... 56
5.25. Customers and Suppliers............................................. 56
5.26. Budgets............................................................. 56
5.27. Information Statement............................................... 56
5.28. Disclosure.......................................................... 57
5.29. No Finder........................................................... 57

ARTICLE VI

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGERCO......... 57
6.1. Organization and Capital Structure................................... 57
6.2. Authority............................................................ 57
6.3. No Finder............................................................ 59
6.4. Investment........................................................... 59
6.5. Parent SEC Reports................................................... 59
6.6. Information Supplied by Parent for Information
Statement............................................................. 59
6.7. No Litigation........................................................ 60

ARTICLE VII

ACTION PRIOR TO THE EFFECTIVE TIME.................. 60
7.1. Preparation of Information Statement; Action by
Stockholders.......................................................... 60
7.2. Action by Parent..................................................... 61
7.3. Investigation of the Company by Parent............................... 61
7.4. Preserve Accuracy of Representations and
Warranties............................................................ 61

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7.5. Consents of Third Parties; Governmental Approvals.................... 62
7.6. Conduct of Business Prior to the Effective Time...................... 62
7.7. Notification by the Company of Certain Matters....................... 65
7.8. Mutual Cooperation; Reasonable Best Efforts.......................... 65
7.9. No Solicitation...................................................... 65
7.10. Antitrust Law Compliance............................................ 66
7.11. Indebtedness........................................................ 66
7.12. Delivery of Final Company Letter.................................... 67

ARTICLE VIII

ADDITIONAL AGREEMENTS......................... 67
8.1. Employee Benefit Plans............................................... 67
8.2. Accounts Receivable.................................................. 68
8.3. No Section 338 Election.............................................. 70

ARTICLE IX

CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGERCO................. 70
9.1. No Misrepresentation or Breach of Covenants and
Warranties............................................................ 70
9.2. No Changes or Destruction of Property................................ 70
9.3. No Restraint or Litigation........................................... 71
9.4. Necessary Governmental Approvals..................................... 71
9.5. Necessary Consents................................................... 71
9.6. Stockholders Approval; Dissenters' Rights............................ 71
9.7. Indebtedness......................................................... 71
9.8. Preferred Stock Warrants; Common Stock Warrants...................... 72

ARTICLE X

CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE COMPANY............................ 72
10.1. No Misrepresentation or Breach of Covenants and
Warranties............................................................ 73
10.2. No Restraint or Litigation.......................................... 73
10.3. Necessary Governmental Approvals.................................... 73
10.4. Necessary Consents.................................................. 73
10.5. Stockholders Approval; Dissenters' Rights........................... 73
10.6. Preferred Stock Warrants; Common Stock Warrants..................... 74

ARTICLE XI

TERMINATION.......................................... 74
11.1. Termination Rights.................................................. 74
11.2. Notice of Termination............................................... 75
11.3. Effect of Termination............................................... 75

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ARTICLE XII

GENERAL PROVISIONS.......................... 75
12.1. Survival of Obligations............................................. 75
12.2. Confidential Nature of Information.................................. 75
12.3. No Public Announcement.............................................. 76
12.4. Notices............................................................. 76
12.5. Assignment; Successors and Assigns.................................. 77
12.6. Entire Agreement; Amendments........................................ 78
12.7. Interpretation...................................................... 78
12.8. Waivers............................................................. 78
12.9. Fees and Expenses................................................... 78
12.10. Partial Invalidity................................................. 78
12.11. Execution in Counterparts.......................................... 79
12.12. Further Assurances................................................. 79
12.13. Governing Law...................................................... 79

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<PAGE>

AGREEMENT OF MERGER

AGREEMENT OF MERGER, dated as of May 29, 1995, among R.R. Donnelley &
Sons Company, a Delaware corporation ("Parent"), Donnelley DBS, Inc., a Delaware
corporation ("Mergerco"), and LAN Systems, Inc., a Delaware corporation (the
"Company") (Mergerco and the Company being hereinafter sometimes referred to as
the "Constituent Corporations").

W I T N E S S E T H:
- - - - - - - - - -

WHEREAS, Mergerco is a Delaware corporation having an authorized
capital of 100 shares of common stock, par value $1.00 per share, all of which
are issued and outstanding and owned of record and beneficially by Parent; and

WHEREAS, the Company is engaged in the business of systems
integration, which includes but is not limited to consultation (establishing the
business case behind the network decision, performance analysis, product
evaluation and research, technology planning, application integration
programming (seamless integration among multiple platforms)), network design,
implementation (involving integration of multi-vendor, multi-protocol solutions
and cross-platform environments), and training the customer on the use of the
system, as well as after market service and support of the system and/or
components thereof (the "Business"); and

WHEREAS, the Board of Directors of each Constituent Corporation has
approved this Agreement and has directed that this Agreement be submitted to its
respective stockholders for adoption; and

WHEREAS, Parent, Mergerco and the Company desire to make certain
representations, warranties and agreements in connection with the Merger and
also to prescribe various conditions to the Merger;

NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, it is hereby agreed among the parties as
follows:

ARTICLE I

DEFINITIONS
-----------

1.1. DEFINITIONS. In this Agreement, the following terms have the
meanings specified or referred to in this Section 1.1 and shall be equally
applicable to both the singular and plural forms. Any agreement referred to
below shall mean
<PAGE>

such agreement as amended, supplemented and modified from time to time to the
extent permitted by the applicable provisions thereof and by this Agreement.
Reference herein to Schedules shall mean the schedules to the Company Letter.

"ACCOUNTING FIRM" means the firm of independent public accountants
selected by the Earn-Out Representatives and Parent.

"AFFILIATE" means, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by or is under common control
with such Person.

"AFTER TAX BASIS" means, with respect to any amount which is to be
calculated or determined hereunder on an "After Tax Basis," an amount which,
after taking into account (i) the increase in federal, state and foreign Taxes
(including estimated Taxes) payable for all affected taxable years as a result
of the event or occurrence giving rise to such calculation or determination (the
"Set-Off Event"), and (ii) the reduction in federal, state and foreign Taxes
(including estimated Taxes) payable (or any refund of such Taxes previously
paid) for all affected taxable years as a result of such Set-Off Event shall be
sufficient as of the date of such calculation or determination to compensate the
affected Person for such Set-Off Event.

"AFTER TAX GROSS PROFITS TARGET" has the meaning specified in Section
3.4.

"AGREED ACCOUNTING PRINCIPLES" means the generally accepted accounting
principles used in the preparation of the 1994 Audited Financial Statements,
including, without limitation, the principles described in Schedule 1.1 and
including the classification of expenses in the same manner as provided in such
statements; provided that:

(i) subject to clause (ii) below, items of revenue and cost shall
be applied only once to either the Business or the I/S Outsourcing Business
and shall not be double counted;

(ii) any service or product of the type sold by the Business that is
sold by the I/S Outsourcing Business shall be accounted for as a sale by
the Business to the I/S Outsourcing Business at the average price that the
Business charges for such service or product to unrelated third Persons
(with such average price being the average price during the fourth quarter
of each year); and

(iii) no costs, expenses or charges paid or incurred by the Company
(A) in connection with the negotiation or consummation of the Merger, (B)
in respect of the non-

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<PAGE>

competition agreements contained in the Employment Agreements (provided
that costs, expenses or charges in respect of other amounts payable under
the Employment Agreements shall be included), or (C) in respect of
accounting changes on account of the Merger or income Taxes (other than as
provided in the definition of Net Income), shall be included in SG&A
Expenses or otherwise be deducted in the computation of Net Income of the
Business.

"ASSOCIATE" of any Person means (i) a corporation or organization of
which such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10 percent or more of any class of equity securities, (ii)
any trust or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a similar fiduciary
capacity and (iii) any relative or spouse of such Person, or any relative of
such spouse, who has the same home as such Person or who is a director or
officer of the Person or any of its parents or subsidiaries.

"BALANCE SHEET" means the audited balance sheet of the Company as of
December 31, 1994 included in Schedule 5.4.

"BALANCE SHEET DATE" means December 31, 1994.

"BANK NOTE" means the promissory note dated March 8, 1994 payable by
the Company to Silicon Valley Bank in the original principal amount of $750,000.

"BUSINESS" has the meaning specified in the second WHEREAS Clause of
this Agreement.

"BUSINESS EARN-OUT PAYMENTS" means the Business Earn-Out Payments
calculated pursuant to Section 3.3.

"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. (S)(S) 9601 et seq., any amendments thereto, any
successor statutes, and any regulations promulgated thereunder.

"CHANGE OF CONTROL OF THE COMPANY" means (i) if Parent and its
Affiliates shall cease to own beneficially (within the meaning of Rule 13d-3 of
the Securities Exchange Act of 1934, as amended) a majority of the Company's
outstanding shares of capital stock generally entitled to vote in the election
of directors, or otherwise cease to have the right to elect a majority of the
directors of the Company or (ii) if all or substantially all of the assets of
the Company have been sold, exchanged or otherwise transferred to a Person other
than Parent or one or more of its Affiliates; provided that the merger of the
Company into Parent or any subsidiary of Parent shall not

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<PAGE>

constitute a Change of Control of the Business, except that the merger of the
Company with or into, or a transfer of the majority of the stock of the Company
to, Stream shall constitute a Change of Control of the Business.

"CLASS A PREFERRED STOCK WARRANTS" means warrant certificates dated
December 30, 1988 pursuant to which the registered holders thereof are entitled,
as of the date hereof, to purchase an aggregate of 67,500 shares of Company
Class A Preferred Stock.

"CLASS B PREFERRED STOCK WARRANTS" means warrant certificates dated
October 17, 1989 pursuant to which the registered holders thereof are entitled,
as of the date hereof, to purchase an aggregate of 64,545 shares of Company
Class B Preferred Stock.

"CLOSING" means the closing of the Merger in accordance with Article
IV.

"CLOSING DATE" has the meaning specified in Section 4.1.

"CODE" means the Internal Revenue Code of 1986, as amended from time
to time.

"COMMON STOCK WARRANT EARN-OUT PAYMENTS" means the Common Stock
Warrant Earn-Out Payments calculated pursuant to Section 3.6.

"COMMON STOCK WARRANTS" means warrant certificates dated March 15,
1994 or April 20, 1994, as applicable, pursuant to which the registered holders
thereof are entitled, as of the date hereof, to purchase an aggregate of 184,291
shares of Company Common Stock.

"COMPANY" has the meaning specified in the first paragraph of this
Agreement.

"COMPANY AGREEMENTS" has the meaning specified in Section 5.21.

"COMPANY ANCILLARY AGREEMENTS" means all agreements, instruments and
documents being or to be executed and delivered by the Company under this
Agreement or in connection herewith (other than the Employment Agreements).

"COMPANY CLASS A PREFERRED STOCK" has the meaning specified in Section
5.1.

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<PAGE>

"COMPANY CLASS B PREFERRED STOCK" has the meaning specified in Section
5.1.

"COMPANY COMMON STOCK" has the meaning specified in Section 5.1.

"COMPANY GROUP" means any "affiliated group" (as defined in Section
1504(a) of the Code without regard to the limitations contained in Section
1504(b) of the Code) that, at any time on or before the Effective Time, includes
or has included the Company or any Subsidiary or any predecessor of or successor
to the Company or any Subsidiary (or another such predecessor or successor), or
any other group of corporations which, at any time on or before the Effective
Date, files or has filed Tax Returns on a combined, consolidated or unitary
basis with the Company or any Subsidiary or any predecessor of or successor to
the Company or any Subsidiary (or another such predecessor or successor).

"COMPANY LETTER" means the letter to be dated on or before May 31,
1995 from the Company to the Parent.

"COMPANY PREFERRED STOCK" means the Company Class A Preferred Stock
and the Company Class B Preferred Stock.

"COMPANY PROPERTY" means any real or personal property, plant,
building, facility, structure, underground storage tank, equipment or unit, or
other asset currently owned or leased by the Company or any Subsidiary.

"COMPANY'S KNOWLEDGE," "TO THE BEST KNOWLEDGE OF THE COMPANY," "KNOWN
TO THE COMPANY" and any other phrase of similar import shall refer to the actual
knowledge of any of the Company's corporate officers or other management
employees holding the offices identified in Annex F.

"CONFIDENTIALITY AGREEMENT" means the Nondisclosure Agreement dated
June 9, 1994 between Parent and the Company.

"CONTAMINANT" means any waste, pollutant, hazardous or toxic substance
or waste, petroleum, petroleum-based substance or waste, special waste, or any
constituent of any such substance or waste.

"COURT ORDER" means any judgment, order, award or decree of any
foreign, federal, state, local or other court or tribunal and any award in any
arbitration proceeding.

"DGCL" means the Delaware General Corporation Law, as amended.

-5-
<PAGE>

"DISSENTERS' SHARES" means shares of Company Common Stock or Company
Preferred Stock with respect to which appraisal rights shall have been properly
perfected in accordance with the DGCL.

"EARN-OUT PARTICIPANTS" means those persons entitled to participate in
any of the Business Earn-Out Payments, Synergy Earn-Out Payments, I/S
Outsourcing Business Earn-Out Payments or Common Stock Warrant Earn-Out
Payments, if any, by virtue of being (i) a holder of Company Common Stock, Stock
Options or Common Stock Warrants immediately prior to the Effective Time of the
Merger or (ii) a Management Participant.

"EARN-OUT REPRESENTATIVES" means the persons listed in Annex G.

"EFFECTIVE DATE" and "EFFECTIVE TIME" have the respective meanings
specified in Section 4.2.

"EMPLOYMENT AGREEMENTS" means the Employment and Non-Competition
Agreements between the Company and Leo Spiegel and Thomas Bradbury,
respectively, each in the respective forms contained in Exhibit A, and the
Company and Joel Altobello (provided that he has executed an employment
agreement with the Company satisfactory to Parent no later that May 31, 1995)
(all such agreements to be void if the Effective Date has not occurred on or
prior to June 21, 1995).

"ENCUMBRANCE" means any lien, claim, charge, security interest,
mortgage, pledge, easement, conditional sale or other title retention agreement,
defect in title or other restriction of any kind.

"ENVIRONMENTAL ENCUMBRANCE" means an Encumbrance in favor of any
Governmental Body for (i) any liability under any Environmental Law, or (ii)
damages arising from, or costs incurred by such Governmental Body in response
to, a Release or threatened Release of a Contaminant into the environment.

"ENVIRONMENTAL LAW" means all Requirements of Laws derived from or
relating to all federal, state and local laws or regulations relating to or
addressing the environment, including but not limited to CERCLA and RCRA and any
state equivalent thereof.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, including any regulations promulgated thereunder.

"ERISA AFFILIATE" means (i) any corporation which at any time on or
before the Effective Time is or was a member of

-6-
<PAGE>

the same controlled group of corporations (within the meaning of Section 414(b)
of the Code) as the Company; (ii) any partnership, trade or business (whether or
not incorporated) which at any time on or before the Effective Time is or was
under common control (within meaning of Section 414(c) of the Code) with the
Company; and (iii) any entity which at any time on or before the Effective Time
is or was a member of the same affiliated service group (within the meaning of
Section 414(m) of the Code) as either the Company, any corporation described in
clause (i) of this paragraph or any partnership, trade or business described in
clause (ii) of this paragraph.

"EXPENSE" means any and all expenses reasonably incurred in connection
with investigating, defending or asserting any claim, action, suit or proceeding
incident to any matter for which a right of set-off exists hereunder (including,
without limitation, court filing fees, court costs, arbitration fees or costs,
witness fees and reasonable fees and disbursements of legal counsel,
investigators, expert witnesses, consultants, accountants and other
professionals).

"FIXED CASH MERGER CONSIDERATION" means the sum of:

(i) the cash which holders of Company Preferred Stock or Preferred
Stock Warrants issued and outstanding immediately prior to the Effective
Time are entitled to receive after the Effective Time pursuant to Sections
3.1(c), (d), (e) and (f);

(ii) the cash which holders of Company Common Stock issued and
outstanding immediately prior to the Effective Time are entitled to receive
after the Effective Time pursuant to clause (i) of Section 3.1(g); and

(iii) the cash which holders of Stock Options issued and outstanding
immediately prior to the Effective Time are entitled to receive after the
Effective Time pursuant to clause (i) of Section 3.1(h).

"GOVERNMENTAL BODY" means any foreign, federal, state, local or other
governmental authority or regulatory body.

"GOVERNMENTAL PERMITS" has the meaning specified in Section 5.9.

"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.

"INFORMATION STATEMENT" has the meaning specified in Section 5.27.

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<PAGE>

"IRS" means the Internal Revenue Service.

"I/S OUTSOURCING AFTER TAX GROSS PROFITS" of the I/S Outsourcing
Business means for any Measurement Period:

(i) the Total Revenues of the I/S Outsourcing Business for such
Measurement Period, minus
-----
(ii) the Cost of Goods Sold by the I/S Outsourcing Business with
respect to such Measurement Period (the excess of the amount described in
clause (i) above over the amount described in this clause (ii) being
referred to in this definition as "Gross Profits"), minus

(iii) the product determined by multiplying (x) 43% (being the
assumed combined effective rate for income and similar Taxes to be used in
calculating I/S Outsourcing After Tax Gross Profits) times (y) Gross
Profits for such Measurement Period.

"I/S OUTSOURCING BUSINESS" means the management by Parent or any of
its subsidiaries (other than Stream International Inc. or any of its
subsidiaries) of clients' information systems, including hardware, software,
application development, local area network/wide area network management, system
administration, backups, help desks and the personnel required to provide these
services.

"I/S OUTSOURCING BUSINESS EARN-OUT PAYMENTS" means the I/S Outsourcing
Business Earn-Out Payments calculated pursuant to Section 3.4.

"INTELLECTUAL PROPERTY" means Patent Rights, Software, Trademarks and
Trade Secrets.

"LEASED REAL PROPERTY" has the meaning specified in Section 5.11.

"LETTER OF INTENT" means the Letter of Intent dated as of April 10,
1995 among Parent, the Company and certain Stockholders of the Company.

"LINE OF CREDIT" means the line of credit with Silicon Valley Bank
pursuant to which the Company has the ability to have outstanding borrowings in
the aggregate principal amount not to exceed $1.5 million.

"LOSS" means any and all losses, costs, settlement payments, awards,
judgments, fines, penalties, damages, expenses, or other charges.

-8-
<PAGE>

"MANAGEMENT PARTICIPANT" has the meaning specified in Section 3.9.

"MATERIAL ADVERSE EFFECT" means any change or effect that is
materially adverse to the properties, assets, business, financial condition or
results of operations of the applicable Person or Persons, taken as a whole.

"MEASUREMENT PERIODS" means the period commencing on June 15, 1995 and
ending on December 31, 1995 and each of the twelve month periods ending December
31, 1996, 1997 and 1998.

"MERGER" has the meaning specified in Section 2.1.

"MERGERCO" has the meaning specified in the first paragraph of this
Agreement.

"NET INCOME" of the Business means for any Measurement Period:

(i) the Total Revenues of the Business for such Measurement Period,
minus

(ii) the Total Cost of Goods Sold by the Business with respect to
such Measurement Period, minus

(iii) either:

(A) if Total Revenues of the Business for such Measurement
Period are less than or equal to the Total Revenue Target for such
Measurement Period, the product determined by multiplying (x) 31.5%
times (y) the amount described in clause (i) above, or

(B) if Total Revenues of the Business for such Measurement
Period are greater than the Total Revenue Target for such Measurement
Period, an amount equal to the sum of (x) the product determined by
multiplying (1) 31.5% times (2) the Total Revenue Target for such
Measurement Period, plus (y) the product of (1) 15% times (2) the
excess of Total Revenues of the Business for such Measurement Period
over the Total Revenue Target for such Measurement Period (the excess
of the amount described in clause (i) above over the amounts described
in clause (ii) above and this clause (iii) being referred to in this
definition as "Income Before Taxes"), minus

(iv) the product determined by multiplying (x) 43% (being the assumed
combined effective rate for income and similar Taxes to be used in
calculating Net Income) times (y) Income Before Taxes for such Measurement
Period.

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<PAGE>

"NET INCOME TARGET" has the meaning specified in Section 3.3.

"1994 AUDITED FINANCIAL STATEMENTS" means the audited consolidated
balance sheet of the Company and subsidiaries as of December 31, 1994 and the
related audited consolidated statement of income, shareholders' equity and cash
flows for the year then ended, together with the appropriate notes to such
financial statements, accompanied by the report thereon of Arthur Andersen LLP,
independent public accountants, that are included in Schedule 5.4.

"OPTION AND WARRANT EXERCISE AMOUNTS" means the sum of (i) the
aggregate of the exercise prices of all Stock Options exercised after the date
hereof and prior to the Effective Time plus (ii) the aggregate of the warrant
prices of all Preferred Stock Warrants exercised after the date hereof and prior
to the Effective Time.

"PARENT" has the meaning specified in the first paragraph of this
Agreement.

"PARENT ANCILLARY AGREEMENTS" means all agreements, instruments and
documents being or to be executed and delivered by Parent under this Agreement
or in connection herewith.

"PARENT GROUP MEMBER" means Parent and its Affiliates and their
respective successors and assigns, including, after the Effective Time, the
Surviving Corporation.

"PATENT RIGHTS" means United States and foreign patents, patent
applications, continuations, continuations-in-part, divisions, reissues, patent
disclosures, inventions (whether or not patentable) or improvements thereto.

"PERMITTED ENCUMBRANCES" means (a) liens for taxes and other
governmental charges and assessments which are not yet due and payable or which
are described in Schedule 5.7, (b) liens of landlords and liens of carriers,
warehousemen, mechanics and materialmen and other like liens arising in the
ordinary course of business for sums not yet due and payable, (c) liens,
deposits or pledges to secure the performance of contracts, leases or
obligations arising in the ordinary course of business and (d) other liens or
imperfections on property which are not material in amount, do not interfere
with, and are not violated by the consummation of the transactions contemplated
by this Agreement, and do not materially detract from the value or marketability
of, or materially impair the existing use of, the property affected by such lien
or imperfection.

"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association,

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joint-stock company, trust, unincorporated organization or Governmental Body.

"PREFERRED STOCK WARRANTS" means the Class A Preferred Stock Warrants
and the Class B Preferred Stock Warrants.

"PRELIMINARY EARN-OUT REPORT" has the meaning specified in Section
3.8.

"QUARTERLY EARN-OUT REPORT" has the meaning specified in Section 3.8.

"RCRA" means the Resource Conservation and Recovery Act, 42 U.S.C.
(S)(S) 6901 et seq., and any successor statute, and any regulations promulgated
thereunder.

"RELEASE" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration of a
Contaminant into the indoor or outdoor environment or into or out of any Company
Property.

"REMEDIAL ACTION" means actions required by Environmental Laws to (i)
clean up, remove, treat or in any other way address Contaminants in the indoor
or outdoor environment; (ii) prevent the Release or threatened Release or
minimize the further Release of Contaminants or (iii) investigate and determine
if a remedial response is needed and to design such a response and post-remedial
investigation, monitoring, operation and maintenance and care.

"REQUIREMENTS OF LAWS" means any foreign, federal, state and local
laws, statutes, regulations, rules, codes or ordinances enacted, adopted, issued
or promulgated by any Governmental Body (including, without limitation, those
pertaining to electrical, building, zoning, environmental and occupational
safety and health requirements) or common law.

"SERIAL PREFERRED STOCK" has the meaning specified in Section 5.1.

"SG&A EXPENSE TARGET" has the meaning specified in Section 3.5.

"SG&A EXPENSES" means, with respect to any Measurement Period, those
items of expense of the type described in Schedule 1.1 (comprising all expenses
other than costs of goods sold and income Taxes) incurred or accrued with
respect to the Business during such Measurement Period.

"SOFTWARE" means computer software programs and software systems,
including, without limitation, all databases, compilations, tool sets,
compilers, higher level or "proprietary"

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languages, related documentation and materials, whether in source code, object
code or human readable form.

"STOCK OPTIONS" means the option agreements granted under the
Company's 1990 Stock Plan for the purchase of an aggregate of 456,160 shares of
Company Common Stock.

"STOCKHOLDERS" has the meaning specified in Section 5.27.

"STOCKHOLDERS' MEETING" has the meaning specified in Section 5.27.

"STREAM" means Stream International Inc., a Delaware corporation, or
one or more of its subsidiaries.

"SUBSIDIARY" has the meaning specified in Section 5.2.

"SURVIVING CORPORATION" has the meaning specified in Section 2.1.

"SYNERGY EARN-OUT PAYMENTS" means the Synergy Earn-Out Payments
calculated pursuant to Section 3.5.

"TAX" (and, with correlative meaning, "Taxes" and "Taxable") shall
mean:

(i) any federal, state, local or foreign net income, gross income,
gross receipts, windfall profit, severance, property, production, sales,
use, license, excise, franchise, employment, payroll, withholding,
alternative or add-on minimum, ad valorem, transfer, stamp, or
environmental tax, or any other tax, custom, duty, governmental fee or
other like assessment or charge of any kind whatsoever, together with any
interest or penalty, addition to tax or additional amount imposed by any
governmental authority; and

(ii) any liability of the Company or any Subsidiary for the payment
of amounts with respect to payments of a type described in clause (i) as a
result of being a member of an affiliated, consolidated, combined or
unitary group, or as a result of any obligation of the Company or any
Subsidiary under any Tax Sharing Arrangement or Tax indemnity arrangement.

"TAX RETURN" means any return, report or similar statement required to
be filed with respect to any Taxes (including any attached schedules),
including, without limitation, any information return, claim for refund, amended
return or declaration of estimated Tax.

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<PAGE>

"TAX SHARING ARRANGEMENT" shall mean any written or unwritten
agreement or arrangement for the allocation or payment of Tax liabilities or
payment for Tax benefits with respect to a consolidated, combined or unitary Tax
Return which Tax Return includes the Company or any Subsidiary.

"TOTAL COST OF GOODS SOLD" of the Business or the I/S Outsourcing
Business, as the case may be, means for any Measurement Period the total cost of
goods sold of the Business or the I/S Outsourcing Business, as the case may be,
for such Measurement Period determined in accordance with the Agreed Accounting
Principles.

"TOTAL REVENUE TARGET" for a Measurement Period means the Total
Revenue Target for such Measurement Period set forth in Annex A.

"TOTAL REVENUES" of the Business or the I/S Outsourcing Business, as
the case may be, means for any Measurement Period the total net revenues of the
Business or the I/S Outsourcing Business, as the case may be, for such
Measurement Period determined in accordance with the Agreed Accounting
Principles.

"TRADEMARKS" means United States, state and foreign trademarks,
service marks, logos, trade dress and trade names, whether registered or
unregistered, and pending applications to register the foregoing.

"TRADE SECRETS" means confidential ideas, trade secrets, know-how,
concepts, methods, processes, formulae, reports, data, customer lists, mailing
lists, business plans, or other proprietary information.

ARTICLE II

THE MERGER

2.1. SURVIVING CORPORATION. Subject to the conditions contained
herein and in accordance with the provisions of this Agreement and the DGCL, at
the Effective Time Mergerco shall be merged with and into the Company. Such
merger is herein called the "Merger." Upon the effectiveness of the Merger, the
separate existence of Mergerco shall cease (except to the extent provided by law
in the case of a corporation after its merger into another corporation) and the
Company shall continue as the surviving corporation (the "Surviving
Corporation"), unaffected and unimpaired by the Merger, under the laws of the
State of Delaware.

2.2. EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in Sections 259 through 261 of the DGCL.

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2.3. CERTIFICATE OF INCORPORATION, BY-LAWS, DIRECTORS AND OFFICERS.
(a) At the Effective Time:

(i) Article SECOND of the Certificate of Incorporation, as amended,
of the Company shall be amended to read in its entirety as follows:

"The registered office of this Corporation in the State of
Delaware is located at Corporation Trust Center, 1209 Orange Street,
in the City of Wilmington, County of New Castle, in the State of
Delaware. The name of its registered agent at such address is The
Corporation Trust Company."; and

(ii) Article FOURTH of the Certificate of Incorporation, as amended,
of the Company shall be amended to read in its entirety as follows:

"The total number of shares of all classes of capital stock
which this Corporation shall have the authority to issue is 1,000
shares of Common Stock, with a par value of $1.00 per share.".

As so amended, the Certificate of Incorporation of the Company in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation after such date, and thereafter may
be amended in accordance with the terms and as provided by applicable law.

(b) At the Effective Time the By-Laws of the Company, as in effect
immediately prior to the Effective Time, shall continue as the By-Laws of the
Surviving Corporation, until thereafter changed or amended as provided therein
or by the Certificate of Incorporation of the Surviving Corporation or by
applicable law.

(c) From and after the Effective Time until their respective
successors are duly elected and qualified, the directors of the Surviving
Corporation shall be Ronald G. Eidell, Barton L. Faber and Thomas Quarles, and
the officers of the Surviving Corporation shall be as follows:

Rhonda I. Kochlefl - Chairman
Thomas Bradbury - President
Leo Spiegel - Executive Vice President and
Chief Technology Officer
Joel Altobello - Vice President and Chief
Financial Officer
Ronald G. Eidell - Treasurer
Deborah M. Regan - Secretary

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ARTICLE III

CONVERSION OF SHARES, WARRANTS AND OPTIONS
------------------------------------------

3.1. CONVERSION TERMS. As of the Effective Time, by virtue of the
Merger and without any action on the part of any stockholder of the Company or
Mergerco:

(a) Each share of common stock of Mergerco issued and outstanding
immediately prior to the Effective Time shall be converted into and become one
validly issued, fully paid and nonassessable share of common stock, par value
$1.00 per share, of the Surviving Corporation.

(b) All shares of Company Common Stock and Company Preferred Stock
that immediately prior to the Effective Time are held in the treasury of the
Company shall be cancelled and no capital stock of the Surviving Corporation,
cash or other consideration shall be paid or delivered in exchange therefor.

(c) Each share of Company Class A Preferred Stock issued and
outstanding immediately prior to the Effective Time, except Dissenters' Shares
and taking into account the cancellation of shares of Company Class A Preferred
Stock pursuant to Section 3.1(b), shall be converted into and become the right
to receive, at the time provided in Section 3.13, $9.83 in cash.

(d) Each share of Company Class B Preferred Stock issued and
outstanding immediately prior to the Effective Time, except Dissenters' Shares
and taking into account the cancellation of shares of Company Class B Preferred
Stock pursuant to Section 3.1(b), shall be converted into and become the right
to receive, at the time provided in Section 3.13, $12.12 in cash.

(e) Each Class A Preferred Stock Warrant issued and outstanding
immediately prior the Effective Time shall be converted into and become the
right to receive, at the time provided in Section 3.13, $4.00 in cash (being
$8.00 minus the current Warrant Price as provided in the Class A Preferred Stock
Warrants).

(f) Each Class B Preferred Stock Warrant issued and outstanding
immediately prior to the Effective Time shall be converted into and become the
right to receive, at the time provided in Section 3.13, $5.50 in cash (being
$11.00 minus the current Warrant Price as provided in the Class B Preferred
Stock Warrants).

(g) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time, except

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<PAGE>

Dissenters' Shares and taking into account the cancellation of shares of Company
Common Stock pursuant to Section 3.1(b), shall be converted into and become:

(i) the right to receive, at the time provided in Section 3.13,
$6.00 in cash;

(ii) the right to receive, at the time provided in Section 3.13, an
amount of cash equal to the quotient determined by dividing (x) the product
of one-half times any Business Earn-Out Payment by (y) 1,469,916 (being the
sum of (1) the total number of shares of Company Common Stock issued and
outstanding immediately prior to the Effective Time, plus (2) the total
number of shares of Company Common Stock issuable upon the exercise of all
Stock Options outstanding immediately prior to the Effective Time);

(iii) the right to receive, at the time provided in Section 3.13, an
amount of cash equal to the quotient determined by dividing (x) the product
of one-half times any Synergy Earn-Out Payment by (y) 1,469,916 (being the
sum of (1) the total number of shares of Company Common Stock issued and
outstanding immediately prior to the Effective Time, plus (2) the total
number of shares of Company Common Stock issuable upon the exercise of all
Stock Options outstanding immediately prior to the Effective Time); and

(iv) the right to receive, at the time provided in Section 3.13, an
amount of cash equal to the quotient determined by dividing (x) the product
of one-half times any I/S Outsourcing Business Earn-Out Payment, by (y)
1,654,207 (being the sum of (1) the total number of shares of Company
Common Stock issued and outstanding immediately prior to the Effective
Time, plus (2) the total number of shares of Company Common Stock issuable
upon the exercise of all Stock Options, plus (3) the total number of shares
of Company Common Stock issuable upon the exercise of all Common Stock
Warrants issued and outstanding immediately prior to the Effective Time).

(h) Each Stock Option issued and outstanding immediately prior to
Effective Time shall be exchanged for and become, with respect to each share of
Company Common Stock issuable upon exercise of such Stock Option:

(i) the right to receive, at the time provided in Section 3.13,
$6.00 in cash, less the exercise price for each share of Company Common
Stock issuable upon the exercise of such Stock Option;

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<PAGE>

provided, however, that amounts which the holder of a Stock Option shall be
entitled to receive pursuant to this Section 3.1(h) shall be reduced by all
Taxes (including, without limitation, income and social security Taxes) which
under any applicable law are required to be withheld by the Company.

(i) Each Common Stock Warrant issued and outstanding immediately prior to
the Effective Time shall be converted into and become, with respect to each
share of Company Common Stock issuable upon the conversion of such Warrant:

(i) the right to receive, at the time provided in Section 3.13,
cash in an amount equal to the quotient determined by dividing (i) any
Common Stock Warrant Earn-Out Payment by (ii) 184,291 (being the total
number of shares of Company Common Stock issuable upon

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<PAGE>

the exercise of all Common Stock Warrants outstanding immediately prior to
the Effective Time); and

(ii) the right to receive, at the time provided in Section 3.13, an
amount of cash equal to the quotient determined by dividing (x) the product
of one-half times any I/S Outsourcing Business Earn-Out Payment, by (y)
1,654,207 (being the sum of (1) the total number of shares of Company
Common Stock issued and outstanding immediately prior to the Effective
Time, plus (2) the total number of shares of Company Common Stock issuable
upon the exercise of all Stock Options, plus (3) the total number of shares
of Company Common Stock issuable upon the exercise of all Common Stock
Warrants issued and outstanding immediately prior to the Effective Time).

3.2. MAXIMUM FIXED CASH MERGER CONSIDERATION; MAXIMUM EARN-OUT PAYMENTS.
(a) Notwithstanding anything in this Agreement to the contrary, in no event
shall the Fixed Cash Merger Consideration payable in connection with the Merger
exceed the sum of $14,900,000 plus the Option and Warrant Exercise Amounts. The
dollar amounts included in Sections 3.1(c), (d), (e) and (f), clause (i) of
Section 3.1(g) and clause (i) of Section 3.1(h) are based on the representations
and warranties of the Company contained in Section 5.1(b). If the Company
notifies Parent and Mergerco before the Effective Time that the information
contained in Section 5.1(b) is not correct as of the Effective Date, the parties
agree to amend this Agreement to make appropriate changes in such dollar
amounts.

(b) Notwithstanding anything in this Agreement to the contrary, in no
event shall the total amount of the Business Earn-Out Payments, the I/S
Outsourcing Business Earn-Out Payments and the Synergy Earn-Out Payments paid to
the Earn-Out Participants exceed $12,100,000 (it being understood that the
Common Stock Warrant Earn-Out Payments shall not be included in such total). If
the Business Earn-Out Payments, the I/S Outsourcing Business Earn-Out Payments
and the Synergy Earn-Out Payments with respect to any Measurement Period would,
if added to the aggregate Business Earn-Out Payments, I/S Outsourcing Business
Earn-Out Payments and Synergy Earn-Out Payments with respect to all prior
Measurement Periods, exceed $12,100,000, the aggregate Business Earn-Out
Payments, I/S Outsourcing Business Earn-Out Payments and Synergy Earn-Out
Payments payable with respect to such Measurement Period, as limited by the
first sentence of this Section 3.2(b), shall be allocated ratably among the
Earn-Out Participants entitled to receive such payments in accordance with the
amounts that would have been payable to such Earn-Out Participants with respect
to such Measurement Period if such limitation had not been applicable.

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<PAGE>

(c) Notwithstanding anything in this Agreement to the contrary, in no
event shall the total amount of the Common Stock Warrant Earn-Out Payments
exceed $825,000.

3.3. BUSINESS EARN-OUT PAYMENTS. (a) Annex B includes the Net Income
Target for the Business for each Measurement Period (each such target being
referred to as a "Net Income Target").

(b) Subject to the provisions of Sections 3.2(b), 3.11 and 3.12:

(i) if the Net Income of the Business for any Measurement Period is
less than 80 percent of the Net Income Target for such Measurement Period,
the Business Earn-Out Payment for such Measurement Period shall be zero;

(ii) if the Net Income of the Business for any Measurement Period is
at least 80 percent and less than 90 percent of the Net Income Target for
such Measurement Period, the Business Earn-Out Payment for such Measurement
Period shall equal the earn-out payment specified for the applicable
"Percentage of Net Income Target Attained" included in Annex B for such
Measurement Period; provided that if the Percentage of Net Income Target
attained is not a whole amount, such percentage shall be calculated to two
decimal points and the Business Earn-Out Payment for such Measurement
Period shall be extrapolated on a straight line basis from the amounts
identified in Annex B; and

(iii) if the Net Income of the Business for any Measurement Period is
90 percent or more of the Net Income Target for such Measurement Period,
the Business Earn-Out Payment for such Measurement Period shall equal the
sum of:

(A) the earn-out payment specified in Annex B for such
Measurement Period assuming that the Net Income of the Business is
equal to 90% of the Net Income Target for such Measurement Period,
plus

(B) one-half of the amount by which the Net Income of the
Business for such Measurement Period exceeds 90 percent of the Net
Income Target for such Measurement Period; plus

(C) if the Net Income of the Business for such Measurement
Period is more than 100% percent of the Net Income Target for such
Measurement Period, an additional 20 percent of the amount by which
the Net Income of the Business exceeds the Net Income Target for
such Measurement Period.

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<PAGE>

(c) Subject to Section 3.2(b), the amount of a Business Earn-Out
Payment for a Measurement Period shall have no effect on the Business Earn-Out
Payment for any subsequent Measurement Period.

3.4. I/S OUTSOURCING BUSINESS EARN-OUT PAYMENTS. (a) Annex C includes
the After Tax Gross Profit Target for the I/S Outsourcing Business for each
Measurement Period (each such target being referred to as an "After Tax Gross
Profits Target").

(b) Subject to the provisions of Sections 3.2(b), 3.11 and 3.12:

(i) if the I/S Outsourcing After Tax Gross Profits for any
Measurement Period is less than the After Tax Gross Profits Target for any
such Measurement Period, then the I/S Outsourcing Business Earn-Out Payment
for such Measurement Period shall equal zero; and

(ii) if the I/S Outsourcing After Tax Gross Profits for any
Measurement Period exceeds the After Tax Gross Profits Target for any such
Measurement Period, then the I/S Outsourcing Business Earn-Out Payment for
such Measurement Period shall equal:

(A) in the case of any Measurement Period other than the one
ending December 31, 1998, one-half of the excess of the I/S
Outsourcing After Tax Gross Profits for such Measurement Period over
the After Tax Gross Profits Target for such Measurement Period; and

(B) in the case of the Measurement Period ending December 31,
1998, 75% of the excess of the I/S Outsourcing After Tax Gross Profits
for such Measurement Period over the After Tax Gross Profits Target
for such Measurement Period.

(c) Subject to Section 3.2(b), the amount of an I/S Outsourcing
Business Earn-Out Payment for a Measurement Period shall have no effect on the
I/S Outsourcing Earn-Out Payment for any subsequent Measurement Period.

3.5. SYNERGY EARN-OUT PAYMENTS. (a) Subject to the provisions of
Sections 3.2(b), 3.11 and 3.12:

(i) if the SG&A Expenses of the Business for any Measurement Period
are equal to or greater than 29.5% of the Total Revenues of the Business
for such Measurement Period (the "SG&A Expense Target"), the Synergy Earn-
Out Payment for such Measurement Period shall be zero; and

(ii) if the SG&A Expenses of the Business for any Measurement Period
are less than the SG&A Expense Target for

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<PAGE>

such Measurement Period, the Synergy Earn-Out Payment for such Measurement
Period shall be equal to:

(A) the product determined by multiplying (1) 50% times (2) the
excess of the SG&A Expense Target for such Measurement Period over the
SG&A Expenses of the Business for such Measurement Period, minus

(B) the product determined by multiplying (1) 43% times (2) the
amount described in clause (A) for such Measurement Period.

(b) Subject to Section 3.2(b), the amount of a Synergy Earn-Out
Payment for a Measurement Period shall have no effect on the Synergy Earn-Out
Payment for any subsequent Measurement Period.

3.6. COMMON STOCK WARRANT EARN-OUT PAYMENT. Subject to the provisions
of Sections 3.2(c), 3.11 and 3.12:

(a) if the Net Income of the Business for the Measurement Period
ending December 31, 1995 is equal to or greater than the Net Income Target
for such Measurement Period, then the Common Stock Warrant Earn-Out Payment
for such Measurement Period shall equal $400,000; if the Net Income of the
Business for such Measurement Period is less than the Net Income Target for
such Measurement Period, then the Common Stock Warrant Earn-Out Payment for
such Measurement Period shall equal the product of (x) $400,000 times (y) a
fraction, the numerator of which is the Net Income of the Business for such
Measurement Period and the denominator of which is the Net Income Target
for such Measurement Period;

(b) if the Net Income of the Business for the Measurement Period
ending December 31, 1996 is equal to or greater than the Net Income Target
for such Measurement Period, then the Common Stock Warrant Earn-Out Payment
for such Measurement Period shall equal $425,000; if the Net Income of the
Business for such Measurement Period is less than the Net Income Target for
such Measurement Period, then the Common Stock Warrant Earn-Out Payment for
such Measurement Period shall equal the product of (x) $425,000 times (y) a
fraction, the numerator of which is the Net Income of the Business for such
Measurement Period and the denominator of which is the Net Income Target
for such Measurement Period; and

(c) if the aggregate Common Stock Warrant Earn-Out Payments for the
Measurement Periods ending December 31, 1995 and December 31, 1996 are less
than $570,000 (the amount by which such payments are less than $570,000
being referred to herein as the "Common Stock Warrant Earn-Out

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Deficit"), there shall be an additional Common Stock Warrant Earn-Out
Payment with respect to the Measurement Period ending December 31, 1997
calculated as follows:

(i) if the Net Income of the Business for such Measurement
Period equals or is greater than 50 percent of the Net Income Target
for such Measurement Period, then the Common Stock Warrant Earn-Out
Payment for such Measurement Period shall be equal to the Common Stock
Warrant Earn-Out Deficit; and

(ii) if the Net Income of the Business for such Measurement
Period is less than 50 percent of the Net Income Target for such
Measurement Period, then the Common Stock Warrant Earn-Out Payment for
such Measurement Period shall be equal to the product of (x) the
Common Stock Warrant Earn-Out Deficit times (y) a fraction, the
numerator of which is the Net Income of the Business for such
Measurement Period and the denominator of which is 50 percent of the
Net Income Target for such Measurement Period.

(d) Subject to Section 3.2(c) and except as provided in Section
3.6(c), the amount of a Common Stock Warrant Earn-Out Payment for a Measurement
Period shall have no effect on the Common Stock Warrant Earn-Out Payment for any
subsequent Measurement Period.

3.7. OPERATIONS AFTER THE EFFECTIVE TIME. (a) The control of the
Company on and after the Effective Time will rest ultimately with Parent and,
except as provided in Section 3.7(b), none of the Earn-Out Participants shall
have any right as Earn-Out Participants to object to the manner in which the
Business or the I/S Outsourcing Business is conducted after the Effective Time.
It is the current intention of Parent that following the Effective Time (i) the
Company will remain a wholly owned subsidiary of Parent and (ii) the Company
will be included as part of the Donnelley Business Services Division of the
Donnelley Information Services business unit, but nothing herein shall give the
Earn-Out Participants any rights to prevent the merger of the Company into
Parent or any subsidiary of Parent, any sale or transfer of any shares of the
Company to any third Person or any Change of Control of the Company or to
prevent any changes in the manner in which Parent structures its business units
for operational or financial reporting. Notwithstanding the foregoing, Parent
acknowledges its desire to pursue and support the Business and I/S Outsourcing
Business after the Effective Date in such a manner that will provide to the
Earn-Out Participants the opportunity to receive such payments hereunder as are
dependent on the performance of the Business or the I/S Outsourcing Business.
Parent hereby represents and warrants that it is not a party to or bound by any
agreement, including but not limited to any agreement with Stream, that would
prevent the

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Parent or any of its subsidiaries (other than Stream) from pursuing the Business
or I/S Outsourcing Business.

(b) Within 30 days following the end of each calendar quarter, if the
Earn-Out Representatives believe in good faith that a business decision with
respect to the Business or the I/S Outsourcing Business made or implemented by
Parent without the approval of the Earn-Out Representatives in such capacities
during the period that is the subject of the Quarterly Earn-Out Report or the
last quarter covered by a Preliminary Earn-Out Report (a "Business Decision")
has materially changed or is reasonably expected to change the emphasis being
placed on the Business or the I/S Outsourcing Business from that contemplated at
the time of execution of this Agreement or materially changed the manner of
operations of, or the products or services provided by, the Business from the
manner of operations of, or the products or services provided by, the Company at
the time of execution of this Agreement in such a way that has had or is
reasonably expected to have an adverse effect on the ability of the Business or
the I/S Outsourcing Business to earn the maximum amount of Earn-Out payments
hereunder or if Parent (or one or more of its subsidiaries, except for Stream,
so long as Parent does not actually control Stream) materially competes with the
Business or the I/S Outsourcing Business ("Competitive Activity") in such a way
that has had or is reasonably expected to have such an effect, then the Earn-Out
Representatives may deliver to Parent a written report (an "Objection Report")
listing such Business Decisions or Competitive Activity and specifying in
reasonable detail what adverse effect the Earn-Out Representatives believe such
Business Decisions or Competitive Activity have had or are reasonably believed
to have on such ability. Upon receipt of any Objection Report, Parent and the
Earn-Out Representatives will seek to resolve any concerns raised in such
report, including discussing whether the Business Decisions or Competitive
Activity discussed in such Objection Report have had or are reasonably expected
to have such an adverse effect, and if so, any equitable adjustments that should
be made to negate such adverse effect. If any such Business Decision or
Competitive Activity discussed in such Objection Report has had or is reasonably
expected to have such an adverse effect, then equitable adjustments to negate
such adverse effect shall be made. In addition, if any agreement between Parent
and Stream actually restricts or limits the volume of the Business or I/S
Outsourcing Business that can be conducted, equitable adjustments with respect
to the ability to receive earn-out payments hereunder to negate any such adverse
effect shall be made. Any determination agreed to by Parent and the Earn-Out
Representatives shall be conclusive and binding on Parent and the Earn-Out
Participants.

3.8. CALCULATION OF EARN-OUT PAYMENTS. (a) Not later than 45 days
following the completion of each calendar quarter during a Measurement Period
(other than the quarter ending June

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30, 1995 and other than the fourth quarter of any Measurement Period), Parent
shall deliver to the Earn-out Representatives, a certificate (signed by the
financial director of the Donnelley Information Services business unit or by the
chief financial officer or chief accounting officer of Parent) (each such
certificate being referred to as a "Quarterly Earn-Out Report") setting forth,
with respect to such calendar quarter and with respect to the period commencing
on the first day of such Measurement Period and ending of the last day of such
quarter (and comparable information with respect to the previous year), Parent's
determination of (i) Total Revenues of the Business and Total Cost of Goods Sold
of the Business, (ii) Total Revenues of the I/S Outsourcing Business and Total
Cost of Goods Sold of the I/S Outsourcing Business, and (iii) Total SG&A
Expenses of the Business.

(b) Not later than 30 days following the publication of audited
consolidated financial statements of Parent and its subsidiaries for a calendar
year, Parent shall deliver to each Earn-Out Participant a certificate (signed by
the financial director of the Donnelley Information Services business unit or by
the chief financial officer or chief accounting officer of Parent) (each such
certificate being referred to as a "Preliminary Earn-Out Report") setting forth:

(i) Parent's determination with respect to the Measurement Period
ending on the last day of such calendar year, of (A) Total Revenues of the
Business and Total Cost of Goods Sold of the Business, (B) Total Revenues
of the I/S Outsourcing Business and Total Cost of Goods Sold of the I/S
Outsourcing Business, and (C) Total SG&A Expenses of the Business; and

(ii) Parent's determination of the Business Earn-Out Payment, I/S
Outsourcing Business Earn-Out Payment, Synergy Earn-Out Payment and Common
Stock Warrant Earn-Out Payment for such Measurement Period.

(c) Promptly following receipt of the Preliminary Earn-Out Report,
the Earn-Out Representatives may review the same and, within 30 days after the
date of such receipt, may deliver to Parent a certificate setting forth their
objections (including an objection that they have not received information
reasonably requested by them to verify the information reflected in such Report)
to the determinations set forth in the Preliminary Earn-Out Report, together
with a summary of the reasons therefor and calculations which, in its view, are
necessary to eliminate such objections. If the Earn-Out Representatives do not
so object within such 30-day period, the determinations set forth in the
Preliminary Earn-Out Report shall be final and binding on Parent and each of the
Earn-Out Participants.

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(d) If the Earn-Out Representatives so object within such 30-day
period, Parent and the Earn-Out Representatives shall use their reasonable
efforts to resolve by written agreement (the "Agreed Adjustments") any
differences as to the determinations set forth in the Preliminary Earn-Out
Report and, if the Earn-Out Representatives and Parent so resolve any such
differences, the determinations set forth in the Preliminary Earn-Out Report as
adjusted by the Agreed Adjustments shall be final and binding on Parent and each
of the Earn-Out Participants.

(e) If any objections timely raised by the Earn-Out Representatives
are not resolved by Agreed Adjustments within the 15-day period next following
such 30-day period, then Parent and the Earn-Out Representatives shall submit
the objections that are then unresolved to the Accounting Firm who shall be
directed by Parent and the Earn-Out Representatives to seek to resolve the
unresolved objections as promptly as reasonably practicable and to deliver
written notice to each of Parent and the Earn-Out Representatives setting forth
its resolution of the disputed matters, and the determinations set forth in the
Preliminary Earn-Out Report as adjusted by the Agreed Adjustments and by its
resolution of such objections shall be final and binding on Parent and each of
the Earn-Out Participants.

(f) The parties hereto shall make available to Parent, the Earn-Out
Representatives (and their respective representatives) and, if applicable, the
Accounting Firm, such books, records and other information (including work
papers) as any of the foregoing may reasonably request to prepare or review any
Preliminary Earn-Out Report or Quarterly Earn-Out Report or any matters
submitted to the Accounting Firm.

(g) The fees and expenses of the Accounting Firm shall be paid by
Parent if the determination by the Accounting Firm of the unresolved objections
submitted to it pursuant to Section 3.8(e) was closer to the position taken by
the Earn-Out Representatives than to the position taken by Parent and shall be
paid by the Earn-Out Participants if the determination by the Accounting Firm of
the unresolved objections submitted to it pursuant to Section 3.8(e) was closer
to the position taken by Parent than to the position taken by the Earn-Out
Representatives. Unless otherwise directed by the Earn-Out Representatives, any
fees and expenses payable by the Earn-Out Participants pursuant to this Section
3.8(g) shall be, to the extent available, paid and set-off from any amounts
otherwise payable to Earn-Out Participants.

3.9. PARTICIPATION OF MANAGEMENT PARTICIPANTS IN CERTAIN EARN-OUT
PAYMENTS. (a) Set forth in Schedule 3.9 is a list of those current employees
of the Company who are entitled to participate in the Business Earn-Out
Payments, I/S Outsourcing Business Earn-Out Payments and Synergy Earn-Out
Payments, including the relative participations of such person in the

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portion of any such payments to be made to Management Participants. The persons
named in Schedule 3.9, as amended in accordance with this Section 3.9, are
collectively referred to as the "Management Participants". If any Management
Participant ceases to be employed by the Company (or Parent or any Affiliate of
Parent) for any reason during a Measurement Period (such person being referred
to herein as a "Terminated Management Participant"), Schedule 3.9 shall be
amended to remove such person effective as of the date of cessation of
employment; provided, that none of Thomas Bradbury, Leo Spiegel or Joel
Altobello (provided that he has executed an employment agreement with the
Company satisfactory to Parent no later that May 31, 1995) shall be removed from
Schedule 3.9 (and thus shall not cease to be Management Participants) upon his
cessation of employment by the Company (or Parent or any Affiliate of Parent)
for any reason so long as he is in compliance with any applicable non-
competition provisions contained in his Employment Agreement. Any Terminated
Management Participant shall be entitled to share in any Business Earn-Out
Payments, I/S Outsourcing Business Earn-Out Payments and Synergy Earn-Out
Payments for the Measurement Period during which such employee became a
Terminated Management Participant but such Terminated Management Participant's
share shall be equal to the product of (x) the amount that such Terminated
Management Participant would have been entitled to receive had he been a
Management Participant for the entire Measurement Period, times (y) a fraction,
the numerator of which is the number of days in such Measurement Period that
such employee was a Management Participant and the denominator of which is the
total number of days in such Measurement Period. If there is a Terminated
Management Participant, Parent shall have the right to designate as a Management
Participant, with such participation percentage and with such effective date
(not earlier than the date of termination of such Terminated Management
Participant) as Parent shall determine, one or more employees (any employee so
designated being referred to herein as a "Replacement Management Participant")
involved in the Business or the I/S Outsourcing Business (whether or not such
employee was an employee of the Company prior to the Effective Time), and to
amend Schedule 3.9 accordingly; provided, that in no event shall the relative
participation of any Management Participant who is not a Terminated Management
Employee be reduced. Any Replacement Management Participant shall be entitled to
share in any Business Earn-Out Payments, I/S Outsourcing Business Earn-Out
Payments and Synergy Earn-Out Payments for the Measurement Period during which
such employee became a Replacement Management Participant but such Replacement
Management Participant's share shall be equal to the product of (x) the amount
that such Replacement Management Participant would have been entitled to receive
had he been a Management Participant for the entire Measurement Period, times
(y) a fraction, the numerator of which is the number of days in such Measurement
Period that such employee was a Management Participant and the denominator of
which is the total number of days in such Measurement Period. If, during any
Measurement

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Period, the participation percentages are not fully allocated to Management
Participants for all days during such Measurement Period, any amounts payable to
Management Participants with respect to Business Earn-Out Payments, I/S
Outsourcing Business Earn-Out Payments and Synergy Earn-Out Payments for such
Measurement Period shall be increased pro rata to the extent that the entire
amounts payable under Sections 3.9(b), (c) and (d) are paid to Management
Participants. Nothing in this Agreement shall confer upon any Management
Participant any rights of continued employment by the Company or any employment
by the Parent or any Affiliate of Parent.

(b) Fifty percent of each Business Earn-Out Payment will be
distributed to the Management Participants, with the portion of each Business
Earn-Out Payment to be paid to each such Management Participant being determined
(except as otherwise provided in Section 3.9(a)) by multiplying the aggregate
payment amount by the relative participation of such Management Participant as
set forth in Schedule 3.9, as amended in accordance with Section 3.9(a);
provided, however, that any amount distributed pursuant to this Section 3.9(b)
shall be reduced by all Taxes (including, without limitation, income and social
security Taxes) which under any applicable law are required to be withheld by
the Company.

(c) Fifty percent of each I/S Outsourcing Business Earn-Out Payment
will be distributed to the Management Participants, with the portion of each I/S
Outsourcing Earn-Out Payment to be paid to each such Management Participant
being determined (except as otherwise provided in Section 3.9(a)) by multiplying
the aggregate payment amount by the relative participation of such Management
Participant as set forth in Schedule 3.9, as amended in accordance with Section
3.9(a); provided, however, that any amount distributed pursuant to this Section
3.9(c) shall be reduced by all Taxes (including, without limitation, income and
social security Taxes) which under any applicable law are required to be
withheld by the Company.

(d) Fifty percent of each Synergy Earn-Out Payment will be
distributed to the Management Participants, with the portion of each Synergy
Earn-Out Payment to be paid to each such Management Participant being determined
(except as otherwise provided in Section 3.9(a)) by multiplying the aggregate
payment amount by the relative participation of such Management Participant as
set forth in Schedule 3.9, as amended in accordance with Section 3.9(a);
provided, however, that any amount distributed pursuant to this Section 3.9(d)
shall be reduced by all Taxes (including, without limitation, income and social
security Taxes) which under any applicable law are required to be withheld by
the Company.

3.10. NON-ASSIGNABILITY; DELIVERY OF EARN-OUT PAYMENTS. (a) The
right of any Earn-Out Participant to receive

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any Business Earn-Out Payment, Common Stock Warrant Earn-Out Payment, I/S
Outsourcing Business Earn-Out Payment or Synergy Earn-Out Payment shall not be
assignable or transferable except by operation of law.

(b) Subject to Sections 3.2, 3.11, 3.12 and 3.13:

(i) Parent shall, at the time of delivery of a Preliminary Earn-Out
Report from Parent pursuant to Section 3.8, pay to each Earn-Out
Participant entitled to payment, such amounts in respect of the Business
Earn-Out Payment, I/S Outsourcing Business Earn-Out Payment, Synergy Earn-
Out Payments or Common Stock Warrant Earn-Out Payments shown in such
Preliminary Earn-Out Report as being payable, plus, if such payment is sent
more than ten days after such time of delivery, interest on such amounts
from the date on which payment was required to be made at the rate per
annum equal to the prime rate in effect from time to time as published in
The Wall Street Journal; and

(ii) if the Earn-Out Representatives timely object to any
determinations set forth in a Preliminary Earn-Out Report as provided in
Section 3.8 and if it is finally determined under Section 3.8 that amounts
in addition to the amounts set forth in the Preliminary Earn-Out Report
should have been paid to any Earn-Out Participants, Parent shall, within 10
days after such final determination, pay such additional amounts to the
Earn-Out Participant entitled to payment, plus interest on such amounts
from the date on which payment would have been required to be made pursuant
to clause (i) of this Section until the date of payment of such additional
amounts at the rate per annum equal to the prime rate in effect from time
to time as published in The Wall Street Journal.

Any payments under this Section 3.10 or Section 3.11 or 3.12 shall be effected
by the mailing of a check payable to the Earn-Out Participant entitled to such
payment at such address of the Earn-Out Participant identified in the records of
the Company or to such other address as shall have been furnished in writing to
Parent.

3.11. SET-OFF. (a) Subject to the provisions of this Section 3.11,
Parent shall have the right to set-off against, and to reduce the amounts
otherwise payable in respect of, the Business Earn-Out Payments, Common Stock
Warrant Earn-Out Payments, I/S Outsourcing Business Earn-Out Payments and
Synergy Earn-Out Payments:

(i) the aggregate of any Loss and Expense incurred by any Parent
Group Member arising from any breach or failure to perform by the Company
of any of its agreements,

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covenants or obligations in this Agreement required to be performed on or
prior to the Effective Date;

(ii) the aggregate of any Loss and Expense incurred by any Parent
Group Member arising from any breach as of the Effective Date of any
warranty or the inaccuracy as of the Effective Date of any representation
or warranty of the Company contained or referred to in this Agreement or
any certificate delivered by or on behalf of the Company pursuant hereto
(other than the representations and warranties contained in Section 5.1(b),
(c), (d) and (e), and Section 5.29;

(iii) the aggregate of any Loss and Expense incurred by any Parent
Group Member arising from any breach as of the Effective Date of any
warranty or the inaccuracy as of the Effective Date of any representation
or warranty of the Company contained in Section 5.1(b), (c), (d) or (e) or
Section 5.29;

(iv) the amount determined pursuant to Section 8.2(h);

(v) the aggregate of any Loss and Expense incurred by any Parent
Group Member in connection with or arising from the exercise of appraisal
rights pursuant to the DGCL by any holders of Company Common Stock or
Company Preferred Stock (including, without limitation, all Loss and
Expense associated with any appraisal proceedings and all amounts
determined to be payable to any such holders pursuant to Section 262 of the
DGCL) to the extent that the sum of (A) the aggregate amount of such Loss
and Expense plus (B) the Fixed Cash Merger Consideration exceeds the sum of
(C) 14,900,000 plus (D) the Option and Warrant Exercise Amounts;

(vi) the aggregate legal expenses (including fees, expenses and
disbursements) incurred by the Company or any Subsidiary in connection with
the preparation, negotiation, execution and delivery of this Agreement and
the consummation of the Merger to the extent such legal expenses exceed
$50,000; or

(vii) the fees and expenses of the Accounting Firm as and to the
extent provided in Section 3.8 or Section 8.2.

(b) No amounts shall be set-off against or reductions made pursuant
to Section 3.11(a)(i) or (ii) until the aggregate amount of Losses and Expenses
incurred by the Parent Group Members under Section 3.11(a)(i) or (ii) exceeds
$350,000, in which case $350,000, plus the aggregate amount of all Losses and
Expenses incurred by the Parent Group Members under Section 3.11(a)(i) or (ii)
in excess of $350,000, may be set-off pursuant to Section 3.11(a)(i) or (ii).

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(c) If Parent is entitled under this Section 3.11 to set-off against
and reduce the Business Earn-Out Payments, Common Stock Warrant Earn-Out
Payments, I/S Outsourcing Business Earn-Out Payments and Synergy Earn-Out
Payments, such set-off and reduction shall be made among all such payments in
the manner described in Annex H.

(d) All Losses and Expenses incurred by any Parent Group Member shall
be calculated on an After Tax Basis.

(e) The right of set-off provided for in this Section 3.11 shall
continue until the obligations of Parent to make any Business Earn-Out Payments,
Common Stock Warrant Earn-Out Payments, I/S Outsourcing Business Earn-Out
Payments or Synergy Earn-Out Payments shall have been satisfied; provided, that
the rights of set-off under Section 3.11(a)(ii) shall terminate on March 31,
1997 with respect to all representations and warranties in this Agreement or in
any certificate delivered pursuant hereto (other than with respect to the
representations and warranties contained in Section 5.1(b), (c), (d) or (e) or
5.7, which shall continue as provided above), except that such rights shall
continue as to any Loss or Expense of which any Parent Group Member has notified
the Earn-Out Representatives in accordance with the requirements of this Section
3.11 on or prior to the date such set-off rights would otherwise terminate in
accordance with this Section 3.11, as to which such set-off rights shall
continue until the rights to set-off and the amount of the set-off shall have
been determined pursuant to this Section 3.11.

(f) Any claim of set-off shall be asserted by written notice (a
"Claim Notice") given by any Parent Group Member to the Earn-Out
Representatives; provided, that a Claim Notice in respect of any action at law
or suit in equity by a third party ("Third Party Claim") shall be given promptly
after the action, suit, investigation, or proceeding is commenced; provided,
further that failure to give, or a delay in giving, such notice shall not
prejudice any Parent Group Member hereunder, except to the extent such failure
or delay shall have prejudiced the Earn-Out Participants. Any Claim Notice shall
describe in reasonable detail the facts giving rise to a claim for set-off
hereunder, the amount or method of computation of the amount of such claim, and
a reference to the provision of this Agreement giving rise to such claim. The
Earn-Out Representatives shall have a period of 30 days within which to respond
thereto. If the Earn-Out Representatives do not object within such 30-day
period, the Earn-Out Representatives shall be deemed to have accepted the claim
for set-off and shall have no further right to contest the validity or amount of
such claim. If the Earn-Out Representatives respond within such 30-day period
and object to such claim in whole or in part, the dispute shall be resolved: (i)
by the written agreement between the Parent Group Member and the Earn-Out
Representatives; (ii) by a final judgment of any court or administrative body of
competent jurisdiction; or (iii)

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by any other means to which the Parent Group Member and the Earn-Out
Representatives shall agree. Parent shall furnish the Earn-Out Representations
with such information concerning the matters covered by a Claim Notice as Parent
(or any Affiliate) shall possess as the Earn-Out Representations shall
reasonably request.

(g) In the event any Claim Notice received by the Earn-Out
Representatives remains unresolved on any date on which Parent is required to
make any Business Earn-Out Payment, Common Stock Warrant Earn-Out Payment, I/S
Outsourcing Business Earn-Out Payment or Synergy Earn-Out Payment, Parent shall
be entitled to reduce the amount of such payments by the aggregate amount of
set-offs reflected in all unresolved Claim Notices, pending final determination
of the matters set forth in such Claim Notices. If it is finally determined
pursuant to this Section 3.11 that Parent was not entitled to so reduce the
amount of such payments, Parent shall, within 10 days after such final
determination, pay such additional amount as shall be required to the Earn-Out
Participants entitled to payment, plus interest on such amount from the date on
which payment would have been required to be made until the date of payment of
such additional amounts at the rate per annum equal to the prime rate in effect
from time to time as published in The Wall Street Journal.

(h) Parent shall have the right to conduct and control, through
counsel of its choosing, the defense, compromise or settlement of any Third
Party Claim as to which set-off is sought by any Parent Group Member hereunder;
provided, that the Earn-Out Representatives may participate, through counsel
chosen by them and at their own expense, in the defense of any claim, action or
suit as to which Parent has so elected to conduct and control the defense
thereof; and provided, further, that Parent shall not, without the written
consent of the Earn-Out Representatives (which written consent shall not be
unreasonably withheld), pay, compromise or settle any such claim, action or
suit. Notwithstanding the foregoing, Parent shall have the right to pay, settle
or compromise any such claim, action or suit without such consent, provided that
in such event Parent shall waive any right to set-off hereunder unless such
consent is unreasonably withheld.

(i) Except for remedies which cannot be waived as a matter of law, if
the Closing occurs, the exclusive remedy of Parent on account of the matters
described in Section 3.11(a)(i) through (vii) shall be the rights set forth in
this Section 3.11.

3.12. CHANGE OF CONTROL. (a) If a Change of Control of the Company
is consummated prior to January 1, 1997 or was consummated after December 31,
1996 but was the subject of a public announcement issued by Parent (or other
party to the transaction giving rise to such Change of Control) prior to January
1, 1997, (i) the total amount of the Business Earn-Out Payments, Synergy Earn-
Out Payments and I/S Outsourcing Earn-Out

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Payments payable hereunder shall be deemed to be $12,100,000, and (ii) the
Common Stock Warrant Earn-Out Payments payable hereunder shall be deemed to be
$825,000. On the date on which such Change of Control is consummated, Parent
shall pay to the Earn-Out Participants (A) the amount to which such Earn-Out
Participants are entitled under the first sentence of this Section 3.12(a),
allocated in accordance with Annex H, minus (B) the amounts previously paid to
such Earn-Out Participants in respect of the Business Earn-Out Payments, Synergy
Earn-Out Payments, I/S Outsourcing Earn-Out Payments and Common Stock Warrant
Earn-Out Payments, minus (C) any amounts permitted to be set-off or withheld
from payment under Section 3.11, minus (D) in the case of Earn-Out Participants
who hold Stock Options or who are Management Participants, all Taxes (including,
without limitation, income and social security Taxes) which under any applicable
law are required to be withheld by the Company or Parent. This Section 3.12(a)
shall have no effect if such Change of Control is not consummated.

(b) If a Change of Control of the Company is consummated after
December 31, 1996 and prior to January 1, 1999 and was not the subject of a
public announcement (or other party to the transaction giving rise to such
Change in Control) issued by Parent prior to January 1, 1997, the total amount
of the Business Earn-Out Payments, Synergy Earn-Out Payments, I/S Outsourcing
Earn-Out Payments and Common Stock Warrant Earn-Out Payments payable hereunder
with respect to all Measurement Periods ending on or prior to such Change of
Control shall be deemed to be $7,100,000 (unless the actual total amount of such
payments is greater than $7,100,000). On the date on which such Change of
Control is consummated, Parent shall pay to the Earn-Out Participants (A) the
amount to which such Earn-Out Participants are entitled under the first sentence
of this Section 3.12(b), allocated in accordance with Annex H, minus (B) the
amounts previously paid to such Earn-Out Participants in respect of the Business
Earn-Out Payments, Synergy Earn-Out Payments, I/S Outsourcing Earn-Out Payments
and Common Stock Warrant Earn-Out Payments, minus (C) any amounts permitted to
be set-off or withheld from payment under Section 3.11, minus (D) in the case of
Earn-Out Participants who hold Stock Options or who are Management Participants,
all Taxes (including, without limitation, income and social security Taxes)
which under any applicable law are required to be withheld by the Company or
Parent. In connection with any such Change of Control, Parent shall require that
the Person acquiring control of the Company assume in writing the obligations of
Parent under this Agreement. This Section 3.12(b) shall have no effect if such
Change of Control is not consummated.

3.13. DELIVERY OF CERTIFICATES AND AGREEMENTS; PAYMENT OF CASH.
(a) At or after the Effective Time, each holder of a certificate or
certificates representing issued and outstanding shares of record of Company
Common Stock or Company Preferred

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Stock, except for holders of Dissenters' Shares, and each outstanding
certificate or agreement representing Common Stock Warrants, Preferred Stock
Warrants or Stock Options, in each case immediately prior to the Effective Time,
may surrender such certificate or agreement to Parent, and, subject to the
provisions of this Section 3.13, (i) Parent shall immediately deliver or cause
to be delivered to such holder a check in an amount equal to the portion of the
Fixed Cash Merger Consideration allocable to the Company Common Stock, Company
Preferred Stock, Common Stock Warrants, Preferred Stock Warrants and Stock
Options with respect to which such certificates and/or agreements are
surrendered, and (ii) with respect to the holders of Company Common Stock,
Common Stock Warrants and Stock Options, Parent shall deliver or cause to be
delivered to such holder, at the time or times provided herein, a check in an
amount equal to the portion of any Business Earn-Out Payments, Common Stock
Warrant Earn-Out Payments, I/S Outsourcing Business Earn-Out Payments and
Synergy Earn-Out Payments to which such holder shall be entitled under this
Agreement. Except as provided in Section 3.10, in no event shall the holder of
any such surrendered certificates or agreements be entitled to receive interest
on any of the funds to be received in the Merger. If such check is to be sent to
a Person other than the Person in whose name the certificates or agreements are
registered, it shall be a condition of the exchange that the Person requesting
such exchange shall pay to the Parent the transfer Taxes required by reason of
the delivery of such check to a Person other than the registered holder of the
certificates or agreements surrendered, or shall establish to the satisfaction
of Parent that such Tax has been paid or is not applicable. Notwithstanding the
foregoing, neither the Parent nor any party hereto shall be liable to a holder
of a certificate or agreement under any abandoned property, escheat or similar
law.

(b) Until so surrendered, each outstanding certificate representing
issued and outstanding shares of record of Company Common Stock and Company
Preferred Stock, and each outstanding certificate or agreement representing
Common Stock Warrants, Preferred Stock Warrants and Stock Options, in each case
immediately prior to the Effective Time shall not be transferable on the books
of the Surviving Corporation or Parent after the Effective Time, but shall be
deemed for all purposes to evidence only the right to receive such cash,
Business Earn-Out Payments, Common Stock Warrant Earn-Out Payments, I/S
Outsourcing Business Earn-Out Payments or Synergy Earn-Out Payments, as the case
may be, as such holders are entitled to receive pursuant to the terms of this
Agreement.

3.14. LOST CERTIFICATES. In the event any certificate or agreement
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the Person claiming such certificate to be lost, stolen or
destroyed, Parent shall pay to such Person the amount of cash payable to the
holder of such

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lost, stolen or destroyed certificate determined in accordance with Section
3.13. When authorizing such payment in exchange for any lost, stolen or
destroyed certificate or agreement, the Person to whom the cash is to be paid
shall, as a condition precedent to the payment thereof, give the Surviving
Corporation a bond satisfactory to the Surviving Corporation in such sum as it
may direct, or otherwise indemnify the Surviving Corporation in a manner
satisfactory to the Surviving Corporation, against any claim that may be made
against Parent, Mergerco or the Surviving Corporation with respect to the
certificate or agreements alleged to have been lost, stolen or destroyed.

3.15. DISSENTER'S RIGHTS. Notwithstanding any provision of this
Agreement to the contrary, any Dissenters' Shares shall not be converted into or
represent a right to receive any of the consideration provided in Section 3.1,
but the holder shall only be entitled to such rights as are granted by the DGCL.
If a holder of shares of Company Common Stock or Company Preferred Stock who
demands appraisal of such shares under the DGCL shall effectively withdraw or
otherwise lose (through failure to perfect or otherwise) the right to appraisal,
then, as of the Effective Time or the occurrence of such event, whichever last
occurs, such shares of Company Common Stock or Company Preferred Stock shall be
converted into and represent only the right to receive the consideration
provided in Section 3.1(g), in the case of Company Common Stock, the
consideration provided in Section 3.1(c), in the case of Company Class A
Preferred Stock, and the consideration provided in Section 3.1(d), in the case
of Company Class B Preferred Stock, in each case without interest, upon the
surrender of the certificate or certificates representing such shares of Company
Common Stock or Company Preferred Stock. The Company shall give Parent prompt
notice of any written demands for appraisal of any shares of Company Common
Stock or Company Preferred Stock, attempted withdrawals of such demands, and any
other instruments served pursuant to the DGCL received by the Company relating
to shareholders' rights of appraisal. The Company shall not, except with the
prior written consent of Parent and the Earn-Out Representatives, voluntarily
make any payment with respect to any demands for appraisals of capital stock of
the Company, offer to settle any demands or approve any withdrawal of any such
demands.

ARTICLE IV

CLOSING
-------

4.1. CLOSING DATE. The Closing of the Merger shall take place at the
offices of Sidley & Austin, 875 Third Avenue, New York, New York, 10022, at
10:00 A.M., local time, on June 21, 1995 provided that the conditions set forth
in Articles IX and X shall have been fulfilled or waived, or as soon thereafter
as reasonably practicable consistent with the terms and provisions

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of this Agreement. Time is of the essence with respect to such date, as the
stockholders of the Company do not have an agreement with respect to the Merger
that extends beyond such date. The date on which the Closing is actually held
is hereinafter sometimes referred to as the "Closing Date". Subject to Section
11.1, each party agrees to use its reasonable best efforts to satisfy promptly
all conditions to the respective obligations of the parties hereto in order to
close the Merger on June 21, 1995 or, if the parties are unable after using such
reasonable best efforts to close on such date, in order to close as soon
thereafter as is reasonably practicable.

4.2. FILING CERTIFICATE OF MERGER AND EFFECTIVENESS. Subject to the
fulfillment or waiver of the conditions to the respective obligations of each of
the parties set forth in Article IX or Article X, as the case may be, at the
Closing the parties shall cause the Merger to be consummated by filing a
Certificate of Merger in the form of Exhibit D in accordance with the DGCL, in
the office of the Secretary of State of the State of Delaware. The Merger shall
become effective upon such filing as provided by the DGCL. The date and time on
such date of effectiveness of the Merger are herein called, respectively, the
"Effective Date" and the "Effective Time."

4.3. PARENT'S DELIVERIES. Subject to fulfillment or waiver of the
conditions set forth in Article IX, at the Effective Time Parent shall deliver
to the Company all of the following:

(a) a copy of the Certificate of Incorporation of Parent, certified
as of a recent date by the Secretary of State of the State of Delaware;

(b) a certificate of good standing of Parent, issued as of a recent
date by the Secretary of State of the State of Delaware;

(c) a certificate of the Secretary or an Assistant Secretary of
Parent, dated the Effective Date, in form and substance reasonably satisfactory
to the Company, as to (i) no amendments to the Certificate of Incorporation of
Parent since a specified date; (ii) the By-laws of Parent; (iii) the resolutions
of the Board of Directors of Parent authorizing the execution and performance of
this Agreement and the transactions contemplated herein; and (iv) the incumbency
and signatures of the officers of Parent executing this Agreement and any Parent
Ancillary Agreement;

(d) an opinion of Monica M. Fohrman, Vice President, Law and
Assistant General Counsel to Parent, and an opinion of Sidley & Austin, each
dated the Effective Date and in form and substance reasonably satisfactory to
the Company, substantially in the forms contained in Exhibit B-1 and B-2,
respectively; and

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(e) the certificate contemplated by Section 10.1, duly executed by
the President or any Vice President of Parent.

4.4. MERGERCO'S DELIVERIES. Subject to fulfillment or waiver of the
conditions set forth in Article IX, at the Effective Time Mergerco shall deliver
to the Company all of the following:

(a) a copy of the Certificate of Incorporation of Mergerco certified
as of a recent date by the Secretary of State of the State of Delaware;

(b) a certificate of good standing of Mergerco, issued as of a recent
date by the Secretary of State of the State of Delaware;

(c) a certificate of the Secretary or an Assistant Secretary of
Mergerco, dated the Effective Date, in form and substance reasonably
satisfactory to the Company, as to (i) no amendments to the Certificate of
Incorporation of Mergerco since a specified date; (ii) the By-laws of Mergerco;
(iii) the resolutions of the Board of Directors of Mergerco authorizing the
execution and performance of this Agreement and the transactions contemplated
herein and the written consent of Parent, as the sole stockholder of Mergerco,
adopting this Agreement in accordance with section 251 of the DGCL; and (iv) the
incumbency and signatures of the officers of Mergerco executing this Agreement;
and

(d) the certificate contemplated by Section 10.1, duly executed by
the President or any Vice President of Mergerco.

4.5. THE COMPANY'S DELIVERIES. Subject to fulfillment or waiver of
the conditions set forth in Article X, at the Effective Time the Company shall
deliver to Parent all of the following:

(a) a copy of the Certificate of Incorporation of the Company,
certified as of a recent date by the Secretary of State of the State of
Delaware;

(b) a certificate of good standing of the Company, issued as of a
recent date by the Secretary of State of the State of Delaware;

(c) a certificate of the Secretary or an Assistant Secretary of the
Company, dated the Effective Date, in form and substance reasonably satisfactory
to Parent, as to (i) no amendments to the Certificate of Incorporation of the
Company since a specified date; (ii) the By-laws of the Company; (iii) the
resolutions of the Board of Directors of the Company authorizing the execution
and performance of this Agreement and the transactions contemplated herein and
the resolutions of the

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stockholders of the Company adopting this Agreement in accordance with section
251 of the DGCL; and (iv) the incumbency and signatures of the officers of the
Company executing this Agreement and any Company Ancillary Agreement;

(d) An opinion of Golenbock, Eiseman, Assor & Bell, counsel to the
Company, dated the Effective Date and in form and substance reasonably
satisfactory to Parent, substantially in the form contained in Exhibit C;

(e) all consents, waivers or approvals obtained by the Company with
respect to the consummation of the transactions contemplated by this Agreement;

(f) the Employment Agreements duly executed by the Company and by Leo
Spiegel, Thomas Bradbury and Joel Altobello, respectively;

(g) resignations of each of the officers and directors of the Company
(other than any officers or directors specified by Parent prior to the Effective
Date), effective as of the Effective Time;

(h) a certificate of the Secretary or an Assistant Secretary of the
Company, dated as of the Effective Date, in form and substance reasonably
satisfactory to Parent, as to the resolutions of the board of directors of the
Company required by Section 13(B) of the Company's 1990 Stock Plan;

(i) copies of the written acknowledgements of the holders of
Preferred Stock Warrants and Common Stock Warrants to be delivered pursuant to
Sections 9.8 and 10.6;

(j) copies of the evidence of the repayment in full of the Bank Note;
and

(k) the certificates contemplated by Sections 9.1, 9.2, 9.6 and 9.7
duly executed by the President or any Vice President of the Company.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------

As an inducement to Parent and Mergerco to enter into this Agreement
and to consummate the transactions contemplated hereby, the Company represents
and warrants to Parent and Mergerco as of the date hereof as follows:

5.1. ORGANIZATION AND CAPITAL STRUCTURE. (a) The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Except as

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set forth in Schedule 5.1, the Company is duly qualified to transact business as
a foreign corporation and is in good standing in each of the jurisdictions
listed in Schedule 5.1, which are the only jurisdictions in which the ownership
or leasing of its properties or assets or the conduct of its business requires
such qualification, and since January 1, 1992, no other jurisdiction has
demanded, requested or otherwise indicated that the Company is required so to
qualify. The Company has full corporate power and corporate authority to own or
lease and to operate and use its properties and assets and to carry on its
business as now conducted. True and complete copies of the Certificate of
Incorporation and all amendments thereto and of the By-laws, as amended, of the
Company have been delivered to Parent.

(b) The authorized capital of the Company consists of (i) 2,500,000
shares of Common Stock, par value $0.001 per share (the "Company Common Stock"),
of which, as of the date hereof, 1,013,756 shares are issued and outstanding,
1,000 are held as treasury shares and 640,451 shares are reserved for issuance
pursuant to currently outstanding Stock Options and Common Stock Warrants, (ii)
500,000 shares of Class A Preferred Stock, par value $1.00 per share (the
"Company Class A Preferred Stock"), of which, as of the date hereof, 281,250
shares are issued and outstanding, none are held as treasury shares and 67,500
shares are reserved for issuance pursuant to currently outstanding Class A
Preferred Stock Warrants; (iii) 500,000 shares of Class B Preferred Stock, par
value $1.00 per share (the "Company Class B Preferred Stock"), of which, as of
the date hereof, 268,939 are issued and outstanding, none are held as treasury
shares, and 64,545 shares are reserved for issuance pursuant to currently
outstanding Class B Preferred Stock Warrants and (iv) 1,000,000 shares of Serial
Preferred Stock, par value $0.01 per share (the "Serial Preferred Stock"), none
of which, as of the date hereof, have been issued and are outstanding or held as
treasury shares.

(c) All of the Company Common Stock, Company Preferred Stock,
Preferred Stock Warrants, Common Stock Warrants and Stock Options are held of
record and, to the knowledge of the Company, beneficially by the holders and in
the amounts identified in Schedule 5.1. Schedule 5.1 also sets forth, as of the
date hereof, the conversion price of each share of Company Preferred Stock, the
"warrant price" per share of each Preferred Stock Warrant and each Common Stock
Warrant and the exercise price per share of each Stock Option. True and
complete copies of the stock record books and other securities transfer records,
Stock Option agreements, Preferred Stock Warrant certificates and Common Stock
Warrant certificates of the Company have been delivered to Parent.

(d) Except for the Stock Options, Common Stock Warrants and Preferred
Stock Warrants and except as set forth in Schedule 5.1, there are no agreements,
arrangements, options,

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warrants, calls, rights or commitments of any character to which the Company is
a party relating to the issuance, sale, purchase or redemption of any shares of
capital stock or other equity interest of the Company, whether on conversion of
other securities or otherwise. Except as set forth in Schedule 5.1, none of the
issued and outstanding shares of capital stock of the Company has been issued in
violation of, or is subject to, any preemptive or subscription rights. Except
as set forth in this Agreement and in Schedule 5.1, the Company is not a party
to any stockholder agreement, voting trust agreement or any other similar
contract, agreement, arrangement, commitment, plan or understanding restricting
or otherwise relating to the voting, dividend, ownership or transfer rights of
any shares of capital stock of the Company.

(e) All of the outstanding shares of capital stock of the Company are
validly issued, fully paid and nonassessable. All of the outstanding Preferred
Stock Warrants, Common Stock Warrants and Stock Options are legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by the effect of
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law).

(f) True and complete copies of the minute books of the Company and
each Subsidiary have been delivered to Parent. Without limiting the generality
of the foregoing, the minute books of the Company and each Subsidiary contain
complete and accurate records of all meetings held of, and corporate actions
taken by, the stockholders, board of directors and committees of the board of
directors of the Company and each Subsidiary, and no such meetings have been
held for which minutes have not been prepared or are not contained in such
minute books, except for meetings of the board of directors or committees
thereof at which no material corporate action was taken.

5.2. SUBSIDIARIES AND INVESTMENTS. Schedule 5.2 contains a list of
each corporation, partnership, joint venture or other entity in which the
Company (a) owns, directly or indirectly, 50% or more of the outstanding voting
securities or equity interests or is a general partner (each such corporation,
partnership, joint venture or other entity being herein called a "Subsidiary").
Schedule 5.2 contains the name, the jurisdiction of incorporation or
organization, the authorized share or other equity capital, the number and
percentage of issued and outstanding shares or other equity interests of each of
the Subsidiaries owned, directly or indirectly, of record or beneficially by the
Company or any of the Subsidiaries (naming each such owner), the number of
shares of capital stock held as treasury shares and, to the best knowledge of
the Company, the

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name of the owner and the number and percentage of outstanding shares or other
equity interests of each of the Subsidiaries owned of record or beneficially by
any other Person.

(b) Each of the Subsidiaries which is a corporation is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and is duly qualified to transact business as
a foreign corporation and is in good standing in the jurisdictions listed in
Schedule 5.2, which are the only jurisdictions in which the ownership or leasing
of its properties or assets or the conduct of its business requires such
qualification, and since January 1, 1992, no other jurisdiction has demanded,
requested or otherwise indicated that it is required so to qualify. None of the
Subsidiaries identified in Schedule 5.2 owns or leases any properties or assets
nor has conducted any business since January 1, 1992, or plans to conduct any
business in the future. True and complete copies of the Certificate or Articles
of Incorporation and all amendments thereto and of the By-laws, as amended, of
each of the Subsidiaries that is a corporation and the partnership or trust
agreement of each of the Subsidiaries that is a partnership or a trust have been
delivered to Parent.

(c) All of the outstanding capital stock of each of the Subsidiaries
which is a corporation are validly issued, fully paid and nonassessable. Except
as set forth in this Agreement in Schedule 5.2, there are no agreements,
arrangements, options, warrants, calls, rights or commitments of any character
(i) relating to the issuance, sale, purchase or redemption of any capital stock,
partnership interest or other equity interest of any of the Subsidiaries, except
in each case for any of the foregoing that are set forth in any of the Company
Agreements, or (ii) requiring the Company or any of the Subsidiaries to purchase
any capital stock, partnership interest or other equity interest held by others.
None of the issued and outstanding shares of capital stock or partnership
interests or other equity interests of any Subsidiary has been issued in
violation of, or is subject to, any preemptive or subscription rights. Except
as set forth in this Agreement and in Schedule 5.2, there are no voting trust
agreements or any other similar contracts, agreements, arrangements,
commitments, plans or understandings restricting or otherwise relating to
voting, dividend, ownership or transfer rights of any shares of capital stock or
partnership interests or other equity interests of any Subsidiary. Except as
set forth in Schedule 5.2, the Company and the Subsidiaries have good and valid
title to, and beneficial ownership of, the shares, partnership interests or
other equity interests shown in Schedule 5.2 as being owned by each of them,
free from all Encumbrances.

(d) Except as set forth in Schedule 5.2 and except for securities
constituting cash equivalents under the Agreed Accounting Principles, the
Company does not, directly or indirectly, (i) own, of record or beneficially,
any outstanding

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voting securities or other equity interests in any Person or (ii) control any
Person.

5.3. AUTHORITY. (a) The Company has full corporate power and
corporate authority to execute, deliver and perform this Agreement and all of
the Company Ancillary Agreements. The execution, delivery and performance of
this Agreement and the Company Ancillary Agreements by the Company have been
duly authorized and approved by the Company's board of directors and, except for
the adoption of this Agreement by the Stockholders of the Company in accordance
with Section 7.1 and the filing contemplated by Section 4.2, no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
and the transactions contemplated hereby. This Agreement has been duly
authorized, executed and delivered by the Company and is the legal, valid and
binding obligation of the Company enforceable in accordance with its terms, and
each of the Company Ancillary Agreements has been duly authorized by the Company
and upon execution and delivery by the Company will be a legal, valid and
binding obligation of the Company enforceable in accordance with its terms, in
each case except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by the effect of general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law).

(b) Except as set forth in Schedule 5.3, neither the execution and
delivery of this Agreement or any of the Company Ancillary Agreements or the
consummation of any of the transactions contemplated hereby or thereby nor
compliance with or fulfillment of the terms, conditions and provisions hereof or
thereof will:

(i) result in a breach of the terms, conditions or provisions of, or
constitute a default, an event of default or an event creating rights of
acceleration, termination or cancellation under, or result in the creation
or imposition of any Encumbrance upon, any of the Company's properties or
assets or Business, under (A) the Certificate of Incorporation or By-laws
of the Company or any Subsidiary, (B) any Company Agreement, (C) any other
material note, instrument, agreement, mortgage, lease, permit or other
authorization to which the Company or any Subsidiary is a party or any of
their respective properties or assets or business is subject or by which
the Company or any Subsidiary is bound, (D) any Court Order to which the
Company or any Subsidiary is a party or any of its properties or assets or
business is subject or by which the Company or any Subsidiary is bound, or
(E) any Requirements of Laws affecting the Company or any Subsidiary or
their respective properties, assets or business; or

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(ii) require the approval, consent, authorization or act of, or the
making by the Company or any Subsidiary of any declaration, filing or
registration with, or the giving by the Company or any Subsidiary of any
notice to, any Person, except as provided in Sections 4.2 and 5.3(a) and
under the HSR Act.

5.4. FINANCIAL STATEMENTS. Schedule 5.4 contains (a) the audited
consolidated balance sheets of the Company and subsidiaries as of December 31,
1994, 1993 and 1992 and the related audited consolidated statements of income
(the "Statements of Income"), shareholders' equity and cash flows for each of
the years then ended, together with the appropriate notes to such financial
statements, accompanied by the report thereon of Arthur Andersen LLP,
independent public accountants (the "Audited Financial Statements"), and (b) the
unaudited consolidated balance sheet of the Company and subsidiaries as of March
31, 1995 and the related unaudited consolidated statement of income,
shareholders' equity and cash flows for the three months then ended (the
"Unaudited Financial Statements"). Except as disclosed in the notes thereto, the
Audited Financial Statements and the Unaudited Financial Statements have been
prepared in conformity with generally accepted accounting principles
consistently applied and fairly present in all material respects the financial
position of the Company at the dates of such balance sheets and the results of
its operations and cash flows for the respective periods indicated, except that
the Unaudited Financial Statements do not contain footnotes and are subject to
year-end audit adjustments. Except as set forth in Schedule 5.4 or in the
Unaudited Financial Statements, the Unaudited Financial Statements include all
adjustments, which consist only of normal recurring accruals, necessary for such
fair presentation, other than normal year-end audit adjustments.

5.5. OPERATIONS SINCE BALANCE SHEET DATE. (a) Except as set forth in
Schedule 5.5(A), since the Balance Sheet Date, there has been:

(i) no Material Adverse Effect with respect to the Company or any
Subsidiary; and

(ii) no damage, destruction, loss or claim, whether or not covered by
insurance, or condemnation or other taking having a material adverse effect
on any of the properties or assets of the Company or any Subsidiary or the
Business as a whole.

(b) Except as set forth in Schedule 5.5(B), between the Balance
Sheet Date and the date of this Agreement, the Company has conducted the
Business only in the ordinary course and in conformity with past practice.
Without limiting the

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generality of the foregoing, since the Balance Sheet Date, except as set forth
in such Schedule, neither the Company nor any Subsidiary has:

(i) issued, delivered or agreed (conditionally or unconditionally)
to issue or deliver, or granted any option, warrant or other right to
purchase, any of its capital stock or other equity interest or any security
convertible into its capital stock or other equity interest;

(ii) issued, delivered or agreed (conditionally or unconditionally)
to issue or deliver any of its bonds, notes or other debt securities, or
borrowed or agreed to borrow any funds or entered into, as lessee, any
capitalized lease obligations (as defined in Statement of Financial
Accounting Standards No. 13), other than in the ordinary course of business
consistent with past practice;

(iii) paid any obligation or liability (absolute or contingent)
other than (A) liabilities reflected on the Balance Sheet, (B) current
liabilities incurred since the Balance Sheet Date in the ordinary course of
business consistent with past practice, (C) payments in respect of the Bank
Note and (D) payments of amounts borrowed under the Line of Credit;

(iv) declared or made, or agreed to declare or make, any payment of
dividends or distributions to any holder of its capital stock or any holder
of a security or other interest convertible into or exchangeable for its
capital stock or purchased or redeemed, or agreed to purchase or redeem,
any of its capital stock or other equity interest or any security or other
interest convertible into or exchangeable for such capital stock or equity
interest;

(v) except in the ordinary course of business consistent with past
practice, made or permitted any material amendment or termination of any
Company Agreement;

(vi) undertaken or committed to undertake capital expenditures in
excess of $400,000;

(vii) made charitable donations in excess of $50,000 in the
aggregate;

(viii) sold, leased (as lessor), transferred or otherwise disposed of
(including any transfers from the Company or any Subsidiary to any holder
of its capital stock or any holder of a security or other interest
convertible into or exchangeable for its capital stock or any of its
Affiliates), or mortgaged or pledged, or imposed or suffered to be imposed
any Encumbrance on, any of the assets reflected on the Balance Sheet or any
assets acquired after

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the Balance Sheet Date, except for inventory and minor amounts of personal
property sold or otherwise disposed of for fair value in the ordinary
course of the Business consistent with past practice and except for
Permitted Encumbrances;

(ix) cancelled any debts owed to or claims held by the Company or
any Subsidiary (including the settlement of any claims or litigation) other
than in the ordinary course of its business consistent with past practice;

(x) allowed the levels of supplies, spare parts or other materials
included in the inventory of the Company or any Subsidiary to vary in any
material respect from the levels customarily maintained in the Business;

(xi) instituted any increase in any compensation payable to any
employee of the Company or any Subsidiary or instituted any increase in or
other modification of any profit-sharing, bonus, incentive, deferred
compensation, insurance, pension, retirement, medical, hospital,
disability, welfare or other benefits made available to employees of the
Company or any Subsidiary;

(xii) made any change in the accounting principles and practices used
from those applied in the preparation of the Balance Sheet and the related
statements of income, shareholders' equity and cash flow for the twelve
months ended on the Balance Sheet Date; or

(xiii) entered into or become committed to enter into any other
material transactions except in the ordinary course of business consistent
with past practice.

5.6. NO UNDISCLOSED LIABILITIES. Except as set forth in Schedule
5.6, neither the Company nor any Subsidiary is subject to any liability, whether
absolute, contingent, accrued or otherwise, of a nature required to be disclosed
on a balance sheet prepared in accordance with the Agreed Accounting Principles
which is not shown or which is in excess of amounts shown or reserved for in the
Balance Sheet, other than liabilities of the same nature as those set forth in
the Balance Sheet and the notes thereto and reasonably incurred in the ordinary
course of business consistent with past practice after the Balance Sheet Date.

5.7. TAXES. (a) Except as set forth in Schedule 5.7, (i) each of the
Company, each Subsidiary and each Company Group has filed on or before the date
hereof (or will timely file) all Tax Returns required to be filed on or before
the date hereof (or the Effective Date), taking into account extensions of time
to file granted by the applicable Taxing authority, and since January 1, 1992
all such Tax Returns have been (or will be)

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prepared and filed in a manner consistent with past practice and, on such Tax
Returns, no position has been (or will be) taken, no elections have been (or
will be) made and no method has been (or will be) adopted that is inconsistent
with positions taken, elections made or methods used in preparing and filing
similar Tax Returns in prior periods (including, but not limited to, positions
which would have the effect of deferring income to periods after the Effective
Date or accelerating deductions to periods on or prior to the Effective Date);
(ii) all such Tax Returns are (or will be) complete and accurate and disclose
all Taxes required to be paid by the Company, each Subsidiary and each Company
Group for the periods covered thereby and all Taxes shown to be due on such Tax
Returns have been timely paid; (iii) all Taxes (whether or not shown on any Tax
Return) owed by the Company, any Subsidiary or any Company Group and required to
be paid on or before the Effective Date have been (or will be) timely paid or,
in the case of Taxes which the Company, any Subsidiary or any Company Group is
presently contesting in good faith, the Company or such Subsidiary has
established an adequate reserve for such Taxes on the Balance Sheet; (iv) none
of the Company, any Subsidiary or any member of any Company Group has waived or
been requested to waive any statute of limitations in respect of Taxes; (v) the
federal and state Tax Returns, and, to the knowledge of the Company, the local
and foreign Tax Returns, referred to in clause (i) have been examined by the IRS
or the appropriate state, local or foreign Taxing authority or the period for
assessment of the Taxes in respect of which such Tax Returns were required to be
filed has expired; (vi) there is no action, suit, audit, claim or assessment
pending or, to the knowledge of the Company, proposed or threatened with respect
to Taxes of the Company, any Subsidiary or any Company Group; (vii) all
deficiencies asserted or assessments made as a result of any examination of the
Tax Returns referred to in clause (i) have been paid in full; (viii) all Tax
Sharing Arrangements and Tax indemnity arrangements (other than this Agreement)
will terminate prior to the Effective Date and neither the Company nor any
Subsidiary will have any liability thereunder on or after the Effective Date;
(ix) there are no liens for Taxes upon the assets of the Company or any
Subsidiary except liens relating to current Taxes not yet due and payable; (x)
all Taxes which the Company, any Subsidiary or any Company Group are required by
law to withhold or to collect for payment have been duly withheld and collected,
and have been paid or accrued, reserved against and entered on the books of the
Company; (xi) none of the Company or any Subsidiary has been a member of any
Company Group other than each Company Group of which it is a member as of the
date hereof and none of the Company or any Subsidiary has had any direct or
indirect ownership in any corporation, partnership, joint venture or other
entity other than the Subsidiaries; (xii) there are no Tax rulings, requests for
rulings, or closing agreements specifically relating to the Company, any
Subsidiary or any Company Group which could affect the Company's or any
Subsidiary's liability for Taxes for any period after the

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Effective Date; (xiii) as a result of a change in accounting method for a Tax
period beginning on or before the Effective Date, none of the Company or any
Subsidiary will be required to include any adjustment under Section 481(c) of
the Code (or any corresponding provision of state or local Tax law) in taxable
income for any Tax period beginning on or after the Effective Date; (xiv) as a
result of any "closing agreement" (as described in Section 7121 of the Code or
any corresponding provision of state or local Tax law), none of the Company or
any Subsidiary will be required to include any item of income in, or exclude any
item of deduction from, any taxable period beginning on or after the Effective
Date; (xv) since January 1, 1992, no claim has been made by a Taxing authority
in a jurisdiction where the Company or any Subsidiary has never paid Taxes or
filed Tax Returns asserting that the Company or such Subsidiary is or may be
subject to Taxes assessed by such jurisdiction; (xvi) no intercompany obligation
(as described in Prop. Treas. Reg. (S) 1.1502-13(g)) between or among the
Company, any Subsidiary or any member of any Company Group will remain
outstanding following the Closing; (xvii) since January 1, 1992, none of the
Company, any Subsidiary or any Company Group member has taken any action not in
accordance with past practice that would have the effect of deferring any Tax
liability for the Company or any Subsidiary from any taxable period ending on or
before the Effective Date to any taxable period ending after the Effective Date;
(xviii) none of the income recognized, for federal, state, local or foreign
income Tax purposes, by the Company or any Subsidiary during the period
beginning on January 1, 1992 and ending on the Effective Date has been or will
be derived from transactions other than in the ordinary course of business;
(xix) no income or gain of the Company or any Subsidiary has been deferred
pursuant to Treasury Regulation (S)(S) 1.1502-13 or -14, or Temporary Treasury
Regulation (S)(S) 1.1502-13T or -14T, or Proposed Treasury Regulation (S)(S)
1.1502-13 or -14; (xx) no excess loss account (as described in Treasury
Regulation (S)(S) 1.1502-14, 1.1502-19, and 1.1502-32), exists with respect to
the Company or any Subsidiary; (xxi) no power of attorney has been granted with
respect to any matter relating to Taxes of the Company or any Subsidiary which
is currently in force.

(b) No stock transfer Taxes, sales Taxes, use Taxes, real estate
transfer Taxes, or other similar Taxes in excess of $20,000 will be imposed on
the Company or any Subsidiary on the transactions contemplated by this
Agreement, and no transaction contemplated by this Agreement is subject to
withholding under Section 1445 of the Code.

(c) As a result of the transactions contemplated by this Agreement,
none of the Company, any Subsidiary nor the Parent will be obligated to pay or
withhold (or otherwise be liable for) any Tax imposed by Section 4999 of the
Code. The written evidence provided to Parent pursuant to Section 9.6(c) shall
be complete and accurate and shall provide Parent with all

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necessary information required for Parent to accurately determine whether the
condition set forth in Section 9.6(c) relating to the "shareholder approval
requirements" of Proposed Treasury Regulation section 1.280G-1, Q/A-7 has been
satisfied.

5.8. AVAILABILITY OF ASSETS. Except as set forth in Schedule 5.8,
the tangible assets owned or leased by the Company and the Subsidiaries
constitute all the assets used in the Business and are in good condition
(subject to normal wear and tear, periodic maintenance and immaterial
impairments of value and damage) and serviceable condition and are generally
suitable for the uses for which intended.

5.9. GOVERNMENTAL PERMITS. (a) The Company and each Subsidiary owns,
holds or possesses all licenses, franchises, permits, privileges, immunities,
approvals and other authorizations from Governmental Bodies which are necessary
to entitle it to own or lease, operate and use its assets and to carry on and
conduct the Business substantially as currently conducted (herein collectively
called "Governmental Permits"). Schedule 5.9 sets forth a list and brief
description of each such Governmental Permit, except for such incidental
licenses, permits and other authorizations which would be readily obtainable by
any qualified applicant without undue burden in the event of any absence, lapse,
termination, cancellation or forfeiture thereof. Complete and correct copies of
all of such Governmental Permits have heretofore been delivered to Parent.

(b) Except as set forth in Schedule 5.9, (i) the Company and each
Subsidiary has fulfilled and performed its obligations under each of the
Governmental Permits held by it, and no event has occurred or condition or state
of facts exists which constitutes or, after notice or lapse of time or both,
would constitute a breach or default under any such Governmental Permit; (ii) no
notice of cancellation, of default or of any material dispute concerning any
such Governmental Permit, or of any event, condition or state of facts described
in the preceding clause, has been received by the Company; and (iii) each of
such Governmental Permits is valid, subsisting and in full force and effect and
will continue in full force and effect.

5.10. REAL PROPERTY. Neither the Company nor any Subsidiary owns fee
title to any real property or owns any options to acquire real property.

5.11. REAL PROPERTY LEASES. Schedule 5.11 sets forth a list of each
lease or similar agreement (showing the parties thereto, the uses being made
thereof, and the location of the real property covered by such lease or other
agreement) under which the Company is lessee of real property owned by any third
Person (the "Leased Real Property"). No Subsidiary is the lessee of any real
property owned by any third Person.

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<PAGE>

5.12. CONDEMNATION. To the knowledge of the Company, neither the
whole nor any part of the Leased Real Property used or occupied by the Company
is subject to any pending suit for condemnation or other taking by any public
authority or other Person and no such condemnation or other taking is threatened
or contemplated.

5.13. PERSONAL PROPERTY. Schedule 5.13 contains a list of all
machinery, equipment and vehicles owned by the Company or any Subsidiary having
an original acquisition cost in excess of $50,000 which supports the net book
value of the equipment reflected in the Balance Sheet.

5.14. PERSONAL PROPERTY LEASES. Schedule 5.14 contains a list of
each lease or other agreement or right, whether written or oral (including in
each case the monthly rental, the expiration date thereof and an identification
of the property covered), under which the Company or a Subsidiary is lessee of
any machinery, equipment, vehicle or other tangible personal property owned by a
third Person, except for any such lease, agreement or right that is terminable
by the Company or Subsidiary without penalty or payment on notice of 30 days or
less, or which involves the payment by the Company or Subsidiary of rentals of
less than $5,000 per year.

5.15. INTELLECTUAL PROPERTY. (a) Except as set forth in Schedule
5.15, the Company does not own any Trademarks, Software or Patent Rights that
are material to the Business.

(b) Except as set forth in Schedule 5.15, the Company has the right to
relicense or resell all third Person Software which it relicenses or resells to
third Persons in connection with the Business.

(c) Except as set forth in Schedule 5.15: (i) no infringement of any
Intellectual Property of any other Person has occurred or results in any way
from the operations of the Business; (ii) no claim of any infringement of any
Intellectual Property of any other Person has been made or asserted to the
Company; and (iii) the Company has not had notice of, or knowledge of any basis
for, a claim against the Company that the operations, activities, products,
software, equipment, machinery or processes of the Business infringe any
Intellectual Property of any other Person.

5.16. ACCOUNTS RECEIVABLE; INVENTORIES. (a) All accounts receivable
of the Company or any Subsidiary have arisen from bona fide transactions by the
Company or such Subsidiary in the ordinary course of the Business.

(b) The inventories of the Company and Subsidiaries (including
supplies, spare parts and other materials included in inventories) are in good
and useable condition. Schedule 5.16

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sets forth a list of places where material inventories of the Company and
Subsidiaries were located as of March 31, 1995.

5.17. TITLE TO PROPERTY. The Company has good title to all of its
tangible assets reflected on the Balance Sheet as being owned by it and all of
the tangible assets thereafter acquired by it and of a type that would be
recorded on a balance sheet prepared in accordance with the Agreed Accounting
Principles (except to the extent that such assets have been disposed of after
the Balance Sheet Date in the ordinary course of Business consistent with past
practice), free and clear of all Encumbrances, except for Permitted Encumbrances
and except as set forth in Schedule 5.17.

5.18. EMPLOYEE BENEFIT PLANS. (a) Set forth in Schedule 5.18(A) is
a true and complete list of each "employee pension benefit plan" (as such term
is defined in Section 3(2) of ERISA) maintained by the Company or an ERISA
Affiliate, or with respect to which the Company or an ERISA Affiliate is or will
be required to make any payment, or which provides or will provide benefits to
present or prior employees of the Company or an ERISA Affiliate due to such
employment (the "Pension Plans"). Set forth in Schedule 5.18(A) is a true and
complete list of each "employee welfare benefit plan" (as such term is defined
in Section 3(1) of ERISA) maintained by the Company, or with respect to which
the Company is or will be required to make any payment, or which provides or
will provide benefits to present or prior employees of the Company due to such
employment (the "Welfare Plans") (the Pension Plans and Welfare Plans being the
"ERISA Benefit Plans"). Neither the Company nor any ERISA Affiliate has ever
maintained, been required to contribute to or been required to pay any amount
with respect to any pension plan which is subject to Title IV of ERISA,
including any "multiemployer plan" (as such term is defined in Section 3(2) of
ERISA).

(b) Other than those listed in Schedule 5.18(A), set forth in
Schedule 5.18(B) is a true and complete list of each of the following to which
the Company is a party or with respect to which it is or will be required to
make any payment (the "Non-ERISA Commitments"):

(i) each retirement, savings, profit sharing, deferred
compensation, severance, stock ownership, stock purchase, stock option,
performance, bonus, incentive, vacation or holiday pay, hospitalization or
other medical, disability, life or other insurance, or other welfare,
benefit or fringe benefit plan, policy, trust, understanding or arrangement
of any kind, whether written or oral; and

(ii) each employee collective bargaining agreement and each
agreement, understanding or arrangement of any kind, whether written or
oral, with or for the benefit of any present or prior officer, director,
employee

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or consultant (including, without limitation, each employment,
compensation, deferred compensation, severance or consulting agreement or
arrangement, covenant not to compete and any agreement or arrangement
associated with a change in ownership or control of the Company, but
excluding employment or consulting agreements terminable by the Company
without premium or penalty on notice of thirty (30) days or less under
which the only monetary obligation of the Company is to make current wage
or salary or fee payments and provide current fringe benefits).

The Company has delivered to Parent correct and complete copies of (i) all
written Non-ERISA Commitments and (ii) all insurance and annuity policies and
contracts related to any Non-ERISA Commitment. Schedule 5.18(B) contains a
complete and accurate description of all oral Non-ERISA Commitments. Except as
disclosed in Schedule 5.18(A) or Schedule 5.18(B), none of the ERISA Benefit
Plans or the Non-ERISA Commitments is subject to the law of any jurisdiction
outside of the United States of America. No payments under the ERISA Benefit
Plans or the Non-ERISA Commitments will be triggered solely as a result of the
change of control of the Company effected by the Merger for which the Company or
Parent will bear any liability, except as set forth in Schedule 5.18(B). The
termination of employment of any employee of the Company after the Effective
Time will not require the payment pursuant to any Non-ERISA Commitments of any
amount that would not be deductible under Section 280G of the Code.

(c) The Company has delivered to Parent with respect to each ERISA
Benefit Plan correct and complete copies, where applicable, of (i) all plan
documents and amendments thereto, trust agreements and amendments thereto and
insurance and annuity contracts and policies, (ii) the current summary plan
description, (iii) the Annual Reports (Form 5500 series) and accompanying
schedules, as filed, for the most recently completed three plan years for which
such reports have been filed, (iv) the financial statements for the most
recently completed three plan years for which such statements have been
prepared, (v) the most recent determination letter issued by the IRS and the
application submitted with respect to such letter, and (vi) all correspondence
with the IRS or Department of Labor concerning any controversy. Each Pension
Plan which is intended to qualify under Section 401(a) of the Code has been
determined to be so qualified by the IRS, and no circumstance has occurred or
exists which might cause such plan to cease being so qualified.

(d) There is no pending or, to the best knowledge of the Company,
threatened claim in respect of any of the ERISA Benefit Plans other than claims
for benefits in the ordinary course of business. Except as set forth in
Schedule 5.18(D), each of the ERISA Benefit Plans (i) has been administered in
accordance with its terms and (ii) complies in form, and has been administered
in accordance, with the requirements of ERISA and,

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where applicable, the Code. The Company and each ERISA Affiliate has complied
with the health care continuation requirements of Part 6 of Title I of ERISA.
The Company has no obligation under any ERISA Benefit Plans or otherwise to
provide health or other welfare benefits to any prior employees or any other
person, except as required by Part 6 of Title I of ERISA. The consummation of
the transaction contemplated by this Agreement will not result in an increase in
the amount of compensation or benefits or accelerate the vesting or timing of
payment of any compensation or benefits payable to or in respect of any
participant. The Company is in compliance with the requirements of the Workers
Adjustment and Retraining Notification Act ("WARN") and has no liabilities
pursuant to WARN.

(e) Neither the Company nor, to the best knowledge of the Company,
any other "disqualified person" (within the meaning of Section 4975 of the Code)
or "party in interest" (within the meaning of Section 3(14) of ERISA) has taken
any action with respect to any ERISA Benefit Plan which could subject any such
plan (or its related trust) or the Company or any officer, director or employee
of any of the foregoing to the penalty or tax under Section 502(i) or Section
502(l) of ERISA or Section 4975 of the Code.

(f) Schedule 5.18(F) contains: (i) a list of all employees or
commission salespersons of the Company or any Subsidiary as of the date hereof
whose annual compensation in 1994 was in excess of $80,000 or whose annual
compensation in 1995 is expected to be in excess of $80,000; (ii) the then
current annual compensation of, and a description of the fringe benefits (other
than those generally available to employees of the Company) provided by the
Company to any employees or commission salespersons described in clause (i);
(iii) a list of all present or former employees or commission salespersons of
the Company whose annual compensation in 1994 was in excess of $80,000 who have
terminated or given notice of their intention to terminate their relationship
with the Company since January 1, 1995; (iv) a list of any increase in excess of
10 percent, effective after December 31, 1994, in the rate of compensation of
any employees or commission salespersons described in clause (i); and (v) a list
of all substantial changes in job assignments of, or arrangements with, or
promotions or appointments of, any employees or commission salespersons
described in clause (i) within the last 12 months.

(g) Except as set forth in Schedule 5.18(G), (i) to the best
knowledge of the Company, the Company is not involved in any transaction or
other situation with any employee, officer, director or Affiliate of the Company
which may be generally characterized as a "conflict of interest", including, but
not limited to, direct or indirect interests in the business of competitors,
suppliers or customers of the Company, and (ii) there are no situations with
respect to the Company which

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involved or involves (A) the use of any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
political activity, (B) the making of any direct or indirect unlawful payments
to government officials or others from corporate funds or the establishment or
maintenance of any unlawful or unrecorded funds, (C) the violation of any of the
provisions of The Foreign Corrupt Practices Act of 1977, or any rules or
regulations promulgated thereunder, (D) the receipt of any illegal discounts or
rebates or any other violation of the antitrust laws or (E) to the best
knowledge of the Company, any investigation by the Securities and Exchange
Commission or any other federal, foreign, state or local government agency or
authority.

(h) Except as set forth in Schedule 5.18(H), since December 31, 1991,
the Company has not, directly or indirectly, purchased, leased from others or
otherwise acquired any material property or obtained any material services from,
or sold, leased to others or otherwise disposed or any material property or
furnished any material services to (except with respect to remuneration for
services rendered as a director, officer or employee of the Company), in the
ordinary course of business or otherwise, (i) any holder of capital stock of the
Company or any holder of a security or other interest convertible into or
exchangeable for its capital stock, (ii) any Affiliate of the Company, (iii) any
person who is an officer or director of the Company or (iv) any Associate of any
person referred to in clause (i), (ii) or (iii) above. Except as set forth in
Schedule 5.18(H), the Company does not owe any amount in excess of $10,000 to,
or have any contract with or commitment to, any Stockholder, director, officer
or employee of the Company (other than for compensation for current services not
yet due and payable and reimbursement of expenses arising in the ordinary course
of business) and none of such persons owes any amount in excess of $10,000 to
the Company.

5.19. EMPLOYEE RELATIONS. Except as set forth in Schedule 5.19, the
Company and each Subsidiary, as the case may be, has complied in all material
respects with all applicable laws, rules and regulations which relate to prices,
wages, hours, discrimination in employment and collective bargaining and to the
operation of its business and is not liable for any arrears of wages or any
taxes or penalties for failure to comply with any of the foregoing. The Company
believes that its relations with its employees are satisfactory. Schedule 5.19
sets forth a description of any union organizing or election activities
involving any non-union employees of the Company or any Subsidiary which, to the
best knowledge of the Company, have occurred since December 31, 1990 or are
threatened as of the date hereof.

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5.20. CONTRACTS; PRODUCT WARRANTIES. Except as set forth in Schedule
5.20 or any other Schedule hereto, neither the Company nor any Subsidiary is a
party to or bound by:

(a) any contract for the purchase or sale of real property;

(b) any contract for goods or services to be provided by a third
Person to the Company or any Subsidiary which the Company reasonably anticipates
will involve the payment by the Company and the Subsidiaries of more than
$200,000 ($50,000, in the case of labor subcontracts) in 1995 or which extends
beyond May 1, 1996;

(c) any contract for goods or services to be provided by the Company
or any Subsidiary to a third Person which the Company reasonably anticipates
will involve the payment to the Company and the Subsidiaries of more than
$200,000 in 1995 or (other than maintenance agreements) which extends beyond
December 31, 1995;

(d) any contract for the purchase, licensing or development of
software to be used by the Company or any Subsidiary in the operations of the
Business, except for any such contract that is terminable by the Company or a
Subsidiary without penalty or payment on notice of 30 days or less or which
involves the payment by the Company or any Subsidiary of less than $25,000;

(e) any distribution, dealer, manufacturers representative, sales
agency or value added reseller contract that (i) provides for minimum purchase
obligations on the part of the Company (except for contracts where the sole
remedy for the Company's failure to meet such minimum is the other party's right
to terminate such contract), (ii) restricts the Persons to whom or the
territories (other than a restriction to the United States of America) in which
the Company may make sales thereunder, or (iii) provides for the Company to
rebate volume discounts based on actual purchases;

(f) any contract for the consignment of inventory that is material to
the Business;

(g) any advertising representative or advertising or public relations
contract, except for any such contract that is terminable by the Company or a
Subsidiary without penalty or payment on notice of 30 days or less;

(h) any guarantee by the Company or a Subsidiary of the obligations or
liabilities of customers, suppliers, officers, directors, employees, Affiliates
of the Company or others;

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(i) any agreement which provides for, or relates to, the incurrence by
the Company or any Subsidiary of debt for borrowed money or the extension of
credit (other than in the ordinary course of Business consistent with past
practice) by the Company or any Subsidiary to any other Person;

(j) any agreement or understanding with a third Person that restricts
the Company or any Subsidiary from carrying on the Business anywhere in the
world;

(k) any partnership, joint venture or other similar arrangement or
agreement involving a sharing of profits or losses; or

(l) any contract for any purpose not made in the ordinary course of
the Business which is material to the Company, any Subsidiary or the Business.

Schedule 5.20 also sets forth (i) a description of each express
warranty covering products sold or services performed by the Company or any
Subsidiary contained in the standard forms of contracts used by the Company or
any Subsidiary and (ii) a description of the express warranty made by the
Company with respect to products sold or services performed by it, the terms of
which are the most burdensome to the Company. Except as set forth in Schedule
5.20, a majority (by number) of the contracts of the Company and Subsidiaries
containing warranties made by the Company or a Subsidiary with respect to
products sold or services performed by it contain warranties that are in all
material respects in the form described in response to clause (i) above.

5.21. STATUS OF CONTRACTS. Except as set forth in Schedule 5.21 or
in any other Schedule hereto, each of the leases, contracts and other agreements
required to be listed in Schedules 5.11, 5.14, 5.15, 5.18 and 5.20
(collectively, the "Company Agreements") constitutes a valid and binding
obligation of the Company or the Subsidiary, as the case may be, and, to the
knowledge of the Company, the other parties thereto and is in full force and
effect. Except as set forth in Schedule 5.21 or in any other Schedule hereto,
the Company or the Subsidiary, as the case may be, has fulfilled and performed
in all material respects its obligations under each of the Company Agreements,
and neither the Company nor such Subsidiary is in, or, to the knowledge of the
Company, alleged to be in, breach or default under, nor to the knowledge of the
Company is there or is there alleged to be any basis for termination of, any of
the Company Agreements and, to the best knowledge of the Company, no other party
to any of the Company Agreements has breached or defaulted thereunder (other
than payment defaults), and no event has occurred and no condition or state of
facts exists which, with the passage of time or the giving of notice or both,
would constitute such a default or breach by the Company or any Subsidiary or,
to the best knowledge of the Company, by any such

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other party. Complete and correct copies of each of the Company Agreements have
heretofore been delivered to Parent.

5.22. NO VIOLATION, LITIGATION OR REGULATORY ACTION. Except as set
forth in Schedule 5.22:

(a) the Company's properties and assets and their uses comply in all
material respects with all applicable Requirements of Laws and Court Orders;

(b) the Company and each Subsidiary has complied in all material
respects with all Requirements of Laws and Court Orders which are applicable to
the Company and any Subsidiary, the properties and assets of the Company or the
Business;

(c) as of the date hereof, there are no lawsuits, claims, suits,
proceedings or investigations pending or, to the best knowledge of the Company,
threatened against the Company or any Subsidiary, and there are no lawsuits,
suits or proceedings pending in which the Company or any Subsidiary is the
plaintiff or claimant; and

(d) there is no action, suit or proceeding pending or, to the best
knowledge of the Company, threatened which questions the legality or propriety
of the transactions contemplated by this Agreement.

5.23. ENVIRONMENTAL MATTERS. Except as disclosed in Schedule 5.23:

(a) the Company's, and each Subsidiaries', past and present operations
of the Business have complied, and are in compliance in all respects with, all
applicable Environmental Laws;

(b) none of the Leased Real Property requires any Remedial Action by
the Company under applicable Environmental Laws involving any expenditure by the
Company to respond to any Contaminant including, without limitation, asbestos-
containing materials; and

(c) no Environmental Encumbrance has attached to any Company Property
and the Company has no material contingent liability arising under any
Environmental Law, or common law, relating to any Company Property or the
Company's or any Subsidiary's operations prior to the Closing Date; provided,
that the Company makes no representation or warranty in this Section 5.23 with
respect to any common areas of any buildings in which the Company leases office
space or the land underneath such buildings or any areas of such buildings as to
which the Company does not have a right to use or occupy.

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5.24. INSURANCE. Schedule 5.24 sets forth a list and brief
description (including nature of coverage, limits, deduc tibles, premiums and
the loss experience for the most recent five years with respect to each type of
coverage) of all policies of insurance maintained, owned or held by the Company
on the date hereof. The Company shall keep or cause such insurance or
comparable insurance in full force and effect through the Effective Date. The
Company has complied with each of such insurance policies and has not failed to
give any notice or present any claim thereunder in a due and timely manner.

5.25. CUSTOMERS AND SUPPLIERS. Set forth in Schedule 5.25 is a list
of names and addresses of the 25 largest customers and the five largest
suppliers (measured by dollar volume of purchases or sales in each case) of the
Company and the percentage of the Company's business which each such customer or
supplier represented during the year ended December 31, 1994. Except as set
forth in Schedule 5.25, there exists no actual or threatened termination,
cancellation or limitation of, or any modification or change in, the business
relationship of the Company with any supplier listed in Schedule 5.25 that is
the sole source of supply of any product that is material to the Business.

5.26. BUDGETS. Schedule 5.26 sets forth as of the date hereof the
operating budget of the Company prepared in the ordinary course of its business
for the fiscal year ending December 31, 1995; provided, that the Company makes
no representation or warranty that it will achieve the results reflected
therein.

5.27. INFORMATION STATEMENT. The information statement and related
materials (collectively, the "Information Statement") to be prepared by the
Company in accordance with Section 7.1 and used in connection with the Company's
meeting of stockholders described in Section 7.1 at which the approval of the
Merger and adoption of the Merger Agreement will be considered (the
"Stockholders' Meeting") will, when prepared by the Company and distributed to
the Stockholders, comply in all material respects with the provisions of the
DGCL and will not, at the time of the mailing of the Information Statement to
the holders of capital stock of the Company (the "Stockholders"), at the time of
the Stockholder Meeting or at the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they are made, not misleading; provided, that the
Company makes no representation with respect to information concerning Parent
(including information concerning Parent's intentions concerning the operations
of the Business and the I/S Outsourcing Business) or information as to the
federal income tax consequences of the Merger supplied by Parent to the Company
for inclusion in the Information Statement.

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5.28. DISCLOSURE. To the knowledge of the Company, none of the
representations or warranties of the Company contained herein and none of the
information contained in the Schedules referred to in this Article V, and none
of the other information or documents furnished or to be furnished to Parent or
any of its representatives by the Company or its represen tatives pursuant to
the terms of this Agreement, is false or misleading in any material respect.
The Company makes no representation or warranty concerning the ability of the
Business or the I/S Outsourcing Business to achieve any of the targets reflected
in this Agreement.

5.29. NO FINDER. Neither the Company, any Subsidiary, nor any Person
acting on behalf of the Company or any Subsidiary has paid or become obligated
to pay any fee or commission to any broker, finder or intermediary for or on
account of the transactions contemplated by this Agreement.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGERCO
-----------------------------------------------------

As an inducement to the Company to enter into this Agreement and to
consummate the transactions contemplated hereby, Parent and Mergerco hereby
jointly and severally represent and warrant to the Company as of the date hereof
as follows:

6.1. ORGANIZATION AND CAPITAL STRUCTURE. (a) Parent is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has full corporate power and authority to own or
lease and to operate and use its properties and assets and to carry on its
business as now conducted. Mergerco is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Mergerco
was organized solely for the purpose of engaging in the transactions
contemplated by this Agreement and has not engaged in any business since it was
incorporated which is not in connection with this Agreement.

(b) The authorized capital of Mergerco consists of 100 shares of
common stock, par value $1.00 per share, of which 100 have been issued and are
outstanding and none are held as treasury shares. All of the outstanding shares
of capital stock of Mergerco are validly issued, fully paid and nonassessable
and owned of record and beneficially by Parent.

6.2. AUTHORITY. (a) Parent has full corporate power and authority
to execute, deliver and perform this Agreement and all of the Parent Ancillary
Agreements. The execution, delivery and performance of this Agreement and the
Parent Ancillary Agreements by Parent have been duly authorized and approved by
Parent's board of directors and, except for the adoption of this Agreement by
Parent as the sole stockholder of Mergerco in

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accordance with Section 7.2, no other corporate proceedings on the part of
Parent are necessary to authorize this Agreement, the Parent Ancillary
Agreements and the transactions contemplated hereby and thereby. This Agreement
has been duly authorized, executed and delivered by Parent and is the legal,
valid and binding obligation of Parent enforceable in accordance with its terms
and each of the Parent Ancillary Agreements has been duly authorized by Parent
and upon execution and delivery by Parent will be a legal, valid and binding
obligation of Parent enforceable in accordance with its terms, in each case
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by the effect of general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law).

(b) Mergerco has full corporate power and authority to execute,
deliver and perform this Agreement. The execution, delivery and performance of
this Agreement by Mergerco have been duly authorized and approved by Mergerco's
board of directors and, except for the adoption of this Agreement by Parent in
accordance with Section 7.2 and the filing contemplated by Section 4.2, no other
corporate proceedings on the part of Mergerco are necessary to authorize this
Agreement and the transactions contemplated hereby. This Agreement has been
duly authorized, executed and delivered by Mergerco and is the legal, valid and
binding agreement of Mergerco enforceable in accordance with its terms, except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by the effect of general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law).

(c) Neither the execution and delivery of this Agreement or any of
the Parent Ancillary Agreements or the consummation of any of the transactions
contemplated hereby or thereby nor compliance with or fulfillment of the terms,
conditions and provisions hereof or thereof will:

(i) result in a breach of the terms, conditions or provisions of,
or constitute a default, an event of default or an event creating rights of
acceleration, termination or cancellation under, or result in the creation
or imposition of any Encumbrance upon any of the properties or assets of
Parent or Mergerco under, (A) the Certificate of Incorpora tion or By-laws
of Parent or Mergerco, (B) any material note, instrument, agreement,
mortgage, lease, permit or other authorization to which either Parent or
Mergerco is a party or any of their respective properties or assets or
business is subject or by which either Parent or Mergerco is bound, (C) any
Court Order to which either Parent or Mergerco is a party or by which
either Parent or Mergerco is

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bound or (D) any Requirements of Laws affecting Parent or Mergerco, except
for, in the case of clauses (B) or (C) of this subparagraph (i), any such
conflicts, breaches, defaults, rights or Encumbrances that, individually or
in the aggregate, would not have a Material Adverse Effect on Parent and
its subsidiaries, taken as a whole, materially impair the ability of Parent
to perform its obligations hereunder or prevent the consummation of any of
the transactions contemplated hereby; or

(ii) require the approval, consent, authorization or act of, or the
making by either Parent or Mergerco of any declaration, filing or
registration with, any Person, except for the applicable requirements of
the HSR Act, the filing contemplated by Section 4.2 with the Secretary of
State of the State of Delaware and appropriate documents with the relevant
authorities of other jurisdictions in which the Company is qualified to do
business.

6.3. NO FINDER. Neither Mergerco or Parent nor any Person acting on
behalf of Mergerco or Parent has paid or become obligated to pay any fee or
commission to any broker, finder or intermediary for or on account of the
transactions contemplated by this Agreement.

6.4. INVESTMENT. Parent is acquiring the capital stock of the
Company pursuant to the Merger for investment purposes and not with a view to
the resale or distribution of such capital stock and will not transfer or sell
any shares of capital stock of the Company in violation of applicable federal or
state securities laws.

6.5. PARENT SEC REPORTS. Parent has delivered to the Company
complete and correct copies of (i) Parent's Annual Report on Form 10-K for the
year ended December 31, 1994, (ii) Parent's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995, and (iii) Parent's Current Report on Form 8-K
dated February 21, 1995, as filed by it with the Securities and Exchange
Commission (the "Parent SEC Reports"). As of their respective dates, the Parent
SEC Reports complied in all material respects with the requirements of the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, as the case may be, and none of the Parent SEC Reports contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.

6.6. INFORMATION SUPPLIED BY PARENT FOR INFORMATION STATEMENT. None
of the information supplied by Parent in writing for inclusion in the
Information Statement will, at the time of the mailing of the Information
Statement to the Stockholders, at the time of the Stockholders' Meeting or at
the Effective Time,

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contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading.

6.7. NO LITIGATION. There are no lawsuits, claims, suits,
proceedings or investigations pending or, to the best knowledge of Parent,
threatened against Parent or Mergerco to restrain or prohibit or otherwise
challenge the validity of the transactions contemplated hereby.

ARTICLE VII

ACTION PRIOR TO THE EFFECTIVE TIME
----------------------------------

The respective parties hereto covenant and agree to take the following
actions between the date hereof and the Effective Time:

7.1. PREPARATION OF INFORMATION STATEMENT; ACTION BY STOCKHOLDERS.
(a) The Company shall prepare the Information Statement as promptly as possible
after the date hereof and shall submit the proposed Information Statement to
Parent and its counsel not less than two days prior to submitting the
Information Statement to the Stockholders. Parent shall furnish the Company
with such information concerning Parent as shall be required to be included in
the Information Statement (which information shall include the information
concerning Parent's intentions concerning the operations of the Business and the
I/S Outsourcing Business) and the federal income tax consequences of the Merger.
The Company shall use commercially reasonable efforts to mail the Information
Statement to Stockholders on or before June 1, 1995. If prior to the Effective
Time either (i) the Company determines that the Information Statement needs to
be amended or supplemented in order for the representation and warranty of the
Company in Section 5.27 to be correct or (ii) Parent determines that the
Information Statement needs to be amended or supplemented in order for the
representation and warranty of Parent and Mergerco in Section 6.6 to be correct,
the Company or Parent, as the case may be, shall notify the other of such
determination and shall deliver to the other such amendment or supplement as
such party believes is necessary to make such representation and warranty
correct. The Company shall consider all such amendments proposed by Parent, and
shall cause all such amendments or supplements that the parties reasonably
believe are necessary to be mailed to the Stockholders as soon as practicable
after such delivery.

(b) The Company shall duly call, give notice of, convene and hold a
meeting of the Stockholders for the purpose of approving the Merger and adopting
this Agreement. The Company will, through its Board of Directors, recommend to
the

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Stockholders the adoption of this Agreement. The Company shall use all
reasonable efforts to hold the Stockholders' Meeting on or before June 21, 1995.

7.2. ACTION BY PARENT. Parent, as the sole stockholder of Mergerco,
shall take such actions as may be necessary to approve the Merger and adopt this
Agreement under the DGCL.

7.3. INVESTIGATION OF THE COMPANY BY PARENT. The Company shall
afford to the officers, employees and authorized representatives of Parent
(including, without limitation, its independent public accountants, attorneys,
environmental consultants and financial advisors), upon reasonable advance
notice such access during normal business hours to the offices, properties,
employees and business and financial records (includ ing, without limitation,
computer files, retrieval programs and similar documentation) of the Company to
the extent Parent shall reasonably deem necessary or desirable, and shall
furnish to Parent or its authorized representatives such additional information
concerning the operations, properties and business of the Company and its
Subsidiaries as may be reasonably requested to enable Parent or its
representatives to verify the accuracy of the representations and warranties
contained in this Agreement, to verify that the covenants of the Company
contained in this Agreement have been complied with and to determine whether the
conditions set forth in Article IX have been satisfied. Parent agrees that such
investigation shall be conducted in such a manner as not to interfere
unreasonably with the operations of the Company. Parent shall not contact
directly any employee of the Company other than Thomas Bradbury, Leo Spiegel and
Joel Altobello without the prior authorization of any of such named Persons
(which authorization shall not be withheld unreasonably). No investigation made
by Parent or its representatives hereunder shall affect the representations and
warranties of the Company hereunder.

7.4. PRESERVE ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each of
the parties hereto shall refrain from taking any action which would render any
representation or warranty con tained in Article V or VI of this Agreement
inaccurate as of the Effective Time, provided, that the Company shall not be
prohibited from conducting the Business in the manner contemplated by Section
7.6. Each party shall promptly notify the other parties of any action, suit or
proceeding that shall be instituted or threatened against such party to
restrain, prohibit or otherwise challenge the legality of any transaction
contemplated by this Agreement. The Company shall promptly notify Parent of any
lawsuit, claim, proceeding or investigation that has been instituted, or to the
knowledge of the Company has been threatened, against the Company which would
have been listed in Schedule 5.22, if such lawsuit, claim, proceeding or
investigation had arisen prior to the date hereof.

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7.5. CONSENTS OF THIRD PARTIES; GOVERNMENTAL APPROVALS. (a) The
Company will act diligently and reasonably to secure, before the Effective Time,
the consent, approval or waiver, in form and substance reasonably satisfactory
to Parent, from any party to the Company Agreements required to satisfy the
conditions set forth in Section 9.5; provided that no party hereto shall have
any obligation to offer or pay any consideration in order to obtain any such
consents or approvals; and provided, further, that the Company shall not make
any agreement or understanding affecting the Company, its properties or assets,
or the Business as a condition for obtaining any such consents or waivers except
with the prior written consent of Parent. During the period prior to the
Effective Time, Parent shall act diligently and reasonably to cooperate with the
Company to obtain the consents, approvals and waivers contemplated by this
Section 7.5(a).

(b) During the period prior to the Effective Time, the parties
hereto shall act diligently and reasonably, and shall cooperate with each other,
to secure any consents and approvals of any Governmental Body required to be
obtained by them in order to permit the consummation of the transactions
contemplated by this Agreement or to otherwise satisfy the conditions set forth
in Section 9.4; provided that the Company shall not make any agreement or
understanding affecting the Company, its properties or assets, or the Business
as a condition for obtaining any such consents or approvals except with the
prior written consent of Parent.

7.6. CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME. Except as
expressly contemplated by this Agreement, the Company shall carry on the
Business in the ordinary course consistent with past practice. Consistent with
the foregoing, the Company shall use commercially reasonable efforts to preserve
intact its current business organization, keep available the services of its
current officers (subject to Section 4.5(g)) and employees and preserve the
relationships with customers, suppliers and others having business dealings with
it which the Company reasonably deems desirable. Without limiting the
generality of the forego ing, and except as expressly contemplated by this
Agreement and except as set forth in Schedule 7.6, neither the Company nor any
Subsidiary shall, without the prior written consent of Parent (which, in the
case of Section 7.6(j), shall not be unreasonably withheld or delayed):

(a) (i) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions to any holder of its capital stock
or any holder of a security or other interest convertible into or exchangeable
for its capital stock, or otherwise make any payments to any such Person (other
than any such payments or distributions otherwise permitted to be made under
this Agreement), (ii) split, combine or reclassify any of its capital stock or
any security or other interest

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convertible into or exchangeable for such capital stock, or (except as and to
the extent required in the event of the exercise of any Preferred Stock Warrant,
Common Stock Warrant or Stock Option) issue, sell or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for shares of
its capital stock or any security or other interest convertible into or
exchangeable for such capital stock or (iii) purchase, redeem or otherwise
acquire any shares of capital stock of the Company or any Subsidiary or any
other securities thereof;

(b) issue, deliver, sell, pledge, dispose of or otherwise encumber
any shares of its capital stock or other securities (including, without
limitation, any rights, warrants or options to acquire any shares of its capital
stock or other securities), except as and to the extent required in the event of
the exercise of any Preferred Stock Warrant, Common Stock Warrant or Stock
Option;

(d) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of or equity in, or by any
other manner, any business or any corporation, partnership, association or other
business organization or division thereof;

(e) incur or assume any indebtedness for borrowed money, enter into
(as lessee) any capitalized lease obligation, guarantee any such indebtedness or
obligation, issue or sell any debt securities, guarantee any debt securities of
others or make any loans, advances or capital contributions to, or investments
in, any other Person, except the incurrence of indebtedness under the Line of
Credit to fund working capital;

(f) make or incur any capital expenditures in excess of expenditures
at the rate of $100,000 per month;

(g) alter through merger, liquidation, reorganization, restructuring
or in any other fashion its corporate structure;

(h) enter into or adopt, or amend, any bonus, incentive, deferred
compensation, insurance, medical, hospital, disability or severance plan,
agreement or arrangement or enter into or amend any employee benefit plan or
employment, consulting or management agreement, other than any such amendment to
an employee benefit plan that is made to maintain the qualified status of such
plan or its continued compliance with applicable law;

(i) make any change in accounting practices or policies applied in
the preparation of the 1994 Audited Financial Statements (including, without
limitation, any method of recording doubtful accounts, inventory obsolescence or
accruals

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for warranty or other liabilities), except as required by generally accepted
accounting principles;

(j) modify in any material respect any of the agreements,
understandings, obligations, commitments, indebtedness or other obligations
required to be set forth in any of the Schedules to this Agreement which
involves the payment or receipt by the Company of $500,000 or more, enter into
any agreement, understanding, obligation or commitment which involves the
payment or receipt by the Company of $500,000 or more, or incur any indebtedness
or obligation, of the type that would have been required to be listed in
Schedule 5.20 if in existence on the date hereof, or enter into any contract
which requires any approval or consent by any other Person to the transactions
contemplated by this Agreement;

(k) pay or commit to pay any bonus to any officer or employee of the
Company or any Subsidiary other than in the ordinary course of Business
consistent with past practice, or make any other material change in the
compensation of its employees;

(l) enter into any contract for the purchase or lease of real
property, or exercise any option to extend a lease listed in Schedule 5.11;

(m) sell, lease (as lessor), transfer or otherwise dispose of
(including any transfers from the Company to any holders of its capital stock or
any holder of a security or other interest convertible into or exchangeable for
its capital stock or any of its Affiliates), or mortgage or pledge, or impose or
suffer to be imposed any Encumbrance on, any of the properties or assets of the
Company, other than inventory and minor amounts of personal property sold or
otherwise disposed of for fair value in the ordinary course of business
consistent with past practice and other than Permitted Encumbrances;

(n) cancel any debts owed to or claims held by the Company or any
Subsidiary (including the settlement of any claims or litigation) other than in
the ordinary course of business consistent with past practice or as otherwise
contemplated by this Agreement;

(o) allow the levels of supplies, spare parts or other materials
included in its inventories to vary in any material respect from the levels
customarily maintained in the Business (it being understood that increases in
inventory customarily occur following the entering into of significant customer
contracts);

(p) acquire any properties or assets, or conduct any business, in or
through any Subsidiary; or

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(q) enter into any other transaction affecting the Company, any
Subsidiary or the Business, other than in the ordinary course of the Business
consistent with past practice or as expressly contemplated by this Agreement.

7.7. NOTIFICATION BY THE COMPANY OF CERTAIN MATTERS. During the
period prior to the Effective Time, the Company shall promptly advise Parent in
writing of (a) any Material Adverse Effect with respect to the Company or any
Subsidiary, (b) any notice or other communication from any third Person alleging
that the consent of such third Person is or may be required in connection with
the transactions contemplated by this Agreement, and (c) any default under any
Company Agreement or event which, with notice or lapse of time or both, would
become such a default on or prior to the Effective Time and which would have a
Material Adverse Effect of which the Company has knowledge.

7.8. MUTUAL COOPERATION; REASONABLE BEST EFFORTS. The parties hereto
shall cooperate with each other, and shall use their respective reasonable best
efforts to cause as promptly as possible the fulfillment of the conditions to
each other party's obligations hereunder.

7.9. NO SOLICITATION. The Company shall not, nor shall it authorize
or encourage any of its Affiliates or any officer, director, employee,
investment banker, attorney or other adviser or representative of the Company or
any of its Affiliates to, (a) encourage, solicit, initiate, or participate in
discussions or negotiations with, or provide any non-public information for the
purpose of facilitating any Acquisition Proposal (as hereinafter defined), to
any third party concerning any Acquisition Proposal, (b) enter into any
agreement with respect to any Acquisition Proposal or (c) take any other action
to facilitate any inquiries or the making of, any proposal that constitutes, or
may reasonably be expected to lead to, any Acqui sition Proposal. Without
limiting the foregoing, it is under stood that any violation, of which the
Company or any of its Affiliates had knowledge at the time of such violation, of
the restrictions set forth in the immediately preceding sentence by any officer,
director or employee of the Company or any of its Affiliates shall be deemed to
be a breach of this Section 7.9 by the Company and its Affiliates. The Company
promptly shall advise Parent of any Acquisition Proposal and any inquiries with
respect to any Acquisition Proposal (or if the Acquisition Proposal is expressly
conditioned on any of same not being so revealed, so much thereof as may be
revealed; provided, however, that, notwithstanding the foregoing, the Company
will communicate to Parent the identity of the offeror submitting the
Acquisition Proposal and sufficient terms of the Acquisition Proposal for Parent
to exercise its rights of first refusal as hereinafter described). Without
limiting the generality of the foregoing, if an Acquisition Proposal unsolicited
by the Company or its Affiliates or any of their respective representatives,
agents or

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others is received by the Company then, consistent with the fiduciary
obligations which the Company may then owe to its Stockholders and to the extent
required by applicable laws, such Acquisition Proposal may be communicated to
the Board of Directors of the Company, provided that the Company will not
provide information to such offeror and will promptly advise Parent of the
identity of such offeror and deliver to Parent a copy of such Acquisition
Proposal (or, if the Acquisition Proposal expressly is conditioned on any of
same not being so revealed, so much thereof as may be revealed; provided,
however, notwithstanding any restrictions of the offeror regarding revelation of
such Acquisition Proposal, the Company will communicate to Parent the identity
of the offeror and sufficient terms of the Acquisition Proposal for Parent to
exercise its right of first refusal as hereinafter described). If the Merger is
not consummated, Parent will have the right, prior to any other Person
(including such offeror), to enter into an agreement to purchase the Company at
the said price and for the same terms and conditions as offered by such offeror.
For purposes of this Agreement, "Acquisition Proposal" means any proposal for a
merger or other business combination involving the Company or any of its
Affiliates or any proposal or offer to acquire in any manner, directly or
indirectly, an equity interest in the Company or any of its Affiliates, any
voting securities of the Company or any of its Affiliates or a substantial
portion of the assets of the Company.

7.10. ANTITRUST LAW COMPLIANCE. The Company and Parent have caused to
be filed with the Federal Trade Commission and the Antitrust Division of the
Department of Justice the notifications and other information required to be
filed under the HSR Act, or any rules and regulations promulgated thereunder,
with respect to the transactions contemplated hereby. Each party warrants that
all such filings by it are, as of the date filed, true and accurate and in
accordance with the requirements of the HSR Act and any such rules and
regulations. Each of Parent and the Company agrees to make available to the
other such information as each of them may reasonably request relative to its
business, assets and property as may be required of each of them to file any
additional information requested by such agencies under the HSR Act and any such
rules and regulations. Parent shall be responsible for any filing fees to be
paid under the HSR Act with respect to the transactions contemplated hereby.

7.11. INDEBTEDNESS. Prior to the Effective Time the Company shall pay
in full all indebtedness for borrowed money (including capitalized lease
obligations) of the type that would be required to be reflected in a balance
sheet prepared in accordance with the Agreed Accounting Principles, other than
amounts outstanding under the Line of Credit for (a) the purchase of equipment
from vendors and services on behalf of its customers and (b) the payment of
other operating expenses, such as accrued payroll, various commissions payable,
insurance, rent and taxes,

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in the ordinary course of the Business and which would ordinarily be included in
determining working capital; provided, however, such borrowings shall not be
used to repay long-term debt or the current portion of long-term debt.

7.12. DELIVERY OF FINAL COMPANY LETTER. As of the date of this
Agreement, the Company Letter has not been provided to Parent in final form (but
has been delivered in draft). As soon as practicable following the date hereof,
but not later than 10:00 A.M., New York time, on May 31, 1995, the Company shall
deliver its final Company Letter (and the Schedules referred to herein) to
Parent. Parent will endeavor to inform the Company of any concerns it has with
the information reflected in such Company Letter as promptly as practicable
after receipt thereof.

ARTICLE VIII

ADDITIONAL AGREEMENTS

8.1. EMPLOYEE BENEFIT PLANS. (a) Welfare Benefit Plans. Effective for
the period beginning on the Closing Date and ending on December 31, 1995, Parent
shall (or it shall cause the Company to) provide to each employee of the Company
who continues employment with the Company after the Closing Date (a "Continuing
Employee") benefits under employee welfare benefit plans (within the meaning of
Section 3(1) of ERISA) (the "Company's Welfare Plans") which are substantially
similar in the aggregate to those employee welfare benefits which each such
Continuing Employee was eligible to receive from the Company immediately prior
to the Closing Date. In addition to any Continuing Employee, any person who
becomes employed by the Company during the period beginning on the Closing Date
and ending on December 31, 1995 shall be eligible to participate in the
Company's Welfare Plans pursuant to the terms of such plans. Effective January
1, 1996, each Company employee shall be eligible to participate in the Parent's
employee welfare benefit plans (within the meaning of Section 3(1) of ERISA)
(the "Parent's Welfare Plans") pursuant to the terms of such plans. For purposes
of eligibility to participate and vesting under the Parent's Welfare Plans and,
if applicable, the Company's Welfare Plans, each Company employee shall be
credited with service such person rendered with the Company prior to the Closing
Date.

(b) Pension Benefit Plans. As soon as administratively practicable
following the date on which the Continuing Employees are included in the
Parent's payroll system, (1) the LANSystems, Inc. Employee Savings Plan shall be
amended to provide that no additional contributions shall be made to such plan,
(2) each Company employee shall be eligible to participate in the Donnelley
Deferred Compensation and Voluntary Savings Plan (the "Savings Plan") pursuant
to the terms of such plan, and (3) each Company employee shall be eligible to
participate in the

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Retirement Benefit Plan of R. R. Donnelley & Sons Company (the "Retirement
Plan") pursuant to the terms of such plan. For purposes of eligibility to
participate and vesting under the Savings Plan and the Retirement Plan, each
Company employee shall be credited with service such person rendered with the
Company prior to the Closing Date.

8.2. ACCOUNTS RECEIVABLE. (a) As promptly as practicable following
the Closing Date (but not later than 30 days after the Closing Date), the
Company shall prepare, in accordance with the Agreed Accounting Principles, a
schedule (the "Preliminary Receivables Schedule" setting forth (i) the
outstanding gross amount of the unpaid accounts receivable of the Company as of
the Effective Date and (ii) the allowance for doubtful accounts as of the
Effective Date.

(b) Promptly following receipt of the Preliminary Receivables
Schedule, the Earn-Out Representatives may review the same and, within 30 days
after the date of such receipt, may deliver to Parent a certificate setting
forth their objections to the Preliminary Receivables Schedule, together with a
summary of the reasons therefor and calculations which, in their view, are
necessary to eliminate such objections. In the event the Earn-Out
Representatives do not so object within such 30-day period the determinations
set forth in the Preliminary Receivables Schedule shall be final and binding on
Parent and each of the Earn-Out Participants, and the Preliminary Receivables
Schedule shall constitute the "Receivables Schedule."

(c) In the event the Earn-Out Representatives so object within such
30-day period, Parent and the Earn-Out Representatives shall use their
reasonable efforts to resolve by written agreement (the "Agreed Receivables
Adjustments") any differences as to the determinations set forth in the
Preliminary Receivables Schedule and, in the event the Earn-Out Representatives
and Parent so resolve any such differences, the determinations set forth in the
Preliminary Receivables Schedule as adjusted by the Agreed Receivables
Adjustments shall be final and binding on Parent and each of the Earn-Out
Participants, and the Preliminary Receivables Schedule as so adjusted shall
constitute the "Receivables Schedule."

(d) In the event any objections raised by the Earn-Out
Representatives are not resolved by Agreed Receivables Adjustments within the
30-day period next following such 30-day period, then Parent and Earn-Out
Representatives shall submit the objections that are then unresolved to the
Accounting Firm who shall be directed by Parent and Earn-Out Representatives to
resolve the unresolved objections as promptly as reasonably practicable and to
deliver written notice to each of Parent and the Earn-Out Representatives
setting forth its resolution of the disputed matters, and the determinations set
forth in the Preliminary Receivables Schedule as adjusted by the Agreed

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Receivables Adjustments and by its resolution of such objections shall be final
and binding on Parent and each of the Earn-Out Participants, and the Preliminary
Receivables Schedule as so adjusted shall constitute the "Receivables Schedule."

(e) The parties hereto shall make available to Parent, the Earn-Out
Representatives and, if applicable, the Accounting Firm, such books, records and
other information (including work papers) as any of the foregoing may reasonably
request to prepare or review the Preliminary Receivables Schedule or any matters
submitted to the Accounting Firm.

(f) The fees and expenses of the Accounting Firm shall be paid by
Parent if the determination by the Accounting Firm of the unresolved objections
submitted to it pursuant to Section 8.2(d) was closer to the position taken by
the Earn-Out Representatives than to the position taken by Parent and shall be
paid by the Earn-Out Participants if the determination by the Accounting Firm of
the unresolved objections submitted to it pursuant to Section 8.2(d) was closer
to the position taken by the Earn-Out Representatives. Unless otherwise directed
by the Earn-Out Representatives, any fees and expenses payable by the Earn-Out
Participants pursuant to this Section 8.2(f) shall be, to the extent available,
paid and set-off from any amounts otherwise payable to Earn-Out Participants.

(g) From and after the Closing Date, Parent shall cause the Company
to use its best efforts to collect the accounts receivable reflected in the
Receivables Schedule (the "Receivables") generally in accordance with the
billing and collection practices presently applied by the Company in the
collection of its accounts and notes receivable, except that with respect to any
particular Receivable, neither Parent nor the Company shall be under any
obligation to commence or not to commence litigation to effect collection and
may make any adjustment, concession or settlement which in the good faith
judgment of Parent is commercially reasonable. In connection with such
collections, if a payment is received from a debtor who has not designated the
invoice being paid thereby, such payment shall be applied to the earliest
invoice outstanding to the Company with respect to indebtedness of such account
debtor, except for those invoices which are subject to a dispute to the extent
of such dispute.

(h) If, after giving effect to all adjustments, concessions and
settlements made and collection fees incurred (in each case in accordance with
Section 8.2(g)), Company has not collected, within 12 months after the Closing
Date, an amount equal to the excess of the Receivables over the allowance for
doubtful accounts shown on the Receivables Schedule (such excess being referred
to herein as the "Net Amount of Receivables"), then Parent shall have the right
to set-off against, and to reduce the amounts payable in respect of, the
Business Earn-Out

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Payments, Common Stock Warrant Earn-Out Payments, I/S Outsourcing Business Earn-
Out Payments and Synergy Earn-Out Payments an amount, determined on an After Tax
Basis, equal to:

(i) the Net Amount of Receivables, minus

(ii) the amount collected in cash (after giving effect to the items
set forth above) by the Company during such 12-month period in respect of
the Receivables, minus,

(iii) the sum of (x) $50,000 plus (y) amounts not reflected in the
books and records of the Company as of the Effective Time but which are
billed after the Effective Time and prior to January 1, 1996 for services
performed prior to the Effective Time.

8.3. NO SECTION 338 ELECTION. Parent shall not make an election
under Section 338 of the Code with respect to the transactions contemplated by
this Agreement.

ARTICLE IX

CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGERCO
----------------------------------------------------------

The obligations of Parent and Mergerco under this Agreement shall, at
the option of Parent and Mergerco, be subject to the satisfaction, on or prior
to the Effective Time, of the following conditions:

9.1. NO MISREPRESENTATION OR BREACH OF COVENANTS AND WARRANTIES.
There shall have been no material breach by the Company in the performance of
any of its respective covenants and agreements herein; each of the
representations and warranties of the Company contained or referred to herein
shall be true and correct in all material respects at the Effective Time as
though made at the Effective Time, except for changes therein specifically
permitted by this Agreement or resulting from any transaction expressly
consented to in writing by Parent and Mergerco or any transaction permitted by
Section 7.6; and there shall have been delivered to Parent and Mergerco a
certificate to such effect, dated the Effective Date and signed on behalf of the
Company by the President or any Vice President of the Company.

9.2. NO CHANGES OR DESTRUCTION OF PROPERTY. Between the date hereof
and the Effective Time, there shall have been (a) no Material Adverse Effect
with respect to the Company or any Subsidiary and (b) no action, suit,
investigation or proceeding shall have been instituted, or to the knowledge of
the Company, threatened, on or after the date of this Agreement, which action,
suit, investigation or proceeding would reasonably be expected to have a
Material Adverse Effect with respect to the Company or any Subsidiary; and there
shall have been delivered to Parent and

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Mergerco a certificate to such effect, dated the Effective Date and signed on
behalf of the Company by the President or any Vice President of the Company.

9.3. NO RESTRAINT OR LITIGATION. The waiting period under the HSR
Act shall have expired or been terminated, and no action, suit, investigation or
proceeding shall have been instituted or threatened to restrain or prohibit or
otherwise challenge the legality or validity of the transactions contemplated
hereby which shall not have been dismissed or withdrawn.

9.4. NECESSARY GOVERNMENTAL APPROVALS. The parties shall have
received all approvals and actions of or by all Governmental Bodies which are
specified in Schedule 9.4.

9.5. NECESSARY CONSENTS. The Company shall have received consents,
in form and substance reasonably satisfactory to Mergerco and Parent, to the
transactions contemplated hereby from the other parties to the Company
Agreements which are specified in Schedule 9.5.

9.6. STOCKHOLDERS APPROVAL; DISSENTERS' RIGHTS. (a) This Agreement
shall have been adopted by the affirmative vote of (i) the holders of two-thirds
of the issued and outstanding Company Preferred Stock, voting as a single class,
and (ii) the holders of a majority of the issued and outstanding Company Common
Stock and Company Preferred Stock, voting together as a single class, in each
case entitled to vote thereon, as required by the DGCL and the Certificate of
Incorporation of the Company.

(b) Holders of not more than 10% of the capital stock of the Company
shall have (i) delivered to the Company, before the taking of the vote on the
Merger, a written demand for appraisal of their capital stock pursuant to
Section 262 of the DGCL and (ii) not voted in favor of or consented to the
Merger; and there shall have been delivered to Parent and Mergerco a certificate
to such effect, dated the Effective Date and signed on behalf of the Company by
the President or any Vice President of the Company.

(c) In the reasonable judgment of Parent, the "shareholder approval
requirements" of Proposed Treasury Regulation section 1.280G-1, Q/A-7 shall have
been satisfied with respect to any payments contemplated by this Agreement that
otherwise would constitute "excess parachute payments" as such term is defined
in Section 280G of the Code and the Company shall have provided Parent with
written evidence thereof reasonably satisfactory to Parent.

9.7. INDEBTEDNESS. As of the Effective Time, the Company shall have
no indebtedness for borrowed money (including

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capitalized lease obligations) other than borrowings under the Line of Credit;
and there shall have been delivered to Parent and Mergerco a certificate to such
effect, dated the Effective Date and signed on behalf of the Company by the
President or any Vice President of the Company.

9.8. PREFERRED STOCK WARRANTS; COMMON STOCK WARRANTS. (a) The
Company shall have received the written acknowledgement, in form reasonably
acceptable to Parent, of each holder of a Preferred Stock Warrant that at the
Effective Time the Preferred Stock Warrant shall be converted into the right
described in Section 3.1(e), in the case of a Class A Preferred Stock Warrant,
or Section 3.1(f), in the case of a Class B Preferred Stock Warrant and that
after the Effective Time neither the Company nor Parent has any obligations to
such holders pursuant to such Preferred Stock Warrants, except for the
obligations of Parent contained in this Agreement.

(b) None of the Common Stock Warrants outstanding as of the date
hereof shall have been exercised prior to the Effective Time, and the Company
shall have received the written acknowledgement, in form reasonably acceptable
to Parent, of each holder of a Common Stock Warrant that at the Effective Time
the Common Stock Warrant shall be converted into the right described in Section
3.1(i) and that after the Effective Time neither the Company nor Parent has any
obligations to such holders pursuant to such Common Stock Warrants, except for
the obligations of Parent contained in this Agreement.

Notwithstanding the failure of any one or more of the foregoing
conditions, Parent may proceed with the Closing without satisfaction, in whole
or in part, of any one or more of such conditions and without written waiver. To
the extent that at the Closing the Company delivers to Parent a written notice
specifying in reasonable detail the failure of any of such conditions or the
breach by the Company of any of the representations or warranties of the Company
herein, and nevertheless Parent proceeds with the Closing, Parent shall be
deemed to have waived for all purposes any rights to set-off under Section 3.11
by reason of the failure of any such conditions or the breach of any such
representations or warranties to the extent described in such notice.

ARTICLE X

CONDITIONS PRECEDENT TO OBLIGATIONS
-----------------------------------
OF THE COMPANY
--------------

The obligations of the Company under this Agreement shall, at the
option of the Company, be subject to the satisfaction, on or prior to the
Effective Time, of the following conditions:

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<PAGE>

10.1. NO MISREPRESENTATION OR BREACH OF COVENANTS AND WARRANTIES.
There shall have been no material breach by Parent or Mergerco in the
performance of any of their respective covenants and agreements herein; each of
the representations and warranties of Parent or Mergerco contained or referred
to herein shall be true and correct in all material respects at the Effective
Time as though made at the Effective Time, except for changes therein
specifically permitted by this Agreement or resulting from any transaction
expressly consented to in writing by the Company; and there shall have been
delivered to the Company a certificate or certificates to such effect, dated the
Effective Date and signed on behalf of Parent by the President or any Vice
President of Parent and on behalf of Mergerco by the President or any Vice
President of Mergerco.

10.2. NO RESTRAINT OR LITIGATION. The waiting period under the HSR
Act shall have expired or been terminated, and no action, suit or proceeding by
any Governmental Body shall have been instituted or threatened to restrain,
prohibit or otherwise challenge the legality or validity of the transactions con
templated hereby which shall not have been dismissed or withdrawn.

10.3. NECESSARY GOVERNMENTAL APPROVALS. The parties shall have
received all approvals and actions of or by all Governmental Bodies which are
specified in Schedule 10.3.

10.4. NECESSARY CONSENTS. The Company shall have received consents,
in form and substance reasonably satisfactory to the Company, to the
transactions contemplated hereby from the other parties to the Company
Agreements which are specified in Schedule 10.4.

10.5. STOCKHOLDERS APPROVAL; DISSENTERS' RIGHTS. (a) This Agreement
shall have been adopted by (a) the holders of two-thirds of the issued and
outstanding Company Preferred Stock, voting as a single class, and (b) the
holders of a majority of the issued and outstanding Company Common Stock and
Company Preferred Stock, voting together as a single class, in each case
entitled to vote thereon, as required by the DGCL and the Certificate of
Incorporation of the Company.

(c) In the reasonable judgment of Company, the "shareholder approval
requirements" of Proposed Treasury Regulation section 1.280G-1, Q/A-7 shall have
been satisfied with respect to any payments contemplated by this Agreement that

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<PAGE>

otherwise would constitute "excess parachute payments" as such term is defined
in Section 280G of the Code.

10.6. PREFERRED STOCK WARRANTS; COMMON STOCK WARRANTS. (a) The
Company shall have received the written acknowledgement, in form reasonably
acceptable to the Company, of each holder of a Preferred Stock Warrant that at
the Effective Time the Preferred Stock Warrant shall be converted into the right
described in Section 3.1(e), in the case of a Class A Preferred Stock Warrant,
or Section 3.1(f), in the case of a Class B Preferred Stock Warrant and that
after the Effective Time neither the Company nor Parent has any obligations to
such holders pursuant to such Preferred Stock Warrants, except for the
obligations of Parent contained in this Agreement.

(b) None of the Common Stock Warrants outstanding as of the date
hereof shall have been exercised prior to the Effective Time, and the Company
shall have received the written acknowledgement, in form reasonably acceptable
to the Company, of each holder of a Common Stock Warrant that at the Effective
Time the Common Stock Warrant shall be converted into the right described in
Section 3.1(i) and that after the Effective Time neither the Company nor Parent
has any obligations to such holders pursuant to such Common Stock Warrants,
except for the obligations of Parent contained in this Agreement.

ARTICLE XI

TERMINATION
-----------

11.1. TERMINATION RIGHTS. Anything contained in this Agreement to
the contrary notwithstanding and notwithstanding the approval of this Agreement
by the Board of Directors of each Constituent Corporation and its adoption by
the stockholders of each Constituent Corporation, this Agreement may be
terminated and the Merger abandoned at any time prior to the Effective Time:

(a) by the mutual consent of all of the parties hereto;

(b) by the Company if the Effective Time shall not have occurred on
or before June 21, 1995 (or such later date as may be mutually agreed to by all
of the parties hereto);

(c) by Parent if the Effective Time shall not have occurred on or
before June 28, 1995 (or such later date as may be mutually agreed to by all of
the parties hereto);

(d) by Parent in the event of any material breach by the Company of
any of its agreements, representations or warranties contained herein and the
failure of the Company to cure such breach within ten days after receipt of
notice from Parent requesting that such breach be cured;

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<PAGE>

(e) by the Company in the event of any material breach by Parent or
Mergerco of any of their respective agreements, representations or warranties
contained herein and the failure of Parent to cure such breach, or cause
Mergerco to cure such breach, within ten days after receipt of notice from the
Company requesting that such breach be cured; or

(f) by Parent by notice delivered to the Company at any time prior to
12:00 noon, New York time, on June 1, 1995 if Parent, in its sole discretion,
determines either (i) that the results of the due diligence investigation of the
Company to be conducted by it on May 26, May 30 and May 31, 1995 are not
satisfactory to it or (ii) that the Schedules are not acceptable to Parent
unless this Agreement is amended and the parties are not able to agree on such
amendments prior to such time.

11.2. NOTICE OF TERMINATION. Any party desiring to terminate this
Agreement pursuant to Section 11.1 shall give notice of such termination to each
of the other parties to this Agreement.

11.3. EFFECT OF TERMINATION. In the event that this Agreement shall
be terminated pursuant to this Article XI, all further obligations of the
parties under this Agreement (other than Sections 12.2 and 12.9) shall be
terminated without further liability of any party to the others; provided,
however, that nothing herein shall relieve any party from liability for its
willful breach of this Agreement.

ARTICLE XII

GENERAL PROVISIONS
------------------

12.1. SURVIVAL OF OBLIGATIONS. All representations, warranties,
covenants and obligations contained in this Agreement shall survive the
consummation of the transactions contemplated by this Agreement, except that the
representations and warranties of Parent shall terminate on March 31, 1997 and
the representations and warranties of the Company shall terminate as provided in
Section 3.11.

12.2. CONFIDENTIAL NATURE OF INFORMATION. In the event the Merger
is not consummated, for a period of two years from the date hereof each party
agrees that it will treat in confidence all documents, materials and other
information which it shall have obtained regarding the other parties prior to
the termination of this Agreement (whether obtained before or after the date of
this Agreement), the investigation provided for herein and the preparation of
this Agreement and other related documents, and, each party will return to the
other parties all copies of nonpublic documents and materials which have been
furnished in connection therewith. Such documents, materials and

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<PAGE>

information shall not be communicated to any third Person, other than to the
parties's counsel, accountants or financial advisors. No party shall use any
confidential information in any manner whatsoever except solely for the purpose
of evaluating the proposed Merger; provided, however, that after the Effective
Time, Parent and its Affiliates may use or disclose any confidential information
included in the properties or assets of the Company as of the Effective Time.
The obligation of each party to treat such documents, materials and other
information in confidence shall not apply to any information which (a) is or
becomes available to such party from a source other than such party, (b) is or
becomes available to the public other than as a result of disclosure by such
party or its agents, (c) is required to be disclosed under applicable law or
judicial process, but only to the extent it must be disclosed (whereupon the
disclosing party shall provide notice to the other party and cooperate with the
other party to keep such information confidential), or (d) such party reasonably
deems necessary to disclose to obtain any of the consents or approvals
contemplated hereby.

12.3. NO PUBLIC ANNOUNCEMENT. No party hereto shall, without the
prior written approval of all of the other parties, make any press release or
other public announcement concerning the transactions contemplated by this
Agreement, except as and to the extent that any such party shall be so obligated
by law or the rules of any stock exchange, in which case such party shall so
advise the other parties and all parties shall use their reasonable best efforts
to cause a mutually agreeable release or announcement to be issued; provided
that the foregoing shall not preclude communications or disclosures necessary to
implement the provisions of this Agreement or to comply with accounting and
Securities and Exchange Commission disclosure obligations.

12.4. NOTICES. All notices or other communications required or
permitted hereunder shall be in writing and shall be deemed given or delivered
when delivered personally or four days after being mailed by registered or
certified mail, return receipt requested, or one day after being sent by private
overnight courier addressed as follows:

If to Parent or Mergerco, to:

R.R. Donnelley & Sons Company
77 West Wacker Drive
Chicago, Illinois 60603
Attention: Corporate Secretary

with a copy to:

Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: Dennis V. Osimitz, Esq.

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<PAGE>

If to the Company prior to the Effective Date, to:

LAN Systems, Inc.
300 Park Avenue South
15th Floor
New York, New York 10010
Attention: Thomas Bradbury

with a copy to:

Golenbock, Eiseman, Assor & Bell
437 Madison Avenue
New York, New York 10022
Attention: Lawrence M. Bell, Esq.

If to the Earn-Out Representatives, to the addresses set forth in
Annex G-1, with a copy to:

Golenbock, Eiseman, Assor & Bell
437 Madison Avenue
New York, New York 10022
Attention: Lawrence M. Bell, Esq.

or to such other address as such party may indicate by a notice delivered to the
other parties hereto.

12.5. ASSIGNMENT; SUCCESSORS AND ASSIGNS. (a) The rights of each
party under this Agreement shall not be assignable by such party prior to the
Effective Time without the written consent of each of the other parties.
Following the Effective Time, any party may assign any of its rights hereunder,
other than any rights to receive the Business Earn-Out Payments, I/S Outsourcing
Business Earn-Out Payments or Common Stock Warrant Earn-Out Payments, but no
such assignment shall relieve any party of its obligations hereunder.

(b) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their successors and permitted assigns. The successors
and permitted assigns hereunder shall include without limitation, in the case of
Parent, any permitted assignee as well as the successors in interest to such
permitted assignee (whether by merger, liquidation (including successive mergers
or liquidations) or otherwise). Nothing in this Agreement, expressed or
implied, is intended or shall be construed to confer upon any Person other than
the parties and successors and assigns permitted by this Section 12.5, the Earn-
Out Representatives and the Earn-Out Participants any right, remedy or claim
under or by reason of this Agreement.

12.6. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the Annexes,
Exhibits and Schedules referred to herein, the Company Letter and the documents
delivered pursuant hereto contain the entire understanding of the parties hereto
with

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<PAGE>

regard to the subject matter contained herein or therein, and supersede all
prior agreements and understandings between or among any of the parties hereto,
including without limitation the Confidentiality Agreement and Letter of Intent.
This Agreement shall not be amended, modified or supplemented except by a
written instrument signed by an authorized representative of each of the parties
hereto.

12.7. INTERPRETATION. Titles to articles and headings to sections
herein are inserted for convenience of reference only and are not intended to be
a part of or to affect the meaning or interpretation of this Agreement. The
Annexes, Schedules and Exhibits referred to herein shall be construed with and
as an integral part of this Agreement to the same extent as if they were set
forth verbatim herein.

12.8. WAIVERS. Any term or provision of this Agreement may be
waived, or the time for its performance may be extended, by the party or parties
entitled to the benefit thereof. Any such waiver shall be validly and
sufficiently authorized for the purposes of this Agreement if, as to any party,
it is authorized in writing by an authorized representative of such party. The
failure of any party hereto to enforce at any time any provision of this
Agreement shall not be construed to be a waiver of such provision, nor in any
way to affect the validity of this Agreement or any part hereof or the right of
any party thereafter to enforce each and every such provision. No waiver of any
breach of this Agreement shall be held to constitute a waiver of any other or
subsequent breach.

12.9. FEES AND EXPENSES. Except as otherwise provided in Section
3.11, each of the parties hereto shall bear its own costs and expenses
(including, without limitation, fees and disbursements of its counsel,
accountants and other financial, legal, accounting or other advisors) incurred
or otherwise payable by it in connection with the preparation, negotiation,
execution, delivery and performance of this Agreement and each of the other
documents and instruments executed in connection with or contemplated by this
Agreement.

12.10. PARTIAL INVALIDITY. Wherever possible, each provision hereof
shall be interpreted in such manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such provision shall be ineffective to the extent, but only to the
extent, of such invalidity, illegality or unenforceability without invalidating
the remainder of such invalid, illegal or unenforceable provision or provisions
or any other provisions hereof, unless such a construction would be
unreasonable.

12.11. EXECUTION IN COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall be

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<PAGE>

considered an original instrument, but all of which shall be considered one and
the same agreement, and shall become binding when one or more counterparts have
been signed by each of the parties hereto and delivered to each of the other
parties.

12.12. FURTHER ASSURANCES. From time to time after the Effective
Time, the officers and directors of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf of Mergerco, the
Company or otherwise, such deeds and other instruments and to take or cause to
be taken such further or other action as shall be necessary or desirable in
order to vest or perfect in or to confirm, of record or otherwise, in the
Surviving Corporation title to, and possession of, all of the property, rights,
privileges, powers, immunities and franchises of Mergerco and the Company and
otherwise carry out the purposes of this Agreement.

12.13. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws (as opposed to the conflicts of
law provisions) of the State of New York, except that matters herein relating to
the Merger shall be governed by and construed in accordance with the DGCL.

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<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed the day and year first above written.

R.R. DONNELLEY & SONS COMPANY

By /s/ D.I. Malina
--------------------------
Name: D.I. Malina
Title: Director, Corporate
Development

DONNELLEY DBS, INC.

By /s/ D.I. Malina
--------------------------
Name: D.I. Malina
Title: Vice President

LAN SYSTEMS, INC.

By /s/ T.P. Bradbury
--------------------------
Name: T.P. Bradbury
Title: President

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<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.

Arthur Andersen LLP
ARTHUR ANDERSEN LLP

Chicago, Illinois
September 26, 1996

<PAGE>

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our report
dated March 19, 1996 on LANSystems, Inc. consolidated financial statements
included in or made part of this registration statement filed by Donnelley
Enterprise Solutions Incorporated.

Arthur Andersen LLP
ARTHUR ANDERSEN LLP

New York, New York
September 26, 1996

<PAGE>

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