DONNELLEY ENTERPRISE SOLUTIONS INC, S-1, 1996-08-14

DONNELLEY ENTERPRISE SOLUTIONS INC
S-1, 1996-08-14

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 1996

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

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

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

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

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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
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER SHARE OFFERING PRICE(1)(2) FEE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value................. $80,730,000 $27,838
</TABLE>
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- -------------------------------------------------------------------------------
(1) Includes aggregate proceeds from shares that 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.

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

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
AUGUST 14, 1996

[LOGO]

PROSPECTUS

5,200,000 SHARES

DONNELLEY ENTERPRISE
SOLUTIONS INCORPORATED

COMMON STOCK
($.01 PAR VALUE)

Of the 5,200,000 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"), 3,180,000 are being issued and sold
by the Company and 2,020,000 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 $ and $ 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.

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO
PUBLIC DISCOUNT COMPANY(1) SELLING STOCKHOLDER
<S> <C> <C> <C> <C>
Per Share................. $ $ $ $
Total(2).................. $ $ $ $
- --------------------------------------------------------------------------------
</TABLE>
(1) Before deducting expenses payable by the Company, estimated to be
approximately $750,000. 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 780,000 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>

Graphic summary of DESI's business, as described elsewhere in this Prospectus.

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 firms, investment banks and accounting firms.
Donnelley Enterprise Solutions Incorporated offers its clients the opportunity
to focus on their core business through a comprehensive array of business
services outsourcing and information technology services.

PROFESSIONAL SERVICE FIRMS

[ART]

[LOGO]

DONNELLEY
ENTERPRISE
SOLUTIONS
INCORPORATED
BUSINESS SERVICES OUTSOURCING INFORMATION TECHNOLOGY SERVICES
SINGLE SOURCE FOR INTEGRATED INFORMATION MANAGEMENT

DOCUMENT WORD IMAGING SYSTEMS SYSTEMS CONSULTING SOFTWARE
SERVICES PROCESSING/ MANAGEMENT INTEGRATION DEVELOPMENT
OUTSOURCING DESKTOP
PUBLISHING
[ART]

<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
(i) assumes no exercise of the Underwriters' over-allotment option and (ii)
reflects the reclassification of each outstanding share of Common Stock, par
value $1.00 per share, of the Company into 68,200 shares of Common Stock, par
value $.01 per share, an increase in the authorized number of shares of Common
Stock from 1,000 to 25,000,000 and the authorization of 2,000,000 shares of
Preferred Stock, par value $.01 per share (the "Preferred Stock"), all of which
will be effected prior to the completion of the Offering. See "Underwriting"
and "Description of Capital Stock and Corporate Charter."

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 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.
The Company's revenues from business services outsourcing have grown from $13.7
million in 1991 to $45.7 million in 1995. The Company's revenues from
information technology services, pro forma for its acquisition of LAN Systems,
Inc. ("LANSystems"), have grown from $13.7 million in 1991 to $33.9 million in
1995.

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 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 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. LANSystems has been a premier provider
of 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--DESI offers a comprehensive
array of information management services that span both paper-based and
electronic information. The Company is capable of providing substantially
all of the information management services that a client needs by
leveraging staff across multiple functions, integrating technical and
business processes and providing consistency across the enterprise.

. 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 develop successful
solutions to these needs. The Company has accumulated knowledge of the
best practices to address the unique needs of these professional service
organizations.

. Proven Quality Driven Processes--DESI has developed proven, cost-
effective processes for the delivery of business and information
technology 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 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. The technological expertise of the Company's
employees is evidenced by 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 the Novell
Enterprise Consulting Program.

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

4
<PAGE>

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 OFFERING

<TABLE>
<S> <C>
Common Stock offered by:
The Company...................... 3,180,000 shares
R.R. Donnelley................... 2,020,000 shares
----------------------
Total.......................... 5,200,000 shares
Common Stock to be outstanding
after the Offering................ 10,000,000 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 $17.7 million;
and for general corporate purposes. See
"Use of Proceeds" and "Relationship with
R.R. Donnelley."
Proposed Nasdaq National Market
Symbol............................ DEZI
</TABLE>
- --------
(1) Excludes 800,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Incentive Plan, including options to purchase
approximately 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 Plan."

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 4,824 1,082 3,495
Amortization of
goodwill.............. -- -- -- -- 319 -- 330
------- ------- ------- ------- ------- ------- -------
Earnings from
operations.......... 27 605 1,729 3,295 1,338 700 1,476
Interest expense....... 31 87 184 283 522 230 126
------- ------- ------- ------- ------- ------- -------
Earnings (loss)
before income taxes. (4) 518 1,545 3,012 816 470 1,350
Income taxes........... 4 248 684 1,277 513 208 729
------- ------- ------- ------- ------- ------- -------
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..................................... $46,292 $54,992 $60,010
Amounts due to LANSystems earnout participants... -- 8,700 --
Debt and advances due to R.R. Donnelley.......... 17,672 25,672 --
Capital lease obligations........................ 2,483 2,483 2,483
Total shareholders' equity....................... 15,757 7,757 47,147
</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 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 (i) 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," and (ii) additional goodwill
resulting from the final payment described in clause (i).

6
<PAGE>

SUMMARY UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME

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 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 65,076 35,309 35,123
------- ------- ------- -------
Gross profit....................... 12,044 14,469 9,934 10,120
Selling expenses....................... 5,563 7,918 4,633 4,633
General and administrative expenses.... 4,824 8,154 3,495 3,895
Amortization of goodwill............... 319 1,113 330 557
------- ------- ------- -------
Earnings (loss) from operations.... 1,338 (2,716) 1,476 1,035
Interest expense....................... 522 543 126 126
------- ------- ------- -------
Earnings (loss) before income
taxes............................. 816 (3,259) 1,350 909
Income taxes........................... 513 (785) 729 640
------- ------- ------- -------
Net income (loss).................. $ 303 $(2,474) $ 621 $ 269
======= ======= ======= =======
Pro forma net income (loss) per
share (2)......................... $ (.25) $ .03
======= =======
</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 10,000,000.

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 60.4% of the
Company's 1995 revenues, pro forma for the acquisition of LANSystems, with the
top two clients accounting for approximately 7.4% and 6.1% of such 1995
revenues, respectively. Of these top 20 clients, the Company provides both
business and information technology services to six clients, business services
only to eight 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.

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.
The Company provided business services to 14 of its top 20 clients in 1995. Of
the 14 contracts with these clients, seven 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.

MANAGEMENT OF 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. In any period in which activities of the Company's
clients are reduced by economic or other factors, the volume of services
provided by the Company may be lower. A decline in the Company's revenues can
significantly affect net income because a large percentage of the Company's
costs are fixed. In addition, clients may impose 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. These pricing pressures may be offset,
in part, by the Company's ability to attract new clients who desire to reduce
their expenses by outsourcing certain services to the Company.

8
<PAGE>

PROJECT RISKS

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.

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.

NEED TO ATTRACT AND RETAIN KEY PERSONNEL

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

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

9
<PAGE>

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.

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."

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.

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 intends to enter into an employment
agreement with Ms. Kochlefl and a new employment agreement with 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."

ABILITY TO INTEGRATE LANSYSTEMS SUCCESSFULLY AND GROW 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.

10
<PAGE>

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, it has no current commitments or agreements with respect to any
material acquisitions.

VARIABILITY OF QUARTERLY RESULTS

The Company's revenues derived from individual business services outsourcing
contracts historically have been somewhat seasonal, with the lowest percentage
of revenues being attributed to the third quarter as a result, in part, of
reduced volumes of business services used by clients. Revenues from
information technology services are also seasonal, with the highest percentage
of revenues being attributed to the fourth quarter primarily as a result of
clients' decisions to use funds remaining in their information technology
budgets for projects delayed during the year. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Quarterly Operating
Results."

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."

11
<PAGE>

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.

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 $17.7 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. Prior to 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

12
<PAGE>

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. 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."

ANTITAKEOVER MATTERS

The Company's First 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
2,000,000 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 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. 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 $10.95 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 72% of the Company's total assets, which include a
significant amount of goodwill and other intangible assets.

13
<PAGE>

THE COMPANY

R.R. Donnelley reorganized the divisions that provided business services
outsourcing and information technology services as of January 1, 1996 under
Donnelley Enterprise Solutions Incorporated, a Delaware corporation (the
"Company" or "DESI"). 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 LAN Systems, Inc.
("LANSystems"), a premier provider of information technology services
primarily to firms within the same markets targeted by DBS. LANSystems, whose
name was changed to Donnelley Enterprise Solutions Incorporated in connection
with the reorganization described above, 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.

USE OF PROCEEDS

The net proceeds to the Company in the Offering are estimated to be
approximately $ million, assuming an initial public offering price of
$ 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 and totaled $17.7 million as of June
30, 1996. The remaining net proceeds received by the Company in the Offering
will be used for general corporate purposes. 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 obtain a bank credit facility of $20.0 million
upon 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.

14
<PAGE>

CAPITALIZATION

The following table sets forth the short-term debt and advances and total
capitalization of the Company (i) as of June 30, 1996, after giving effect to
the issuance of the Dividend Note in the principal amount of $8.0 million 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, and (ii) pro forma as adjusted to give effect to the issuance and sale
of 3,180,000 shares of Common Stock offered by the Company hereby at an
assumed initial public offering price of $ 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
FORMA(1) ADJUSTED
-------- ---------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <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....................... 17,672 --
Current portion of capital lease obligations......... 1,169 1,169
------- -------
Total short-term debt.............................. $35,541 $ 1,169
======= =======
Long-term capital lease obligations.................... $ 1,314 $ 1,314
Shareholders' equity:
Common Stock--$.01 par value, 25,000,000
shares authorized; 6,820,000 issued and
outstanding and 10,000,000 shares issued
and outstanding, as adjusted(2)..................... 68 100
Additional paid-in capital........................... 7,689 47,047
------- -------
Total shareholders' equity......................... 7,757 47,147
------- -------
Total capitalization............................... $ 9,071 $48,461
======= =======
</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 800,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Incentive Plan, including options to purchase an
aggregate of approximately 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 Plan."

15
<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.
Any credit facility entered into by the Company may contain restrictions on
the Company's payment of cash dividends. 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 $
million, or $ 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 3,180,000 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 $ million or $ per share. This
represents an immediate increase in net tangible book value of $ per share
to R.R. Donnelley and an immediate dilution of $ 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 $
Net tangible book value per share before the Offering......
Increase in net tangible book value per share attributable
to the Offering...........................................
----
Pro forma net tangible book value per share after giving
effect to the Offering......................................
------
Dilution per share to purchasers of Common Stock in the
Offering.................................................... $
======
</TABLE>

16
<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 65,076 18,077 35,309 35,123
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit......... 2,459 3,910 4,727 6,945 12,044 14,469 3,031 9,934 10,120
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 4,824 8,154 1,082 3,495 3,895
Amortization of
goodwill.............. -- -- -- -- 319 1,113 -- 330 557
------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings from
operations.......... 27 605 1,729 3,295 1,338 (2,716) 700 1,476 1,035
Interest expense....... 31 87 184 283 522 543 230 126 126
------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss)
before income taxes. (4) 518 1,545 3,012 816 (3,259) 470 1,350 909
Income taxes........... 4 248 684 1,277 513 (785) 208 729 640
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).... $ (8) $ 270 $ 861 $ 1,735 $ 303 $(2,474) $ 262 $ 621 $ 269
======= ======= ======= ======= ======= ======= ======= ======= =======
Pro forma net income
(loss) per share(3)... $ (.25) $ .03
======= =======
</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 $39,672 $46,292 $54,992 $60,010
Amounts due (to)
LANSystems earnout
participants.......... -- -- -- -- -- -- (8,700) --
Debt and advances due
(to) from
R.R. Donnelley........ 492 (1,450) (2,181) (191) (4,689) (17,672) (25,672) --
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 47,147
</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.

17
<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 10,000,000.
(4) Represents the issuance of the Dividend Note in the principal amount of
$8.0 million and 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.
(5) Adjusts the pro forma balance sheet data to give effect to (i) 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," and (ii) additional
goodwill resulting from the final payment described in clause (i).
(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.

18
<PAGE>

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The unaudited pro forma consolidated balance sheet as of June 30, 1996 set
forth below illustrates a portion of the assumed net proceeds of the Offering
being used to repay the Dividend Note and the advances due to R.R. Donnelley at
June 30, 1996. 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.

19
<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 10,436 740 -- 65,076
------- ------- ------- ----- -------
Gross profit......... 12,044 3,165 (740) -- 14,469
Selling expenses........ 5,563 2,355 -- -- 7,918
General and
administrative
expenses............... 4,824 2,230 1,100 -- 8,154
Amortization of
goodwill............... 319 -- -- 794(3) 1,113
------- ------- ------- ----- -------
Earnings (loss) from
operations.......... 1,338 (1,420) (1,840) (794) (2,716)
Interest expense........ 522 21 -- -- 543
------- ------- ------- ----- -------
Earnings (loss)
before income taxes. 816 (1,441) (1,840) (794) (3,259)
Income taxes............ 513 (534) (764)(4) -- (785)(4)
------- ------- ------- ----- -------
Net income (loss).... $ 303 $ (907) $(1,076) $(794) $(2,474)
======= ======= ======= ===== =======
Pro forma net loss
per share(5)........ $ (.25)
=======
</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 amount of public company expenses such as legal,
insurance, accounting and tax compliance and benefits administration
expenses.
(3) 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.
(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 loss per share is computed by dividing pro forma net loss by
the pro forma weighted average shares outstanding during the twelve months
ended December 31, 1995 of 10,000,000.

<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 (186) -- 35,123
------- ----- ----- -------
Gross profit..................... 9,934 186 -- 10,120
Selling expenses.................... 4,633 -- -- 4,633
General and administrative expenses. 3,495 400 -- 3,895
Amortization of goodwill............ 330 -- 227(2) 557
------- ----- ----- -------
Earnings from operations......... 1,476 (214) (227) 1,035
Interest expense.................... 126 -- -- 126
------- ----- ----- -------
Earnings before income taxes..... 1,350 (214) (227) 909
Income taxes........................ 729 (89)(3) -- 640(3)
------- ----- ----- -------
Net income....................... $ 621 $(125) $(227) $ 269
======= ===== ===== =======
Pro forma net income per
share(4)........................ $ .03
=======
</TABLE>
- --------
(1) Represents the estimated amount of public company expenses such as legal,
insurance, accounting and tax compliance and benefits administration
expenses.
(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 contingent payments to former LANSystems shareholders and
certain management participants based on specified financial targets for
the year ended December 31, 1995 through 1998.
(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 computed by dividing pro forma net income
by the pro forma weighted average share outstanding during the six months
ended June 30, 1996 of 10,000,000.

20
<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(3) REPAYMENTS(4) AS ADJUSTED
------- ---------- ------- ----------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash.................... $ 298 $ -- $ 298 $39,390 $(34,372) $ 5,316
Accounts receivable(5).. 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... 812 -- 812 -- -- 812
Deferred income taxes... 948 -- 948 -- -- 948
------- ------- ------- ------- -------- -------
Total current assets... 23,398 -- 23,398 39,390 (34,372) 28,416
Property and equipment,
net, at cost........... 9,129 -- 9,129 -- -- 9,129
Deferred income taxes... 791 -- 791 -- -- 791
Goodwill, net........... 12,913 8,700 (1) 21,613 -- -- 21,613
Other noncurrent assets. 61 -- 61 -- -- 61
------- ------- ------- ------- -------- -------
Total assets........... $46,292 $ 8,700 $54,992 $39,390 $(34,372) $60,010
======= ======= ======= ======= ======== =======
LIABILITIES AND
SHAREHOLDERS' EQUITY
Capital lease
obligations, current
portion................ $ 1,169 $ -- $ 1,169 $ -- $ -- $ 1,169
Amounts due to
LANSystems earnout
participants........... -- 8,700 (1) 8,700 -- (8,700) --
Dividend Note........... -- 8,000 (2) 8,000 -- (8,000) --
Advances due to R.R.
Donnelley.............. 17,672 -- 17,672 -- (17,672) --
Accounts payable........ 5,430 -- 5,430 -- -- 5,430
Accrued expenses........ 3,404 -- 3,404 -- -- 3,404
Customer prepayments and
deferred revenues...... 1,546 -- 1,546 -- -- 1,546
------- ------- ------- ------- -------- -------
Total current
liabilities........... 29,221 16,700 45,921 -- (34,372) 11,549
Capital lease
obligations............ 1,314 -- 1,314 -- -- 1,314
------- ------- ------- ------- -------- -------
Total noncurrent
liabilities........... 1,314 -- 1,314 -- -- 1,314
Common Stock--DESI...... 68 -- 68 32 -- 100
Additional paid-in
capital................ 15,689 (8,000) 7,689 39,358 -- 47,047
Retained earnings....... -- -- -- -- -- --
------- ------- ------- ------- -------- -------
Total shareholders'
equity................ 15,757 (8,000) 7,757 39,390 -- 47,147
------- ------- ------- ------- -------- -------
Total liabilities and
shareholders' equity.. $46,292 $ 8,700 $54,992 $39,390 $(34,372) $60,010
======= ======= ======= ======= ======== =======
</TABLE>
- --------
(1) Represents additional goodwill and the related amounts due to LANSystems
earnout participants resulting from the agreement to modify the Company's
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) Represents the issuance of the Dividend Note by the Company to R.R.
Donnelley.
(3) Represents the assumed net proceeds of the Offering. See "Use of
Proceeds."
(4) 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 $17,672,000
and the payment of amounts due to LANSystems earnout participants.
(5) Includes $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 a $20.0
million credit facility to be entered into prior to completion of the
Offering.

21
<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 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. The Company's revenues from business services outsourcing have
grown from $13.7 million in 1991 to $45.7 million in 1995. The Company's
revenues from information technology services, pro forma for its acquisition of
LANSystems in June 1995, have grown from $13.7 million in 1991 to $33.9 million
in 1995.

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. LANSystems has
been a premier provider of 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, pro forma for
the acquisition of LANSystems, accounted for 60.4% of revenues, with revenues
from the top two clients accounting for 7.4% and 6.1%, respectively. The
Company provided business services to 14 of its top 20 clients for 1995. Seven
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 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.

22
<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, annuity nature of outsourcing
contracts.

The Company's operating results are sensitive to the state of the
professional service economy in the United States, particularly as it affects
the Company's target markets. In any period in which the activities of the
Company's clients are reduced by economic or other factors, the volume of
services provided by the Company might be lower. A decline in the Company's
revenues can significantly affect the Company's net income because a large
percentage of the Company's costs are fixed. In addition, clients might impose
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.

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 $17.7 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 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.

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

23
<PAGE>

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 $12.9 million. The goodwill is being amortized over its
estimated useful life of 20 years. LANSystems was acquired by R.R. Donnelley
and contributed to the Company. 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 10.2
General and administrative expenses....... 5.7 4.4 7.3 5.1 7.7
Amortization of goodwill.................. -- -- 0.5 -- 0.7
----- ----- ----- ----- -----
Earnings from operations.............. 7.3 9.5 2.1 3.4 3.4
Interest expense.......................... 0.8 0.8 0.8 1.1 0.3
----- ----- ----- ----- -----
Earnings before income taxes.......... 6.5 8.7 1.3 2.3 3.1
Income taxes.............................. 2.9 3.7 0.8 1.0 1.6
----- ----- ----- ----- -----
Net income............................ 3.6% 5.0% 0.5% 1.3% 1.5%
===== ===== ===== ===== =====
</TABLE>
- --------
(1) The results of operations of LANSystems are included in DESI's consolidated
statements of income since July 1, 1995.

24
<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 subcontracted labor 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 arising from client sites that were
opened in 1995 and implementation of a cost-management plan to improve the
business services cost structure.

Selling expenses increased $3.4 million, or 270.9%, from 1995 and as a
percentage of revenues increased to 10.2% 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, annuity 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 $2.4 million, or 223.0%, from 1996
and as a percentage of revenues grew to 7.7% in 1996 from 5.1% in 1995. The
increase was primarily due to the inclusion of LANSystems and an investment in
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 54.0% 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.

25
<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 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 an investment
in sales personnel to support future revenues growth.

General and administrative expenses grew $3.3 million, or 213.2%, from 1994
and as a percentage of revenues grew to 7.3% in 1995 from 4.4% in 1994. The
increase was primarily due to the LANSystems acquisition and an investment in
personnel to support the revenues 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 62.9% 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 improved leverage in the sales effort.

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
investments made 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.

26
<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 $13.74
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 24.78
Earnings from
operations..... 0.29 0.34 0.50 0.60 0.64 0.75 0.79 1.11 0.33 0.37 (0.07) 0.70 0.09 1.39
Net income
(loss)......... $0.14 $0.16 $0.25 $0.31 $0.33 $0.40 $0.42 $0.58 $ 0.10 $ 0.17 $(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.

LIQUIDITY AND CAPITAL RESOURCES

The Company has funded its operations, capital expenditures and acquisitions
through cash flows from operations, amounts advanced 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 40.0% in 1995 to $4.0 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 geographic expansion initiatives. In 1995, the
Company had high levels of spending associated with new client site start-ups.

For the six months ended June 30, 1996, $2.1 million of capital expenditures
were funded by $9.1 million of operating cash flow and $11.7 million of cash
provided by financing activities. The Company's capital

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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.

The Company intends to obtain a bank credit facility of $20.0 million upon
consummation of the Offering. Such facility would be used to provide working
capital and for general corporate purposes.

The Company believes that, subsequent to the Offering, net proceeds received
by the Company from the Offering, the $20.0 million credit facility described
above and cash flows from operations will be sufficient to fund its ongoing
operations for the foreseeable future and continued growth and investment. The
Company expects the bank credit facility described above to be available for
seasonal cash needs and acquisitions.

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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 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. The Company's revenues from business service outsourcing
have grown from $13.7 million in 1991 to $45.7 million in 1995. The Company's
revenues from information technology services, pro forma for its acquisition
of LANSystems, have grown from $13.7 million in 1991 to $33.9 million in 1995.

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. LANSystems has been a
premier provider of 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.

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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

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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 and Shearman & Sterling
began in 1989, 1990, 1992 and 1993, 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
leveraging staff across 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

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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.

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 of
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

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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,

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<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-

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<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.

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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.

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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 SHL 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."

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,

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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.

38
<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 POSITION
---- --- ------------ --------
<C> <C> <C> <S>
Rhonda I. Kochlefl 37 1999 Chairman, President and Chief
Executive Officer and Director
Daniel I. Malina 37 1997 Director
Leo S. Spiegel 35 1998 Senior Vice President and Chief
Technology Officer and Director
W. Ed Tyler 43 1999 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 from January
1994 to November 1994. Prior to that, 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.

39
<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, SMG 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.

40
<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 SMG
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 5,925 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 4,787 3,000 --
President, DBS division
David J. Shea........... 1995 126,492 22,136 4,024 3,000 --
Senior Vice President
and General Manager,
SMG 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.

41
<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.

42
<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

Immediately after the Offering, none of the employees of DESI, including the
individuals named in the Summary Compensation Table, will participate in any
defined benefit plan of DESI or its subsidiaries. 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.

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>

43
<PAGE>

EMPLOYMENT AGREEMENTS

Mr. Spiegel 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. Spiegel's employment by the Company as its
Executive Vice President and Chief Technological Officer through June 1997.
The agreement provides Mr. Spiegel with a minimum annual salary of $225,000
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.
In addition, the agreement requires the Company to pay to Mr. Spiegel the sum
of $250,000 on January 1, 1997, without regard to any termination of the
agreement, except for a termination of the agreement arising from a material
breach of the provisions relating to exclusivity of services and confidential
information. 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 the later of June 1998 or
the first anniversary of the termination of Mr. Spiegel's employment with the
Company.

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.

The Company intends to enter into an employment agreement with Rhonda I.
Kochlefl, Chief Executive Officer, and a new employment agreement with Mr.
Spiegel.

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 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

44
<PAGE>

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 PLAN

In connection with the Offering, the Board of Directors of the Company has
adopted the Company's 1996 Stock Incentive Plan. The Company has reserved for
issuance under the 1996 Stock Incentive Plan an aggregate of 800,000 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:
. 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.

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 Plan."

SOLE STOCKHOLDER OF THE COMPANY

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

<TABLE>
<CAPTION>
PRIOR TO OFFERING AFTER OFFERING
------------------ ------------------
PERCENT PERCENT
NAME AND ADDRESS NUMBER OF CLASS NUMBER OF CLASS
---------------- --------- -------- --------- --------
<S> <C> <C> <C> <C>
R. R. Donnelley & Sons Company ..... 6,820,000 100% 4,800,000 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%).

45
<PAGE>

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

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

<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL
NAME OF BENEFICIAL OWNER OWNERSHIP
------------------------ ----------
<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>

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, book, directories, and financial
and computer documentation.

Upon completion of the Offering, R.R. Donnelley will own 4,800,000 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 to
Consolidated Financial Statements of DESI.

46
<PAGE>

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

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.

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, workers compensation and postretirement benefits. The Company has
reimbursed R.R. Donnelley for its proportionate cost of these programs based
on historical experience and relative headcount. The Company recorded

47
<PAGE>

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.

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
consummation 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 Interim Period 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
income taxes (whether or not related to taxes paid on a consolidated or
combined basis) for periods prior to January 1, 1996 that results from an
action of a taxing authority or a court (except to the extent such increase
provides tax benefits to the

48
<PAGE>

Company for periods beginning on or after January 1, 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 25,000,000 shares of
Common Stock, par value $.01 per share, and 2,000,000 shares of Preferred
Stock, par value $.01 per share (the "Preferred Stock"). The following summary
description of the capital stock, First 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 Restated Certificate of
Incorporation and By-laws, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part (see "Available
Information"), and to the Delaware General Corporation Law ("DGCL").

COMMON STOCK

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

PREFERRED STOCK

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

49
<PAGE>

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 Restated Certificate of Incorporation
authorizing only the Board of Directors to fill vacant directorships, will
preclude stockholders of the Company from removing incumbent directors without
cause and simultaneously gaining control of the Board of Directors by filling
the vacancies with their own nominees.

Special Meetings of Stockholders

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

Advance Notice Requirements for Stockholder Proposals and Director Nominations

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

No Action by Written Consent of the Stockholders

The Company's First Restated Certificate of Incorporation does not allow the
stockholders of the Company to take action by written consent.

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 Restated Certificate of
Incorporation, the Company has expressly elected not to be governed by Section
203.

Limitations of Liability

The Company's First 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.

50
<PAGE>

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 Restated Certificate of Incorporation does not eliminate its
directors' duty of care. The inclusion of this provision in the Company's First
Restated Certificate of Incorporation may, however, discourage or deter
stockholders or management from bringing a lawsuit against directors for a
breach of their fiduciary duties, even though such an action, if successful,
might otherwise have benefited the Company and its stockholders. This provision
should not affect the availability of equitable remedies such as injunction or
rescission based upon a director's breach of the duty of care.

Indemnification

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

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is
.

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 10,000,000
shares of Common Stock. Of these shares, the 5,200,000 shares to be sold in the
Offering (5,980,000 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 4,800,000 outstanding shares of Common Stock
(4,020,000 shares if the Underwriters exercise their over-allotment option in
full) are deemed "restricted securities" within the

51
<PAGE>

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
(100,000 shares following completion of the Offering) or the average weekly
trading volume in the Common Stock in composite trading on all exchanges during
the four calendar weeks preceding such sale. A person (or persons whose shares
are aggregated) who is not deemed an "affiliate" of the Company and who has
beneficially owned restricted securities as to which at least three years have
elapsed since the later of the date of the acquisition of such securities from
the issuer or from an affiliate of the issuer is entitled to sell such shares
under Rule 144 without regard to the volume limitations described above. The
foregoing summary of Rule 144 is not intended to be a complete description
thereof.

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

STOCK OPTIONS

In connection with the Offering, the Company expects to grant certain
employees options to acquire up to an aggregate shares of Common
Stock at the initial public offering price set forth on the cover page of this
Prospectus. An additional shares of Common Stock would be available
for future grants under the Company's 1996 Stock Incentive Plan. See
"Management-- Stock Plan."

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.

52
<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.......................................................
=========
</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 780,000
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.

53
<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 lender
to the Selling Stockholder.

At the request of the Company, the Underwriters have reserved up to
shares of the shares of Common Stock offered by the Company hereby for sale at
the public offering price 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.

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

54
<PAGE>

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.

55
<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>

UPON CONSUMMATION OF THE RECLASSIFICATION OF STOCK DISCUSSED IN NOTE 11 TO
THE CONSOLIDATED FINANCIAL STATEMENTS, WE EXPECT TO BE IN A POSITION TO RENDER
THE FOLLOWING OPINION.

Arthur Andersen LLP

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

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.

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......... 207 784 812
Deferred income taxes............................. 127 1,152 948
------ ------- -------
Total current assets............................ 2,369 17,309 23,398
Property and equipment, net, at cost................ 7,192 9,075 9,129
Deferred income taxes............................... 252 780 791
Goodwill, net....................................... -- 12,449 12,913
Other noncurrent assets............................. -- 59 61
------ ------- -------
Total assets.................................... $9,813 $39,672 $46,292
====== ======= =======
<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 4,689 17,672
Accounts payable.................................. 1,344 6,321 5,430
Accrued salary and benefits....................... 1,219 3,046 2,406
Accrued other expenses............................ 120 1,611 998
Customer prepayments.............................. 3,094 3,538 793
Deferred revenues................................. -- 1,332 753
------ ------- -------
Total current liabilities....................... 7,269 21,884 29,221
------ ------- -------
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, 25,000,000
authorized shares; 6,820,000 issued and
outstanding at December 31, 1995 and June 30,
1996............................................. -- 68 68
Preferred stock--DESI, $.01 par value, 2,000,000
authorized shares; none issued and outstanding... -- -- --
Additional paid-in capital........................ -- 15,689 15,689
Retained earnings................................. -- -- --
------ ------- -------
Total shareholder's equity...................... -- 15,757 15,757
------ ------- -------
Total liabilities and shareholder's equity...... $9,813 $39,672 $46,292
====== ======= =======
</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 4,824 1,082 3,495
Amortization of goodwill................ -- -- 319 -- 330
------- ------- ------- ------- -------
Earnings from operations............ 1,729 3,295 1,338 700 1,476
Interest expense........................ 184 283 522 230 126
------- ------- ------- ------- -------
Earnings before income taxes........ 1,545 3,012 816 470 1,350
Income taxes............................ 684 1,277 513 208 729
------- ------- ------- ------- -------
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...................... 68 15,689 -- 15,757
Repayments to related party......... -- -- (303) (303)
---- ------- ------ -------
Balance at December 31, 1995.......... 68 15,689 -- 15,757
Current-period earnings
(unaudited)........................ -- -- 621 621
Dividend to related party
(unaudited)........................ -- -- (621) (621)
---- ------- ------ -------
Balance at June 30, 1996 (unaudited).. $ 68 $15,689 $ -- $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>
YEAR ENDED DECEMBER SIX MONTHS ENDED
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........ -- -- 319 -- 330
Net changes in assets and
liabilities.................... (989) 2,653 (150) (3,053) (12,177)
------ ------ ------- ------- --------
Net cash provided by (used
in) operating activities... 1,388 6,685 3,918 (1,263) (9,117)
------ ------ ------- ------- --------
Cash flows used in investing
activities:
Capital expenditures............ (787) (2,081) (4,084) (1,007) (2,139)
Acquisition of LANSystems....... -- -- (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) 4,498 4,007 12,983
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) 17,451 18,903 11,696
------ ------ ------- ------- --------
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) -- (28)
Deferred income taxes......... (133) (120) (692) (79) 193
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) 1,173 644 (613)
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 $ (150) $(3,053) $(12,177)
====== ====== ======= ======= ========
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
$319,000 and $649,000, 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. In
total, these clients accounted for approximately 50% of the Company's
revenues. 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. These financial statements do not include any charge for factoring
costs related to these receivables. 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 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 $1,840,000 and
$214,000 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 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 $ 905 $ 229 $ 457
Deferred.................................... (97) (87) (485) (58) 140
State--
Current..................................... 160 264 300 58 79
Deferred.................................... (36) (33) (207) (21) 53
---- ------ ----- ----- -----
Total provision........................... $684 $1,277 $ 513 $ 208 $ 729
==== ====== ===== ===== =====
</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 11.4 7.9 9.8
Goodwill amortization........................... -- -- 12.1 -- 6.8
Meals and entertainment......................... 2.3 0.7 5.3 1.8 3.3
Other........................................... -- -- 0.1 -- 0.1
---- ---- ---- ----- -----
Effective tax rate.......................... 44.3% 42.4% 62.9% 43.7% 54.0%
==== ==== ==== ===== =====
</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 45 157
----- ------- ------
Total net current deferred tax asset...... 127 1,152 948
----- ------- ------
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 $ 1,932 $1,739
===== ======= ======
</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 $12.9 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,
$793,000 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 7,054
Amortization of goodwill............................... 1,113 1,113
------- -------
Earnings (loss) from operations.................... 4,185 (876)
Interest expense....................................... 335 543
------- -------
Earnings (loss) before income taxes................ 3,850 (1,419)
Income taxes........................................... 2,139 (46)
------- -------
Net income (loss).................................. $ 1,711 $(1,373)
======= =======
</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 1996, each outstanding share of Common Stock, par value $1.00 per
share, of DESI was reclassified into 68,200 shares of Common Stock, par value
$.01 per share; the authorized number of Common Stock was increased from 1,000
to 25,000,000; and 2,000,000 shares of Preferred Stock, $.01 par value per
share, were authorized. The reclassification has been retroactively reflected
in the accompanying financial statements.

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.

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
Shareholders' equity:
Preferred stock, Class A, par value $1.00; authorized 500,000
shares......................................................... 2,601,562
Preferred stock, Class B, par value $1.00; authorized 500,000
shares......................................................... 3,068,594
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.................................... 4,665,439
-----------
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>
PREFERRED STOCK COMMON STOCK ADDITIONAL
-------------------- ---------------- PAID-IN TREASURY ACCUMULATED
SHARES AMOUNT WARRANTS SHARES AMOUNT CAPITAL STOCK DEFICIT TOTAL
-------- ---------- -------- --------- ------ ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1992................... 660,227 $5,141,574 $ 2,645 960,086 $ 960 $ -- $(1,000) $(1,208,164) $3,936,015
Net income.............. -- -- -- -- -- -- -- 663,508 663,508
Exercise of stock
options................ -- -- -- 380 -- 380 -- -- 380
Accretion of dividends
on preferred stock..... -- 816,946 -- -- -- (380) -- (816,566) --
Reclassification of
preferred stock
redeemed in 1994....... -- (1,029,395) -- -- -- -- -- -- (1,029,395)
-------- ---------- ------- --------- ------ -------- ------- ----------- ----------
Balance, December 31,
1993................... 660,227 4,929,125 2,645 960,466 960 -- (1,000) (1,361,222) 3,570,508
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..... -- 766,804 -- -- -- (1,358) -- (765,446) --
Dividends on preferred
stock redeemed in 1994. -- (25,773) -- -- -- -- -- -- (25,773)
Redemptions of preferred
stock.................. (110,038) -- -- -- -- -- -- -- --
Issuance of common stock
warrants............... -- -- 26,294 -- -- -- -- -- 26,294
-------- ---------- ------- --------- ------ -------- ------- ----------- ----------
Balance, December 31,
1994................... 550,189 5,670,156 28,939 961,736 962 -- (1,000) (1,033,618) 4,665,439
Net loss................ -- -- -- -- -- -- -- (906,720) (906,720)
Exercise of stock
options................ -- -- -- 53,500 53 106,047 -- -- 106,100
Accretion of dividends
on preferred stock..... -- 354,072 -- -- -- (106,047) -- (248,025) --
-------- ---------- ------- --------- ------ -------- ------- ----------- ----------
Balance, June 21, 1995.. 550,189 $6,024,228 $28,939 1,015,236 $1,015 $ -- $(1,000) $(2,188,363) $3,864,819
======== ========== ======= ========= ====== ======== ======= =========== ==========
</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.
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 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............................................................... 14
Use of Proceeds........................................................... 14
Capitalization............................................................ 15
Dividend Policy........................................................... 16
Dilution.................................................................. 16
Selected Consolidated Financial Data...................................... 17
Unaudited Pro Forma Consolidated Financial Information.................... 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 22
Business.................................................................. 29
Management................................................................ 39
Ownership of Capital Stock................................................ 45
Relationship with R.R. Donnelley.......................................... 46
Description of Capital Stock and
Corporate Charter........................................................ 49
Principal and Selling Stockholder......................................... 51
Shares Eligible for Future Sale........................................... 51
Underwriting.............................................................. 53
Legal Matters............................................................. 54
Experts................................................................... 54
Additional Information.................................................... 55
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.
5,200,000 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*
Blue Sky fees and expenses (including legal fees and expenses). 20,000*
Transfer agent and registrar fees and expenses................. 25,000*
Miscellaneous.................................................. 24,089*
--------
Total...................................................... $750,000*
========
</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 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. Prior to the consummation of the offering
contemplated by this Registration Statement, the Registrant will file its
First 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
68,200 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 Restated Certificate of Incorporation of the Regis-
trant.
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 May 29, 1996 between Leo S.
Spiegel and the Registrant.
10.5* Employment Agreement dated May 29, 1995 between Thomas P.
Bradbury and the Registrant.
10.6* 1996 Stock Incentive Plan.
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.

(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 TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN CHICAGO, ILLINOIS ON AUGUST 14,
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 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 August 14, 1996
____________________________________ Chief Executive Officer
Rhonda I. Kochlefl and Director (principal
executive officer)

* Senior Vice President and August 14, 1996
____________________________________ Chief Financial Officer
Luke F. Botica (principal financial and
accounting officer)

* Senior Vice President and August 14, 1996
____________________________________ Chief Technology Officer
Leo S. Spiegel and Director

* Director August 14, 1996
____________________________________
Daniel I. Malina

* Director August 14, 1996
____________________________________
W. Ed Tyler
</TABLE>

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

II-4
<PAGE>

UPON CONSUMMATION OF THE RECLASSIFICATION OF STOCK DISCUSSED IN NOTE 11 TO THE
CONSOLIDATED FINANCIAL STATEMENTS, WE EXPECT TO BE IN A POSITION TO RENDER THE
FOLLOWING REPORT.

Arthur Andersen LLP

Chicago, Illinois
July 3, 1996

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 August xx, 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.

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 1.1
FORM OF
UNDERWRITING AGREEMENT

Donnelley Enterprise Solutions, Inc.

[____________] Shares*

Common Stock
($.01 par value)

Underwriting Agreement

New York, New York
July [__], 1996

Salomon Brothers Inc
Montgomery Securities
J.P. Morgan & Co. Incorporated
As Representatives of the several Underwriters,
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048

Dear Sirs:

Donnelley Enterprise Solutions, Inc., a Delaware corporation (the
"Company") proposes to sell to the underwriters named in Schedule I hereto (the
"Underwriters"), for whom you are acting as representatives (the
"Representatives"), [__________] shares of Common Stock, $.01 par value (the
"Common Stock") of the Company and R. R. Donnelley and Sons Company, a Delaware
corporation (the "Selling Stockholder") proposes to sell to the Underwriters
[__________] shares of Common Stock (said shares to be issued and sold by the
Company and shares to be sold by the Selling Stockholder collectively being
hereinafter called the "Underwritten Securities"). Upon the terms and
conditions more fully set forth herein, the Company and the Selling Stockholder
also propose to grant to the Underwriters an option to purchase up to
[__________] additional shares of Common Stock (the "Option Securities"; the
Option Securities, together with the Underwritten Securities, being hereinafter
called the "Securities").

___________________
* Plus an option to purchase up to [__________] additional shares from the
Company and up to [__________] additional shares from the Selling
Stockholder to cover over-allotments.
<PAGE>

1. Representations and Warranties.
------------------------------

(a) The Company and the Selling Stockholder, jointly and severally,
represent and warrant to, and agree with, each Underwriter that:

(i) The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement (file number 333_____) on Form
S-1, including related preliminary prospectuses, for the registration
under the Securities Act of 1933 (the "Act") of the offering and sale of
the Securities. The Company may have filed one or more amendments thereto,
including the related preliminary prospectuses, each of which has
previously been furnished to you. The Company will next file with the
Commission either, (A) prior to effec tiveness of such registration
statement, a further amendment thereto (including the form of final pro
spectus) or, (B) after effectiveness of such registration statement, a
final prospectus in accordance with Rules 430A and 424(b)(1) or (4). In the
case of clause (B), the Company has included in such registration
statement, as amended at the Effective Date, all information (other than
Rule 430A Information) required by the Act and the rules thereunder to be
included in the Prospectus with respect to the Securities and the offering
thereof. As filed, such amendment and form of final prospectus, or such
final prospectus, shall include all Rule 430A Information and, except to
the extent the Representatives shall agree in writing to a modification
(which agreement shall not be unreasonably withheld), shall be in all
substantive respects in the form furnished to you prior to the Execution
Time or, to the extent not completed at the Execution Time, shall contain
only such specific additional information and other changes (beyond that
contained in the latest Preliminary Prospectus) as the Company has advised
you, prior to the Execution Time, will be included or made therein.

The terms which follow, when used in this Agreement, shall have the
meanings indicated. The term "the Effective Date" shall mean each date that
the Registra tion Statement and any post-effective amendment or amendments
thereto became or become effective. "Execution Time" shall mean the date
and time that this Agreement is executed and delivered by the parties
hereto. "Preliminary Prospectus" shall mean any preliminary prospectus
referred to in the preceding paragraph and any preliminary prospectus
included in the

2
<PAGE>

Registration Statement at the Effective Date that omits Rule 430A
Information. "Prospectus" shall mean the prospectus relating to the
Securities that is first filed pursuant to Rule 424(b) after the Execution
Time or, if no filing pursuant to Rule 424(b) is required, shall mean the
form of final prospectus relating to the Securities included in the
Registration Statement at the Effective Date. "Registration Statement"
shall mean the registration statement referred to in the preceding
paragraph, including exhibits and financial statements, in the form in
which it has or shall become effective and, in the event any post-effective
amendment thereto becomes effective prior to the Closing Date (as
hereinafter defined) or settlement date pursuant to Section 3 hereof, shall
also mean such registration statement as so amended on such date. Such term
shall include a registration statement, if any, filed pursuant to Rule
462(b) under the Act increasing the size of the offering registered under
the Act and Rule 430A Information deemed to be included therein at the
Effective Date as provided by Rule 430A. "Rule 424" and "Rule 430A" refer
to such rules under the Act. "Rule 430A Information" means information with
respect to the Securities and the offering thereof permitted to be omitted
from the Registration Statement when it becomes effective pursuant to Rule
430A. "Knowledge of the Company", "Company's knowledge" or words of similar
import shall mean the collective knowledge of the Company and the Selling
Stockholder.

(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations
thereunder, and did not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that no representations
or warranties are made as to the information contained in or omitted from
any Preliminary Prospectus in reliance upon and in conformity with
information forwarded in writing to the Company or the Selling Stockholder
by or on behalf of any Underwriter through the Representatives specifically
for use therein.

(iii) On the Effective Date, the Registration Statement did or will,
and when the Prospectus is first

3
<PAGE>

filed (if required) in accordance with Rule 424(b), on the Closing Date and
on any settlement date pursuant to Section 3 hereof, the Prospectus (and
any supplements thereto) will, comply in all material respects with the
applicable requirements of the Act and the rules thereunder; on the
Effective Date, the Registration Statement did not or will not 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 not misleading; and, on the Effective Date, the Prospectus, if not
filed pursuant to Rule 424(b), did not or will not, and on the date of any
filing pursuant to Rule 424(b), on the Closing Date and on any settlement
date pursuant to Section 3 hereof, the Prospectus (together with any
supplement thereto) will not, include any untrue state ment of a material
fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that no representations or
warranties are made as to the information contained in or omitted from the
Registration Statement or the Prospectus (or any supplement thereto) in
reliance upon and in conformity with information furnished in writing to
the Company, or the Selling Stockholder by or on behalf of any Underwriter
through the Representatives specifically for use therein.

(iv) The performance of this Agreement and the consummation of the
transactions herein contemplated will not result in a breach or violation
of any of the terms and provisions of, or constitute a default under, any
statute, any indenture, mortgage, deed of trust, credit agreement or other
material agreement or instrument to which the Company is a party or by
which the Company is bound or to which any of the property of the Company
is subject, the Company's certificate of incorporation or by-laws, or any
order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company or any of its properties; no consent,
approval, authorization or order of, or filing with, any court or
governmental agency or body is required for the consummation of the
transactions contemplated by this Agreement in connection with the issuance
or sale of the Securities except such as may be required by the National
Association of Securities Dealers, Inc. or under the Act or state
securities laws.

4
<PAGE>

(v) Except as described in the Prospectus, the Company is not in
violation of any term of its charter or by-laws, and the Company is not in
violation of any term of any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to it which
violation or violations might or could be expected to individually or in
the aggregate result in a materially adverse effect on the financial
condition, assets, operations, or prospects of the Company or the offering
of the Securities contemplated by the Prospectus (the "Offering").

(vi) Except as described in the Prospectus, the Company is operating
in compliance in all material respects with all material franchises,
grants, authorizations, licenses, permits, easements, consents,
certificates and orders of any governmental or regulatory body required for
the conduct of its businesses, and it owns or possesses all the patents,
trademarks, service marks, trade names, copyrights and licenses, and rights
with respect to the foregoing, necessary for the conduct of its businesses
as now conducted and as proposed to be conducted, without any known
conflict with the rights of others.

(vii) All contracts, agreements, instruments, leases and licenses
required to be described in the Registration Statement or the Prospectus
and/or to be filed as an exhibit to the Registration Statement have been so
described in all material respects and/or filed.

(viii) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as set forth
or contemplated in the Prospectus, (i) the Company has not incurred any
material liabilities or obligations, direct or contingent, nor entered into
any material transactions not in the ordinary course of business, and (ii)
there has not been any material adverse change in the condition (financial
or otherwise), business, prospects or results of operations of the Company,
or any change in the capital stock or long-term debt of the Company.

(ix) The financial statements, together with the related notes and
schedules, set forth in the Prospectus and elsewhere in the Registration
Statement, fairly present in all material respects, on the basis stated in
the Registration Statement, the financial position and the results of
operations and cash flows of the entities

5
<PAGE>

covered thereby at the respective dates or for the respective periods
therein specified. Such financial statements and related notes and
schedules have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the
respective periods involved, and are in accordance with the books and
records of the entities covered thereby. The selected financial data set
forth in the Prospectus under the captions "Summary Consolidated Financial
and Operating Data," "Risk Factors," "Capitalization," "Selected
Consolidated Financial and Operating Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business," and
"Management" taken together with the other information in the Prospectus
fairly presents, on the basis stated in the Registration Statement, the
information set forth therein. The pro forma statement of operations data
set forth in the Prospectus under the caption "Unaudited Pro Forma
Consolidated Financial Information" presents fairly in all material
respects the information shown therein, has been prepared in accordance
with the Commission's rules and guidelines with respect to pro forma
information, has been properly compiled on the pro forma basis described
therein, and, in the opinion of the Company, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate under the circumstances. No other financial statements are
required by Form S-1 or otherwise to be involved in the Registration
Statement or the Prospectus.

(x) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
prudent and customary in the businesses in which it is engaged; the Company
has not been refused any insurance coverage sought or applied for; and the
Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the
condition, financial or otherwise, or the earnings, business or operations
of the Company, except as described in or contemplated by the Prospectus.

(xi) Arthur Andersen LLP, who have certified the consolidated
financial statements of the Company, and the related schedules included in
the Registration Statement, are, and during the periods covered by their
reports

6
<PAGE>

included in the Registration Statement were, independent public accountants
as required by the Act and the applicable rules and regulations thereunder.

(xii) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware. The
Company is duly qualified and in good standing as a foreign corporation in
each jurisdiction in which the character or location of its properties
(owned, leased or licensed) or the nature or conduct of its business makes
such qualification necessary, except for those failures to be so qualified
or in good standing that will not in the aggregate have a material adverse
effect on the financial condition, assets, operations or prospects of the
Company. The Company has all requisite power and authority, and all
necessary consents, approvals, authorizations, orders, registrations,
qualifications, licenses and permits of and from all public, regulatory or
governmental agencies and bodies, to own, lease and operate its properties
and conduct its business as now being conducted and as described in the
Registration Statement and the Prospectus, and no such consent, approval,
authorization, order, registration, qualification, license or permit
contains a materially burdensome restriction not adequately disclosed in
the Registration Statement and the Prospectus.

(xiii) The Company has no subsidiaries with assets exceeding de
minimis value.

(xiv) As of the date of this Agreement, the Company has an authorized
and outstanding capitalization as set forth under the heading "Historical"
beneath the caption "Capitalization" in the Prospectus and immediately
following the purchase of the Underwritten Securities hereunder, the
Company will have an authorized and outstanding capitalization as set forth
under the heading "Pro Forma" beneath the caption "Capitalization" in the
Prospectus; the issued shares of Common Stock of the Company conform to the
description thereof in the Prospectus and have been duly authorized and
validly issued and are fully paid and nonassessable and were not issued in
violation of or subject to any preemptive rights; on the Closing Date, the
stockholders of the Company will have no preemptive rights with respect to
any shares of capital stock of the Company; and all outstanding shares of
the Company are owned directly by the Selling Stockholder. There is no
commitment, plan or

7
<PAGE>

arrangement to issue, and no outstanding option, warrant, or other right
calling for the issuance of, any share of capital stock of the Company, or
any security or other instrument which by its terms is convertible into or
exchangeable for capital stock of the Company, except as described in the
Prospectus. Except as described in the Prospectus, there is outstanding no
security or other instrument which by its terms is convertible into or
exchangeable for capital stock of the Company. The Securities to be sold by
the Company to the Underwriters hereunder, when delivered and sold in
accordance with this Agreement, will be duly and validly issued and
outstanding, fully paid and nonassessable, and will not have been issued in
violation of or subject to any preemptive rights.

(xv) Except as described in the Prospectus, to the knowledge of the
Company or the Selling Stockholder there are no legal or governmental
proceedings or other actions, suits, proceedings or investigations pending
before any court or before or by any public, regulatory or governmental
agency or body (including, without limitation, any state regulatory agency,
board or department) to which the Company is a party or of which any
property of the Company is the subject, which, if determined adversely to
the Company would result in a material adverse change in the financial
condition, assets, operations, or prospects of the Company or the Offering;
and to the best of the Company's knowledge and the Selling Stockholder's
knowledge no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.

(xvi) The Company has the full corporate power and authority to enter
into this Agreement and to perform the obligations to be performed by it
hereunder and this Agreement has been duly and validly authorized, executed
and delivered by the Company.

(xvii) The Company has good and marketable title in fee simple
absolute to all real properties and good title to all other properties and
assets that the Prospectus indicates are owned by it, free and clear of all
liens, security interests, pledges, charges, encumbrances and mortgages
(except as described in the Prospectus or such as in the aggregate do not
now have and will not in the future have a material adverse effect upon the
financial condition, assets, operations, or prospects of the Company or the
Offering).

8
<PAGE>

(xviii) The Company has filed all necessary federal and state income
and franchise tax returns and has paid all taxes shown as due thereon, and
there is no tax deficiency that has been, or to the knowledge of the
Company might be, asserted against the Company or any of its properties or
assets that would or could be expected to adversely affect the financial
condition, assets, operations or prospects of the Company or the Offering.

(xix) No person or entity has the right to require registration of
shares of Common Stock or other securities of the Company because of the
filing or effectiveness of the Registration Statement or otherwise, except
as described in the Prospectus.

(xx) The Securities have been listed for trading on the Nasdaq
National Market subject to notice of issuance or sale, as the case may be.

(xxi) To the best of the Company's knowledge and the Selling
Stockholder's knowledge and except as would not, individually or in the
aggregate, have a material adverse effect upon the financial conditions,
assets, business or operations of the Company (a) the Company is not in
violation of any Federal, state or local laws and regulations relating to
pollution (including regulations relating to noise) or protection of human
health or the environmental (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata), including,
without limitation, laws and regulations relating to emissions, discharges,
releases or threatened releases of toxic or hazardous substances, materials
or wastes, or petroleum and petroleum products ("Materials of Environmental
Concern"), or otherwise relating to the storage, disposal, transport or
handling of Materials of Environmental Concern (collectively,
"Environmental Laws"), which violation includes, but is not limited to,
noncompliance with any permits or other governmental authorizations; (b)
the Company has not received any communication (written or oral), whether
from a governmental authority or otherwise, alleging any such violation or
noncompliance; and (c) there is no pending or threatened claim, action,
investigation or notice (written or oral) by any person or entity alleging
potential liability for investigatory, cleanup, or governmental response
costs, or natural resources or property damages, or personal injuries,
attorney's fees or penalties relating to (x) the presence, or release

9
<PAGE>

into the environment, of any Material of Environmental Concern at any
location owned or operated by the Company, now or in the past, or (y)
circumstances forming the basis of any violation, or alleged violation, of
any Environmental Law.

(xxii) The Company is not involved in any labor dispute nor, to the
best knowledge of the Company and the Selling Stockholder, is any labor
dispute imminent, other than routine disciplinary and grievance matters,
which would have a material adverse effect upon the financial condition,
assets, business or operations of the Company.

(xxiii) Neither the Company nor any of its officers, directors or
affiliates (as defined in the Act and the rules and regulations
thereunder), has taken or will take, directly or indirectly, any action
designed to or which has constituted or which might reasonably be expected
to cause or result, under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or otherwise in stabilization or manipulation of the
price of any security of the Company, to facilitate the sale or resale of
the Securities.

(xxiv) The Company is not nor does it intend to conduct its business
in a manner in which it would become, an "investment company" as defined in
Section 3(a) of the Investment Company Act of 1940, as amended.

(xxv) The Company is in compliance with Florida blue sky law relating
to disclosure of issuers doing business with Cuba. The Company is not
presently doing business with the government of Cuba or with any person or
affiliate located in Cuba and the Company will notify the Florida
Department of Banking and Finance, Division of Securities and Investor
Protection, if the Company commences doing business with the government of
Cuba or any person or affiliate located in Cuba.

(xxvi) [ADDITIONAL REPRESENTATIONS AND WARRANTIES REGARDING AND ANY
OTHER MATTERS THAT ARISE AS A RESULT OF OUR DUE DILIGENCE INVESTIGATION]

(b) The Selling Stockholder represents and warrants to, and agrees with,
each Underwriter that:

(i) The Selling Stockholder has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware.

10
<PAGE>

(ii) The Selling Stockholder, on the Closing Date, will have good
title to the Securities to be sold and delivered by it hereunder and upon
sale and delivery of, and payment for, such Securities, as provided herein,
the Selling Stockholder will convey good and marketable title to such
Securities, free and clear of all liens, encumbrances, pledges, equities
and claims whatsoever.

(iii) The Selling Stockholder has the full corporate power and
authority to enter into and deliver this Agreement, to sell and deliver the
Securities to be sold and delivered by it hereunder and to otherwise
perform the obligations to be performed by it hereunder and this Agreement
has been duly and validly authorized, executed and delivered by the Selling
Stockholder.

(iv) The Selling Stockholder has not taken and will not take, directly
or indirectly, any action designed to or which has constituted or which
might reasonably be expected to cause or result, under the Exchange Act or
otherwise, in stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Securities and has not
effected any sales of shares of Common Stock which, if effected by the
issuer, would be required to be disclosed in response to Item 701 of
Regulation S-K.

(v) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution and delivery by
the Selling Stockholder of this Agreement and for the consummation by such
Selling Stockholder of the transactions contemplated herein and therein,
except such as may have been obtained under the Act and such as may be
required by the National Association of Securities Dealers, Inc. or under
the blue sky laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the Underwriters and such other approvals
as have been obtained.

(vi) None of the sale of the Securities being sold by the Selling
Stockholder, the execution and delivery by the Selling Stockholder of this
Agreement nor the consummation of any other of the transactions
contemplated herein by the Selling Stockholder or the fulfillment of the
terms hereof by the Selling Stockholder will conflict with, result in a
breach of, or constitute a default under the charter or by-laws of the
Selling Stockholder, or the terms of any indenture or

11
<PAGE>

other material agreement or instrument to which the Selling Stockholder is
a party or bound, or any order or regulation applicable to the Selling
Stockholder of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over the Selling
Stockholder.

2. Purchase and Sale. (a) Subject to the terms and conditions and in
reliance upon the representations and warranties herein set forth, the Company
and the Selling Stockholder agree, severally and not jointly, to sell to each
Underwriter, and each Underwriter agrees, severally and not jointly, to purchase
from the Company and the Selling Stockholder, at a purchase price of
$[__________] per share, the amount of the Underwritten Securities set forth
opposite such Underwriter's name in Schedule I hereto.

(b) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company hereby grants an
option to the several Underwriters to purchase, severally and not jointly, up to
[_______] shares of the Option Securities and the Selling Stockholder hereby
grants an option to the several Underwriters to purchase, severally and not
jointly, up to [_______] shares of the Option Securities, all at the same
purchase price per share as the Underwriters shall pay for the Underwritten
Securities. Said option may be exercised only to cover over-allotments in the
sale of the Underwritten Securities by the Underwriters. Said option may be
exercised in whole or in part at any time (but not more than once) on or before
the 30th day after the date of the Prospectus upon written or facsimile notice
by the Representatives to the Company and the Selling Stockholder setting forth
the number of shares of the Option Securities as to which the several
Underwriters are exercising the option and the settlement date. Delivery of
certificates for the shares of Option Securities by the Company and the Selling
Stockholder, and payment therefor to the Company and the Selling Stockholder,
shall be made as provided in Section 3 hereof. The number of shares of the
Option Securities to be purchased by each Underwriter shall be the same
percentage of the total number of shares of the Option Securities to be
purchased by the several Underwriters as such Underwriter is purchasing of the
Underwritten Securities, subject to such adjustments as you in your absolute
discretion shall make to eliminate any fractional shares.

3. Delivery and Payment. Delivery of and payment for the Underwritten
Securities and the Option Securities (if the option provided for in Section 2(b)
hereof shall have been exercised on or before the third business day prior to
the Closing Date) shall be made at 10:00 AM, New York City time, on [ ],
1996, or such later date (not later than [ ], 1996) as the

12
<PAGE>

Representatives shall designate, which date and time may be postponed by
agreement among the Representatives, the Company and the Selling Stockholder or
as provided in Section 9 hereof (such date and time of delivery and payment for
the Securities being herein called the "Closing Date"). Delivery of the
Securities shall be made to the Representatives for the respective accounts of
the several Underwriters against payment by the several Underwriters through the
Representatives of the aggregate purchase price of the Securities being sold by
the Company and the Selling Stockholder to or upon the order of the Company and
the Selling Stockholder, by wire transfer of immediately available funds.
Delivery of the Underwritten Securities and the Option Securities shall be made
at such location as the Representatives shall reasonably designate at least one
business day in advance of the Closing Date and payment for such Securities
shall be made at the office of Sidley & Austin, One First National Plaza,
Chicago, Illinois. Certificates for the Securities shall be registered in such
names and in such denominations as the Representatives may request not less than
two full business days in advance of the Closing Date.

The Company and the Selling Stockholder agree to have the Securities
available for inspection, checking and packaging by the Representatives in New
York, New York, not later than 1:00 PM on the business day prior to the Closing
Date.

The Selling Stockholder will pay all applicable state transfer taxes, if
any, involved in the transfer to the several Underwriters of the Securities to
be purchased by them from the Selling Stockholder and the respective
Underwriters will pay any additional stock transfer taxes involved in further
transfers.

If the option provided for in Section 2(b) hereof is exercised after the
third business day prior to the Closing Date, the Company and the Selling
Stockholder will deliver (at the expense of the Company and the Selling
Stockholder) to the Representatives, at such location as the Representatives
shall reasonably designate, on the date specified by the Representatives (which
shall be within three business days after exercise of said option), certificates
for the Option Securities in such names and denominations as the Representatives
shall have requested against payment of the purchase price thereof to or upon
the order of the Company and the Selling Stockholder by wire transfer of
immediately available funds. If settlement for the Option Securities occurs
after the Closing Date, the Company and the Selling Stockholder will deliver to
the Representatives on the settlement date for the Option Securities, and the
obligation of the Underwriters to purchase the Option Securities shall be
conditioned upon receipt of, supplemental opinions, certificates and letters
confirming as

13
<PAGE>

of such date the opinions, certificates and letters delivered on the Closing
Date pursuant to Section 6 hereof and all references in this Agreement to
"Closing Date" shall be deemed to be a reference to such settlement date.

4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Securities for sale to the public as set forth
in the Prospectus.

5. Agreements.

(a) The Company agrees with the several Underwriters that:

(i) The Company will use its best efforts to cause the Registration
Statement, and any amendment thereof, if not effective at the Execution Time, to
become effective. Prior to the termination of the Offering, the Company will not
file any amendment of the Registration Statement or supplement to the Prospectus
without your prior consent. Subject to the foregoing sentence, if the
Registration Statement has become or becomes effective pursuant to Rule 430A, or
filing of the Prospectus is otherwise required under Rule 424(b), the Company
will file the Prospectus, properly completed, pursuant to Rule 424(b) within the
time period prescribed and will provide evidence satisfactory to the
Representatives of such timely filing. The Company will promptly advise the
Representatives (A) when the Registration Statement shall have become effective,
(B) when the Prospectus, and any supplement thereto, shall have been filed (if
required) with the Commission pursuant to Rule 424(b), (C) when, prior to the
termination of the Offering, any amendment to the Registration Statement shall
have been filed or become effective, (D) of any request by the Commission for
any amendment of the Registration Statement or supplement to the Prospectus or
for any additional information, (E) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (F) of the
receipt by the Company of any notification with respect to the suspension of the
qualification of the Securities for sale in any jurisdiction or the initiation
or threatening of any proceeding for such purpose. The Company will use its
best efforts to prevent the issuance of any such stop order and, if issued, to
obtain as soon as possible the withdrawal thereof.

14
<PAGE>

(ii) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of
which the Prospectus as then supplemented would include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein in the light of the circumstances under
which they were made not misleading, or if it shall be necessary to
supplement the Prospectus to comply with the Act or the rules thereunder,
the Company promptly will prepare and file with the Commission, subject to
paragraph (a) of this Section 5, an amendment or supplement which will
correct such statement or omission or effect such compliance.

(iii) As soon as practicable, the Company will, make generally
available to its security holders and to the Representatives an earnings
statement or statements of the Company and its subsidiaries which will
satisfy the provisions of Section 11(a) of the Act and Rule 158 under the
Act.

(iv) The Company will furnish to the Representatives and counsel for
the Underwriters, without charge, four (4) signed copies of the
Registration Statement (including exhibits thereto) and to each other
Underwriter a conformed copy of the Registration Statement (without
exhibits thereto) and, so long as delivery of a prospectus by an
Underwriter or dealer may be required by the Act, as many copies of the
Prospectus and each Preliminary Prospectus and any supplements thereto as
the Representatives may reasonably request. The Company will furnish or
cause to be furnished to the Representatives copies of all reports on Form
SR required by Rule 463 under the Act.

(v) The Company will arrange for the qualification of the Securities
for sale under the laws of such jurisdictions as the Representatives may
designate and will maintain such qualifications in effect so long as
required for the distribution of the Securities; provided that in
connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in
any jurisdiction or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject. The
Company will also pay the fee of the National Association of Securities
Dealers, Inc., in connection with its review of the Offering.

15
<PAGE>

(vi) The Company will not, for a period of 180 days following the
Execution Time, without the prior written consent of the Representatives,
offer, sell or contract to sell, or otherwise dispose of, directly or
indirectly, or announce the offering of, any other shares of Common Stock
or any securities convertible into, or exchangeable for, shares of Common
Stock; provided, however, that the Company may issue and sell Common Stock
pursuant to any employee stock option plan, stock ownership plan or
dividend reinvestment plan of the Company in effect at the Execution Time
and the Company may issue Common Stock issuable upon the conversion of
securities or the exercise of warrants outstanding on the date of this
Agreement.

(vii) The Company will furnish to its stockholders annual reports
containing financial statements certified by independent public accountants
and with quarterly summary financial information in reasonable detail which
may be unaudited. During the period of five years from the date hereof, the
Company will promptly deliver to the Representatives and, upon request, to
each of the other Underwriters, (A) copies of each annual report of the
Company containing financial statements certified by independent public
accountants and each other report furnished by the Company to its
stockholders, (B) as soon as they are available, copies of any other
reports (financial or other) that the Company shall publish or otherwise
make available to any of its security holders as such, and (C) as soon as
they are available, copies of any reports and financial statements
furnished to or filed with the Commission or any national securities
exchange.

(viii) The Company will use its best efforts to obtain and maintain
the listing of the Securities to be sold hereunder on the Nasdaq National
Market, unless the Company's Board of Directors determines otherwise.

(ix) The Company will promptly deliver to the Representatives copies
of all correspondence to and from, and all documents issued to and by, the
Commission in connection with the registration of the Securities under the
Act.

(x) The Company will not become an "investment company" within the
meaning of the Investment Company Act.

16
<PAGE>

(xi) Prior to the Closing Date, the Company will issue no press
release or other communication directly or indirectly and hold no press
conference with respect to the Company, or with respect to the financial
condition, results of operations, business, properties, assets or
liabilities of the Company, or the Offering, without your prior written
consent, which consent shall not be unreasonably withheld.

(xii) To document the Underwriters' compliance with the reporting and
withholding provisions of the Tax Equity and Fiscal Responsibility Act of
1982 with respect to the transactions herein contemplated, the Company
agrees to deliver to you prior to or at the Closing Date a properly
completed and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations
in lieu thereof).

6. Conditions to the Obligations of the Underwriters. The obligations of
the Underwriters to purchase the Underwritten Securities and the Option
Securities, as the case may be, shall be subject to the accuracy of the
representations and warranties on the part of the Company and the Selling
Stockholder contained herein as of the Execution Time, the Closing Date and any
settlement date pursuant to Section 3 hereof, to the accuracy of the statements
of the Company and the Selling Stockholder made in any certificates pursuant to
the provisions hereof, to the performance by the Company and the Selling
Stockholder of their respective obligations hereunder and to the following
additional conditions:

(a) If the Registration Statement has not become effective prior to
the Execution Time, unless the Represen tatives agree in writing to a later
time, the Registration Statement shall have become effective not later than
(i) 6:00 PM New York City time on the date of determination of the public
offering price, if such determination occurred at or prior to 3:00 PM New
York City time on such date or (ii) 9:30 AM New York City time on the
business day following the day on which the public offering price was
determined, if such determination occurred after 3:00 PM New York City time
on such date; if filing of the Prospectus, or any supplement thereto, is
required pursuant to Rule 424(b), the Prospectus shall have been filed in
the manner and within the time period required by Rule 424(b); and no stop
order suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been instituted
or threatened.

17
<PAGE>

(b) The Company and the Selling Stockholder shall have furnished to the
Representatives the opinion of Sidley & Austin, counsel for the Company and the
Selling Stockholder, dated the Closing Date, to the effect that:

(i) the Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
full corporate power and authority to own its properties and conduct its
business as described in the Registration Statement and Prospectus, to
execute and deliver the Agreement and to perform the obligations to be
performed by it thereunder;

(ii) the Company is duly qualified or licensed to do business as a
foreign corporation by, and is in good standing in, each jurisdiction in
which its ownership, leasing, licensing or use of property and assets or
the conduct of its business makes such qualification necessary, except in
those jurisdictions where the failure, individually or in the aggregate, to
be so licensed or qualified or in good standing would not have a material
adverse effect on the financial condition, assets, operations or prospects
of the Company taken as a whole;

(iii) except as described in the Prospectus, (A) all of the issued and
outstanding shares of capital stock of the Company are owned directly by
the Selling Stockholder; (B) all of such shares of the Company have been
duly and validly authorized and issued and are fully paid and non-
assessable and, to the best of such counsel's knowledge, are so owned free
and clear of any pledge, lien, charge, encumbrance, security interest or
other claim; and (C) to the best of such counsel's knowledge, there are no
outstanding rights, subscriptions, warrants, calls, preemptive rights,
options or other agreements of any kind with respect to the capital stock
of the Company;

(iv) to the best of such counsel's knowledge and except as described
in the Prospectus, the Company has no interest in a joint venture or
partnership which interest requires disclosure in the Registration
Statement and which has not been so disclosed;

(v) this Agreement has been duly authorized, executed and delivered by
the Company;

<PAGE>

(vi) the Company has an authorized capitalization as set forth in the
Prospectus under the heading "Capitalization"; the outstanding shares of
capital stock of the Company have been duly and validly authorized and
issued and are fully paid, non-assessable and free of preemptive rights;

(vii) (A) the Securities being sold by the Company have been duly and
validly authorized and issued and are fully paid and non-assessable and are
qualified for inclusion on the Nasdaq National Market, subject to notice of
sale, (B) the Securities being sold by the Company, when delivered to and
paid for by the Underwriters, will be free of any pledge, lien,
encumbrance, claim or preemptive rights, and (C) except as described in the
Prospectus and to the best of such counsel's knowledge, there are no
outstanding rights, subscriptions, warrants, calls, preemptive rights,
options or other arrangements of any kind with respect to the capital stock
of the Company;

(viii) the capital stock of the Company, including the Securities,
conforms in all material respects to the description thereof contained in
the Registration Statement and the Prospectus; and the certificates for the
Securities are in due and proper form;

(ix) all consents, approvals, authorizations or orders of or filings
with any court or governmental agency or body required in connection with
consummation by the Company of the transactions contemplated in this
Agreement have been obtained in all jurisdictions, except such counsel need
express no opinion as to any necessary qualification in connection with the
purchase and distribution of the Securities by the Underwriters (A) under
the securities or blue sky laws of any jurisdiction; or (B) with the
National Association of Securities Dealers, Inc.;

(x) to the best of such counsel's knowledge after due inquiry, the
Company is not in breach of, or in default under (nor has any event
occurred which with notice, lapse of time, or both would constitute a
breach of, or default under), any indenture, mortgage, deed of trust,
credit agreement or other material agreement or instrument to which the
Company is a party or by which the Company or its properties may be bound
or affected where such breach or default could have a material

<PAGE>

adverse effect on the financial condition assets, operations or prospects
of the Company;

(xi) neither the execution, delivery and performance of this Agreement
by the Company, nor the consummation by the Company of the transactions
contemplated hereby and thereby, will conflict with or result in any breach
of, or constitute a default under (or constitute any event which with
notice, lapse of time, or both, would constitute a breach of or default
under), any provisions of the charter or by-laws of the Company or under
any provision of any indenture, mortgage, deed of trust, credit agreement
or other material agreement or instrument known to such counsel and to
which the Company is a party or by which the Company or its properties may
be bound or affected, or under any federal, state, local or foreign law,
rule, regulation, judgment, order or decree applicable to the Company;

(xii) except as described in the Prospectus, there are no proceedings
or other actions, suits or investigations pending before any court or
before or by any public, regulatory or government agency or body, including
without limitation any state regulatory agency, board or department or, to
the best of such counsel's knowledge after due inquiry, threatened against
the Company or its properties, of a character that are required to be
described in the Registration Statement and the Prospectus but are not so
described or which, if determined adversely to the Company could have a
material adverse effect on the financial condition, assets, operations or
prospects of the Company;

(xiii) except as described in the Prospectus, the Company has all
necessary licenses, authorizations, consents and approvals and has made all
necessary filings required under any federal, state, local and foreign law,
regulation or rule and has obtained all necessary authorizations, consents
and approvals from other persons in order to conduct its businesses as
described in the Prospectus, the absence of which could have a material
adverse effect on the financial condition, assets, operations or prospects
of the Company, and to the best of such counsel's knowledge of the Company
is not in violation of, or in default under, any license, authorization,
consent or approval of any law, regulation or rule or any decree, order or
judgment applicable to the Company where such default could have a material

20
<PAGE>

adverse effect on the financial condition, assets, operations or prospects
of the Company;

(xiv) the descriptions in the Registration Statement of laws,
regulations and rules, of legal and governmental proceedings and of
contracts, agreements, leases and other documents [INCLUDING, WITHOUT
LIMITATION, UNDER THE HEADINGS ____________________________] have been
reviewed by such counsel and are accurate in all material respects, and
comply as to form in all material respects with the applicable requirements
of the Act and the rules and regulations thereunder;

(xv) the Registration Statement has become effective under the Act;
any required filing of the Prospectus, and any supplements thereto,
pursuant to Rule 424(b) has been made in the manner and within the time
period required by Rule 424(b); to the best knowledge of such counsel, no
stop order suspending the effectiveness of the Registration Statement has
been issued, no proceedings for that purpose have been instituted or
threatened and the Registration Statement and the Prospectus (and any
supplements thereto) (other than the financial statements and other
financial and statistical information contained therein as to which such
counsel need express no opinion) comply as to form in all material respects
with the applicable requirements of the Act and the rules thereunder;

(xvi) to the best of such counsel's knowledge after due inquiry, there
are no contracts, licenses, agreements, leases or documents of a character
which are required to be filed as exhibits to the Registration Statement or
to be summarized or described in the Prospectus which have not been so
filed, summarized or described;

(xvii) except as disclosed in the Prospectus, no person has the right,
contractual or otherwise, to cause the Company to issue, or register
pursuant to the Act, any shares of capital stock of the Company, upon the
issue and sale of the Securities to be sold by the Company to the
Underwriters;

(xviii) the Company is not an "investment company" or a person
"controlled by" an "investment company" within the meaning of the
Investment Company Act;

21
<PAGE>

(xix) the Company has full legal right and authority to sell, transfer
and deliver in the manner provided in this Agreement the Securities being
sold by it hereunder;

(xx) the delivery by the Company to the several Underwriters of
certificates for the Securities being sold hereunder by the Company against
payment therefor as provided herein, will pass good and marketable title to
such Securities to the several Underwriters, free and clear of all liens,
encumbrances, equities and claims whatsoever;

(xxi) the Selling Stockholder has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with full corporate power and authority to own its properties and
conduct its business, to execute and deliver the Agreement and to sell and
deliver the Securities to be sold by it hereunder;

(xxii) this Agreement has been duly authorized, executed and delivered
by the Selling Stockholder and the Selling Stockholder has full legal right
and authority to sell, transfer and deliver in the manner provided in this
Agreement the Securities being sold by it hereunder;

(xxiii) the delivery by the Selling Stockholder to the several
Underwriters of certificates for the Securities being sold hereunder by the
Selling Stockholder against payment therefor as provided herein, will pass
good and marketable title to such Securities to the several Underwriters,
free and clear of all liens, encumbrances, equities and claims whatsoever;

(xxiv) all consents, approvals, authorizations or orders of or filings
with any court or government agency or body required in connection with the
consummation by the Selling Stockholder of the transactions contemplated in
this Agreement have been obtained in all jurisdictions, except such counsel
need express no opinion as to the necessity of receiving any qualification
under the securities or blue sky laws of any jurisdiction in connection
with the purchase and distribution of the securities by the Underwriters or
from the National Association of Securities Dealers, Inc.;

(xxv) none of the execution, performance and delivery of this
Agreement by the Selling Stockholder,

22
<PAGE>

the sale of the Securities being sold by the Selling Stockholder nor the
consummation of any other of the transactions contemplated in this
Agreement by the Selling Stockholder or the fulfillment of the terms hereof
by the Selling Stockholder will conflict with, result in a breach of, or
constitute a default under the charter or by-laws of the Selling
Stockholder or the terms of any indenture or other material agreement or
instrument known to such counsel and to which the Selling Stockholder or
any of its subsidiaries is a party or bound, or any order or regulation
known to such counsel to be applicable to the Selling Stockholder or any of
its subsidiaries of any court, regulatory body, administrative agent,
governmental body or arbitrator having jurisdiction over the Selling
Stockholder or any of its subsidiaries.

In addition, such counsel shall state that in the course of the preparation
of the Registration Statement and the Prospectus, such counsel has considered
the information set forth therein in light of the matters required to be set
forth therein and that such counsel has participated in conferences with
officers and representatives of the Selling Stockholder and the Company,
including the Company's independent public accountants, and representatives of
and counsel for the Underwriters, during the course of which the contents of the
Registration Statement and the Prospectus and related matters were discussed
and, although such counsel shall not have independently checked the accuracy or
completeness of, or otherwise verified, and accordingly are not passing upon,
and shall not assume responsibility for, the accuracy, completeness or fairness
of the statements contained in the Registration Statement and the Prospectus, as
a result of such consideration and participation, nothing has come to the
attention of such counsel which causes such counsel to believe that the
Registration Statement, as of the time the Registration Statement became
effective contained an 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 not misleading or that the Prospectus, as of its date or the date of
such opinion contained or contains an untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading (except in each case such counsel need express no comment
with respect to the financial statements and related schedules and other
financial and statistical data included in the Registration Statement or the

23
<PAGE>

Prospectus or statements made in the exhibits to the Registration Statement).

In rendering such opinion, such counsel may rely (A) as to matters involving the
application of laws of any jurisdiction other than the State of Illinois, the
United States or the Delaware General Corporation Law, to the extent they deem
proper and specified in such opinion, upon the opinion of other counsel of good
standing whom they believe to be reliable and who are satisfactory to counsel
for the Underwriters, and (B) as to matters of fact, to the extent they deem
proper, on certificates of responsible officers of the Company, the Selling
Stockholder and public officials.

(c) The Representatives shall have received from Winston & Strawn, counsel
for the Underwriters, such opinion or opinions, dated the Closing Date, with
respect to the issuance and sale of the Securities, the Registration Statement,
the Prospectus and other related matters as the Representatives may reasonably
require, and the Company shall have furnished to such counsel such documents as
they request for the purpose of enabling them to pass upon such matters.

(d) The Company shall have furnished to the Representatives a certificate
of the Company, signed on behalf of the Company by the chief executive officer
and the principal financial or accounting officer of the Company, dated the
Closing Date, to the effect that the signers of such certificate have carefully
examined the Registration Statement, the Prospectus, any supplement to the
Prospectus and this Agreement and that:

(i) the representations and warranties of the Company in this
Agreement are true and correct on and as of the Closing Date with the same
effect as if made on the Closing Date and the Company has complied with all
the agreements and satisfied all the conditions on its part to be performed
or satisfied at or prior to the Closing Date;

(ii) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or, to the Company's knowledge, threatened; and

(iii) subsequent to the date of the most recent financial statements
included in the Registration Statement and the Prospectus (exclusive of any
supplement thereto), and except as set forth or contemplated in the

24
<PAGE>

Prospectus (exclusive of any supplement thereto), (A) the Company has not
incurred any material liabilities or obligations, direct or contingent, nor
entered into any material transactions not in the ordinary course of
business, and (B) there has not been any material adverse change in the
financial condition, assets, operations or prospects of the Company, or any
change in the capital stock or long-term debt of the Company considered as
a whole.

(e) The Selling Stockholder shall have furnished to the Representatives a
certificate of the Selling Stockholder, signed on behalf of the Selling
Stockholder by its chief executive officer and principal financial or accounting
officer, dated the Closing Date, to the effect that the signers of such
certificate have carefully examined the Registration Statement, the Prospectus,
any supplement to the Prospectus and this Agreement and that the representations
and warranties of the Selling Stockholder in this Agreement are true and correct
in all material respects on and as of the Closing Date with the same effect as
if made on the Closing Date;

(f) At the Execution Time and at the Closing Date, Arthur Andersen LLP
shall have furnished to the Representatives a letter or letters, dated
respectively as of the date of this Agreement and as of the Closing Date, in
form and substance satisfactory to the Representatives, confirming that they are
independent accountants within the meaning of the Act and the applicable
published rules and regulations thereunder and stating in effect that:

(i) in their opinion the audited financial statements and financial
statement schedules included in the Registration Statement and the
Prospectus and reported on by them comply in form in all material respects
with the applicable accounting requirements of the Act and the related
published rules and regulations;

(ii) on the basis of a reading of the latest unaudited financial
statements made available by the Company; their limited review in
accordance with standards established by the American Institute of
Certified Public Accountants of the unaudited interim financial information
for the six-month period ended June 30, 1996, and as at June 30, 1996;
carrying out certain specified procedures (but not an audit in accordance
with generally accepted auditing standards) which would not necessarily
reveal matters of significance with respect

<PAGE>

to the comments set forth in such letter; a reading of the minutes of the
meetings of the stockholders, directors and executive and audit committees
of the Company; and inquiries of certain officials of the Company who have
responsibility for financial and accounting matters of the Company, as to
transactions and events subsequent to December 31, 1995, nothing came to
their attention which caused them to believe that:

(1) the unaudited financial statements included in the
Registration Statement and the Prospectus do not comply in form in all
material respects with applicable accounting requirements of the Act
and with the published rules and regulations of the Commission with
respect to registration statements on Form S-1; and said unaudited
financial statements are not in conformity with generally accepted
accounting principles applied on a basis substantially consistent with
that of the audited financial statements included in the Registration
Statement and the Prospectus;

(2) with respect to the period subsequent to June 30, 1996, there
were any changes, at a specified date not more than five business days
prior to the date of the letter, in the long-term debt of the Company
or preferred or common stock of the Company or decreases in the
shareholders' investment of the Company as compared with the amounts
shown on the June 30, 1996 consolidated balance sheet included in the
Registration Statement and the Prospectus, or for the period from July
1, 1996 to such specified date there were any decreases, as compared
with the corresponding period in the preceding year; in net sales or
income (loss) from operations or in total or per share amounts of net
income (loss)(for both primary earnings and fully diluted earnings) of
the Company, except in all instances for changes or decreases set
forth in such letter, in which case the letter shall be accompanied by
an explanation by the Company as to the significance thereof unless
said explanation is not deemed necessary by the Representatives; and

(iii) on the basis of reading the unaudited pro forma financial
statement data included in the Registration Statement and the Prospectus,
carrying out

<PAGE>

specified procedures, inquiries of certain officials of the Company who
have responsibility for financial and accounting matters, and proving the
arithmetic accuracy of the application of the pro forma adjustments to the
historical amounts in the pro forma financial statement data, nothing came
to their attention which caused them to believe that the pro forma
financial statement data does not comply in form in all material respects
with the applicable accounting requirements of Rule 11-02 of Regulation S-X
of or that the pro forma adjustments have not been properly applied to the
historical amounts in the compilation of such statements.

(iv) they have performed certain other specified procedures as a
result of which they determined that certain information specified by the
Representatives of an accounting, financial or statistical nature (which is
limited to accounting, financial or statistical information derived from
the general accounting records of the Company) set forth in the
Registration Statement and the Prospectus agrees with the accounting
records of the Company, excluding any questions of legal interpretation.

References to the Prospectus in this paragraph (i) include any supplements
thereto at the date of the letter.

(g) Subsequent to the respective dates as of which information is given in
the Registration Statement and the Prospectus, there shall not have been (i) any
change or decrease specified in the letter or letters referred to in paragraph
(i) of this Section 6 or (ii) any change, or any development involving a
prospective change, in or affecting the business or properties of the Company
the effect of which, in any case referred to in clause (i) or (ii) above, is, in
the judgment of the Representatives, so material and adverse as to make it
impractical or inadvisable to proceed with the public offering or delivery of
the Securities as contemplated by the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement thereto).

(h) At the Execution Time, the Company shall have furnished to the
Representatives a letter from each officer, director and stockholder of the
Company addressed to the Representatives, in which each such person or entity
agrees not to offer, sell or contract to sell, or otherwise dispose of, directly
or indirectly, or announce an offering of, any shares of Common Stock
beneficially owned by such person or

27
<PAGE>

any securities convertible into, or exchangeable for, shares of Common
Stock for a period of 180 days following the Execution Time without the
prior written consent of the Representatives, other than shares of Common
Stock disposed of as bona fide gifts.

(i) Prior to the Closing Date, the Company and the Selling Stockholder
shall have furnished to the Representatives such further information,
certificates and documents as the Representatives may reasonably request.

If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Representatives and its counsel, this Agreement and all
obligation of the Underwriters hereunder may be canceled at, or at any time
prior to, the Closing Date by the Representatives. Notice of such cancellation
shall be given to the Company in writing or by telephone or telegraph confirmed
in writing.

7. Expenses; Reimbursement of Underwriters' Expenses.

(a) The Company and the Selling Stockholder covenant and agree with
one another and with the several Underwriters that the Company will be
liable for the payment of and will pay or cause to be paid the following:
(i) the fees, disbursements and expenses of the Company's counsel and
accountants and the Selling Stockholder's counsel in connection with the
registration of the Securities under the Act and the sale of the Securities
and all other expenses in connection with the preparation, printing and
filing of the Registration Statement, any Preliminary Prospectus and the
Prospectus and amendments and supplements thereto and the mailing and
delivering of copies thereof to the Underwriters and dealers; (ii) the cost
of printing, producing or distributing this Agreement, the Blue Sky
Memorandum and any other documents in connection with the offering,
purchase, sale and delivery of the Securities; (iii) all expenses in
connection with the qualification of the Securities for offering and sale
under state securities laws as provided in Section 5(a)(v) hereof,
including the fees and disbursements of counsel for the Underwriters in
connection with such qualification; (iv) all expenses in connection with
authorizing the Securities for trading on the Nasdaq National Market; (v)
the filing fees incident to securing any required review by the National
Association of Securities Dealers, Inc. of the terms of the

28
<PAGE>

sale of the Securities, including the fees and disbursements of counsel for the
Underwriters in connection therewith; (vi) the cost of preparing stock
certificates; (vii) the cost and charges of any transfer agent or registrar; and
(viii) all other costs and expenses incident to the performance of its
obligations hereunder which are not otherwise specifically provided for in this
Section.

(b) If the sale of the Securities provided for herein is not consummated
because any condition to the obligations of the Underwriters set forth in
Section 6 hereof is not satisfied, because of any termination pursuant to
Section 10 hereof or because of any refusal, inability or failure on the part of
the Company or the Selling Stockholder to perform any agreement herein or comply
with any provision hereof other than by reason of a default by any of the
Underwriters, the Company and the Selling Stockholder, jointly and severally,
agree to reimburse the Underwriters severally upon demand for all out-of-pocket
expenses (including reasonable fees and disbursements of counsel) that shall
have been incurred by them in connection with the proposed purchase and sale of
the Securities.

8. Indemnification and Contribution.

(a) The Company and the Selling Stockholder, jointly and severally, agree
to indemnify and hold harmless each Underwriter and each person who controls any
Underwriter within the meaning of the Act against any and all losses, claims,
damages or liabilities, joint or several, to which they or any of them may
become subject under the Act, the Securities Exchange Act of 1934 or other
Federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement for the
registration of the Securities as originally filed or in any amendment thereof,
or in any Preliminary Prospectus or the Prospectus, or in any amendment thereof
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and agrees to reimburse
each such indemnified party, as incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action or reasonably incurred by them in
connection with pursuing its rights to indemnification provided by this Section
8;

29
<PAGE>

provided, however, that (i) neither the Company nor the Selling Stockholder will
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of any Underwriter through the Representatives specifically for use
therein, and (ii) such indemnity with respect to any Preliminary Prospectus
shall not inure to the benefit of any Underwriter (or any person controlling
such Underwriter) from whom the person asserting any such loss, claim, damage or
liability purchased the Securities which are the subject thereof if such person
did not receive a copy of the Prospectus (or the Prospectus as supplemented) at
or prior to the confirmation of the sale of such Securities to such person in
any case where such delivery is required by the Act and the untrue statement or
omission of a material fact contained in such Preliminary Prospectus was
corrected in the Prospectus (or the Prospectus as supple mented). This indemnity
agreement will be in addition to any liability which the Company and the Selling
Stockholder may otherwise have.

Without limiting the full extent of the Company's agreement to indemnify
each Underwriter, as herein provided, the Selling Stockholder shall be liable
under the indemnity agreements contained in paragraph (a) of this Section 8 only
for an amount not exceeding the sum of (i) the proceeds received by the Company
from the sale of Shares hereunder and (ii) the aggregate amount of dividends or
other distributions paid or payable by the Company to the Selling Stockholder,
or any affiliate thereof, as contemplated in the Prospectus.

(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers who signs the Registration
Statement, and each person who controls the Company within the meaning of the
Act and the Selling Stockholder, to the same extent as the foregoing indemnity
from the Company and the Selling Stockholder to each Underwriter, but only with
reference to written information relating to such Underwriter furnished to the
Company by or on behalf of such Underwriter through the Representatives
specifically for use in the preparation of the documents referred to in the
foregoing indemnity. This indemnity agreement will be in addition to any
liability which any Underwriter may otherwise have. The Company and the Selling
Stockholder acknowledge that the statements set forth in the last paragraph of
the cover page and under the heading "Underwriting" in the Prospectus and in any
Preliminary

30
<PAGE>

Prospectus constitute the only information furnished in writing by or on behalf
of the several Underwriters for inclusion in the Prospectus or in any
Preliminary Prospectus, and you, as the Representatives, confirm that such
statements are correct.

(c) Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section 8. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemni fying party will be entitled to appoint counsel satisfactory to such
indemnified party to represent the indemnified party in such action; provided,
however, that if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have the right to
defend such action on behalf of such indemnified party or parties. Upon receipt
of notice from the indemnifying party to such indemnified party of its election
so to appoint counsel to defend such action and approval by the indemnified
party of such counsel, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently in curred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (plus any local counsel), approved by the
Representatives in the case of paragraph (a) of this Section 8, representing the
indemnified parties under such paragraph (a) who are parties to such action),
(ii) the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party; and except that, if clause (i)
or (iii) is applicable, such

31
<PAGE>

liability shall be only in respect of the counsel referred to in such clause (i)
or (iii).

(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in paragraph (a) or (b),
as the case may be, of this Section 8 is due in accordance with its terms but is
for any reason held by a court to be unavailable from the Company or the Selling
Stockholder, as the case may be, on grounds of policy or otherwise, the Company
or the Selling Stockholder, as the case may be, and the Underwriters shall
contribute to the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating or
defending same) to which the Company or the Selling Stockholder, as the case may
be, and one or more of the Underwriters may be subject in such proportion so
that the Underwriters are responsible for that portion represented by the
percentage that the underwriting discount appearing on the cover page of the
Prospectus bears to the public offering price appearing thereon and the Company
or the Selling Stockholder as the case may be, is responsible for the balance;
provided, however, that (y) in no case shall any Underwriter (except as may be
provided in the agreement among underwriters relating to the offering of the
Securities) be responsible for any amount in excess of the underwriting discount
applicable to the Securities purchased by such Underwriter hereunder and (z) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 8,
each person who controls an Underwriter within the meaning of the Act shall have
the same rights to contribution as such Underwriter, and each person who
controls the Company within the meaning of the Act, each officer of the Company
who shall have signed the Registration Statement and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to clauses (y) and (z) of this paragraph (e). Any party entitled to
contribution will, promptly after receipt of notice of com mencement of any
action, suit or preceding against such party in respect of which a claim for
contribution may be made against another party or parties under this paragraph
(e), notify such party or parties from whom contribution may be sought, but the
omission so to notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any other obligation it or
they may have hereunder or otherwise than under this paragraph (e).

<PAGE>

9. Default by an Underwriter. If any one or more Underwriters shall fail to
purchase and pay for any of the Securities agreed to be purchased by such
Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the amount of Securities set
forth opposite their names in Schedule I hereto bears to the aggregate amount of
Securities set forth opposite the names of all the remaining Underwriters) the
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase; provided, however, that in the event that the aggregate amount of
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase shall exceed 10% of the aggregate amount of Securities set forth in
Schedule I hereto, the remaining Underwriters shall have the right to purchase
all, but shall not be under any obligation to purchase any, of the Securities,
and if such nondefaulting Underwriters do not purchase all the Securities, this
Agreement will terminate without liability to any nondefaulting Underwriter, the
Selling Stockholder or the Company. In the event of a default by any Underwriter
as set forth in this Section 9, the Closing Date shall be postponed for such
period, not exceeding seven days, as the Representatives shall determine in
order that the required changes in the Registration Statement and the Prospectus
or in any other documents or arrangements may be effected. Nothing contained in
this Agreement shall relieve any defaulting Underwriter of its liability, if
any, to the Company, the Selling Stockholder and any nondefaulting Underwriter
for damages occasioned by its default hereunder.

10. Termination. This Agreement shall be subject to termination in the
absolute discretion of the Representatives, by notice given to the Company prior
to delivery of and payment for the Securities, if prior to such time (i) trading
in the Company's Common Stock shall have been suspended by the Commission or
trading in securities generally on the New York Stock Exchange or the Nasdaq
National Market shall have been suspended or limited or minimum prices shall
have been established on either of such Exchange or Market System, (ii) a
banking moratorium shall have been declared either by Federal or New York State
authorities or (iii) there shall have occurred any outbreak or escalation of
hostilities, declaration by the United States of a national emergency or war or
other calamity or crisis the effect of which on financial markets is such as to
make it, in the judgment of the Representatives, impracticable to market the
Securities.

11. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers, of the Selling

<PAGE>

Stockholder and of the Underwriters set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of any Underwriter, the Selling Stockholder or the Company
or any of the officers, directors or controlling persons referred to in Section
8 hereof, and will survive delivery of and payment for the Securities. The
provisions of Sections 7 and 8 hereof shall survive the termination or
cancellation of this Agreement.

12. Notices. All communications hereunder will be in writing and
effective only on receipt, and, (a) if sent to the Representatives, will be
mailed, delivered or telegraphed and confirmed to them, care of Salomon Brothers
Inc, at Seven World Trade Center, New York, New York, 10048, Fax (212) 783-7000,
with a copy to Montgomery Securities, 600 Montgomery Street, San Francisco,
California 94111, Fax (415) 249-5802, J.P. Morgan & Co. Incorporated, 60 Wall
Street, New York, New York 10260-0060, Fax (212) 648-5951, and Robert F. Wall,
Esq., Winston & Strawn, 35 West Wacker Drive, Chicago, Illinois 60601, Fax (312)
558-5700; or (b) if sent to the Company, will be mailed, delivered or
telegraphed and confirmed to it at Donnelley Enterprise Solutions, Inc., 161
North Clark Street, Suite 2400, Chicago, Illinois 60601-3221, Fax (312) 419-
7668, or if sent to the Selling Stockholder, will be mailed, delivered or
telegraphed and confirmed to it at R. R. Donnelley & Sons Company, 77 West
Wacker Drive, Chicago, Illinois 60601-1696, Fax (312) 326-7156, with a copy in
each instance to Dennis V. Osimitz, Sidley & Austin, One First National Plaza,
Chicago, Illinois 60603, Fax (312) 853-7036.

13. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 8 hereof, and no
other person will have any right or obligation hereunder.

14. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York.

[signature page follows]

34
<PAGE>

If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
letter and your acceptance shall represent a binding agreement among the
Company, the Selling Stockholder and the several Underwriters.

Very truly yours,

DONNELLEY ENTERPRISE SOLUTIONS, INC.

By:_____________________________
[TITLE]

R. R. DONNELLEY & SONS COMPANY

By:____________________________
[TITLE]

The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.

Salomon Brothers Inc
Montgomery Securities
J.P. Morgan & Co. Incorporated

By: Salomon Brothers Inc

By:_________________________________
Vice President

For themselves and the other
several Underwriters named in
Schedule I to the foregoing
Agreement.

35
<PAGE>

SCHEDULE I
<TABLE>
<CAPTION>
Number of Shares of
Underwritten Securities
Underwriters To Be Purchased
- ------------ -----------------------
<S> <C>
Salomon Brothers Inc ................................
Montgomery Securities ...............................
J.P. Morgan & Co. Incorporated ......................

-----------
Total ...............................................
===========

</TABLE>

<PAGE>

EXHIBIT 21.1

SUBSIDIARIES OF DONNELLEY ENTERPRISE SOLUTIONS INCORPORATED
AS OF JUNE 30, 1996

As of June 30, 1996, none of Donnelley Enterprise Solutions Incorporated's
subsidiaries, considered in the aggregate as a single subsidiary, would
constitute a significant subsidiary as defined in Rule 1-02(w) of Regulation S-
X.

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
report, which contained a captioned opinion dated July 3, 1996, and to all
references to our Firm included in or made a part of this registration
statement.

Arthur Andersen LLP

Chicago, Illinois
August 12, 1996
<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
report dated March 19, 1996 on LAN Systems, Inc. consolidated financial
statements included in or made part of this registration statement filed by
Donnelley Enterprise Solutions Incorporated.

Arthur Andersen LLP

New York, New York
August 12, 1996

<PAGE>

EXHIBIT 24.1

POWER OF ATTORNEY

The undersigned hereby constitutes and appoints Luke F. Botica, Rhonda
I. Kochlefl and Leo S. Spiegel, each of them with full power to act without the
other, his true and lawful attorney-in-fact, with full power and authority, for
the purpose of executing, in the name and on behalf of the undersigned as a
director of Donnelley Enterprise Solutions Incorporated, a Delaware corporation
(the "Company"), a Registration Statement on Form S-1 for the registration under
the Securities Act of 1933, as amended, of the Company's Common Stock, par value
$.01 per share, and any and all amendments to such Registration Statement,
including post-effective amendments, and to deliver on behalf of the undersigned
such Registration Statement and any and all amendments thereto, as each thereof
is so executed, for filing with the Securities and Exchange Commission. The
undersigned hereby grants unto such attorney-in-fact full power of substitution
and revocation in the premises and hereby ratifies and confirms all that such
attorney-in-fact may do or cause to be done by virtue of these presents.

Dated: August 2, 1996

/s/ Daniel I. Malina
--------------------
Daniel I. Malina
<PAGE>

EXHIBIT 24.1

POWER OF ATTORNEY

The undersigned hereby constitutes and appoints Luke F. Botica, Rhonda
I. Kochlefl, Daniel I. Malina and Leo S. Spiegel, each of them with full power
to act without the other, his true and lawful attorney-in-fact, with full power
and authority, for the purpose of executing, in the name and on behalf of the
undersigned as a director of Donnelley Enterprise Solutions Incorporated, a
Delaware corporation (the "Company"), a Registration Statement on Form S-1 for
the registration under the Securities Act of 1933, as amended, of the Company's
Common Stock, par value $.01 per share, and any and all amendments to such
Registration Statement, including post-effective amendments, and to deliver on
behalf of the undersigned such Registration Statement and any and all amendments
thereto, as each thereof is so executed, for filing with the Securities and
Exchange Commission. The undersigned hereby grants unto such attorney-in-fact
full power of substitution and revocation in the premises and hereby ratifies
and confirms all that such attorney-in-fact may do or cause to be done by virtue
of these presents.

Dated: August 2, 1996

/s/ W. Ed Tyler
---------------
W. Ed Tyler
<PAGE>

EXHIBIT 24.1

POWER OF ATTORNEY

The undersigned hereby constitutes and appoints Luke F. Botica, Daniel
I. Malina and Leo S. Spiegel, each of them with full power to act without the
other, her true and lawful attorney-in-fact, with full power and authority, for
the purpose of executing, in the name and on behalf of the undersigned as a
director and/or officer of Donnelley Enterprise Solutions Incorporated, a
Delaware corporation (the "Company"), a Registration Statement on Form S-1 for
the registration under the Securities Act of 1933, as amended, of the Company's
Common Stock, par value $.01 per share, and any and all amendments to such
Registration Statement, including post-effective amendments, and to deliver on
behalf of the undersigned such Registration Statement and any and all amendments
thereto, as each thereof is so executed, for filing with the Securities and
Exchange Commission. The undersigned hereby grants unto such attorney-in-fact
full power of substitution and revocation in the premises and hereby ratifies
and confirms all that such attorney-in-fact may do or cause to be done by virtue
of these presents.

Dated: August 5, 1996

/s/ Rhonda I. Kochlefl
----------------------
Rhonda I. Kochlefl
<PAGE>

EXHIBIT 24.1

POWER OF ATTORNEY

The undersigned hereby constitutes and appoints Rhonda I. Kochlefl,
Daniel I. Malina and Leo S. Spiegel, each of them with full power to act without
the other, his true and lawful attorney-in-fact, with full power and authority,
for the purpose of executing, in the name and on behalf of the undersigned as an
officer of Donnelley Enterprise Solutions Incorporated, a Delaware corporation
(the "Company"), a Registration Statement on Form S-1 for the registration under
the Securities Act of 1933, as amended, of the Company's Common Stock, par value
$.01 per share, and any and all amendments to such Registration Statement,
including post-effective amendments, and to deliver on behalf of the undersigned
such Registration Statement and any and all amendments thereto, as each thereof
is so executed, for filing with the Securities and Exchange Commission. The
undersigned hereby grants unto such attorney-in-fact full power of substitution
and revocation in the premises and hereby ratifies and confirms all that such
attorney-in-fact may do or cause to be done by virtue of these presents.

Dated: August 2, 1996

/s/ Luke F. Botica
------------------
Luke F. Botica
<PAGE>

EXHIBIT 24.1

POWER OF ATTORNEY

The undersigned hereby constitutes and appoints Luke F. Botica, Rhonda
I. Kochlefl and Daniel I. Malina, each of them with full power to act without
the other, his true and lawful attorney-in-fact, with full power and authority,
for the purpose of executing, in the name and on behalf of the undersigned as a
director and or officer of Donnelley Enterprise Solutions Incorporated, a
Delaware corporation (the "Company"), a Registration Statement on Form S-1 for
the registration under the Securities Act of 1933, as amended, of the Company's
Common Stock, par value $.01 per share, and any and all amendments to such
Registration Statement, including post-effective amendments, and to deliver on
behalf of the undersigned such Registration Statement and any and all amendments
thereto, as each thereof is so executed, for filing with the Securities and
Exchange Commission. The undersigned hereby grants unto such attorney-in-fact
full power of substitution and revocation in the premises and hereby ratifies
and confirms all that such attorney-in-fact may do or cause to be done by virtue
of these presents.

Dated: August 2, 1996

/s/ Leo S. Spiegel
------------------
Leo S. Spiegel

<PAGE>

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</TABLE>