EXHIBIT 99.(c)(2)
PROJECT REGIMENT
Presentation to the
Independent Special Committee
of the Board of Directors
June 21, 2001
Important Disclaimer
[GRAPHIC]
This document has been prepared by Adams, Harkness & Hill, Inc. ("AH&H") as part
of a presentation being made to and at the request of the Independent Special
Committee to the Board of Directors of REGIMENT, Inc. ("REGIMENT") in support of
our opinion as to the fairness to REGIMENT, from a financial point of view and
as of the date hereof, of the consideration to be received by the shareholders
of REGIMENT in connection with the proposed transaction (the "Transaction"). The
material in this document and all analyses contained herein are confidential and
have been developed solely for the use of the Independent Special Committee of
the Board of Directors of REGIMENT in connection only with the Transaction. Any
use of this material or the analyses contained herein for any other purpose
(including the evaluation of any proposed transaction other than the
Transaction) or any other publication of this material or the analyses contained
herein without the express written consent of AH&H is strictly prohibited.
In connection with its preparation of these materials, AH&H received and
reviewed historical and projected operating results and related business and
financial information of REGIMENT as developed by REGIMENT management, and held
limited discussions with members of the management of REGIMENT regarding this
information. In connection with the analyses contained herein, we have not
independently verified any such information and have relied on all such
information as being complete and accurate in all material respects. In
addition, we have not obtained any independent appraisal of the properties or
assets of REGIMENT.
Several analytical methodologies have been employed herein and no one method of
analysis should be emphasized disproportionately or regarded as critical to the
overall conclusion that we have reached. Each analytical method has inherent
strengths and weaknesses, and the nature of the available information may
further affect the value of a particular method. The conclusions that we have
reached are based on all the analyses and factors presented herein taken as a
whole and also on the application of our own experience and judgment. Such
conclusions may involve significant elements of subjective judgment and
qualitative analysis. We therefore give no opinion as to the individual value or
merit of any one or more parts of the material that follows. Our only opinion is
contained in the formal written opinion delivered to the Independent Special
Committee of the Board of Directors of REGIMENT as to the fairness, from a
financial point of view, and as of the date hereof, of the consideration to be
received by the shareholders of REGIMENT in connection with the Transaction.
The opinion, the analyses contained herein and all conclusions drawn from such
analyses are necessarily based upon prevailing market, economic and other
conditions that exist and can be evaluated as of the date of this document, and
on information available to AH&H as of the date hereof.
Table of Contents / Agenda
[GRAPHIC]
Section A - Overview
Section B - Valuation Assessment
@ Exhibit 1 - Peer Group Analysis
@ Exhibit 2 - Precedent Transaction Analysis
@ Exhibit 3 - Discounted Cash Flow Analysis
@ Exhibit 4 - "Break Up" Analysis
Section A
Overview
[GRAPHIC]
Overview
REGIMENT Share Price Performance
REGIMENT Stock Price/Volume Activity - January 2000 to Present
- --------------------------------------------------------------------------------
=== Volume ---Close
3/1/00 - REGIMENT sells its Business Strategy Segment to an investor group for
approximately $65 million.
7/31/00 - REGIMENT reports revenue and earnings estimates that were below
expectations. Gross and Operating margins were, also, disappointing.
9/21/00 - Last day REGIMENT stock closed above $1.65.
9/21/00 - REGIMENT announced a definitive agreement to sell its wholly owned
subsidiary, The Hunter Group, Inc. to Cedar Group PLC for approximately $72
million in cash.
1/3/01 - REGIMENT receives letter from NASDAQ notifying the Company of its
non-compliance with listing requirements due to the failure to maintain a
minimum bid price of $1.00 during the last 30 consecutive trading days.
4/2/01 - REGIMENT reports Q1 2001 results.
[GRAPH]
[PLOT POINTS TO COME?]
- --------------------------------------------------------------------------------
Period High $ 8.063
Period Low $ 0.400
Close 19-Jun-01 $ 0.460
Average Close $ 2.304
Average Volume 297,715
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10 Day average $ 0.480
20 Day average $ 0.463
30 Day average $ 0.501
60 Day average $ 0.616
90 Day average $ 0.754
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[GRAPHIC]
Overview
Index of REGIMENT Share Price Performance
- --- GovConnect Peer Group -36% --- NASDAQ -52% ---ITCS Peer Group -44%
- --- REGIMENT -94%
[GRAPH]
[PLOT POINTS TO COME]
GovConnect Peer Group includes: AMSY, CACI, CVNS, MMS, EGOV, PER, TIER, SCTC
ITCS Peer Group includes: ALRC, ANLY, CHRZ, CTG, CGZ, HAKI, KELYA, MAN, MISI,
MPS, SFN, TSRC, VOL
[GRAPHIC]
Overview
Volume At Price Histogram - One Year
=== Shares Traded (MM) --- Cumulative Trading Volume as a % of Float
[GRAPH]
Share Price Intervals
$0.00-$0.75 $0.75-$1.50 $1.50-$1.65 $1.65-$2.00 $2.00-$2.25
Trading Volume as %
of Volume Traded 11.9% 55.0% 17.6% 12.7% 2.8%
Cumulative Volume as %
of Volume Traded 11.9% 66.9% 84.5% 97.2% 100.0%
Trading Volume as %
of Total Shares Outstanding 13.5% 62.4% 19.9% 14.4% 3.2%
Cumulative Volume as %
of Total Shares Outstanding 13.5% 75.8% 95.8% 110.2% 113.4%
Trading Volume as %
of Float 25.4% 117.5% 37.6% 27.1% 6.0%
Cumulative Volume as %
of Float 25.4% 142.9% 180.4% 207.5% 213.6%
Source: FactSet and Bloomberg. Shares outstanding assumed to be 52.56 million
and float assumed to be 27.90 million.
[GRAPHIC]
Overview
REGIMENT Timeline of Relevant Events
In June 2000 the Company engaged a financial advisory firm to identify and
approach potential buyers. 29 financial buyers were initially approached on
behalf of REGIMENT.
In August 2000 REGIMENT's financial advisor initiated discussions with potential
strategic buyers regarding the ITCS division.
In Nov. 2000 REGIMENT received preliminary indications of interest from two
potential strategic acquirers and one potential financial party; no formal
offers materialized.
On April 9, 2001 the Special Committee was formed in response to preliminary
indication of interest from Mr. Conway with respect to a potential MBO.
On April 12, 2001 the Special Committee received a written indication of
interest from Mr. Conway to acquire all of the Company's outstanding capital
stock for cash consideration of $1.20 per share.
On April 25, 2001 AH&H was engaged by the Special Committee to provide financial
advisory services.
On May 14, 2001 the Special Committee rejected Mr. Conway's indication of
interest at $1.20 per share.
On May 15, 2001 the Chief Financial Officer of REGIMENT contacted four parties,
three of which had earlier expressed varying levels of interest in acquiring the
Company, in whole or in part, in order to assess their current level of
interest.
On May 21, 2001 Mr. Conway submitted a revised indication of interest at $1.25
per share.
On May 22, 2001 AH&H contacted two potential strategic acquirors of to assess
their respective level of interest in acquiring the Company. Each submitted an
indication of interest, in one instance for the entire entity, in the other for
the ITCS unit only.
On May 24, 2001, Mr. Conway submitted a revised indication of interest at $1.42
per share.
On May 30, 2001, Mr. Conway submitted a revised offer at $1.63 per share.
On June 11, 2001, the Special Committee received a written indication of
interest from a potential strategic acquiror for $1.75 per share; such
indication did not include a funding commitment.
On June 12, 2001, Mr. Conway submitted a revised offer of $1.65 per share.
On June 14, 2001, the Company's SEC deadline passed to have three outside
directors on the independent audit committee.
In addition, the Company has until July 26, 2001 to regain compliance with
NASDAQ regarding maintaining a minimum bid price of $1.00 for 30 consecutive
trading days.
[GRAPHIC]
Overview
REGIMENT Share Price Performance 1/1/00 - 6/19/01
=== Volume --- Close
[GRAPH]
4/12/01 - $1.20 offer submitted
5/21/01 - $1.25 offer submitted
5/24/01 - $ 1.42 offer submitted
5/30/01 - $ 1.63 offer submitted
6/12/01 - $ 1.65 offer submitted
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Period High $ 8.063
Period Low $ 0.400
Close 19-Jun-01 $ 0.460
Average Close $ 2.304
Average Volume 297,715
- --------------------------------------------------------------------------------
10 Day average $ 0.480
20 Day average $ 0.463
30 Day average $ 0.501
60 Day average $ 0.616
90 Day average $ 0.754
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Section B
Valuation Assessment
Valuation Assessment
Corporate Performance Overview
[GRAPHIC]
. REGIMENT has been actively for sale, as a whole or in part, for
approximately one year. NO ACCEPTABLE ALTERNATIVE BIDS HAVE BEEN SUBMITTED.
. ITCS has realized sequential decline in revenue for seven consecutive
quarters and is experiencing significant management and employee attrition.
. The disposition of pieces of the Company could have the effect of
triggering significant economic costs that cannot be reflected currently in
the Company's financial statements.
. REGIMENT faces the possibility of de-listing from the NASDAQ National
Market should it fail to take the necessary steps to regain listing
compliance.
Conclusion: REGIMENT needs to quickly execute significant and material
corrective actions in order to preserve existing shareholder value. These
factors must be considered when reviewing the valuation methodologies that
follow.
Valuation Assessment
Primary Valuation Methodologies
[GRAPHIC]
. Peer Group (i.e., Comparable Company) Analysis
. Assessment of financial performance of companies possessing similar
strategic and operating characteristics to the company/operating unit
. Focus is on metric-based implied public trading value, to which
appropriate range of premia is applied
. Precedent Transaction Analysis
. Assessment of valuation metrics for mergers, acquisitions,
divestitures and buy-outs involving companies possessing similar
strategic and operating characteristics to the company/operating unit
. Focus on premium paid over historical public trading value (i.e.,
control premium)
. Discounted Cash Flow Analysis
. Assessment of present value of projected future cash flows, utilizing
performance forecasts prepared by management of the company/operating
unit
. Focus is on (i) assessment of forecasts based on knowledge of industry
variables and prior performance and (ii) calculation of discounted
cash flow value based on selected discount rates
. DCF represents "intrinsic" value of business/operating unit implied by
cash flow analyses (not seen by public market)
. "Break-Up" Analysis
. Assessment of cumulative enterprise value of individual operating
units if sold at arms' length
- ITCS
- GovConnect
. Focus is on identification and assessment of distinct operating
entities, identification of prospective buyers for such entities, and
valuation of such entities
Valuation Assessment
REGIMENT Valuation Summary
[GRAPHIC]
Implied Price per Share ($)
---------------------------
Low Mean High
--- ---- ----
Peer Group Analysis (1) $ 0.47 $ 0.77 $ 1.06
Precedent Transactions Analysis (2):
IT Services Acquisitions $ 0.48 $ 0.83 $ 1.20
MBO Transactions $ 0.46 $ 0.67 $ 0.95
Discounted Cash Flow Analysis $ 0.83 $ 1.12 $ 1.42
"Break-Up" Analysis $ 1.47 $ 1.71 $ 1.95
(1) Implied price per share range was determined utilizing the REGIMENT peer
group enterprise value/ LTM revenue multiple. A discount range of 55% to
80% was applied to the multiple in order to account for REGIMENT's
substandard operating metrics relative to its peer group.
(2) Based on the application of a range of premiums in precedent IT services
acquisitions and MBO transactions to REGIMENT's closing stock price as of
June 19, 2001 ($0.46).
Exhibit 1
Peer Group Analysis
Peer Group Analysis
[GRAPHIC]
Sequential Y / Y
Quarterly Quarterly
19-Jun Market LTM Enterprise Ent. Value/ Growth Growth Gross Operating
Close Cap Revenue Value LTM Revenue Rate (1) Rate (2) Margin Margin
- ------------------------------------------------------------------------------------------------------------------------------------
$s MM MM MM X % % % %
Alternative Resources Corporation 0.49 $ 8.2 $ 249.0 $ 46.8 0.2 -5.40% -18.00% 30.36% 1.98%
American Management Systems 23.56 $ 989.5 $ 1,291.2 $1,033.6 0.8 -1.00% 3.80% 46.60% 8.60%
Analysts International Corporation 4.55 $ 110.5 $ 571.1 $ 141.6 0.2 3.30% 9.00% 18.42% 1.13%
Computer Horizons Corporation 2.92 $ 93.6 $ 437.7 $ 96.8 0.2 -2.30% -6.80% 30.84% -3.44%
Computer Task Group, Inc. 4.99 $ 82.9 $ 332.4 $ 105.5 0.3 -1.11% -13.80% 29.61% 0.72%
Cotelligent Group 0.90 $ 13.8 $ 82.3 ( $ 10.1) NMF -20.24% -41.30% 31.77% -25.28%
Covansys 10.84 $ 316.9 $ 422.4 $ 196.7 0.5 -2.00% 3.00% 25.60% -8.90%
Hall, Kinion & Associates, Inc. 7.10 $ 96.7 $ 295.8 $ 64.3 0.2 -22.10% -1.10% 50.24% 4.30%
Kelly Services, Inc. 24.30 $ 897.0 $ 4,494.0 $ 887.2 0.2 -5.00% 0.70% 17.48% 2.83%
Manpower, Inc. 30.66 $2,357.8 $12,483.5 $2,695.1 0.2 -3.00% 3.30% 15.90% 2.50%
Metro Information Services, Inc. 4.45 $ 68.1 $ 292.4 $ 148.2 0.5 1.20% -2.00% 29.43% 8.13%
Modis Professional Services, Inc. 6.26 $ 609.5 $ 1,814.7 $ 542.1 0.3 -1.10% -2.80% 29.04% 7.16%
Perot Systems Corporation 16.99 $1,658.2 $ 1,126.0 $1,432.6 1.3 2.78% 7.30% 22.20% 2.10%
Spherion Corporation 8.02 $ 534.1 $ 3,740.8 $1,087.4 0.3 -4.91% -10.81% 33.46% 4.90%
Technisource, Inc. 1.55 $ 16.0 $ 152.5 $ 14.2 0.1 -4.65% 30.10% 26.19% 2.32%
Volt Information Sciences, Inc. 16.62 $ 252.8 $ 2,227.0 $ 406.4 0.2 1.87% -0.06% 8.47% 3.88%
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Average: $ 506.6 $ 1,875.8 $ 555.5 0.4 -3.98% -2.47% 27.85% 0.81%
Avg. Excl. Max. and Min.: $ 410.0 $ 1,246.2 $ 443.1 0.3 -3.20% -2.02% 27.63% 2.12%
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REGIMENT 0.46 $ 24.2 $ 412.8 ($ 17.6) (0.04) -0.10% -20.70% 24.70% -6.00%
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Notes:
LTM - Last Twelve Months; MM - Millions; NMF - Not Meaningful.
All calculations exclude extraordinary or one-time charges.
Share counts derived from fully-diluted shares outstanding number disclosed in
most recent Form 10-Q.
(1) Sequential Quarterly Growth Rate reflects the increase / (decrease) in net
revenue for the most recently reported three-month period compared to the
three-month period preceeding it.
(2) Y / Y Quarterly Growth Rate reflects the increase / (decrease) in net
revenue for the most recently reported three-month period compared to the
same period from a year earlier.
Peer Group Analysis
[GRAPHIC]
- ------------------------- ------------------------ -------------------------- ------------------- ---------------------
Market Cap Ent. Value LTM Revenue LTM Gross Profit LTM EBITDA
- ------------------------- ------------------------ -------------------------- ------------------- ---------------------
MAN $2,357.8 MAN $2,695.05 MAN $12,483.50 HAKI 50.2% MAN $312.7
PER $1,658.2 PER $1,432.60 KELYA $ 4,494.00 AMSY 46.6% SFN $178.4
AMSY $ 989.5 SFN $1,087.40 SFN $ 3,740.80 SFN 33.5% MPS $130.0
KELYA $ 897.0 AMSY $1,033.60 VOL $ 2,227.00 CGZ 31.8% KELYA $127.3
MPS $ 609.5 KELYA $ 887.19 MPS $ 1,814.70 CHRZ 30.8% AMSY $111.0
SFN $ 534.08 MPS $ 542.06 AMSY $ 1,291.20 ALRC 30.4% VOL $ 86.45
CVNS $ 316.9 VOL $ 406.37 PER $ 1,126.00 CTG 29.6% MISI $ 23.8
VOL $ 252.8 CVNS $ 196.70 ANLY $ 571.15 MISI 29.4% PER $ 23.4
ANLY $ 110.5 MISI $ 148.21 CHRZ $ 437.68 MPS 29.0% HAKI $ 12.7
HAKI $ 96.7 ANLY $ 141.63 CVNS $ 422.40 TSRC 26.2% ANLY $ 6.5
CHRZ $ 93.6 CTG $ 105.50 REGI $ 412.80 CVNS 25.6% ALRC $ 4.9
CTG $ 82.9 CHRZ $ 96.82 CTG $ 332.45 REGI 24.7% TSRC $ 3.8
MISI $ 68.1 HAKI $ 64.35 HAKI $ 295.82 PER 22.2% CTG $ 2.4
REGI $ 24.2 ALRC $ 46.79 MISI $ 292.36 ANLY 18.4% CHRZ ($15.0)
TSRC $ 16.0 TSRC $ 14.22 ALRC $ 248.96 KELYA 17.5% CGZ ($20.8)
CGZ $ 13.8 CGZ ($ 10.13) TSRC $ 152.47 MAN 15.9% REGI ($24.8)
ALRC $ 8.2 REGI ($ 17.60) CGZ $ 82.31 VOL 8.5% CVNS ($37.6)
- ------------------------- ------------------------ -------------------------- ------------------- ---------------------
Mean: $ 478.23 Mean: $ 521.81 Mean: $ 1,789.74 Mean: 27.7% Mean: $54.41
Stripped Mean: $ 384.26 Stripped Mean: $ 412.89 Stripped Mean: $ 1,190.65 Stripped Mean: 27.4% Stripped Mean: $43.32
- ------------------------- ------------------------ -------------------------- ------------------- ---------------------
Peer Group Analysis
[GRAPHIC]
- ------------------------- ----------------------- ----------------------- -----------------------
LTM Net Income 2001E EPS Ent Value/EBITDA 2001E Price/Earnings
- ------------------------- ----------------------- ----------------------- -----------------------
MAN $ 172.40 KELYA $ 2.43 PER 61.01x CVNS 77.43x
MPS $ 151.32 MAN $ 2.22 CTG 44.27x MISI 31.79x
SFN $ 98.62 AMSY $ 1.55 ANLY 21.89x CTG 27.72x
KELYA $ 75.92 SFN $ 1.38 ALRC 9.51x PER 27.40x
AMSY $ 63.40 HAKI $ 1.10 AMSY 9.31x MPS 25.04x
VOL $ 46.21 PER $ 0.53 MAN 8.62x KELYA 21.50x
PER $ 22.96 MPS $ 0.48 KELYA 6.97x CHRZ 17.18x
MISI $ 9.01 MISI $ 0.43 MISI 6.2x AMSY 14.54x
ANLY $ 5.88 ANLY $ 0.38 SFN 6.10x MAN 14.06x
HAKI $ 4.35 CVNS $ 0.21 HAKI 5.06x ANLY 13.79x
TSRC $ 2.07 CTG ($0.11) VOL 4.70x HAKI 13.15x
CTG $ 0.22 REGI ($0.37) MPS 4.17x SFN 10.99x
ALRC ($ 14.81) ALRC ($0.44) TSRC 3.79x ALRC 3.27x
CHRZ ($ 14.88) CHRZ ($0.51) CGZ 0.49x CGZ NMF
CGZ ($ 16.82) CGZ NA CHRZ NMF REGI NMF
CVNS ($ 21.98) TSRC NA CVNS NMF TSRC NMF
REGI ($ 26.40) VOL NA REGI NMF VOL NMF
- ------------------------- ----------------------- ----------------------- -----------------------
Mean: $ 32.79 Mean: $ 0.66 Mean: 13.72x Mean: 22.91x
Stripped Mean: $ 27.43 Stripped Mean: $ 0.61 Stripped Mean: 10.89x Stripped Mean: 19.74x
- ------------------------- ----------------------- ----------------------- -----------------------
Peer Group Analysis
[GRAPHIC]
- ---------------------------- ----------------------- ---------------------------------- -------------------------------
Book Value Price/Book Value Sequential Quarterly Growth Rate Y / Y Quarterly Growth Rate
- ---------------------------- ----------------------- ---------------------------------- -------------------------------
MPS $1,301.53 CVNS 0.10x ANLY 3.30% TSRC 30.10%
SFN $1,108.09 HAKI 0.08x PER 2.78% ANLY 9.00%
KELYA $ 613.61 ALRC 0.07x VOL 1.87% PER 7.30%
MAN $ 613.61 AMSY 0.06x MISI 1.20% AMSY 3.80%
PER $ 493.90 VOL 0.06x REGI -0.10% MAN 3.30%
AMSY $ 362.60 CTG 0.06x AMSY -1.00% CVNS 3.00%
VOL $ 261.67 MISI 0.05x MPS -1.10% KELYA 0.70%
CHRZ $ 206.03 MAN 0.05x CTG -1.11% VOL -0.06%
REGI $ 164.50 ANLY 0.05x CVNS -2.00% HAKI -1.10%
CVNS $ 103.48 TSRC 0.04x CHRZ -2.30% MISI -2.00%
ANLY $ 95.81 KELYA 0.04x MAN -3.00% MPS -2.80%
CTG $ 86.75 PER 0.03x TSRC -4.65% CHRZ -6.80%
HAKI $ 85.49 CGZ 0.02x SFN -4.91% SFN -10.81%
MISI $ 85.04 CHRZ 0.01x KELYA -5.00% CTG -13.80%
CGZ $ 40.88 SFN 0.01x ALRC -5.40% ALRC -18.00%
TSRC $ 38.85 MPS 0.00x CGZ -20.24% REGI -20.70%
ALRC $ 7.50 REGI 0.00x HAKI -22.10% CGZ -41.30%
- ---------------------------- ----------------------- ---------------------------------- -------------------------------
Mean: $ 333.49 Mean: 0.04x Mean: -3.75% Mean: -3.54%
Stripped Mean: $ 290.69 Stripped Mean: 0.04x Stripped Mean: -3.00% Stripped Mean: -3.27%
- ---------------------------- ----------------------- ---------------------------------- -------------------------------
Exhibit 2
Precedent Transaction Analysis
Precedent Transaction Analysis
IT Services Acquisitions (Selected sample of transactions since 1/1/00)
[GRAPHIC]
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Premium Premium
Premium to market to market
Transaction Transaction to market 10 days 30 days
Date Value Value/ at before before
Target Name Acquiror Name Announced (mm) LTM Rev announcement announcement announcement
- ------------------------------------------------------------------------------------------------------------------------------------
Aris Corporation CIBER, Inc. 6/14/01 $ 31.4 0.5 48% 48% 51%
Business Description: Provides end to end e-business
consulting services
C-bridge eXcelon Corporation 5/22/01 $ 60.0 0.7 20% 32% 44%
Business Description: Provides e-enterprise consulting
services
Proxicom, Inc. Dimension Data 5/11/01 $ 448.0 2.2 33% 160% 94%
Business Description: Provides ebusiness consulting and
development services
Note: Initial bid received from Compaq at an implied
transaction value of $266 million (4/26/01)
Mainspring Communications, Inc. IBM 4/19/01 $ 80.0 2.0 33% 101% 49%
Business Description: Provides digital business strategy
consulting services
Cambridge Technology Partners Novell 3/12/01 $ 266.0 0.5 36% 27% 7%
Business Description: Provides strategic and management
consulting as well as systems integration services
IMRglobal Corp. CGI Group, Inc. 2/21/01 $ 438.0 1.7 62% 56% 96%
Business Description: Prrovides end-to-end information
technology solutions to Fortune 500 and Global 2000 companies
Command Systems, Inc. ICICI Infotech Inc. 1/26/01 $ 20.0 0.8 61% 150% 138%
Business Description: Provides systems integration services
AppNet Systems, Inc. Commerce One, Inc. 6/20/00 $ 1,282.0 9.5 37% 85% 116%
Business Description: Provides Internet consulting services
Mynd Computer Sciences
Corporation 6/20/00 $ 644.0 0.9 46% 55% 56%
Business Description: A provider of systems, services,
sourcing and e-business solutions to the global insurance
and related financial services industries
Metamor Worldwide (1) PSINet 3/22/00 $ 1,900.0 3.3 148% 125% 121%
Business Description: Provides end-to-end IT consulting and
solutions to Fortune 1000 companies
Network Solutions, Inc. Verisign, Inc. 3/7/00 $21,101.4 95.6 62% 121% 126%
Business Description: Provides Internet domain name
registration services, Internet consulting services and
other Internet professional seervices
SPR Inc. Leapnet, Inc. 1/28/00 $ 48.5 0.8 9% 7% 5%
Business Description: Provides IT infrastructure services,
develops and maintains applications and integrates systems
and information
Average: 9.9 50% 81% 75%
(1) The only significant comparable IT Staffing transaction Min: 0.5 9% 7% 5%
executed during the selected time period Max: 95.6 148% 160% 138%
Avg. excl. max and min: 2.2 44% 80% 76%
Precedent Transaction Analysis
MBO Transactions (Selected sample of transactions (less than)$100 million)
[GRAPHIC]
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Premium Premium Premium
Transaction to market to market to market
Date Transaction Value/ 1 day before 1 week before 4 weeks before
Company Name Announced Value (mm) LTM Rev announcement announcement announcement
- ------------------------------------------------------------------------------------------------------------------------------------
Black Hawk Gaming & Development Corp. 4/13/01 $ 47.7 0.6 35% 41% 31%
Business Description: Owner, operatorof casinos and
hotels
NextHealth Inc. 1/24/01 $ 80.1 2.0 46% 48% 86%
Business Description: Provider, developer of healthcare
services
Gehl Co. 12/22/00 $ 96.7 0.4 67% 48% 56%
Business Description: Manufacturer of agricultural
equipment
NPC International Inc. 12/14/00 $ 93.6 0.5 11% 7% 32%
Business Description: Owner, operator of fast food
restaurants
Impac Commercial Holdings Inc. 10/13/00 $ 60.4 1.8 2% 18% 20%
Business Description: Specialty commercial property
finance company
BI Inc. 8/11/00 $ 67.4 1.0 78% 106% 65%
Business Description: Manufacturer of electronic
security systems
General Bearing Corp. 7/14/00 $ 25.5 0.5 28% 30% 33%
Business Description: Manufacture bearings
Acme Electric Corp. 4/26/00 $ 50.8 0.7 33% 33% 36%
Business Description: Manufacturer of electronics
transformers
KLLM Transport Services Inc. 4/20/00 $ 33.8 0.1 5% 10% 18%
Business Description: Trucking company
Solomon-Page Group Ltd. 3/31/00 $ 29.3 0.5 83% 83% 75%
Business Description: Employment agencies
Pulaski Furniture Corp. 3/31/00 $ 65.3 0.3 0% 31% 55%
Business Description: Manufacture household furniture
Centennial Healthcare Corp. 2/25/00 $ 65.6 0.2 87% 85% 83%
Business Description: Provide home healthcare services
Av erage: 0.7 40% 45% 49%
Min: 0.1 0% 7% 18%
Max: 2.0 87% 106% 86%
Avg. excl. max and min: 0.6 39% 43% 49%
Exhibit 3
Discounted Cash Flow Analysis
Discounted Cash Flow Analysis
WACC Calculation
[GRAPHIC]
Beta Calculation
Levered Unlevered
Company Beta (1) Debt/Equity (2) Beta
Alternative Resources Corporation 1.55 2.80 0.55
American Management Systems, Inc. 1.12 0.06 1.12
Analysts International Corporation 0.75 0.38 0.60
Computer Horizons 1.26 0.22 1.10
Computer Task Group, Inc. 0.98 0.43 0.76
Cotelligent Group 0.86 0.35 0.70
Covansys 1.17 0.00 1.17
Hall, Kinion & Associates, Inc. 1.46 0.00 1.46
Kelly Services, Inc. 0.55 0.06 0.53
Manpower, Inc. 1.00 0.21 0.88
Metro Information Services, Inc. 0.69 1.15 0.39
Modis Professional Services, Inc. 0.65 0.30 0.54
Perot Systems Corp. 0.95 0.01 0.95
Spherion Corporation 0.78 1.21 0.44
Technisource, Inc. 0.64 0.06 0.62
Volt Information Sciences, Inc. 0.78 0.70 0.53
Mean 0.95 0.50 0.77
Mean excluding Max and Min 0.94 0.37 0.75
Common Stock Price as of 6/19/01 $ 0.46
REGIMENT Market Capitalization $ 24.18
REGIMENT Debt $ 0.13
2001 Projected Debt/Equity Ratio 0.004%
Assumed Tax Rate 34.50%
Implied REGIMENT Beta 0.75
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Cost of Equity Capital Calculation
Components Amount
Risk Free Rate (3) 5.20%
Implied REGIMENT Beta 0.75
Assumed Risk Premium 10.00%
Cost of Equity 12.69%
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Cost of Debt Capital Calculation
Components Rate Amount
Long Term Debt NA $0.13
Cost of Debt 0.00%
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Weighted Cost of Capital Calculation
Components Cost Weight
Cost of Equity Capital 12.69% 99%
Cost of Debt Capital 0.00% 1%
Estimated Effective Tax Rate 34.50%
Weighted Average Cost of Capital 12.69%
Rounded WACC 13.00%
Notes:
(1) Levered beta as reported by Bloomberg.
(2) Debt/Equity ratio based on most recent filings or press releases.
(3) Risk Free Rate based on closing 10-Year Treasury Note as of 6/19/01.
Discounted Cash Flow Analysis
Share Price Calculation
[GRAPHIC]
Years Ending December 31, (1)
($ in thousands) 2001 2002 2003 2004 2005
======== ======== ======== ======== =========
Total Revenues $334.09 $347.80 $382.50 $420.75 $462.83
EBITDA ($14.15) $6.90 $11.62 $16.62 $22.68
EBIT ($22.19) $0.10 $ 4.50 $ 8.63 $13.88
Plus: Depreciation and Amortization $8.05 $6.80 $ 7.12 $ 7.99 $ 8.79
Minus: CAPEX $7.20 $8.00 $ 8.00 $ 8.00 $ 8.00
Minus: Increase (Decrease) in Working Capital $2.19 $0.59 ($6.54) ($10.00) ($20.00)
Minus: Notional Tax @ 34.5% $0.00 $0.00 $1.55 $2.98 $4.79
-------- -------- -------- -------- ---------
Free Cash Flow ($23.54) ($1.69) $8.60 $15.64 $29.89
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Shares Out 52.567 Terminal Value Based On Exit
Outstanding Debt $0.13 Mulitples of 2005 EBITDA
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3.0x 4.0x 5.0x
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PV of PV of Enterprise Share PV of Enterprise Share PV of Enterprise Share
WACC Cash Flows Term Val Value Price Term Val Value Price Term Val Value Price
------- ---------- -------- ---------- ------- ---------- ---------- ------- ---------- ---------- -------
12.00% $10.67 $38.61 $49.27 $0.93 $51.47 $62.14 $1.18 $64.34 $75.01 $1.42
13.00% $9.63 $36.93 $46.56 $0.88 $49.24 $58.87 $1.12 $61.54 $71.18 $1.35
14.00% $8.65 $35.34 $43.99 $0.83 $47.11 $55.77 $1.06 $58.89 $67.54 $1.28
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(1) 2001-2003 financial projections provided by REGIMENT management. It should
be noted that for the past 18 months, REGIMENT's management, has, on a
quarterly basis, consistently failed to meet internal projections and has
continued to revise its projections downward.
Exhibit 4
"Break-Up" Analysis
"Break-Up" Analysis
Sensitivity Analysis
[GRAPHIC]
The following sensitivity analysis provides a range of probable per share(1)
values assuming (i) a stand-alone enterprise value of GovConnect between $20-$30
million(2), and (ii) a stand-alone enterprise value of ITCS between $15-$30
million (3) , factoring in the $42 million of cash on REGIMENT's balance sheet
as of March 31, 2001
Enterprise Value of GovConnect, net of liabilities
(In Millions)
$ 20.0 $ 22.5 $ 25.0 $ 27.5 $ 30.0
$ 57.5 $ 1.47 $ 1.52 $ 1.57 $ 1.62 $ 1.66
$ 60.0 $ 1.52 $ 1.57 $ 1.62 $ 1.66 $ 1.71
Enterprise Value of ITCS, $ 62.5 $ 1.57 $ 1.62 $ 1.66 $ 1.71 $ 1.76
net of liabilities
(plus Cash on Hand) $ 65.0 $ 1.62 $ 1.66 $ 1.71 $ 1.76 $ 1.81
(In Millions)
$ 67.5 $ 1.66 $ 1.71 $ 1.76 $ 1.81 $ 1.85
$ 70.0 $ 1.71 $ 1.76 $ 1.81 $ 1.85 $ 1.90
$ 72.5 $ 1.76 $ 1.81 $ 1.85 $ 1.90 $ 1.95
(1) Assumes 52,567,027 shares of common stock outstanding.
(2) Stand-alone enterprise value range was determined utilizing the enterprise
value/LTM revenue multiple for GovConnect's peer group.
(3) Stand-alone enterprise value range was determined utilizing the ITCS peer
group enterprise value/LTM revenue multiple. A discount range of 55% - 80%
was applied to the multiple in order to account for ITCS's substandard
operating metrics relative to its peer group.
"Break-Up" Analysis
GovConnect Peer Group Analysis
[GRAPHIC]
52 Week Range
19-Jun --------------- Market Enterprise Ent. Value/ Ent. Value/
Close High Low Cap Value LTM Revenue LTM Gross Profit
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$s $s $s MM MM X X
American Management Systems, Inc. # 23.56 41.00 14.00 $ 989.5 $ 1,033.6 0.8 1.7
CACI International, Inc. 40.70 44.62 16.75 $ 468.3 $ 441.7 0.8 2.1
Covansys 10.84 22.94 6.25 $ 316.9 $ 196.7 0.5 1.8
Maximus, Inc.# 33.95 40.25 18.00 $ 731.1 $ 683.6 1.5 4.8
National Information Consortium 2.04 18.81 1.00 $ 114.3 $ 75.7 0.9 3.2
Perot Systems Corporation 16.99 17.70 7.81 $ 1,658.2 $ 1,432.6 1.3 5.7
Tier Technologies, Inc. # 9.45 12.69 4.44 $ 125.3 $ 122.1 1.0 2.8
Systems & Computer Technology Corporation 8.21 20.50 5.75 $ 264.1 $ 266.9 0.6 1.8
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Average: $ 583.5 $ 531.6 0.9 3.0
Avg. excl. Max. and Min. $ 482.5 $ 457.4 0.9 2.7
-----------------------------------------------------------------------------------------
Notes:
- -----
CY - Calendar Year; LTGR - Long-Term Growth Rate; LTM - Last Twelve Months;
NTM - Next Twelve Months; MM - Millions; NMF - Not Meaningful.
# Denotes a company covered by AH&H research.
All calculations exclude extraordinary or one-time charges.
"Break-Up" Analysis
GovConnect Precedent Transaction Analysis
[GRAPHIC]
- -------------------------------------------------------------------------------------------------------------------------------
Transaction Target LTM Transaction Value/
Target Name Acquirer Name Date Announced Value Revenue LTM revenue
- -------------------------------------------------------------------------------------------------------------------------------
$ M M $ M M x
Synergy Consulting, Inc. American Management 08/22/00 $ 20.00 $ 15.40 1.3x
Systems, Ir
Provides systems integration, ebusiness and management consulting services.
Strategic Partners MAXIMUS, Inc. 07/31/00 $ 1.80 $ 2.50 0.7x
International, LLC
Provides implementation services relating to Activity-Based Costing systems for governments.
Mynd Corporation Computer Sciences Corporation 06/20/00 $ 568.00 $ 570.07 1.0x
Provides systems, services, sourcing and e-business solutions to the global insurance and related financial
services industries.
AssetWorks MAXIMUS, Inc. 04/18/00 $ 8.61 $ 8.00 1.1x
Provides infrastructure management systems for federal, state and local governments.
Valuation Resource Management MAXIMUS, Inc. 04/17/00 $ 4.50 $ 7.70 0.6x
Valuation and consulting firm specializing in providing solutions for government.
SCA Group, Inc. Tier Technologies, Inc. 04/04/00 $ 16.20 $ 15.00 1.1x
Provides business process consulting services with expertise in health care,
3G International, Inc. MAXIMUS, Inc. 04/03/00 $ 7.00 $ 10.00 0.7x
An integrator of smart card systems for the public and commercial sectors.
Century Technologies, Inc. CACI International, Inc. 03/16/00 $ 14.40 $ 25.00 0.6x
Provides networking, telecommunications, e-commerce and software engineering services to government agencies.
Crawford Consulting, Inc. MAXIMUS, Inc. 02/25/00 $ 16.75 $ 16.00 1.0x
Provides information and web-based systems and consulting services for state and local government courts and
justice agencies.
XEN Corporation CACI International, Inc. 11/11/99 $ 4.30 $ 8.56 0.5x
Provides quality systems design, training, development, ecommerce and data security services to governmental
organizations (the Department of Defense and the U.S. Navy).
Consultec LLC Affiliated Computer 10/01/99 $ 105.00 $ 107.00 1.0x
Services, Inc.
Provides information technology services to federal and state health care markets.
Nichols Research Corporation Computer Sciences 09/20/99 $ 396.00 $ 457.00 0.9x
Corporation
Provides information technology consulting and integration services in the government, healthcare and commercial
markets.
Acuity Technology Services Metro Information Services, 08/19/99 $ 40.00 $ 39.00 1.0x
Inc.
Provides IT consulting services.
Digital Software Corporation CIBER, Inc. 05/04/99 $ 6.90 $ 6.50 1.1x
Provides software engineering services with a focus on government contract work.
Empower Solutions, LLC Intelligroup, Inc. 02/16/99 $ 28.00 $ 18.00 1.6x
Provides enterprise resource planning solutions for the public sector and education markets.
------------------------------------------------
Mean Multiple: 0.9x
Median Multiple: 1.0x
Max. Multiple: 1.6x
Min. Multiple: 0.5x
Mean Multiple exclud. Max. and Min.: 0.9x
------------------------------------------------
Notes:
The transaction value represents total consideration for the acquisition
"Break-Up" Analysis
ITCS Peer Group Analysis
[GRAPHIC]
Sequential Y / Y
19-Jun Market LTM Enterprise Ent. Value/ Quarterly Quarterly Gross Operating
Close Cap Revenue Value LTM Revenue Growth Rate(1) Growth Rate(2) Margin Margin
- -----------------------------------------------------------------------------------------------------------------------------------
$s MM MM MM X % % % %
Alternative Resources Corporation 0.49 $8.2 $249.0 $46.8 0.2 -5.40% -18.00% 30.36% 1.98%
Analysts International Corporation 4.55 $110.5 $571.1 $141.6 0.2 3.30% 9.00% 18.42% 1.13%
Computer Horizons Corporation 2.92 $93.6 $437.7 $96.8 0.2 -2.30% -6.80% 30.84% -3.44%
Computer Task Group, Inc. 4.99 $82.9 $332.4 $105.5 0.3 -1.11% -13.80% 29.61% 0.72%
Cotelligent Group 0.90 $13.8 $82.3 ($10.1) NMF -20.24% -41.30% 31.77% -25.28%
Hall, Kinion & Associates, Inc. 7.10 $96.7 $295.8 $64.3 0.2 -22.10% -1.10% 50.24% 4.30%
Kelly Services, Inc. 24.30 $897.0 $4,494.0 $887.2 0.2 -5.00% 0.70% 17.48% 2.83%
Manpower, Inc. 30.66 $2,357.8 $12,483.5 $2,695.1 0.2 -3.00% 3.30% 15.90% 2.50%
Metro Information Services, Inc. 4.45 $68.1 $292.4 $148.2 0.5 1.20% -2.00% 29.43% 8.13%
Modis Professional Services, Inc. 6.26 $609.5 $1,814.7 $542.1 0.3 -1.10% -2.80% 29.04% 7.16%
Spherion Corporation 8.02 $534.1 $3,740.8 $1,087.4 0.3 -4.91% -10.81% 33.46% 4.90%
Technisource, Inc. 1.55 $16.0 $152.5 $14.2 0.1 -4.65% 30.10% 26.19% 2.32%
Volt Information Sciences, Inc. 16.62 $252.8 $2,227.0 $406.4 0.2 1.87% -0.06% 8.47% 3.88%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Average: $395.5 $2,090.2 $478.9 0.2 -4.88% -4.12% 27.02% 0.86%
Avg. Excl. Max. and Min.: $252.3 $1,327.9 $321.9 0.2 -4.06% -3.85% 26.59% 2.57%
- ------------------------------------------------------------------------------------------------------------------------------------
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REGIMENT (3) 0.46 $ 24.2 $ 352.4 ($17.6) (0.05) -1.4% -22.30% 24.80% -4.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Notes:
LTM - Last Twelve Months; MM - Millions; NMF - Not Meaningful. All calculations
exclude extraordinary or one-time charges. Share counts derived from fully-
diluted shares outstanding number disclosed in most recent Form 10-Q.
(1) Sequential Quarterly Growth Rate reflects the increase / (decrease) in net
revenue for the most recently reported three-month period compared to the
three-month period preceeding it.
(2) Y / Y Quarterly Growth Rate reflects the increase / (decrease) in net
revenue for the most recently reported three-month period compared to the
same period from a year earlier.
(3) LTM Revenue, Ent. Value/LTM Revenue, Sequential Quarterly Growth Rate, Y/Y
Quarterly Growth Rate, Gross Margin and Operating Margin metrics for
REGIMENT reflect ITCS financial results only.
"Break-Up" Analysis
ITCS "Break-Up" Sensitivity Analysis
[GRAPHIC]
@ ITCS has realized a sequential decline in revenue for seven consecutive
quarters.
@ ITCS is experiencing significant management and employee attrition.
@ The disposition of the ITCS entity could have the effect of triggering
significant economic costs that cannot be reflected currently in the stand-alone
ITCS financial statements.
@ At least six (6) asset-backed lenders have recently looked at the ITCS asset
portfolio and have valued such asset portfolio between $40 to $45 million.
@ Based on the comments above, a valuation range for ITCS can be calculated as
follows:
ITCS "Break-Up" Sensitivity Analysis
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A. B. C. A.+B.+C.
ITCS Intangible &
Gross ITCS A/R % Collected Sub-Total Tangible Assets % Collected Sub-Total ITCS Liabilities Total
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$85,000,000 45.00% $38,250,000 $27,760,000 10.00% $2,776,000 ($28,915,000) $12,111,000
$85,000,000 50.00% $42,500,000 $27,760,000 15.00% $4,164,000 ($28,915,000) $17,749,000
$85,000,000 55.00% $46,750,000 $27,760,000 20.00% $5,552,000 ($28,915,000) $23,387,000
$85,000,000 60.00% $51,000,000 $27,760,000 25.00% $6,940,000 ($28,915,000) $29,025,000
Source: Internal corporate financial information.