SCHEDULE 14A INFORMATION
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COLOR IMAGING, INC.
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COLOR IMAGING, INC.
4350 PEACHTREE INDUSTRIAL BOULEVARD
SUITE 100 NORCROSS,
GEORGIA 30071
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 19, 2005
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Color Imaging,
Inc. ("Color Imaging" or the "Company") will be held at 10:00 a.m., local time,
on July 19, 2004, at the St. Ives Country Club, One St. Ives Country Club Drive,
Duluth, GA 30097, for the following purposes:
1. To approve amendments, as determined by the Board of Directors of Color
Imaging in their discretion, to Color Imaging's Certificate of Incorporation to
effect a reverse stock split of our common stock at one of the following ratios:
1-for-1500, 1-for-2500 or 1-for-5000 and the repurchase of the resulting
fractional shares held by each stockholder with less than one share after the
reverse stock split, followed immediately by an amendment of Color Imaging's
Certificate of Incorporation to effect a forward stock split of Color Imaging's
common shares upon the inverse of the ratio used in the reverse stock split was
effected (collectively the "Stock Splits"). As a result of the Stock Splits, (a)
each stockholder owning fewer than 5,000 shares, 2,500 shares or 1,500 shares,
as applicable, of outstanding common stock immediately before the Stock Splits
will receive $1.10 in cash, without interest, for each Color Imaging common
share owned by such stockholder immediately prior to the Stock Splits and will
no longer be a stockholder of Color Imaging; and (b) each stockholder owning
more than the number of common shares upon which the reverse stock split was
effected immediately before the Stock Splits will receive common shares equal to
the number of common shares they held prior to the Stock Splits. The Stock
Splits are proposed for the purpose of taking Color Imaging private and
terminating its reporting obligations under the Securities Exchange Act of 1934,
as amended (the "Stock Splits Proposal").
2. To elect seven directors to serve until the next Annual Meeting of
Stockholders or until their respective successors are elected and qualified.
3. To ratify the selection of Lazar Levine & Felix LLP as Color Imaging's
independent accountants for the year ending December 31, 2005.
4. To transact such other business as may properly come before the annual
meeting or any adjournment thereof.
After careful consideration, the board of directors of Color Imaging, acting in
part upon the unanimous recommendation of the special committee, unanimously
determined that the Stock Splits Proposal is advisable, fair to and in the best
interests of the Color Imaging stockholders, accordingly, recommends that you
vote "FOR" adoption of the Stock Splits Proposal. The board also recommends that
you vote "FOR" the other proposals listed above.
The board of directors has fixed the close of business on June 5, 2005, as the
record date (the "Record Date") for the determination of stockholders entitled
to notice of and to vote at the annual meeting and all adjourned meetings
thereof.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ MORRIS E. VAN ASPEREN
Morris E. Van Asperen
Secretary
Dated: June __, 2005
PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE RETURN
ENVELOPE AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL
MEETING. IF YOU LATER DESIRE TO REVOKE YOUR PROXY FOR ANY REASON, YOU MAY DO SO
IN THE MANNER DESCRIBED IN THE ATTACHED PROXY STATEMENT.
TABLE OF CONTENTS
SUMMARY TERM SHEET.............................................................3
Color Imaging Background.......................................................3
Stock Splits Proposal..........................................................3
Purpose of and Reasons for the Stock Splits....................................3
Fairness of the Stock Splits...................................................4
Voting Information.............................................................5
Certain Federal Income Tax Consequences........................................5
Unavailability of Appraisal or Dissenters' Rights..............................5
Escheat Laws...................................................................5
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS.........................5
SPECIAL FACTORS................................................................7
Purpose of the Stock Splits....................................................7
What is the reverse stock split?...............................................7
What is the forward stock split................................................7
Reasons for the Stock Splits...................................................7
Did the Board consider any disadvantages of going private?.....................9
What does "going private" mean?...............................................10
Why is the Board seeking stockholder approval for three different Reverse
Split Ratios?..............................................................10
How will the Board Select the Reverse Split Ratio?............................10
Is there a possibility that the Board will not complete the Stock
Splits even if the stockholders approve the proposal?......................11
What will I receive in the Stock Splits if the proposal is approved and
implemented?...............................................................11
What if I hold shares in "street name"?.......................................11
May I buy additional shares in order to remain a stockholder of Color
Imaging?...................................................................11
How did the Board determine the fairness of the reverse stock split?..........12
What are the interests of affiliates of Color Imaging in the reverse stock
split?.....................................................................12
Will I have appraisal or dissenters' rights?..................................12
What are the tax implications of the Stock Splits?............................13
What are the approval requirements for the Stock Splits Proposal?.............13
Effects of the Stock Splits...................................................13
Alternatives to the Stock Splits..............................................16
Fairness of the Stock Splits..................................................16
Advantages of the Stock Splits................................................17
Disadvantages of the Stock Splits.............................................18
Other Factors.................................................................19
Conclusion....................................................................19
OPINION OF CBIZ VALUATION GROUP, LLC..........................................19
Purpose and Content of the Fairness Opinion...................................20
Review of Color Imaging Market Performance....................................22
Fair Value Estimates..........................................................23
Discounted Cash Flow Method...................................................23
Discounted Cash Flow Analysis - Stand-Alone Basis.............................23
Discounted Cash Flow Analysis - Reverse Stock Split Basis.....................23
Publicly-traded Company Analysis..............................................23
Publicly-Traded Company Analysis - Stand-Alone Basis..........................24
Publicly-Traded Company Analysis - Reverse Stock Split Basis..................24
Merger and Acquisition Analysis...............................................24
Merger and Acquisition Analysis - Stand-Alone Basis...........................25
Acquisition Method - Reverse Stock Split Basis................................25
Premium Analysis..............................................................25
Other Considerations..........................................................26
Conclusion....................................................................26
Engagement of CBIZ Valuation Group, LLC.......................................26
MEETING AND VOTING INFORMATION................................................26
Time and Place................................................................26
Revoking Your Proxy...........................................................27
Record Date...................................................................27
Quorum and Required Vote......................................................27
Solicitation and Costs........................................................27
PROPOSAL NO. 1 - STOCK SPLITS PROPOSAL........................................28
Summary and Structure.........................................................28
Background of the Stock Splits................................................30
1
Recommendation of the Board...................................................34
Potential Disadvantages of the Stock Splits to Stockholders...................34
Share Certificates............................................................34
Material Federal Income Tax Consequences......................................34
Unavailability of Appraisal or Dissenters' Rights.............................36
Reservation of Rights.........................................................36
Escheat Laws..................................................................36
Regulatory Approvals..........................................................37
INFORMATION ABOUT COLOR IMAGING...............................................37
Interest of Certain Persons in Matters to be Acted Upon.......................37
Market Price and Dividend Information.........................................38
Common Share Market Purchase Information......................................40
FINANCIAL INFORMATION.........................................................41
Summary Historical Financial Information......................................41
Certain Financial Effects of the Stock Splits.................................41
Pro Forma Financial Information...............................................42
PROPOSAL NO. 2 - ELECTION OF DIRECTORS........................................47
PROPOSAL NO. 3 - RATIFICATION OF INDEPENDENT ACCOUNTANTS......................61
OTHER BUSINESS................................................................61
STOCKHOLDER PROPOSALS.........................................................61
AVAILABLE INFORMATION.........................................................62
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...............................62
EXHIBIT A - FAIRNESS OPINION.................................................A-1
EXHIBIT B - FORM OF REVERSE STOCK SPLIT......................................B-1
EXHIBIT C - FORM OF FORWARD STOCK SPLIT......................................C-1
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SUMMARY TERM SHEET
The following is a summary of the material terms of the Stock Splits upon which
Color Imaging's stockholders will vote at the Annual Meeting. While this summary
describes what we believe are the most material terms and conditions of the
Stock Splits, this Proxy Statement contains a more detailed description of such
terms and conditions. We urge you to carefully review, in their entirety, this
Proxy Statement, the attached Exhibits and the documents incorporated by
reference before voting.
COLOR IMAGING BACKGROUND
Color Imaging is a Delaware corporation. Color Imaging's principal offices are
located at 4350 Peachtree Industrial Blvd, Suite 100, Norcross, GA 30071 and
Color Imaging's phone number at that address is (770) 840-1090.
Please see the section of this Proxy Statement entitled "Information About Color
Imaging" for a more detailed discussion.
STOCK SPLITS PROPOSAL
The Stock Splits will consist of the following steps:
As used throughout this Proxy Statement, the term "Stock Splits" refers to a
transaction consisting of the following steps:
o The Stock Splits will take effect on the date (the "Effective Date")
that the Delaware Secretary of State accepts for filing certificates
of amendment to our Certificate of Incorporation (one amendment
effecting the reverse stock split, the other effecting the forward
stock split).
o On the Effective Date, the Company will first effect a reverse stock
split of its common shares, which will be either a 1-for-1500,
1-for-2500 or 1-for-5000 reverse stock split, depending on the final
determination of the Board of Directors as to the appropriate reverse
stock split ratio ("Reverse Split Ratio").
o Each holder of less than one whole share of common stock after the
operation of the reverse stock split will receive cash instead of a
fractional share. The Company will pay each of these holders an amount
in cash (the "Cash Out Price") equal to $1.10 per share held by such
holder immediately before the reverse stock split.
o On the Effective Date, following the completion of the reverse stock
split, the Company will effect a forward stock split of the common
shares, which will be either a 1500-for-1, 2500-for-1 or 5000-for-1
forward stock split, depending on the final determination of the Board
of Directors as to the stock split ratio. The Board will use a forward
ratio which is the inverse of the Reverse Split Ratio. Each holder of
one or more shares immediately after the reverse stock split will
participate in the forward stock split, which will result in such
holder holding the same number of shares after the forward stock split
as was held by such holder immediately before the reverse stock split.
Please see the sections of this Proxy Statement entitled "Special Factors -
Effects of the Stock Splits" and "Proposal No. 1 - Stock Splits Proposal -
Summary and Structure" for a more detailed discussion of the Stock Splits.
PURPOSE OF AND REASONS FOR THE STOCK SPLITS
o The principal purpose of the Stock Splits is to acquire for cash
common shares from those holders of fewer than either 1500, 2500 or
5000 common shares.
o The Stock Splits are intended to reduce the number of holders of
record of the common shares to substantially below 300 and thereby
enable the Company to terminate the registration of the common shares
under Section 12(g) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") with the reasonable expectation of remaining
below 300 stockholders. The Company's termination of the registration
of the common shares under the Exchange Act does not require the
approval of the holders of common shares and will not be voted upon at
the meeting. Upon such termination, the Company's duty to file
periodic reports with the Commission will be suspended, and the
Company will no longer be classified as a public reporting company.
Notwithstanding such termination, the Company will continue to be
subject to the general anti-fraud provisions of federal and applicable
state securities laws and to the laws of the State of Delaware. Please
see the section of this Proxy Statement entitled "Special
Factors--Effects of the Stock Splits" for a more detailed discussion
of the foregoing.
o The following are the principal reasons the Board considered in
pursuing the Stock Splits:
o the cost savings and future costs avoided of approximately
$115,000 and $45,000 per year, respectively, that the
Company expects to realize in the future as a result of the
suspension of its periodic reporting obligations under the
Exchange Act due to the deregistration of the common shares
under the Exchange Act, including the cost savings resulting
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from no longer being subject to the public company
provisions of the Sarbanes-Oxley Act of 2002, as amended
(the "Sarbanes-Oxley Act");
o the Sarbanes-Oxley Act of 2002 and related regulations have
increased the costs of remaining a public company, and have
the effect of increasing the burdens and potential
liabilities of being a public reporting company, such as
increasing audit fees, attorneys' fees, and insurance
premium as the potential liability of officers and directors
is increased;
o since Color Imaging stock is not listed on a major stock
exchange or interdealer quotation system, such as the NYSE,
AMEX, or NASDAQ Stock Market, Color Imaging stockholders are
not currently realizing many of the principal benefits of
public ownership;
o in light of Color Imaging's current size and resources, and
the lack of a robust trading market in its common stock, the
board of directors does not believe that these costs are
justified, and believes that it is in Color Imaging's best
interests to eliminate the financial and administrative
burdens associated with being and remaining a public
company;
o the additional savings in terms of management's and
employees' time that will no longer be spent preparing the
periodic reports required of public companies under the
Exchange Act and managing stockholder relations and
communications;
o the reduced premiums that may result for the Company's
directors' and officers' insurance policies as a result of
the Company no longer being a public reporting company;
o the decrease in expenses resulting from no longer being
required to service holders with small positions in the
common shares;
o the ability of the Company to control the dissemination of
certain business information, which is currently disclosed
in the Company's periodic reports and accordingly available
to the Company's competitors, vendors, customers and other
interested parties, potentially to the Company's detriment;
o the ability of the Company to gain greater operational
flexibility by being able to focus on long-term growth
without an undue emphasis on current earnings and other
short-term metrics;
o the belief of the Board that the Stock Splits constitute the
most expeditious, efficient, cost-effective and fairest
method to convert the Company from a public reporting
company to a privately-held, non-reporting company in
comparison to other alternatives considered by the Board;
o the fact that the Company has not realized many of the
benefits normally presumed to result from being a public
reporting company (such as enhanced stockholder value,
enhanced corporate image, access to capital markets, active
trading market, analysts' reports, ability to use company
stock to attract, retain and incentivize employees, and
ability to use company stock as currency for acquisitions)
due to the relatively limited liquidity of the common
shares; and
o the ability to provide holders of fewer than either 1500,
2500 or 5000 common shares, as the case may be, with
liquidity, without the payment of brokerage commissions or
other transaction fees, by allowing them to liquidate their
common shares for cash at a fair market value.
FAIRNESS OF THE STOCK SPLITS
The Board has set $1.10 per pre-split Common Share (the "Repurchase Price") as
the cash consideration to be paid by Color Imaging in lieu of issuing fractional
Common Shares (i.e., less than one whole Common Share) in connection with the
Stock Splits. The Board made this determination in good faith and received a
fairness opinion (the "Fairness Opinion") prepared by CBIZ Valuation Group, LLC
("CVG"), an independent financial advisor. The Board also considered other
factors the Board deemed relevant, as described in greater detail in this Proxy
Statement.
The Fairness Opinion was delivered to the Board to assist the Board in
establishing the terms and conditions of the Stock Splits. The Fairness Opinion
states that based upon and subject to the factors and assumptions set forth
therein as of May 2, 2005, the Repurchase Price is fair, from a financial point
of view, to Color Imaging's stockholders who would not retain their interest in
Color Imaging, and those who would retain their interest, after the transaction,
in each case excluding executive officers and directors of the Company and their
affiliates.
4
The full text of the Fairness Opinion, dated May 2, 2005, is attached to this
Proxy Statement as Exhibit A. We urge you to read the Fairness Opinion in its
entirety. CVG provided the Fairness Opinion for the information and assistance
of the special committee and the Board in connection with its consideration of
the Stock Splits. The Fairness Opinion is not a recommendation as to how you
should vote with respect to the Stock Splits.
The Board believes that the Stock Splits are in Color Imaging's best interests
and are substantively and procedurally fair to both the affiliated and
unaffiliated holders of the Common Shares, including both those holders whose
Common Shares will be completely cashed out pursuant to the Stock Splits
("Cashed Out Holders") and those who will continue to hold Common Shares after
the Stock Splits ("Continuing Holders").
The Board has reviewed and considered the analyses and conclusions of CVG
contained in the Fairness Opinion, received the recommendation of the special
committee, and unanimously approved the Stock Splits.
Please see the sections of this Proxy Statement entitled "Special Factors -
Fairness of the Stock Splits," "Opinion of CBIZ Valuation Group, LLC," "Proposal
No. 1 - Stock Splits Proposal - Background of the Stock Splits" and "Proposal
No. 1 - Stock Splits Proposal - Recommendation of the Board" for a more detailed
discussion of the foregoing.
VOTING INFORMATION
Approval of the Stock Splits requires the approval of a majority of the
outstanding Common Shares entitled to vote at the Annual Meeting. As of the
close of business on June 5, 2005, (the "Record Date"), there were 12,690,305
Common Shares outstanding and entitled to vote at the Annual Meeting, of which
6,357,843 are required to approve the Stock Splits.
Please see the section of the Proxy Statement entitled "Meeting and Voting
Information" for a more detailed discussion of the foregoing.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Color Imaging will not recognize any gain, loss or deduction for federal income
tax purposes as a result of the Stock Splits.
Color Imaging's stockholders will generally recognize a gain or loss for federal
income tax purposes equal to the difference between the amount of cash received
and the stockholder's tax basis in the Common Shares that are exchanged for the
repurchase price in lieu of issuing fractional shares.
Please see the section of this Proxy Statement entitled "Proposal No. 1 - Stock
Splits Proposal - Material Federal Income Tax Consequences" for a more detailed
discussion of the foregoing.
UNAVAILABILITY OF APPRAISAL OR DISSENTERS' RIGHTS
A holder of Common Shares does not have the right under Delaware law or Color
Imaging's Certificate of Incorporation or Code of Regulations (the
"Regulations") to demand the appraised value of such Common Shares or any other
dissenters' rights if the holder votes against the Stock Splits.
Please see the section of this Proxy Statement entitled "Proposal No. 1 - Stock
Splits Proposal - Unavailability of Appraisal or Dissenters' Rights" for a more
detailed discussion of the foregoing.
ESCHEAT LAWS
All unclaimed cash amounts payable to stockholders in lieu of issuing fractional
shares will be subject to applicable state laws regarding abandoned property.
Please see the section of this Proxy Statement entitled "Proposal No. 1 - Stock
Splits Proposal - Escheat Laws" for a more detailed discussion of the foregoing.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
When used in this Proxy Statement the words or phrases "will likely result,"
"are expected to," "will continue," "anticipate," "estimate," "project" or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from results presently anticipated or
projected. Color Imaging cautions you not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. Color Imaging
advises readers that Color Imaging's actual results may differ materially from
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any opinions or statements expressed with respect to future periods in any
current statements in this Proxy Statement or in our other filings with the SEC.
Color Imaging does not undertake, and specifically disclaims any obligation, to
publicly release the result of any revisions, which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
Please see the section of this Proxy Statement entitled "Available Information."
6
SPECIAL FACTORS
PURPOSE OF THE STOCK SPLITS
The primary purpose of the Stock Splits is to terminate Color Imaging's status
as a public reporting company with the SEC. As a result of the reverse stock
split and the repurchase of the resulting fractional shares from holders of
fewer than 1500, 2500 or 5000 shares, depending upon which of the foregoing
ratios is used for the reverse stock split, Color Imaging expects to have fewer
than 150 holders of record of the Common Shares, which would enable Color
Imaging to terminate the registration of the Common Shares under the Exchange
Act. If the Stock Splits are completed, Color Imaging intends to file with the
SEC to terminate the registration of the Common Shares. Upon deregistration, the
Common Shares would no longer be quoted on the Nasdaq over the counter bulletin
board and trades in the Common Shares would only be possible through privately
negotiated transactions or in the Pink Sheets(R) (a centralized quotation
service that collects and publishes market maker quotes for securities).
The purpose of the forward stock split, which will occur immediately after the
reverse stock split and the repurchase of fractional shares resulting from the
reverse split, is to prevent the Common Shares from having an unusually high per
share value that would otherwise result from the reverse stock split, which
would tend to further decrease the liquidity of the Common Shares. Additionally,
those stockholders by virtue of their not holding shares in even multiples of
the reverse stock split ratio will have one or more whole shares and fractional
shares of Color Imaging. By effecting a forward stock split at the same ratio as
that of the reverse stock split, no stockholders will have any fractional shares
of Color Imaging's Common Stock.
WHAT IS THE REVERSE STOCK SPLIT?
We are proposing that our stockholders approve an amendment to Color Imaging's
Certificate of Incorporation to effect a reverse stock split of our common stock
using the Reverse Split Ratio selected by the Board. As a result of the reverse
stock split, each 1500, 2500 or 5000 shares of outstanding common stock would be
converted and reclassified into one share of common stock (depending upon which
Reverse Split Ratio is selected by the Board), thereby reducing the number of
issued and outstanding shares of common stock and the number of shares of common
stock issuable upon conversion of outstanding shares of common stock or upon
exercise of outstanding options and warrants to purchase common stock. Each
stockholder owning less than one whole share after the reverse stock split of
our common stock will have its shares converted into the right to receive a cash
payment equal to $1.10 per pre-reverse split share.
WHAT IS THE FORWARD STOCK SPLIT?
We are proposing that our stockholders approve an amendment to Color Imaging's
Certificate of Incorporation to effect a forward stock split of our common stock
using the inverse of the Reverse Split Ratio selected by the Board to effect the
reverse stock split. As a result of the reverse stock split, each 1500, 2500 or
5000 shares of outstanding common stock would be converted and reclassified into
one share of common stock (depending upon which Reverse Split Ratio is selected
by the Board), thereby increasing the number of issued and outstanding shares of
common stock and the number of shares of common stock issuable upon conversion
of outstanding shares of common stock or upon exercise of outstanding options
and warrants to purchase common stock. Each stockholder owning one or more
shares of our common stock after the reverse stock split has been effected will,
by virtue of the forward stock split at the same ratio as that used to effect
the reverse stock split, have the same number of Common Shares of Color
Imaging's Common Stock as the stockholder held prior to the reverse stock split.
REASONS FOR THE STOCK SPLITS
Reduced Costs and Expenses. We incur both direct and indirect costs to comply
with the filing and reporting requirements imposed on us as a public reporting
company. As described below, these costs include, among other things,
management's time spent preparing and reviewing our public filings and legal and
accounting fees associated with the preparation and review of such filings. Our
compliance costs have increased significantly with the adoption and
implementation of the Sarbanes-Oxley Act and related SEC and Nasdaq rules, and
we expect these costs to increase further in the future. For smaller publicly
traded companies, such as Color Imaging, those costs represent a larger portion
of our revenues than for larger public companies.
The Board believes that by deregistering the Common Shares and suspending Color
Imaging's periodic reporting obligations under the Exchange Act, we will realize
recurring annual cost savings of approximately $115,000 in fees and expenses
that we have historically incurred, including fees and expenses for compliance
with the Sarbanes-Oxley Act. Furthermore, fees for SOX 404 internal controls
7
compliance testing by our independent auditors and those that Color Imaging was
going to incur for internal audit services from another are estimated to be
about $25,000 and $20,000, respectively, and those fees would have been in
addition to the $115,000 had compliance for non-accelerated filers not been
extended until December 31, 2006 by the SEC. These estimated historically
incurred fees and expenses and estimated costs avoided, are described in greater
detail below.
Estimated Cost Savings:
-----------------------
Legal fees $ 40,000
Printing and mailing costs $ 15,000
Audit fees $ 50,000
Internal controls consulting fees (1) $ 10,000
========
Total $115,000
Estimated Costs Avoided:
Audit fees avoided for SOX 404 testing $ 25,000
Internal controls consulting fees $ 20,000
========
Total $ 45,000
(1) Excludes any internal personnel costs, since these costs are
expected to continue.
These estimated historical cost savings reflect, among other things: (i) a
reduction in audit and related fees; (ii) a reduction in legal fees related to
securities law compliance and compliance with Nasdaq requirements; (iii) the
elimination of filing costs and expenses associated with electronically filing
periodic reports and other documents (such as proxy statements) with the SEC on
its Edgar database; (iv) the lower printing and mailing costs attributable to
the reduction in the number of stockholders and the less complicated and
extensive disclosure required by our private status; (v) the cost savings due to
Color Imaging not being subject to the public company provisions of the
Sarbanes-Oxley Act; and (vi) the savings in fees charged by American Stock
Transfer & Trust Company, Color Imaging's transfer agent (the "Transfer Agent"),
that are expected because of the reduction in the number of stockholder accounts
to be handled by the Transfer Agent.
The costs described above do not include potential additional savings which are
difficult to estimate, including: (i) a reduction in management time spent on
compliance and disclosure matters attributable to our Exchange Act filings; (ii)
the lower risk of liability that is associated with non-reporting company status
and the expected decrease in premiums for directors' and officers' liability
insurance; and (iii) a reduction in direct miscellaneous clerical and other
expenses.
In addition to the foregoing annual estimated cost savings, the consummation of
the Stock Splits and the subsequent deregistration of the Common Shares would
also result in a significant ongoing cost savings of approximately $45,000 in
fees and expenses (auditor testing of internal controls and engagement fees for
internal audit services) because we would not be subject to the new internal
control audit requirements imposed by Section 404 of the Sarbanes-Oxley Act.
The historical and non-recurring cost savings figures set forth above are only
estimates. The actual savings we realize from going private may be higher or
lower than these estimates. The estimates are based upon the (i) actual costs to
us of the services and disbursements in each of the categories listed above that
were reflected in our recent financial statements and (ii) allocation to each
category of management's estimates of the portion of the expenses and
disbursements believed to be solely or primarily attributable to our public
reporting company status.
In some instances, these cost savings expectations were based on verifiable
assumptions. For example, our auditing fees will be reduced if we cease to be a
public reporting company due to the elimination of fees for interim services. In
addition, the costs associated with retaining legal counsel to assist us with
complying with the Exchange Act reporting requirements will be eliminated if we
no longer file reports with the SEC.
Operational Flexibility. Another reason for the Stock Splits is the operational
flexibility that completion of the Stock Splits and subsequent deregistration
would provide. The Board believes that ceasing to be a public reporting company
would enable management to focus more on Color Imaging's long-term growth
without the distraction of SEC reporting requirements and other aspects of being
a public company, and that Color Imaging will benefit if business decisions can
be made with this added focus on long-term growth.
8
Benefits Normally Associated with Public Reporting Company Status Have Not Been
Realized. A further reason for the Stock Splits is that Color Imaging does not
realize many of the benefits normally associated with being a public reporting
company. A typical advantage of being a public company comes from the ability to
use company stock, as opposed to cash or other consideration, to effect
acquisitions. Color Imaging has found that the opportunities for companies our
size to acquire other businesses using stock are limited. We have not previously
completed an acquisition using stock and, given the limited opportunities for
such acquisitions, it is not likely that would be able to do so in the future.
In addition, public companies can obtain financing by issuing securities in
public offerings. Color Imaging historically has not been able to avail itself
of traditional financing by public offering and instead completed a private
placement and its offering on SEC Form SB-2 through a subscription of its
foreign affiliate.
Deterrent to Mergers and Acquisitions. Being a small public company, we have
found, is a deterrent to the acquisition of and merger with private companies,
those who are most likely to complete a transaction with us, since to remain
public the target company(ies) must have three years of audited statements and
be prepared to comply with Section 404 of the Sarbanes-Oxley Act. Further, any
such transaction would be more costly and more time consuming as a result of our
reporting status and the related proxy and SEC requirements.
The reasons for the forward stock split, which will occur immediately after the
reverse stock split and the repurchase of fractional shares resulting from the
reverse split, is to prevent the Common Shares from having an unusually high per
share value that would otherwise result from the reverse stock split, which
would tend to further decrease the liquidity of the Common Shares. Additionally,
those stockholders by virtue of their not holding shares in even multiples of
the reverse stock split ratio will have one or more whole shares and fractional
shares of Color Imaging. By effecting a forward stock split at the same ratio as
that of the reverse stock split, no stockholders will have any fractional shares
of Color Imaging's Common Stock.
In light of the foregoing, the Board believes the benefits Color Imaging
receives from maintaining its status as a public reporting company and
maintaining its small stockholder accounts are substantially outweighed by the
associated costs. The Board believes that it is in Color Imaging's best
interests to eliminate the administrative burden and costs associated with
maintaining its status as a public reporting company and its small stockholder
accounts.
DID THE BOARD CONSIDER ANY DISADVANTAGES OF GOING PRIVATE?
Yes. The Board weighed the advantages and disadvantages to going private. Our
board of directors and special committee of the board of directors considered
the following factors when recommending the reverse stock split:
o The cost savings per year that Color Imaging expects to realize as a
result of the deregistration of its common stock and the decrease in
expenses relating to servicing stockholders holding small positions in
Color Imaging common stock;
o The additional savings in terms of management's and employees' time
that will no longer be spent preparing the periodic reports required
of public reporting companies and managing stockholder relations and
communications;
o The fact that Color Imaging has not been able to realize many of the
benefits associated with being a publicly-traded company, such as
enhanced stockholder value and access to public markets, due to the
limited liquidity and low market price of Color Imaging's common
stock;
o The belief that Color Imaging's stockholders have not benefited
proportionately from the costs of registration and public trading of
its common stock, principally as a result of the relatively thin
trading market for its common stock on the OTC Bulletin Board; lack of
market makers and analysts following Color Imaging's performance; and
a practical limitation of Color Imaging's stockholders' ability to
sell relatively large blocks of their shares in the open market
without significantly decreasing the market price, thereby effectively
rendering their investment illiquid;
o The ability of Color Imaging to control the dissemination of important
business information, which is currently required to be disclosed in
periodic reports and accordingly made available to its competitors,
vendors, customers and other interested parties, potentially to Color
Imaging's detriment;
o The ability of Color Imaging to gain greater operational flexibility
by being able to focus on long-term growth without an undue emphasis
on quarter-to-quarter earnings and short-term fluctuations in the
market price of the common stock; and
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o The obstacles, as a public company, to merging with a private company,
including but not limited to the private company's needing three years
of audited statements, must be Section 404 of the Sarbanes-Oxley Act
compliant by the respective effective date(s) and the additional time
and cost of the proxy and SEC review process of any prospective merger
or acquisition transaction.
The board of directors and the special committee have considered the
disadvantages of going private, including the following:
o There will be no public market for our common stock, and continuing
stockholders will likely experience reduced liquidity for their
shares;
o Stockholders will not be entitled to the same level of information
concerning Color Imaging's financial condition and results of
operation;
o Certain stockholders will be cashed out in the reverse stock split who
may prefer to remain stockholders in Color Imaging, and will not be
able to participate in any future growth or profits that Color Imaging
may experience; and
o Certain stockholders will remain stockholders of Color Imaging who may
prefer to be cashed out.
After careful consideration, the board of directors and the special committee
believe that the advantages of terminating Color Imaging's status as a public
reporting company outweigh the disadvantages. However, the board of directors
will have the discretion to determine if and when to effect the reverse stock
split and reserves the right to abandon the transaction even if it is approved
by the stockholders. For instance, if the cost of payments to stockholders
owning less than one share after the reverse stock split substantially exceeds
$300,000, the board of directors may not complete the reverse stock split.
WHAT DOES "GOING PRIVATE" MEAN?
"Going private" means that Color Imaging will no longer be a public reporting
company under the federal securities laws. As there will be fewer than 300
stockholders of record (or held by institutional depositories) remaining
following the reverse stock split, registration of Color Imaging's common stock
under the Exchange Act will be terminated, and Color Imaging common stock will
no longer be traded on the OTC Bulletin Board. If the reverse stock split is
approved and implemented, Color Imaging will no longer be required to file
annual, quarterly and other reports that it currently files with the SEC, and
there will no longer be a public trading market for its common stock.
WHY IS THE BOARD SEEKING STOCKHOLDER APPROVAL FOR THREE DIFFERENT REVERSE SPLIT
RATIOS?
The Board is seeking the authority to effect the reverse stock split using a
Reverse Split Ratio of either 1500-to-1, 2500-to-1 or 5000-to-1. The Board
believes it needs to have the flexibility to select one of these ratios so that
the Company may effect the Stock Splits at the lowest possible cost, and at the
same time, have assurance that the Stock Splits will be effective in allowing
the Company to terminate its Exchange Act registration and realize the benefits
of a going private transaction. Based upon an initial analysis of the size and
composition of the stockholder base, provided by management to the Board, the
Board concluded that a 1500-to-1 ratio would reduce the number of stockholders
to a sufficiently low number that the Company could go private, and reasonably
expect to remain private. However, in the period between the date of the Board's
approval of the Stock Splits Proposal and the Effective Date, the number or
composition of the Company's stockholders could change significantly. The Board
desires to have the ability to complete the Stock Splits without having the
Company incur the additional expense of resoliciting proxies and calling an
additional stockholders meeting.
HOW WILL THE BOARD SELECT THE REVERSE SPLIT RATIO?
The Stock Splits proposal, if approved by the stockholders, would give the Board
the authority to effect the reverse stock split using a Reverse Split Ratio of
either 1500-to-1, 2500-to-1 or 5000-to-1. In close proximity to the date of the
stockholder meeting, the Board will obtain an updated analysis of the Company's
stockholder base. The Board intends to use 1500-to-1 as the Reverse Split Ratio
and to reduce the number of stockholders below 150 at a cost of $300,000, or
less, for the aggregate Cash-Out Price for all the fractional shares to be
cancelled, which will enable the Company to effect a going private transaction,
while maintaining the cost near its total cost target. However, the Board
reserves the right to exceed the target cost based on its judgmental assessment
of the Company's financial condition and business situation as of fiscal period
immediately preceding the Effective Date.
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IS THERE A POSSIBILITY THAT THE BOARD WILL NOT COMPLETE THE STOCK SPLITS EVEN IF
THE STOCKHOLDERS APPROVE THE PROPOSAL?
Yes. The Board reserves the right to forego the completion of the Stock Splits
after stockholder approval. The Board currently intends to complete the Stock
Splits as outlined above, but in its discretion it may choose not to. The Board
will consider the following factors immediately after the meeting date to
determine whether to go forward with the transaction:
o Changes in the number and composition of the stockholder base, and the
expected number of stockholders remaining if the transaction is
completed.
o The total cost to complete the transaction.
o The Company's financial condition immediately prior to, and expected
financial condition after, the completion of the transaction.
o Changes in economic, industry and regulatory conditions prior to the
expected Effective Date.
o Advice from the Company's management, legal counsel and financial
advisors regarding possible risks of completing the transaction.
o Whether or not the Company will remain in compliance with the
covenants of its credit arrangement with its lender.
In addition, unforeseen circumstances may prevent the Company from completing
the going private transaction.
WHAT WILL I RECEIVE IN THE STOCK SPLITS IF THE PROPOSAL IS APPROVED AND
IMPLEMENTED?
If the Stock Splits Proposal is approved and implemented:
o Stockholders who hold at least 1500, 2500, or 5000shares (depending
upon the Reverse Split Ratio selected by the Board) of Color Imaging
common stock immediately before the effective time of the reverse
stock split will have their shares automatically converted into a few
number of shares based on the Reverse Split Ratio. However, those
shares will be subject to a forward stock split immediately following
the reverse stock split. The forward split will be completed using the
inverse of the Reverse Split Ratio, i.e., 1500-to-1, 2500-to-1 or
5000-to-1, as the case may be. These stockholders will continue to
hold the same number of shares as they held prior to the reverse
split.
o Stockholders who hold fewer than 1500, 2500, or 5000 shares (depending
upon the Reverse Split Ratio selected by the Board) of Color Imaging
common stock immediately before the effective time of the reverse
stock split will, instead of receiving a fractional share of common
stock as a result of the reverse stock split, have the right to
receive $1.10 per share on a pre-split basis.
o The procedure for the payment of cash in lieu of fractional shares is
described below under the caption "Special Factors - Share
Certificates."
WHAT IF I HOLD SHARES IN "STREET NAME"?
If you hold fewer than the applicable number of our shares in street name (1500,
2500 or 5000, depending on the Reverse Split Ratio selected by the Board), each
of your shares will be converted to the right to receive $1.10 in cash. The
exchange will be handled through your broker, bank or other nominee.
MAY I BUY ADDITIONAL SHARES IN ORDER TO REMAIN A STOCKHOLDER OF COLOR IMAGING?
Yes. The key date is the effective date of the Stock Splits because owners of
fewer than 1500, 2500 or 5000 shares will be cashed out on that date. If you
will be a cashed-out stockholder as a result of the Stock Splits and you want to
continue to hold our common stock after the Stock Splits, you may do so by
taking either of the following actions far enough in advance so that it is
complete by 5 p.m. on the last business day immediately preceding the effective
date of the Stock Splits, which we expect to occur shortly after the
stockholders meeting upon the filing of the Certificate of Amendment with the
Secretary of State of Delaware:
o Purchase a sufficient number of our shares on the open market and have
them registered in your name and consolidated with your current record
account, if you are a record holder, or have them entered in your
account with a nominee (such as your broker or bank) in which you hold
11
your existing common shares so that you hold at least 1500 shares of
our common stock (2500 or 5000 shares if the terms of the Stock Splits
are changed by our board of directors) in your account by 5 p.m. on
the last business day before the effective date of the Stock Splits;
or
o If applicable, consolidate your record accounts or accounts with
nominees so that you hold at least 1500 shares of our common stock
(2500 or 5000 shares if the terms of the Stock Splits are changed by
our board of directors) in one record or nominee account by 5 p.m. on
the date immediately prior to the effective date of the Stock Splits.
You will have to act far enough in advance so that the purchase of our common
shares or consolidation of your accounts containing our common stock is complete
by 5 p.m. on the last business day immediately prior to the effective date of
the Stock Splits.
HOW DID THE BOARD DETERMINE THE FAIRNESS OF THE REVERSE STOCK SPLIT?
The board of directors and the special committee believe that the reverse stock
split is in the best interests of Color Imaging and is substantively and
procedurally fair to the affiliated and unaffiliated stockholders, including
both those stockholders who will be cashed out as a result of the transaction
and those who will remain stockholders after the reverse stock split.
The board of directors appointed a special committee consisting of Mr. Eiswirth,
the independent and disinterested director serving on the board, to evaluate
strategic alternatives for Color Imaging, including possible mergers or
acquisitions, other transactions, and engaging in a "going private" transaction.
The special committee, upon determining a going private transaction was in the
best interest of the Company and its stockholders, then evaluated methods of
going private, including whether or not to effect the reverse stock split, and
if so, on what terms, including a fair price to be paid to stockholders in lieu
of fractional shares less than one whole share.
The special committee engaged an independent financial advisor to assist the
special committee in its evaluation of strategic alternatives , including going
private, and to render a written fairness opinion regarding the price to be paid
the stockholders who would be cashed out. CBIZ Valuation Group, LLC, the
independent financial advisory engaged by the special committee, has rendered a
fairness opinion stating that the pre-split price to be paid in the reverse
stock split transaction is fair, from a financial point of view, to Color
Imaging stockholders who would not retain their interest in Color Imaging after
completion of the transaction, and stockholders who would retain their interest
in Color Imaging after completion of the transaction, in each case other than
stockholders who are directors or executive officers of Color Imaging or
affiliates of directors or executive officers of Color Imaging.
The $1.10 cash consideration to be paid in lieu of fractional shares less than
one whole share represents (i) a premium of 124% over the average closing price
of the Common Shares over the 30 trading days prior to and including April 14,
2005 (the date the Board approved the Stock Splits), which was $0.49 per share,
and (ii) a premium of 100% over the closing price for the Common Shares on April
14, 2005 (the date the Board approved the Stock Splits), which was $0.55 per
share.
The board of directors and the special committee have each expressly adopted the
analyses and conclusions of the financial advisor contained in its fairness
opinion.
WHAT ARE THE INTERESTS OF AFFILIATES OF COLOR IMAGING IN THE REVERSE STOCK
SPLIT?
Both affiliated and unaffiliated stockholders will be treated the same in the
reverse stock split. However, affiliated stockholders generally own more than
the applicable number for any of the Reverse Split Ratios of shares of common
stock, and thus will all be continuing stockholders in Color Imaging following
the reverse stock split and going private. Accordingly, they will continue to
have an interest in Color Imaging and will be able to participate in any future
growth or profits that Color Imaging may experience, including as a result of
reduced costs from not being a public reporting company. The wife of Sueling
Wang, our President and director, and Richard S. Eiswirth, as the sole member of
the Special Committee of the Board of Directors to investigate strategic
alternatives to increase stockholder value, was paid director's fees aggregating
$20,000 in connection with those duties and responsibilities. Otherwise, none of
our executive officers, directors or our affiliates will receive any proceeds
from the transaction.
WILL I HAVE APPRAISAL OR DISSENTERS' RIGHTS?
Under Delaware law, which governs Proposal No. 1 - Stock Splits Proposal, you do
not have the right to demand the appraised value of your shares or any other
dissenters' rights if you vote against Proposal No. 1 - Stock Splits Proposal.
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WHAT ARE THE TAX IMPLICATIONS OF THE STOCK SPLITS?
In general, based upon existing federal income tax law, stockholders who receive
cash in lieu of fractional shares will be treated as receiving cash as payment
in exchange for their fractional shares, and they will recognize a capital gain
or loss in an amount equal to the difference between the amount of cash received
and the adjusted basis of the fractional shares surrendered for cash. Whether
gains or losses from the sale of capital assets are short-term or long-term
capital gains or losses depends on the period the capital asset was held.
o Stockholders who remain stockholders of Color Imaging after the
reverse stock split will not incur any tax liability as a result of
the reverse stock split and will in general incur a capital gain or
loss upon the ultimate disposition of their stock.
o This summary does not purport to address all aspects of the range of
possible federal income tax consequences of the reverse/forward stock
split and is not intended as tax advice to any person. In particular,
and without limiting the foregoing, this summary does not account for
or consider the federal income tax consequences to Color Imaging's
stockholders in light of their individual investment circumstances or
to holders subject to special treatment under the federal income tax
laws.
We strongly recommend that stockholders consult their own tax advisors as to the
federal, state, local and foreign tax effects of the reverse/forward stock split
in light of their individual circumstances.
WHAT ARE THE APPROVAL REQUIREMENTS FOR THE STOCK SPLITS PROPOSAL?
The affirmative vote of holders of a majority of the outstanding shares of
common stock of Color Imaging entitled to vote and present in person or by proxy
at the annual meeting is required for the approval of the Stock Splits. It is
expected that shares beneficially owned by current executive officers, directors
and affiliates of Color Imaging, which in the aggregate represent approximately
65.8% of the outstanding shares of common stock, will be voted in favor of the
Stock Splits.
EFFECTS OF THE STOCK SPLITS
The Stock Splits are expected to significantly reduce the number of holders of
record of the Common Shares from approximately 525, including those in street
names, to approximately 150. Upon the completion of the Stock Splits, we intend
to apply with the SEC to deregister the Common Shares under the Exchange Act as
soon as practicable. After deregistration, the Common Shares will no longer be
quoted on the Nasdaq OTC Bulletin Board. The completion of the Stock Splits and
the termination of our reporting obligations under the Exchange Act will cause
the existing limited trading market for the Common Shares to be further reduced
or eliminated.
Effects on the Common Shares. There will be no differences with respect to
dividend, voting, liquidation or other rights associated with the Common Shares
before and after the Stock Splits. The Common Shares acquired by Color Imaging
for cash will be retired.
Effects on All Color Imaging Stockholders. All Color Imaging stockholders:
o Will not have the opportunity to liquidate, at a time and for a price
of their choosing, the Common Shares that are exchanged for cash in
lieu of issuing fractional shares;
o Will not receive a fractional Common Share as a result of the Stock
Splits, but will instead receive cash, in a taxable transaction, equal
to $1.10 for each Common Share held immediately before the Stock
Splits that is exchanged for cash in accordance with the procedures
described in this Proxy Statement;
o Will not have to pay any brokerage commissions or other transaction
fees in connection with the exchange of Common Shares for cash in lieu
of issuing fractional shares; and
o Will not receive any interest on cash payments owed as a result of the
Stock Splits.
If you hold fewer Common Shares than the number upon which the Reverse Stock
Split is effected, your Common Shares will be exchanged for cash. You will
receive a letter of transmittal as soon as practicable after the Stock Splits
are completed. The letter of transmittal will contain instructions on how to
surrender your existing share certificate(s) to the Transfer Agent to receive
your cash payment after the reverse stock split. You will not receive your cash
payment until you surrender your outstanding share certificate(s) to the
Transfer Agent, along with a completed and executed copy of the letter of
transmittal. Do not send your share certificate(s) in with your Proxy. Please
13
wait until you receive your letter of transmittal to surrender your share
certificate(s) to the Transfer Agent.
For a discussion of the federal income tax consequences of the Stock Splits,
please see the section of this Proxy Statement entitled "Stock Splits Proposal -
Material Federal Income Tax Consequences."
Effects on Cashed Out Holders. Cashed Out Holders (i.e., holders of fewer than
1500, 2500 or 5000 Common Shares, depending upon the Reverse Split Ratio,
immediately before the consummation of the Stock Splits) will have no further
ownership interest in Color Imaging and will not be able to participate in
future earnings or growth of Color Imaging.
If you hold fewer than 1500, 2500, or 5000 Common Shares, whichever number is
applicable depending upon the Reverse Split Ratio, but you would rather continue
to hold Common Shares after the Stock Splits and not be completely cashed out,
you may do so by taking either of the following actions far enough in advance so
that it is complete by the Effective Date:
o Purchase a sufficient number of additional Common Shares, to the
extent available, on the open market and have them registered in your
name and consolidated with your current record account, if you are a
record holder, or have them entered in your account with a nominee
(such as your broker or bank) in which you hold your current shares so
that you hold at least 1500, 2500 or 5000 Common Shares, depending
upon the Reverse Split Ratio, in your record account immediately
before the Effective Date. Due to the limited market in the Common
Shares, there is no assurance that you will be able to purchase enough
Common Shares to remain a stockholder of Color Imaging.
o If applicable, consolidate your accounts so that you hold at least
1500, 2500 or 5000 Common Shares, depending upon the ratio used to
effect the reverse stock split, in one record account immediately
before the Effective Date.
Effects on Continuing Holders. If the Stock Splits are consummated, Continuing
Holders (i.e., holders of either 1500, 2500 or 5000 or more Common Shares
immediately before the Stock Splits):
o Will hold the same number of Common Shares after the Stock Splits as
they held before the Stock Splits;
o Will likely experience a change in their ownership percentage of Color
Imaging after completion of the Stock Splits;
o Will likely experience a further reduction in liquidity of the Common
Shares; and
o Will have less publicly available information about Color Imaging.
Upon the termination of the registration of the Common Shares under the Exchange
Act, the Common Shares will no longer be eligible for trading or quotation on
any securities market or quotation system, except possibly on the Pink
Sheets(R). In order for the Common Shares to be quoted on the Pink Sheets, one
or more broker-dealers would need to act as market maker and sponsor the Common
Shares on the Pink Sheets. There can be no assurance that any broker-dealer will
be willing to act as a market maker in Common Shares after the Stock Splits.
There is also no assurance that you will be able to sell your Common Shares or
purchase additional Common Shares after the Stock Splits.
If you hold 1500, 2500 or 5000 or more Common Shares, depending upon the ratio
used to effect the reverse stock split, but you would rather be completely
cashed out in connection with the Stock Splits and not remain a stockholder of
Color Imaging, you may do so by selling a sufficient number of Common Shares in
the open market so that you hold fewer than either 1500, 2500 or 5000 Common
Shares, depending upon the ratio used to effect the reverse stock split, as of
the Effective Date. Any such sales should be made far enough in advance so they
are complete by the Effective Date. Due to the limited market in the Common
Shares, there is no assurance that you will be able to sell enough Common Shares
to reduce your holdings to fewer than either 1500, 2500 or 5000 Common Shares.
Effect on Common Shares Held in Street Name. If you hold Common Shares in
"street name," your nominee (such as your broker or bank) may have required
procedures you must follow and you should contact your nominee to determine how
the Stock Splits will affect you.
Effects on Option Holders. Upon completion of the Stock Splits, outstanding
options to purchase Common Shares under Color Imaging's 2003 Stock Incentive
Plan (the "Option Plan") will have the same number and exercise prices after the
Stock Splits.
Effects on Color Imaging. If our number of stockholders, including those in
street name that may be certificated, falls below 300, we intend to apply to the
SEC to deregister the Common Shares as soon as practicable after completion of
the Stock Splits. Upon deregistration of the Common Shares, our duty to file
periodic reports with the SEC will be suspended and we will no longer be
14
classified as a public reporting company. In addition, we will be relieved of
the obligation to comply with the requirements of the proxy rules under Section
14 of the Exchange Act. We will continue to be subject to the general anti-fraud
provisions of federal and applicable state securities laws and we will also
continue to be subject to laws of the State of Delaware.
Although we will no longer be required to file periodic reports with the SEC, we
currently intend to continue to have internally prepared quarterly financial
statements and have our financial statements audited annually and provide
financial information to our stockholders upon request. Although we intend to
continue to provide these documents to our stockholders upon request and may
provide them to one or more broker dealers for the purposes of facilitating
trading on the Pink Sheets(R), there is no SEC requirement that we do so, and
there is no requirement that the level of our disclosure in such financial
statements, or in the proxy statement should we prepare it, remain at the level
required by our current status as a public reporting company. These documents
may not be as detailed or extensive as the information we currently file with
the SEC and deliver to stockholders and our financial statements may not be
accompanied by management's discussion and analysis in the same detail. It will
be more difficult for our stockholders to obtain information about us.
We estimate that we will save approximately $115,000 in annual costs associated
with being a public company as well as additional cost savings in time spent by
management and employees associated with our SEC reporting activities. We
anticipate not incurring costs of approximately $45,000 annually in connection
with management's assessment and our auditor's testing of internal controls in
compliance with the internal controls audit requirements of Section 404 of the
Sarbanes-Oxley Act. These anticipated savings are discussed under the heading
entitled "Reasons for the Stock Splits - Reduced Costs and Expenses" above.
The termination of our reporting obligations under the Exchange Act will render
the Common Shares ineligible for listing or quotation on any stock exchange or
other automated quotation system, except the Pink Sheets. As a result, the
Common Shares will no longer be listed on the Nasdaq OTC Bulletin Board and the
existing limited trading market for the Common Shares will likely be further
reduced or eliminated. This reduction or elimination may result in Color Imaging
having less flexibility in attracting and retaining executives and other
employees since equity-based incentives (such as stock options) tend to be
viewed as having less value in a non-publicly traded company.
We have no current plans to issue Common Shares after the Stock Splits other
than pursuant to the Option Plan, but we reserve the right to do so at any time
and from time to time at such prices and on such terms as the Board determines
to be in Color Imaging's best interests. If in the future the Board determines
that the adoption of a new option plan would be beneficial to Color Imaging, it
may, in its discretion, adopt such a plan. The exercise of options granted under
any newly adopted plan would reduce the ownership percentage of Color Imaging's
stockholders at the time. Holders of Common Shares do not currently have, and
will not have, any preemptive or other preferential rights to purchase any of
our equity securities that we may issue in the future, unless such rights are
specifically granted to such holders.
After the Stock Splits have been consummated, Color Imaging may, from time to
time, repurchase Common Shares pursuant to privately negotiated sales or other
transactions. Whether or not we purchase shares in the future will depend on a
number of factors, including Color Imaging's financial condition, operating
results and available capital at the time.
We expect our business and operations to continue as they are presently
conducted. The executive officers and directors of Color Imaging will not change
due to the Stock Splits. Color Imaging expects to realize time and cost savings
as a result of terminating its public company status, and intends to invest
those savings in other areas of its operations. Other than as described in this
Proxy Statement, Color Imaging's management has no current plans or proposals to
effect any extraordinary corporate transaction (such as a merger, reorganization
or liquidation); to sell or transfer any material amount of Color Imaging's
assets; to change the composition of the Board or management of Color Imaging;
to change materially Color Imaging's indebtedness or capitalization; to change
Color Imaging's dividend policy; or otherwise to effect any material change in
Color Imaging's corporate structure or business.
Effects on Color Imaging's Executive Officers, Directors and Affiliates. Our
affiliates, comprised of our executive officers, directors, General Plastic
Industrial Co Ltd and its wholly owned investment company Chi Fu Investment Co
Ltd and any stockholders who own more than 10% of the Common Shares, will be
relieved from complying with the stock ownership reporting requirements and
"short swing profit" trading restrictions under Section 16 of the Exchange Act,
as well as many of the provisions of the Sarbanes-Oxley Act. Our affiliates will
lose the ability to dispose of their Common Shares pursuant to Rule 144 under
the Securities Act of 1933, as amended (the "Securities Act").
As is more thoroughly set forth under the heading entitled "Information About
Color Imaging - Interests of Certain Persons in Matters to be Acted Upon," we
expect that upon the completion of the Stock Splits, the Common Shares
beneficially owned by our executive officers, directors and their affiliates
will comprise approximately 67.1% of the then outstanding Common Shares, as
compared to approximately 65.8% of the Common Shares outstanding immediately
prior to the Stock Splits.
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ALTERNATIVES TO THE STOCK SPLITS
In making the determination to proceed with the Stock Splits, the Special
Committee and the Board considered the potential feasibility of the alternative
transactions described below:
Issuer Tender Offer. The Board considered the feasibility of an issuer tender
offer to repurchase Common Shares. The primary disadvantage of this type of
transaction is that, due to its voluntary nature, Color Imaging would have no
assurance that a sufficient number of Common Shares would be tendered to
sufficiently reduce the number of Color Imaging's stockholders, including those
in street names that could be certificated and become holders of record, for
Color Imaging to reasonably assure itself of its ability to remain non-reporting
after the transaction was completed. In addition, the rules governing tender
offers require equal treatment of all stockholders, including pro rata
acceptance of offers from stockholders. These requirements make it difficult to
ensure that Color Imaging would be able to reduce the number of the holders of
record of the Common Shares enough to permit Color Imaging to reasonably believe
it would remain non-reporting after it deregistered the Common Shares, and Color
Imaging could be required to repurchase many more Common Shares at a greater
expense than desired by the Board, adversely impacting Color Imaging's financial
condition, working capital and potentially placing it in violation of its
covenants with its lender, and still be unable to guarantee after deregistering
that it would remain deregistered. A tender offer would likely take longer to
complete than the Stock Splits. As a result of these disadvantages, the Board
determined not to pursue this alternative.
Stock Repurchase Program. The Board also considered a plan whereby Color Imaging
would periodically repurchase Common Shares on the open market at then-current
market prices. The Board rejected this type of transaction since repurchasing
enough shares in this manner to enable Color Imaging to deregister, and
reasonably assure itself it would remain non-reporting after shares in street
names were certificated, would, based upon Color Imaging's experience with its
current stock repurchase program, likely take an extended period of time, have
no assurance of success and be of undeterminable cost.
ESOP or Insider Merger. The Board considered the plans whereby another entity
would acquire all of Color Imaging's Common Stock held by unaffiliated
stockholders,, and determined that Color Imaging did not have the financial
condition and operating results to permit the high levels of borrowing necessary
to effect such a plan. Additionally, the Board believed it not to be in the best
interest of Color Imaging or its stockholders to burden Color Imaging with
significant debt and debt repayment obligations.
Maintaining the Status Quo. The Board considered maintaining the status quo. In
that case, Color Imaging would continue to incur the expenses of being a public
reporting company without enjoying the benefits traditionally associated with
public company status. The Board believes that maintaining the status quo is not
in the best interests of Color Imaging and its stockholders and rejected this
alternative.
FAIRNESS OF THE STOCK SPLITS
The Stock Splits are not structured so that approval of at least a majority of
unaffiliated stockholders is required. The Board based its decision not to seek
such approval due to the equal treatment of affiliated and unaffiliated
stockholders in the Stock Splits. In determining not to seek such approval, the
Board was aware that the executive officers, directors and their affiliates of
Color Imaging, who together own approximately 65.8% of the voting power of the
Common Shares outstanding and entitled to vote at the Annual Meeting, have
indicated that they will vote in favor of the Stock Splits.
An independent committee of the Board has reviewed the fairness of the Stock
Splits; however, no unaffiliated representative acting solely on behalf of the
stockholders for the purpose of negotiating the terms of the transaction
proposal or preparing a report covering the fairness of the Stock Splits was
retained by Color Imaging or by a majority of directors who are not employees of
Color Imaging. The Board views (i) the Fairness Opinion, (ii) the appointment of
a special committee with an independent director, (iii) the need to obtain the
affirmative vote of the holders of at least a majority of the Common Shares, and
(iv) the other matters discussed in this Proxy Statement as affording adequate
procedural safeguards to unaffiliated stockholders without the extraordinary
expense of multiple financial or legal advisors.
Color Imaging has not made any provision in connection with the Stock Splits to
grant unaffiliated stockholders access to Color Imaging's corporate files or to
obtain counsel or appraisal services at Color Imaging's expense. With respect to
unaffiliated stockholders' access to Color Imaging's corporate files, the Board
determined that this proxy statement, together with Color Imaging's other
filings with the SEC, provide adequate information for unaffiliated stockholders
to make an informed decision with respect to the Stock Splits. The Board also
considered the fact that under Delaware law, subject to certain conditions,
stockholders have the right to review Color Imaging's relevant books and
records.
The Board believes that the transaction is substantively and procedurally fair
to unaffiliated stockholders, both those receiving cash and retaining their
stock in Color Imaging, notwithstanding the absence of an unaffiliated
stockholder approval requirement or unaffiliated representative. After
consideration of all aspects of the proposed transaction as described above, all
16
of the directors, including the directors who are not employees of Color
Imaging, approved the Stock Splits.
The Board considered the factors in support of and in opposition to the Stock
Splits discussed below in reaching its conclusion as to the substantive fairness
of the Stock Splits. The Board did not assign specific weight to the following
factors in a formulaic fashion, but did place special emphasis on the
opportunity for unaffiliated holders of Common Shares who will have fractional
shares of less than one whole share exchanged for cash to sell such Common
Shares at a premium and without brokerage fees or commissions, as well as the
significant cost and time savings Color Imaging is expected to realize from
deregistration of the Common Shares.
ADVANTAGES OF THE STOCK SPLITS
Opportunity for Stockholders to Sell Repurchased Common Shares at a Premium and
Without Broker Fees or Commissions. The Repurchase Price of $1.10 per Common
Share represents (i) a premium of 124% over the average closing price of the
Common Shares over the 30 trading days prior to and including April 14, 2005
(the date the Board approved the Stock Splits), which was $0.49 per share, and
(ii) a premium of 100% over the closing price for the Common Shares on April 14,
2005 (the date the Board approved the Stock Splits), which was $0.55 per share.
The Board reviewed the proposal made by the Special Committee of the Board of
Directors of Color Imaging that $1.10 per share be established as the Repurchase
Price for the Common Shares. The Board, in the exercise of its business
judgment, adopted such recommendation since the Repurchase Price for the Common
Shares represented fair consideration at a premium to the current and historical
market prices of the Common Shares while also being consistent with the
valuation analysis of CVG. The Board believes that the Repurchase Price is fair
to Color Imaging's stockholders. The Board determined that the Stock Splits are
fair in part because they provide Cashed Out Holders with an opportunity to
liquidate all of their Common Shares without transaction fees, and for
Continuing Holders to benefit from the savings resulting from Color Imaging's
being non-reporting and its future operations.
While performing its analysis for the Fairness Opinion, CVG selected the
valuation analyses it deemed most relevant. Please see the section entitled
"Opinion of CBIZ Valuation Group, LLC" for a discussion of these analyses.
Neither CVG nor the Board deemed either Color Imaging's liquidation value or its
indicated value based on the market price for its Common shares material or
relevant in the context of the Stock Splits. CVG and the Board believes that the
liquidation and market value of Color Imaging's Common Stock on a per share
basis an arbitrarily low valuation, and thus using liquidation or the market
value to help set the Repurchase Price would have supported a price lower than
the price the Board believed would be appropriate in light of its desire to
ensure that stockholders who receive cash receive a fair price for their Common
Shares that are exchanged for cash in connection with the Stock Splits.
The Board believes that Color Imaging's net book value per share does not
properly reflect Color Imaging's full, business, color business opportunity and
resultant earnings stream and cash flow, two factors it considers critical for a
meaningful valuation of the Common Shares. Net book value is based upon the
historical cost of a company's assets and ignores the value of a company as a
going concern. The value of items such as proprietary products and intellectual
property, an in-place factory, positive business reputation, a trained workforce
and established customer accounts are ignored in computing net book value. The
Board believes that the proper valuation of Color Imaging should be based on
Color Imaging's historical and prospective operating performance and CVG's
analysis and conclusions were consistent with that judgment. As set forth in
greater detail in the section of this Proxy Statement entitled "Financial
Information--Summary Financial Information," Color Imaging's book value per
Common Share as of December 31, 2004 was $0.92. The Board believes that the
valuation of the Common Shares, as concluded by the Special Committee of the
Board of Directors and supported by the Fairness Opinion of CVG is significantly
greater than the book value per Common Share.
Significant Cost and Time Savings for Color Imaging. By deregistering the Common
Shares and suspending our periodic reporting obligations under the Exchange Act,
we expect to realize recurring annual cost savings of approximately $115,000. In
addition, some $45,000 per annum of costs that we would otherwise expect to
incur due to compliance with the internal controls audit requirements of Section
404 of the Sarbanes-Oxley Act will not be incurred. The termination of our
reporting obligations under the Exchange Act will also eliminate the significant
amount of time and effort previously required of our management to prepare and
review the reports required to be filed under the Exchange Act. Please see the
section entitled "Special Factors - Reasons for the Stock Splits" for a more
detailed discussion of these cost savings.
Equal Treatment of Affiliated and Unaffiliated Holders of Common Shares. The
Stock Splits will not impact affiliated holders of Common Shares differently
than unaffiliated holders of Common Shares on the basis of affiliate status. The
sole determining factor as to whether a holder of Common Shares will remain a
stockholder of Color Imaging and how many Common Shares will be repurchased by
Color Imaging in lieu of issuing fractional shares as a result of the Stock
Splits is the number of Common Shares held by such holder immediately prior to
the Stock Splits. Please see the section entitled "Stock Splits Proposal -
Summary and Structure" for a more detailed discussion.
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Minimum Effect on Voting Power. The Stock Splits will have minimum effect on the
voting power of Color Imaging's stockholders. The Common Shares are Color
Imaging's only voting shares and will continue to be Color Imaging's only voting
shares after the Stock Splits. The voting and other rights currently held by the
Common Shares will not be affected by the Stock Splits. The only effect of the
Stock Splits on Color Imaging's voting power will be a change in the overall
percentage of ownership of the Continuing Holders.
No Material Change in Percentage Ownership of Executive Officers and Directors.
Since only an estimated 272,244 out of 12,690,305 outstanding Common Shares will
be eliminated as a result of the Stock Splits, the percentage ownership of the
Continuing Holders will be approximately the same as it was prior to the Stock
Splits. For example, the executive officers, directors and their affiliates of
Color Imaging currently beneficially own approximately 65.8% of the outstanding
Common Shares, and will beneficially own approximately 67.1% of the outstanding
Common Shares following completion of the Stock Splits. All of the directors and
executive officers currently have over 1500, 2500, or 5000 shares, except the
spouse of Sueling Wang who has a brokerage account within which she has 1,000
shares, and will remain stockholders of Color Imaging after completion of the
Stock Splits. Please see the section entitled "Information About Color Imaging -
Interest of Certain Persons in Matters to be Acted Upon."
Potential Ability to Control Decision to Remain a Holder of or Liquidate Common
Shares. Another factor considered by the Board in determining the fairness of
the Stock Splits to the holders of the Common Shares is that current holders of
fewer than 1500, 2500 or 5000 Common Shares, depending upon the ratio used to
effect the reverse split, can seek to remain stockholders of Color Imaging
following the Stock Splits by acquiring additional shares so that they own at
least 1500, 2500 or 5000 Common Shares, depending upon the ratio used to effect
the reverse stock split, immediately before the Stock Splits. Conversely,
stockholders that own 1500, 2500 or 5000 or more Common Shares, depending on the
ratio used to effect the reverse stock split, who desire to liquidate their
shares in connection with the Stock Splits at the premium price offered can seek
to reduce their holdings to fewer than 1500, 2500 or 5000 Common Shares,
depending upon the ratio used to effect the reverse stock split, by selling
shares prior to the Stock Splits. The Board did not place undue emphasis on this
factor due to the limited trading market for the Common Shares. Please see the
section entitled "Special Factors - Effects of the Stock Splits."
DISADVANTAGES OF THE STOCK SPLITS
Substantial or Complete Reduction of the Market for Common Shares. After the
completion of the Stock Splits and deregistration of the Common Shares, we
anticipate that the public market for the Common Shares will be substantially
reduced or altogether eliminated. The Board, however, considered that potential
trades in the Common Shares could be facilitated by a market maker in the Pink
Sheets(R) following deregistration. Please see the section entitled "Special
Factors - Effects of the Stock Splits."
Termination of Publicly Available Information About Color Imaging. Upon
termination of the registration of the Common Shares under the Exchange Act, our
duty to file periodic reports with the SEC will be suspended. Information
regarding our operations and financial results that is currently available to
the general public and our investors will not be readily available after
deregistration, and investors seeking information about us will have to contact
us directly to receive such information. We may or may not provide investors
with requested information that we are not required by law to provide. The Stock
Splits will not affect the right of Continuing Holders to obtain certain
information from Color Imaging under Delaware law. Under Delaware law, a
stockholder has the right to make a written request to inspect a company's books
and records (including, without limitation, annual financial statements) and
make copies thereof for any purpose reasonably related to such person's interest
as a stockholder.
While the Board realizes and acknowledges that the termination of publicly
available information may be disadvantageous to our stockholders, the Board
believes that the overall benefits to Color Imaging of no longer being a public
reporting company substantially outweigh the disadvantages associated with a
lack of publicly available information about Color Imaging. We currently intend
to continue to make available upon request financial statements to our
stockholders; however, these documents may not be as detailed or extensive as
the information we currently file with the SEC. Although we currently intend to
continue to provide these documents, there is no SEC requirement that we do so
or that we maintain the present level of disclosure contained in such documents.
Please see the section entitled "Special Factors - Effects of the Stock Splits."
Possible Decline in Price of the Common Shares. After the completion of the
Stock Splits, the liquidity of the Common Shares will be significantly reduced
or eliminated. In addition, the lack of publicly available financial and other
information about Color Imaging and the diminished opportunity for Color
Imaging's stockholders to monitor the management of Color Imaging due to the
lack of such public information may cause the Continuing Holders to experience a
decrease in the price at which they may sell their Common Shares. Please see
"Special Factors - Disadvantages of the Stock Splits - Substantial or Complete
Reduction of Public Sale Opportunities" and "Special Factors - Disadvantages of
the Stock Splits - Termination of Publicly Available Information about Color
Imaging" above.
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Inability to Participate in Future Increases in Value of the Common Shares or
Payments of Dividends. Following the Stock Splits, Cashed Out Holders will have
no further financial interest in Color Imaging and will not have the opportunity
to participate in the potential appreciation in the value of, or the payment of
dividends on, the Common Shares.
OTHER FACTORS
The Board concluded the factors set forth below to be either inapplicable or not
material to its assessment of the fairness of the Stock Splits.
o Firm Offers. We are not aware of any firm offers to purchase Color
Imaging that have been made during the past two calendar years or
during the current calendar year.
o Prior Public Offerings. We have not made any underwritten public
offering of the Common Shares or any other securities since the
current control of Color Imaging was effected in June of 2000,
although we did complete an offering on form SB-2 of 4.5 million
shares in March 2003 with our foreign affiliate.
o Merger, Consolidation or Other Extraordinary Transaction. We have not
engaged in a merger or consolidation with another company or in any
other extraordinary transaction, such as the sale or other transfer of
all, or a substantial part, of our assets, during the past two
calendar years or during the current calendar year.
o Securities Purchases. There have not been any purchases of our Common
Shares that would enable the holder to exercise control of Color
Imaging, excepting our offering completed in March 2003 on form SB-2
of 4.5 million of our common shares with our foreign affiliate.
The stock purchases under the Company's stock repurchase program and by certain
affiliates, as described at "Information About Color Imaging - Common Share
Purchase Information" were not considered relevant because they were purchased
at the then market prices. As discussed above, the market value was deemed to be
not indicative of the fair value of the Company's common stock.
CONCLUSION
After considering all of the above factors, the special committee concluded that
the positive factors relating to the Stock Splits outweighed the negative
factors. Because of the variety of factors considered, the special committee did
not find it practicable to quantify or otherwise assign relative weights to, and
did not make specific assessments of, the specific factors considered in
reaching its determination.
The special committee did not consider the net book value or liquidation value
of Color Imaging to be material to their conclusion regarding the fairness of
the Stock Splits because it is their view that neither book value nor
liquidation value accurately reflects the value of Color Imaging in light of its
business and assets. The special committee considered the analysis performed by
CVG to be an appropriate indication of the going concern value of Color Imaging,
and relied upon the fairness opinion of CVG in making its determinations
regarding the Stock Splits Proposal. The special committee recommended to the
Board that the Stock Splits Proposal be adopted and approved.
Pursuant to Section 141 of the Delaware General Corporation Law, the Board
relied on the recommendation of the committee and the fairness opinion of CVG.
The Board believes that all of the factors mentioned above, both favorable and
unfavorable, when viewed together support a conclusion that the Stock Splits are
substantively fair to Color Imaging's stockholders, including the Cashed Out
Holders and Continuing Holders, other than executive officers, directors and
their affiliates.
OPINION OF CBIZ VALUATION GROUP, LLC
The Special Committee of the Board retained CBIZ Valuation Group, LLC ("CVG") to
provide the Fairness Opinion. On May 2, 2005, CVG delivered the Fairness Opinion
to the Special Committee of the Board. The Fairness Opinion states that, based
upon and subject to the factors and assumptions set forth therein, the
Repurchase Price to be paid to Cashed Out Holders pursuant to the Stock Splits
is fair from a financial point of view as of May 2, 2005. CVG also presented to
the Special Committee of the Board a summary of the analyses described below.
The Fairness Opinion was prepared for use by the Board and was directed only to
the fairness from a financial point of view, as of the date thereof, of the
Repurchase Price. The Fairness Opinion is solely for the information of, and
directed to, the Board in its evaluation of the Stock Splits and is not to be
relied upon by any stockholder of Color Imaging or any other person or entity.
The Fairness Opinion does not constitute a recommendation to the Board as to how
it should vote on the Stock Splits or to any stockholder as to how such
stockholder should vote at the Annual Meeting. In furnishing the Fairness
Opinion, CVG did not admit that it is an expert within the meaning of the term
"expert" as used in the Securities Act of nor did it admit that its opinion
serves as a report or valuation within the meaning of the Securities Act.
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The full text of the Fairness Opinion is attached as Exhibit A to this Proxy
Statement and is incorporated herein by reference. The summary of the Fairness
Opinion set forth in this Proxy Statement is qualified in its entirety by
reference to the full text of the Fairness Opinion. Stockholders are urged to
read the Fairness Opinion carefully and in its entirety for a discussion of the
procedures followed, assumptions made, other matters considered and limits of
the review by CVG in connection with the Fairness Opinion.
The Special Committee of the Board selected CVG as its financial advisor because
it is a recognized valuation consulting firm that has substantial experience in
business valuations and is knowledgeable and familiar with the industry and
operations of Color Imaging and its business. As part of its business, CVG is
regularly engaged in the valuation of businesses and securities in connection
with mergers, acquisitions, underwritings, sales and distributions of listed and
unlisted securities, private placements and valuation for corporate and other
purposes.
In rendering the Fairness Opinion, CVG reviewed the terms of the Stock Splits
and also reviewed financial and other information that was publicly available,
or furnished to CVG by Color Imaging's management. CVG also reviewed certain
publicly available operational, financial and stock market data relating to
selected public companies and conducted other financial studies, analyses and
investigations as CVG deemed necessary or appropriate for purposes of rendering
the Fairness Opinion, as more fully set forth therein. No limitations were
imposed by the Board or the Special Committee of Color Imaging upon CVG with
respect to the investigations made or procedures followed by it in rendering its
opinion.
CVG assumed and relied upon, without independent verification, the accuracy and
completeness of all financial and other information that was publicly available,
supplied or otherwise communicated to it by or on behalf of Color Imaging. CVG
further relied upon the assurances of Color Imaging's management that they are
unaware of any facts that would make the information provided to it incomplete
or misleading.
CVG was not requested to make, and did not make, an independent evaluation or
appraisal of the assets, properties, facilities or liabilities (contingent or
otherwise) of Color Imaging, and was not furnished with any such appraisals or
evaluations, excepting an equipment appraisal of then existing machinery and
equipment of Color Imaging as of August 24, 2001. CVG's opinion is necessarily
based upon financial, economic, market and other conditions and circumstances
existing and disclosed to CVG on the date of the Fairness Opinion. Subsequent
developments may affect the conclusions reached in the Fairness Opinion and CVG
has no obligation to update, revise or reaffirm the Fairness Opinion.
In preparing the Fairness Opinion, CVG conducted the following two principal
analyses: (i) valuations based upon discounted cash flow analyses of the future
cash flows of Color Imaging, and (ii) a comparison of Color Imaging with certain
publicly traded companies deemed comparable to Color Imaging. No company used in
any analysis as a comparison is identical to Color Imaging, and they all differ
in various ways. As a result, CVG applied its experience and professional
judgment in making such analyses. Accordingly, an analysis of the results is not
mathematical; rather it involves complex considerations and judgments concerning
differences in financial characteristics, performance characteristics and
trading value of the comparable companies to which Color Imaging is being
compared. The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analyses or summary description. In arriving
at the Fairness Opinion, CVG considered the results of all of its analyses as a
whole and did not attribute any particular weight to any analysis or factor
considered by it, though it did deem certain analysis and results to be more
representative than others in determining the value of Color Imaging's common
stock. CVG believes that the summary provided and the analyses described above
must be considered as a whole and that selecting portions of these analyses,
without considering all of them, would create an incomplete view of the process
underlying its analyses and opinion. In addition, CVG may have given various
analyses and factors more or less weight than other analyses and factors and may
have deemed various assumptions more or less probable than other assumptions,
therefore the range of valuations resulting from any particular analysis
described above should not be taken to be CVG's view of the actual value of
Color Imaging.
The following is a summary of the material financial analyses performed by CVG
in connection with the preparation of the Fairness Opinion. These summaries of
financial analyses alone do not constitute a complete description of the
financial analyses CVG employed in reaching its conclusions. The order of
analyses described does not represent relative importance or weight given to
those analyses by CVG. Some of the summaries of the financial analyses include
information presented in tabular format. The tables must be read together with
the full text of each summary and are alone not a complete description of CVG's
financial analyses. Except as otherwise noted, the following quantitative
information, to the extent that it is based on market data, is based on market
data as it existed on or before February 1, 2005 and is not necessarily
indicative of current market conditions.
PURPOSE AND CONTENT OF THE FAIRNESS OPINION
On April 6 2005, CBIZ Valuation Group, LLC ("CVG"), the Financial Advisor to the
Special Committee, made a presentation to the Special Committee regarding the
various analyses performed in evaluating strategic alternatives to enhance
stockholder value. On April 14, 2005, the Special Committee made a
recommendation to the Board, after evaluating strategic alternatives, that Color
20
Imaging go private in a reverse stock split, and CVG made a presentation to the
Board, providing data and analyses in support of the recommendation of the
Special Committee. On May 2, 2005, CVG provided to the Special Committee a
written opinion (the "Fairness Opinion") that, as of the date of such opinion,
the reverse stock split by which one share will be exchanged for each 1500, 2500
or 5000 shares of common stock outstanding with holders of less than one share,
post reverse split, receiving cash in the amount of $1.10 per pre-split share,
unless the Board of Directors determines that because of changes in conditions,
it is in the best interest of the Company and its stockholders, and to cash out
fractional stockholders based upon a pre-stock split price of $1.10 per common
share, not to go private (the Reverse Stock Split) is fair, from a financial
point of view, to stockholders who would not retain their interest in the
Company after completion of the Reverse Stock Split and stockholders who would
retain their interest in the Company after completion of the Reverse Stock
Split, in each case other than stockholders who are directors, or executive
officers of the Company or affiliates of directors or executive officers of the
Company.
The Fairness Opinion addressed only the fairness, from a financial point of view
as of the date of the opinion, of the consideration to be paid to cashed out
stockholders in lieu of issuing any fractional shares resulting from a Reverse
Stock Split, and the fairness, from a financial point of view of the effect of
the transaction on nonaffiliated stockholders who will remain. The Fairness
Opinion did not address any other aspect of the Reverse Stock Split or
constitute a recommendation to any holder of common stock as to how to vote at
the Annual Meeting. In addition, the Fairness Opinion did not address the
relative merits of the Reverse Stock Split or the other business strategies that
the Special Committee or the Board of Directors considered, nor did it address
the decisions of the Special Committee and the Board of Directors to recommend
or proceed with the Reverse Stock Split.
The descriptions of the Valuation and the Fairness Opinion are only summaries
and are qualified in their entirety by the full text of such documents. Holders
of common stock are urged to and should read the Valuation and the Fairness
Opinion in their entirety.
In connection with preparing the Fairness Opinion and the related Valuation, CVG
conducted such reviews, analyses and inquiries as it deemed necessary and
appropriate under the circumstances. Among other things, CVG relied on the
following sources of information in performing its analysis:
o The Company's Annual Reports on Form 10-K for the five fiscal years
ended December 31, 2000 through December 31, 2004 and the Company's
Quarterly Reports on Form 10-Q for the quarters ended September 30,
2003, September 30, 2004, June 30, 2003, June 30, 2004, March 31,
2003, and March 31, 2004.
o Company-prepared financial projections for the fiscal years ended
December 31, 2005, through December 31, 2009.
o Interviews of certain members of senior management of the Company to
discuss the Company's history, operations, financial condition,
industry and future prospects.
o A visit to the Company's headquarters in Norcross, Georgia
o A review of the historical market prices and trading volume of the
common stock, an analysis of the stockholder profile of the Company
and the number of stockholders, and a review of publicly available
news, articles and press releases relating to the Company.
o A review of publicly available financial data of certain
publicly-traded companies that CVG deemed comparable to the Company.
o A review of publicly available financial data of certain merger and
acquisition transactions involving companies that CVG deemed
comparable to the Company.
o Other studies, analyses and inquiries that CVG deemed appropriate.
In addition, with the Special Committee's authorization, CVG initiated contact
with a few strategic and financial parties, none of whom expressed interest in
exploring a possible transaction with the Company.
In preparing and rendering the Fairness Opinion, CVG assumed and relied upon the
accuracy and completeness of all of the financial and other information that was
either generated from publicly available sources or provided by the client. The
Fairness Opinion was based, in part, upon such information and the assurances of
management that they are not aware of any facts that would make such information
misleading. CVG does not assume any responsibility for the accuracy of this
data. With respect to projections provided to or discussed with CVG by the
Company's management, CVG assumed that such projections were reasonably prepared
and reflected the best currently available estimates and judgments of the future
financial performance of the Company.
21
In conducting its analysis, CVG did not obtain an independent evaluation or
appraisal of any of the Company's assets or liabilities (contingent or
otherwise). The Fairness Opinion was based upon market, economic and other
conditions, as they existed on the date of the Fairness Opinion. The Fairness
Opinion did not predict or take into account any possible economic, monetary or
other changes that might occur, or information that might become available,
after the date of its written opinion.
The Fairness Opinion and financial analyses were one of the many factors
considered by the Special Committee in its evaluation of the Reverse Stock Split
and should not be viewed as determinative of the view of the Special Committee
with respect to the Reverse Stock Split or the cash consideration payable to
holders of Common Stock who will hold fractional shares immediately following
the Reverse Stock Split.
The preparation of a fairness opinion involves complex considerations and
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of these methods to the particular
circumstances and, therefore, an opinion is not readily susceptible to summary
description. Each of the analyses conducted by CVG was carried out in order to
provide a different perspective on the Reverse Stock Split and to add to the
total mix of information available. CVG did not form a conclusion as to whether
any individual analysis, considered in isolation, supported or failed to support
an opinion as to the fairness of the Reverse Stock Split. Rather, in reaching
its conclusion, CVG relied upon the results of the analyses taken as a whole and
also on application of its own experience and judgment.
Accordingly, notwithstanding the separate factors summarized below, CVG has
indicated to the Special Committee that it believes that consideration of some
of the relevant analyses and factors, without considering all analyses and
factors, could create an incomplete or inaccurate view of the evaluation process
underlying CVG's opinion.
With respect to the analyses of comparable publicly traded companies and
comparable merger and acquisition transactions summarized below, such analyses
reflect selected companies, but not necessarily all companies that may be
considered relevant in evaluating the Company or the Reverse Stock Split. In
addition, no company used as a comparison is either identical or directly
comparable to the Company. These analyses involve complex considerations and
judgments concerning financial and operating characteristics and other factors
that could affect the public trading or acquisition values of the companies
concerned.
The estimates of the Company's future financial performance provided by
management included in or underlying CVG's analyses are not necessarily
indicative of future results or values that might be significantly more or less
favorable than those estimates. In performing its analyses, CVG considered
industry performance, general business and economic conditions and other
matters, many of which are beyond the Company's control. Estimates of the
financial value of companies do not purport to reflect the prices at which
companies actually may be sold.
The actual cash consideration to be paid to cashed-out stockholders in lieu of
fractional shares is to be determined by the Company's Special Committee and its
Board of Directors. CVG's Valuation and Fairness Opinion are only one of many
factors that will be considered by the Special Committee and the Board of
Directors in their evaluation of the Reverse Stock Split and should not be
viewed as determinative of the views of the Special Committee or the Board of
Directors with respect to the Reverse Stock Split or the consideration to be
paid to cashed-out stockholders in lieu of their fractional shares.
REVIEW OF COLOR IMAGING MARKET PERFORMANCE
In order to develop a conceptual framework for developing its Fairness Opinion
CVG conducted an analysis of the trading history of the Company's common stock.
CVG took into account the following factors, which it thought would be most
applicable in assessing the fair value of Color Imaging's common stock:
o Current and three-month average daily trading volume
o Percentage of Company shares owned by institutions
o Percentage of Company shares owned by insiders
o Float as a percentage of Company shares
o Exchange on which the stock is trading
o Book value of equity
CVG noted that the Company's common stock is characterized by limited trading
volume, limited institutional ownership, a high percentage of common stock held
by insiders and a trading price over the last three months at prices that are
below the book value of the Company's common stock. From this analysis CVG noted
that the market price of Color Imaging's common stock might not be indicative of
its fair value.
22
FAIR VALUE ESTIMATES
In conducting its valuation of the Company and arriving at an estimate to the
fair value of the Company's common stock, CVG employed methods based on the
following valuation analyses:
o Discounted cash flow method
o Publicly-traded company method
o Merger and acquisition method
CVG also considered, but did not rely on the liquidation value of the Company.
DISCOUNTED CASH FLOW METHOD
CVG performed a discounted cash flow method to estimate the fair value of Color
Imaging's common stock based on estimates of future distributable cash flows of
the Company. CVG's discounted cash flow analysis included, among other
assumptions, the following:
o Discount rates ranging from 14% to 21% to adjust the projected future
cash flows to their present value equivalents based on cost of equity
capital developed using the capital asset pricing model and build up
methods.
o Terminal value EBITDA (earnings before interest, taxes, depreciation
and amortization) multiples ranging from five to seven times projected
2009 EBITDA to capitalize the projected cash flows during the residual
period after the five-year projection period.
DISCOUNTED CASH FLOW ANALYSIS - STAND-ALONE BASIS
CVG combined the calculated present value of cash flows for the five fiscal
years through December 31, 2009 with the estimated present value of residual
cash flows for the periods after the projection period, to arrive at an
estimated equity value of the Company. CVG estimated the indicated range of the
equity value per share ranging from $0.89 to $1.56 as shown below:
--------------------------------------------------------------------
STAND-ALONE 5xEBITDA 6xEBITDA 7xEBITDA
--------------------------------------------------------------------
14% WACC $1.16 $1.36 $1.56
15% WACC 1.11 1.31 1.51
16% WACC 1.07 1.26 1.45
17% WACC 1.03 1.21 1.39
21% WACC 0.89 1.05 1.20
--------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS - REVERSE STOCK SPLIT BASIS
CVG calculated present value of cash flows for the five fiscal years through
December 31, 2009 with the estimated present value of residual cash flows for
the periods after the projection period based on expected cash flows assuming
that the Company completes the contemplated Reverse Stock Split, to arrive at a
total operating value of the Company. In this analysis the indicated range of
the equity value ranging from $0.90 to $1.62 per share on a reverse stock split
basis.
----------------------------------------------------------------------
REVERSE STOCK SPLIT 5xEBITDA 6xEBITDA 7xEBITDA
----------------------------------------------------------------------
14% WACC $1.19 $1.40 $1.62
15% WACC 1.14 1.35 1.56
16% WACC 1.10 1.30 1.50
17% WACC 1.05 1.25 1.44
21% WACC 0.90 1.07 1.23
----------------------------------------------------------------------
CVG noted that the proposed $1.10 per share price is within the range indicated
by the discounted cash flow method, both on a stand-alone basis and after giving
effect to the proposed Reverse Stock Split. CVG noted that the discounted cash
flow method was based on estimates of future revenues, expenses and cash flows
presented in management's forecast, which may or may not be achieved.
PUBLICLY-TRADED COMPANY ANALYSIS
23
CVG also employed a valuation method whereby the value of Color Imaging was
estimated by comparing it to similar publicly traded companies. Publicly traded
company capitalization multiples were developed by dividing each company's total
market value of invested capital by appropriate measures of operating results
such as EBITDA and each Company's equity value by net after-tax income. After
analyzing the risk and return characteristics of the publicly traded companies
relative to the Color Imaging, appropriate multiples were selected and applied
to the operating results of Color Imaging to arrive at an indicated equity
value.
CVG undertook a review of publicly available information and held discussions
with Company management in order to identify comparable public companies. Many
of Color Imaging's primary competitors include small, privately-held companies
and divisions of large, multi-national conglomerates. As such, CVG found no
public companies directly comparable to Color Imaging in terms of size, products
and markets served. In the absence of directly comparable public companies, CVG
searched for companies operating in the toner industry. Based on this search,
CVG identified seven publicly-traded companies (the "guideline companies") that
it deemed, when considered as a whole, provided a reasonable basis for
comparison to the Color Imaging. The selected companies included:
o Xerox
o Canon
o Hewlett Packard
o Lexmark
o Nashua
o Media Sciences
o OCE
PUBLICLY-TRADED COMPANY ANALYSIS - STAND-ALONE BASIS
Using publicly available information, CVG calculated for each of the guideline
companies: EBITDA multiples, as determined by dividing the guideline company's
total market value of invested capital by the guideline company's EBITDA
trailing; and net income multiples, as determined by dividing each guideline
company's total equity value by each guideline company's net income. In
selecting multiples to apply to the operating results of the Color Imaging, CVG
selected the median of the range of observed multiples of the guideline
companies to reflect differences between the risk and return characteristics of
Color Imaging and the guideline companies, reflecting factors such as size,
growth, cost structures, profitability, return on investment, liquidity and
leverage. Applying the selected EBITDA and net income multiples to Color
Imaging's 2004 EBITDA and net income to arrive at equity value, produced
indicated equity values ranging from $0.77 to $1.02 per share on a stand-alone
basis.
----------------------------------------------------------------------
MEDIAN PUBLIC INDICATED EQUITY
STAND-ALONE COMPANY MULTIPLE VALUE PER SHARE
----------------------------------------------------------------------
2004 EBITDA 9.3 $1.02
2004 Net Income 16.7 $0.77
----------------------------------------------------------------------
PUBLICLY-TRADED COMPANY ANALYSIS - REVERSE STOCK SPLIT BASIS
CVG also developed indications of values by applying the selected EBITDA and net
income multiples to Color Imaging's pro forma 2004 results and applying the
necessary adjustments for the effect of the reverse stock split to arrive at
equity value. CVG determined per share value ranging from $0.85 to $1.10 per
share on a reverse stock split basis.
-----------------------------------------------------------------------
MEDIAN PUBLIC INDICATED EQUITY
REVERSE SPLIT COMPANY MULTIPLE VALUE PER SHARE
-----------------------------------------------------------------------
2004 Pro forma EBITDA 9.3 $1.10
2004 Pro forma Net Income 16.7 $0.85
------------------------------------------------------------------------
CVG considered the publicly-traded company method to have secondary emphasis in
reaching its Fairness Opinion. CVG noted that the proposed $1.10 per share price
is above the range indicated by the stand-alone basis and equal to the indicated
value based on pro forma 2004 EBITDA after giving effect to the reverse stock
split. CVG noted that all but one of the public companies used in this method
are larger, have more diverse product lines, greater financial resources
relative to the Company. CVG noted that the Company's 2004 fiscal year sales did
not meet the anticipated growth included in Company management's forecast.
MERGER AND ACQUISITION ANALYSIS
24
CVG employed a valuation method whereby the value of Color Imaging common stock
was estimated by identifying comparable merger and acquisitions transactions,
determining transaction multiples (e.g., enterprise value to EBITDA), then
applying appropriate multiples, based on the observed transactions, to the
corresponding operating results of Color Imaging to produce another indication
of the Company's equity value per share.
CVG reviewed publicly available information in order to identify merger and
acquisition transactions involving target companies similar to Color Imaging.
Based on this search, CVG found more than 100 transactions that met its initial
criteria. Eliminating transactions with insufficient financial disclosure and
those involving companies that were not sufficiently comparable to Color Imaging
to warrant conclusion, CVG selected a group of six transactions involving target
companies in the computer equipment and supplies industry that took place
between 2000 and 2004.
MERGER AND ACQUISITION ANALYSIS - STAND-ALONE BASIS
CVG analyzed the selected transactions to determine, among other things, the
implied valuation multiples paid in these transactions and calculated the ratio
of the enterprise value to EBITDA. CVG then selected an EBITDA multiple
corresponding to the 2004 transaction and applied this multiple to the Company's
2004 EBITDA to arrive at an indicated value of $0.72 per share on a stand-alone
basis.
---------------------------------------------------------------------
INDICATED EQUITY
STAND-ALONE SELECTED ACQUISITION MULTIPLE VALUE PER SHARE
---------------------------------------------------------------------
2004 EBITDA 6.8 $0.72
---------------------------------------------------------------------
ACQUISITION METHOD - REVERSE STOCK SPLIT BASIS
CVG then developed indications of value after giving effect to the reverse stock
split. CVG determined an equity value of $0.76 per share after giving effect to
the reverse stock split.
---------------------------------------------------------------------
INDICATED EQUITY
REVERSE SPLIT SELECTED ACQUISITION MULTIPLE VALUE PER SHARE
---------------------------------------------------------------------
2004 EBITDA 6.8 $0.76
---------------------------------------------------------------------
CVG did not consider the results of the merger and acquisition method to be
meaningful in forming its Fairness Opinion. CVG noted that the most recent
transaction for which information was available took place in 2004 and, the
Company's 2004 results did not include the anticipated revenue and earnings
growth reflected in management's forecast.
PREMIUM ANALYSIS
CVG also utilized an analysis of premiums paid in mergers and acquisitions in
formulating its Fairness Opinion. Based on a survey of premiums paid in
transactions for industry sectors that are similar to the Company, CVG developed
indications of fair value by applying the average premium to the share price of
the Company. The results of this analysis indicated per share values ranging
from $0.67 to $1.08.
-------------------------------------------------------------------
CI PRICE AS OF 2/1/05 $0.56
-------------------------------------------------------------------
Price with "SIC: 3861 - 3873" average premium @ 20.5% $0.67
Price with "SIC: 3570 - 3579" average premium @ 79.4% $1.00
Price with "SIC: 7370 - 7391" average premium @ 93.4% $1.08
Price with manufacturing sector average premium @ 49.2% $0.84
-------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Industry Classification Multiples Premium Paid
- -------------------------------------------------------------------------------------------------------------------
TIC/EBIT TIC/EBITDA 1999 2000 2001 2002 2003
- -------------------------------------------------------------------------------------------------------------------
SIC: 3570 - 3579 Office Equipment & Computer Hardware 12 9.2 30.6% 55.6% 28.7% 24.6% 79.4%
SIC: 3861 - 3873 Instruments & Photographic Equipment 11.3 9.7 56.4% 50.1% 42.0% 43.9% 20.5%
SIC: 7370 - 7391 Miscellaneous Services 16.6 10.7 44.4% 54.9% 53.5% 68.7% 93.4%
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Average Premium for the Manufacturing Sector 43.2% 49.2% 51.5% 44.3% 49.2%
- -------------------------------------------------------------------------------------------------------------------
Note: Total invested capital ("TIC") equates to market value of invested capital.
25
CVG noted that the transaction price of $1.10 per share price is higher than the
range indicated by equity values per share developed based on the transaction
survey data. CVG also noted that the proposed transaction price of $1.10
represents a premium of 96.2% over the closing price as of February 1, 2005, and
a premium of 19.6% over the Company's year end book value per share. CVG further
noted that the $1.10 per share represented an implied EBITDA multiple of 10.2x
is within the range of the EBITDA multiples for transactions included in the
survey.
OTHER CONSIDERATIONS
In its presentation to the Special Committee, CVG noted the following factors
identified by Company management in support of the proposed transaction:
o Savings related to the suspension of SEC reporting requirements.
o Potential trading of CI common stock on Pink Sheets.
o Preservation of the ability to reinstate SEC reporting in the event
that future developments make it advantageous to do so or in the event
that the number of stockholders rises above the 500 stockholder
threshold necessitating a return to reporting company status.
o Immediate liquidity for small unaffiliated stockholders.
o Potential synergistic value to remaining stockholders through enhanced
merger or acquisition prospects as a private company.
CONCLUSION
CVG evaluated the fairness of the transaction to the stockholders who will
receive cash in exchange for their fractional shares and those unaffiliated
stockholders who will continue to hold Color Imaging common stock after the
reverse stock split based on the indicated values developed using the discounted
cash flow method and the publicly-traded company method. CVG also considered the
results of the Premium analysis to support its opinion.
Based upon the foregoing analyses and the assumptions and limitations set forth
in full in the text of the Fairness Opinion, CVG is of the opinion that, as of
the date of the Fairness Opinion, the Repurchase Price of $1.10 per Common Share
to be paid by Color Imaging for fractional shares of less than one whole share
in connection with the Stock Splits is fair to the Cashed Out Holders and
Continuing Holders from a financial point of view who are unaffiliated with the
directors, executive officers and affiliates of Color Imaging.
ENGAGEMENT OF CBIZ VALUATION GROUP, LLC
The Special Committee of the Board of Directors of Color Imaging has agreed to
pay CBIZ Valuation Group, LLC ("CVG") a fee of $50,000 for strategic advisory
services and a fee of $20,000 in connection with the Fairness Opinion and to
reimburse CVG for its reasonable out-of-pocket expenses related to its
engagement, whether or not the Stock Splits are consummated. No compensation
received or to be received by CVG is based on or is contingent on the results of
CVG's engagement. There are no other current arrangements to compensate CVG, its
affiliates or unaffiliated representatives for any services rendered to Color
Imaging, its executive officers, directors or affiliates. CVG has previously
provided valuation consulting services to Color Imaging in connection with Color
Imaging's divestiture of Logical Imaging Solutions, Inc. in 2002. None of CVG's
employees who worked on the engagement has any known financial interest in the
assets or equity of Color Imaging or the outcome of the engagement.
MEETING AND VOTING INFORMATION
Each properly executed Proxy received prior to the Annual Meeting and not
revoked will be voted as directed by the stockholder or, in the absence of
specific instructions to the contrary, will be voted FOR the approval of the
Stock Splits.
TIME AND PLACE
The Annual Meeting will be held on [___________, 2005], at 10:00a.m., local
time, at the St. Ives Country Club. One Country Club Drive, Duluth, GA 30097.
26
REVOKING YOUR PROXY
Without affecting any vote previously taken, you may revoke your Proxy by either
(i) submitting a later dated proxy or a written revocation which is received by
Color Imaging before the Proxy is exercised or (ii) by attending the Annual
Meeting and voting in person or giving notice of revocation in open meeting
before the Proxy is exercised. Attending the Annual Meeting will not, by itself,
revoke a Proxy.
RECORD DATE
Only Color Imaging stockholders of record at the close of business on [June 5,
2005] (the "Record Date"), are entitled to vote at the Annual Meeting. Each
stockholder will be entitled to cast one vote for each share then owned.
According to Color Imaging's records, as of the Record Date, there were
12,690,305 votes entitled to be cast at the Annual Meeting.
QUORUM AND REQUIRED VOTE
The presence at the Annual Meeting in person or by proxy of the holders of at
least a majority of the issued and outstanding Common Shares as of the Record
Date is necessary to establish a quorum to conduct business at the Annual
Meeting.
Each Color Imaging stockholder is entitled to cast one vote for each share owned
on the Record Date. Under Delaware law and Color Imaging's Bylaws and
Regulations, the affirmative vote of at least a majority of the issued and
outstanding Common Shares as of the Record Date is necessary to approve the
Stock Splits.
Stockholders holding Common Shares in "street name" should review the
information provided to them by their nominee (such as a broker or bank). This
information will describe the procedures to follow to instruct the nominee how
to vote the street name shares and how to revoke previously given instructions.
The proposal to approve the Stock Splits is a "non-discretionary" item, meaning
that nominees cannot vote Common Shares in their discretion on behalf of a
client if the client has not given them voting instructions. Shares held in
street name that are not voted by brokerage firms or other nominees are referred
to as "broker non-votes."
Broker non-votes and abstentions are counted toward the establishment of a
quorum for the Annual Meeting. However, because the affirmative vote of a
majority of the outstanding Common Shares is necessary to approve the Stock
Splits, broker non-votes and abstentions will have the same effect as a vote
"AGAINST" the proposal to approve the Stock Splits. The Board urges you to
complete, date and sign the enclosed Proxy and to return it promptly in the
enclosed postage prepaid envelope so that a quorum can be assured for the Annual
Meeting and your Common Shares can be voted as you wish.
The enclosed Proxy, when properly signed, also confers discretionary authority
with respect to amendments or variations to the matters identified in the Notice
of Annual Meeting and with respect to other matters which may be properly
brought before the annual meeting. At the time of printing this proxy statement,
management of Color Imaging is not aware of any other matters to be presented
for action at the annual meeting. If, however, other matters which are not now
known to the management should properly come before the annual meeting, the
proxies hereby solicited will be exercised on such matters in accordance with
the best judgment of the proxy holders.
Shares represented by executed and unrevoked proxies will be voted in accordance
with the instructions contained therein or, in the absence of such instructions,
in accordance with the recommendations of the board of directors. Neither
abstentions nor broker non-votes will be counted for the purposes of determining
whether any of the proposals have been approved by the stockholders of Color
Imaging, although they will be counted for purposes of determining the presence
of a quorum.
SOLICITATION AND COSTS
The enclosed Proxy is solicited on behalf of the Board. Proxies may be solicited
by the directors, officers and other employees of Color Imaging, in person or by
telephone, telegraph or mail only for use at the Annual Meeting. Color Imaging
will bear the costs of preparing, assembling, printing and mailing this Proxy
Statement and the enclosed Proxy and all other costs of the Board's solicitation
of Proxies for the Annual Meeting. Brokerage houses and other nominees,
fiduciaries, and custodians nominally holding Common Shares as of the Record
Date will be requested to forward proxy soliciting material to the beneficial
owners of such Common Shares, and will be reimbursed by us for their reasonable
expenses.
The repurchase of fractional Common Shares in connection with the Stock Splits
is estimated to cost approximately $300,000. We intend to finance the Stock
Splits and repurchase of fractional shares by using cash on hand. The following
is an estimate of the total costs expected to be incurred by Color Imaging in
connection with the Stock Splits and the solicitation of Proxies for the Annual
Meeting. Final costs may be higher or lower than the estimates shown below.
27
Item Approximate Cost
---- ----------------
Repurchase of fractional shares held by
stockholders with less than one whole share $ 300,000
Legal fees $ 100,000
CBIZ Valuation Group, LLC fees (1) $ 30,000
Accounting fees $ 5,000
Filing fees $ 2,500
Printing, mailing, exchange agent
and other costs $ 25,000
Directors' fees $ 25,000
----------
Total $ 487,500
==========
-----------------
Note (1)Excludes Strategic Alternative
Advisory fees of $50,000 and should it
be needed includes $10,000 for an updated
Fairness Opinion
(2) Excludes $20,000 of director's fees
in connection with investigating strategic
alternatives, including the "going private"
transaction.
PROPOSAL NO. 1 - STOCK SPLITS PROPOSAL
The Board has authorized and recommends that you approve the Stock Splits
Proposal, as described below:
To approve amendments, as determined by the Board of Directors of Color Imaging
in their discretion, to Color Imaging's Certificate of Incorporation to effect a
reverse stock split of our common stock at one of the following ratios:
1-for-1500, 1-for-2500 or 1-for-5000 and the repurchase of the resulting
fractional shares held by each stockholder with less than one share after the
reverse stock split, followed immediately by an amendment of Color Imaging's
Certificate of Incorporation to effect a forward stock split of Color Imaging's
common shares upon the inverse of the ratio used in the reverse stock split was
effected (collectively the "Stock Splits"). As a result of the Stock Splits, (a)
each stockholder owning fewer than 5,000 shares, 2,500 shares or 1,500 shares,
as applicable, of outstanding common stock immediately before the Stock Splits
will receive $1.10 in cash, without interest, for each Color Imaging common
share owned by such stockholder immediately prior to the Stock Splits and will
no longer be a stockholder of Color Imaging; and (b) each stockholder owning
more than the number of common shares upon which the reverse stock split was
effected immediately before the Stock Splits will receive common shares equal to
the number of common shares they held prior to the Stock Splits. The Stock
Splits are proposed for the purpose of taking Color Imaging private and
terminating its reporting obligations under the Securities Exchange Act of 1934,
as amended
SUMMARY AND STRUCTURE
The Board has authorized and recommends that you approve the Stock Splits. The
Stock Splits consist of two steps. First, Color Imaging will conduct a reverse
stock split of the Common Shares, using one of the three ratios, 1-for-1500,
1-for-2500 or 1-for-5000. In the reverse split, (i) each lot of 1500, 2500, or
5000 Common Shares held by a stockholder of Color Imaging prior to the reverse
split will be converted into one whole Common Share after the reverse split; and
(ii) any Common Shares held by a stockholder owning fewer than 1500, 2500, or
5000 shares will not be converted into a whole share and will be cancelled and
exchanged for $1.10 in cash per pre-reverse split share. After the reverse split
is completed, it will be followed immediately by a forward stock split of the
Common Shares, which will convert each whole Common Share issued in connection
with the reverse split into 1500, 2500 or 5000 Common Shares. The Stock Splits
are intended to take effect on the Effective Date (the date the Delaware
Secretary of State accepts for filing Certificates of Amendment to the
Certificate of Incorporation). The proposed amendments to the Certificate are
attached to this Proxy Statement as Exhibits B and C and are incorporated herein
by reference. Generally, the effects of the Stock Splits can be illustrated by
the following examples (the examples assume a 1-for-5000 Reverse Split Ratio):
28
Hypothetical Scenario Result
- --------------------- --------
Stockholder A holds 200 Common Share Stockholder A's 200 Common Shares will
in a single record account and holds be converted into the right to receive
no other Common Shares $220 in cash (200 x $1.10). If
Stockholder A wanted to continue to be a
stockholder after the Stock Splits, he
could purchase an additional 4800 Common
Shares far enough in advance of the
Stock Splits so that the purchase is
complete by the Effective Date.
Stockholder B holds 200 shares in a Color Imaging intends for the Stock
brokerage account and holds no other Splits to treat stockholders holding
Common Shares Common Shares through a nominee the same
as those holding shares in a record
account. Nominees will be instructed to
effect the Stock Splits for their
beneficial owners. If this occurs,
Stockholder B will entitled to receive
$220 in cash (200 x $1.10). However,
nominees may have different procedures
and stockholders holding shares in
street name should contact their nominee
to determine how the Stock Splits will
affect them.
Stockholder C holds 5500 Common After the reverse stock split,
Shares in a single record account Stockholder C would have 1.1 Common
and holds no other shares Shares in the record account (5500/ 5000
= 1.1). Because he owns more than one
whole share, he will not receive any
cashfor fractional shares. In the
forward stock split his Common Shares
will be converted into 5500 Common
Shares (1.1 x 5000). After completion of
the Stock Splits, Stockholder C will
continue to hold 5500 Common Share. He
will not receive any cash as a result of
the Stock Splits.
Stockholder D holds 2600 shares in Color Imaging intends for the Stock
each of two separate record Splits to treat shares held by the same
accounts for atotal of 5200 Common stockholder in multiple accounts as one
Shares. Stockholder D holds no combined total. After the reverse stock
other Common Share. split, Stockholder D will hold 1.04
whole Common Shares (5200/5000 = 1.04
and will receive no cash. After the
completion of the forward stock split
Stockholder D will hold 5200 Common
Shares.
Stockholder E holds 10000 Common Color Imaging intends for stockholders
Shares in a brokerage account. holding shares through nominees to be
He holds no other Common Shares. treated the same as record holders and
expects that Stockholder E would hold
two whole Common Shares after the
reverse split (10000/5000 = 2).
Stockholder E's two whole Common Shares
would be converted into 10000 Common
Shares in the forward split. After the
completion of the Stock Splits,
Stockholder E would hold 10000 Common
Shares. Stockholder E would not receive
any cash in the Stock Splits.
Husband and Wife each hold 2500 Shares held in joint accounts will not
Common Shares in eparate record be added to s shares held individually
accounts and hold 2500 shares in determining whether a stockholder
jointly in another record account. will receive whole shares after the
They own no other Common Shares. reverse split. In this situation,
Husband and Wife will each be entitled
to receive $2,750 each for the shares
held in their individual record accounts
2500 x $1.10). Further, they will be
entitled to receive $2,750 for the
Common Shares held in their joint
account. Husband and Wife will hold no
Common Shares after the Stock Splits. If
Husband and Wife wished to continue to
be stockholders after the Stock Splits,
they could transfer a sufficient number
of shares from one account into another
so that at least 5000 Common Shares (or
a multiple thereof) are held in one
account. Note that if the Board elected
to use a 1-for-2500 or 1-for-1500
Reverse Split Ratio, rather than the
1-for-5000 ratio, Husband and Wife
29
instead would remain stockholders with
2500 Common Shares each individually,
and another 2500 shares jointly, and
would receive no cash in the Stock
Splits.
Color Imaging currently estimates that stockholders will receive payment for
their Common Shares that are exchanged for cash in lieu of issuing fractional
shares within approximately four weeks after the Effective Date.
At least a majority of the Common Shares outstanding and entitled to vote at the
Annual Meeting must approve the Stock Splits before they can be completed. The
executive officers, directors and the affiliates of Color Imaging, who together
own approximately 65.8% of the Common Shares outstanding and entitled to vote at
the Annual Meeting, have indicated that they will vote in favor of the Stock
Splits proposal.
The Stock Splits are considered a "going-private" transaction as defined in Rule
13e-3 promulgated under the Exchange Act because they are intended to terminate
the registration of the Common Shares and suspend Color Imaging's filing and
reporting obligations under the Exchange Act. In connection with the Stock
Splits, we have filed, as required by the Exchange Act, a Rule 13e-3 Transaction
Statement on Schedule 13E-3 (the "Schedule 13E-3") with the SEC. Please see the
section entitled "Available Information."
The Board has retained for itself the absolute authority to not implement the
Stock Splits, even after they are approved, if it subsequently determines that
the Stock Splits for any reason are not then in the best interests of Color
Imaging. Please see the section entitled "Proposal No. 1 - Stock Splits Proposal
- - Reservation of Rights."
BACKGROUND OF THE STOCK SPLITS
The purpose of our merger in 2000 was to combine Color Image, Inc.'s (now Color
Imaging's) toner and consumable expertise and manufacturing plant with Logical
Imaging Solutions, Inc.'s advanced printing system capabilities to offer a wider
product range and ensure product supply for Logical Imaging Solutions' print
system. This would allow us to become an OEM with our own high speed color
printer, toner and supplies and we expected significantly higher sales and
profitability in the future as a result. We believed that becoming a public
company would increase stockholder value by affording us the opportunity to
raise capital in the equity markets, to finance significant planned growth, and
allow us to use our public stock in lieu of cash to acquire other companies.
From 2000 through the year 2002 we expanded manufacturing capacity four-fold,
improved production efficiency and raised capital in a private placement. We
also pursued an acquisition that was ultimately unsuccessful. Over time we
determined that Logical Imaging Solutions' technology was not fully developed or
accepted in the marketplace, and that the company would continue to incur
operational losses and use an undetermined amount of capital to complete this
development. We therefore entered into a share exchange agreement on September
11, 2002, with Digital Color Print, Inc. and four of our directors to divest
Logical Imaging Solutions. We completed the share exchange transaction on
September 30, 2002. As the result, we no longer offer printing systems to
commercial printers or the support services and consumables related thereto. We
were also unable to realize our goal in becoming a public company, namely to
increase stockholder value by becoming a successful OEM.
In March of 2003 we completed a public offering of 4,500,000 shares of Color
Imaging's common stock, raising approximately $6.1 million. In July 2003,
management continued to consider ways in which stockholder value could be
increased. The President and Chief Financial Officer considered (a) growing the
Company and eventually pursuing a listing on the American Stock Exchange, (b)
the sale of part or all of the Company, (c) going private through a buyout or
(d) spinning off the factory and operations leaving the public copy to be
marketed to another. Management decided at that time to continue to work to grow
the business while seeking out and continuing to entertain offers from others.
In July 2003 management was contacted by a merger and acquisition firm that
indicated it had a client interested in possibly investing in or buying Color
Imaging. No further contact has taken place between this firm and Color Imaging.
In July 2003 Management was contacted by an investment banker who specialized in
assisting small cap companies in evaluating strategic alternatives. On July 30,
2003 the investment banker indicated a desire to discuss the feasibility of
Color Imaging's going private and of a leveraged buyout by management. There has
been no further contact between the parties.
30
During October 2003, management was contacted by three different investment
banking firms who indicated an initial interest in discussing a possible
investment in or acquisition of the Company. In each case, management of Color
Imaging indicated an interest in hearing any proposals. However, there has been
no further contact from these firms since that time.
In November 2003, management met with and received a presentation from
representatives of an investment banking firm who provided an overview of its
experience, capabilities and global and national resources, as well as a current
overview of the U.S. stock market. They presented several strategic liquidity
alternatives designed to create stockholder value, including mergers,
acquisitions and going private. We discussed reasons that a public company goes
private, factors to consider, and the steps involved in the process, as well as
the pros and cons of a number of different methods to effect a going private
transaction. We also discussed a public company peer review. In December 2003,
the parties exchanged a non-disclosure agreement and agreed to stay in touch
should the Company have a transaction it wanted to pursue with this firm. Since
December 2003, there has been no further contact with this firm.
In a management meeting on November 11, 2003, the Chairman asked management
about the requirements to move the Company's stock to the American Stock
Exchange in order to increase liquidity for the stockholders. In addition to the
exchange's operational, stock price and specialist requirements, it was noted
that the board needed to be comprised of a majority of independent directors and
that the Company would need an audit committee comprised of a minimum of three
independent directors. The Chairman and management believed that the board of
directors could be restructured to meet the requirements of the American Stock
Exchange if the Company's operational results increased to the point where
listing on the American Stock Exchange would be feasible.
In late 2003 president of Color Imaging felt that an internet marketer of inkjet
cartridges with whom he was familiar might be a merger candidate for Color
Imaging. He arranged for Color Imaging's chief financial officer to meet with
the owner of this company at a trade show in Las Vegas in January 2004. The
company's owner previously had access to Color Imaging's public information.
Upon signing a mutual confidentiality agreement in January 2004, the internet
marketer shared his internally prepared financial statements with Color Imaging.
It was revealed that a merger which resulted in an entity which remained public
would require three years of audited financial statements from the internet
marketer. The internet marketer indicated that they had no audited statements at
the time, and any merger of the companies that would result in a public entity
would, of necessity, have to occur in the future. Later in the month Color
Imaging's Chairman/CEO visited the internet marketer en route to Taiwan and
toured their facilities. Subsequent management meetings at Color Imaging
following the return of the Chairman/CEO from Taiwan resulted in the conclusion
that it was unlikely that a transaction could be completed in the foreseeable
future.
In February 2004, management met with a former laser and inkjet cartridge
re-manufacturer that had begun sourcing and reselling like branded product under
its own label over the internet and to dealers, wholesalers, retailers,
corporate accounts and others. This company was a customer of Color Imaging
until it discontinued remanufacturing, and was considering a product offered by
Color Imaging's affiliates. Management also discussed a potential merger with
this company. Although Color Imaging indicated an interest in future merger
discussions, none occurred.
In April 2004, Color Imaging's President met a retailer of inkjet and toner
cartridges which also was in the process of completing an acquisition of another
company which provided imaging supplies and services to Fortune 500 companies.
Representatives met at Color Image's offices. The retailer indicated an interest
in further discussions, but that it had to complete its current acquisition and
integrate that acquisition into its operations before it would be in a position
to consider additional transactions.
In April, 2004, management met with a remanufacturer and wholesaler of laser
toner and inkjet cartridges to introduce its new all-in-one products for resale.
Management of this company noted at the conclusion of the meeting that Color
Imaging was interested in potential merger or acquisition candidates. This
company indicated that it was in a position to assist Color Imaging in improving
its new all-in-one product. Management offered to enter into a non-disclosure
agreement. Subsequent meetings took place between the parties in the ordinary
course of business.
At the annual meeting of the Board of Color Imaging on May 18, 2004, management
presented the board members with a summary of the steps that would be involved
should the Company find a suitable acquisition or merger candidate. The Board
discussed the overall criteria for any such candidate and the time and dollar
commitment involved should any such prospect be actively pursued.
In May 26, 2004, management was contacted by an investment banker who had past
employment experience at the executive level with an OEM in the toner/imaging
products industry. On June 3 this investment banker expressed an interest in
assisting Color Imaging to increase its revenue and profits and to formulate a
plan to list its stock on either the American Stock Exchange or the Nasdaq small
31
cap market. The plan would include both internal growth as well as a merger and
acquisition strategy. A follow-up conversation took place on June 29, wherein
the banker requested a retainer for its services as well as equity in the
Company. These discussions were subsequently discontinued.
On June 24, 2004, management received a telephone call from an entity which
invested in small cap companies and had something less than $100 million under
management for that purpose. They indicated that their fund invested in health
and technology companies with a market cap of less than $250 million. Management
summarized the public operating information about Color Imaging and this entity
indicated that they would review the public filings and make a presentation to
their investment committee. No further contact occurred.
On August 9, 2004, management met with the Chairman and another member of Color
Imaging's Board to discuss matters in connection with the Company's de-listing
or going private. It was noted at that meeting that the Company had gone public
by merging with Logical Imaging Solutions in order to become an original
equipment manufacturer with its own proprietary high-speed full-color printer.
As a result of being public, the Company had expected to be able to raise money
in the public markets, use its stock to purchase other companies, and afford its
stockholders a higher level of liquidity for their investments. It was
recognized that it was not likely that Color Imaging would be able to take
advantage of any of the benefits that being public was supposed to offer and
that no realistic merger or acquisition prospects existed. De-listing and going
private was discussed, including the impact on large and small stockholders,
what it meant to option holders, what was needed to comply with Delaware law,
and what filings were required with the SEC. Management, the Company's Chairman
and another Board member met with the Company's counsel on August 12, 2004 to
further explore and understand the various methods of going private.
On August 30, 2004, management met with the management of another toner products
wholesaler whose strategic direction included toner manufacturing. This company
is both a customer of and a toner supplier to Color Imaging. The CEO of this
company had previous toner cartridge re-manufacturing experience and founded his
current company some fifteen years ago. In February 2005, the wholesaler's
representative visited Color Imaging's facility in Norcross, Georgia and met
with management to discuss ordinary business matters and to ascertain whether
there was any continuing interest in the possibility of a merger. The wholesaler
indicated a willingness to further consider a merger, but not before the end of
2006 or early 2007. The parties agreed that to pursue the discussions further, a
mutual confidentiality and non-disclosure agreement should be exchanged. Color
Imaging provided this document in February 2005. To date, it has not been
completed or returned to Color Imaging.
In September 2004 management contacted an investment banking firm to inquire if
a portfolio company of that firm had any current interest in acquiring Color
Imaging or merging it with another. This firm indicated that the portfolio
company had been sold, and that Color Imaging on a standalone basis was too
small for their firm to consider. This firm then referred management to another
investment banking firm that had acquired a possible merger candidate for Color
Imaging. This firm represented that it would only be interested in Color Imaging
if it had earnings before interest, taxes, depreciation and amortization of $20
million or more.
Management approached a customer about its selling the new all-in-one imaging
cartridges manufactured by our foreign affiliate on October 13, 2004, and
regarding its interest in a merger. Discussions held over several days included
Color Imaging's prior fund raising, the price for its common shares, the impact
of the price of sales by our former subsidiary and other information, including
strategy described in previous SEC filings, as well as the merger process. The
customer met at Color Imaging's headquarters on October 20, 2004, together with
an investment banker invited to the meeting, and executed confidentiality
agreements. The parties exchanged financial information, provided each with
background information on itself, discussed the goals of a merger and the
potential benefits that the combined entity may realize and heard from the
investment banker what financing may be available.
At the end of October 2004, the customer met with Color Imaging's president and
another of its directors in China. The meeting including ordinary business, the
potential of jointly manufacturing new and remanufactured product in China and
the potential merger. The president of Color Imaging met with the same member of
Color Imaging's board on October 30, 2004, and further discussed the potential
merger. Management of Color Imaging prepared some pro forma analyses shared them
with the customer, who in turn on November 1 introduced management of Color
Imaging to another investment banker.
After conversations on the 16th, 17th and 19th of November with the first
investment banker, that investment banker provided a presentation dated November
19, 2003. The presentation covered the potential funding, expected structure and
cost should the parties engage the investment banker's services. Management met
with the customer on November 22nd and with the investment banker on November
23rd. Also on November 23rd, Color Imaging reviewed the transaction with its
bank, and on the 1st of December reviewed it with another bank. Both banks had
capital market groups, in addition to traditional commercial lending groups,
that could potentially assist with the transaction.
32
Discussions continued through early December and in late December Color
Imaging's management sought and obtained legal advice in connection with the
potential structures, tax issues, proxy matters and other related matters.
During the latter part of December further discussions were held with the two
banks contacted by Color Imaging. The president and chief financial officer of
Color Imaging met with the customer on the 4th and 5th of January 2005, and
concluded that significant issues were unresolved. Additional legal advice was
obtained in January and further discussions were held with the banks. The
parties continued to discuss a merger, but turned their attention, primarily, to
completing their year-end financial statements and operational matters.
At a meeting of the Board on November 15, 2004, management reviewed Color
Imaging's efforts to identify potential merger or acquisition candidates,
indicating that since 2001 the Company had been seeking out potential
candidates, incurring at one time more than $200,000 of due diligence expenses.
Ten different companies were approached by management and at that time two
others were being considered for contact. Management reported that the Company
typically included a risk factor for the Company's merger and acquisition
strategy in its public filings with the SEC. At this meeting the Company's chief
executive officer and chief financial officer reviewed all of the merger
discussions described above with business brokers, investment banking firms,
potential investors, suppliers and customers, including all possible sales and
acquisitions.
At a meeting of the Board on January 27, 2005, the Board again reviewed the
history of the Company's efforts to find a suitable merger or acquisition
candidate. It reviewed the list of those that had been approached, together with
investment banker contacts that had been made. Of the two companies who had an
interest in merging, one would only consider a merger offer after it had gone
public in late 2006 or early 2007. The other company that had expressed an
interest in a merger, had substantial obstacles to overcome, including
differences over valuation, management issues and the lack of audited financial
statements, which would require the merger to be a going private transaction.
Management believed that changes were coming in the industry and already being
experienced by the Company's largest customer, including the rapid loss of the
Company's black text analog copier business and the increasing popularity of
digital and business color multifunctional machines with increasing
technological complexity and intellectual property rights. The Board concluded
as a result of this review that the Company should consider the possibility of
going private. The board noted that its previous experience after the merger
with Logical Imaging Solutions was not good. Since there were no prospective
merger or acquisition transactions likely, the Board then discussed the
Company's going private, considering:
o the fact that the Company's stock was undervalued.
o the increasing cost and burden of regulatory compliance.
o the competitive impact of the Company's public disclosure
requirements.
o that the company did not have access to public capital as a
small company with marginal profitability that was not
listed on a major stock exchange , and
o that most realistic merger or acquisition candidates were
not likely to have the required three years of audited
financial statements or meet the SOX 404 compliance
deadlines for internal controls.
The Board then reviewed process, time line, cost and annual savings information
prepared by management in connection with going private. Management indicated
that Color Imaging could minimize proxy and meeting costs by going private as
part of its 2005 annual meeting. Upon further review of the material and
discussions, management discussed the desirability of going private for
out-of-pocket costs of less than $1 million, including the amount needed to
cancel the Company's 2003 Stock Incentive Plan if that was found to be
necessary. The Board indicated that if total going private expenditures exceeded
$1 million, or if conditions changed such that going private was no longer in
the best interest of Color Imaging, the Board would need to revisit the
advisability of going private. The Board then passed a resolution establishing a
Special Committee of the Board of Directors with the responsibility to
formulate, review, approve and recommend for approval by the Board of Directors
strategic and financial alternatives intended to maximize stockholder value,
including without limitation potential strategic merger transactions and/or a
going private transaction, and compensating the sole member of the Special
Committee at the rate of $5,000 per month in connection with these additional
duties.
On January 28, 2005 the Special Committee met with a member of management and
counsel to discuss the Company's history of merger activity, and the process of
evaluating potential transactions including the engagement of an investment
banker. On February 17, 2005, the Special Committee reviewed with management
several proposals for services from investment bankers, and chose CVG as the
best candidate based on reputation, the completeness of its proposal, the cost
and the description of services to be provided. CVG conducted an extensive
pricing analysis for the Company and reviewed its strategic alternatives,
including contacting potential merger and acquisition candidatures. On March 28,
2005, the Special Committee met with CVG to discuss its evaluation and findings
to date. The Special Committee met on April 6, 2005 with the Company's chief
financial officer to discuss various alternatives, including the feasibility of
going private. On April 11, 2005, the Special committee met with CVG to discuss
its evaluation of the Company's strategic alternatives, including going private.
They also discussed the impact on CVG's valuation analysis of the Company's book
value and prior merger discussions with 3rd parties.
In evaluating the Company's strategic options, the Special Committee conducted
extensive due diligence, thoroughly reviewed and discussed the research,
analysis, and opinions of CVG, and reviewed and analyzed the Company's strategic
33
options applying its best business judgment. On April 14, 2005, the Special
Committee adopted resolutions documenting its opinion that it would be in the
best interest of the Company and its shareholders to go private by means of a
reverse stock split, and recommended that the Board consider and approve such a
transaction. This recommendation was subject to receipt of a fairness opinion
from CVG for the pre-split purchase price per fractional share of $1.10.
On April 14, 2005, the Board met and again received a report from the investment
bankers engaged by the Special Committee to consider strategic alternatives of
Color Imaging, including a merger or going private transaction. The Board
discussed the Special Committee recommendation that Color Imaging go private in
a reverse split transaction at a ratio of either 1500 to 1, 2500 to 1 or 5000 to
1 at a pre-split price of $1.10 per share. CVG reported to the Board that $1.10
was within the range of values it had determined to be fair to the stockholders
of Color Imaging who would be cashed out as well as to those who would retain
their shares in Color Imaging. The Board authorized a reverse split transaction
on these terms subject to the receipt of a fairness opinion from CVG. The Board
also authorized and directed the Company's officers to announce the Company's
intentions in a Form 8-K or other filing to be made with the SEC, along with the
terms of such transaction. The Board also determined to abandon its open market
stock purchase program. The Board reserved for itself the right in its sole
discretion to determine the final ration of the reverse split, and the right to
abandon the transaction at any time if it determined it were no longer in the
best interest of the Company or its shareholders. On May 2, the Special
Committee met with CVG and the chief financial officer of the Company to receive
CVG's final written opinion regarding the fairness of a reverse stock split
transaction, consistent with the report previously made to the Board.
RECOMMENDATION OF THE BOARD
The Board has unanimously determined that the Stock Splits are in the best
interest of Color Imaging and are fair to Color Imaging's stockholders who would
not retain their interest in Color Imaging, and those who would retain their
interest, after the transaction, in each case excluding executive officers,
directors and the affiliates of the Company. The Board unanimously recommends
that the stockholders vote "FOR" the approval of the Stock Splits.
POTENTIAL DISADVANTAGES OF THE STOCK SPLITS TO STOCKHOLDERS
As is more thoroughly described in the section entitled "Special Factors -
Disadvantages of the Stock Splits" above, potential disadvantages to Color
Imaging and Continuing Holders include decreased availability of information
about Color Imaging and decreased liquidity of the Common Shares. If the Stock
Splits are completed, we intend to terminate the registration of the Common
Shares under the Exchange Act. As a result, we will no longer be subject to the
filing and reporting requirements of the Exchange Act. In addition, the
liquidity of the Common Shares will be adversely affected by the lack of
publicly available information about Color Imaging following deregistration of
the Common Shares. Decreased liquidity may have an adverse effect on the market
value of the Common Shares.
SHARE CERTIFICATES
We have appointed the Transfer Agent to act as exchange agent to carry out the
exchange of existing share certificates for cash payments in lieu of issuing
fractional shares of less than one whole share and, if applicable, new share
certificates. On the Effective Date, all share certificates evidencing ownership
of Common Shares held by stockholders who will have fractional shares
repurchased will be deemed cancelled without further action by the stockholders
or Color Imaging. Thereafter, such certificates will represent only the right to
receive cash in the amount of $1.10 per pre-split Common Share for repurchased
fractional shares of those holders who have less than one whole share and, if
applicable, the right to receive a new certificate for Common Shares issued in
the forward stock split. The Common Shares acquired by Color Imaging in
connection with of the Stock Splits will be retired.
The Transfer Agent will furnish Color Imaging's stockholders with the necessary
materials and instructions to surrender their Common Share certificate(s)
promptly following the Effective Date. The letter of transmittal will explain
how the certificates are to be surrendered. Stockholders must complete and sign
the letter of transmittal and return it with their certificate(s) to the
Transfer Agent as instructed before they can receive any cash payments and/or
new share certificates to which they are entitled. Do not send your certificates
to us, and do not send them to the Transfer Agent until you have received a
transmittal letter and followed the instructions therein.
No service charges will be payable by Color Imaging's stockholders in connection
with the exchange of certificates or the payment of cash in lieu of issuing
fractional shares. Color Imaging will pay all expenses of the Stock Splits.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
We have summarized below the material federal income tax consequences to Color
Imaging and to holders of Common Shares resulting from the Stock Splits. This
summary is based on the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), the Treasury Department Regulations (the "Treasury
Regulations") issued pursuant thereto, and published rulings and court decisions
in effect as of the date hereof, all of which are subject to change. This
summary does not take into account possible changes in such laws or
34
interpretations, including amendments to the Code, applicable statutes, Treasury
Regulations and proposed Treasury Regulations or changes in judicial or
administrative rulings. Some of those changes may have retroactive effect. No
assurance can be given that any such changes will not adversely affect this
summary. This summary is not binding on the Internal Revenue Service.
This summary does not address all aspects of the possible federal income tax
consequences of the Stock Splits and is not intended as tax advice to any person
or entity. In particular, this summary does not consider the individual
investment circumstances of holders of Common Shares, nor does it consider the
particular rules applicable to special categories of holders (such as tax exempt
entities, life insurance companies, regulated investment companies and foreign
taxpayers) or holders who hold, have held, or will hold, Common Shares as part
of a straddle, hedging or conversion transaction. In addition, this summary does
not address any consequences of the Stock Splits under any state, local or
foreign tax laws.
This summary assumes that you are one of the following: (i) a citizen or
resident of the United States, (ii) a domestic corporation, (iii) an estate, the
income of which is subject to United States federal income tax regardless of its
source, or (iv) a trust, if a United States court can exercise primary
supervision over the trust's administration and one or more United States
persons are authorized to control all substantial decisions of the trust. This
summary also assumes that you have held and will continue to hold your Common
Shares as capital assets for federal income tax purposes.
We believe that the Stock Splits will be treated as a tax-free
"recapitalization" for federal income tax purposes. This treatment will result
in no material federal income tax consequences to Color Imaging. However, you
may not qualify for tax free "recapitalization" treatment for federal income tax
purposes, depending on whether you are receiving cash or stock pursuant to the
Stock Splits.
You should consult your tax advisor as to the particular federal, state, local,
foreign, and other tax consequences applicable to your specific circumstances.
Federal Income Tax Consequences to Continuing Holders Not Receiving Cash. If you
(i) continue to hold Common Shares directly immediately after the Stock Splits
and (ii) you receive no cash as a result of the Stock Splits, you will not
recognize any gain or loss in the Stock Splits, and you will have the same
adjusted tax basis and holding period in your Common Shares as you had in such
Common Shares immediately prior to the Stock Splits.
Federal Income Tax Consequences to Holders Receiving Cash. If you receive cash,
do not continue to hold directly any Common Shares and are not related to any
person or entity who or which continues to hold Common Shares, you will
recognize capital gain or loss. The amount of this capital gain or loss will
equal the difference between the cash you receive for your Common Shares and
your aggregate adjusted tax basis in such Common Shares.
If you receive cash and either (a) retain a portion of your Common Shares or (b)
do not continue to hold directly any Common Shares but are related to a person
or entity who or which continues to hold Common Shares (in which case you may be
treated as owning constructively the Common Shares owned by such related person
or entity), your receipt of cash may be treated (i) first, as ordinary taxable
dividend income to the extent of your ratable share of Color Imaging's current
or accumulated earnings and profits (if any), (ii) second, as a tax-free return
of capital to the extent of your aggregate adjusted tax basis in your Common
Shares, and (iii) then, the remainder as capital gain.
If you fall into the category described in the immediately preceding paragraph,
your tax treatment will depend upon whether your receipt of cash either (i) is
"not essentially equivalent to a dividend" or (ii) constitutes a "substantially
disproportionate redemption of stock," as described below. If your receipt of
cash meets either of these two tests, your receipt of cash will result solely in
capital gain or loss. If your receipt of cash cannot meet either of these two
tests, your tax consequences will be those described in the immediately
preceding paragraph.
"Not Essentially Equivalent to a Dividend." You will satisfy the "not
essentially equivalent to a dividend" test if the reduction in your
proportionate interest in Color Imaging resulting from the Stock Splits (taking
into account for this purpose the Common Shares owned by persons or entities
related to you) is considered a "meaningful reduction" given your particular
facts and circumstances. The Internal Revenue Service has ruled that a small
reduction by a minority stockholder whose relative stock interest is minimal and
who exercises no control over the affairs of the corporation will satisfy this
test.
"Substantially Disproportionate Redemption of Stock." Your receipt of cash in
the Stock Splits will be a "substantially disproportionate redemption of stock"
for you if the percentage of Common Shares owned by you (and by persons or
entities related to you) immediately after the Stock Splits is (i) less than 50%
of all Common Shares and (b) less than 80% of the percentage of Common Shares
owned by you (and by persons or entities related to you) immediately before the
Stock Splits.
If you or a person or entity related to you will continue to hold Common Shares
after the Stock Splits, you should consult with your own tax advisor to
determine your particular tax consequences.
35
Capital Gain and Loss. For individuals, net capital gain (defined generally as
your total capital gains in excess of capital losses for the year) recognized
upon the sale of capital assets that have been held for more than 12 months
generally will be subject to tax at a rate not to exceed 15%. Net capital gain
recognized from the sale of capital assets that have been held for 12 months or
less will be subject to tax at ordinary income tax rates. Capital gain
recognized by a corporate taxpayer will be subject to tax at the ordinary income
tax rates applicable to corporations. There are limitations on the deductibility
of capital losses.
Special Rate for Certain Dividends. In general, dividends are taxed at ordinary
income rates. However, you may qualify for a 15% rate of tax on any cash
received in the Stock Splits that is treated as a dividend as described above,
if (i) you are an individual or other non-corporate stockholder; (ii) you have
held the Common Shares of Color Imaging with respect to which the dividend was
received for more than 60 days during the 120-day period beginning 60 days
before the ex-dividend date, as determined under the Code; and (iii) you were
not obligated during such period (pursuant to a short sale or otherwise) to make
related payments with respect to positions in substantially similar or related
property. You should consult with your tax advisor regarding your eligibility
for such lower tax rates on dividend income. In addition, a corporate
stockholder may be eligible for a dividends received deduction for cash received
in the Stock Splits on up to 90% of the amount of such cash treated as a
dividend to such stockholders.
Backup Withholding. Holders of Common Shares will be required to provide their
social security or other taxpayer identification numbers (or, in some instances,
additional information) to the Transfer Agent in connection with the Stock
Splits to avoid backup withholding requirements that might otherwise apply. The
letter of transmittal will require each holder of Common Shares to deliver such
information when the Common Share certificates are surrendered following the
Effective Date of the Stock Splits. Failure to provide such information may
result in backup withholding.
As explained above, the amounts paid to you as a result of the Stock Splits may
result in dividend income, capital gain income, or some combination of dividend
and capital gain income to you depending on your individual circumstances.
UNAVAILABILITY OF APPRAISAL OR DISSENTERS' RIGHTS
No appraisal or dissenters' rights are available under Delaware law or under
Color Imaging's Certificate of Incorporation or Bylaws to holders of Common
Shares who vote against the Stock Splits. Other rights or actions may exist
under Delaware law or federal and state securities laws for stockholders who can
demonstrate that they have been damaged by the Stock Splits.
RESERVATION OF RIGHTS
Although we are requesting your approval of the Stock Splits, the Board reserves
the right, in its discretion, to withdraw the Stock Splits from the agenda of
the Annual Meeting prior to any vote thereon or to abandon the Stock Splits
before the Effective Date even if the stockholders have approved the proposal.
Although the Board presently believes that the Stock Splits are in Color
Imaging's best interests and has recommended a vote for the Stock Splits, the
Board nonetheless believes that it is prudent to recognize that factual
circumstances could possibly change prior to the Effective Date such that it
might not be appropriate or desirable to effect the Stock Splits at that time.
Such reasons include any change in the nature of the stockholdings of Color
Imaging prior to the Effective Date which would result in Color Imaging being
unable to reduce the number of holders of record of Common Shares to below 300,
including those in "street name" that could be certificated, as a result of the
Stock Splits. If the Board decides to withdraw the Stock Splits from the agenda
of the Annual Meeting, the Board will promptly file a Form 8-K to announce its
decision and will make announcement at the Annual Meeting. If the Board decides
to abandon the Stock Splits after the Annual Meeting and before the Effective
Date, the Board will promptly file a Form 8-K to announce its decision.
ESCHEAT LAWS
The unclaimed property and escheat laws of each state provide that under
circumstances defined in that state's statutes, holders of unclaimed or
abandoned property must surrender that property to the state. Stockholders who
are entitled to receive cash in lieu of fractional shares in connection with the
Stock Splits whose addresses are unknown to Color Imaging or who do not
surrender their share certificates and request payment of the Repurchase Price
generally will have a period of years from the Effective Date in which to claim
the cash payment to which they are entitled. For example, with respect to
stockholders whose last known addresses, as shown by the records of Color
Imaging, are in Delaware the period is five years. Following the expiration of
that five-year period, the relevant provisions of the Delaware Code would likely
cause the cash payments to escheat to the State of Delaware. For stockholders
who reside in other states or whose last known addresses, as shown by the
records of Color Imaging, are in states other than Delaware, such states may
have abandoned property laws which call for such state to obtain either (i)
custodial possession of property that has been unclaimed until the owner
reclaims it or (ii) escheat of such property to the state. Under the laws of
such other jurisdictions, the "holding period" or the time period which must
elapse before the property is deemed to be abandoned may be shorter or longer
than five years. If Color Imaging does not have an address for a stockholder,
36
then the unclaimed cash payment would be turned over to Color Imaging's state of
incorporation, the State of Delaware, in accordance with its escheat laws.
REGULATORY APPROVALS
Color Imaging is not aware of any material governmental or regulatory approval
required for completion of the Stock Splits, other than compliance with the
relevant federal and state securities laws and Delaware corporate laws.
INFORMATION ABOUT COLOR IMAGING
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Information regarding the Common Shares beneficially owned by the executive
officers and directors of Color Imaging is set forth in the table below. The
Stock Splits will not impact affiliated holders of Common Shares differently
from unaffiliated holders of Common Shares on the basis of affiliate status. The
executive officers and directors of Color Imaging will receive no extra or
special benefit not shared on a pro rata basis by all other holders of the
Common Shares. If the Stock Splits are implemented, the executive officers and
directors of Color Imaging and American will not benefit by any material
increase in their percentage ownership of Common Shares. Please see the sections
entitled "Special Factors - Fairness of the Stock Splits" and "Special Factors -
Advantages of the Stock Splits."
Share Ownership of Directors and Executive Officers. The following table
provides certain information regarding the number of Common Shares beneficially
owned by Color Imaging's directors and executive officers, and its foreign
affiliate which owns more than 5% of the Common Shares, as of April 30, 2005 and
the anticipated ownership percentage of such persons after the Stock Splits:
37
Number of Percent of Number of Percent of
Shares Before Shares Before Shares After Shares After
Name and Address of Beneficial Owner (1) Stock Splits Stock Splits (2) Stock Splits Stock Splits (13)
--------------------------------------------- ---------------- ---------------- ---------------- -----------------
Chi Fu Investment Co Ltd 4,500,000 35.5% 4,500,000 36.2%
Wang, Sueling 2,081,551 16.4% 2,080,551 16.8%
Van Asperen, Morris E. 505,906 4.0% 505,906 4.1%
Wang, Jui-Chi (Jerry) 738,200 5.8% 738,200 5.9%
Wang, Jui-Hung (Jack) 737,928 5.8% 737,928 5.9%
Wang, Jui-Kung (Elmer) 344,959 2.7% 344,959 2.8%
Wang, Yi-Jen 40,000 0.3% 40,000 0.3%
Eiswirth, Richard S. 10,000 0.1% 10,000 0.1%
Wilson, Patrick J. 52,000 0.4% 52,000 0.4%
All executive officers and directors as a group
(8 persons) 4,510,544 35.5% 4,509,544 36.3%
All executive officers, directors and owners of
5% or more as a group 9,010,544 71.0% 9,009,544 72.6%
(1) Excludes exercisable warrants and options of others. Each of the persons
listed in this table may be contacted at Color Imaging's address.
(2) Assumesa total of 12,690,305 common shares outstanding before the Stock
Splits, plus the vested options held by such person or group.
(3) Wholly owned by General Plastic Industrial Co Ltd ("GPI"). GPI is controlled
by Color Imaging directors Jui-Hung Wang and Jui-Chi Wang.
(4) Includes 600,000 shares owned by Sueling Wang's children and 141,204 shares
owned by his spouse, Yik-Li Sih in which Sueling Wang disclaims ownership.
Also includes exercisable options to purchase 375,000 shares of common stock
(5) Includes exercisable options to purchase 375,000 shares of common stock.
(6) Includes exercisable options to purchase 43,750 shares of common stock.
(7) Includes exercisable options to purchase 38,750 shares of common stock.
(8) Includes exercisable options to purchase 28,750 shares of common stock.
(9) Includes exercisable options to purchase 10,000 shares of common stock.
(10)Includes exercisable options to purchase 10,000 shares of common stock.
(11)Includes exercisable options to purchase 40,000 shares of common stock.
(12)Assumes 1,000 shares held by Sueling Wang's wife in a brokerage account
will be repurchased by the Color Imaging.
(13)Assumes a total of 12,418,061 common shares outstanding after the stock
splits, plus the vested options held by such person or group.
The directors and executive officers of Color Imaging have not engaged in any
transactions involving the Common Shares in the past 60 days.
MARKET PRICE AND DIVIDEND INFORMATION
Our Common Shares are currently traded on the Nasdaq over-the-counter bulletin
board under the symbol "CIMG." The following table sets lists the high and low
prices for the periods indicated. Color Imaging paid neither a stock or cash
dividend during any of the below listed periods. The last sale of Common Shares
reported on the Nasdaq over-the-counter bulletin board on May 4, 2005 was $0.72.
Prices in the table do not reflect any retail mark-ups or mark-downs or
commissions.
38
Quarter Ended High Low
---------------------- ------------------ ---------------
Fiscal 2005
March 31, $ 0.62 $ 0.42
Fiscal 2004
March 31, $ 0.80 $ 0.69
June 30, $ 0.80 $ 0.42
September 30, $ 0.52 $ 0.41
December 31, $ 0.58 $ 0.41
Fiscal 2003
March 31, $ 1.58 $ 0.45
June 30, $ 0.82 $ 0.40
September 30, $ 0.70 $ 0.51
December 31, $ 0.78 $ 0.54
Fiscal 2002
March 31, $ 3.35 $ 2.10
June 30, $ 2.56 $ 1.25
September 30, $ 2.35 $ 1.01
December 31, $ 1.60 $ 0.80
Dividends are paid only when declared by the Board, in its sole discretion,
based on Color Imaging's financial condition, results of operation, market
conditions and such other factors as it may deem appropriate, including having
obtained any consent that may be required under Color Imaging's credit
arrangements with its lender. If the Stock Splits are completed and we
deregister the Common Shares, the Common Shares will no longer be quoted on the
Nasdaq over-the-counter bulletin board or be eligible to be traded on any
exchange or automated quotation service operated by a national securities
association, and trades in the Common Shares will only be possible through
privately negotiated transactions or in the Pink Sheets.
39
COMMON SHARE PURCHASE INFORMATION
The following table provides information regarding Color Imaging's Common Share
repurchases in the open market during the periods indicated.
Average
Number Price Per
Quarter Ended Repurchased Share
------------- ----------- -----------
Fiscal 2005 (1) None N/A
Through
Fiscal 2004
December 31, 2004 2,900 $ 0.43
September 30, 2004 5,800 0.46
June 30, 2004 14,000 0.74
March 31, 2004 17,500 0.75
Fiscal 2003
December 31, 2003 14,000 $ 0.64
September 30, 2003 21,000 0.61
June 30, 2003 9,500 0.74
March 31, 2003 None N/A
----------------
(1) Market purchased halted by Color Imaging in December 2004.
Purchases by Directors and Executive Officers of Color Imaging
The table below sets forth information, by fiscal quarters, regarding purchases
by directors and officers of Color Imaging common stock on the OTC Bulletin
Board since January 1, 2004, including the number of shares purchased, the range
of prices paid and the average purchase price.
Shares
Date Name of Beneficial Owner Purchased Price
----------- ------------------------- -------------- -------------
05/13/03 Morris E. Van Asperen 2,500 $ 0.62
05/13/03 Morris E. Van Asperen 7,500 $ 0.64
05/22/03 Jui-Chi (Jerry Wang) 10,000 $ 0.73
05/23/03 Jui-Chi (Jerry Wang) 5,000 $ 0.73
08/17/04 Patrick S. Wilson 6,000 $ 0.46
In addition, stock options have been granted by Color Imaging to certain
officers and directors, as described in this Proxy Statement at "Executive
Compensation." Except as disclosed above, there have been no other purchases of
Color Imaging stock since January 1, 2004 by any of the directors and executive
officers of Color Imaging, or by Color Imaging.
40
FINANCIAL INFORMATION
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following summary consolidated financial information was derived from Color
Imaging's audited consolidated financial statements as of and for each of the
years ended December 31, 2002 through 2004 and from unaudited interim financial
statements as of and for the three months ended March 31, 2005 and 2004. The
statement of operations data for the three months ended March 31, 2005 is not
necessarily indicative of results for a full year. This financial information is
only a summary and should be read in conjunction with our historical financial
statements and the accompanying footnotes, which are incorporated herein by
reference into this Proxy Statement. Please see the section entitled
"Incorporation of Certain Documents by Reference."
Three Months Ended Twelve Months Ended
March 31, December 31,
2005 2004 2004 2003 2002
----------- ----------- ----------- ----------- ----------
(Dollars in thousands, except per share data)
RESULTS OF OPERATIONS
Sales $ 5,629 $ 5,601 $ 21,835 $ 21,058 $ 28,000
Operating income 305 101 636 667 988
Income from continuing operations 221 103 465 433 430
Income (loss) from discontinued operations -- -- -- -- (261)
Net income $ 221 $ 103 $ 465 $ 433 $ 169
PER SHARE DATA
Income from continuing operations per share:
Basic $ 0.02 $ 0.01 $ 0.04 $ 0.04 $ 0.04
Diluted $ 0.02 $ 0.01 $ 0.04 $ 0.04 $ 0.04
Income from discontinued operations per share:
Basic $ -- $ -- $ -- $ -- $ (0.02)
Diluted $ -- $ -- $ -- $ -- $ (0.02)
Net income (loss) per share:
Basic $ 0.02 $ 0.01 $ 0.04 $ 0.04 $ 0.02
Diluted $ 0.02 $ 0.01 $ 0.04 $ 0.04 $ 0.02
Weighted average number of shares of common
stock used in the calculation:
Basic 12,690 12,731 12,704 11,967 9,686
Diluted 12,692 12,748 12,710 11,980 9,686
Dividends per share None None None None None
Book value per share $ 0.94 $ 0.89 $ 0.92 $ 0.94 $ 0.54
FINANCIAL CONDITION
Cash and short-term investments $ 1,919 $ 1,571 $ 2,045 $ 2,214 $ 129
Current assets 10,136 9,788 9,511 9,982 7,987
Working capital 7,956 6,792 7,414 6,455 1,797
Net assets of discontinued operations -- -- -- -- --
Total assets 16,840 17,426 16,696 17,895 16,114
Long term debt 2,783 3,121 2,943 3,149 4,683
Stockholder's equity $ 11,877 $ 11,309 $ 11,656 $ 11,220 $ 5,241
KEY FINANCIAL
Return on stockholders' equity 7.4% 3.6% 4.0% 3.9% 3.2%
Return on assets 5.2% 2.4% 2.8% 2.4% 1.0%
Fixed charge coverage 324% 205% 210% 201% 142%
Color Imaging's book value per share, as set forth above, has been derived from
financial statements prepared by Color Imaging's management relating to the
fiscal periods set forth above. As required by Exchange Act Rule 13a-14(a),
Color Imaging's Chief Executive Officer and Chief Financial Officer have
certified that such financial statements, and the financial information included
in the periodic reports in which such financial statements appear, fairly
present in all material respects the financial condition, results of operation
and cash flows of Color Imaging as of, and for, the periods presented in such
periodic reports.
CERTAIN FINANCIAL EFFECTS OF THE STOCK SPLITS
We do not expect the Stock Splits or our use of approximately $487,500 to
complete the Stock Splits (which includes payments to be made to stockholders
who have fractional shares repurchased and professional fees and other expenses
41
related to the transaction) to have any material adverse effect on our
capitalization, liquidity, results of operations or cash flow. Please see the
section entitled "Meeting and Voting Information - Solicitation and Costs." We
expect to finance the Stock Splits with cash on hand.
If the Stock Splits are completed, stockholders who receive cash in lieu of
fractional shares will receive cash in the amount of $1.10 per Common Share held
immediately prior to the Stock Splits. The repurchase of the fractional Common
Shares resulting from the Stock Splits is estimated to cost approximately
$300,000 and would reduce the number of record holders of Common Shares,
including those held in street names, from approximately 525 to under 150.
We expect that, as a result of the Reverse/Forward Stock Splits and the cashing
out of fractional Common Shares held by stockholder after the reverse stock
split:
o Our aggregate stockholders' equity will change from approximately
$11,656,000 (as of December 31, 2004) to approximately $11,168,000;
and
o Book value per Common Share would change from $0.92 (at December 31,
2004) to $0.89, assuming the cash out of fractional Common Shares had
occurred on December 31, 2004.
PRO FORMA FINANCIAL INFORMATION
The following pro forma consolidated information has been derived from Color
Imaging's financial statements. The financial statements for the year ended
December 31, 2004, have been audited by independent certified public
accountants. The financial statements for the quarterly periods ended March 31,
2004 and 2003 are unaudited. In the opinion of Color Imaging's management, these
quarterly financial statements have been prepared on the same basis as the
audited financial statements and include all adjustments, consisting only of
normal recurring adjustments, necessary for the fair presentation of the results
of these quarters.
The pro forma consolidated financial statements have been prepared based upon
the assumption that the Stock Splits were completed effective the first day of
the period presented for the income statement and as of the date of the balance
sheet, and all fractional Common Shares under one whole share are repurchased.
These pro forma consolidated financial statements are not necessarily indicative
of the results that would have occurred had the Stock Splits actually taken
place at the respective time periods specified nor do they purport to project
the results of operations for any future date or period. Based on information
from various external sources, Color Imaging believes that approximately 272,244
pre-split Common Shares will be repurchased at $1.10 per Common Share for a
total purchase price of approximately $300,000.
The pro forma results are not indicative of future results because Color
Imaging's public reporting costs for the periods presented include only the
historic public costs and do not include anticipated future costs. Further,
these results exclude $115,000 in estimated cost savings due to no longer being
subject to periodic reporting obligations under the Exchange Act.
The unaudited pro forma financial statements should be read in conjunction with
our historical financial statements and the accompanying footnotes, which are
incorporated herein by reference into this Proxy Statement. Please see the
section entitled "Incorporation of Certain Documents by Reference."
42
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 2005
(Unaudited)
(Dollars in thousands)
Pro-forma Pro-Forma
ASSETS Historical Adjustments Combined
--------------- --------------- ---------------
CURRENT ASSETS
Cash $ 1,919 $ (488) (1) $ 1,431
Accounts receivable, net 2,780 2,780
Inventories 5,331 5,331
Other current assets 106 106
--------------- --------------- ---------------
TOTAL CURRENT ASSETS 10,136 (488) 9,648
--------------- --------------- ---------------
PROPERTY, PLANT AND EQUIPMENT- NET 6,646 6,646
--------------- --------------- ---------------
OTHER ASSETS 58 58
--------------- --------------- ---------------
$ 16,840 $ (488) $ 16,352
=============== =============== ===============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,146 $ 2,146
Current portion of notes payable 6 6
Other current liabilities 28 28
--------------- --------------- ---------------
TOTAL CURRENT LIABILITIES 2,180 - 2,180
--------------- --------------- ---------------
LONG TERM LIABILITIES
Notes payable 4 4
Bonds payable 2,075 2,075
Deferred tax liability 704 704
--------------- --------------- ---------------
TOTAL LONG TERM LIABILITIES 2,783 - 2,783
--------------- --------------- ---------------
TOTAL LIABILITIES 4,963 - 4,963
--------------- --------------- ---------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, authorized
20,000,000 shares; 12,690,305 shares
issued and outstanding before the stock splits 127 (3) (1) 124
Additional paid in capital 12,681 (485) 12,196
Accumulated deficit (931) (931)
--------------- --------------- ---------------
11,877 (488) 11,389
--------------- --------------- ---------------
$ 16,840 $ (488) $ 16,352
=============== =============== ===============
----------------------
(1) Assumes 272,244 pre-split common shares ($.01 par value) are repurchased
at a pre-split price per share of $1.10 and costs of approximately $187,500,
for a total expenditure, excluding $50,000 of advisory services, of
approximately $487,500 (refer to "Solicitation and Costs").
-43-
PRO FORMA CONDENSED BALANCE SHEET
DECEMBER 31, 2004
(Dollars in thousands)
Pro-forma Pro-Forma
ASSETS Historical Adjustments Combined
----------------- ----------------- -----------------
CURRENT ASSETS
Cash $ 2,045 $ (488)(1) $ 1,557
Accounts receivable, net 2,412 2,412
Inventories 4,855 4,855
Other current assets 199 199
----------------- ----------------- -----------------
TOTAL CURRENT ASSETS 9,511 (488) 9,023
----------------- ----------------- -----------------
PROPERTY, PLANT AND EQUIPMENT- NET 6,602 6,602
----------------- ----------------- -----------------
OTHER ASSETS 583 583
----------------- ----------------- -----------------
$ 16,696 $ (488) $ 16,208
================= ================= =================
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,625 $ 1,625
Current portion of notes payable 6 6
Current portion of notes payable - related parties 68 68
Current portion of bonds payable 390 390
Other current liabilities 8 8
----------------- ----------------- -----------------
TOTAL CURRENT LIABILITIES 2,097 - 2,097
----------------- ----------------- -----------------
LONG TERM LIABILITIES
Notes payable 5 5
Bonds payable 2,335 2,335
Deferred tax liability 603 603
----------------- ----------------- -----------------
TOTAL LONG TERM LIABILITIES 2,943 - 2,943
----------------- ----------------- -----------------
TOTAL LIABILITIES 5,040 - 5,040
----------------- ----------------- -----------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, authorized
20,000,000 shares; 12,690,305 shares
issued and outstanding before the Stock Splits 127 (3)(1) 124
Additional paid in capital 12,681 (485) 12,196
Accumulated deficit (1,152) (1,152)
----------------- ----------------- -----------------
11,656 (488) 11,168
----------------- ----------------- -----------------
$ 16,696 $ (488) $ 16,208
================= ================= =================
----------------------
(1) Assumes 272,244 pre-split common shares ($.01 par value) are
repurchased at a pre-split price per share of $1.10 and costs of
approximately $187,500, for a total expenditure, excluding $50,000 of
advisory services, of approximately $487,500 (refer to "Solicitation and
Costs."
44
PRO FORMA CONDENSED INCOME STATEMENT
Three Months Ended March 31, 2005
(Unaudited)
(Dollars in thousands, except per share data)
Pro-forma Pro-Forma
Historical Adjustments Combined
----------------- ----------------- -----------------
SALES $ 5,629 $ - $ 5,629
COST OF SALES 3,832 3,832
----------------- ----------------- -----------------
GROSS PROFIT 1,797 0 1,797
----------------- ----------------- -----------------
OPERATING EXPENSES
Administrative 437 ((1) 358
Research and development 294 294
Sales and marketing 761 761
----------------- ----------------- -----------------
1,492 (79) 1,413
----------------- ----------------- -----------------
INCOME FROM OPERATIONS 305 79 384
----------------- ----------------- -----------------
OTHER INCOME (EXPENSE)
Interest and other income 42 (2) 39
Interest and financing costs (24) (24)
----------------- ----------------- -----------------
18 (3) 15
----------------- ----------------- -----------------
INCOME BEFORE PROVISION FOR INCOME TAXES 323 76 399
PROVISION FOR INCOME TAXES 102 (3) 132
----------------- ----------------- -----------------
NET INCOME $ 221 $ 46 $ 267
================= ================= =================
INCOME PER COMMON SHARE
Basic $ 0.02 $ 0.02
Diluted $ 0.02 $ 0.02
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 12,690,305 (272,244) 12,418,061
Assumed conversion 2,128 2,128
----------------- ----------------- -----------------
Diluted 12,692,433 (272,244) 12,420,189
================= ================= =================
----------------------
(1) Assumes one-quarter of the $115,000 savings for being
non-reporting and the 1-time $50,000 of strategic advisor services
incurred during the period (Refer to "Estimated Cost Savings").
(2) Assumes one quarter of the interest forfeited using $487,500
in short-term investments to fund the transaction (Refer to
"Solicitation and Costs).
(3) Assumes 40% effective Federal and State income tax rates.
45
PRO FORMA CONDENSED INCOME STATEMENT
Year Ended December 31, 2004
(Dollars in thousands, except per share data)
Pro-forma Pro-Forma
Historical Adjustments Combined
----------------- ----------------- -----------------
SALES $ 21,835 $ - $ 21,835
COST OF SALES 16,283 16,283
----------------- ----------------- -----------------
GROSS PROFIT 5,552 - 5,552
----------------- ----------------- -----------------
OPERATING EXPENSES
Administrative 1,374 (11)(1) 1,259
Research and development 1,171 1,171
Sales and marketing 2,371 2,371
----------------- ----------------- -----------------
4,916 (115) 4,801
----------------- ----------------- -----------------
INCOME FROM OPERATIONS 636 115 751
----------------- ----------------- -----------------
OTHER INCOME (EXPENSE)
Interest and other income 230 (1)(2) 218
Interest and financing costs (90) (90)
----------------- ----------------- -----------------
140 (12) 128
----------------- ----------------- -----------------
INCOME BEFORE PROVISION FOR INCOME TAXES 776 103 879
PROVISION FOR INCOME TAXES 311 (3) 352
----------------- ----------------- -----------------
NET INCOME $ 465 $ 62 $ 527
================= ================= =================
INCOME PER COMMON SHARE
Basic $ 0.04 $ 0.04
Diluted $ 0.04 $ 0.04
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 12,703,575 (272,244) 12,431,331
Assumed Conversion 6,731 6,731
----------------- ----------------- -----------------
12,710,306 (272,244) 12,438,062
================= ================= =================
----------------------
(1) Assumes $115,000 savings for being non-reporting (Refer to
"Estimated Cost Savings").
(2) Interest forfeited using $487,500 in short-term investments
to fund the transaction (Refer to "Solicitation and Costs").
(3) Assumes 40% effective Federal and State income tax rates.
46
PROPOSAL NO. 2 - ELECTION OF DIRECTORS
The proxy holders intend to vote "FOR" election of the nominees named below, who
are currently members of the board, as directors of Color Imaging, unless
otherwise specified in the proxy. Directors of Color Imaging elected at the
annual meeting to be held on July 19, 2005 will hold office until the next
annual meeting or until their successors are elected and qualified.
Each of the director nominees below has consented to serve on the board of
directors, if elected. Should any nominee for the office of director become
unable to accept nomination or election, which is not anticipated, it is the
intention of the persons named in the proxy, unless otherwise specifically
instructed in the proxy, to vote for the election of such other person as the
board may recommend.
The individuals listed below as nominees for the board of directors were
directors of Color Imaging during 2004. The name and age of each nominee, and
the period during which such person has served as a director, is set forth
below:
NAME AGE SERVICE AS A DIRECTOR POSITION
- --------------------------------- ------ ---------------------------- ----------------------------------
Jui-Kung Wang 61 Since September 2001 Chief Executive Officer, Director
and Chairman of the Board
Sueling Wang, PhD 51 Since June 2000 President, Vice Chairman
and Director
Morris E. Van Asperen 61 Since June 2000 Executive Vice President,
Chief
Financial
Officer, Secretary and Director
Yi-Jen Wang 28 Since April 2003 Director
Jui-Hung Wang 58 Since June 2001 Director
Jui-Chi Jerry Wang 48 Since June 2000 Director
Richard S. Eiswirth 35 Since April 2003 Director
Jui-Kung (Elmer) Wang, Chief Executive Officer and Chairman of the Board since
August 2003, has served as a director of Color Imaging since September 2001. He
was a founder of Color Image, Inc. in 1989 and its Chairman until its merger
with Color Imaging. He is a co-founder and has served as a director of General
Plastic Industrial Co., Ltd, a leading Taiwan based manufacturer of after market
injection molded cartridges and accessories for copiers and laser printers since
1978. In 1998 Mr. Wang was a founding member of Kings Brothers LLC, which leases
space to Color Imaging we use for our headquarters and manufacturing facilities
in Norcross, Georgia. Mr. Wang has been a professor of management with Tung-Hai
University, Taiwan for over 20 years. He has received a bachelor's degree in
economics, and MBA and PhD degrees in management. Jui-Kung Wang is the brother
of Sueling Wang, Jui-Hung Wang and Jui-Chi Wang, and the uncle of Yi Jen Wang.
Sueling Wang, PhD., became President and Vice-Chairman of Color Imaging in June
2000. From 1989 to 2000, he served as President and director of Color Image,
Inc., which was merged with Color Imaging. Dr. Wang was also a founder of Color
Image Inc. In 1998, Dr. Wang was a founding member of Kings Brothers LLC, which
leases space to Color Imaging used for our headquarters and manufacturing
facilities in Norcross, Georgia. Dr. Wang received a M.S. degree from the
University of Windsor, in Ontario, Canada and a PhD degree from the University
of Detroit. Dr. Wang's expertise in resin synthesis brought him into the toner
industry and led to the formation of Color Image, Inc. in 1989. Sueling Wang is
the brother of Jui-Kung Wang, Jui-Hung Wang and Jui-Chi Wang, and the uncle of
Yi Jen Wang.
Morris E. Van Asperen has served as Executive Vice President, Chief Financial
Officer and director of Color Imaging since June 2000. In June 2001 he was made
Secretary and on July 14, 2003, he was given the additional responsibilities of
Marketing and Sales which he held until April 1, 2004. From 1998 he served as
director of Logical Imaging Solutions and was from August 2000 its Executive
Vice President, Chief Financial Officer and Secretary until it was disposed of
by Color Imaging in September 2002. In 1986 he was employed by the National Bank
of California as Senior Vice President, Corporate Banking, and when he left the
bank in July 2000 he was its Executive Vice President and Credit Administrator.
47
Mr. Van Asperen also has extensive experience as a financial and management
consultant to businesses of up to $50 million in revenues and 1,000 employees in
construction, household goods, industrial glass, electronics manufacturing and
software development. From 1977 to 1984, he served as Vice President & Chief
Financial Officer of ATE Associates, Inc., a supplier of test fixtures and
software for numerous military aircraft programs. Mr. Van Asperen received a
B.S. degree in Mathematics from the University of Oklahoma and an M.B.A. degree
from Pepperdine University.
Yi-Jen (Tina) Wang has served as a director of Color Imaging since April 2003.
Until her resignation on January 28, 2005, to relocate outside of the country,
she was an Assistant Vice President and Human Resources Manager, having first
been employed by Color Imaging in February 2003. Prior to that she is attend the
University of San Francisco, pursuing an MBA degree. From October 2000 to June
2001 Ms. Wang served as a property manager for Kings Brothers LLC. From June
1998 to August 2000 Ms. Wang served as controller for GPI-USA, Inc. until it
discontinued its warehouse and marketing activities in the United States. From
January 1997 to May 1998 Ms. Wang was a sales representative assistant for our
affiliate General Plastic Industrial Co Ltd, Taiwan, R.O.C. Ms. Wang received a
Bachelor of Arts degree in June 1998 from Providence University, Taiwan, R.O.C.
Yi-Jen Wang is the niece of Jui-Kung Wang, Sueling Wang, Jui-Hung Wang and
Jui-Chi Wang.
Jui-Hung (Jack) Wang has served as a director of Color Imaging since June 2001
and was Chairman from June 2002 through August 2003. He was a founder and
director of Color Image, Inc. until its merger with Color Imaging. He is a
founder and serves as Chairman of General Plastic Industrial Co., Ltd, a leading
Taiwan based manufacturer of after market injection molded cartridges and
accessories for copiers and laser printers. Since January 2001, Mr. Wang has
served as a director of Taiwan Yu-Tzu Company, a food company. In 1998, Mr. Wang
was a founding member of Kings Brothers LLC, which leases space to Color Imaging
used for our headquarters and manufacturing facilities in Norcross, Georgia.
From 1986 to 1994, Mr. Wang was mayor of Wu-Chi Town, Taiwan. Jui-Hung Wang is
the brother of Sueling Wang, Jui-Kung Wang and Jui-Chi Wang, and the father of
Yi Jen Wang.
Richard S. Eiswirth has been a Director of the Company since April 2003 and is
Chairman of the Audit Committee. Since April 2002 he has been involved in
capital raising efforts for several start-ups. From August 1999 to April 2002,
he was Senior Executive Vice President and Chief Financial Officer of Netzee,
Inc., a publicly owned affiliate of The Intercept Group. Mr. Eiswirth was
responsible for the initial public offering and the identification, evaluation
and negotiation of ten acquisitions that fortified Netzee's product offerings.
Additionally, he facilitated the disposition of three operating units during the
company's restructuring. He has extensive experience in managing investment
bankers, brokers, attorneys, and accountants. For nine years prior to joining
Netzee, Mr. Eiswirth worked for Arthur Andersen LLP, where he was a senior
manager. In this capacity he provided audit, accounting, due diligence, merger
and acquisition, and consulting services to a variety of industries including
real estate, technology, banking, insurance and financial services. A certified
public accountant (CPA), Eiswirth graduated cum laude from Wake Forest
University in 1991 with a Bachelor of Arts degree in accounting.
Jui-Chi (Jerry) Wang has served as a director of Color Imaging since June 2000.
From 1994 until 2000, he served as a director of Color Image, Inc., which was
merged with Color Imaging. Since 1984, Mr. Wang has served as President of
General Plastic Industrial Co. Ltd (GPI), a Taiwan-based plastics manufacturer
specializing in injection moldings and more particularly toner cartridges and
accessories for copiers and laser printers. In 1998, Mr. Wang was a founding
member of Kings Brothers LLC, which leases space to Color Imaging used for our
headquarters and manufacturing facilities in Norcross, Georgia. Mr. Wang
received a Master's Degree in Computer Engineering from the University of
Southern California. Jui-Chi Wang is the brother of Sueling Wang, Jui-Hung Wang
and Jui-Kung Wang, and the uncle of Yi Jen Wang.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF
EACH OF THE ABOVE-NAMED DIRECTOR NOMINEES.
INFORMATION ABOUT THE BOARD OF DIRECTORS
AND COMMITTEES OF THE BOARD
DIRECTOR NOMINATIONS
In accordance with Article III, Section 3.3 of the Bylaws of the Company,
nominees for election as a director may be proposed only by the directors or by
a stockholder entitled to vote for directors.
A stockholder who wishes to make a director nomination at a stockholder meeting
must follow these procedures. For an annual meeting, the stockholder must submit
a written notice to the Secretary of the Company by the earlier of ninety days
before the first anniversary of the most recent annual meeting of stockholders
held for the election of directors and the close of business on the third day
following the date on which notice of the annual meeting is first given to
stockholders. For a special meeting, the written notice must be submitted by the
close of business on the third day following the date on which notice of the
meeting is first given to stockholders for the election of directors. The notice
must include:
48
(a) the name and address of the stockholder who intends to make the nomination
and of the person or persons to be nominated,
(b) a representation that the stockholder is a holder of record of stock of the
Company entitled to vote at such meeting and intends to appear in person or by
proxy at the meeting to nominate the person or persons specified in the notice,
(c) a description of all arrangements or understandings between the stockholder
and each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder,
(d) such other information regarding each nominee proposed by such stockholder
as would be required to be included in a proxy statement filed pursuant to the
proxy rules of the Securities and Exchange Commission, and
(e) the consent of each nominee to serve as a director of the Company if so
elected.
The presiding officer of the meeting may refuse to acknowledge the nomination of
any person not made in compliance with this procedure. The address for notices
of nominations is Color Imaging, Inc., Attn: Corporate Secretary, 4350 Peachtree
Industrial Blvd., Suite 100, Norcross, Georgia 30071.
The Board of Directors has not established a nominating committee but instead
determines its director nominations as a full Board. The Board of Directors
includes one director meeting the definition of "independent director" under the
rules of the Nasdaq Stock Market, as well as the Chairman and Chief Executive
Officer, the President, and the Chief Financial Officer of the Company, and two
other directors who are not independent by virtue of their family relationships
with the Chairman and the President. The Board of Directors believes that the
determination of nominees is benefited by the knowledge and perspective of these
corporate officers. Due to the small size of its Board, the Company does not
foresee the need to establish a separate nominating committee. Future candidates
for director will either be (i) recommended by a majority of the independent
directors for selection by the Board or (ii) discussed by the full Board and
approved for nomination by the affirmative vote of a majority of the Board,
including the affirmative vote of a majority of the independent directors. The
Company does not have a nominating committee charter.
The Company has not engaged, nor does it believe that it is necessary to engage,
any third party to assist it in identifying director candidates, and it has
never received a proposed candidate from a source outside of the Company.
Historically, the Board of Directors has not entertained outside candidates for
board nominees given that the Company is a "controlled" company under the rules
of the Nasdaq Stock Market, with management and affiliates controlling an
aggregate of approximately 65% of the voting shares. In formulating its slate of
director nominees for the annual meeting each year, the Board of Directors may
consider director candidates recommended by stockholders. The Board of Directors
does not have a written policy for how it will consider such recommendations due
to the lack of experience with such recommendations and the need to evaluate
such recommendations on a case-by-case basis.
Before consideration by the Board, nominations must satisfy the requirements
listed above, except that the nominations must be received no later than the
date disclosed in the prior year proxy statement for inclusion of stockholder
proposals for the current year proxy statement. In addition, each such written
nomination must state the name, age, business or residence address of the
nominee, the principal occupation or employment of the nominee, the number of
shares owned either beneficially or of record by each such nominee and the
length of time such shares have been so owned. Prior to further consideration,
the nominee must acknowledge that he/she is willing to (i) be named as a
nominee, (ii) serve as a director, and (iii) complete an officer and director
questionnaire for necessary disclosure items. The Board of Directors has not
established minimum qualifications that must be met by a board-recommended
nominee. However, the Board evaluates candidates based on financial literacy,
knowledge of the Company's industry or other background relevant to the
Company's needs, status as a stakeholder in the Company, "independence" (for
purposes of compliance with the rules of the SEC and the listing standards of
the Nasdaq National Market), and willingness, ability and availability for
service. The Board of Directors is not bound to accept any candidate proposed by
a stockholder, and may reject a candidate in its sole discretion. Stockholders
may submit proposed candidates to the Corporate Secretary at the above address.
STOCKHOLDER COMMUNICATIONS
Stockholders may communicate with the Company's Directors in care of the
Secretary of the Company in writing to Color Imaging, Inc., Attn: Corporate
Secretary, 4350 Peachtree Industrial Blvd, Suite 100, Norcross, GA 30071 or via
e-mail to van@colorimaging.com. Communication by mail to any or all of the
directors in care of the Secretary of the Company will be forwarded to the
director(s). E-mails received by the Secretary of the Company for any or all of
the Company's Directors will be forwarded by the Secretary of the Company to the
director(s). All stockholder messages will be forwarded directly to the
Directors specified by the stockholder.
49
DIRECTOR ATTENDANCE AT STOCKHOLDER MEETINGS
At last year's annual meeting of stockholders, the following directors were in
attendance: Jui-Kung Wang, Sueling Wang, Morris E. Van Asperen, Yi-Jen Wang and
Jui-Chi Wang. Two (2) directors, Jui-Hung Wang and Richard S. Eiswirth did not
attend the 2004 annual meeting of the stockholders. The board does not have a
formal policy on director attendance at stockholder meetings. The Company's
stockholder meetings historically have had light attendance, with typically
fewer than ten stockholders attending in person. All of the Directors intend to
attend the 2005 meeting of the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
There were four meetings of the board of directors during 2004. Each incumbent
director who was a director during 2004 attended 75 percent or more of the
aggregate of all meetings of the board of directors and any committees on which
that director served, except Jui-Hung Wang who attended 50% of the meetings.
DIRECTOR COMPENSATION
Each of Color Imaging's non-employee directors receives fees of $1,000.00 per
board meeting physically or telephonically attended and $500.00 for other
meetings of the board of directors. Each director who is a member of the Audit
Committee receives $500.00 for each meeting of the Audit Committee attended;
and, will in 2005, receive $1,000 for each Audit Committee meeting attended. In
addition, each director is reimbursed for certain out-of-pocket expenses
incurred in connection with attendance at board and committee meetings. Each of
Color Imaging's non-employee directors, on the date they are first elected or
appointed to the board, receives a grant of non-qualified stock options to
purchase 25,000 shares of Color Imaging's common stock at the fair market value
of the common stock on the date of grant. The directors' options vest in equal
annual installments over a five year period. The sole member of the Special
Committee of the Board of Directors, appointed January 27, 2005, to investigate
strategic alternatives to increase stockholder value, including potential
mergers or acquisitions and going private, is paid an additional $5,000 per
month in director fees for these additional duties and responsibilities.
AUDIT COMMITTEE
The Audit Committee engages Color Imaging's independent public accountants,
reviews with the independent public accountants the plans and results of the
audit engagement, approves professional services provided by the independent
public accountants, reviews the independence of the independent public
accountants, considers the range of audit and any non-audit fees, and reviews
the adequacy of Color Imaging's internal accounting controls and financial
management practices. Until April 2003 the entire board of directors constituted
the Audit Committee, and thereafter the Audit Committee consisted of Mr. Richard
S. Eiswirth, CPA. There were four meetings of the Audit Committee during
2004with the incumbent member attending 100 percent of all meetings of the Audit
Committee.
The board of directors nominates and appoints the members of the Audit
Committee.
NOMINATING AND COMPENSATION COMMITTEES
The board of directors acts as the nominating and compensation committees of
Color Imaging.
Notwithstanding anything to the contrary that is or may be set forth in any of
Color Imaging's filings under the Securities Act of 1933 or the Securities
Exchange Act of 1934 that might incorporate Color Imaging filings, including
this proxy statement, in whole or in part, the following Reports and the
Performance Graph, shall not be incorporated by reference into any such filings.
REPORT OF AUDIT COMMITTEE
Since April 2003, Color Imaging had an Audit Committee (the "Committee")
composed entirely of non-management directors and the oversight responsibility,
authority and specific duties of the Committee have been performed by the
Committee in accordance with the Audit Committee Charter of Color Imaging. The
members of the Committee, after April 2003, met the independence and experience
requirements of the NASD. The Committee met with Lazar Levine & Felix LLP, the
independent auditors, and management prior to issuance of Color Imaging's annual
report on Form 10-K for the year ending December 31, 2004. The Committee
reviewed the charter last amended on October 31, 2002, and determined that
further amendments were not needed at that time. The charter, as previously
amended, outlines the practices the Committee follows. A copy of the Committee
charter, as amended, was attached as Appendix A to the 2003 Proxy Statement.
The Committee recommended to the board of directors the engagement of Lazar
Levine & Felix LLP as Color Imaging's independent auditors and reviewed with
Color Imaging's financial managers and the independent auditors overall audit
scope and plans, the results of internal and external audit examinations,
evaluations by the auditors of Color Imaging's internal controls, and the
quality of Color Imaging's financial reporting.
50
The Committee has reviewed and discussed with management the audited financial
statements in the Annual Report, including a discussion of the quality, not just
the acceptability, of the accounting principles, the reasonableness of
significant judgments, and the clarity of disclosures in the financial
statements. In addressing the quality of management's accounting judgments,
members of the Audit Committee asked for management's representations that the
audited consolidated financial statements of Color Imaging have been prepared in
conformity with generally accepted accounting principles and have expressed to
both management and the independent auditors their general preference for
conservative policies when a range of accounting options is available.
In its meetings with representatives of Lazar Levine & Felix LLP, the
independent auditors, the Committee asks them to address, and discuss their
responses to, several questions that the Committee believes are particularly
relevant to its oversight. These questions include:
- Are there any significant accounting judgments made by management in
preparing the financial statements that would have been made
differently had the independent auditors themselves prepared and been
responsible for the financial statements?
- Based on the independent auditors' experience and their knowledge of
Color Imaging, do Color Imaging's financial statements fairly present
to investors, with clarity and completeness, Color Imaging's financial
position and performance for the reporting period in accordance with
generally accepted accounting principles and SEC disclosure
requirements?
- Based on the independent auditors' experience and their knowledge of
Color Imaging, has Color Imaging implemented internal controls and
internal audit procedures that are appropriate for Color Imaging?
The Committee believes that by thus focusing its discussions with the
independent auditors, it can promote a meaningful dialogue that provides a basis
for its oversight judgments.
The Committee discussed with Lazar Levine & Felix LLP, the independent auditors,
the matters required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as amended by the Auditing Standards Board
of the American Institute of Certified Public Accountants. The Committee also
received and reviewed the written disclosures and the letter from the
independent auditors required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit committees, by the Independence Standards
Board, and have discussed the auditors' independence.
In performing all of these functions, the Audit Committee acts only in an
oversight capacity. The Committee, in its oversight role, necessarily relies on
the work and assurances of Color Imaging's management, which has the primary
responsibility for financial statements and reports, and of the independent
auditors, who, in their report, express an opinion on the conformity of Color
Imaging's annual financial statements to generally accepted accounting
principles.
In reliance on these reviews and discussions, and the report of Lazar Levine &
Felix LLP, the independent auditors, the Audit Committee recommended to the
board of directors, and the board approved, that the audited financial
statements be included in Color Imaging's Annual Report on Form 10-K for the
year ended December 31, 2004, for filing with the Securities and Exchange
Commission.
FEES PAID TO COLOR IMAGING'S INDEPENDENT AUDITORS
Color Imaging incurred the following aggregated fees for professional services
performed by Lazar Levine & Felix LLP for audit fees, including our annual
financial statements and limited reviews of financial statements included in
Forms 10-Q, audit related professional fees for assurance and related services
that have not been reported as audit fees, tax services and the filing of
Federal and state income tax returns and professional services in connection
with Color Imaging's registration statements on Form S-8, during 2004, and Form
SB-2, during 2003 and 2002:
PROFESSIONAL SERVICES 2004 2003 2002
--------------------- ----------- ----------- -----------
Audit Fees $ 85,339 $ 78,171 $ 91,717
Audit-Related Fees 0 0 0
Tax Fees 14,775 15,000 12,000
All Other Fees 500 4,895 19,236
----------- ----------- -----------
Total Fees $100,614 $ 98,066 $122,953
=========== =========== ===========
The Audit Committee has determined that the payments made to its independent
accountants for non-audit services for 2004, 2003 and 2002 are compatible with
maintaining such auditors' independence.
51
AUDIT COMMITTEE'S PRE-APPROVAL POLICES AND PROCEDURES
The Committee has the sole authority to appoint or replace, compensate, and
oversee the work of any independent auditor, who must be, when required, a
registered firm as defined by law, whose purpose is the preparation or issuance
of an audit report or related work. The independent auditor's reports and other
communications are to be delivered directly to the Committee, and the Committee
is responsible for the resolution of disagreements between management and the
independent auditor regarding financial reporting.
The Committee pre-approves all audit and non-audit services and all engagement
fees and terms in connection therewith, except as otherwise permitted by
regulation or the exchange.
The fees for professional services other than Audit Fees, in aggregate, for
2004, 2003 and 2002, approved by the Committee, were approximately $15,325,
$19,895 and $31,236. All of the hours expended on the principal accountant's
engagement to audit the financial statements of Color Imaging for the years
2004, 2003 and 2002 were attributable to work performed by full-time, permanent
employees of the principal accountant.
Management is responsible for planning Color Imaging's financial reporting
process and compliance of the consolidated financial statements with generally
accepted accounting principles. Color Imaging's independent auditors are
responsible for auditing those financial statements. The Audit Committee
necessarily must rely, without independent verification, on (a) management's
representation that the financial statements have been prepared with integrity
and objectivity and in conformity with accounting principles generally accepted
in the United States of America, and (b) on the representations of the
independent auditors included in their report on Color Imaging's financial
statements.
AUDIT COMMITTEE:
Richard S. Eiswirth
FEBRUARY 18, 2005
52
REPORT OF THE BOARD OF DIRECTORS ON
EXECUTIVE COMPENSATION
OVERVIEW
During the year ended 2004, the board of directors held primary responsibility
for determining the compensation for Jui-Kung Wang, Chairman of the board and
Chief Executive Officer (principal executive officer), Sueling Wang, Vice
Chairman of the board and President, Morris E. Van Asperen, Director and
Executive Vice President, Chief Financial Officer, principal accounting and
financial officer and Secretary and Patrick J. Wilson, Senior Vice President
Marketing and Sales (hired April 1, 2004), and the stock based incentives for
all the Named Executives. The compensation committee is comprised of Color
Imaging's board of directors over whose name this report is also presented.
Color Imaging is engaged in a highly competitive industry. The actions of the
executive officers have a profound impact on the short-term and long-term
profitability of Color Imaging; therefore, the design of the executive officer
compensation package is very important. In order to retain key employees, Color
Imaging has an executive compensation package that is driven by an increase in
stockholder value, the overall performance of Color Imaging, and the individual
performance of the executive. The measures of Color Imaging's performance
include revenue growth, pretax profit achievement, and pretax profit improvement
over the past year.
Pursuant to the above compensation philosophy, the three main components of the
executive compensation package are base salary, a cash incentive plan
(discretionary bonus or commission based program), and stock-based incentive
plans.
BASE SALARY
The factors subjectively used in determining base salary include the recent
profit performance of Color Imaging, the magnitude of responsibilities, the
scope of the position, individual and overall departmental performance
improvements, and the salary received by peers in similar positions in the same
geographic area. These factors are not used in any specific formula or
weighting. The salaries of the Named Executives are reviewed annually. Further,
in connection with the appointment of the Senior Vice President Marketing and
Sales on April 1, 2004 at a base salary of $150,000 without a commission
program, and the responsibilities of the Executive Vice President was reassessed
and his compensation package was restructured, reducing his base salary from
$150,000 to $120,000. Increases in base salary of the President is set at a
minimum of 5% per annum pursuant to his employment agreement. However, for the
year ended 2004, the President received no increase to his base salary and his
salary remains at the reduced amount of $120,000. The base salaries,
commissions, bonuses and other compensation received by the Named Executives for
the year ended December 31, 2004, were summarized for and reviewed by the
Committee.
CASH BASED INCENTIVE PLANS
Other than commissions based on the achievement of certain sales objectives paid
to the Executive Vice President to whom it is applicable, Color Imaging does not
have an annual cash based incentive compensation package for the Named
Executives, and instead Color Imaging utilizes discretionary annual bonuses
based upon performance objectives for the ensuing fiscal year. The Named
Executives participate in a performance bonus plan designed to encourage
achievement of short-term objectives. The plan's payouts are subjectively based
on net income, budget objectives, and other individual specific performance
objectives. The specific performance objectives relate to each executive
improving the contribution of his functional area of responsibility to further
enhance the earnings of Color Imaging. These performance objectives and
incentive packages are then reviewed by the board of directors and either
accepted, amended, or modified. There was, as a result, a discretionary bonus
was paid at the end of 2004 to the Named Executives as follows:
NAMED EXECUTIVE BONUS AMOUNT
--------------------------------------------- -----------------
Wang, Jui-Kung, Chairman/CEO $ 4,200
Wang, Sueling, President, Director $ 4,000
Van Asperen, Morris E., EVP/CFO, Director $ 3,500
Wilson, Patrick J., SrVP, Marketing & Sales $ 3,000
53
STOCK BASED INCENTIVE PLANS
During the fiscal year 2004, the Senior Vice President Marketing and Sales,
effective with his employment by Color Imaging on April 1, 2004, was granted
options to purchase 100,000 shares of Color Imaging's common stock at an
exercise price of $0.73 per share, with 25% vesting immediately and 25% vesting
upon each anniversary date of the grant thereafter and expiring 5 years from the
respective date of vesting.
On May 18, 2004, the other Named Executives and longer service non-employee
directors were granted options to purchase Color Imaging's common stock at an
exercise price of $0.54 as follows:
NAMED EXECUTIVE SHARES
----------------------------------------- ---------------
Wang, Jui-Kung, Chairman/CEO 25,000
Wang, Sueling, President, Director 100,000
Van Asperen, Morris E., EVP/CFO, Director 100,000
Wang, Jui-Hung, Director 25,000
Wang, Jui-Chi, Director 25,000
Fifty percent of the options vested immediately and the remainder vested equally
upon each of the next two anniversaries of the grant and expire 5 years from the
respective date of vesting.
The grant of awards is purely discretionary and are not based on any specific
formula and may or may not be granted in any given fiscal year. The board of
directors gives consideration to the overall performance of Color Imaging and
the performance and contributions of the individual grantees.
CHIEF EXECUTIVE OFFICER COMPENSATION
Color Imaging's principal executive officer's compensation is determined by the
board of directors. For year ended 2004, the duties of the principal executive
officer were performed by Jui-Kung Wang. The cash compensation of Jui-Kung Wang,
Chairman and Chief Executive Officer, was $102,008, including the $4,200 cash
based incentive compensation (bonus). This represents the total compensation for
Jui-Kung Wang, no portion of which was in stock based incentive plans, while
payments on his behalf for benefits and other perquisites (other compensation)
bring the total to $120,361 for 2004. The Chief Executive's compensation is
based upon the long-term growth in net income, stockholder value improvements
and the Chief Executive Officer's individual performance. The decision of the
board of directors is subjective and is not based upon any specific formula or
guidelines. The Chief Executive Officer does not consult with the board when his
compensation is determined and voluntarily accepts amendments to his employment
agreement, if applicable, as required.
COMPENSATION COMMITTEE
Jui-Kung Wang
Sueling Wang
Morris E. Van Asperen
Jui-Hung Wang
Jui-Chi Wang
Yi-Jen Wang
Richard S. Eiswirth
JANUARY 27, 2005
54
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation earned by
our chief executive officer and the three other most highly compensated
executive officers who were serving as such as of December 31, 2004, 2003 and
2002 (collectively, the Named Executive Officers), whose aggregate compensation
for fiscal years 2004, 2003 and 2002 exceeded $100,000 for services rendered in
all capacities to Color Imaging and its subsidiaries for that fiscal year.
Annual Compensation Long Term Compensation
----------------------------------------------- ----------------------
Other Annual Securities
Compensation Underlying All Other
Name and Principal Position Year Salary ($) Bonus ($) ($)(1) Options/SARS(#) Compensation
--------------------------- -------- ----------- ----------- -------------- ---------------------- -------------
Jui-Kung Wang (2) 2004 97,808 4,200 18,354 25,000 --
Chief Executive Officer 2003 29,908 -- 6,501 -- --
2002 N/A -- 1,000 -- --
Dr. Sueling Wang (3) 2004 115,500 4,000 12,841 100,000 --
President 2003 136,826 140,000 4,203 -- --
2002 158,439 -- 38,736 -- --
Morris E. Van Asperen (4) 2004 152,589 3,500 7,082 100,000 --
Executive Vice President, 2003 162,001 -- 9,204 -- --
Chief Financial Officer & 2002 151,200 -- 14,353 -- --
Secretary
Patrick J. Wilson (5) 2004 110,769 3,000 69,426 100,000 --
Senior Vice President 2003 -- --
2002 -- --
(1) For named executive officers the amount reported represents the cost of
group insurance benefits, Color Imaging's matching contribution to the 401(k)
plan for the officer, other life insurance policies maintained for him, and
other compensation as further described in the notes for each officer,
respectively.
(2) Mr. Wang was employed by Color Imaging on August 15, 2003, and other annual
compensation included the personal benefit of his use of a company automobile of
$10,273 and $4,442 during 2004 and 2003, respectively, and $5,342 for the
personal use of a corporate apartment. Also included in other annual
compensation are the fees paid to the named executive officer while he was an
outside director which were $0, $ 2,000 and $1,000 during 2004, 2003 and 2002,
respectively. The options were granted by action of the board on May 18, 2004,
with 50% vesting immediately and the remainder vesting equally upon the next two
anniversary dates of the grant, expiring 5 years from their respective date of
vesting.
(3) Other annual compensation includes the personal benefit of his use of a
company automobile of $5,000 and $1,358 during 2004 and 2003, respectively and
split dollar life insurance premiums of $0, $660 and $16,773 during 2004, 2003
and 2002, respectively. During 2003 the officer repaid the loan due to the Color
Imaging in connection with the split dollar life insurance policy and the
collateral assignment of the policy was released by Color Imaging and the plan
between Color Imaging and the officer was terminated. Options granted by action
of the board on May 18, 2004. 50% vested immediately and the balance vest
equally upon each of the next two anniversary dates of the grant. The options
expire five years after their respective vesting date(s).
(4) Other annual compensation includes, by agreement, the reimbursement for a
supplemental life insurance policy for the benefit of the officer. The life
insurance premiums reimbursed or paid by Color Imaging in 2004, 2003 and 2002
were $0, $5,525, and $6,446, respectively. In 2003 the officer voluntarily
terminated the life insurance reimbursement program previously funded by Color
Imaging; and, subsequently, the officer's employment agreement was modified to
delete the provision of the additional life insurance benefit. Options granted
by action of the board on May 18, 2004. 50% vested immediately and the balance
vest equally the next two anniversary dates of the grant. The options expire
five years after their respective vesting date(s).
(5) Other annual compensation includes payments made to the officer prior to his
employment by Color Imaging under the consulting agreement between the officer
and the Color Imaging. Options granted by action of the board upon the
employment of the officer on April 1, 2004. 20% vested immediately and the
balance vest equally upon each of the next four anniversary dates of the grant.
The options expire five years after their respective vesting date(s).
OPTION GRANTS TABLE
Options granted the Named Executive Officers during the year ended December 31,
2004 were:
55
Potential realizable
value at assume
annual rates of stock
price appreciation
Individual Grants for the option term
-------------------------------------------------------------------------------------- ----------------------------
Percent of
Number of total
securities options/SARS
underlying granted Exercise or
Options/SARS employees in base price Expiration
Name (#) fiscal year (%) ($/Share) date 5% ($) (f) 10% ($) (g)
------------------------ -------------- -------------- -------------- -------------- ------------- -------------
Jui-Kung Wang (2) 25,000 5.4% $.54 05/18/11 8,490 21,516
Chief Executive Officer
Dr. Sueling Wang (3) 100,000 21.5% $.54 05/18/11 33,960 86,082
President
Morris E. Van Asperen
Executive Vice
President, Chief
Financial Officer 100,000 21.5% $.54 05/18/11 33,960 86,082
& Secretary
Patrick J, Wilson 100,000 21.5% $.77 04/01/13 48,425 122,718
Senior Vice President
OPTION EXERCISES AND YEAR-END VALUE TABLE
None of the Named Executive Officers exercised stock options during 2004. The
following table sets forth certain information regarding unexercised options
held at year-end by each of the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN 2004 AND OPTION VALUES AT DECEMBER 31, 2004
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
SHARES OPTIONS
ACQUIRED VALUE -----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE
----------------------- -------------- -------------- -------------- --------------
Jui-Kung Wang 0 0 22,500 27,500
Sueling Wang 0 0 350,000 50,000
Morris E. Van Asperen 0 0 350,000 50,000
Patrick J. Wilson 0 0 25,000 75,000
Based on the closing price of our common stock of $0.52 on December 31, 2004, no
unexercised options were in the money for the Named Executive Officers.
EMPLOYMENT AGREEMENTS
On June 28 and August 1, 2000, Color Imaging entered into employment agreements
with its President and Executive Vice President. Each of the employment
agreements has a 5-year term. Color Imaging is obligated to pay the President an
annual salary of $150,000 with a guaranteed increase of 5% per annum over the
term of the agreement. Color Imaging is obligated to pay the Executive Vice
President an annual salary of $144,000 with a guaranteed increase of 5% over the
term of his agreement. Each employee may terminate the agreement upon 6 months
notice to Color Imaging. Color Imaging may terminate each employee upon 6 months
notice by Color Imaging; provided, however, that Color Imaging is obligated to
pay to the employee his annual base salary, commissions or bonuses earned, and
benefits for a period of 12 months after the date of such notice.
Each of the officers voluntarily waived the annual increases to their salaries
that would have otherwise been payable upon the second anniversary of their
respective contracts. The President and Executive Vice President voluntarily
agreed to accept reduced annual increases upon the third anniversary of their
respective agreements in the amount of 2.5%. On July 14, 2003, the Executive
Vice President's employment agreement was modified, giving him the additional
duties of marketing and sales, provide for commissions, a reduced base salary of
$78,000 per annum and deleting the provision providing for a minimum 5% annual
salary increase. On October 1, 2003, the Executive Vice President's employment
agreement was again amended to return his base salary to its former level of
$151,200 and his commission program on certain sales of Color Imaging was
modified. On April 19, 2004, the Executive Vice President's employment agreement
was again amended, reducing his base salary to $120,000 and providing for a
commission or certain sales of Color Imaging.
56
The employment agreements with the above named officers also commit Color
Imaging to purchasing, for their benefit, certain life insurance plans. Color
Imaging pays the premiums and is the collateral assignee of four split dollar
life insurance policies owned by the President. Pursuant to the policies, Color
Imaging will, upon his death or earlier liquidation of each such policy, be
entitled to the refund of all premium payments made by Color Imaging on the
policies, and the balance of the proceeds will be paid to the President's
designated beneficiaries. During 2003 the President repaid the loan due Color
Imaging in connection with the split dollar life insurance policies, Color
Imaging then released its collateral assignment of the policies and is no longer
required to pay any premiums in connection with the four policies. The split
dollar life insurance premiums paid by Color Imaging during 2004, 2003 and 2002
were $0, $660, $15,773, respectively. The amount due from its President in
connection with these life insurance policies at the years ended December 31,
2004, 2003 and 2002 was $0, $0 and $134,877, respectively. Color Imaging paid or
reimbursed the Executive Vice President for such supplemental life insurance
plans $0, $5,525 and $6,446 during 2004, 2003 and 2002, respectively. On July
14, 2003, the Executive Vice President's employment agreement was amended to
delete the provision requiring Color Imaging to pay or reimburse premiums in
connection with his supplemental life insurance policy.
On April 1, 2004, the Company hired and entered into a two year employment
agreement with the Senior Vice President of Marketing and Sales, providing the
employee with an annual salary of $150,000, the lesser of three months severance
or the remainder of the term of the agreement if terminated by the Company
without cause and granting the employee options to purchase 100,000 shares of
the Company's common stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The entire board of directors of the Company serves as the Compensation
Committee of the Company. Directors Jui-Hung Wang, Jui-Kung Wang, Jui-Chi Wang,
are owners in and Chairman, Auditor and President, respectively, of General
Plastic Industrial Co., LTD (GPI), a Taiwanese manufacturer of all in one and
injection molded cartridges and accessories for copiers and laser printers. For
the twelve months ended December 31, 2004, 2003 and 2002 we purchased
$4,028,303, $2,091,785 and $2,148,279, respectively, of all in one and injected
molded products from GPI.
On March 6, 2003, Color Imaging received from Chi Fu Investment Co Ltd
$6,075,000 of subscription proceeds for the public sale of 4,500,000 of our
common shares at a price of $1.35 per share in our offering on Form SB-2 filed
with the Securities and Exchange Commission. Chi Fu Investment Co Ltd is a
wholly owned subsidiary of our affiliate General Plastic Industrial Co., Ltd,
and as of December 31, 2004 our directors Jui-Hung Wang, Jui-Chi Wang and
Jui-Kung Wang each own 8.03%, 8.39% and 1.84%, respectively, of General Plastic
Industrial Co., Ltd.
On June 1, 2003, Color Imaging entered into a Marketing and Licensing Agreement
(refer to Exhibit 10.14 filed with Form 10-Q on October 28, 2003) with its
affiliate General Plastic Industrial Co Ltd. Per the Marketing and Licensing
Agreement General Plastic Industrial Co Ltd agrees to indemnify and hold
harmless Color Imaging for any costs and expense arising from any defective
licensed product, and/or any recalled licensed product including litigation
arising therefrom. In addition, General Plastic Industrial Co Ltd agrees to
credit Color Imaging for product cost, shipping and related expenses arising
from any defective licensed product, and/or any recalled licensed product. On
November 15, 2004 the Marketing and License Agreement was amended and replaced
in its entirety effective April 1, 2004, and it is filed with our Annual Report
on Form 10-K as Exhibit 10.13. For the periods ended December 31, 2004, 2003 and
2002, the Company paid its affiliate royalties under the Marketing and Licensing
Agreement of $86,073, $0 and $0, respectively.
PERFORMANCE GRAPH
Set forth below is a line graph presentation comparing the cumulative
stockholder return on the Color Imaging's common stock (OTC: CIMG), on an
indexed basis, against cumulative total returns of the Nasdaq Stock Market (U.S.
Companies) Index and the Special Chemicals Index, which is composed of 68
companies which operate in the specialty chemical industry, the industry in
which the financial community has categorized Color Imaging. A list of the
companies included in this index will be furnished by Color Imaging to any
stockholder upon written request of the Corporate Secretary. The graph assumes
that the value of the investment in the common stock in each index was $100 on
December 31, 1999 and any dividends were reinvested. The Performance Graph shows
total return on investment for the period beginning December 31, 1999 through
December 31, 2004.
Note: Management cautions that the stock price performance information shown in
the graph below may not be indicative of current stock price levels or future
stock price performance.
57
[GRAPHIC OMITTED]
The performance graph was plotted using the following table:
1999 2000 2001 2002 2003 2004
--------- --------- --------- --------- --------- ---------
COLOR IMAGING, INC. 100.00 210.66 242.95 94.04 54.86 40.75
SPECIAL CHEMICALS INDEX 100.00 98.51 105.93 87.98 113.24 157.58
NASDAQ MARKET INDEX 100.00 62.85 50.10 34.95 52.55 56.97
58
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Directors, Jui-Hung Wang, Jui-Kung Wang, Sueling Wang and Jui-Chi Wang, own
Kings Brothers, LLC, the landlord from which the Company leases its Norcross,
Georgia, plant. The real property lease agreement between the Company and Kings
Brothers, LLC, was entered into on April 1, 1999, and was amended on February 5,
2003, extending the expiration date from March 31, 2009 to March 31, 2013. The
rental payments for 2004, 2003 and 2002 were $544,728, $531,444 and $518,484,
respectively.
On June 1, 1999, the Development Authority of Gwinnett County (the Authority),
issued $4,100,000 of industrial development revenue bonds on behalf of the
Company and Kings Brothers LLC. The 3.07%, inclusive of the 1% letter of credit
fee annually, revenue bonds as of December 31, 2004, are payable in varying
annual principal and monthly interest payments through July 2019. The bond is
secured by all the assets of the Company and by real property owned by Kings
Brothers LLC. The bonds along with the line of credit and term loan are held by
two related financial institutions.
A loan agreement between the Authority and the Company and Kings Brothers LLC
allows funds to effectively pass through the Authority to the Company. The
majority of the proceeds, $3,125,872, were used by the Company to purchase and
install certain manufacturing equipment, while $974,128 was used by Kings
Brothers LLC to pay down the mortgage on the real property leased to the
Company. The Company and Kings Brothers LLC are jointly obligated to repay any
outstanding debt. Under the Joint Debtor Agreement of June 28, 2000, between the
Company and Kings Brothers LLC, each has agreed to be responsible to the other
for their share of the bond obligations and that any party causing an act of
default shall be responsible for 100% of the bond obligations. The amount for
which Kings Brothers LLC is responsible to the Company is reflected in current
and other assets of the Company. Kings Brothers LLC amounts owed to the
Authority are secured by a lien on the real property leased by the Company and
by personal guarantee of the managing member of Kings Brothers LLC. At this
time, the Company believes that the Kings Brothers LLC portion of the bond is
fully collectible. As of December 31, 2004, the bond principal outstanding was
$2,725,000 and the portion due from Kings Brothers LLC was $647,428.
Directors Jui-Hung Wang, Jui-Kung Wang, Jui-Chi Wang, are owners in and
Chairman, Auditor and President, respectively, of General Plastic Industrial
Co., LTD (GPI), a Taiwanese manufacturer of injection molded cartridges and
accessories for copiers and laser printers. For the twelve months ended December
31, 2004, 2003 and 2002 we purchased $4,028,303, $2,091,785 and $2,148,279,
respectively, of injected molded products from GPI.
On March 14, 2002, the Company borrowed $500,000 from director, Sueling Wang, on
an unsecured basis. The interest rate on the loan was 12% per annum, matured on
March 14, 2003 and is evidenced in writing. On September 2, 2002, the note was
modified to extend the term to March 1, 2005, provide for a $100,000 principal
payment, decreased the interest rate to 6% per annum, provided for interest only
payments through February 28, 2003, and 24 monthly payments of principal and
interest beginning on April 1, 2003, in the amount of $17,735.67. The Company
borrowed the $500,000 to meet a supplier commitment for product. Interest paid
Sueling Wang on the note for the years ended December 31, 2004, 2003 and 2002
was $3,607, $14,641 and $36,296, respectively. As of December 31, 2004, 2003 and
2002, the principal outstanding was $15,000, $105,000 and $400,000,
respectively.
On August 21, 2002, the Company borrowed $100,000 from director, Jui-Chi Wang,
on an unsecured basis. The loan bears interest at the rate of 6% per annum,
matures on March 1, 2005 and is evidenced in writing. The Company borrowed this
amount in order to repay $100,000 borrowed from director Sueling Wang on March
14, 2002. The note is interest only through February 28, 2003, and then is fully
amortizing over 24 months with principal and interest payments payable monthly
beginning April 1, 2003 in the amount of $4,434. As of December 31, 2004, 2003
and 2002, the interest accrued and paid on the note was $2,203, $ 5,115 and
$2,170, respectively. As of December 31, 2004, 2003 and 2002 the outstanding
principal balance on the note was $8,803, $59,806 and $100,000, respectively.
On August 21 and September 2, 2002, the Company borrowed $200,000 and $300,000,
respectively, from director, Jui-Hung Wang, on an unsecured basis. The loan
bears interest at the rate of 6% per annum, matures on March 1, 2005 and is
evidenced in writing. The Company borrowed this amount in order to make a
principal payment due on its industrial development bond in the approximate
amount of $255,000, for the acquisition of capital equipment in the approximate
of $125,000 and for general corporate purposes. The note is interest only
through February 28, 2003, and then is fully amortizing over 24 months with
principal and interest payments payable monthly beginning April 1, 2003 in the
amount of $22,169.60. As of December 31, 2004, 2003 and 2002, interest accrued
and paid on the note was $11,017, $ 25,577 and $10,259, respectively. As of
December 31, 2004, 2003 and 2002, the principal outstanding was $44,013,
$299,032 and $500,000, respectively.
We believe that the terms of the loans and borrowings from affiliates were on
terms more favorable than were otherwise available from third parties.
On March 6, 2003, the Company received from Chi Fu Investment Co Ltd $6,075,000
of subscription proceeds for the public sale of 4,500,000 of its common shares
at a price of $1.35 per share in its offering on Form SB-2 filed with the
59
Securities and Exchange Commission. Chi Fu Investment Co Ltd is a wholly owned
subsidiary of the Company's affiliate, General Plastic Industrial Co., Ltd, and
as of December 31, 2004, Company directors Jui-Hung Wang, Jui-Chi Wang and
Jui-Kung Wang each owned 8.03%, 8.39% and 1.84%, respectively, of General
Plastic Industrial Co., Ltd.
On June 1, 2003, Color Imaging entered into a Marketing and Licensing Agreement
(refer to Exhibit 10.14 filed with Form 10-Q on October 28, 2003) with its
affiliate General Plastic Industrial Co Ltd, which was amended and restated on
November 15, 2004, effective April 1, 2004. Per the Marketing and Licensing
Agreement General Plastic Industrial Co Ltd agrees to indemnify and hold
harmless Color Imaging for any costs and expense arising from any defective
licensed product, and/or any recalled licensed product including litigation
arising therefrom. Further General Plastic Industrial Co Ltd agrees to credit
Color Imaging for product cost, shipping and related expenses arising from any
defective licensed product, and/or any recalled licensed product. For the
periods ended December 31, 2004, 2003 and 2002, the Company paid its affiliate
royalties under the Marketing and Licensing Agreement of $86,073, $0 and $0,
respectively.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information known to Color Imaging with respect
to the beneficial ownership of Color Imaging's common stock as of April 25, 2005
by:
o each stockholder known by Color Imaging to own beneficially more than
5% of Color Imaging's common stock;
o each Named Executive Officer;
o each of Color Imaging's directors; and
o all directors and executive officers as a group.
Except as otherwise indicated in the footnotes, Color Imaging believes that the
beneficial owners of the common stock listed below, have sole voting power and
investment power with respect to such shares of common stock indicated. In
computing the number of shares beneficially owned by a person and the percent
ownership of that person, shares of common stock subject to options or warrants
held by that person that are currently exercisable or will become exercisable
within 60 days of the date of this report are deemed outstanding, while such
shares are not deemed outstanding for purposes of computing percent ownership of
any other person.
PERCENTAGE OF
NAME OF BENEFICIAL OWNER NO. OF SHARES OWNERSHIP(1)
---------------------------------- ------------------ ------------------
Sueling Wang (2) 2,081,551 16.4%
Morris E. Van Asperen (3) 505,906 4.0%
Jui-Chi Wang (4)(5) 5,238,200 41.3%
Jui-Hung Wang (5)(6) 5,237,978 41.3%
Jui-Kung Wang (5)(7) 4,844,959 38.2%
Patrick J. Wilson (8) 52,000 *
Yi-Jen Wang 40,000 *
Richard S. Eiswirth (9) 10,000 *
Chi Fu Investment Co Ltd (5) 4,500,000 35.3%
General Plastic Industrial Co., Ltd (5) 4,500,000 35.3%
Executive officers and directors
as a group (8 persons) (10) 9,010,544 71.0%
----------------
* Less than 1%
(1) Percentage of ownership is calculated as required by Commission Rule
13d-3(d)(1). The table above includes the number of shares underlying options
and warrants which are exercisable within 60 days after the date of this report.
(2) Includes: (a) 600,000 shares owned by Sueling Wang's four children, (b)
141,204 shares owned by Yik-Li Sih, Sueling Wang's wife, in which Dr. Wang may
be deemed to have pecuniary interest. Dr. Wang disclaims beneficial ownership of
such 741,204 shares. Also includes600,000 shares subject to options that are
currently exercisable.
(3) Includes 375,000 shares subject to options that are currently exercisable.
(4) Includes 43,750 shares subject to options that are currently exercisable.
(5) Includes 4,500,000 shares held by Chi Fu Investment Co Ltd ("CFI"). CFI is a
wholly owned subsidiary of General Plastic Industrial Co., Ltd ("GPI"). Jui-Hung
Wang, Jui-Chi Wang and Jui-Kung Wang, owns 8.03%, 8.39% and 1.84%, respectively,
of the outstanding common stock of GPI as of December 31, 2004. Each of Messrs.
Wang disclaims beneficial ownership of the shares held by CFI except to the
extent of his pecuniary interest.
(6) Includes 38,750 shares subject to options that are currently exercisable.
(7) Includes 28,750 shares subject to options that are currently exercisable.
60
(8) Includes 40,000 shares subject to options that are currently exercisable.
(9) Includes 10,000 shares subject to options that are currently exercisable.
(10) Includes 963,250 shares subject to options that are exercisable within 60
days after the date of this prospectus.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The members of the board of directors, certain executive officers of Color
Imaging and persons who hold more than 10% of Color Imaging's outstanding common
stock are subject to the reporting requirements of Section 16(a) of the Exchange
Act, which require them to file reports with respect to their ownership of
common stock and their transactions in common, stock. Based upon the copies of
Section 16(a) reports that the Color Imaging received from such persons for
their 2004 fiscal year transactions in the common stock and their common stock
holdings, Color Imaging believes that all reporting requirements under Section
16(a) for such fiscal year were met in a timely manner by its executive
officers, board members and greater than ten-percent stockholders, excepting the
late filing of (a) one Form 4 filed on August 23, 2004, by Patrick J. Wilson
disclosing the purchase of 6,000 shares of our common stock, (b) the late filing
of one Form 4 each by directors Jui-Kung Wang, Sueling Wang, Jui-Chi Wang,
Jui-Hung Wang and Morris E. Van Asperen reflecting one exempt option grant and
(c) the late filing of one Schedule 13D each by directors Jui-Hung Wang,
Jui-Kung Wang, Jui-Chi Wang, General Plastic Industrial Co Ltd and Chi Fu
Investment Co Ltd reflecting the one exempt option grant of Jui-Hung Wang,
Jui-Kung Wang and Jui- Chi Wang.
PROPOSAL NO. 3 - RATIFICATION OF INDEPENDENT ACCOUNTANTS
The board of directors has selected Lazar Levine & Felix LLP as Color Imaging's
independent accountants for the year ending December 31, 2005, and has further
directed that management submit the selection of independent accountants for
ratification by the stockholders at the annual meeting. Lazar Levine & Felix LLP
has no financial interest in Color Imaging and neither it nor any member or
employee of the firm has had any connection with Color Imaging in the capacity
of promoter, underwriter, voting trustee, director, officer or employee. The
Delaware General Corporation Law does not require the ratification of the
selection of independent accountants by Color Imaging's stockholders, but in
view of the importance of the financial statements to the stockholders, the
board of directors deems it advisable that the stockholders pass upon such
selection. A representative of Lazar Levine & Felix LLP is not expected to be
present at the annual meeting.
In the event the stockholders fail to ratify the selection of Lazar Levine &
Felix LLP, the Audit Committee will reconsider whether or not to retain the
firm. Even if the selection is ratified, the Audit Committee and the board of
directors in their discretion may direct the appointment of a different
independent accounting firm at any time during the year if they determine that
such a change would be in the best interests of Color Imaging and its
stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
OTHER BUSINESS
Color Imaging does not know of any other business to be presented to the annual
meeting and does not intend to bring any other matters before such meeting. If
any other matters properly do come before the annual meeting, however, the
persons named in the accompanying Proxy are empowered, in the absence of
contrary instructions, to vote according to their best judgment.
STOCKHOLDER PROPOSALS
We do not currently expect to hold a 2006 annual meeting of stockholders,
because upon completion of the Stock Splits, we would no longer have public
stockholders or any public participation in our stockholder meetings. If the
Stock Splits proposal is not completed, we will hold a 2006 annual meeting of
stockholders. Appropriate proposals of stockholders intended to be presented at
Color Imaging's 2006 Annual Meeting of Stockholders pursuant to Rule 14a-8
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), must be received by Color Imaging by _________, 2005 for inclusion in its
proxy statement and form of proxy relating to that meeting. In addition, all
stockholder proposals submitted outside of the stockholder proposal rules
promulgated pursuant to Rule 14a-8 under the Exchange Act must be received by
Color Imaging by ___________, 2006 in order to be considered timely. If such
stockholder proposals are not timely received, proxy holders will have
discretionary voting authority with regard to any such stockholder proposals
that may come before the 2006 Annual Meeting.
61
AVAILABLE INFORMATION
The Stock Splits will constitute a "going-private" transaction for purposes of
Rule 13e-3 of the Exchange Act. As a result, Color Imaging has filed the
Schedule 13E-3 which contains additional information about Color Imaging. Copies
of the Schedule 13E-3 are available for inspection and copying at Color
Imaging's principal executive offices during regular business hours by any
interested stockholder of Color Imaging, or a representative who has been so
designated in writing, and may be inspected and copied, or obtained by mail, by
written request addressed to Color Imaging, Inc., 4350 Peachtree Industrial
Blvd, Suite 100, Norcross, GA 30071.
Color Imaging is currently subject to the information requirements of the
Exchange Act and files periodic reports, proxy statements and other information
with the SEC relating to its business, financial and other matters. Copies of
such reports, proxy statements and other information, as well as the Schedule
13E-3, may be copied (at prescribed rates) at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549. For further information concerning the SEC's public
reference rooms, you may call the SEC at 1-800-SEC-0330. Some of this
information may also be accessed on the World Wide Web through the SEC's
internet address at "www.sec.gov."
Color Imaging maintains on its website, www.colorimaging.com, recent filings on
SEC Form 10-Q/K and 8-K, and these may be viewed or downloaded without charge
from our website.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In our filings with the SEC, information is sometimes incorporated by reference.
This means that we are referring you to information that we have filed
separately with the SEC. The information incorporated by reference should be
considered part of this Proxy Statement, except for any information superseded
by information contained directly in this Proxy Statement.
This Proxy Statement incorporates by reference the following documents that we
have previously filed with the SEC. They contain important information about
Color Imaging and its financial condition.
o Our Annual Report on Form 10-K for the year ended December 31, 2004;
o Our Quarterly Report on Form 10-Q for the quarter ended March 31,
2005;
o Our Current Report on Form 8-K filed on March 15, 2005; and
o Our Current Report on Form 8-K filed on April 19, 2005.
We also incorporate by reference any additional documents that we may file with
the Commission under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
between the date of this Proxy Statement and the date of the Annual Meeting.
Stockholders should not rely on information other than that contained or
incorporated by reference in this proxy statement (including its appendices).
Color Imaging has not authorized anyone to provide information that is different
from that contained in this proxy statement. This proxy statement is dated May
__, 2005. No assumption should be made that the information contained in this
proxy statement is accurate as of any other date, and the mailing or delivery of
this proxy statement will not create any implication to the contrary.
We will provide, without charge, upon the written or oral request of any person
to whom this Proxy Statement is delivered, by first class mail or other equally
prompt means within one business day of receipt of such request, a copy of any
and all information that has been incorporated by reference, without exhibits
unless such exhibits are also incorporated by reference in this Proxy Statement.
You may obtain a copy of these documents and any amendments thereto by written
request addressed to Color Imaging, Inc., 4350 Peachtree Industrial Blvd, Suite
100, Norcross, GA 30071. Copies of Color Imaging's Annual Report on Form 10-K
and Quarterly Report on Form 10-Q for the periods ended December 31, 2004 and
March 31, 2005, may also be viewed and or downloaded from our website without
charge at www.colorimaging.com.
ANNUAL REPORT ON FORM 10-K
A copy of Color Imaging's Annual Report on Form 10-K, as amended, for the
calendar year ended December 31, 2004 is being mailed to stockholders with this
proxy statement.
62
BY ORDER OF THE BOARD OF DIRECTORS
/s/ MORRIS E. VAN ASPEREN
Morris E. Van Asperen
Secretary
Norcross, Georgia
June __, 2005
Please Complete, Date, And Sign The Enclosed Proxy Card And Return It Promptly
In The Enclosed Reply Envelope. No Postage Is Required If Mailed In The United
States.
63
EXHIBIT A
---------
CBIZ VALUATION GROUP, LLC
780 JOHNSON FERRY ROAD, N.E.
SUITE 600
ATLANTA, GA 30342
(404) 257-2298 (404) 497-9155 FAX
PRIVILEGED AND CONFIDENTIAL
May 2, 2005
Mr. Richard Eiswirth
Chairman of the Special Committee of the Board of Directors of
Color Imaging, Inc.
4350 Peachtree Industrial Boulevard, Suite 100
Norcross, Georgia 30071
Dear Mr. Eiswirth:
We understand that Color Imaging, Inc., (the "Company"), is contemplating a
"going private" transaction by implementing a reverse stock split at one of the
following ratios: 5,000 to 1; 2,500 to 1 or 1,500 to 1 with common shareholders
of owning less than one share after the reverse stock split receiving cash in
the amount of $1.10 per pre split share ("Transaction").
You have asked us to render our opinion as to whether the Transaction is fair,
from a financial point of view, to stockholders who would not retain their
interest in the Company after completion of the Transaction, and stockholders
who would retain their interest in the Company after completion of the
Transaction, in each case other than stockholders who are directors, or
executive officers of the Company or affiliates of directors or executive
officers of the Company. The Opinion does not address the Company's underlying
business decision to effect the transaction. This opinion is based on the terms
articulated in the resolution of the board of directors dated April 14, 2005. We
have not been asked to, and did not, solicit third-party expressions of interest
in acquiring all or any part of the Company's assets or securities other than
for the purpose of assessing the likelihood of a merger or acquisition
transaction.
In the course of our analyses for rendering this opinion, we have:
o Reviewed the Transaction Documents, including a draft of the proxy
statement for the stockholders approval of the Transaction;
o Reviewed the Company's audited financial statements for the fiscal
years ended 2001, 2002, 2003 and 2004;
o Review minutes of the board of directors for fiscal years 2002 through
2005;
o Analyzed certain operating and financial information, including
projections, provided to us by management relating to the Company's
business prospects;
o Met with certain members of the Company's senior and operating
management to discuss Color Imaging, Inc.'s operations, historical
financial results and future prospects;
o Visited the Company's facilities in Atlanta, Georgia;
o Discussed with management its activities with respect to their
contacts with other investment bankers, private equity investors and
potential merger or acquisition candidates;
A-1
o Evaluated the stock price history and reported events of the Company;
o Evaluated other strategic alternatives for the Company;
o Evaluated the liquidation value of the Company's common stock;
o Considered publicly available data and stock market performance data
of public companies we deem comparable to the Company; and
o Conducted such other studies, analyses, inquiries and investigations,
as we deemed appropriate.
In the course of our investigation, we have assumed and relied upon the accuracy
and completeness of the financial statements, forecasts, projections and other
information provided to us by management and we have further relied upon the
assurances of management that they were unaware of any facts that would make the
information provided to us incomplete or misleading. We have not assumed any
responsibility for independent verification of such information or assurances.
In arriving at our opinion, we have not performed any independent appraisal of
the assets of the Company. Our analysis does not constitute an examination,
review of, or compilation of prospective financial statements in accordance with
standards established by the American Institute of Certified Public Accountants
("AICPA"). We do not express an opinion or any other form of assurance on the
reasonableness of the underlying assumptions or whether any of the prospective
financial statements are presented in conformity with AICPA presentation
guidelines. Further, there will usually be differences between prospective and
actual results because events and circumstances frequently do not occur as
expected and those differences may be material. We have also assumed the Company
is not currently involved in any material transaction other than the
Transaction, and those activities undertaken in the ordinary course of
conducting its business other than those disclosed.
We have acted as financial advisor to the Special Committee in connection with
the Proposed Transaction and will receive a fee for these services. We will
receive an additional fee upon delivery of this opinion. In addition, the
Company has agreed to indemnify us for certain liabilities arising out of our
services for the Proposed Transaction.
This Opinion is furnished solely for your benefit and does not constitute a
recommendation to any stockholder of the Company as to how such stockholder
should vote with respect to the Transaction. This Opinion is delivered to each
recipient subject to the conditions, scope of engagement, limitations and
understanding set forth in this Opinion and subject to the understanding that
the obligations of CBIZ Valuation Group, LLC in the Transaction are solely
corporate obligations. Furthermore, no officer, director, employee or
shareholder of CBIZ Valuation Group, LLC shall be subjected to any personal
liability whatsoever to any person, nor will any such claim be asserted by or on
behalf of you or your affiliates.
On the basis of the forgoing, it is our opinion that the Transaction is fair,
from a financial point of view, to the Company's shareholders who would not
retain their interest in the Company after completion of the Transaction, and
stockholders who would retain their interest in the Company after completion of
the Transaction, in each case other than stockholders who are directors, or
executive officers of the Company or affiliates, of directors or executive
officers of the Company.
Very truly yours,
/S/ CBIZ VALUATION GROUP, LLC
CBIZ VALUATION GROUP, LLC
A-2
EXHIBIT B
---------
FORM OF
REVERSE STOCK SPLIT
AMENDMENT
[ Note: Assumes split at 1500:1 ]
(A) Article FOURTH of the Articles of Incorporation, as amended, of Color
Imaging, Inc. is hereby amended and replaced in its entirety as follows:
FOURTH:
A. The total number of shares of stock which the Corporation
shall have authority to issue is twenty thousand six hundred and sixty-seven
(20,667), consisting of twenty thousand (20,000) shares of Common Stock having a
par value of $.01 per share and six hundred and sixty-seven (667) shares of
Preferred Stock having a par value of $.01 per share.
B. The Board of Directors is expressly authorized to provide
for the issuance of the shares of Preferred Stock in one or more series by
filing a certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences and rights of the shares
of each such series and the qualifications, limitations or restrictions thereof.
(B) Effective at the date and time this amendment to the Certificate of
Incorporation is accepted by the Secretary of State of the State of Delaware
(the "Effective Time"), each fifteen hundred (1,500) of the corporation's common
shares then issued and outstanding shall be automatically converted into one
fully-paid and non-assessable common share (the "Reverse Stock Split"). In lieu
of the issuance of any fractional common shares or scrip of less than one whole
common share that would otherwise result from the Reverse Stock Split, any
holder of common shares who would otherwise be entitled to receive less than one
fractional share shall be entitled to receive the amount of One and 10/100
Dollars ($1.10) in cash for each common share held immediately prior to the
Effective Time. This subsection (B) of this Certificate of Amendment shall
affect only issued and outstanding shares of the corporation and shall not
affect the total authorized number of shares.
(C) This Certificate of Amendment shall not change the stated capital or paid-in
surplus referable to the common shares, if any.
B-1
EXHIBIT C
---------
FORM OF
FORWARD STOCK SPLIT
AMENDMENT
(A) Article FOURTH of the Articles of Incorporation, as amended, of Color
Imaging, Inc. is hereby amended and replaced in its entirety as follows:
FOURTH:
A. The total number of shares of stock which the Corporation
shall have authority to issue is thirty-one million (31,000,000), consisting of
thirty million (30,000,000) shares of Common Stock having a par value of $.01
per share and one million (1,000,000) shares of Preferred Stock having a par
value of $.01 per share.
B. The Board of Directors is expressly authorized to provide
for the issuance of the shares of Preferred Stock in one or more series by
filing a certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences and rights of the shares
of each such series and the qualifications, limitations or restrictions thereof.
(B) Effective at the date and time this amendment to the Certificate of
Incorporation is accepted by the Secretary of State of the State of Delaware
(the "Effective Time"), each share of the corporation's common shares then
issued and outstanding shall be automatically converted into fifteen hundred
(1,500) fully paid and non-assessable common shares. This subsection (B) of this
Certificate of Amendment shall affect only issued and outstanding shares of the
corporation and shall not affect the total authorized number of shares.
(C) This Certificate of Amendment shall not change the stated capital or paid-in
surplus referable to the common shares, if any.
C-1
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
COLOR IMAGING, INC.
The undersigned hereby appoints Sueling Wang, PhD and Morris E. Van Asperen,
attorneys and proxies, each with power to act without the other and with power
of substitution, and hereby authorizes them to represent and vote all of the
shares of stock of Color Imaging, Inc., standing in the name of the undersigned
with all powers which the undersigned would possess if present at the Annual
Meeting of Stockholders of Color Imaging to be held July 19, 2005 or any
adjournment or postponement thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 1 TO AMEND THE
CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE STOCK SPLIT AND A FORWARD STOCK
SPLIT, USING ONE OF THREE RATIOS TO BE SELECTED BY, AND AT THE ELECTION OF, THE
BOARD OF DIRECTORS, "FOR" THE ELECTION OF EACH NOMINEE TO SERVE AS A DIRECTOR,
AND "FOR" PROPOSAL 3 TO RATIFY THE SELECTION OF LAZAR LEVINE & FELIX LLP AS
COLOR IMAGING'S ACCOUNTANTS. IF NO DIRECTION IS GIVEN IN THE SPACE PROVIDED ON
THE REVERSE SIDE, THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF DIRECTORS AND
"FOR" PROPOSALS 1 AND 3. IF ANY OTHER BUSINESS SHOULD COME BEFORE THE MEETING,
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE BEST JUDGMENT OF THE PROXY
HOLDER.
If you intend to attend the annual meeting, please be sure to check the "I plan
to attend the meeting" box on the reverse side of the Proxy.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
COLOR IMAGING, INC.
June __, 2005
- - PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED -
A [X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
FOR AGAINST ABSTAIN
1. To approve amendments, as determined by the Board of Directors of [ ] [ ] [ ]
Color Imaging in their discretion, to Color Imaging's Certificate of
Incorporation to effect a reverse stock split of our common stock at
one of the following ratios: 1-for-1500, 1-for-2500 or 1-for-5000 and
the repurchase of the resulting fractional shares held by each
stockholder with less than one share after the reverse stock split,
followed immediately by an amendment of Color Imaging's Certificate of
Incorporation to effect a forward stock split of Color Imaging's
common shares using the inverse of the ratio used in the reverse stock
split was effected.
FOR all nominees WITHHOLD NOMINEES: Jui-Kung Wang
listed at right AUTHORITY (to Sueling Wang, PhD
(except as marked vote for all Morris E. Van Asperen
to the contrary) nominees Yi-Jen Wang
listed at Jui-Hung Wang
right) Jui-Chi Wang
Richard S. Eiswirth
2. Election of [ ] [ ]
Directors
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write the nominee's name on the line provided below.)
FOR AGAINST ABSTAIN
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3. Ratify the selection of Lazar Levine & Felix LLP as Color Imaging's [ ] [ ] [ ]
Accountants for the year ending December 31, 2005.
4. In their discretion upon such other business as may properly come
before the meeting or any adjournment or postponement thereof.