EXHIBIT (c)(ii)
CONFIDENTIAL TREATMENT REQUESTED
Confidential Portions of This Presentation Which Have Been Redacted Are Marked
With Brackets ("[*** ]"). The Omitted Material Has Been Filed
Separately With The United States Securities and Exchange Commission.
COLOR IMAGING, INC.
ASSESSMENT OF STRATEGIC ALTERNATIVES
--------------------------------
PRESENTED TO:
THE SPECIAL COMMITTEE
OF THE BOARD OF DIRECTORS OF
COLOR IMAGING DIRECTORS
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 1
INTRODUCTION
o Purpose of the assignment
o Industry Overview
o Company analysis
o Valuation assessments
o Strategic alternatives
o Summary
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 2
PURPOSE OF THE ASSIGNMENT
o Review and advise the Special Committee and the Board with respect to
the Color Imaging's proposed price per share in a going private
transaction
o Review the strategic and capital needs of the Company and alternatives
for raising capital and evaluating the Company's capital structure
o Provide advice on evaluating the potential for any strategic
relationships or other opportunities
o Evaluate the proposed Transaction to "go private" by implementing a
reverse stock split
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 3
PURPOSE OF THE ASSIGNMENT
In performing this assignment we:
- Made a strategic evaluation of Color Imaging
- Assessed the Company's current operations and future business
opportunities
- Developed estimates of the fair value of Color Imaging's shares on a
stand-alone basis
- Made a qualitative and, where applicable, quantitative evaluation of
strategic alternatives that the Company may consider in the future
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 4
INDUSTRY OVERVIEW
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 5
INDUSTRY TRENDS
o Declining market and margin for monochrome printer supplies
o High expected growth in color printing
o Transition to more technologically advanced high-volume, high-speed
copiers, requiring specialized imaging supplies
o Introduction of low cost chemically produced (polymerization) toners
o Emergence of solid ink technology
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 6
INDUSTRY COMPETITORS
AFTERMARKET PRODUCERS OEMS
- ------------------------------------------------------------ ---------------------------------------------------------
o Small in size (sales < $100 mil) o Huge corporations with greater resources and
o Each competitor commands a very small share of capabilities
the aftermarket o Industry leaders in technology and product
o Develop customized toner products catered toward quality
a specific copier or printer o OEMs maintain higher price than the
o Limited competition among aftermarket companies aftermarket firms and compete through better
in the Color toner sector product quality and functionality
o OEMs determine what products the aftermarket
firms will sell and at what price they will
sell it
- ------------------------------------------------------------ ---------------------------------------------------------
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 7
COLOR IMAGING - COMPANY ANALYSIS
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 8
COMPANY ANALYSIS
o Market analysis
- Current positioning
- Color products
- Growth strategy
o Profitability analysis
- Revenue, EBITDA and EBIT growth
- Profit margins
o Asset analysis
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 9
MARKET ANALYSIS: CURRENT POSITIONING
o Aftermarket developer of toner cartridges with more than 15 years of
experience
o 55%-45% mix between U.S. and international revenue
o Sales of $22 mil in 2004
o Total toner production in 2004 = 829,331 pounds; 75% black, 10% color
and 15% MICR
o Products targeted toward older printing and copying devices
o Two customers - [***] combined represent 18% of company sales
o Low year-over-year sales and income growth
[***] - Confidential Portions of This Presentation Which Have Been Redacted Are
Marked With Brackets ("[*** ]"). The Omitted Material Has Been Filed Separately
With The United States Securities and Exchange Commission.
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 10
MARKET ANALYSIS: COLOR IMAGING'S EXPANSION INTO COLOR PRODUCTS
[Graphics Omitted]
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 11
MARKET ANALYSIS: MANAGEMENT'S GROWTH STRATEGY
o Expansion into more full-color toner products and discontinuation of
certain black toner products
o Further penetration of both the U.S. and the international markets
o Leveraging direct and retail distribution channels
o Development of more complete toner cartridge devices
o Leveraging research and development expertise
o Expanded product sourcing from strategic suppliers
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 12
PROFITABILITY ANALYSIS: FLAT SALES AND EARNINGS
SELECTED INCOME STATEMENT ITEMS
[Graphics Omitted]
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 13
PROFITABILITY ANALYSIS: GROWTH IN REVENUE & EBITDA
GROWTH ANALYSIS
[Graphics Omitted]
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 14
PROFITABILITY ANALYSIS: MARGINS
MARGIN ANALYSIS
[Graphics Omitted]
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 15
COLOR IMAGING VS. OTHER AFTERMARKET COMPETITORS
MARGIN & GROWTH ANALYSIS - COLOR IMAGING VS. COMPETITORS
[Graphics Omitted]
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 16
ASSET ANALYSIS
SELECTED BALANCE SHEET ITEMS
[Graphics Omitted]
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 17
ASSET ANALYSIS: TURNOVER RATIOS
TURNOVER RATIOS
[Graphics Omitted]
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 18
COLOR IMAGING VS. OTHER AFTERMARKET COMPETITORS
TURNOVER RATIOS - COLOR IMAGING VS. DIRECT COMPETITORS
[Graphics Omitted]
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 19
VALUATION ASSESSMENT
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 20
VALUATION ASSESSMENT: VALUATION METHODS USED
o Public market valuation - current stock price
o Discounted cash flow (DCF)
o Public company method
o Acquisition method
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 21
VALUE INDICATIONS PER SHARE: COLOR IMAGING ON A STAND-ALONE BASIS
o Public market valuation current stock price
- $0.56 (AS OF 2/1/05)
o DCF
- $1.06 - $1.54
o Public company method
- $0.76 - $1.00
o Acquisition method
- $0.71
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 22
STOCK PRICE ANALYSIS: COLOR IMAGING VS. SELECTED PUBLIC COMPANIES
COLOR NASHUA MEDIA
IMAGING CORP SCIENCES
------- ---- --------
VOLUME AS OF 02/01/2005 0 13,700 4,500
AVER DAILY VOLUME OVER 3-M 1,924 5,181 33,545
TOTAL SHARES OUTSTANDING 12,690,305 6,191,489 10,048,246
SHARES OWNED BY INSIDERS 7,994,892 804,894 2,311,096
% SHARES OWNED BY INSIDERS 61.0% 13.0% 23.0%
% SHARES OWNED BY INSTITUTIONS 0.0% 67.0% 0.0%
MARKET CAPITALIZATION (MIL) $ 7.11 $ 55.29 $ 22.91
SHARE PRICE AS OF 02/01/2005 $ 0.56 $ 8.93 $ 2.28
BOOK VALUE PER SHARE $ 0.92 $ 9.81 $ 0.64
FLOAT AS A % OF SHARES OUTSTANDING 39.4% 87.2% 76.6%
AVERAGE DAILY VOLUME AS A % OF FLOAT 0.04% 0.10% 0.44%
EXCHANGE OTCBB NYSE AMEX
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 23
STOCK PRICE ANALYSIS: HISTORICAL PRICES AND TRADING VOLUME
OVER THE LAST THREE YEARS
-----------------------
Share Price variation
over the last three years:
High $3.15
Median $0.68
Low $0.30
------------------------
[Graphics omitted]
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 24
STOCK PRICE ANALYSIS: PRIOR EQUITY OFFERINGS
After the merger in 2001, when Color Imaging sold for up to $2/share, the
Company has had one equity offering in March 2003. Although the offering was
open to the general public, only the affiliate Chi Fu Investments Co Ltd. bought
Company shares (4,500,000 shares at a price of $1.35 per share).
[Graphics Omitted]
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 25
STOCK PRICE ANALYSIS: CONCLUSION
Compared to other Nashua and Media Sciences, Color Imaging:
o Exhibits very LOW trading volume, float as percentage of the shares
outstanding, daily volume as a percentage of the float, market
capitalization, and institutional ownership
o Trades on the RELATIVELY THINLY-TRADED OTCBB market, at a much greater
discount to book value
o Maintains very HIGH insider ownership
o Because of the lack of market liquidity of the Company, Color
Imaging's stock may not be a fair representation of the Company's fair
market value
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 26
VALUATION ASSUMPTIONS, PERTAINING TO THE DCF, PUBLIC COMPANY AND ACQUISITION
VALUATION METHODS
o Excess cash = $1,000,000
o In 2005, an affiliate will pay Color Imaging $647,428 in relation to
the outstanding IDR bond
o Color Imaging will have $270,000 of loss-carry-forward tax benefits,
all of which will be used up in 2005
o Number of shares outstanding = 12,690,305
o 2005 operating costs reflect management's projected $295,876 expense
for cashing out Color Imaging's "in-the-money" stock options, in a
potential "going-private" transaction
o Assuming going private annual cost savings from non public financial
reporting, starting in 2006, estimated at $134,500 per year
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 27
DCF-SPECIFIC ASSUMPTIONS
o Long-term 'Debt / Total Capital' ratio = 20%
o Concluded weighted-average cost of capital (WACC) range: 14% to 16%
o Exit EBITDA multiples range: 5x to 7xEBITDA (the exit EBITDA multiples
are used to calculate the value of Color Imaging's cash flow beyond
year 5)
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 28
DCF: MANAGEMENT BUDGET ASSUMING REVERSE SPLIT
Budgeted Projected Projected Projected Projected
Dec-05 Dec-06 Dec-07 Dec-08 Dec-09
-------------------------------------------------------------------------------------
Sales $ 24,000,039 $ 26,000,000 $ 29,500,000 $ 33,000,000 $ 36,500,000
Cost of Sales 15,759,472 16,820,000 19,165,000 21,510,000 23,855,000
-------------------------------------------------------------------------------------
Gross Profit 8,240,567 9,180,000 10,335,000 11,490,000 12,645,000
Operating Expenses
Administrative Expenses 1,661,670 1,648,000 1,750,000 1,950,000 2,150,000
Research & Development 1,211,754 1,533,000 1,687,000 1,855,000 2,041,000
Selling Expenses 3,086,985 3,241,350 3,403,418 3,573,588 3,752,268
-------------------------------------------------------------------------------------
Total Operating Expenses 5,960,409 6,422,350 6,840,418 7,378,588 7,943,268
-------------------------------------------------------------------------------------
Operating Income 2,280,158 2,757,650 3,494,583 4,111,412 4,701,732
Depreciation 586,330 600,000 600,000 600,000 600,000
Interest & Financing 62,536 57,511 77,240 58,065 62,169
Other Income (Expense) 69,428 18,900 18,900 26,400 36,900
-------------------------------------------------------------------------------------
Income Before Tax $ 1,700,720 $ 2,119,039 $ 2,836,243 $ 3,479,746 $ 4,076,464
EBITDA
Income Before Tax $ 1,700,720 $ 2,119,039 $ 2,836,243 $ 3,479,746 $ 4,076,464
Interest & Financing $ 62,536 $ 57,511 $ 77,240 $ 58,065 $ 62,169
Depreciation $ 586,330 $ 600,000 $ 600,000 $ 600,000 $ 600,000
-------------------------------------------------------------------------------------
EBITDA $ 2,349,586 $ 2,776,550 $ 3,513,483 $ 4,137,812 $ 4,738,632
Working Capital Additions @ 31% $ 671,184 $ 619,988 $ 1,085,000 $ 1,085,000 $ 1,085,000
Capital Expenditures $ 953,000 $ 700,000 $ 450,000 $ 450,000 $ 450,000
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 29
DCF: MANAGEMENT BUDGET: ASSUMED GROWTH RATES AND MARGINS
Management's budget: Assumed growth rates and margins
2005 2006 2007 2008 2009
---- ---- ---- ---- ----
GROWTH RATES
- ------------
Sales 9.9% 8.3% 13.5% 11.9% 10.6%
EBITDA 61.0% 18.2% 26.5% 17.8% 14.5%
EBIT 177.3% 23.4% 33.9% 21.4% 17.0%
MARGINS
- -------
EBITDA 9.8% 10.7% 11.9% 12.5% 13.0%
EBIT 7.3% 8.4% 9.9% 10.7% 11.3%
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 30
DCF: Equity Value Indications
EBITDA exit multiple 5xEBITDA 6xEBITDA 7xEBITDA
- -------------------- ------------- ------------- -------------
Equity value at 14% WACC: $14,500,000 $17,100,000 $19,600,000
Equity value at 15% WACC: $14,000,000 $16,400,000 $18,900,000
Equity value at 16% WACC: $13,400,000 $15,800,000 $18,200,000
EBITDA exit multiple 5xEBITDA 6xEBITDA 7xEBITDA
- -------------------- ------------- ------------- -------------
Equity value at 14% WACC: $1.14 $1.35 $1.54
Equity value at 15% WACC: $1.10 $1.29 $1.49
Equity value at 16% WACC: $1.06 $1.25 $1.43
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 31
Public company method: Guideline company multiples
Most
comparable
TICKER CIMG.OB XRX CAJ HPQ LXK NSH GFX OCENY
-------------------------------------------------------------------
COLOR MEDIA
COMPANIES IMAGING XEROX CANON HP LEXMARK NASHUA SCIENCES OCE
--------------------------------------------------------------------
Market Capitalization at Month Ended Jan05 Jan05 Jan05 Jan05 Jan05 Jan05 Jan05 Low Median High
-------------------------------------------------------------------- ---------------------
MARKET VALUE INV. CAP. (MVIC) MULTIPLES:
EBITDA:
Current 4.5 9.5 7.1 9.3 12.9 7.4 10.2 5.5 5.5 9.3 12.9
- ------------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE EQUITY (PRICE) MULTIPLES:
Net Income:
Current 12.2 16.8 14.2 15.3 16.7 23.0 27.9 13.2 13.2 16.7 27.9
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 32
Public company method: Equity value indication
o Value indication based on the median EBITDA multiple
- $12,700,000 OR $1.00 PER SHARE
o Value indication based on the median Net Income multiple
- $9,700,000 OR $0.76 PER SHARE
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 33
ACQUISITION METHOD: M&A TRANSACTIONS
Purchase Performance Measures Profit Margins Business Enterprise
Price Value to:
--------- ----------------------------- -------------------- -----------------------
Net Net
Date Seller BEV Revenues EBIT EBITDA Income EBIT EBITDA Income Revenue EBIT EBITDA
- -------------------------------------------- --------- ----------------------------- --------------------- -----------------------
6-Jul-04 Media Sciences International, Inc. 14.0 16.3 1.8 2.1 0.8 11.1% 12.6% 5.2% 0.86 7.68 6.79
31-Aug-00 Splash Technology Holdings Inc 147.4 83.0 4.9 6.4 6.2 5.9% 7.7% 7.5% 1.78 30.08 23.03
3-Oct-00 Mesa Ridge Technologies Inc 8.0 7.9 0.8 0.8 0.4 9.8% 10.1% 5.4% 1.01 10.32 10.04
22-Oct-00 Miltope Group Inc 36.3 66.1 5.1 6.0 5.4 7.6% 9.0% 8.1% 0.55 7.18 6.09
15-Aug-00 Kontron Mobile Computing, Inc. 8.2 12.6 1.1 1.2 0.5 8.9% 9.8% 4.3% 0.65 7.35 6.69
31-May-02 E Mergent, Inc. 22.7 22.4 0.9 1.5 0.5 4.0% 6.6% 2.2% 1.01 25.47 15.31
ALL TRANSACTIONS:
High 147.4 83.0 5.1 6.4 6.2 11.1% 12.6% 8.1% 1.78 30.08 23.03
Median 18.3 19.4 1.5 1.8 0.7 8.3% 9.4% 5.3% 0.93 9.00 8.41
Average 39.4 34.7 2.4 3.0 2.3 7.9% 9.3% 5.4% 0.98 14.68 11.32
Low 8.0 7.9 0.8 0.8 0.4 4.0% 6.6% 2.2% 0.55 7.18 6.09
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 34
ACQUISITION METHOD: EQUITY VALUE INDICATION
o Value indication based on the Media Sciences' 2004 transaction EBITDA
multiple
- $9,000,000
- $0.71 PER SHARE
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 35
VALUE INDICATIONS PER SHARE: SUMMARY
o Current Price
- $0.56
o DCF
- $1.06 - $1.54
o Public company method
- $0.76 - $1.00
o Acquisition method
- $0.71
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 36
STRATEGIC ALTERNATIVES
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 37
STRATEGIC ALTERNATIVES CONSIDERED
o Continue as is (Color Imaging maintains its current public status)
o Merger/Acquisition
- With a public company
- With a private company
o Go Private
- Management buyout
- Sale to private equity investor
- Stock buy back
- Reverse stock split
o Liquidation of the Company
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 38
MERGER/ACQUISITION: POTENTIAL BENEFITS AND PITFALLS
Benefits
- --------
o Increased distribution capabilities
o Increased product offering
o Improved customer service, especially for larger clients
o Economies of scale and elimination of duplicative costs
Pitfalls
- --------
o Management conflicts
o Culture integration problems
o IT compatibility issues
o Board control issues
o Employee attrition
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 39
MERGER/ACQUISITION OPPORTUNITIES:
PUBLIC VS. PRIVATE
Public company
- --------------
o Only two possible public companies identified - Teckn-O-Laser and
Media Sciences
o A merger may not increase the shareholder value
o Proxy and reporting requirements are costly relative to size of the
companies (Sarbanes - Oxley)
o Color Imaging is unable to raise capital for acquisition on the public
markets
Private company
- ---------------
o More private than public companies are available M&A candidates
o Proxy and reporting requirements are not as costly for a merger
between private companies
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 40
MERGER/ACQUISITION: PRIVATE COMPANIES CONTACTED BY COLOR IMAGING'S MANAGEMENT
o [***]
o [***]
o [***]
o [***]
o [***]
o [***]
o [***]
o [***]
o [***]
o [***]
o [***]
[***] - Confidential Portions of This Presentation Which Have Been Redacted Are
Marked With Brackets ("[*** ]"). The Omitted Material Has Been Filed Separately
With The United States Securities and Exchange Commission.
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 41
MERGER/ACQUISITION: PRIVATE COMPANIES CONTACTED BY COLOR IMAGING'S MANAGEMENT
o Only two companies expressed interest
- [***]
o [***] owner indicated that he had no desire to be public
- [***]
o Contingent on [***] a public offering [***], not to occur before
2006
o Not able to agree on terms
o Three year audit SEC SOX and other reporting requirements would be
time consuming and costly relative to size of companies
[***] - Confidential Portions of This Presentation Which Have Been Redacted Are
Marked With Brackets ("[*** ]"). The Omitted Material Has Been Filed Separately
With The United States Securities and Exchange Commission.
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 42
MERGER/ACQUISITION: MANAGEMENT'S DISCUSSION ON A POTENTIAL MERGER [***]
o Color Imaging's management indicated that during the discussions for a
potential merger [***], an acquisition price of $1.25 per share for
Color Imaging's shares was considered
o In addition, both companies have discussed potential synergies of up
to $500,000 per year from the elimination of duplicating expenses
[***] - Confidential Portions of This Presentation Which Have Been Redacted Are
Marked With Brackets ("[*** ]"). The Omitted Material Has Been Filed Separately
With The United States Securities and Exchange Commission.
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 43
GO PRIVATE: POTENTIAL BENEFITS AND PITFALLS
Benefits
- --------
o Increased profitability by eliminating SEC SOX and other reporting
requirements
o Fewer obstacles to merge with another private company and potentially
increase shareholder value
Pitfalls
- --------
o Potential for litigation arising from a going-private transaction
o Decreased stock liquidity
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 44
GO PRIVATE: VALUE INDICATIONS PER SHARE, EXCLUDING TRANSACTION COSTS AND
INCLUDING REPORTING SAVINGS
o DCF
- $1.10 - $1.61
o Public company method
- $0.87 - $1.10
o Acquisition method
- $0.79
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 45
GOING PRIVATE ALTERNATIVES: MANAGEMENT BUYOUT
o We do not think that going private through a management buyout is a
likely scenario for Color Imaging, because the capital requirements
for buyout transactions are high and currently the Company's borrowing
capacity is limited
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 46
GO PRIVATE ALTERNATIVES: SALE TO A PRIVATE EQUITY GROUP (PEG): INVESTORS
CONTACTED BY MANAGEMENT
On-going discussions
- --------------------
o STB/Wachovia Capital Market Group
o Regions Bank/Morgan Keegan
o Lincoln Partners (Investors)
o Sun Capital/Arsenal Capital (Wants control $20M EBITDA)
No ongoing discussions
- ----------------------
o G-V Capital
o Catalyst Financial (Now Owns 90,000 CIMG)
o Pinnacle Equity Partners, LLC [***]
o Geocapital Partners (Small Cap Investor/VC)
o Stanton-Walker (Wants Commitment)
o Iroquois Capital (Small Investment Fund)
o Kasten Group LLC (Buyout firm)
o Certified Business Brokers
o Potomac Valley Partners (Buyout Firm)
o Soloman Brothers (Equity)
o Duchess Advisors, LLC (Private Equity Fund)
[***] - Confidential Portions of This Presentation Which Have Been Redacted Are
Marked With Brackets ("[*** ]"). The Omitted Material Has Been Filed Separately
With The United States Securities and Exchange Commission.
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 47
GO PRIVATE ALTERNATIVES: SALE TO A PRIVATE EQUITY GROUP (PEG) - NOT FINANCIALLY
FEASIBLE
o Any usage of outside venture financing, through issuing preferred
convertible securities, would erode shareholder value:
o PEG firms demand 20% - 25% annual returns on their investment
o Color Imaging cost of equity capital in our valuation is 16.8% - 18.8%
return
o If Color Imaging brings in PEG capital, the return to existing
shareholders would decrease in order to cover the gap between the cost
of equity (16.8% - 18.8%) and the PEG required return (20% - 25%)
o The PEG investors we contacted did not show any interest in Color
Imaging
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 48
GO PRIVATE ALTERNATIVES: STOCK BUY BACK - DIFFICULT TO EFFECTIVELY EXECUTE
o Board of Directors approved the repurchase of up to the lesser of $1
million or 1 million shares of Color Imaging's common stock, through
September 30, 2005.
o To date the Company has repurchased 84,700 of its common shares at a
cost of approximately $56,100 and at an average price of $0.66 per
share.
o SEC rules limit the Company repurchase to 25% of the average daily
volume. Average daily volume is less than 2,000 shares per day.
o The time to create a meaningful impact on the stock price is too long
using a buy back strategy
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 49
GOING PRIVATE ALTERNATIVES: REVERSE STOCK SPLIT - MOST BENEFICIAL SOLUTION
o Cost effective
o Fewer obstacles
o Cashed out shareholders receive liquidity and likely a premium to the
current stock price
o Non-cashed out shareholders able to receive value from cost savings
and possible growth through merger with another private company
o Management discussions concerning a reverse stock split transaction
have centered around an equivalent pre-split purchase price, to the
fractional shareholders of $1.25 per share.
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 50
REVERSE STOCK SPLIT: HYPOTHETICAL VALUES AT $1.25 PER SHARE CASH OUT PRICE AND
500,000 SHARES PURCHASED
o DCF
- $1.07 - $1.59 PER SHARE
o Public company method
- $0.80 - $1.05 PER SHARE
o Acquisition method
- $0.72 PER SHARE
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 51
COMPARISON OF THE HYPOTHETICAL VALUE PREMIUM TO THE PREMIUMS PAID FOR M&A TRANSACTIONS IN 2003
- ----------------------------------------------------------------------------------------------------------------------------------
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%
- ----------------------------------------------------------------------------------------------------------------------------------
Source: Meregerstat Review 2004
RESULTING PREMIUM AT $1.25 PER SHARE: $123.2%
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 52
LIQUIDATION: ORDERLY LIQUIDATION VALUATION ASSUMPTIONS
o Color Imaging has some intangible value attributable to its color
toner product formulations, which is calculated based on the relief
from royalty tradename valuation methodology
o Proceeds from royalty are discounted at 20% (WACC of 14% + 6%
liquidation premium)
Additional assumptions
Projected Amount
Projected Amount in Orderly
for FY2005 (1) Assumption Liquidation
------------------- ------------------- -------------------
Administrative Costs $ 1,570,000 6 months $ 785,000
Severance and Employee Term Costs - R&D 1,394,000 2 months 232,333
Sales and Marketing Costs 3,721,000 6 months 1,860,500
Interest Costs 54,000 6 months 27,000
------------------- -------------------
Total Costs $ 6,739,000 $ 2,904,833
=================== ===================
(1) Based on projections provided by management
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 53
LIQUIDATION: ADJUSTED BALANCE SHEET "OPTIMISTIC"
ASSETS Audited, Dec-04 Adjustment OLV
- --------------------------------------- ----------------- ----------------- -----------------
Current Assets
Total Current Assets 9,511,564 1,415,037 10,926,602
Total Fixed Assets 6,601,832 (2,101,832) 4,500,000
Other Assets
Public Company Shell - 600,000 600,000
Trade Secrets/Formulas - 1,100,000 1,100,000
Rent Deposit 1,765 - 1,765
Prepaid Bond Issuance 21,268 (21,268) -
Related Party Portion IDR Bond 554,764 - 554,764
Other Assets 4,831 - 4,831
----------------- ----------------- -----------------
Total Other Assets 582,628 1,678,732 2,261,360
----------------- ----------------- -----------------
TOTAL ASSETS $ 16,696,024 $ 991,937 $ 17,687,962
================= ================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------
Current Liabilities
Total Current Liabilities 2,096,024 2,096,669
Reserves for Liquidation Liabilities $ 2,904,833 $ 2,904,833
Long Term Liabilities
Notes Payable 5,438 - 5,438
IDR Bond 2,335,000 - 2,335,000
Present Value of Lease Obligation - 419,000 419,000
Deferred Tax Liability 602,450 (602,450) -
----------------- ----------------- -----------------
Total Long Term Liabilities 2,942,888 (183,450) 2,759,438
----------------- ----------------- -----------------
TOTAL LIABILITIES 5,039,557 (183,450) 7,760,940
TOTAL EQUITY 11,656,467 (1,729,446) 9,927,021
----------------- ----------------- -----------------
TOTAL LIABILITIES & EQUITY $ 16,696,024 $ (1,912,896) $ 17,687,962
----------------- ----------------- -----------------
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 54
LIQUIDATION: VALUE INDICATION "OPTIMISTIC"
o Value indication
- $9,900,000
o Value indication per share
- $0.78
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 55
STRATEGIC ALTERNATIVES: SUMMARY
Capital Resulting Required long-term Probab to Share price
requirements liquidity disclosure execute (range)
- -----------------------------------------------------------------------------------------------------------------------------------
Low High
------ ------
I. Continue as is (maintain the Status Quo) Low Low High High $0.56 $1.54
- -----------------------------------------------------------------------------------------------------------------------------------
II. Merger/Acquisition* U/A U/A
Public company High Low-Moderate High Low U/A U/A
Private company Moderate-High Low Low-Moderate Low* U/A U/A
- -----------------------------------------------------------------------------------------------------------------------------------
III. Going private $1.07 $1.59
Management buyout High Low Low Low U/A U/A
Private equity group buyout High Low Low Low U/A U/A
Stock repurchase Moderate Low High Low $0.56 $1.59
Reverse split Low Low Low Moderate $1.07 $1.59
- -----------------------------------------------------------------------------------------------------------------------------------
IV. Liquidation No capital needed Low Moderate Low $0.78 $0.78
- -----------------------------------------------------------------------------------------------------------------------------------
* The probality that Color Imaging will execute a merger as a public company
is low for both public and private M&A candidates. However, if Color
Imaging goes private, the probality of a merger with another private
company increases from "Low" to "Medium - High"
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 56
POTENTIAL EXERCISE OF IN-THE-MONEY STOCK OPTIONS
o There are 408,750 vested in the money options at $1.25 per share with
a weighted average option price of $0.596 per share
o It is our understanding that the Board is considering allowing holders
of vested in-the-money stock options to exercise their options for
cash condition upon the forfeiture of non-vested out-of-the-money
options
o As an alternative, the holder may elect to continue to hold options
for Color Imaging stock for exercise on a cashless basis
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 57
TOTAL VALUE OF VESTED COLOR IMAGING OPTIONS
o According to Color Imaging management
- $267,163 ASSUMING A $1.25 BUYOUT PRICE
o According to CBIZ analysis (using Black-Scholes options pricing model)
- $124,978 at the current price of $0.56 per common share
- Between $226,195 and $924,673 at stock prices ranging from $0.76
to $1.54 (our valuation range on a stand-alone basis).
CBIZ Valuation Group, LLC Draft: Attorney Client Privilege 58