EXHIBIT (c)(v)
COLOR IMAGING, INC.
ASSESSMENT OF STRATEGIC ALTERNATIVES
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PRESENTED TO: PRESENTED TO:
THE BOARD OF DIRECTORS OF THE BOARD OF DIRECTORS OF
COLOR IMAGING
CBIZ Valuation Group, LLC 1
Introduction
o Purpose of the assignment
o Company analysis
o Strategic alternatives
o Valuation assessments
o Premium analysis
o Transaction fairness to the non cashed out shareholders
CBIZ Valuation Group, LLC 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 3
Purpose of the assignment
In performing this assignment we:
- Assessed the Company's current operations and future business
opportunities
- Made a strategic evaluation of Color Imaging
- 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 4
Color Imaging - Company Analysis
CBIZ Valuation Group, LLC 5
Company Analysis
o Profitability analysis
- Revenue, EBITDA and EBIT growth
- Profit margins
o Asset analysis
- Total assets, fixed assets, and working capital
- Turnover ratios
CBIZ Valuation Group, LLC 6
Profitability Analysis: Flat sales and earnings
SELECTED INCOME STATEMENT ITEMS
[graph omitted]
CBIZ Valuation Group, LLC 7
Profitability analysis: Growth in revenue & EBITDA
GROWTH ANALYSIS
[graph omitted]
CBIZ Valuation Group, LLC 8
Profitability analysis: Margins
MARGIN ANALYSIS
[graph omitted]
CBIZ Valuation Group, LLC 9
Color Imaging vs. other aftermarket competitors
MARGIN & GROWTH ANALYSIS - COLOR IMAGING VS. COMPETITORS
[graph omitted]
CBIZ Valuation Group, LLC 10
Asset analysis:
SELECTED BALANCE SHEET ITEMS
[graph omitted]
The increase in working capital between 2002 and 2003 is largely because of a
steep decline in current liabilities (shortened pay cycle), although the cash
proceeds from the 2003 equity offering also have a material impact.
CBIZ Valuation Group, LLC 11
Asset analysis: Turnover ratios
TURNOVER RATIOS
[graph omitted]
CBIZ Valuation Group, LLC 12
Color Imaging vs. other aftermarket competitors
TURNOVER RATIOS - COLOR IMAGING VS. DIRECT COMPETITORS
[graph omitted]
CBIZ Valuation Group, LLC 13
STRATEGIC ALTERNATIVES
CBIZ Valuation Group, LLC 14
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 15
Merger/Acquisition: Benefits and pitfalls
Benefits Pitfalls
o Increased distribution capabilities o Management conflicts
o Increased product offering o Culture integration problems
o Improved customer service, o IT compatibility issues
especially for largerclients o Board control issues
o Economies of scale an d elimination o Employee attrition
of duplicative costs
CBIZ Valuation Group, LLC 16
Merger/Acquisition: Potentially beneficial; the outcome
is contingent on the decision "public vs. private"
Public company Private company
o Limited availability of public o More private than public companies
merger candidates are available M&A candidates
o A merger may not increase the o Proxy and reporting requirements
shareholder value are not as costly for a merger
between private companies
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
CBIZ Valuation Group, LLC 17
GO PRIVATE: MAY OR MAY NOT ENHANCE SHAREHOLDER
VALUE, DEPENDING ON THE TRANSACTION EXECUTION
Benefits Pitfalls
o Increased profitability by o Potential for litigation arising
eliminating SEC SOX and other from a going-private transaction
reporting requirements
o Fewer obstacles to merge with another o Decreased stock liquidity
private company and potentially
increase shareholder value
CBIZ Valuation Group, LLC 18
Going private alternatives: Management buyout -
lack of capital impedes execution
o Going private through a management buyout does not seem to be a likely
scenario for Color Imaging, because the capital requirements for a
buyout transactions are high and currently the Company's borrowing
capacity is limited
CBIZ Valuation Group, LLC 19
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 20
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 21
Going private alternatives: Reverse stock split -
most beneficial go-private 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
CBIZ Valuation Group, LLC 22
Liquidation - unlikely scenario
o Our orderly liquidation analysis indicates that the proceeds to the
shareholders from a potential liquidation scenario are unlikely to
exceed Color Imaging's fair value as a going concern
CBIZ Valuation Group, LLC 23
Valuation Assessment
CBIZ Valuation Group, LLC 24
Valuation assessment: Valuation methods used
o Public market valuation - market price
o Discounted cash flow (DCF)
o Public company method
o Acquisition method
CBIZ Valuation Group, LLC 25
Value Indications per share: Color Imaging on a stand-alone basis
o Public market valuation (market 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 26
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 27
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
HISTORICAL 3-MONTH AVERAGE DAILY TRADING VOLUME OVER THE LAST THREE YEARS
Based on Color Imaging's recent stock price range of around $0.60/share and
average trading volume, the Company trades, on average, less than $3000 worth of
shares per day
HISTORICAL 3-MONTH AVERAGE DAILY TRADING VOLUME OVER THE LAST THREE YEARS
[graph omitted]
CBIZ Valuation Group, LLC 28
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).
This graph shows the company's stock price six months prior to the equity
offering:
1-MONTH MOVING AVERAGE STOCK PRICE VS. STOCK PRICE SIX MONTHS BEFORE OFFERING
[graph omitted]
CBIZ Valuation Group, LLC
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 30
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 31
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 32
DCF: Management budget as of March 9, 2005:
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 33
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 34
DCF: Equity values at the PEG required equity return of 20% and 25%
EBITDA exit multiple 5xEBITDA 6xEBITDA 7xEBITDA
- -------------------- -------- -------- --------
Equity value at 17% WACC: $12,900,000 $15,200,000 $17,500,000
Equity value at 21% WACC: $11,100,000 $13,100,000 $15,100,000
EBITDA exit multiple 5xEBITDA 6xEBITDA 7xEBITDA
- -------------------- -------- -------- --------
Equity value at 17% WACC: $1.02 $1.20 $1.38
Equity value at 21% WACC: $0.87 $1.03 $1.19
The WACC calculations assume 20% and 25% cost of equity
CBIZ Valuation Group, LLC 35
Public company method: Guideline company multiples
Most
comparable
TICKER CIMG.OB XRX CAJ HPQ LXK NSH GFX OCENY
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COMPANIES COLOR MEDIA
IMAGING XEROX CANON HP LEXMARK NASHUA SCIENCES OCE
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Market Capitalization at Jan05 Jan05 Jan05 Jan05 Jan05 Jan05 Jan05 Low Median High
Month Ended ----------------------------
MARKET VALUE INV. CAP. (MVIC) MULTIPLES:
EBITDA:
Current 6.8 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 15.3 16.8 14.2 5.3 16.7 23.0 27.9 13.2 13.2 16.7 27.9
CBIZ Valuation Group, LLC 36
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 37
Acquisition method: M&A transactions
Purchase Price Performance Measures Profit Margins Business Enterprise
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 38
Acquisition method: Equity value indication
o Value indication based on the most recent transaction EBITDA multiple
(pertaining to Media Sciences)
- $9,000,000
- $0.71 PER SHARE
CBIZ Valuation Group, LLC 39
Value Indications per share: Valuation summary on a stand-alone basis
o Market 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 40
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 41
Reverse stock split: Hypothetical values at $1.10 per share cash out price and
76,104 to 500,000 shares repurchased (1)
o DCF
- $1.07 - $1.59 PER SHARE
o Public company method
- $0.81 - $1.06 PER SHARE
o Acquisition method
- $0.72 - $0.74 PER SHARE
(1) As recommended by the special committee
CBIZ Valuation Group, LLC 42
Reverse stock split: Financial reporting assumptions
o Assume Company continues to prepare audited financial statements
o Assumes annual proxy statements in compliance with Delaware law
o Assumes Company distributes annual reports to shareholders
o Assumes Company preserves its ability to resume SEC financial
reporting
CBIZ Valuation Group, LLC 43
Liquidation: Optimistic scenario value indication
o Value indication
- $9,900,000
o Value indication per share
- $0.78
CBIZ Valuation Group, LLC 44
Premium Analysis
CBIZ Valuation Group, LLC 45
Selected multiples and 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
CBIZ Valuation Group, LLC 46
Summary: Premium analysis assuming a cash out price of $1.10 per share
CASH OUT PRICE PREMIUM OVER:
MARKET PRICE AS OF 2/1/2005 96.4%
BOOK VALUE AS OF 12/31/2004 19.6%
CURRENT EBITDA MULTIPLE 50.0%
CURRENT EBIT MULTIPLE 85.9%
CURRENT NET INCOME MULTIPLE 69.9%
IMPLIED MULTIPLE IN THE CASH OUT PRICE
EBITDA (BEV MULTIPLE) 10.2
EBIT (BEV MULTIPLE) 17.1
P/E (EQUITY MULTIPLE) 26.0
CBIZ Valuation Group, LLC 47
Transaction fairness to the non
cashed out shareholders
CBIZ Valuation Group, LLC 48
Going private will not change the Company by much
o The Company will continue to have annual audited financial Statements
o Annual financial reports will continue to be provided to all
shareholders
o Financial information will be made available to any share holder
request as required by Delaware law
o Audited financial statements are required by the Company's lenders o
Maintaining audited financial statements better preserves the
Company's ability to resume public company status if it becomes a
necessity or it becomes desirable as a result of company growth or as
a result of a transaction with another public company
o Management and controlling shareholders will continue to conduct
themselves as fiduciaries to all shareholders in a manner consistent
with current governance and will disclosure information to all
shareholders concerning insider transactions as required by Delaware
law
CBIZ Valuation Group, LLC 49
The current liquidity of the stock will not be materially less than it is prior
to the transaction
o The stock is currently not covered by analysts
o The stock is currently thinly traded and suffers from lack of
liquidity
o Post transaction, there will be no restrictions on a shareholder's
ability to sell stock can still be sold among shareholders, to non
shareholders and may still be sold as a pink sheet stock
CBIZ Valuation Group, LLC 50
Any loss of liquidity will be offset by the benefits from going private
o The Company's cost savings associated with SEC reporting including
Sarbanes-Oxley requirements
o The company's enhanced ability to enter into value creating
transactions with other private companies
CBIZ Valuation Group, LLC 51