Creo takeover Part 1 - Disaffected shareholders make grab for power

Citing issues with decisions made by management and depleted share value, the angered shareholders published an open letter detailing their five-point plan to rescue Creo from its “road to disaster.” The letter nominates Robert G. Burton as the proposed new CEO and chairman of the board, alluding to his success in the top job at Moore Corporation Limited as reason for the choice.

The open letter is as follows . . .

Creo Inc. is a company with lots of potential. In the 1990's, Creo made a name for itself as the company that led the commercialisation of computer-to-plate ('CTP') devices for the commercial printing industry. As a result, Creo has the largest installed base of CTP devices in the world. Despite this, the current Board of Directors of Creo (the 'Creo Board') and current Creo management have made decisions that have resulted in sub-par operating performance, missed targets and poor capital allocation, all of which have destroyed shareholder value.

This is unacceptable. We believe a change of direction is necessary for Creo to realize its potential and deliver acceptable returns to shareholders. In order to effect this change, we require your support. Included herewith is a dissident proxy circular (the 'Circular') and a GREEN form of proxy which we have prepared in connection with the annual and special meeting of Creo's shareholders to be held on February 10, 2005 (the 'Meeting'). At the Meeting, we intend to nominate a new slate of directors to the Creo Board.

To understand why change is necessary, one needs to look no further than the Creo share price. Over the approximate five-year period from the date of the IPO to October 8, 2004, Creo shareholders have lost 53% of their investment. We believe that this is the result of:

- Consistently poor operating performance, which resulted in Creo's pre-tax operating margin falling from 16.6% in fiscal 1999 to 1.6% in fiscal 2004;

- A loss of market share in Creo's core North American metal CTP business, in which Creo's share of annual installations fell from 72% in 1999 (proforma the Scitex Acquisition, as defined in the Circular) to 28% in 2004;

- A cost structure that is significantly above that of its competitors despite consistent calls from shareholders that it be realigned;

- Consistently missing publicly stated goals and targets, such as on August 4, 2004 when Creo management indicated that it would not be able to meet its long standing commitment to shareholders of 15% pre-tax margins exiting fiscal 2005;

- several poor capital allocation decisions, such as Creo's purchase of Scitex Corporation's prepress assets, its investment in Printcafe Software, Inc. and its wasted R&D spending, resulting in net investment, intangibles and goodwill writedowns of approximately US$328 million over the past five years.

In the face of this performance, what has the Creo Board done to reverse the trend? The answer is nothing. Over the past five years, the Creo Board has not changed the leadership of the Company. The Chief Executive Officer (the 'CEO') of Creo at the time of the IPO remains the CEO of Creo today. In addition, the Creo Board has not significantly changed the Company's operating strategy despite overwhelming evidence that it has not created shareholder value.

Creo's Current Strategy-A Road to Disaster

The Creo Board and current management believe that, despite their poor performance, you should continue to entrust the Company to their 'growth for growth's sake' strategy. While indicating that Creo will not achieve its 15% pre-tax margin target exiting fiscal 2005, Creo management continues to stick by their target of US$1 billion of revenue by fiscal 2007. In the process, the Creo Board has approved over US$100 million of investment in building out Creo's digital plate strategy with returns to shareholders coming far off in the future, if at all.

Although we acknowledge the attractiveness of providing digital plates as part of the Creo product offering, we believe that the approach taken by the Creo Board is flawed and could require significant additional capital beyond what the Creo Board has already approved. We also believe that this will result in a steady stream of losses for the Company. These capital investments combined with continued market share losses could leave Creo in a difficult financial position. Change is necessary to reverse this course before it is too late.

A New Leader-Robert G. Burton, Sr.

We believe that a significant change of direction is necessary at Creo to unlock the value that exists in the Company. We seek to replace the Creo Board with individuals who are established business leaders, many of whom have substantial experience in the printing and publishing industries. In addition, if our nominees are elected, they intend to hire Mr. Robert G. Burton, Sr. as CEO of Creo and appoint him as Chairman of the new Creo Board.

Mr. Burton, a Printing Impressions Hall of Fame member, is widely recognized for his intense focus on customers and on delivering value to shareholders. Goodwood Inc. approached Mr. Burton for this role because it believes that his proven ability to turn around underperforming companies, combined with his vast printing industry experience and distinguished track record, make him the ideal candidate to turn around Creo's performance and unlock value for shareholders.

Mr. Burton was the Chairman, President and CEO of Moore Corporation Limited ('Moore'), a leading printing company with over US$2.0 billion in revenue in fiscal 2002. During his two-year tenure at Moore, Mr. Burton led Moore to a dramatic turnaround through significantly reducing costs, recruiting top-tier executive talent, growing revenue organically and through acquisitions and implementing a 'one-stop shopping' customer focus. The price of the common shares of Moore increased from US$2.38 on December 12, 2000, the first date of Mr. Burton's employment, to US$10.16 on December 6, 2002, the date of his resignation. This is not the first time Mr. Burton has delivered results to shareholders.

Mr. Burton was also the Chairman, President and CEO of World Color Press, Inc. ('World Color'), a leading commercial printing company with revenues exceeding US$2.3 billion for fiscal 1998. During his nine-year tenure as the senior executive of World Color, Mr. Burton led its turnaround, culminating in its sale by way of a merger in 1999 with Quebecor Printing, Inc., creating Quebecor World, Inc., one of the world's largest commercial printers. World Color completed its IPO on January 25, 1996 at a price of US$19.00 per share and was sold in the merger at a value per share of US$38.00. For additional information about Mr. Burton, please see the section of the Circular entitled 'Robert G. Burton, Sr. and Burton Capital Management, LLC'.

A New Strategy-Strengthening the Core

If Mr. Burton is appointed as Creo's CEO, his intention is to change the strategic direction of Creo by refocusing the Company on its core products, improving the Company's focus on customers and on delivering value to shareholders. The new corporate mission will be to grow Creo into the pre-eminent prepress and imaging solutions provider in the commercial printing, packaging and newspaper industries. The major components of this strategy include:

- Refocusing the business by selling, spinning off or shutting down products and product lines that are non-core to the mission or do not deliver a satisfactory return on capital employed;

- Reducing costs by rationalizing product lines, reducing R&D spending, realigning the sales force and consolidating corporate functions, which we believe will result in cost reductions having a run rate of at least US$50 million after the first 12 months and an additional US$25 million in the second 12 months following Mr. Burton's appointment;

- Rethinking Creo's digital media strategy and reducing the amount of capital required for the strategy by focusing on joint ventures, business alliances and business acquisitions as opposed to greenfield capital investment;

- Increasing revenue by emphasizing Creo's selling efforts and refocusing on customer needs and by completing selected acquisitions relating to Creo's core business;

- Aligning management interests with those of Creo's shareholders by implementing an employee stock purchase plan at market prices and requiring senior management to participate in such plan. Above all, it is our intention to deliver results to shareholders-excuses will be unacceptable. We believe that these changes will result in a stronger Creo, one that can compete over the long term and deliver value to shareholders.