Creo Inc.

Creo Inc.

January 10, 2005 07:30 ET

Creo Board Recommends Shareholders Reject Dissident Slate of Director Nominees


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: CREO INC.

TSX SYMBOL: CRE
NASDAQ SYMBOL: CREO

JANUARY 10, 2005 - 07:30 ET

Creo Board Recommends Shareholders Reject Dissident
Slate of Director Nominees

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Jan. 10, 2005) - Creo Inc.
(TSX:CRE) (NASDAQ:CREO) -

- Company Is On the Optimal Path To Enhance Shareholder Value Under
Leadership of Current Board and Management

- Dissidents' Proposed Radical Cuts Put Shareholder Value At Risk
Without Compensation To Shareholders

The board of directors of Creo Inc. (NASDAQ:CREO) (TSX:CRE) has
recommended that shareholders vote in favor of the Creo slate of
director nominees and reject any slate of director nominees that may be
proposed by a small group of dissident shareholders holding
approximately 5.81 percent of the company's shares.

This recommendation and reasons for supporting the current board are
described in the management proxy circular mailed to all Creo
shareholders in advance of the company's annual and special meeting to
be held on February 10, 2005.

The dissidents, predominantly investment firms Goodwood Inc. and Burton
Capital Management, LLC, have indicated their intention to nominate a
slate of directors who would in turn appoint Robert G. Burton, Sr. as
Creo's chief executive officer and chairman of the board of directors.
At the time of today's announcement, the dissidents have disclosed
neither their director nominees nor any specific plans for Creo,
including the implementation of radical cost cuts they proposed in an
August 2004 letter to the company.

"The board believes the dissidents' proxy solicitation proposes to hand
control of the Company to a group with an ill-conceived and high-risk
approach that will jeopardize the future of the Company, without
offering any compensation to shareholders," the Creo board says in the
circular.

The circular describes the board's numerous reasons for recommending
that shareholders vote in favor of the current board, which include the
following:

Creo is Currently on the Optimal Path to Enhance Shareholder Value

Creo's current board and management have built Creo into a recognized
world leader in its industry and increased revenues from US$6 million to
US$636 million in 10 years. Despite a prolonged downturn in the printing
industry, Creo has steadily improved its annual operating results since
2002, and the company's solid performance in 2004 established a strong
foundation for continued growth in earnings and shareholder value. Creo
is now successfully implementing its business plan which is expected to
achieve annualized cost savings of US$24 million in the third quarter of
2005 and deliver pre-tax earnings of at least eight percent of revenue
by the fourth quarter of fiscal 2005 which ends September 30. To further
enhance long-term shareholder value, Creo has entered the digital plate
business, reinforcing the company's strong market position as an
equipment, software and service provider.

The board believes Creo's success to date has been built on:

- its research and development ("R&D") effort, which has generated
innovative and successful products and solutions;

- its skilled and motivated employees, who have developed those products
and provide industry-leading sales and support services; and

- its strong relationships with customers, who are supportive and loyal
to the company and its innovative technology and products.

In the board's judgment, Creo's future is dependent on maintaining its
strong industry position and continuation of the successful expansion of
its digital plate business, which the company has built into a
competitive business in only one year. The digital plate business is
expected to make a significant contribution to Creo's financial results
this year and to increase the stability of Creo's earnings and revenue
as the proportion of recurring business continues to grow.

The Board Believes the Dissidents' Proposal Puts Creo Shareholder Value
at Risk

In a letter to the company in August 2004, one of the dissidents
proposed a radical US$60 million reduction in the company's cost
structure, approximately US$36 million over and above the US$24 million
in savings already incorporated in the company's business plan announced
on October 6, 2004. The proposed cuts were aimed primarily at the
company's R&D program and general employee reductions - both critical
sources of value creation for shareholders. These proposed cuts reflect
a clear lack of understanding of Creo's competitive and
innovation-driven business, as well as the fact that the company is at a
critical point in the implementation of its digital plate strategy.

The board states in the circular, "Such radical cuts would cause the
Company to reduce its estimated fiscal 2006 pre-tax profit by more than
US$60 million, excluding related restructuring and severance charges. In
addition, such drastic measures would introduce significant risk to the
Company's ability to manufacture, sell and service its products, and
would impair its ability to compete." Management estimates that the
reduction of an additional US$36 million in expenses would entail an
estimated total restructuring charge in excess of US$20 million taken
over fiscal 2005 and 2006, including cash severance in excess of US$15
million.

Creo's highly skilled sales force relies on the express commitment of
the company to deliver future innovations and support to current and
prospective customers. The board believes that such ill-conceived and
short-sighted cost-cutting measures, as proposed by one of the
dissidents, would compromise Creo's ability to uphold its commitment to
innovation and service, would result in a reduction of loyalty among
both Creo's customers and employees and would have an immediate negative
impact on the company's short-term revenue and profitability. The board
believes that in the medium to long term, such cuts would significantly
impair the company's competitive advantage.

Robert Burton, Sr. is the Wrong Person to Lead Creo

In the judgment of the board, the dissidents' proposed chief executive
officer and chairman of the board, Mr. Burton, is the wrong person to
lead Creo for the following reasons.

Lack of Relevant Experience:

Mr. Burton has no experience in managing a high-technology developer,
manufacturer and distributor of innovative hardware, software, digital
media and service solutions. Moreover, he has no experience in managing
and guiding an R&D portfolio based on advanced technologies. Mr.
Burton's experience is primarily in companies with manufacturing
operations and little or no R&D. The production of high-volume printing
is generally based on multi-year contracts with a relatively small
number of customers.

By contrast, Creo's rapidly evolving business is based on the sale of
high-technology equipment and sophisticated software, and the provision
of highly responsive service to a large number of customers in all
regions of the world. A large percentage of Creo's revenue is booked and
taken into revenue in the same quarter. In the Board's opinion, Mr.
Burton's experience is wholly inadequate for managing the company's
business.

Ill-Suited Management Style:

Mr. Burton has a demonstrated history of employing confrontational
management techniques. The following quote appeared in the Knight
Ridder/Tribune Business News on October 22, 2001, with reference to the
period of time that Mr. Burton was chief executive officer of Walter
Industries, Inc.:

"Before I got here, there was a bunker mentality," Don DeFosset, the
chief executive officer of Walter Industries who replaced Mr. Burton,
said. "People were afraid to say anything. People were afraid to do
anything outside the narrow constraint of their job. The management
style was threatening and intimidating."

The Board believes that this approach would be particularly harmful if
applied to Creo, which has developed a work environment designed to
appeal to the highly educated and creative employees who are integral to
Creo's continued success.

Past Performance:

In April 2000, Mr. Burton was named chief executive officer of Walter
Industries, a Tampa-based conglomerate known primarily for its
home-building and financial services subsidiaries. Mr. Burton replaced
many of Walter Industries' executives with his own management team and
announced a plan to turn the company around by cutting US$25 million in
annual expenses. Mr. Burton's plan included firing 5 percent of the
workforce and slashing the company's portfolio of subsidiaries. Just 14
weeks after becoming chief executive officer, Mr. Burton resigned amidst
reports of plummeting employee morale. As at December 23, 2004, Walter
Industries' publicly traded stock was trading at a price that is 2.94
times higher than it was when Mr. Burton departed from that company.

In December 2000, Mr. Burton was appointed chairman and chief executive
officer of Moore Corporation. After two years as chief executive
officer, Mr. Burton resigned in December 2002. During 2002,
approximately 72 percent of Moore Corporation's reported profits in
accordance with generally accepted accounting principles ("GAAP")
resulted from adjustments that were made to the valuation allowance for
income tax assets. In 2001, Moore Corporation increased its valuation
allowance by US$102.7 million, contributing to a GAAP net loss of
US$373.4 million. In 2002, Moore Corporation reversed US$52.8 million of
that increase, which helped boost GAAP profits to US$73.3 million.

The Dissidents Propose a Change of Control of Creo that would Create
Risk without Compensation to Shareholders

Despite creating significant strategic risk for Creo and its
shareholders through the potential damage to the company's relationships
with key customers, employees and other groups, the dissidents are not
offering Creo shareholders any compensation in exchange for such risk.

While one of the dissidents acknowledged that "Creo is a well respected
leader in prepress systems with high-quality, advanced products that are
very compelling", the dissidents have not provided a sound plan for
their proposed management of Creo. Further, the dissidents have not
elected to participate in the strategic review process being conducted
by the special committee.

The Current Management and Board Are In the Best Position to Continue to
Execute on the Strategic Review Process

To ensure Creo is considering all avenues to enhance shareholder value,
in July 2004 the board established a special committee and engaged
external financial advisors to review all strategic alternatives
available to the company.

Current management and the board have the best understanding of the
company, the competitive environment in which it operates and its
current and potential strategic partners. Accordingly, current
management and the board are in the best position to conclude the
strategic review process with a view to maximizing shareholder value.

Recommendation that Shareholders Vote For Creo's Slate of Director
Nominees

The board of directors of Creo therefore recommends that shareholders:

- carefully review the management proxy circular;

- vote FOR Creo's slate of director nominees using the BLUE form of
proxy included with the circular; and

- discard any proxy materials they may receive from the dissidents.

Shareholders with questions or requiring assistance in voting the BLUE
form of proxy can contact the firm assisting Creo in the solicitation of
proxies - Georgeson Shareholder - at +1-877-288-9604.

The complete management proxy circular, full text of the letter to
shareholders and other related materials can be accessed later today at
www.creo.com/shareholdervalue.

This news release contains forward-looking statements within the meaning
of the "safe harbor" provisions of the U.S. Private Securities
Litigation Reform Act of 1995. These statements are based on
management's current expectations and beliefs and are subject to a
number of risks and uncertainties that could cause actual results to
differ materially from those described in the forward-looking statements.

These risks and uncertainties include the following: (1) new markets and
product introductions do not proceed as planned and may adversely affect
future revenues; (2) technological changes or changes in the competitive
environment may adversely affect the products, market share, revenues or
margins of the business; and (3) changes in general economic, financial
or business conditions may adversely affect the business or the markets
in which it operates. These risks and uncertainties as well as other
important risks and uncertainties are described under the caption
"Certain Factors That May Affect Future Results" and elsewhere in our
Annual Report for the fiscal year ended September 30, 2004, as filed
with the U.S. Securities and Exchange Commission and other documents
filed with the U.S. Securities and Exchange Commission, and which are
incorporated herein by reference. We do not assume any obligation to
update the forward-looking information contained in this news release.

About Creo

Creo Inc. is a global company with key strengths in imaging, software,
and digital printing plate technology. The leading provider of prepress
systems, Creo helps over 25,000 customers worldwide adopt digital
production methods which reduce costs, increase print quality and allow
them to serve their customers more efficiently. Based on a solid
foundation of intellectual property, Creo has an unmatched range of
technology solutions that address the needs of commercial, publication,
on demand, packaging, and newspaper printers, and creative
professionals. Creo product lines include software and hardware for
computer-to-plate imaging, systems for digital photography, scanning,
and proofing, as well as printing plates and proofing media. Creo also
supplies on-press imaging technology, components for digital presses,
color servers, and high-speed digital printers.

Based in Vancouver, Canada, Creo reported fiscal 2004 revenue of US$636
million. Creo trades on NASDAQ (CREO) and the TSX (CRE). www.creo.com

(C) 2005 Creo Inc. The Creo product names mentioned in this document are
trademarks or service marks of Creo Inc. and may be registered in
certain jurisdictions. Other company and brand, product and service
names are for identification purposes only and may be trademarks or
registered trademarks of their respective holders. Data is subject to
change without notice.

-30-

Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    Creo Inc.
    Tracy Rawa
    Investor Relations
    +1.604.419.4794
    IR@creo.com
    or
    Creo Inc.
    Rochelle van Halm
    Media Relations (Headquarters)
    +1.604.676.4526
    rochelle.van.halm@creo.com