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Westaim enters into reorganization agreement valuing Westaim at $0.60 per share

CALGARY, ALBERTA – October 3, 2008 – The Westaim Corporation announced today it has entered into a reorganization agreement which values the company at $0.60 per share. Under the reorganization, Westaim will acquire several closely held and profitable businesses that provide products and services in the growing western Canadian construction industry. The businesses to be acquired had combined revenue of approximately $164 million, pro forma net income of approximately $10 million, pro forma adjusted net income of approximately $21 million and pro forma adjusted EBITDA of approximately $30 million for the year ended December 31, 2007. 

Following the reorganization and a $15 million private placement of Westaim common shares, the completion of which is a condition of closing the reorganization, Westaim will have pro forma working capital of approximately $62 million, total assets of approximately $170 million and liabilities of approximately $95 million. The combined company will have a healthy balance sheet and business operations with a history of strong profitability enhanced by the future utilization of tax pools available in the new company. Pro forma financial information giving effect to the reorganization is summarized below.

The reorganization is subject to regulatory approval and approval of the shareholders of Westaim, which will be sought at a special meeting of shareholders expected to be held by the end of November. Westaim expects to mail to its shareholders a notice of meeting, letter of transmittal, form of proxy and information circular for the special meeting by mid-October.

The board of directors of Westaim has determined the reorganization is in the best interests of Westaim and Westaim shareholders and unanimously recommends that shareholders vote in favour of the reorganization. Each of Westaim's directors and senior officers has agreed to vote the common shares he owns in favour of the reorganization.

“The Westaim board believes that this business combination will result in a stronger company and provide an opportunity for shareholders to realize new value,” said Drew Fitch, President and CEO of Westaim. “The reorganization maximizes shareholder value and allows Westaim shareholders to participate in an industry which has experienced significant growth in recent years and is expected to continue to grow over the next five years.”

Under the reorganization, Westaim expects to issue approximately 257 million common shares to the vendors of the businesses and 25 million common shares under the private placement equity financing, assuming an offering price of $0.60 per share, such that post closing the current shareholders of Westaim will hold approximately 25.1 percent of the total number of issued common shares. The percent of the new total common shares outstanding held by current Westaim shareholders will vary directly with the offering price of the privately placed equity financing – for example, if the offering is priced at $0.50 per share, current Westaim shareholders will hold 30.1 percent of the new total common shares outstanding and conversely if the offering is priced at $0.70 per share, current Westaim shareholders will hold 21.5 percent.

The equity private placement will be marketed during the two weeks following mailing of the information circular for the special meeting of Westaim shareholders. Following this marketing period, Westaim will announce the price per share paid under the equity financing and the resulting percentage ownership of existing Westaim shareholders in the restructured company. The reorganization includes a consolidation of Westaim's outstanding common shares on a 20 for 1 basis, such that following implementation of the reorganization, Westaim will have 18.85 million common shares outstanding.

The reorganization provides Westaim shareholders with the opportunity to participate in a new company, combining several profitable and established businesses focused on the strong western Canadian construction industry. Under the terms of the reorganization, Westaim's board will be altered by the resignation of all current Directors and the appointment of five new directors: Marco DeDominicis, Jack Lee, David Hall, Gerald Romanzin and Gerald Berkhold. Marco DeDominicis will assume the position of President and Chief Executive Officer. Westaim's name (hereinafter referred to as New Westaim) will also be changed. 

Following the reorganization, the construction services business segment of New Westaim will be conducted under five operating divisions: Con-Forte Contracting Limited Partnership, Asty Concrete Limited Partnership, Four Star Gravel Contractors Ltd., Sas-Can Masonry Ltd. and Nascor Ltd.  These divisions will jointly provide products and services to the construction industries in Alberta and parts of British Columbia and Saskatchewan, including concrete flatwork and formwork, ready-mix concrete and brick and masonry services. The new business segment will also manufacture and supply engineered and pre-fabricated wood frame components for the residential and multi-family construction industries. NUCRYST Pharmaceuticals Corp. will continue as a 74.5 percent owned subsidiary of New Westaim.

The acquired businesses are well-established in both the commercial and residential construction industry, despite the competitive environment, and have a strong reputation in the marketplace for their technical expertise and extensive experience in successfully completing projects of varying complexities. The acquired businesses will implement and benefit from cross-marketing and selling synergies across the markets in which they operate. The company expects to retain the services of the previous owner-managers of the acquired businesses. These individuals have successful track records of managing and growing their businesses. With a combined workforce of over 800 skilled employees, many of whom are long-term, New Westaim is well-positioned to be a significant player in the western Canada construction industry, in particular Alberta.

Alberta has one of the strongest economies in Canada, with businesses, workers and their families continuing to migrate into the province, not only from other regions of Canada, but also from outside Canada.  As the province grows, demand for economic infrastructure needs to be satisfied.  In its 2008 budget, the government of Alberta announced $22 billion of infrastructure spending for the years 2008 to 2011.  In addition to growth in commercial construction, the industry in Alberta has also benefited from a booming residential housing market in recent years.  Although the unprecedented growth in the residential housing market is not expected to continue at the same rate, New Westaim will take advantage of its ability to shift resources from the residential sector to the commercial sector as necessary. New Westaim, with its vertically integrated construction services segment, expects to capture market share, expand its product and service lines, broaden its customer base and capitalize on accretive acquisition opportunities to further grow the company.

Under the equity private placement Westaim will issue common shares for gross proceeds of $15 million to investors who are at arm's length to the vendors of the businesses. The proceeds of the equity issue will be used for general working capital purposes and, together with a line of credit, to fund the acquisitions. A major Canadian bank has provided a commitment letter whereby it will provide credit facilities comprised of an acquisition term loan of $30 million with a three-year term and a revolving operating loan with a $10 million limit. New Westaim will also have access to other existing operating lines with major financial institutions of approximately $10 million. Following the reorganization, Nascor will continue to owe $18.6 million to its former parent. 

Closing of the reorganization is subject to a number of conditions including no material adverse changes to the underlying businesses and to Westaim and its subsidiaries, completion of the private placement equity financing, Westaim shareholder approval and receipt of all necessary regulatory approvals. The reorganization agreement provides for payment of a non-completion fee of $2.25 million by Westaim to certain of the vendors of the businesses if the reorganization is not implemented for various reasons including the board of directors of Westaim recommending an alternative transaction to the reorganization.  In addition, the reorganization agreement provides for payment of a non-completion fee of $2.25 million by certain of the vendors of the businesses to Westaim if the reorganization is not implemented for various reasons including the vendors being in material breach of the reorganization agreement.

The Westaim Corporation’s investments include iFire Technology Ltd., and a 74.5 percent interest in NUCRYST Pharmaceuticals Corp. (NASDAQ: NCST; TSX: NCS). Westaim's common shares are listed on The Toronto Stock Exchange under the trading symbol WED.


For more information contact:


David Wills

Investor Relations

(416) 504-8464


Forward-Looking Statements

Certain information regarding Westaim, the acquired businesses and New Westaim in this news release including, without limitation, management’s assessment of future plans and operations, the effect of the reorganization on Westaim, timing of matters related to the approval of the reorganization and implementation thereof, completion and pricing of the private placement, shareholdings of existing shareholders of Westaim in New Westaim, growth prospects for New Westaim and implementation of New Westaim's business plan may constitute forward-looking statements under applicable securities laws. Such forward-looking statements or information are based on a number of assumptions which may prove to be incorrect. The forward-looking statements are based on Westaim's current expectations, estimates and projections, and are subject to a number of significant risks including, without limitation, risks associated with a failure on the part of any party to meet the conditions to completion of the reorganization, New Westaim's ability to be retained for existing and new project work by existing and new customers, New Westaim's ability to retain and hire the qualified personnel required, the delay or cancellation of projects and general economic, business and market conditions.  As a consequence, actual results may differ materially from those anticipated in the forward-looking statements. Readers are cautioned that the foregoing list of factors is not exhaustive. Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and Westaim does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws. Completion of the reorganization is subject to a number of conditions, including but not limited to regulatory and shareholder approval.  There can be no assurance that the reorganization will be completed as proposed or at all.



Posted: October 2008