Smith & Nephew (SNN) to Acquire NUCRYST Pharma. (NCST) Acticoat Business fpr $21M ; Enters into Amalgamation with Westaim Corp.

November 11, 2009 6:54 AM EST

NUCRYST Pharmaceuticals Corp. (NASDAQ: NCST) announced today the execution of a definitive agreement with subsidiaries of Smith & Nephew plc. (NYSE: SNN) for the sale to Smith & Nephew of substantially all of Nucryst's operations and assets including all rights to its proprietary nanocrystalline silver technology for cash consideration of $21 million plus the value of working capital and subject to certain adjustments. The closing of the Sale Transaction is subject to customary conditions including the approval of Nucryst shareholders.

Nucryst also entered into an amalgamation agreement with The Westaim Corporation, which currently owns approximately 75% of Nucryst's outstanding common shares. Under the amalgamation agreement, Nucryst will amalgamate with a newly formed subsidiary of Westaim to form Amalco and Nucryst shareholders other than Westaim will receive one redeemable preferred share in the capital of Amalco, which share will be redeemed for $1.77 in cash upon the completion of the Amalgamation. Completion of the Amalgamation is subject to certain conditions including closing of the Sale Transaction and the approval of Nucryst shareholders. Following the completion of the Amalgamation, Nucryst intends to delist from the TSX and NASDAQ stock exchanges.

The board of directors of Nucryst engaged KPMG Corporate Finance Inc. to provide a fairness opinion regarding the Sale Transaction and an independent valuation of Nucryst for the purpose of the Amalgamation, in accordance with Multilateral Instrument 61-101. Specifically, KPMG Corporate Finance Inc. has opined that the consideration offered in the S&N Agreement is fair, from a financial point of view, to Nucryst. In addition, the valuation prepared by KPMG Corporate Finance Inc. provides a valuation range of $1.72 to $1.82 per common share, subject to certain assumptions.

The board of directors of Nucryst unanimously determined that the Sale Transaction is in the best interests of Nucryst and is fair, from a financial point of view, to Nucryst and that the value proposed to the minority shareholders of Nucryst under the amalgamation agreement is fair, from a financial point of view, to the common shareholders of Nucryst (other than Westaim). In light of these conclusions, the Nucryst board of directors unanimously determined to enter into the S&N Agreement and the amalgamation agreement and to recommend that Nucryst shareholders vote in favor of the resolutions authorizing the Sale Transaction and the Amalgamation.

Closing under the S&N Agreement and completion of the Amalgamation is conditional upon, among other things, approval of the shareholders of Nucryst at a special meeting called for such purpose. The Sale Transaction and the Amalgamation will each separately be proposed to shareholders for consideration. The Sale Transaction requires the approval of more than two thirds of the votes cast at the meeting and Westaim has entered into a support agreement with Smith & Nephew under which it will vote in favor of the S&N Agreement, subject to certain limited exceptions applicable where a financially superior proposal has been made. The Amalgamation requires both the approval of more than two thirds of the votes cast at the meeting and, pursuant to Multilateral Instrument 61-101, the approval of a simple majority of shareholders other than the directors and officers of Westaim. If the Sale Transaction is approved by shareholders and other conditions to closing are satisfied, the transaction will proceed, irrespective of whether the Amalgamation is approved. The S&N Agreement includes a non-solicitation covenant on the part of Nucryst, subject to a customary "fiduciary out" provision, the right of Smith & Nephew to match any financially superior proposal and the payment of a $1.0 million termination fee by Nucryst to Smith & Nephew in certain circumstances. Details regarding the S&N Agreement and the amalgamation agreement will be included in Nucryst's management information circular which is expected to be mailed to shareholders in late November, 2009 for a shareholders meeting to be held in December, 2009.

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