altair_s4-041610.htm
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form S-4
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
Altair
Nanotechnologies Inc.
(Exact Name of
Registrant as Specified in Its Charter)
Canada*
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2890
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33-1084375
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(State
or Other Jurisdiction of
Incorporation)
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(Primary
Standard Industrial
Classification
Code Number)
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(I.R.S.
Employer
Identification
Number)
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204
Edison Way
Reno, Nevada
89502
(775) 856-2500
(Address, including
zip code, and telephone number, including area code, of Registrant’s principal
executive offices)
John
Fallini
204
Edison Way
Reno, Nevada
89502
(775) 856-2500
with a copy
to:
Bryan
T. Allen, Esq.
Parr
Brown Gee & Loveless
185
South State Street, Suite 800
Salt
Lake City, Utah 84111
Phone:
(801) 257-7963
Facsimile:
(801) 532-7750
(Name, address,
including zip code, and telephone number, including area code, of agent for
service)
Approximate date of commencement of
proposed sale to the public: As soon as practicable after this
Registration Statement becomes effective and the consummation of the
domestication transaction covered hereby.
If the
securities being registered on this Form are being offered in connection with
the formation of a holding company and there is compliance with General
Instruction G, check the following box. o
If this
Form is filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earliest effective
registration statement for the same offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer o
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Accelerated
filer x
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Non-accelerated
filer o
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Smaller
reporting company o
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(Do not
check if a smaller reporting company)
If
applicable, place an X in the box to designate the appropriate rule provision
relied upon in conducting this transaction:
Exchange
Act Rule 13e-4(i) (Cross-border Issuer Tender Offer) o
Exchange
Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) o
CALCULATION OF REGISTRATION
FEE
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Proposed
Maximum
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Proposed
Maximum
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Amount
of
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Title
of Each Class of
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Amount
to be
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Offering
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Aggregate
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Registration
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Securities to be
Registered
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Registered(1)
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Price per Share (2)
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Offering
Price
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Fee
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Common stock, .001 par
value(3)
Rights
associated with Common Stock (3)
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118,714,877 |
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$ |
0.75 |
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$ |
89,036,158 |
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$ |
6,348 |
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(1)
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Represents
shares of common stock of Altair Nanotechnologies, Inc., a to-be-formed
Nevada corporation, being registered in connection with the domestication
of Altair Nanotechnologies, Inc., a corporation organized under the
federal laws of Canada, assuming that the proposed resolution is approved
by the shareholders and the domestication is
consummated. Number of shares registered is estimated based
upon the 105,400,728 common shares of Altair Nanotechnologies Inc., a
Canadian corporation, outstanding on the date of filling, together with
the number of common shares subject to outstanding options and warrant to
purchase common shares.
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(2)
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Estimated
pursuant to Rule 457(c) solely for the purpose of calculating the
registration fee based on the average of the high and low prices for the
common shares of the Registrant as reported on the NASDAQ Capital Market
on April 12, 2010.
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(3)
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Each
share of common stock includes an attached right arising under and subject
to the terms described in the Amended and Restated Shareholder Rights Plan
Agreement dated October 15, 1999, as amended by that certain Amendment No.
1 dated October 5, 2008, between the Registrant and Equity Transfer
Services, Inc., as the Rights Agent. Until the occurrence of
events described in such agreement, the rights are not exercisable, are
evidenced by the common stock and transfer with, and only with, the common
stock.
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The Registrant hereby amends this
Registration Statement on such date or dates as may be necessary to delay its
effective date until the Registrant files a further amendment which specifically
states that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933, as amended, or
until the Registration Statement shall become effective on such date as the
Securities and Exchange Commission, acting pursuant to said Section 8(a),
may determine.
*
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The
Registrant intends, subject to shareholder approval, to effect a
domestication under Section 92A.270 of the Nevada Revised Statutes,
pursuant to which the Registrant’s state of incorporation will be
Nevada.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This document shall not constitute an offer to sell or the
solicitation of any offer to buy nor shall there be any sale of these securities
in any jurisdiction in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any such
jurisdiction.
PRELIMINARY — SUBJECT TO
COMPLETION — DATED APRIL 16, 2010
Altair
Nanotechnologies Inc.
PROPOSED DOMESTICATION — YOUR
VOTE IS VERY IMPORTANT
We are
furnishing this management proxy circular to shareholders of Altair
Nanotechnologies Inc., in connection with the solicitation of proxies by our
management for use at a special meeting of our shareholders. The special meeting
will be held on _________ __, 2010 at 10:00 o'clock in the morning (Pacific
time), in Reno, Nevada.
The
purpose of the special meeting is to obtain shareholder approval to change our
jurisdiction of incorporation from the federal jurisdiction of Canada to the
State of Nevada in the United States through the adoption of articles of
domestication and new articles of incorporation. This change in
jurisdiction of incorporation is referred to as a “continuance” under Canadian
law Canada and as a “domestication” under Nevada law.
We
believe that the domestication will enhance our ability to engage in strategic
joint ventures, acquisition and disposition transactions, eliminate certain
regulatory burdens imposed by the Canada Business Corporations Act, limit
reporting requirements under the Canadian securities laws, and give us
flexibility in our management structure. In addition, we believe that
the achievement of our strategic goals would be enhanced by our clear and
unambiguous identification as a U.S. corporation.
Approval
of the proposed domestication requires affirmative votes, whether in person or
by proxy, from at least two-thirds of the votes cast with respect to the matter
by the holders of our common shares at the special meeting where a quorum of
one-third of the total outstanding common shares is
present. Dissenting shareholders have the right to be paid the
fair value of their shares under Section 190 of the Canada Business
Corporations Act. Our Board of Directors has reserved the right to terminate or
abandon our domestication at any time prior to its effectiveness,
notwithstanding shareholder approval, if it determines for any reason that the
consummation of our domestication would be inadvisable or not in our and your
best interests. If approved by our shareholders, it is anticipated that the
domestication will become effective on or about ______, 2010 or as soon as
practicable after the special meeting of our shareholders.
Your
existing certificates representing your Altair Nanotechnologies Inc. common
shares will represent the same number of shares of common stock after the
domestication without any action on your part. You will not have to exchange any
share certificates. We will issue new certificates or book entry share
statements, as applicable, to you representing shares of capital stock of Altair
Nanotechnologies Inc. as a Nevada corporation upon a transfer of the shares by
you or at your request. Following the completion of our
domestication, the common stock will continue to be listed on the NASDAQ Capital
Market under the trading symbol “ALTI.”
The
accompanying management proxy circular provides a detailed description of our
proposed domestication and other information to assist you in considering the
proposals on which you are asked to vote. We urge you to review this information
carefully and, if you require assistance, to consult with your financial, tax or
other professional advisers.
Our Board of Directors unanimously
recommends that you vote FOR each of the proposals described in this management
proxy circular, including the approval of our domestication.
Your vote is very important.
Whether or not you plan to attend the special meeting, we ask that you indicate
the manner in which you wish your shares to be voted and sign and return your
proxy as promptly as possible in the enclosed envelope so that your vote may be
recorded. If your shares are registered in your name, you may vote your shares
in person if you attend the special meeting, even if you send in your
proxy.
These securities involve a high
degree of risk. See “Risk
Factors” beginning on
page 10 of this management proxy circular for a discussion of specified
matters that should be considered.
Neither the Securities and Exchange
Commission nor any state securities commission or similar authority in Canada,
has approved or disapproved of these securities or determined if the management
proxy circular/prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
This management proxy
circular/prospectus is dated ________, 2010 and is first being mailed to
shareholders on or about ________, 2010.
ALTAIR
NANOTECHNOLOGIES INC.
204
Edison Way
Reno,
Nevada 89502
NOTICE
OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that
the special meeting of the shareholders of Altair Nanotechnologies Inc. (the
"Company") will be held at the Grand Sierra Resort, 2500 E. 2nd
Street, Reno, Nevada 89502, ____day, the ___ day of _____ 2010(1), at
the hour of 10:00 o'clock in the morning (Pacific time) for the following
purposes:
(1) To
consider, and if deemed advisable, approve a special resolution authorizing the
Company to make an application under Section 188 of the Canada Business
Corporations Act to change its jurisdiction of incorporation from the federal
jurisdiction of Canada to the State of Nevada by way of a domestication under
Section 92A.270 of the Nevada Revised Statutes, and to approve the articles of
incorporation authorized in the special resolution to be effective as of the
date of the Company’s domestication; and
(2) To
approve the adjournment of the special meeting, if necessary, to solicit
additional proxies, if there are not sufficient votes at the time of the special
meeting to approve proposal No. 1.
This
notice is accompanied by a form of proxy and a management proxy
circular.
Shareholders
who are unable to attend the special meeting in person are requested to
complete, date, sign and return the enclosed form of proxy so that as large a
representation as possible may be had at the special meeting. Proxies
to be used at the special meeting must be deposited at the office of the
transfer agent not later than 48 hours (excluding Saturdays and holidays) before
the time of holding the special meeting.
DATED at
Toronto, Ontario as of the ___th day of _________, 2010.
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BY: ORDER
OF THE BOARD |
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Terry M.
Copeland |
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President and Chief
Executive Officer |
_________________________
(1) Meeting is
preliminarily scheduled for July 8, 2010.
MANAGEMENT
PROXY CIRCULAR
TABLE OF CONTENTS
SUMMARY |
1 |
Questions and Answers about the
Proposals |
1 |
The Domestication
Proposal |
5 |
Regulatory and Other
Approvals |
6 |
Comparison of Shareholder
Rights |
6 |
Accounting Treatment of the
Domestication |
6 |
Dissent Rights of
Shareholders |
6 |
Tax Consequences of the
Domestication |
7 |
Selected Financial
Data |
9 |
RISK FACTORS |
10 |
Risks Relating to the
Domestication |
10 |
Risks Relating to Our
Company |
12 |
THE SPECIAL
MEETING |
21 |
Solicitation of
Proxies |
21 |
Appointment and Revocation of
Proxies |
21 |
Voting Securities and Principal
Holders of Voting Securities |
22 |
Exchange Rate
Information |
23 |
PROPOSAL NO. 1 – THE
DOMESTICATION |
24 |
General |
24 |
Principal Reasons for the
Domestication |
24 |
Effects of the
Domestication |
25 |
Officers and
Directors |
26 |
Treatment of Outstanding
Capital Stock, Options and Warrants |
26 |
The Shareholder Rights
Plan |
26 |
Treatment of Effective
Registration Statements |
26 |
Proposed Consolidation (Reverse
Stock Split) |
27 |
Shareholder
Approval |
27 |
Regulatory and Other Approvals
and Board Discretion |
27 |
Comparison of Shareholder
Rights |
28 |
Proposed Articles of
Incorporation and Bylaws of Altair Nevada |
36 |
Dissent Rights of
Shareholders |
37 |
Accounting Treatment of the
Domestication |
38 |
United States Federal Income
Tax Considerations |
39 |
Canadian Federal Income Tax
Considerations |
45 |
DESCRIPTION OF OUR CAPITAL
STOCK |
49 |
Altair Nevada Common
Stock |
49 |
Change of Control Provisions in
the Rights Agreement |
49 |
Potential Anti-takeover Effect
of Nevada Law, Our Articles of incorporation and Bylaws |
52 |
PROPOSAL No. 2 — ADJOURNMENT OF
MEETING |
54 |
Adjournment |
54 |
Vote
Required |
54 |
OUR
BUSINESS |
55 |
Our Power and Energy
Group |
55 |
Our All Other
Division |
61 |
Research and Development
Expenses |
63 |
Dependence on Significant
Customers |
63 |
Government
Regulation |
63 |
Government
Contracts |
64 |
Environmental Regulation and
Liability |
64 |
Financial Information about
Segments and Foreign Sales |
64 |
Subsidiaries |
64 |
Corporate
History |
65 |
Employees |
65 |
Enforceability of Civil
Liabilities against Foreign Persons |
66 |
Properties |
66 |
Legal
Proceedings |
66 |
CERTAIN MATTERS RELATED TO OUR
COMMON SHARES |
67 |
Market
Price |
67 |
Outstanding Shares and Number
of Shareholders |
67 |
Dividends |
67 |
Securities Authorized for
Issuance under Equity Compensation Plans |
68 |
Recent Sales of Unregistered
Securities |
68 |
Transfer Agent and
Registrar |
68 |
CERTAIN FINANCIAL
INFORMATION |
69 |
Selected Financial
Data |
69 |
Supplementary Financial
Data |
69 |
Financial
Statements |
70 |
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS |
70 |
Overview |
70 |
General
Outlook |
71 |
Our Operating
Divisions |
72 |
Liquidity and Capital
Resources |
73 |
Capital Commitments and
Expenditures |
75 |
Off-Balance Sheet
Arrangements |
75 |
Critical Accounting Policies
and Estimates |
75 |
Results of
Operations |
79 |
Quantitative and Qualitative
Disclosures about Market Risk |
81 |
MANAGEMENT AND COMPENSATION
INFORMATION |
82 |
Directors |
82 |
Executive
Officers |
88 |
Certain Relationships and
Related Transactions |
88 |
Compensation, Nominating and
Governance Committee |
88 |
Committee Membership and
Independence |
89 |
Compensation, Nominating and
Governance Committee Interlocks and Insider
Participation |
89 |
Compensation Discussion and
Analysis |
89 |
Compensation, Nominating and
Governance Committee Report |
96 |
Executive
Compensation |
97 |
Compensation of
Directors |
101 |
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT |
102 |
INTEREST OF MANAGEMENT IN THE
PROPOSALS TO BE ACTED UPON |
103 |
LEGAL MATTERS |
103 |
EXPERTS |
103 |
WHERE YOU CAN FIND MORE
INFORMATION |
103 |
OTHER MATTERS |
104 |
Proposals of
Shareholders |
104 |
Undertakings |
104 |
Additional
Information |
104 |
INDEX TO FINANCIAL
STATEMENTS |
105 |
ALTAIR
NANOTECHNOLOGIES INC.
MANAGEMENT
PROXY CIRCULAR
(All
dollar amounts expressed herein are U.S. dollars)
SUMMARY
This
summary highlights selected information appearing elsewhere in this management
proxy circular, or this Circular, and does not contain all the information that
you should consider in making a decision with respect to the proposals described
in this Circular. You should read this summary together with the more detailed
information, including our financial statements and the related notes included
in this Circular, and the exhibits attached hereto. You should carefully
consider, among other things, the matters discussed in “Risk Factors” and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” which are included in
this Circular. You should read this Circular in its entirety.
Unless
otherwise provided in this Circular, references to the “Company,” “we,” “us,”
and “our” refer to Altair Nanotechnologies Inc., a Canadian corporation, prior
to the change of jurisdiction. References to “Altair Nevada” refer solely to
Altair Nanotechnologies Inc, a Nevada corporation, as of the effective time of
the change in jurisdiction. References to “Altair Canada” refer solely to Altair
Nanotechnologies Inc., a Canadian corporation, prior to the effective time of
the change in jurisdiction. Masculine pronouns include the female and
the neuter as appropriate. We have registered or are in the process
of registering the following trademarks: Altair Nanotechnologies Inc®, Altair
Nanomaterials, Inc.®, Altairnano®, TiNano® and Nanocheck®. Any other
trademarks and service marks used in this Circular are the property of their
respective holders.
Altair
Nanotechnologies, Inc. is a Canadian corporation with principal assets and
operations in the United States, whose primary business is developing and
commercializing nano-lithium titanate based power and energy
systems.
Set forth
below in a question and answer format is general information regarding the
special meeting of shareholders to which this Circular relates. This general
information regarding the special meeting is followed by a more detailed summary
of the process relating to, reasons for and effects of our proposed change in
jurisdiction of incorporation (Proposal 1 in the Notice of Meeting), which
we refer to in this Circular as the “domestication”.
Questions and Answers about the
Proposals
Q.
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What
is the purpose of the special
meeting?
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A.
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The
purpose of the special meeting is to vote on a special resolution
authorizing the Company to make an application under Section 188 of the
Canada Business Corporations Act to change its jurisdiction of
incorporation from the federal jurisdiction of Canada to the State of
Nevada by way of a domestication under Section 92A.270 of the Nevada
Revised Statutes, and to approve the articles of incorporation authorized
in the special resolution to be effective as of the date of the Company’s
domestication. The agenda also includes a proposal related to
adjournment of the special meeting, if necessary, to solicit additional
proxies, if there are not sufficient votes at the time of the special
meeting to approve the domestication
proposal.
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Q.
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Where
will the special meeting be held?
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A.
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The
special meeting will be held at the Grand Sierra Resort, 2500 E. 2nd
Street, Reno, Nevada 89502, ____day, the ____ day of _____ 2010, at the
hour of 10:00 o'clock in the morning (Pacific
time).
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Q.
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Who
is soliciting my vote?
|
A.
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Our
Board of Directors is soliciting your proxy to vote at the special
meeting. This Circular and form of proxies were first mailed to our
shareholders on or about _________ __, 2010. Your vote is important.
We encourage you to vote as soon as possible after reviewing this Circular
and all information delivered with this
Circular.
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Q.
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Who
is entitled to vote?
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A.
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The
record date for the determination of shareholders entitled to receive
notice of the special meeting is ______ _, 2010. As of such date, there
are [ ]
common shares outstanding, each of which is entitled to one vote on all
matters presented at the special meeting. In accordance with the
provisions of the Canada Business Corporations Act, or the CBCA, we will
prepare a list of the holders of our common shares as of the record
date.
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Q.
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What
are the voting recommendations of the Board of
Directors?
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A.
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The
Board of Directors recommends the following
votes:
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● FOR
the special resolution authorizing the Company to make an application
under Section 188 of the Canada Business Corporations Act to change its
jurisdiction of incorporation from the federal jurisdiction of Canada to
the State of Nevada by way of a domestication under Section 92A.270 of the
Nevada Revised Statutes, and to approve the articles of incorporation
authorized in the special resolution to be effective as of the date of the
Company’s domestication; and
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● FOR
the adjournment of the special meeting, if necessary, to solicit
additional proxies, if there are not sufficient votes at the
time of the special meeting to approve the domestication
resolution.
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Q.
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Will
any other matters be voted on?
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A.
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The
Board of Directors does not intend to present any other matters at the
special meeting. The Board of Directors does not know of any other matters
that will be brought before our shareholders for a vote at the special
meeting. If any other matter is properly brought before the special
meeting, your signed proxy card gives authority to Terry M. Copeland and,
failing him, John Fallini, or your indicated nominee as proxies, with full
power of substitution, to vote on such matters at their
discretion.
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Q.
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What
is the difference between holding shares as a shareholder of record and as
a beneficial owner?
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A.
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Many
shareholders hold their shares through a broker or bank rather than
directly in their own names. As summarized below, there are some
distinctions between shares held of record and those owned
beneficially.
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Shareholder of
Record — If your shares are registered directly in your name
with our transfer agent, you are considered, with respect to those shares,
the shareholder of
record, and these Circular materials are being sent directly to you
by us. You may vote the shares registered directly in your name by
completing and mailing the proxy card or by written ballot at the special
meeting.
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Beneficial Owner —
If your shares are held in a stock brokerage account or by a bank, you are
considered the beneficial owner of shares held in street name, and these
Circular materials are being forwarded to you by your bank or broker,
which is considered the shareholder of record of these shares. As the
beneficial owner, you have the right to direct your bank or broker how to
vote and are also invited to attend the special meeting. However, since
you are not the shareholder of record, you may not vote these shares in
person at the special meeting unless you bring with you a legal proxy from
the shareholder of record. Your bank or broker has enclosed a voting
instruction card providing directions for how to vote your
shares.
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Q.
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How are shares held by a broker
or other intermediary voted?
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A.
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Brokers
and other intermediaries who have record ownership of our common shares
held in brokerage accounts for their clients who beneficially own the
shares are subject to rules governing how they can vote the shares. Under
these rules, brokers and other intermediaries who do not receive voting
instructions from their clients have the discretion to vote uninstructed
shares on certain matters (“discretionary matters”), but do not have
discretion to vote uninstructed shares as to certain other matters
(“non-discretionary matters”). A broker or intermediary may return a proxy
card on behalf of a beneficial owner from whom the broker has not received
instructions that casts a vote with regard to discretionary matters, but
expressly states that the broker is not voting as to non-discretionary
matters. The broker’s or other intermediary’s inability to vote with
respect to the non-discretionary matters is referred to as a “broker
non-vote.” Partial broker non-votes will be counted for the
purpose of determining the presence of a quorum; total broker non-votes
will not be counted for the purpose of determining the presence of a
quorum.
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If you hold your shares in “street
name,” we encourage you to contact your broker with your voting instructions as
soon as possible. The domestication resolution (Proposal No. 1) and
the adjournment of the meeting (Proposal No. 2) are both considered to be
discretionary matters. As a result, your broker or other intermediary
does not have the ability to vote on your behalf, and no vote will be cast for
your shares for these matters unless you provide your broker with voting
instructions.
An
abstention, or withhold vote, is counted as present and entitled to vote for
purposes of determining a quorum. An abstention, or withhold vote, will have no
effect on the domestication resolution (Proposal No. 1) or the adjournment of
the meeting (Proposal No. 2).
A.
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If
you are a shareholder of record, there are two ways to
vote:
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●
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By
completing and mailing your proxy card;
or
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●
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By
written ballot at the special
meeting.
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Shareholders
who are not shareholders of record and who wish to file proxies should
follow the instructions of their intermediary with respect to the
procedure to be followed. Generally, shareholders who are not shareholders
of record will either: (i) be provided with a proxy executed by the
intermediary, as the shareholder of record, but otherwise uncompleted and
the beneficial owner may complete the proxy and return it directly to our
transfer agent; or (ii) be provided with a request for voting
instructions by the intermediary, as the shareholder of record, and then
the intermediary must send to our transfer agent an executed proxy form
completed in accordance with any voting instructions received by it from
the beneficial owner and may not vote in the event that no instructions
are received.
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Q.
|
Can
I change my vote or revoke my
proxy?
|
A.
|
A
shareholder of record who has given a proxy has the power to revoke it
prior to the commencement of the special meeting by depositing an
instrument in writing, including another proxy bearing a later date,
executed by the shareholder or by the shareholder’s attorney authorized in
writing either (i) at the Company’s principal office located at 204
Edison Way, Reno, Nevada, 89502 at any time up to and including the last
business day preceding the day of the special meeting, or any adjournment
thereof or (ii) with the chairman of such meeting on the day of the
special meeting or any adjournment thereof or in any other manner
permitted by law.
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Q.
|
How
are votes counted?
|
A.
|
We
will appoint a Scrutineer at the special meeting. The Scrutineer is
typically a representative of our transfer agent. The Scrutineer will
collect all proxies and ballots, and tabulate the
results.
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Q.
|
Who
pays for soliciting proxies?
|
A.
|
The
cost of solicitation by management will be borne directly by the
Company. We have retained D. F. King & Co., Inc. (the
“Soliciting Agent”) to assist with the solicitation of proxies for an
estimated fee of $10,000 plus reasonable out-of-pocket
expenses. Additional variable fees may also be incurred
depending on the level of voter response. Arrangements will
also be made with brokerage houses and other custodians, nominees and
fiduciaries for the forwarding of solicitation materials to the beneficial
owners of the common shares of the Company held of record by such persons,
and we will reimburse them for their reasonable out-of-pocket expenses
incurred by them in connection
therewith.
|
Q.
|
What
is the quorum requirement of the special
meeting?
|
A.
|
One-third
of the outstanding common shares entitled to vote, represented in person
or by properly executed proxy, is required for a quorum at the special
meeting.
|
Q.
|
What
are broker non-votes?
|
A.
|
Broker
non-votes occur when holders of record, such as banks and brokers holding
shares on behalf of beneficial owners, do not receive voting instructions
from the beneficial holders at least ten days before the special meeting.
Broker non-votes will not affect the outcome of the matters being voted on
at the special meeting, assuming that a quorum is
obtained.
|
Q.
|
What
vote is required to approve each
proposal?
|
A.
|
Proposal
No. 1, our change of jurisdiction from Canada to Nevada by means of a
domestication requires affirmative votes, whether in person or by proxy,
from at least two-thirds of the votes cast by the holders of our common
shares with respect to the matter at the special meeting where a quorum of
one-third of the total outstanding common shares is
present.
|
|
Proposal No.
2, authorizing adjournment of the special meeting if necessary, to solicit
additional proxies, if there are not sufficient votes at the time of the
special meeting to approve the domestication resolution, requires that the
votes cast in favor of the proposal exceed the votes case against the
proposal.
|
|
Of
the [__] outstanding common shares as of the Record Date, approximately
[___] are owned by officers, directors and their affiliates, representing
[___]% of the outstanding common shares as of such
date.
|
Q.
|
Who
can attend the special meeting?
|
A.
|
All
registered shareholders, their duly appointed representatives, our
directors and our auditors are entitled to attend the special
meeting.
|
Q.
|
I
own my shares indirectly through my broker, bank, or other nominee, and I
receive multiple copies of the Circular and other mailings because more
than one person in my household is a beneficial owner. How can I change
the number of copies of these mailings that are sent to my
household?
|
A.
|
If
you and other members of your household are beneficial owners, you may
eliminate this duplication of mailings by contacting your broker, bank, or
other nominee. Duplicate mailings in most cases are wasteful for us and
inconvenient for you, and we encourage you to eliminate them whenever you
can. If you have eliminated duplicate mailings, but for any reason would
like to resume them, you must contact your broker, bank, or other
nominee. If you are a shareholder of record contact John
Fallini, Chief Financial Officer, by phone at (775) 858-3750 or by
mail to P.O. Box 10630, Reno, Nevada, U.S.A.
89510-0630.
|
Q.
|
Multiple
shareholders live in my household, and together we received only one copy
of this Circular. How can I obtain my own separate copy of those documents
for the Annual and Special meeting?
|
A.
|
You
may pick up copies in person at the special meeting or download them from
our Internet web site, www.altairannualmeeting.com. If
you want copies mailed to you and are a beneficial owner, you must request
them from your broker, bank, or other nominee. If you want copies mailed
to you and are a shareholder of record, we will mail them promptly if you
request them from John Fallini, Chief Financial Officer by phone at
(775) 858-3750 or by mail to P.O. Box 10630, Reno, Nevada, U.S.A.
89510-0630. We cannot guarantee you will receive mailed copies before the
special meeting.
|
Q.
|
Where
can I find the voting results of the special
meeting?
|
A.
|
We
are required to file the voting results on the System for Electronic
Document Analysis and Retrieval (SEDAR) promptly following the special
meeting, and thereafter they can be found on the SEDAR website at www.sedar.com. We
are also required to file the voting results on a Current Report on Form
8-K with the SEC promptly following the special meeting, and thereafter
they can be found on our website at www.altairnano.com
(select the link to SEC Filings on the Investor Relations
page).
|
Q.
|
Who
can help answer my questions?
|
A.
|
If
you have questions about the special meeting or if you need additional
copies of this Circular or the enclosed proxy card you should
contact:
|
John Fallini, Chief Financial
Officer
P.O. Box 10630
Reno, Nevada 89510-0630
U.S.A.
(775)858-3750
The Domestication
Proposal
The Board
of Directors is proposing to change our jurisdiction of incorporation from the
federal jurisdiction of Canada to the State of Nevada through a transaction
called a “continuance” under Section 188 of the CBCA, also referred to as a
“domestication” under Section 92A.270 of the Nevada Revised Statutes, and
approve new articles of incorporation to be effective on the date of the
domestication. We will become subject to Nevada corporate law on the
date of our domestication, but will be deemed for the purposes of Nevada
corporate law to have commenced our existence in Nevada on the date we
originally commenced our existence in Canada. Under Nevada corporate law, a
corporation becomes domesticated in Nevada by filing Articles of Domestication
and articles of incorporation for the corporation being domesticated. Our Board
of Directors has unanimously approved our domestication and the related articles
of incorporation of Altair Nevada, believes it to be in our best interests and
in the best interests of our shareholders, and unanimously recommends approval
of the domestication and the approval of the articles of incorporation of Altair
Nevada to our shareholders.
We
believe that the domestication will enhance our ability to engage in strategic
joint venture, acquisition and disposition transactions, eliminate certain
regulatory burdens imposed by the CBCA, limit reporting requirements under the
Canadian securities laws, and give us flexibility in our management
structure. In addition, the achievement of our strategic goals would
be enhanced by our clear and unambiguous identification as a U.S.
corporation. It is favorable for us to undertake the domestication
now in order to avoid a potentially much higher cost in the future when
profitability has been achieved, as the Canadian tax consequences are based on
the Company’s valuation.
The
domestication will change the governing law that applies to our shareholders
from the federal jurisdiction of Canada to the State of Nevada. There are
material differences between the CBCA and Nevada corporate law. Our shareholders
may have more or fewer rights under Nevada law depending on the specific set of
circumstances.
We plan
to complete the proposed domestication as soon as possible following approval by
our shareholders. The domestication will be effective on the date set forth in
the Articles of Domestication and articles of incorporation, as filed with the
Secretary of State of the State of Nevada. Thereafter, Altair Nevada will be
subject to the articles of incorporation filed in Nevada. We will be
discontinued in Canada as of the date shown on the certificate of discontinuance
issued by the Director appointed under the CBCA, which is expected to be the
same date as the date of the filing of the Articles of Domestication and
articles of incorporation in Nevada. However, the Board of Directors may decide
to delay the domestication or not to proceed with the domestication after
receiving approval from our shareholders if it determines that the transaction
is no longer advisable. The Board of Directors has not considered any
alternative action if the domestication is not approved or if it decides to
abandon the transaction.
The
domestication will not interrupt our corporate existence, our operations or the
trading market of our common shares. Each outstanding common share at the time
of the domestication will remain issued and outstanding of Altair Nevada after
our corporate existence is continued from Canada under the CBCA and domesticated
in Nevada under Nevada corporate law. Following the completion of the
domestication, Altair Nevada’s common stock will continue to be listed on the
NASDAQ Capital Market under the symbol “ALTI.”
Regulatory and Other
Approvals
The
continuance is subject to the authorization of the Director appointed under the
CBCA. The Director is empowered to authorize the continuance if, among other
things, he is satisfied that the continuance will not adversely affect our
creditors or shareholders.
Comparison of Shareholder
Rights
Upon
completion of the domestication, our shareholders will be holders of capital
stock of Altair Nanotechnologies, Inc., a Nevada corporation, and their rights
will be governed by Nevada corporate law as well as Altair Nevada’s articles of
incorporation and bylaws. Shareholders should be aware that the rights they
currently have under the CBCA may, with respect to certain matters, be different
under Nevada corporate law. For example, under the CBCA, a company has the
authority to issue an unlimited number of shares whereas, under Nevada corporate
law, a Nevada corporation may only issue the number of shares that is authorized
by its articles of incorporation, and shareholder approval must be obtained to
amend the articles of incorporation to authorize the issuance of additional
shares. On the other hand, under the CBCA, shareholders are entitled to
appraisal/dissent rights for a number of extraordinary corporate actions,
including an amalgamation with another unrelated corporation, some amendments to
a corporation’s articles of incorporation and the sale of all or substantially
all of a corporation’s assets, whereas under Nevada corporate law, stockholders
are only entitled to appraisal/dissent rights for certain mergers, share
exchanges and certain other transactions in which a stockholder receives only
cash or script for shares. In addition, under the CBCA, shareholders
owning at least 5% of our outstanding voting shares have the right to require
the board of directors to call a special meeting of shareholders whereas, under
Nevada corporate law, stockholders have no right to require the board of
directors to call a special meeting. We refer you to the
section entitled “The
Domestication — Comparison of Shareholder Rights” for a more
detailed description of the material differences between the rights of Canadian
shareholders and Nevada stockholders.
Accounting Treatment of the
Domestication
Our
domestication as a Nevada corporation represents a transaction between entities
under common control. Assets and liabilities transferred between entities under
common control are accounted for at carrying value. Accordingly, the assets and
liabilities of Altair Nevada will be reflected at their carrying value to us.
Any of our shares that we acquire from dissenting shareholders will be treated
as an acquisition of treasury stock at the amount paid for the
shares. Under Nevada law, the treasury shares may then be re-issued
under the same terms as our authorized shares.
Dissent Rights of
Shareholders
If you
wish to dissent and do so in compliance with Section 190 of the CBCA, and
we proceed with the continuance, you will be entitled to be paid the fair value
of the shares you hold. Fair value is determined as of the close of business on
the day before the continuance is approved by our shareholders. If you wish to
dissent, you must send written objection to the continuance to us at or before
the special meeting. If you vote in favor of the continuance, you in effect lose
your rights to dissent. If you withhold your vote or vote against the
continuance, you preserve your dissent rights to the extent you comply with
Section 190 of the CBCA. However, it is not sufficient to vote against the
continuance or to withhold your vote. You must also provide a separate dissent
notice at or before the special meeting. If you grant a proxy and intend to
dissent, the proxy must instruct the proxy holder to vote against the
continuance in order to prevent the proxy holder from voting such shares in
favor of the continuance and thereby voiding your right to dissent. Under the
CBCA, you have no right of partial dissent. Accordingly, you may only dissent as
to all your shares. Section 190 of the CBCA is reprinted in its entirety as
Exhibit E to this Circular.
Tax
Consequences of the Domestication
United
States Federal Income Tax Considerations
As
described in greater detail below under the caption “Proposal 1 — The Domestication — United States Federal Income Tax
Considerations,”, we believe that the change in our jurisdiction of
incorporation will constitute a “reorganization” within the meaning of Section
368(a) of the United States Internal Revenue Code of 1986, as amended, or the
Code. If, for any reason, we determine that the domestication would
not qualify as a “reorganization,” we will abandon the domestication. As a
result of the domestication constituting a “reorganization,” we will not
recognize any gain or loss for U.S. federal income tax purposes on the
domestication, other than with respect to our holdings of U.S. real
property. With respect to our U.S. real property interests, the
domestication will result in our recognizing taxable gain equal to the excess of
the fair market value of such U.S. real property on the date of the
domestication over our adjusted tax basis in that real property. We
estimate that taxable gain to be approximately $670,000, but can give no
assurance that the Internal Revenue Service (the “IRS”) will accept our
calculation of the amount of the gain. The amount of our actual
United States federal income tax liability for the year of the domestication
will also depend upon our other items of taxable income or loss for the year,
including net operating loss carryovers from prior years.
For U.S.
shareholders, the domestication also would generally be tax-free for United
States income tax purposes, with two possible exceptions. First, we
met the definition of a “passive foreign investment company” under Code Section
1297 during certain taxable periods prior to 2002; accordingly, proposed
Treasury Regulations under Code Section 1291(f) will require U.S. holders who
acquired their shares of our Company prior to 2002 to recognize taxable gain on
the domestication equal to the excess of the fair market value of their shares
on the date of domestication over their tax basis in such
shares. Second, Code Section 367 has the effect of potentially
imposing income tax on certain U.S. holders in connection with the
domestication. Pursuant to the Treasury Regulations under Code Section 367, any
U.S. holder that owns, directly or through attribution, 10% or more of the
combined voting power of all classes of our stock (which we refer to as a 10%
shareholder) will have to recognize a deemed dividend on the domestication equal
to the “all earnings and profits amount,” within the meaning of Treasury
Regulation Section 1.367(b)-2, attributable to such holder’s shares in the
Company. Any U.S. shareholder that is not a 10% shareholder and whose shares
have a fair market value of less than $50,000 on the date of the domestication
will recognize no gain or loss as a result of the domestication. A U.S.
shareholder that is not a 10% shareholder but whose shares have a fair market
value of at least $50,000 on the date of the domestication must generally
recognize gain (but not loss) on the domestication equal to the excess of the
fair market value of the Company stock at the time of the domestication over the
shareholder’s tax basis in such shares. Such a U.S. holder, however, instead of
recognizing gain, may elect to include in income as a deemed dividend the “all
earnings and profits amount” attributable to his shares in the Company which we
refer to as a “Deemed Dividend Election.” Based on all available information, we
believe that no U.S. shareholder of the Company should have a positive “all
earnings and profits amount” attributable to such shareholder’s shares in the
Company, and accordingly no 10% shareholder or shareholders who makes a Deemed
Dividend Election should be subject to tax under Code Section 367 on the
domestication. Our belief with respect to the “all earnings and
profits amount” results from calculations performed by our accounting firm based
on information provided to them by us. However, no assurance can be given that
the IRS will agree with us. If it does not, a U.S. shareholder may be subject to
adverse U.S. federal income tax consequences under Code Section 367. A U.S.
shareholder’s tax basis in the shares of Altair Nevada received in the exchange
will be equal to such shareholder’s tax basis in the shares of the Company,
increased by the amount of gain (if any) recognized in connection with the
domestication or the amount of the “all earnings and profits amount” included in
income by such U.S. shareholder. A U.S. shareholder’s holding period in the
shares of Altair Nevada should include the period of time during which such
shareholder held his shares in the Company, provided that the shares of the
Company were held as capital assets.
Canadian
Federal Income Tax Considerations
Under the
Income Tax Act (Canada), or the ITA, the change in our jurisdiction from Canada
to the United States will cause our tax year to end immediately before the
continuance. Furthermore, we will be deemed to have disposed of all of our
property immediately before the continuance for proceeds of disposition equal to
the fair market value of the property at that time. We will be subject to a
separate corporate emigration tax equal to the amount by which the fair market
value of all of our property immediately before the continuance exceeds the
aggregate of our liabilities at that time (other than dividends payable and
taxes payable in connection with this emigration tax) and the amount of paid-up
capital on all of our issued and outstanding shares. With the assistance of
professional advisors, we have reviewed our assets, liabilities, paid-up capital
and other tax balances and assuming that the market price of our common shares
does not exceed $0.75 per share, that the exchange rate of the Canadian
dollar to the U.S. dollar is CDN $1.00 equals $0.95, and that the value of our
property does not increase, it is anticipated that there will be no Canadian
federal income taxation arising on the continuance.
Our
shareholders who remain holding the shares after the continuance will not be
considered to have disposed of their shares by reason only of the continuance.
Accordingly, the continuance will not cause shareholders to realize a capital
gain or loss on their shares, and there will be no effect on the adjusted cost
base of their shares. Our shareholders who dissent to the continuance
may be deemed to receive a taxable dividend equal to the amount by which the
amount received for their shares, less an amount in respect of interest, if any,
awarded by the Court, exceeds the paid-up capital of such shares, if the shares
were cancelled before the continuance became effective. A dissenting
shareholder will also be considered to have disposed of the shares for proceeds
of disposition equal to the amount paid to such shareholder less an amount in
respect of interest, if any, awarded by the Court and the amount of any deemed
dividend.
The
foregoing is a brief summary of the principal income tax considerations only and
is qualified in its entirety by the more detailed description of income tax
considerations in the “United
States Federal Income Tax Considerations” and “Canadian Federal Income Tax
Considerations” subsections under “Proposal No. 1 – The
Domestication”, of this Circular, which shareholders are urged to read.
This summary does not discuss all aspects of United States and Canadian tax
consequences that may apply in connection with the domestication. Shareholders
should consult their own tax advisors as to the tax consequences of the
domestication applicable to them. In addition, please note that other tax
consequences may arise under applicable law in other countries.
The table
below presents our selected historical consolidated financial data as of and for
each of the five years ended December 31, 2009, 2008, 2007, 2006 and 2005.
The selected historical consolidated financial data as of and for the five years
ended December 31, 2009 is derived from our audited consolidated financial
statements, which have been audited by Perry-Smith LLP, an independent
registered public accounting firm and are included in this
Circular.
The
selected historical consolidated financial data set forth below should be read
in conjunction with “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and our consolidated
financial statements and related notes included herein. Our financial
statements included in this Circular have been prepared in accordance with U.S.
GAAP.
Amounts
are expressed in thousands of dollars, except share and per share
amounts.
|
|
Year
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
4,371 |
|
|
$ |
5,726 |
|
|
$ |
9,108 |
|
|
$ |
4,324 |
|
|
$ |
2,807 |
|
Net
(loss)
|
|
$ |
(21,312 |
) |
|
$ |
(29,068 |
) |
|
$ |
(31,471 |
) |
|
$ |
(17,200 |
) |
|
$ |
(9,937 |
) |
Net
(loss) per share – basic and diluted
|
|
$ |
(.21 |
) |
|
$ |
(.34 |
) |
|
$ |
(.45 |
) |
|
$ |
(.29 |
) |
|
$ |
(.17 |
) |
Total
assets
|
|
$ |
40,952 |
|
|
$ |
48,071 |
|
|
$ |
73,859 |
|
|
$ |
43,121 |
|
|
$ |
33,464 |
|
Total
liabilities
|
|
$ |
4,092 |
|
|
$ |
4,255 |
|
|
$ |
15,529 |
|
|
$ |
5,300 |
|
|
$ |
4,828 |
|
Cash
dividends declared per common share
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Shareholders’
equity
|
|
$ |
36,319 |
|
|
$ |
42,718 |
|
|
$ |
56,961 |
|
|
$ |
37,821 |
|
|
$ |
28,636 |
|
Working
capital
|
|
$ |
22,118 |
|
|
$ |
26,067 |
|
|
$ |
39,573 |
|
|
$ |
25,928 |
|
|
$ |
21,483 |
|
Number
of shares of capital stock outstanding
|
|
|
105,400,728 |
|
|
|
93,143,271 |
|
|
|
84,068,377 |
|
|
|
69,079,270 |
|
|
|
59,316,519 |
|
RISK
FACTORS
This
Circular contains various forward-looking statements. Such statements can be
identified by the use of the forward-looking words “anticipate,” “estimate,”
“project,” “likely,” “believe,” “intend,” “expect,” or similar
words. These statements discuss future expectations, contain
projections regarding future developments, operations, or financial conditions,
or state other forward-looking information within the meaning of Section 27A of
the United States Securities Act of 1933, as amended (the “Securities Act”), and
Section 21E of the United States Securities Exchange Act of 1934, as amended
(the “Exchange Act”). When considering such forward-looking
statements, you should keep in mind the risk factors noted herein under “Risk
Factors” and other cautionary statements throughout this Circular and our other
filings with the SEC. You should also keep in mind that all forward-looking
statements are based on management’s existing beliefs about present and future
events outside of management’s control and on assumptions that may prove to be
incorrect. If one or more risks identified in this Circular or any
other applicable filings materializes, or any other underlying assumptions prove
incorrect, our actual results may vary materially from those anticipated,
estimated, projected, or intended.
Risks
Relating to the Domestication
The amount of corporate tax payable
by us will be affected by the value of our common shares and our property on the
date of the domestication.
For
Canadian tax purposes, on the date of the domestication we will be deemed to
have a year end and will also be deemed to have sold all of our property and
received the fair market value for those properties. This deemed disposition may
cause us to incur a Canadian tax liability as a result of the deemed capital
gain. We will be subject to an additional corporate emigration tax
equal to 5% of the amount by which the fair market value of our property, net of
liabilities, exceeds the paid-up capital of our issued and outstanding shares.
We have completed certain calculations of our tax accounts with the assistance
of professional advisors, and assuming that the market price of our common
shares remains at approximately $0.75 per share, that the exchange rate of the
Canadian dollar to the U.S. dollar is CDN $1.00 equals $0.95 and that the value
of our property does not increase, it is anticipated that there will not be any
Canadian federal income tax arising on the continuance. The amount of
such corporate emigration tax will be increased (or reduced) by any increase (or
decrease) in the value of our stock price or property, and it is possible that
the Canadian federal tax authorities may not accept our valuations or
calculations of our tax accounts, which may result in additional taxes payable
as a result of the domestication. As is customary, when a Canadian
federal tax liability depends largely on factual matters, we have not applied to
the Canadian federal tax authorities for a ruling on this matter and do not
intend to do so.
As a result of the
domestication, we will incur U.S. taxable gain and tax liability at the
corporate level with respect to the fair market value of our U.S. real property
interests, and the amount of such taxable gain and resulting tax liability is
subject to challenge and redetermination by the IRS.
We
believe that the domestication will qualify as a “reorganization” for U.S.
federal income tax purposes. As a result of the domestication being a
“reorganization,” we will not recognize any taxable gain for U.S. federal income
tax purposes on the domestication at the corporate level except to the extent
that the fair market value of our U.S. real property exceeds our adjusted tax
basis in such U.S. real property. We estimate that the fair market
value of our U.S. real property currently exceeds our adjusted tax basis in that
property by an amount of $670,000. If the IRS does not agree with our
valuation of our U.S. real property interests, however, our U.S. taxable gain on
the domestication could be greater. The actual amount of our U.S.
federal income tax liability for the year of the domestication will also depend
upon our other items of taxable income and loss for the year, including net
operating loss carryovers from prior years.
If the IRS does
not agree with our calculation of the “all earnings and profits amount”
attributable to a U.S. shareholder’s shares, or a U.S. shareholder owned our
shares while we were a passive foreign investment company prior to 2002, the
shareholder may owe U.S. federal income taxes as a result of the
domestication.
Because
the domestication will be a “reorganization” for U.S. federal income tax
purposes our U.S. shareholders will not recognize any taxable gain or loss at
the shareholder level on the domestication, subject to two possible
exceptions.
First,
U.S. shareholders who own directly or indirectly 10% or more of our outstanding
common stock will have to recognize taxable dividend income on the domestication
to the extent of the “all earnings and profits” amount, if
any, allocable to their shares under Treasury Regulation Section
1,367(b)-2. Similarly, U.S. holders of shares of our corporation
having a value of $50,000 or more will have to recognize taxable gain on the
domestication equal to the excess of the value of their shares over their
adjusted tax basis in the shares unless they timely make a “deemed dividend”
election to instead be taxed on the “all earnings and profits” amount, if any,
allocable to their shares in our corporation. Based on a review of
information available to us, we believe that Altair Nanotechnologies Inc. has a
deficit in “earnings and profits.” As a result, no U.S. shareholder should have
a positive “all earnings and profits amount” attributable to such shareholder’s
common shares. Therefore, no 10% or greater U.S. shareholder of our
corporation should be subject to U.S. income tax on any “all earnings and
profits amount” as a result of the domestication. By timely making a
Deemed Dividend Election, any less than 10% U.S. shareholder who would otherwise
be subject to U.S. tax on the domestication as a result of holding appreciated
shares worth $50,000 or more should not be required to include any such amount
in income. However, if the IRS does not agree with our calculation of
the “all earnings and profits amount,” a U.S. shareholder may be subject to
adverse U.S. federal income tax consequences on the domestication.
Second,
if a U.S. shareholder owned our shares during any taxable year in which we were
a “passive foreign investment company” within the meaning of Section 1297 of the
Code , such shareholder may have to recognize taxable gain on the domestication
to the extent those shares have a value in excess of the shareholder’s adjusted
tax basis in the shares. We believe we were not a “passive foreign
investment company” in 2002 or any later taxable year, but we may have been a
passive foreign investment company at various times prior to
2002. U.S. shareholders who acquired their shares of our corporation
prior to 2002 should confer with their individual tax advisors regarding the
effects of the passive foreign investment company rules.
For
additional information on the U.S. federal income tax consequences of the
domestication, see “Proposal
No.1 – The Domestication -- United States Federal Income Tax
Considerations.”
The
rights of our shareholders under Canadian law will differ from their rights
under Nevada law, which will, in some cases, provide less protection to
shareholders following the domestication.
Upon
consummation of the domestication, our shareholders will become stockholders of
a Nevada corporation. There are material differences between the CBCA
and Nevada corporate law and our current and proposed charter and
bylaws. For example, under Canadian law, many significant corporate
actions such as amending a corporation’s articles of incorporation or
consummating a merger require the approval of at least two-thirds of the votes
cast by shareholders, whereas under Nevada law, what is required is a majority
of the total voting power of all of those entitled to vote on the
matter. Furthermore, shareholders under Canadian law are entitled to
appraisal/dissent rights under a number of extraordinary corporate actions,
including an amalgamation with another unrelated corporation, certain amendments
to a corporation’s articles of incorporation or the sale of all or substantially
all of a corporation’s assets, whereas under Nevada law, stockholders are only
entitled to appraisal rights for certain mergers, share exchanges and other
transactions in which a stockholder receives only cash or script for
shares. When directors make, amend or repeal a bylaw, they are
required under the CBCA to submit the change to shareholders at the next meeting
of shareholders. Shareholders may confirm, reject or amend the bylaw, the
amendment or the repeal with the approval of a majority of the votes cast by
shareholders who voted on the resolution. Under Nevada law,
corporation’s board of directors is permitted to amend bylaws without
stockholder approval. As shown by the examples above, if the domestication is
approved, our shareholders, in certain circumstances, may be afforded less
protection under Nevada corporate law than they had under the CBCA. See “Proposal No.1 — The Domestication —
Comparison of Shareholder Rights.”
The
proposed domestication will result in additional direct and indirect costs
whether or not completed.
The
domestication will result in additional direct costs. We will incur attorneys’
fees, accountants’ fees, filing fees, mailing expenses and financial printing
expenses in connection with the domestication. The domestication may
also result in certain indirect costs by diverting the attention of our
management and employees from the day-to-day management of the business, which
may result in increased administrative costs and expenses.
Risks
Relating to Our Company
We
may not be able to raise sufficient capital to expand our operations and meet
future obligations.
As of
December 31, 2009, we had approximately $18.1 million in cash and cash
equivalents. As we take additional steps to enhance our
commercialization and marketing efforts, or respond to acquisition and joint
venture opportunities, large product orders or potential adverse events, our use
of working capital will increase. In any such event, absent a comparatively
significant increase in revenue, we will need to raise additional capital in
order to sustain our ongoing operations, continue testing and additional
development work and, if the trigger is a large product order or similar event,
acquire inventory and/or expand and operate facilities for the production of
those products.
We may
not be able to obtain the amount of additional capital needed or may be forced
to pay an extremely high price for capital. Factors affecting the availability
and price of capital may include the following:
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market
factors affecting the availability and cost of capital generally,
including recent increases or decreases in major stock market indexes, the
stability of the banking and investment banking systems and general
economic stability or
instability;
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the
price, volatility and trading volume of our common
shares;
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our
financial results, particularly the amount of revenue we are generating
from product sales;
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the
amount of our capital needs;
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the
market's perception of companies in our line of
business;
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the
economics of projects being pursued;
and
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the
market's perception of our ability to execute our business plan and any
specific projects identified as uses of
proceeds.
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If we are
unable to obtain sufficient capital or are forced to pay a high price for
capital, we may be unable to meet future obligations or adequately exploit
existing or future opportunities. If we are unable to obtain
sufficient capital in the long run, we may be forced to curtail or discontinue
operations.
We
may continue to experience significant losses from operations.
We have
experienced a net loss in every fiscal year since our inception. Our losses from
operations were $22.9 million in 2009, $30.1 million in 2008 and $33.1 million
in 2007. Even if we do generate operating income in one or more quarters in the
future, subsequent developments in the economy, our industry, customer base,
business or cost structure, or an event such as significant litigation or a
significant transaction, may cause us to again experience operating losses. We
may never become profitable.
Our
quarterly operating results have fluctuated significantly in the past and will
continue to fluctuate in the future, which could cause our stock price to
decline.
Our
quarterly operating results have fluctuated significantly in the past, and we
believe that they will continue to fluctuate in the future, due to a number of
factors, many of which are beyond our control. If in future periods our
operating results do not meet the expectations of investors or analysts who
choose to follow our company, our stock price may fall. Factors that may affect
our quarterly operating results include the following:
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fluctuations
in the size and timing of customer orders from one quarter to the
next;
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timing
of delivery of our services and
products;
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additions
of new customers or losses of existing
customers;
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positive
or negative business or financial developments announced by us or our key
customers;
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our
ability to commercialize and obtain orders for products we are
developing;
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costs
associated with developing our manufacturing
capabilities;
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new
product announcements or introductions by our competitors or potential
competitors;
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the
effect of variations in the market price of our common shares on our
equity-based compensation
expenses;
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disruptions
in the supply of raw materials or components used in the manufacture of
our products;
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technology
and intellectual property issues associated with our products;
and
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general
political, social, geopolitical and economic trends and
events.
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A
majority of our revenue has historically been generated from low-margin contract
research and development services; if we cannot expand revenues from other
products and services, our business will fail.
Historically,
a majority of our revenue has come from contract research and development
services for businesses and government agencies. During the years ended December
31, 2009, 2008 and 2007, contract service revenues comprised 65%, 87% and 55%
respectively, of our operating revenues. Contract services revenue is low
margin, or has negative margins, and is unlikely to grow at a rapid pace. Our
business plan anticipates revenues from product sales and licensing, both of
which have potential for higher margins than contract services and have
potential for rapid growth, increasing in coming years. If we are not successful
in significantly expanding our revenues, or if we are forced to accept low or
negative margins in order to achieve revenue growth, we may fail to reach
profitability in the future.
We
need to secure orders in the stationary power market in order to establish the
viability of our large-scale stationary battery.
To date,
substantially all of our orders have been made as part of testing and
development arrangements with key customers. In order to establish the
market viability of our stationary power battery products, we need to procure
additional orders of market scale stationary power batteries in the near future
and demonstrate the viability of such batteries. If we are unable to
generate one or more significant orders for stationary batteries in the near
future, our ability to establish a foothold in this emerging market could be
compromised. Any failure to grow our stationary power battery
business will significantly harm our ability to increase revenues and become
profitable.
We
depend upon several sole-source third-party suppliers.
We rely
on certain suppliers as the sole-source of certain services, raw materials and
other components of our products, including our battery cells. We do
not have long-term supply or service agreements with any such
suppliers. As a result, the providers of such services and components
could terminate or alter the terms of service or supply with little or no
advance notice. If our arrangements with any sole-source supplier
were terminated, or if such a supplier failed to provide essential services or
deliver essential components on a timely basis, failed to meet our product
specifications and/or quality standards, or introduced unacceptable price
increases, our production schedule would be delayed, possibly by as long as six
months. Any such delay in our production schedule would result in
delayed product delivery and may also result in additional production costs,
customer losses and litigation.
The most
critical sole-source relationship we currently have is for the manufacture of
our battery cells. We currently have one supplier that produces all
of our battery cells. These cells include our proprietary nano
lithium titanate material produced in Reno, Nevada. Our supplier
delivers battery cells to our Anderson, Indiana manufacturing
facility. We then manufacture battery modules or packs used in
electric buses and also manufacture complete multi-megawatt energy storage
solutions for the electric grid renewables integration markets. This
battery cell supplier is critical to our manufacturing process. We
are currently seeking to establish supply agreements with other sources of
battery cell manufacturing. Unless and until an agreement with a
second supplier is reached, we will remain dependent upon this single
supplier.
We are
currently experiencing a quality issue with our existing battery cell supplier
which has impacted our near-term capacity to build battery
products. We are in active discussions with this supplier to identify
the root cause of the problem and rectify it. The items in question
are under warranty and although we do not expect a material financial impact,
the delay in this problem rectification, if it continues for an extended period,
may have an adverse impact on the delivery of our products during the first half
of 2010. We anticipate having a qualified second source of cell
supply in place by the end of 2010.
Continuing
adverse economic conditions could reduce, or delay demand for our
products.
The
financial markets and general economic conditions are still very
weak. Our products are targeted primarily at large power producers
worldwide, the U.S. and British military, military contractors and bus
manufacturers. Due to declining revenues and concerns about
liquidity, companies and branches of the military in our target markets have
reduced, delayed or eliminated many research and development initiatives,
including those related to energy storage. This reduction or delay in
development spending by key customers is hindering our development and
production efforts and will continue to do so until development spending
increases from current depressed levels.
Our
patents and other protective measures may not adequately protect our proprietary
intellectual property, and we may be infringing on the rights of
others.
We regard
our intellectual property, particularly our proprietary rights in our nano
lithium titanate technology, as critical to our success. We have received
various patents, and filed other patent applications, for various applications
and aspects of our nano lithium titanate technology and other intellectual
property. In addition, we generally enter into confidentiality and invention
agreements with our employees and consultants. Such patents and agreements and
various other measures we take to protect our intellectual property from use by
others may not be effective for various reasons, including the
following:
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Our
pending patent applications may not be granted for various reasons,
including the existence of conflicting patents or defects in our
applications, if there was in existence relevant prior art or the
invention was deemed by the examiner to be obvious to a person skilled in
the art whether or not there were other existing
patents;
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The
patents we have been granted may be challenged, invalidated or
circumvented because of the pre-existence of similar patented or
unpatented intellectual property rights or for other
reasons;
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Parties
to the confidentiality and invention agreements may have such agreements
declared unenforceable or, even if the agreements are enforceable, may
breach such agreements;
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The
costs associated with enforcing patents, confidentiality and invention
agreements or other intellectual property rights may make aggressive
enforcement cost prohibitive;
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Even
if we enforce our rights aggressively, injunctions, fines and other
penalties may be insufficient to deter violations of our intellectual
property rights; and
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Other
persons may independently develop proprietary information and techniques
that, although functionally equivalent or superior to our intellectual
proprietary information and techniques, do not breach our patented or
unpatented proprietary
rights.
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Our
inability to protect our proprietary intellectual property rights or gain a
competitive advantage from such rights could harm our ability to generate
revenues and, as a result, our business and operations.
In
addition, we may inadvertently be infringing on the proprietary rights of other
persons and may be required to obtain licenses to certain intellectual property
or other proprietary rights from third parties. Such licenses or proprietary
rights may not be made available under acceptable terms, if at all. If we do not
obtain required licenses or proprietary rights, we could encounter delays in
product development or find that the development or sale of products requiring
such licenses is foreclosed.
The
commercialization of many of our products is dependent upon the efforts of
commercial partners and other third parties over which we have no or little
control.
The
commercialization of our principal products requires the cooperation and efforts
of commercial partners and customers. For example, because completion
and testing of our large-scale stationary battery packs for power suppliers
requires input from utilities and connection to a power network,
commercialization of such battery packs can only be done in conjunction with a
power or utility company. The commercialization of military,
transportation and other applications of our technology is also dependent, in
part, upon the expertise, resources and efforts of our commercial partners. This
presents certain risks, including the following:
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we
may not be able to enter into development, licensing, supply and other
agreements with commercial partners with appropriate resources, technology
and expertise on reasonable terms or at
all;
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our
commercial partners may not place the same priority on a project as we do,
may fail to honor contractual commitments, may not have the level of
resources, expertise, market strength or other characteristics necessary
for the success of the project, may dedicate only limited resources to,
and/or may abandon, a development project for reasons, including reasons
such as a shift in corporate focus, unrelated to its
merits;
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our
commercial partners may be in the early stages of development and may not
have sufficient liquidity to invest in joint development projects, expand
their businesses and purchase our products as expected or honor
contractual commitments;
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our
commercial partners may terminate joint testing, development or marketing
projects on the merits of the projects for various reasons, including
determinations that a project is not feasible, cost-effective or likely to
lead to a marketable end
product;
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at
various stages in the testing, development, marketing or production
process, we may have disputes with our commercial partners, which may
inhibit development, lead to an abandonment of the project or have other
negative consequences; and
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even
if the commercialization and marketing of jointly developed products is
successful, our revenue share may be limited and may not exceed our
associated development and operating
costs.
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As a
result of the actions or omissions of our commercial partners, or our inability
to identify and enter into suitable arrangements with qualified commercial
partners, we may be unable to commercialize apparently viable products on a
timely and cost-effective basis, or at all.
Interest
in our nano lithium titanate batteries is affected by energy supply and pricing,
political events, popular consciousness and other factors over which we have no
control.
Currently,
our marketing and development efforts for our batteries and battery materials
are focused primarily on stationary power, transportation and military
applications. In the transportation and military markets, batteries
containing our nano lithium titanate materials are designed to replace or
supplement gasoline and diesel engines. In the stationary power
applications, our batteries are designed to conserve and regulate the stable
supply of electricity, including from renewable sources. The interest
of our potential customers and business partners in our products and services is
affected by a number of factors beyond our control, including:
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economic
conditions and capital financing and liquidity
constraints;
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short-term
and long-term trends in the supply and price of gasoline, diesel, coal and
other fuels;
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the
anticipated or actual granting or elimination by governments of tax and
other financial incentives favoring electric or hybrid electric vehicles
and renewable energy
production;
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the
ability of the various regulatory bodies to define the rules and
procedures under which this new technology can be deployed into the
electric grid;
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the
anticipated or actual funding, or elimination of funding, for programs
that support renewable energy programs, electric grid improvements,
certain military electric vehicle initiatives and related
programs;
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changes
in public and investor interest for financial and/or environmental
reasons, in supporting or adopting alternatives to gasoline and diesel for
transportation and other
purposes;
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the
overall economic environment and the availability of credit to assist
customers in purchasing our large battery
systems;
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the
expansion or contraction of private and public research and development
budgets as a result of global and U.S. economic trends;
and
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the
speed of incorporation of renewable energy generating sources into the
electric grid.
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Adverse
trends in one or more of these factors may inhibit our ability to commercialize
our products and expand revenues from our battery materials and
batteries.
Our
nano lithium titanate battery materials and battery business is currently
dependent upon a few customers and potential customers, which presents various
risks.
Our nano
lithium titanate battery materials and battery business is dependent upon a few
current or potential customers, including the U.S. government, a small number of
power producers and smaller companies developing electric or hybrid electric
buses. In addition, most of these customers are, or are expected to
be development partners who are subsidizing the research and development of
products for which they may be the sole, or one of a few, potential
purchasers. As a result of the small number of potential customers
and partners, our existing or potential customers and partners may have
significant leverage on pricing terms, exclusivity terms and other economic and
noneconomic terms. This may harm our attempts to sell products at
prices that reflect desired gross margins. In addition, the decision
by a single customer to abandon use or development of a product, or budget
cutbacks and other events harming the ability of a single customer to continue
to purchase products or continue development may significantly harm both our
financial results and the development track of one or more
products.
If
we acquire or merge with other companies and we are unable to integrate them
with our business, or we do not realize the anticipated financial and strategic
goals for any of these transactions, our financial performance may be
impaired.
As part
of our growth strategy, we routinely consider acquiring or merging with other
companies that we believe are strategic to our business. We do not have
extensive experience in conducting diligence on, evaluating, purchasing or
integrating new businesses or technologies, and if we do succeed in acquiring or
investing in a company or technology, we will be exposed to a number of risks,
including:
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we
may find that the transaction does not further our business strategy, that
we overpaid for the company or its technology or that the economic
conditions underlying our transaction decision have
changed;
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we
may have difficulty integrating the assets, technologies, operations or
personnel of a company we have acquired or merged with, or retaining and
integrating key personnel;
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our
ongoing business and management's attention may be disrupted or diverted
by transition or integration issues and the complexity of managing
geographically or culturally diverse
enterprises;
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we
may encounter difficulty entering and competing in new product or
geographic markets or increased competition, including price competition
or intellectual property litigation;
and
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we
may experience significant problems or liabilities associated with product
quality, technology and legal contingencies relating to the integrated
business or technology, such as intellectual property or employment
matters.
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In
addition, from time to time we may enter into negotiations for acquisitions,
mergers or other transactions that are not ultimately consummated. These
negotiations could result in significant diversion of management time, as well
as substantial out-of-pocket costs. If we were to proceed with one or more
significant acquisitions or other transactions in which the consideration
included cash, we could be required to use a substantial portion of our
available cash. To the extent we issue shares of capital stock or other rights
to purchase capital stock, including options and warrants, existing stockholders
would be diluted. In addition, acquisitions or other transactions may result in
the incurrence of debt, large one-time write-offs, such as acquired in-process
research and development costs, and restructuring charges.
We
intend to expand our operations and increase our expenditures in an effort to
grow our business. If we are unable to achieve or manage significant growth and
expansion, or if our business does not grow as we expect, our operating results
may suffer.
During
the past several years, we have increased our research and development
expenditures in an attempt to accelerate the commercialization of certain
products, particularly our nano lithium titanate batteries. Our business plan
anticipates continued expenditure on development, manufacturing and other growth
initiatives. We may fail to achieve significant growth despite such
expenditures. If achieved, significant growth would place increased demands on
our management, accounting systems, quality control and internal controls. We
may be unable to expand associated resources and refine associated systems fast
enough to keep pace with expansion, especially as we expand into multiple
facilities at distant locations. If we fail to ensure that our management,
control and other systems keep pace with growth, we may experience a decline in
the effectiveness and focus of our management team, problems with timely or
accurate reporting, issues with costs and quality controls and other problems
associated with a failure to manage rapid growth, all of which would harm our
results of operations.
Our
competitors have more resources than we do, and may be supported by more
prominent partners, which may give them a competitive advantage.
We have
limited financial, personnel and other resources and, because of our early stage
of development, have limited access to capital. We compete or may compete
against entities that are much larger than we are, have more extensive resources
than we do and have an established reputation and operating history. In
addition, certain of our early stage competitors, including A123 Systems, are
partnered with, associated with or supported by larger business or financial
partners. This may increase their ability to raise capital, attract
media attention, develop products and attract customers despite their short
operating history and small size. Because of their size, resources,
reputation and history (or that of their business and financial partners)
certain of our competitors may be able to exploit acquisition, development and
joint venture opportunities more rapidly, easily or thoroughly than we can. In
addition, potential customers may choose to do business with our more
established competitors, without regard to the comparative quality of our
products, because of their perception that our competitors are more stable, are
more likely to complete various projects, are more likely to continue as a going
concern and lend greater credibility to any joint venture.
Our
government grants and contracts are subject to termination or delays by the
government.
A
substantial portion of our current revenue is derived from government grants and
contracts. These government grants and contracts are subject to
termination or delay of funding at the election of the government.
Termination or delayed funding of such agreements by the government would
significantly reduce our revenue and inhibit our ability to sustain our
operations and research.
Sherwin-Williams
may be unable to find a new investor to participate in AlSher Titania LLC, and
we may consequently terminate the joint venture disposing of its remaining
assets.
We are
currently working with Sherwin-Williams to identify an interested third party to
invest in AlSher Titania LLC and undertake the next phase in the proposed
development of our titanium dioxide pigment manufacturing process, which is the
construction of an approximately 3,000 ton per year demonstration plant.
Neither we nor Sherwin-Williams have indicated a willingness to fund this next
phase of development. We are in negotiations with Sherwin-Williams with
respect to their potential acquisition of our interest in AlSher Titania
LLC. If the operation of AlSher Titania LLC is terminated, it is
unlikely that we will realize any material revenue from its titanium dioxide
pigment production process.
As
manufacturing becomes a larger part of our operations, we will become exposed to
accompanying risks and liabilities.
We have
not produced any products on a sustained commercial basis. In-house or
outsourced manufacturing is expected to become an increasingly significant part
of our business over the next few years. As a result, we expect to become
increasingly subject to various risks associated with the manufacturing and
supply of products, including the following:
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If
we fail to supply products in accordance with contractual terms, including
terms related to time of delivery and performance specifications, we may
be required to repair or replace defective products and may become liable
for direct, special, consequential and other damages, even if
manufacturing or delivery was
outsourced;
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Raw
materials used in the manufacturing process, labor and other key inputs
may become scarce and expensive, causing our costs to exceed cost
projections and associated
revenues;
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Manufacturing
processes typically involve large machinery, fuels and chemicals, any or
all of which may lead to accidents involving bodily harm, destruction of
facilities and environmental contamination and associated
liabilities;
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As
our manufacturing operations expand, we expect that a significant portion
of our manufacturing will be done overseas, either by third-party
contractors or in a plant owned by the company. Any
manufacturing done overseas presents risks associated with quality
control, currency exchange rates, foreign laws and customs, timing and
loss risks associated with overseas transportation and potential adverse
changes in the political, legal and social environment in the host county;
and
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We
may have made, and may be required to make, representations as to our
right to supply and/or license intellectual property and to our compliance
with laws. Such representations are usually supported by indemnification
provisions requiring us to defend our customers and otherwise make them
whole if we license or supply products that infringe on third-party
technologies or violate government
regulations.
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Any
failure to adequately manage risks associated with the manufacture and supply of
materials and products could lead to losses (or small gross profits) from that
segment of our business and/or significant liabilities, which would harm our
business, operations and financial condition.
Our
past and future operations may lead to substantial environmental
liability.
Virtually
any prior or future use of our nanomaterials and titanium dioxide pigment
technology is subject to federal, state and local environmental laws. Under such
laws, we may be jointly and severally liable with prior property owners for the
treatment, cleanup, remediation and/or removal of any hazardous substances
discovered at any property we use. In addition, courts or government agencies
may impose liability for, among other things, the improper release, discharge,
storage, use, disposal or transportation of hazardous substances. If we incur
any significant environmental liabilities, our ability to execute our business
plan and our financial condition would be harmed.
Certain
of our experts and directors reside in Canada or Dubai and may be able to avoid
civil liability.
We are a
Canadian corporation, and two of our directors and our Canadian legal counsel
are residents of Canada. Two directors are residents of Dubai. As a
result, investors may be unable to effect service of process upon such persons
within the United States and may be unable to enforce court judgments against
such persons predicated upon civil liability provisions of the U.S. securities
laws. It is uncertain whether Canadian or Dubai courts would enforce judgments
of U.S. courts obtained against us or such directors, officers or experts
predicated upon the civil liability provisions of U.S. securities laws or impose
liability in original actions against us or our directors, officers or experts
predicated upon U.S. securities laws.
We
are dependent on key personnel.
Our
continued success will depend, to a significant extent, on the services of our
executive management team and certain key scientists and engineers. We do not
have key man insurance on any of these individuals. Nor do we have agreements
requiring any of our key personnel to remain with our company. The
loss or unavailability of any or all of these individuals could harm our ability
to execute our business plan, maintain important business relationships and
complete certain product development initiatives, which would harm our
business.
We
may issue substantial amounts of additional shares without stockholder
approval.
Our
articles of incorporation authorize the issuance of an unlimited number of
common shares that may be issued without any action or approval by our
stockholders. In addition, we have various stock option plans that have
potential for diluting the ownership interests of our stockholders. The issuance
of any additional common shares would further dilute the percentage ownership of
our company held by existing stockholders.
The
market price of our common shares is highly volatile and may increase or
decrease dramatically at any time.
The
market price of our common shares is highly volatile. Our stock price may change
dramatically as the result of announcements of product developments, new
products or innovations by us or our competitors, uncertainty regarding the
viability of our technology or our product initiatives, significant customer
contracts, significant litigation or other factors or events that would be
expected to affect our business, financial condition, results of operations and
future prospects. The market price for our common shares may be affected by
various factors not directly related to our business or future prospects,
including the following:
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intentional
manipulation of our stock price by existing or future shareholders or a
reaction by investors to trends in our stock rather than the fundamentals
of our business;
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a
single acquisition or disposition, or several related acquisitions or
dispositions, of a large number of our shares, including by short sellers
covering their position;
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the
interest of the market in our business sector, without regard to our
financial condition, results of operations or business
prospects;
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positive
or negative statements or projections about our company or our industry,
by analysts, stock gurus and other
persons;
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the
adoption of governmental regulations or government grant programs and
similar developments in the United States or abroad that may enhance or
detract from our ability to offer our products and services or affect our
cost structure; and
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economic
and other external market factors, such as a general decline in market
prices due to poor economic conditions, investor distrust or a financial
crisis.
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We
may be delisted from the NASDAQ Capital Market if the price of our common shares
does not remain above $1.00 per share.
Under
NASDAQ rules, a stock listed on NASDAQ Capital Market must maintain a minimum
bid price of at least $1.00 per share. On December 22, 2009, we received a
letter from NASDAQ indicating that the bid price of our common shares had closed
below the minimum $1.00 per share required for continued listing under NASDAQ
Marketplace Rule 5550(a)(2). NASDAQ stated in its letter that, in accordance
with Marketplace Rule 5810(c)(3)(A), we have been provided an initial period of
180 calendar days, or until June 21, 2010, to regain compliance with the minimum
bid requirement. The letter also states that if at any time before June 21,
2010, the bid price of our common shares closes at $1.00 per share or more for a
minimum of 10 consecutive business days, the NASDAQ staff will provide us with
written notification that we have achieved compliance with the minimum bid
requirement. At the close of the grace period, if we have not regained
compliance, we may be eligible for an additional grace period of 180 days, if we
meet the initial listing standards, with the exception of bid price, for the
NASDAQ Capital Market. If we are not eligible for an additional grace period, we
will be delisted.
Following
any such delisting, our common shares would likely be eligible for quotation on
the OTC Bulletin Board or other quotation service. Nonetheless, even if our
common shares are quoted on an alternative quotation service, the fact of being
delisted from the NASDAQ Capital Market will likely harm the price and trading
volume for our common shares, as many institutional shareholders and advisors
will not trade in shares listed on the OTC Bulletin Board. Once delisted, our
common shares would not be eligible for relisting on the NASDAQ Capital Market
until, among other things, our common shares traded at or above $4.00 per
share.
We
have never declared a cash dividend and do not intend to declare a cash dividend
in the foreseeable future.
We have
never declared or paid cash dividends on our common shares. We currently intend
to retain any future earnings, if any, for use in our business and, therefore,
do not anticipate paying dividends on our common shares in the foreseeable
future.
We
are subject to various regulatory regimes, and may be adversely affected by
inquiries, investigations and allegations that we have not complied with
governing rules and laws.
In light
of our status as a public company and our lines of business, we are subject to a
variety of laws and regulatory regimes in addition to those applicable to all
businesses generally. For example, we are subject to the reporting
requirements applicable to Canadian and United States reporting issuers, such as
the Sarbanes-Oxley Act of 2002, the rules of the NASDAQ Capital Market and
certain state and provincial securities laws. We are also subject to state and
federal environmental, health and safety laws, and rules governing department of
defense contracts. Such laws and rules change frequently and are often
complex. In connection with such laws, we are subject to periodic audits,
inquiries and investigations. Any such audits, inquiries and
investigations may divert considerable financial and human resources and
adversely affect the execution of our business plan.
Through
such audits, inquiries and investigations, we or a regulator may determine that
we are out of compliance with one or more governing rules or laws.
Remedying such non-compliance diverts additional financial and human
resources. In addition, in the future, we may be subject to a formal
charge or determination that we have materially violated a governing law, rule
or regulation. We may also be subject to lawsuits as a result of
alleged violation of the securities laws or governing corporate laws. Any
charge or allegation, and particularly any determination, that we had materially
violated a governing law would harm our ability to enter into business
relationships, recruit qualified officers and employees and raise
capital.
THE
SPECIAL MEETING
Important
Notice Regarding the Availability of Proxy Materials for the special meeting to
be held on ___________ __, 2010. The Company’s Management Proxy
Circular is available on the Internet at http:// www.altairannualmeeting.com.
Solicitation
of Proxies
THIS MANAGEMENT PROXY CIRCULAR IS
FURNISHED IN CONNECTION WITH THE SOLICITATION BY THE MANAGEMENT OF ALTAIR
NANOTECHNOLOGIES INC. OF PROXIES TO BE USED AT THE SPECIAL MEETING OF
SHAREHOLDERS OF THE COMPANY TO BE HELD AT THE TIME AND PLACE AND FOR THE
PURPOSES SET FORTH IN THE ENCLOSED NOTICE OF MEETING. This
Circular, the Notice of meeting attached hereto, and the accompanying form of
proxy are first being mailed to the shareholders of the Company on or about
______ __, 2010. It is expected that the solicitation will be
primarily by mail, but proxies may also be solicited personally, by email, by
facsimile or by telephone by officers and employees of the Company without
additional compensation therefore. In addition, D. F. King & Co.
Inc. has been retained to assist in soliciting proxies and tabulating
votes.
The cost
of solicitation by management will be borne directly by the
Company. We have retained D. F. King & Co. Inc. to assist with
the solicitation of proxies and tabulating votes for an estimated fee of
$10,000, plus reasonable out-of-pocket expenses. Arrangements will
also be made with brokerage firms and other custodians, nominees and fiduciaries
for the forwarding of solicitation materials to the beneficial owners of the
common shares held by such persons, and the Company will reimburse such
brokerage firms, custodians, nominees and fiduciaries for the reasonable
out-of-pocket expenses incurred by them in connection therewith.
Appointment
and Revocation of Proxies
The
persons named in the enclosed form of proxy are officers and/or directors of the
Company. A
SHAREHOLDER DESIRING TO APPOINT SOME OTHER PERSON TO REPRESENT HIM AT THE
SPECIAL MEETING MAY DO SO either by inserting such person’s name in the
blank space provided in that form of proxy or by completing another proper form
of proxy and, in either case, depositing the completed proxy at the office of
the transfer agent indicated on the enclosed envelope not later than 48 hours
(excluding Saturdays and holidays) before the time of holding the special
meeting, or by delivering the completed proxy to the chairman of the special
meeting on the day of the special meeting or adjournment thereof.
A proxy
given pursuant to this solicitation may be revoked by instrument in writing,
including another proxy bearing a later date, executed by the shareholder or by
his attorney authorized in writing, and deposited either at the Company’s
principal office located at 204 Edison Way, Reno, Nevada, 89502, U.S.A. at any
time up to and including the last business day preceding the day of the special
meeting, or any adjournment thereof, at which the proxy is to be used, or with
the chairman of such meeting on the day of the special meeting, or adjournment
thereof, or in any other manner permitted by law.
Voting
of Proxies
THE
COMMON SHARES REPRESENTED BY A DULY COMPLETED PROXY WILL BE VOTED OR WITHHELD
FROM VOTING IN ACCORDANCE WITH THE INSTRUCTIONS OF THE SHAREHOLDER ON ANY BALLOT
THAT MAY BE CALLED FOR AND, IF THE SHAREHOLDER SPECIFIES A CHOICE WITH RESPECT
TO ANY MATTER TO BE ACTED UPON, SUCH COMMON SHARES WILL BE VOTED
ACCORDINGLY. UNLESS OTHERWISE INDICATED ON THE FORM OF PROXY, SHARES
REPRESENTED BY PROPERLY EXECUTED PROXIES IN FAVOR OF PERSONS DESIGNATED IN THE
PRINTED PORTION OF THE ENCLOSED FORM OF PROXY WILL BE VOTED (I) TO APPROVE A
SPECIAL RESOLUTION AUTHORIZING THE COMPANY TO CHANGE OUR JURISDICTION OF
INCORPORATION FROM THE FEDERAL JURISDICTION OF CANADA TO THE STATE OF NEVADA IN
THE UNITED STATES OF AMERICA THROUGH ADOPTION OF ARTICLES OF DOMESTICATION AND
NEW ARTICLES OF INCORPORATION AND (II) TO ADJOURN THE SPECIAL MEETING IN ORDER
TO SOLICIT ADDITIONAL PROXIES, IF THERE ARE NOT SUFFICIENT VOTES AT THE TIME OF
THE SPECIAL MEETING TO APPROVE THE DOMESTICATION.
The
enclosed form of proxy confers discretionary authority upon the persons named
therein with respect to amendments or variations to matters identified in the
notice of meeting, or other matters which may properly come before the special
meeting. At the time of printing this Circular, management of the
Company knows of no such amendments, variations or other matters to come before
the special meeting.
Voting
Securities and Principal Holders of Voting Securities
The
authorized capital of the Company consists of an unlimited number of common
shares. As of April 2, 2010, the Company had 105,400,728 common
shares issued and outstanding.
The
Company shall make a list of all persons who are registered holders of common
shares as of the close of business on , 2010 (the “Record Date”) and the number of
common shares registered in the name of each such person on that
date. Each shareholder is entitled to one vote for each Common Share
registered in his name as it appears on the list.
One-third
of the outstanding common shares entitled to vote, represented in person or by
properly executed proxy, is required for a quorum at the special
meeting. Abstentions, or withhold votes, will be counted as
“represented” for purposes of determining the presence or absence of a
quorum. Complete broker non-votes, which are indications by a broker
that it does not have discretionary authority to vote on any of the matters to
be considered at the special meeting, will not be counted as “represented” for
the purpose of determining the presence or absence of a quorum.
To the
knowledge of the directors and executive officers of the Company, only one
holder, Al Yousuf, LLC, directly or indirectly, exercises control or direction
of over more than 10% of the common shares outstanding. According to
a Form 4 filed by Al Yousuf, LLC on June 26, 2009, the affiliate group
beneficially owns 20,211,132 common shares representing 19.2 % of the
outstanding common shares as of April 1, 2010.
Under the
CBCA:
|
●
|
Proposal
No. 1, our change of jurisdiction from Canada to Nevada by means of a
domestication requires the affirmative vote, in person or by proxy, of not
less than two-thirds of the votes cast by the shareholders who vote in
respect of the resolution once a quorum is established
and
|
|
●
|
Proposal No.
2, authorizing adjournment of the special meeting if necessary to solicit
additional proxies, if there are not sufficient votes at the time of the
special meeting to approve the domestication resolution, requires that the
votes cast in favor of the proposal exceed the votes case against the
proposal.
|
Abstentions,
withhold votes and broker non-votes will not have the effect of being considered
as votes cast against any of the matters considered at the special
meeting.
Exchange
Rate Information
The
following exchange rates represent the noon buying rate in New York City for
cable transfers in Canadian Dollars (CDN. $), as certified for customs purposes
by the Federal Reserve Bank of New York. The following table sets
forth, for each of the years indicated, the period-end exchange rate, the
average rate (i.e., the average of the exchange rates on the last day of each
month during the period), and the high and low exchange rates of the U.S. Dollar
(U.S. $) in exchange for the Canadian Dollar (CDN. $) for the years indicated
below, based on the noon buying rates.
|
For
the Year Ended December 31,
|
|
|
|
2009
|
2008
|
2007
|
2006
|
2005
|
|
|
(Each
U.S. Dollar Purchases the Following Number of Canadian
dollars)
|
|
|
High
|
1.2940
|
1.3013
|
1.1852
|
1.1726
|
1.2703
|
|
|
Low
|
1.0281
|
0.9709
|
0.9168
|
1.0989
|
1.1507
|
|
|
Average
|
1.1410
|
1.0667
|
1.0734
|
1.1340
|
1.2083
|
|
|
Year
End
|
1.0532
|
1.2228
|
0.9881
|
1.1652
|
1.1656
|
|
PROPOSAL
NO. 1 – THE DOMESTICATION
General
The Board
of Directors is proposing to change our jurisdiction of incorporation from the
federal jurisdiction of Canada to the State of Nevada through a transaction
called a “continuance” under Section 188 of the CBCA, also referred to as a
“domestication” under Section 92A.270 of the Nevada Revised Statutes, and
approve new articles of incorporation to be effective on the date of the
domestication. We will become subject to Nevada corporate law on the
date of our domestication, but will be deemed for the purposes of Nevada
corporate law to have commenced our existence in Nevada on the date we
originally commenced our existence in Canada. Under Nevada corporate law, a
corporation becomes domesticated in Nevada by filing Articles of Domestication
and articles of incorporation for the corporation being domesticated. The Board
of Directors has unanimously approved our domestication and the related articles
of incorporation of Altair Nevada, believes it to be in our best interests and
in the best interests of our shareholders, and unanimously recommends approval
of the domestication and the approval of the articles of incorporation of Altair
Nevada to our shareholders.
The
domestication will be effective on the date set forth in the articles of
domestication and the articles of incorporation, as filed with the office of the
Secretary of State of the State of Nevada. Thereafter, we will be subject to the
articles of incorporation filed in Nevada, a copy of which is attached to this
Circular as Exhibit C. We will be discontinued in Canada as of the date shown on
the certificate of discontinuance issued by the Director appointed under the
CBCA, which we expect to be the date of domestication in Nevada. The common
stock of Altair Nevada will continue to be listed on the NASDAQ Capital Market
under the trading symbol “ALTI”, and Altair Nevada will continue to be subject
to the rules and regulations of the NASDAQ Capital Market and the obligations
imposed by each securities regulatory authority in the United States, including
the SEC. Altair Nevada will continue to file periodic reports with the SEC
pursuant to the Securities Exchange Act of 1934, as amended, or the Exchange
Act. Upon our domestication, the Board of Directors intends to adopt bylaws,
copies of which are attached to this Circular as Exhibit D. A copy of Section
190 of the CBCA addressing dissenters’ rights in connection with the continuance
is attached to this Circular as Exhibit E.
The
domestication will not interrupt our corporate existence or operations, or the
trading market of the common shares. Each outstanding common share at
the time of the domestication will remain issued and outstanding as a share of
common stock of Altair Nevada after our corporate existence is continued from
Canada under the CBCA and domesticated in Nevada under Nevada corporate
law.
Principal
Reasons for the Domestication
Our Board
has determined that the domestication will enhance our ability to engage in
strategic joint venture, acquisition and disposition transactions. The Board of
Directors believes that the domestication will eliminate certain regulatory
burdens imposed by the CBCA, limit reporting requirements under the Canadian
securities laws, and give the Company flexibility in its management and Board
structure. In addition, the achievement of our strategic goals would
be enhanced by our clear and unambiguous identification as a U.S.
corporation.
Our
corporate headquarters and all of our operations are located in United States.
We have reported under the rules governing U.S. issuers for over 10
years. Most of our shareholders reside in the United States, and our
common shares are listed exclusively on the NASDAQ Capital Market. Despite this
connection with the United States, we believe we are not uniformly perceived by
potential strategic partners as a U.S. company. For example, the Company has
from time to time engaged in discussions with respect to acquisitions,
dispositions or joint ventures. In these discussions, other parties
have raised concerns about whether the Company’s status as a CBCA corporation
creates tax liabilities and unnecessary regulatory risks or
burdens. Investors have also raised questions stemming from the
Company’s status as a CBCA corporation. The Board of Directors
believes that the Company’s ability to enter into strategic, capital raising and
other transactions would be enhanced if the Company were domiciled in the United
States.
In
considering its recommendation in favor of the domestication, our Board weighed
the estimated tax liability to us arising from the domestication itself. See
“Proposal No. 1 — The
Domestication — “United States Federal Income Tax Considerations”
and “Proposal No. 1 –
The Domestication – Canadian Federal Income Tax Considerations”. With the
assistance of professional advisors, we have reviewed our assets, liabilities,
paid-up capital and other tax balances and assuming that the market price of our
common shares remains at approximately $0.75 per share and that the exchange
rate of the Canadian dollar to the U.S. dollar is CDN $1.00 equals $0.95, it is
anticipated that there will not be any Canadian federal income tax arising on
the continuance. Due to the recent decline in the share price of the
common shares, this potential tax liability would be substantially less than it
would have been if the domestication had occurred in prior
years. Moreover, if the Company’s revenues grow, assets increase and
stock price increases, as anticipated in 2010 and beyond, the tax consequences
to the Company of domestication to the United States would increase (and if the
Company became profitable and had positive profits and earnings, there would be
tax consequences for shareholders). After weighing the estimated tax
liability from this transaction, the Board of Directors determined that the
potential benefits of the transaction outweigh the costs, particularly since the
tax liability associated with effecting the transaction in 2010 is less than it
would have been in previous years and possibly less than it would be in future
years.
The Board
of Directors believes that the domestication will eliminate certain regulatory
burdens and provide more flexibility with the structuring of the Company’s
management. As a corporation continued under the CBCA, the Company is subject
the corporate requirements of the CBCA and the reporting requirements of
Canadian securities laws, which are similar to the reporting requirements under
the U.S. Securities Exchange Act of 1934, as amended. Post-continuation, the
Company will likely be classified an SEC foreign issuer (“SEC Foreign Issuer”),
which will limit the amount of Canadian specific securities reporting
requirements, and allow the Company to satisfy much of the remainder of its
securities reporting obligations in Canada, by filing copies of its SEC
compliant securities disclosure on the Canadian SEDAR
system. The domestication will also limit certain disclosure
and compliance requirements arising under the CBCA, such as limiting the number
of corporate actions that require shareholder approval and limiting the
situations under which dissenters rights would apply. In addition,
certain restrictions under the CBCA have limited the Company’s management
structure. The CBCA requires that at least 25% of the directors of
the Company be Canadian residents, which places limitations on the Company’s
recruiting and retention of directors. Also, the Company would have
greater flexibility to choose the location of future shareholder meetings in
major east or west coast cities that might be more convenient for shareholders.
Currently, the Company is limited to scheduling the annual meeting in Canada or
Nevada. The Company believes that domesticating in Nevada will
eliminate these regulatory burdens and provide more flexibility with the
structuring of the Company’s management.
The Board
of Directors also believes that the domestication may assist the Company in
obtaining additional grants and contracts from the United States
government. The Company is currently performing work for the Office
of Naval Research and has earned revenues of approximately $3.7 million from
these government grants over the past two years. The Board of
Directors believes that the Company’s ability to expand its relationship with
various U.S. government agencies would be enhanced if the Company were not only
located in the United States, but also incorporated in the United
States.
The Board
of Directors chose the State of Nevada to be our domicile because it believes
the more favorable corporate environment afforded by Nevada will help us compete
more effectively with other public companies in raising capital and in
attracting and retaining skilled, experienced
personnel. Additionally, our corporate headquarters are located in
Nevada, and we have a familiarity with the local regulatory, government, and
legal climate in this jurisdiction.
For the
reasons set forth above, our Board believes that the estimated benefits of
domestication outweigh the detriment attributable to our potential tax
liability.
Effects
of the Domestication
There are
material differences between Canadian corporate law and Nevada corporate law
with respect to shareholders’ rights, and Nevada law may offer shareholders more
or less protection depending on the particular matter. A detailed overview of
the material differences is set forth below.
Applicable Law. As of the
effective date of the domestication, our legal jurisdiction of incorporation
will be Nevada, and we will no longer be subject to the provisions of the CBCA.
All matters of corporate law will be determined under Nevada corporate law. We
will retain our original incorporation date in Canada as our date of
incorporation for purposes of Nevada corporate law.
Assets, Liabilities, Obligations,
Etc. Under Nevada law, as of the effective date of the domestication, all
of our assets, property, rights, liabilities and obligations immediately prior
to the domestication will continue to be our assets, property, rights,
liabilities and obligations immediately after the domestication. Canadian
corporate law ceases to apply to us on the date shown on the certificate of
discontinuance to be issued by the Director appointed under the CBCA, which we
expect to be the date of domestication in Nevada. We will thereafter become
subject to the obligations imposed under Nevada corporate law.
Business and Operations. The
domestication, if approved, will effect a change in the legal jurisdiction of
incorporation as of the effective date of the domestication, but our business
and operations will remain the same.
Officers
and Directors
Our Board
currently consists of seven members: Jon Bengtson, Terry Copeland, Hossein Asrar
Haghighi, George Hartman, Alexander Lee, Pierre Lortie, and Robert G. van
Schoonenberg. These directors have been nominated for election at our
upcoming annual and special meeting, and subject to their re-election at the
annual and special meeting, the Board of Directors will consist of the same
seven individuals after the domestication. Immediately following the
domestication, our officers will also be unchanged. Our executive officers are
Terry M. Copeland (CEO and President), John C. Fallini (Chief Financial
Officer), Bruce J. Sabacky (Chief Technology Officer), Stephen A. Balogh (Vice
President of Human Resources), C. Robert Pedraza (Vice President of Strategy and
Business Development) and Daniel Voelker (Vice President of Engineering &
Operations).
Treatment
of the Outstanding Capital Stock, Options and Warrants
The
existing share certificates representing our common shares will continue to
represent the same number of shares of common stock of Altair Nevada after the
domestication without any action on your part. You will not be required to
exchange any share certificates. We will only issue new certificates to you
representing shares of capital stock of Altair Nevada upon a transfer of your
shares or at your request. Holders of our outstanding options and warrants will
continue to hold the same securities, which will remain exercisable for an
equivalent number of shares of the same class of common stock of Altair Nevada,
for the equivalent exercise price per share, without any action by the
holder.
The
Shareholders Rights Plan
The
Company has issued rights under that certain Amended and Restated Shareholder
Rights Plan Agreement, dated October 15, 1999, by and between the Company and
Equity Transfer Services Inc., as further amended by that certain Amendment No.
1 to Amended and Restated Shareholder Rights Plan Agreement dated October 6,
2008 (collectively, the “Rights Agreement”), to all holders of common
shares. The rights are not exercisable, are evidenced by the common
shares and transfer with, and only with, the common shares. With
certain exceptions, if a person becomes the owner of 15% or more of the
outstanding common shares without an appropriate waiver, exception, amendment or
redemption, each right becomes exercisable and entitles the holder to purchase
from us for $20, as adjusted for stock splits and consolidations, a number of
common shares having a market price of $80, as adjusted for stock splits and
consolidations. Rights outstanding under the rights Agreement shall
remain outstanding following the domestication and shall become, subject to the
terms and conditions of the Rights Agreement, rights to purchase the common
stock of Altair Nevada.
Treatment
of Effective Registration Statements
Rule 414
under the Securities Act provides that, if an issuer has been succeeded by
another issuer incorporated under the law of another state or foreign government
for the purpose of changing the state or country of organization of the
enterprise, the registration statement of the predecessor issuer will be deemed
to be the registration statement of the successor issuer for the purpose of
continuing the offering covered by the registration statement, provided that (a)
immediately prior to the succession, the successor issuer had no assets or
liabilities other than nominal assets and liabilities; (b) the succession was
effected by a merger or similar succession pursuant to statutory provisions or
the terms of the organic instruments under which the successor issuer acquired
all of the assets and assumed all of the liabilities and obligations of the
predecessor issuer; (c) the succession was approved by the security holders of
the predecessor issuer at a meeting for which proxies were solicited pursuant to
Section 14(a) of the Exchange Act or information was furnished to such security
holders pursuant to Section 14(c) of the Exchange Act; and (d) the successor
issuer has filed an amendment to the registration statement of the predecessor
issuer expressly adopting the registration statement as its own registration
statement for all purposes of the Securities Act and the amendment has become
effective. Accordingly, Altair Nevada will be permitted to adopt
currently effective registration statement by filing a post-effective amendment
to the registration statements expressly adopting the registration statements as
its own.
Proposed
Consolidation (Reverse Stock Split)
At its
Annual and Special Meeting of Shareholders to be held on May 24, 2010, the
Company has proposed a resolution authorizing the Board of Directors, without
further approval of the shareholders, to take all steps necessary to effect, or
in its discretion not to effect, at any time on or before May 1, 2011, a
consolidation (also known as a reverse split) of the common shares of the
Company on the basis of a ratio within the range of one post-consolidation
common share for every three pre-consolidation common shares (3:1) to one
post-consolidation common share for every ten pre-consolidation common shares
(10:1), with any fractional share that remains after all shares beneficially
held by a holder of the common shares have been consolidated being rounded up to
a whole common share, with the ratio to be selected and implemented by the Board
of Directors in its sole discretion. If a consolidation of the common shares of
Altair Canada is approved by the shareholders, the Company expects to effect the
Consolidation prior to effecting the domestication proposed in this
Circular.
The
number of shares of common stock of Altair Nevada authorized in the proposed
Articles of Incorporation of Altair Nevada attached hereto as Exhibits C is
500,000,000; provided, however, if a consolidation of the common shares of
Altair Canada is effected prior to the domestication of Altair Canada to Nevada,
the number of authorized shares of common stock of Altair Nevada will be reduced
to the greater of (a) the product of 500,000,000 multiplied by inverse of the
consolidation ratio selected by Altair Canada for its common shares (i.e. 1/7
for a 7 to 1 consolidation), and (b) 200,000,000.
Shareholder
Approval
The
domestication is subject to various conditions, including approval of the
special resolution authorizing the domestication and the approval of the
articles of incorporation of Altair Nevada from our shareholders. A copy of the
special resolution is attached to this Circular as Exhibit A. Under the CBCA,
approval of the domestication affirmative votes, whether in person or by proxy
from at least two-thirds of the votes cast by the holders of our common shares
with respect to the matter, at the special meeting where a quorum of one-third
of our total outstanding common shares is present. Assuming we receive the
requisite shareholder approval for the domestication, our Board will retain the
right to terminate or abandon the domestication if it determines that
consummating the domestication would be inadvisable or not in our or our
shareholders’ best interests, or if all of the respective conditions to
consummation of the domestication have not occurred. There are no time limits on
the duration of the authorization resulting from a favorable shareholder
vote.
Regulatory
and Other Approvals and Board Discretion
The
change of jurisdiction is subject to the authorization of the Director appointed
under the CBCA. The Director is empowered to authorize the change of
jurisdiction if, among other things, he is satisfied that the change of
jurisdiction will not adversely affect our creditors or
shareholders.
Subject
to the authorization of the continuance by the Director appointed under the
CBCA, and the approval of our Board and shareholders, we anticipate that we will
file with the Secretary of State of the State of Nevada an Articles of
Domestication and an articles of incorporation pursuant to Section 92A.270 of
Nevada Revised Statutes, and that we will be domesticated in Nevada on the
effective date of such filings. Promptly thereafter, we intend to give notice to
the Director appointed under the CBCA that we have been domesticated under the
laws of the State of Nevada and request that the Director appointed under the
CBCA issue us a certificate of discontinuance bearing the same date as the date
of effectiveness of our Articles of Domestication and articles of incorporation
by the Secretary of State of the State of Nevada.
The Board
of Directors has reserved the right to terminate or abandon our domestication at
any time prior to its effectiveness, notwithstanding shareholder approval, if it
determines for any reason that the consummation of our domestication would be
inadvisable or not in the best interest of the Company and its
shareholders. Dissenting shareholders have the right to be paid the
fair value of their shares under Section 190 of the CBCA. If the number of
share exercising dissenting rights approaches or exceeds 1% or more of the
outstanding common shares, it is anticipated that the Board of Directors would
not effect the domestication because of the associated cash
expense.
Comparison
of Shareholder Rights
The
principal attributes of our capital stock before and after domestication are
comparable; however, there will be material differences in the rights of our
shareholders under Nevada law as described below.
General. On the
effective date of the domestication, we will be deemed for the purposes of
Nevada corporate law to have been incorporated under the laws of the State of
Nevada from our inception and we will be governed by the Nevada articles of
incorporation filed with the Articles of Domestication. Differences between
Canadian corporate law and Nevada corporate law and between our current articles
of continuance and bylaws and the proposed Nevada articles of incorporation and
bylaws will result in various changes in the rights of our shareholders. The
following summary comparison highlights provisions of applicable Canadian
corporate law and our current Canadian articles of incorporation and bylaws as
compared to Nevada corporate law and the proposed articles of incorporation and
bylaws of Altair Nevada. The proposed articles of incorporation and bylaws of
Altair Nevada are attached to this Circular as Exhibit C and Exhibit D,
respectively.
Capital Structure. Under our
current Canadian articles of incorporation, we presently have the authority to
issue an unlimited number of common shares, without par value. Under our
proposed Nevada articles of incorporation, the total number of shares of capital
stock that Altair Nevada will have the authority to issue is 500,000,000 shares
of common stock, $.001 par value; provided, however, if Altair Canada implements
a consolidation (a/k/a reverse stock split) of its common shares prior to the
domestication of Altair Canada to Nevada, the number of authorized shares of
common stock of Altair Nevada shall be reduced to the greater of (a)
the product of 500,000,000 multiplied by inverse of the consolidation ratio
selected by Altair Canada for its common shares (i.e. 1/7 for a 7 to 1
consolidation), and (b) 200,000,000.
Under
Canadian law, there is no franchise tax on our authorized capital stock.
Pursuant to Nevada law, there is also no franchise tax; however, there, is a fee
based upon the capitalization of the corporation upon incorporation, which will
be approximately $35,000 for Altair Nevada, and a similar fee if authorized
capitalization is increased.
Shareholder Approval; Vote on
Extraordinary Corporate Transactions. Canadian law generally requires a
vote of shareholders on a greater number and diversity of corporate matters than
Nevada law. In addition to requiring shareholder approval for
amendments to the articles of incorporation (or continuance) and for mergers and
similar extraordinary transactions, shareholder approval is required under
Canadian law if the size of the Board of Directors is increased or decreased by
more than 1/3 between shareholder meetings and bylaw amendments must be
submitted to shareholders for approval, rejection or amendment at the next
shareholders meeting. Under the CBCA, many extraordinary matters requiring
shareholder approval must be approved by not less than two-thirds of the votes
cast by shareholders who voted on those matters. Depending upon the
number of shares that vote on such a matter, this threshold may be lower or
higher than the requirement in Nevada that most extraordinary items be approved
by a majority of outstanding shares.
Under
Nevada law, a sale, lease or exchange of all or substantially all the property
or assets of a Nevada corporation or an amendment to its articles of
incorporation requires the approval of the holders of a majority of the voting
power of the outstanding shares entitled to vote thereon. Mergers or
consolidations also generally require the approval of the holders of a majority
of the outstanding voting power of the corporation. However, stockholder
approval is not required by a Nevada corporation if such corporation’s articles
of incorporation are not amended by the merger; each share of stock of such
corporation outstanding immediately prior to the merger will be an identical
outstanding share of the surviving corporation after the effective date of the
merger, and the number of voting shares or participating shares
outstanding immediately after the merger, plus the number of voting shares or
participating shares, as the case may be, issued as a result of the merger, will
not exceed by more than 20 percent the total number of participating shares
outstanding immediately before the merger. In addition, stockholder approval is
not required by a Nevada corporation if it is the surviving corporation in a
merger with a subsidiary if the stock rights, powers and preferences are the
same following the merger, the bylaws and articles of incorporation are
substantially the same following the merger, the directors remain the same, and
certain other requirements set forth in Nevada corporate law are
satisfied.
Amendments to the Governing
Documents. Under Canadian law, amendments to the articles of
incorporation generally require the approval of not less than two-thirds of the
votes cast by shareholders voting on the resolution. If the proposed amendment
would affect a particular class of securities in certain specified ways, the
holders of shares of that class would be entitled to vote separately as a class
on the proposed amendment, whether or not the shares otherwise carried the right
to vote. When directors make, amend or repeal a bylaw, they are required under
the CBCA to submit the change to shareholders at the next meeting of
shareholders. Shareholders may confirm, reject or amend the bylaw, the amendment
or the repeal with the approval of a majority of the votes cast by shareholders
who voted on the resolution.
Under
Nevada corporate law, an amendment to a corporation’s articles of incorporation
requires the approval of holders of a majority of the voting power of the
outstanding stock entitled to vote on the matter. In addition, under Nevada
corporate law, if the amendment to the articles of incorporation would adversely
alter or change any preference or any relative or other right given to any class
or series of outstanding shares, that class is entitled to vote separately on
the amendment whether or not it is designated as voting stock. Nevada corporate
law allows for a corporation’s articles of incorporation to specifically deny
any right of a class of shares the right to vote when such class would be
adversely affected. Because Altair Nevada will have only one class of
stock and such class will not be divided into series, the proposed articles of
incorporation of Altair Nevada do not address the right of any class to such
voting rights. Furthermore, if the proposed amendment would alter or
change the powers, preferences or special rights of one or more series of any
class so as to affect that class adversely, but would not so affect the entire
class, then only the shares of the series so affected by the amendment would be
considered a separate class for purposes of the class vote. Nevada corporate law
gives the directors the power to adopt, amend or repeal the bylaws of the Nevada
corporation, subject to any bylaws adopted by the stockholders, but permits the
articles of incorporation to reserve the right to amend the bylaws solely to the
Board of Directors. The proposed bylaws of Altair Nevada provide that its bylaws
may be amended or repealed only by unanimous vote of the Board of Directors or
by the shareholders. Unlike Canadian law, there is no requirement to
submit changes to the bylaws to stockholders under Nevada law.
Place of Meetings. The CBCA
provides that meetings of shareholders must be held at the place within Canada
provided in the bylaws or, in the absence of such provision, at the place within
Canada that the directors determine. A meeting of shareholders may be held at a
place outside of Canada if the place is specified in the articles of
incorporation or all the shareholders entitled to vote at the special meeting
agree that the special meeting is to be held at that place. Our articles of
continuance provide that meetings of shareholders may be held at our registered
office or outside of Canada in the State of Nevada.
Nevada
corporate law provides that meetings of the stockholders may be held at any
place in or outside of Nevada designated by, or in the manner provided in, the
articles of incorporation or bylaws. The proposed bylaws of Altair Nevada
provide that meetings of the stockholders will be held at any place in or out of
Nevada as designated by the Board of Directors.
Quorum of Shareholders. The
CBCA provides that, unless the bylaws provide otherwise, a quorum of
shareholders is present at a meeting of shareholders (irrespective of the number
of persons actually present at the special meeting) if holders of a majority of
the shares entitled to vote at the special meeting are present in person or
represented by proxy. The current bylaws provide that the presence of not less
than 33% of the shares entitled to vote at the special meeting are present in
person or represented by proxy constitutes a quorum.
Under
Nevada corporate law, the articles of incorporation or bylaws may specify the
required quorum. The proposed articles and bylaws of Altair Nevada provide that
the presence of two stockholders, represented in person or by proxy, holding no
less than one-third of the voting power of the outstanding shares entitled to
vote at the special meeting shall constitute a quorum at a meeting of
stockholders.
Call of Meetings. The CBCA
provides that holders of not less than five percent of our issued voting shares
may requisition the directors requiring them to call and hold a special meeting
for the purposes stated in the requisition. In addition, under the CBCA,
the directors of the Company may cause a corporation to call a special meeting
of shareholders at any time.
Nevada
corporate law provides that, except as set forth in the articles or bylaws of a
corporation, a special meeting of the stockholders may be called by the Board of
Directors, any two directors, the corporation’s president, or by any person or
persons as may be authorized by the articles of incorporation or bylaws. The
proposed bylaws of Altair Nevada provide that a special meeting of stockholders
may be called by the Chief Executive Officer (or if none exists, by the
President), the Chairman of the Board, or any two directors.
Shareholder Consent in Lieu of
Meeting. Under the CBCA, shareholders can take action by written
resolution and without a meeting only if all shareholders entitled to vote on
that resolution sign the written resolution.
Under
Nevada corporate law, unless otherwise limited by the articles of incorporation,
stockholders may act by written consent without a meeting if holders of
outstanding stock representing not less than the minimum number of votes that
would be necessary to take the action at an annual or special meeting execute a
written consent providing for the action. The proposed articles of incorporation
of Altair Nevada prohibit action by written consent of the
stockholders.
Director Qualification and
Number. The CBCA states that a distributing corporation must have no
fewer than three directors, at least two of whom are not officers or employees
of the corporation or its affiliates. Additionally, at least 25% of the
directors must be Canadian residents unless the corporation has fewer than four
directors, in which case at least one director must be a Canadian resident. Our
current articles of continuance prescribe a minimum of three and a maximum of
nine directors.
Nevada
corporate law has no similar requirements; however, the governance standards of
the NASDAQ Capital Market require the majority of a listed company’s Board to be
independent. The proposed bylaws of Altair Nevada prescribe a minimum of three
and a maximum of nine directors, with the exact number of directors within such
range to be determined by the Board of Directors. The proposed bylaws
also require unanimous approval of the Board of Directors or approval of the
stockholders in order to increase the number of directors above
nine.
Fiduciary Duty of
Directors. Directors of a corporation incorporated or
organized under the CBCA corporate law have fiduciary obligations to the
corporation and its shareholders. The CBCA requires directors of a Canadian
corporation, in exercising their powers and discharging their duties, to act
honestly and in good faith with a view to the best interests of the corporation
and exercise the care, diligence and skill that a reasonably prudent person
would exercise in comparable circumstances.
Under
Nevada common law, directors have a duty of care and a duty of loyalty. The duty
of care requires that the directors act in an informed and deliberative manner
and inform themselves, prior to making a business decision, of all material
information reasonably available to them. The duty of loyalty is the duty to act
in good faith, not out of self-interest, and in a manner which the directors
reasonably believe to be in the best interests of the stockholders. In addition,
Nevada corporate law provides that a transaction between a Nevada corporation
and one of its directors or officers or an entity affiliated with one of its
directors or officers is not voidable solely for such reason so long as either
(i) the material facts of the director’s or officer’s interest in the
transaction are disclosed to the Board of Directors and a majority of the
disinterested directors approve the transaction, (ii) the material facts of the
director’s or officer’s interest in the transaction are disclosed to the
stockholders and the transaction is specifically approved in good faith by the
stockholders, (iii) the director’s or officer’s interest in the transaction are
not known to such director or officer at the time the transaction is brought
before the Board of Directors for action or (iv) the transaction is fair to the
Nevada corporation at the time approved by the Board of Directors or
stockholders.
Personal Liability of Directors.
The CBCA prescribes circumstances where directors can be liable for
malfeasance or nonfeasance. Certain actions to enforce a liability imposed by
the CBCA must be brought within two years from the date of the resolution
authorizing the act at issue. A director will be deemed to have complied with
his fiduciary obligations to the corporation under the CBCA if he relied in good
faith on:
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financial
statements represented to him by an officer or in a written report of the
auditors fairly reflecting the financial condition of the corporation;
or
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a
report of a person whose profession lends credibility to a statement made
by the professional person.
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The CBCA
also contains other provisions limiting personal liability of a corporation’s
directors.
Nevada
corporate law provides that, unless a corporation’s articles provide for greater
individual liability, a director is not individually liable to the corporation
or its stockholders or creditors for any damages as a result of any act or
failure to act in his capacity as a director or officer unless it is proven that
(a) the act or failure to act constituted a breach of his fiduciary duties as a
director or officer and (b) the breach of those duties involved intentional
misconduct, fraud or a knowing violation of law. The proposed
articles of incorporation of Altair Nevada limit the liability of directors to
Altair Nevada and its stockholders to the extent permitted by law.
Indemnification of Officers and
Directors. Under the CBCA and pursuant to our current bylaws,
we will indemnify present or former directors or officers against all costs,
charges and expenses, including an amount paid to settle an action or satisfy a
judgment that is reasonably incurred by the individual in relation to any civil,
criminal, administrative, investigative or other proceeding in which the
individual is involved because of his or her association with us. In order to
qualify for indemnification such directors or officers must:
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have
acted honestly and in good faith with a view to the best interests of the
corporation; and
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in
the case of a criminal or administrative action or proceeding enforced by
a monetary penalty, have had reasonable grounds for believing that his
conduct was lawful.
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The CBCA
also provides that such persons are entitled to indemnity from the corporation
in respect of all costs, charges and expenses reasonably incurred in connection
with the defense of any such proceeding if the person was not judged by the
court or other competent authority to have committed any fault or omitted to do
anything that the person ought to have done, and otherwise meets the
qualifications for indemnity described above.
Nevada
law permits a corporation to indemnify its present or former directors and
officers, employees and agents made a party, or threatened to be made a party,
to any third party proceeding by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, against expenses
(including attorney’s fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, if such person:
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acted
in good faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the corporation;
and
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with
respect to any criminal action or proceeding, had no reasonable cause to
believe such conduct was unlawful;
and
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if
an officer or director, did not violate fiduciary duties in a manner
involving intentional misconduct, fraud, or a knowing violation of
law.
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In a
derivative action, or an action by or in the right of the corporation, the
corporation is permitted to indemnify directors, officers, employees and agents
against expenses actually and reasonably incurred by them in connection with the
defense or settlement of an action or suit if they;
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acted
in good faith and in a manner that they reasonably believed to be in or
not opposed to the best interests of the corporation;
and
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if
an officer or director, did not violate fiduciary duties in a manner
involving intentional misconduct, fraud, or a knowing violation of
law.
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However,
in such a case, no indemnification shall be made if the person is adjudged
liable to the corporation, unless and only to the extent that, the court in
which the action or suit was brought shall determine upon application that such
person is fairly and reasonably entitled to indemnity for such expenses despite
such adjudication of liability to the corporation.
Indemnification
is mandatory if the person is successful on the merits or otherwise in defense
of any action, suit or proceeding referred to
above. Discretionary indemnification is permitted only if
approved by:
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the
board of directors by majority vote of a quorum consisting of directors
who were not parties to the act, suit or
proceeding;
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if
a majority vote of a quorum consisting of directors who were not parties
to the act, suit or proceeding so orders, by independent legal counsel in
a written opinion; or
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if
a quorum consisting of directors who were not parties to the act, suit or
proceeding cannot be obtained, by independent legal counsel in a written
opinion.
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Nevada
corporate law allows the corporation to advance expenses before the resolution
of an action, if in the case of current directors and officers, such persons
agree to repay any such amount advanced if they are later determined not to be
entitled to indemnification. The proposed bylaws of Altair Nevada generally
provide for mandatory indemnification and advancement of expenses of our
directors and officers to the fullest extent permitted under Nevada law.
Following the domestication, Altair Nevada intends to update or reaffirm
existing indemnity agreements with each of our officers and directors. In
addition, Altair Nevada intends to continue to carry liability insurance for its
and its subsidiaries’ officers and directors.
Derivative Action. Under the
CBCA, a complainant, who is defined as either a present or former registered
holder or beneficial owner of a security of a corporation or any of its
affiliates; a present or former director or officer of a corporation or any of
its affiliates; the Director appointed under the CBCA; or any other person who,
in the discretion of a court, is a proper person to make an application under
the CBCA relating to shareholder remedies, may apply to the court for the right
to bring an action in the name of and on behalf of a corporation or any of its
subsidiaries, or to intervene in an existing action to which they are a party
for the purpose of prosecuting, defending or discontinuing the action on behalf
of the entity. Under the CBCA, the court must be satisfied that:
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the
complainant has given proper notice to the directors of the corporation or
its subsidiary of the complainant’s intention to apply to the court if the
directors of the corporation or its subsidiary will not bring, diligently
prosecute or defend or discontinue the
action;
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the
complainant is acting in good faith;
and
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it
appears to be in the interest of the corporation or its subsidiary that
the action be brought, prosecuted, defended or
discontinued.
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Under the
CBCA, the court in a derivative action may make any order it sees fit including
orders pertaining to the control or conduct of the lawsuit by the complainant or
the making of payments to former and present shareholders and payment of
reasonable legal fees incurred by the complainant.
Similarly,
under Nevada law, a stockholder may bring a derivative action on behalf of the
corporation to enforce a corporate right, including the breach of a director’s
duty to the corporation. Nevada law requires that the plaintiff in a derivative
suit be a stockholder of the corporation at the time of the wrong complained of
and that the plaintiff make a demand on the directors of the corporation to
assert the corporate claim unless the demand would be futile.
Dissenters’ Rights. The CBCA
provides that shareholders of a corporation entitled to vote on certain matters
are entitled to exercise dissent rights and demand payment for the fair value of
their shares. Dissent rights exist when there is a vote upon matters such
as:
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any
amalgamation with another corporation (other than with certain affiliated
corporations);
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an
amendment to our articles of incorporation to add, change or remove any
provisions restricting the issue, transfer or ownership of
shares;
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an
amendment to our articles of incorporation to add, change or remove any
restriction upon the business or businesses that the corporation may carry
on;
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a
continuance under the laws of another
jurisdiction;
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a
sale, lease or exchange of all or substantially all the property of the
corporation other than in the ordinary course of business;
and
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a
court order permitting a shareholder to dissent in connection with an
application to the court for an order approving an arrangement proposed by
the corporation.
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a
going-private transaction or squeeze-out
transaction.
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However,
a shareholder is not entitled to dissent if an amendment to the articles of
incorporation is effected by a court order approving a reorganization or by a
court order made in connection with an action for an oppression
remedy.
Nevada
corporate law grants dissenter’s rights only in the case of certain mergers,
share exchangers, consolidation, fundamental changes in which only cash or
script will be received, not in the case of other fundamental changes
such as the sale of all or substantially all of the assets of the corporation or
amendments to the articles of incorporation, unless so provided in the
corporation’s articles of incorporation, bylaws, or a resolution of the
corporation’s Board. The proposed articles of incorporation of Altair Nevada do
not include any such provisions. Under Nevada law, stockholders who have neither
voted in favor of nor consented to the merger or consolidation have the right to
seek appraisal of their shares in connection with certain mergers or
consolidations by demanding payment in cash for their shares equal to the fair
value of such shares. Fair value is determined by a court in an action timely
brought by the stockholders who have properly demanded appraisal of their
shares. In determining fair value, the court may consider all relevant factors,
including the rate of interest which the resulting or surviving corporation
would have had to pay to borrow money during the pendency of the court
proceeding.
No
appraisal rights are available for shares of any class or series listed on a
national securities exchange (such as shares of our common stock) or held of
record by more than 2,000 stockholders. However, appraisal rights are available
if the agreement of merger or consolidation would require the holders of stock
to accept for their stock anything except:
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stock
of the surviving corporation;
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stock
of another corporation which is either listed on a national securities
exchange or held of record by more than 2,000
stockholders;
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cash
in lieu of fractional shares;
or
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some
combination of the above.
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In
addition, under Nevada law, appraisal rights are not available for any shares of
the surviving corporation if the merger did not require the vote of the
stockholders of the surviving corporation.
Oppression Remedy. Under the
CBCA, a complainant has the right to apply to a court for an order where an act
or omission of the corporation or an affiliate effects a result, or the business
or affairs of which are or have been conducted in a manner, or the exercise of
the directors’ powers are or have been exercised in a manner, that would be
oppressive or unfairly prejudicial to or would unfairly disregard the interest
of any security holder, creditor, director or officer of the corporation. On
such application, the court may make any interim or final order it thinks fit,
including an order restraining the conduct complained of.
There are
no equivalent statutory remedies under Nevada corporate law; however,
stockholders may be entitled to remedies for a violation of a director’s
fiduciary duties.
Business
Combinations. Sections 78.411 to 78.444 of the Nevada Revised
Statutes contain provisions limiting business combinations between “resident
domestic corporations” and “interested stockholders.” These sections provide
that the resident domestic corporation and the interested stockholder may not
engage in specified business “combinations” for three years following the date
the person became an interested stockholder unless the Board of Directors
approved, before the person became an interested stockholder, either the
business combination or the transaction that resulted in the stockholder
becoming an interested stockholder.
These
sections of Nevada corporate law also contain limitations on transactions
entered into with the interested stockholder after the expiration of the
three-year period following the date the person became an interested
stockholder. Certain exceptions to these restrictions apply if specified
criteria suggesting the fairness of a combination are satisfied. For purposes of
these provisions, “resident domestic corporation” means a Nevada corporation
that has 200 or more stockholders of record and “interested stockholder” means,
with certain exceptions, any person, other than the resident domestic
corporation or its subsidiaries, who is:
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the
beneficial owner, directly or indirectly, of ten percent or more of the
voting power of the outstanding voting shares of the resident domestic
corporation; or
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an
affiliate or associate of the resident domestic corporation and at any
time within three years immediately before the date in question was the
beneficial owner, directly or indirectly, of ten percent or more of the
voting power of the outstanding shares of the resident domestic
corporation.
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Business
combinations for this purpose include:
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a
merger or plan of share exchange between the resident domestic corporation
or a subsidiary and the interested stockholder or, after the merger or
exchange, an affiliate;
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any
sale, lease, mortgage or other disposition to the interested stockholder
or an affiliate of assets of the corporation having a market value equal
to 5% or more of the market value of the assets of the corporation, 5% or
more of the outstanding shares of the corporation or 10% or more of the
earning power or net income of the
corporation;
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specified
transactions that result in the issuance or transfer of capital stock with
a market value equal to 5% or more of the aggregate market value of all
outstanding shares of capital stock of the corporation to the interested
stockholder or an affiliate;
and
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certain
other transactions that have the effect of increasing the proportion of
the outstanding shares of any class or series of voting shares owned by
the interested stockholder.
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Pursuant
to the articles of incorporation, Altair Nevada has opted out of these
provisions as permitted by Section 78.434(5) of the Nevada Revised Statutes;
however, were the articles of incorporation to be amended to eliminate the
opt-out provision, the above-described provisions of the Nevada corporate law
would limit certain transactions with interested stockholders.
There is
no comparable provision relating to business combinations under the CBCA, but
restrictions on business combinations do exist under applicable Canadian
securities laws.
Acquisition of Controlling
Interest. Sections 78.378-78.3793 of the Nevada Revised
Statutes include “acquisition of controlling interest” provisions. If
applicable to a Nevada corporation, the provisions restrict the voting rights of
certain stockholders that acquire or offer to acquire ownership of a
“controlling interest” in the outstanding voting stock of an “issuing
corporation.” For purposes of these provisions, a “controlling
interest” means, with certain exceptions, the ownership of outstanding voting
stock sufficient to enable the acquiring person to exercise one-fifth or more
but less than one-third, one-third or more but less than a majority, or a
majority or more, of all voting power in the election of directors, and “issuing
corporation” means a Nevada corporation which has 200 or more stockholders of
record, at least 100 of whom have addresses in Nevada appearing on the stock
ledger of the corporation, and which does business in Nevada directly or through
an affiliated corporation. The restrictions of sections 78.38-78.3793
of the Nevada Revised Statutes will not apply to shares of capital stock of
Altair Nevada following the domestication because Altair Nevada does not have a
100 or more stockholders of records with addresses in Nevada and because Altair
Nevada’s bylaws and articles of incorporation opt out of such provisions;
however, if any time Altair Nevada has at least 100 Nevada stockholders of
record located in Nevada and amends the articles of incorporation to opt in to
such provisions, the above-described provisions of Nevada corporate law would
limit certain transactions with persons acquiring a controlling
interest.
There is
no comparable provision relating to business combinations under the CBCA, but
restrictions on business combinations do exist under applicable Canadian
securities laws.
Ability of Board to Increase or
Decrease Outstanding and Issued Shares of Stock. Under
Nevada corporate law, a corporation may effect reverse split (or consolidation)
or other recapitalization transactions if the proposed reverse split or other
recapitalization is approved by its board of directors and a majority of the
outstanding shares of capital stock, with any class or series adversely affected
by such reverse split or recapitalization voting separate as a
class. In addition, pursuant to Section 78.207 of the Nevada Revised
Statutes, unless otherwise provided in its articles of incorporation, the board
of directors of a corporation can effect a reverse split (or consolidation)
without seeking approval of the stockholders if it correspondingly adjusts the
number of authorized shares of capital stock and the transaction does not
adversely alter or change any preference or any relative or other right given to
any other class or series of outstanding shares. The proposed
articles of incorporation of Altair Nevada do not preclude its ability to effect
such a reverse split pursuant to Section 78.207 of the Nevada Revised
Statutes.
Under the
CBCA, a corporation may effect a reverse split (or consolidation) or other
recapitalization transaction if the proposed reverse split or other
recapitalization is approved by its board of directors and two-thirds of the
votes cast in respect of the matter, with any class or series adversely affected
by such reverse split or recapitalization voting separate as a class; however,
the CBCA does not have a provision permitting the board of directors to affect a
reverse split without stockholder approval, even if the number of authorized
shares of capital stock is correspondingly adjusted.
Examination of Corporate
Records. Under the CBCA, shareholders, creditors and their personal
representatives may examine certain corporate records, such as the securities
register and a list of shareholders, and any other person may do so on payment
of a reasonable fee. Each such person must provide an affidavit containing
specific information. A list of shareholders or information from a securities
register may not be used except in connection with an effort to influence the
voting of shareholders of the corporation, an offer to acquire securities of the
corporation or any other matter relating to the affairs of the
corporation.
Under
Nevada law, any person who has been a stockholder of record of a corporation for
at least six months immediately preceding his demand, or any person holding at
least five percent of all of the corporation’s outstanding shares, has the right
to inspect, upon at least five days’ written demand, in person or by agent or
attorney, during usual business hours, the the corporation’s articles, bylaws
and stock ledger.
Shareholder Rights Agreement (a/k/a
poison pills). Under the CBCA, Altair Canada has entered into the Rights
Agreement with Equity Transfer Services, Inc. The rights granted
under the Rights Agreement are not exercisable, are evidenced by the common
shares and transfer with, and only with, the common shares. With
certain exceptions, if a person becomes the owner of 15% or more of the
outstanding common shares without an appropriate waiver, exception, amendment or
redemption, each right becomes exercisable and entitles the holder to purchase
from us for $20, as adjusted for stock splits and consolidations, a number of
common shares having a market price of $80, as adjusted for stock splits and
consolidations. The Rights Agreement has the effect of discouraging
an attempt to purchase a controlling interest in the common shares without
approval of the Board of Directors.
Rights
outstanding under the rights Agreement shall remain outstanding following the
domestication and shall become rights to purchase the common stock of Altair
Nevada.
Anti-Takeover Effects. Some
powers granted to companies under Nevada law may allow a Nevada corporation to
make itself potentially less vulnerable to hostile takeover attempts. These
powers include the ability to:
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implement
a staggered board of directors, which prevents an immediate change in
control of the board;
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require
that notice of nominations for directors be given to the corporation prior
to a meeting where directors will be elected, which may give management an
opportunity to make a greater effort to solicit its own
proxies;
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only
allow the officers and the board of directors to call a special meeting of
stockholders, which may thwart a raider’s ability to call a meeting to
make disruptive changes;
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eliminate
stockholders’ action by written consent, which would require a raider to
attend a meeting of stockholders to approve any proposed action by the
corporation;
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remove
a director from a staggered board only for cause, which gives some
protection to directors on a staggered board from arbitrary
removal;
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provide
that the power to determine the number of directors and to fill vacancies
be vested solely in the board of directors, so that the incumbent board,
not a raider, would control vacant board
positions;
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provide
for supermajority voting in some circumstances, including mergers and
articles of incorporation amendments;
and
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issue
“blank check” preferred stock, which may be used to make a corporation
less attractive to a raider.
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In
addition to the Rights Agreement provisions described in the preceding section,
the proposed articles of incorporation and/or bylaws of Altair Nevada will
include the following provisions which may make Altair Nevada less vulnerable to
hostile takeover attempts:
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requirement
that stockholders provide prior notice by a certain date to nominate
directors;
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restrictions
on the ability of stockholders to call a special meeting of
stockholders;
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the
elimination of the ability of stockholders to take action by written
consent; and
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permitting
the Board to determine the number of directors and fill vacancies on the
Board of Directors.
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Other
than the existing rights under the Rights Agreement, the ability of our Board of
Directors to determine the number of directors (within a range provided in our
articles) and to create and fill vacancies between annual meetings of
shareholders, our existing articles and Canadian law do not include the
anti-takeover provisions listed above that will be included in the articles of
incorporation and/or bylaws of Altair Nevada.
Proposed
Articles of Incorporation and Bylaws of Altair Nevada
We have
included provisions in the proposed articles of incorporation and bylaws of
Altair Nevada that do not simply reflect the default provisions of Nevada
law. These include the following:
Bylaws. Nevada corporate
law gives the directors the power to adopt, amend or repeal the bylaws of the
Nevada corporation, subject to any bylaws adopted by the stockholders, but
permits the articles of incorporation to reserve the right to amend the bylaws
solely to the Board of Directors. The proposed bylaws of Altair Nevada provide
that its bylaws may be amended or repealed only by unanimous vote of the Board
of Directors or by the shareholders.
Quorum at Stockholders’ Meetings.
Under Nevada law, unless otherwise provided in a corporation’s articles
of incorporation or bylaws, a majority of the voting power, whether present in
person or by proxy, constitutes a quorum for the transaction of business at a
meeting of stockholders. The proposed bylaws of Altair Nevada provide
that a quorum exists with the presence, whether in person or by proxy, of at
least two stockholders holding at least one third of the voting power of the
stock issued and outstanding and entitled to vote.
Stockholder Action by Written
Consent. Under Nevada law, unless otherwise provided in a
corporation’s articles of incorporation, stockholders may act by written consent
with respect to certain actions if approved by the number of stockholders that
would otherwise have been authorized to take such actions at a meeting at which
all stockholders were present. The proposed articles of incorporation of Altair
Nevada prohibit action by written consent of the stockholders.
Presentation of Nominations and
Proposals at Meetings of Stockholders. Nevada law does not provide
procedures for stockholders to nominate individuals to serve on the board of
directors or to present other proposals at meetings of stockholders. The
proposed bylaws of Altair Nevada contain procedures governing stockholder
nominations and stockholder proposals. The proposed bylaws of Altair Nevada
allow stockholders to nominate individuals to serve on the Board of Directors
and to present other proposals at meetings of stockholders only upon compliance
with specific procedures. To nominate an individual to the Board of Directors of
Altair Nevada at an annual or special stockholders meeting, or to present other
proposals at an annual meeting, a stockholder must provide advance notice to
Altair Nevada, in the case of an annual meeting, not fewer than 60 days nor more
than 180 days prior to the first anniversary of the date of Altair Nevada’s
annual meeting for the preceding year and, in the case of a special meeting, not
prior to 90 days before such meeting and not later than the close of business on
the later of the 60th day prior to such special meeting or the 10th day
following the day on which public announcement is first made of the date of the
special meeting.
Number of
Directors. Under Nevada law, a corporation’s articles of
incorporation or bylaws may fix a number of directors or may provide for a
variable number directors, and for the manner in which the number of directors
may be increased or decreased. The proposed bylaws of Altair Nevada provide that
the number of directors on the Board of Directors may not be less than three or
more than nine and that within this range, the number of directors shall
otherwise be determined from time to time by the Board of
Directors. The maximum number of directors permitted by the bylaws
may be increased by unanimous vote of the Board of Directors or by the
stockholders.
Dissent
Rights of Shareholders
Section
190 of the CBCA is reprinted in its entirety as Exhibit E to this Circular.
Shareholders may exercise their dissent rights in connection with the proposal
to approve the change in jurisdiction from the CBCA to Nevada, referred to as a
“continuance” under the CBCA and in this section and referred to as
“domestication” under Nevada corporate law (Proposal 1 in the Notice of
meeting).
If you
wish to dissent and do so in compliance with Section 190 of the CBCA, you will
be entitled to be paid the fair value of the shares you hold if the continuance
occurs. Fair value is determined as of the close of business on the day before
the continuance is approved by shareholders.
If you
wish to dissent, you must send us your written objection to the continuance at
or before the special meeting. If you vote in favor of the continuance, you in
effect lose your rights to dissent. If you abstain or vote against the
continuance, you preserve your dissent rights if you comply with Section 190 of
the CBCA.
However,
it is not sufficient to vote against the continuance or to abstain. You must
also provide a separate dissent notice at or before the special meeting. If you
grant a proxy and intend to dissent, the proxy must instruct the proxy holder to
vote against the continuance in order to prevent the proxy holder from voting
such shares in favor of the continuance and thereby voiding your right to
dissent. Under the CBCA, you have no right of partial dissent. Accordingly, you
may only dissent as to all your shares.
Under
Section 190 of the CBCA, you may dissent only for shares that are registered in
your name. In many cases, people beneficially own shares that are registered
either:
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in
the name of an intermediary, such as a bank, trust company, securities
dealer, broker, trustee, administrator of self administered registered
retirement savings plans, registered retirement income funds, registered
educational savings plans and similar plans and their nominees;
or
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in
the name of a clearing agency in which the intermediary participates, such
as CDS Clearing and Depository Services Limited or The Depository Trust
Company.
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If you
want to dissent and your shares are registered in someone else’s name, you must
contact your intermediary and either:
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instruct
your intermediary to exercise the dissenters’ rights on your behalf
(which, if the shares are registered in the name of a clearing agency,
will require that the shares first be re-registered in your intermediary’s
name); or
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instruct
your intermediary to re-register the shares in your name, in which case
you will have to exercise your dissenters’ rights
directly.
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In other
words, if your shares are registered in someone else’s name, you will not be
able to exercise your dissenters’ rights directly unless the shares are
re-registered in your name. A dissenting shareholder may only make a claim under
Section 190 of the CBCA with respect to all of the shares of a class held on
behalf of any one beneficial owner and registered in the name of the dissenting
shareholder. We are required to notify each shareholder who has filed a dissent
notice when and if the continuance has been approved. This notice must be sent
within ten days after our shareholders approve the continuance. We will not send
a notice to any shareholder who voted to approve the continuance or who has
withdrawn his dissent notice.
Within 20
days after receiving the above notice from us, or if you do not receive such
notice, within 20 days after learning that the continuance has been approved,
you must send us a payment demand containing:
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the
number of shares you own; and
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a
demand for payment of the fair value of your
shares.
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Within 30
days after sending a payment demand, you must send to us directly at our
corporate address, 204 Edison Way, Reno, Nevada, 89502, or through our transfer
agent, Equity Transfer & Trust Company, the certificates representing your
shares. If you fail to send us a dissent notice, a payment demand or your share
certificates within the appropriate time frame, you forfeit your right to
dissent and your right to be paid the fair value of your shares. Our transfer
agent will endorse on your share certificates a notice that you are a dissenting
shareholder and will return the share certificates to you.
Once you
send a payment demand to us, you cease to have any rights as a shareholder. Your
only remaining right is the right to be paid the fair value of your shares. Your
rights as a shareholder will be reinstated if:
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you
withdraw your payment demand prior to an offer being made by
us;
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we
fail to make you an offer of payment and you withdraw the dissent notice;
or
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the
continuance does not happen.
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Within
seven days of the later of the effective date of the continuance or the date we
receive your payment demand, we must send you a written offer to pay for your
shares. This must include a written offer to pay you an amount considered by our
Board to be the fair value of your shares accompanied by a statement showing how
that value was determined. The offer must include a statement showing the manner
used to calculate the fair value. Each offer to pay shareholders must be on the
same terms. We must pay you for your shares within ten days after you accept our
offer. Any such offer lapses if we do not receive your acceptance within 30 days
after the offer to pay has been made to you.
If we
fail to make an offer to pay for your shares, or if you fail to accept the offer
within the specified period, we may, within fifty days after the effective date
of the continuance, apply to a court to fix a fair value for your shares. If we
fail to apply to a court, you may apply to a court for the same purpose within a
further period of twenty days. You are not required to give security for costs
in such a case.
On
application to the courts, all dissenting shareholders whose shares have not
been purchased will be joined as parties and bound by the decision of the court.
We are required to notify each affected dissenting shareholder of the date,
place and consequences of the application and of his right to appear and be
heard in person or by counsel. The court may determine whether any person who is
a dissenting shareholder should be joined as a party. The court will then fix a
fair value for the shares of all dissenting shareholders who have not accepted a
payment offer from us. The final order of a court will be rendered against us
for the amount of the fair value of the shares of all dissenting shareholders.
The court may, in its discretion, allow a reasonable rate of interest on the
amount payable to each dissenting shareholder and appoint an appraiser to assist
in the determination of a fair value for the shares.
THIS IS
ONLY A SUMMARY OF THE DISSENTING SHAREHOLDER PROVISIONS OF THE CBCA. THEY ARE
TECHNICAL AND COMPLEX. IT IS SUGGESTED THAT IF YOU WANT TO AVAIL YOURSELF OF
YOUR RIGHTS THAT YOU SEEK YOUR OWN LEGAL ADVICE. FAILURE TO COMPLY STRICTLY WITH
THE PROVISIONS OF THE CBCA MAY PREJUDICE YOUR RIGHT OF DISSENT. SECTION 190 OF
THE CBCA IS ATTACHED HEREIN AS EXHIBIT E AND IS INCORPORATED HEREIN BY
REFERENCE.
Accounting
Treatment of the Domestication
Our
domestication as a Nevada corporation represents a transaction between entities
under common control. Assets and liabilities transferred between
entities under common control are accounted for at carrying value. Accordingly,
the assets and liabilities of Altair Nevada will be reflected at their carrying
value to us. Any of our shares that we acquire from dissenting shareholders will
be treated as an acquisition of treasury stock at the amount paid for the
shares. Under the Nevada Code, the treasury shares may then be
re-issued under the same terms as our authorized shares.
United
States Federal Income Tax Considerations
The
following discussion sets forth certain material United States federal income
tax consequences of the domestication to Altair Nanotechnologies Inc., the
Canadian corporation, and the U.S. Holders (as defined below) and Non-U.S.
Holders (as defined below) of its common shares, as well as certain of the
expected material United States federal income tax consequences of the ownership
and disposition of the shares of Altair Nanotechnologies Inc., the Nevada
corporation. For purposes of this summary, to avoid confusion where a
distinction is necessary, Altair Nanotechnologies Inc. as a Canadian corporation
is referred to as “Altair Canada” and Altair Nanotechnologies Inc. as a Nevada
corporation is referred to as “Altair Nevada.”
This
discussion does not address all aspects of taxation that may be relevant to
particular shareholders in light of their personal investment or tax
circumstances or to persons that are subject to special tax rules. In
particular, this description of United States federal income tax considerations
does not address the tax treatment of special classes of holders of our common
shares, such as banks, insurance companies, tax-exempt entities, financial
institutions, broker-dealers, persons holding shares of our capital stock as
part of a hedging or conversion transaction or as part of a “straddle,” United
States expatriates, holders who acquired their common shares in Altair Canada
pursuant to the exercise of employee stock options or otherwise as compensation
or through a tax-qualified retirement plan and holders who exercise dissent
rights. We assume in this discussion that you hold our capital stock as a
capital asset within the meaning of the Code. This discussion is
based on current provisions of the Code, United States Treasury Regulations,
judicial opinions, published positions of the United States Internal Revenue
Service, or the “IRS,” and other applicable authorities, all as in effect on the
date of this management proxy circular and all of which are subject to differing
interpretations or change, possibly with retroactive effect. This discussion
does not address any state, local or foreign tax considerations. We urge you to
consult your tax advisor about the United States federal tax consequences of
acquiring, holding, and disposing of our common shares, as well as any tax
consequences that may arise under the laws of any foreign, state, local, or
other taxing jurisdiction or under any applicable tax treaty.
As used
in this summary, the term “U.S. Holder” means a beneficial owner of our common
shares that is for United States federal income tax purposes:
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a
citizen or resident of the United
States;
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a
corporation (including any entity treated as a corporation for United
States federal income tax purposes) created or organized under the laws of
the United States, any state thereof, or the District of
Columbia;
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an
estate the income of which is taxable in the United States regardless of
its source; or
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a
trust, the administration of which is subject to the primary supervision
of a United States Court and one or more United States persons have the
authority to control all substantial decisions of the trust, or that has a
valid election in effect under applicable United States Treasury
Regulations to be treated as a United States
person.
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If a
partnership (including for this purpose any other entity, either organized
within or without the United States, that is treated as a partnership for United
States federal income tax purposes) holds our common shares, the tax treatment
of a partner as a beneficial owner of the shares generally will depend upon the
status of the partner and the activities of the partnership. Foreign
partnerships also generally are subject to special United States federal income
tax documentation requirements. A beneficial owner of our common shares who is
not a U.S. Holder is referred to below as a “Non-U.S. Holder.”
Code
Section 368 Reorganization
Provisions
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Under
applicable IRS rulings, the domestication transaction will be treated as if
Altair Canada: (i) transferred all of its assets and liabilities to Altair
Nevada in exchange for all of the outstanding shares of capital stock of Altair
Nevada; and (ii) then distributed the shares of Altair Nevada to the
shareholders of Altair Canada in liquidation of Altair Canada. The
United States federal income tax consequences of the domestication and deemed
transfers described above will depend primarily upon whether the transaction
qualifies as a “reorganization” within the meaning of Code Section
368.
The
change in our place of incorporation will constitute a “reorganization” within
the meaning of Code Section 368(a)(1)(F), which we refer to as an “F
Reorganization,” provided that the number of our outstanding shares as to which
shareholders exercise their dissenters’ rights (“Dissenting Shareholders”) is
less than 1% of our outstanding shares. Exercise of dissenters’
rights by holders of 1% or more of our outstanding shares may disqualify the
domestication from F reorganization treatment.
If the
domestication does not qualify as an “F Reorganization” for the reason stated
above, it nevertheless will qualify as a reorganization under Code Section
368(a)(1)(D) of the Code, which we refer to as a “D Reorganization,” unless we
are required to use an amount of our assets to satisfy claims of Dissenting
Shareholders which would prevent us from retaining substantially all of the
assets of Altair Canada immediately prior to the
domestication. Historically, for advance ruling purposes, the IRS
defines “substantially all” to mean 70% of the fair market value of gross
assets, and at least 90% of the fair market value of net assets of such entity.
In determining if Altair Nevada is acquiring and retaining “substantially all”
of the assets of Altair Canada, payments of cash to Dissenting Shareholders will
not be considered assets acquired by Altair Nevada. Altair Canada will satisfy
the “substantially all” test unless it is required to pay to Dissenting
Shareholders more than 30% of the fair market value of its gross assets or more
than 10% of the fair market value of its net assets. We believe that the amount
we may be required to pay to Dissenting Shareholders will not prevent Altair
Nevada from being deemed to have acquired and retained “substantially all” of
the assets to Altair Canada within the meaning of the IRS ruling
guidelines.
Therefore
we believe that the domestication will qualify as both a F reorganization and a
D reorganization. If the domestication so qualifies as either type or
reorganization, neither Altair Nanotechnologies Inc. nor our shareholders will
recognize taxable gain or loss on the transaction for United States federal
income tax purposes, except as explained below under the caption headings: (i)
“Effect of Exercising of
Dissenters’ Rights;” (ii) “FIRPTA Considerations;” (iii)
“Effect of Code Section
367;” and (iv) “PFIC
Considerations.”
In the
event the domestication does not qualify as either an F reorganization or a D
Reorganization, a U.S. Holder would recognize gain or loss with respect to its
shares of Altair Canada equal to the difference between the stockholder’s basis
in those Altair Canada shares and the fair market value, as of the effective
time of the domestication, of the Altair Nevada shares received. To
the extent that the domestication would not qualify as a reorganization based on
the tests set forth above, the Board of Directors of Altair Canada intends to
abandon the domestication.
Basis
and Holding Period Considerations
For
United States federal income tax purposes, if the domestication is a
reorganization within the meaning of Section 368 of the Code, the tax basis of
the shares of Altair Nevada stock received by a shareholder in the exchange will
equal the shareholder’s tax basis in the common shares surrendered in the
exchange, increased by any amount included in the income of such shareholder as
a result of the application of Code Section 367. See the discussion
under “Effect of Code Section
367” below. The holding
period for the Altair Nevada stock for United States federal income tax
purposes, will be the same as the shareholder’s holding period for the Altair
Canada shares surrendered in the exchange, provided that the shares were held as
a capital asset.
If the
domestication is not a reorganization within the meaning of Section 368 of the
Code, for United States federal income tax purposes the tax basis of the shares
of Altair Nevada stock distributed to the shareholder will equal his or her tax
basis in the shares surrendered plus any gain recognized, and the holding period
will begin on the date of the exchange.
Effect
of Exercising Dissenters’ Rights
Any U.S.
Holder that is a Dissenting Shareholder will recognize taxable gain or loss for
United States federal income tax purposes with respect to its shares of Altair
Canada stock equal to the difference between its tax basis in those shares and
the amount of cash received for those shares through the exercise of its
dissenters’ rights. A U.S. Holder that exercises dissenters’ rights
with respect to our common shares will recognize taxable gain or loss for United
States federal income tax purposes even if the domestication otherwise qualifies
as an F reorganization of a D reorganization. A Non-U.S. Holder who
exercises dissenters’ rights will not be subject to United States federal income
tax on the receipt of cash for the shareholder’s common shares.
The
Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”), codified at Code
Sections 897 and 1445, imposes certain additional restrictions on our ability to
effect to the domestication without adverse United States federal income tax
consequences. Altair Canada currently owns “United States real
property interests,” as that term is defined in Code Section 897(c)(1), having
an aggregate fair market value in excess of adjusted tax
basis. Under Code Sections 897(a) and 897(e), regardless of whether
the domestication qualifies as an F Reorganization or a D Reorganization, Altair
Canada will recognize taxable gain on the shares of Altair Nevada that Altair
Canada is deemed to receive in exchange for its United States real property
interests to the extent the fair market value of those United States real
property interests exceeds the adjusted tax basis of such real
property. Such gain, which Altair Canada estimates to be U.S.
$670,000, will be taxable to Altair Canada at graduated United States federal
income tax rates applicable to income effectively connected with a United States
trade or business (currently up to 35%). Altair Canada can provide no
assurance, however, that the IRS will not ascribe a greater value, and thus a
larger taxable gain under FIRPTA, to its United States real property
interests. The actual United States federal income tax incurred by
Altair Canada for the year of the domestication will also depend on Altair
Canada’s other items of taxable United States income or loss for the year,
including available United States net operating loss carryovers from prior
years.
Unless
the IRS issues a withholding certificate allowing a lower rate of FIRPTA
withholding, Code Section 1445 will also require Altair Nevada to remit to IRS a
withholding tax equal to 10% of the “amount realized” with respect to the deemed
transfer of Altair Canada’s United States real property interests to Altair
Nevada in exchange for Altair Nevada shares. That deemed “amount
realized,” on which the Code Section 1445 withholding tax is based, will equal
the fair market value of Altair Canada’s United States real property
interests. The Code Section 1445 withholding tax will be creditable
against any United States federal income tax owed by Altair Canada for the tax
year of the deemed transfer, including United States federal income tax on gain
from the deemed transfer of our United States real property interests under Code
Section 897, and will be refundable to the extent it exceeds our United States
federal income liability for such tax year. Altair Canada intends to
apply to IRS for a FIRPTA withholding certificate reducing the amount of
withholding tax that must be remitted in connection with the domestication to
the maximum United States federal corporate income tax associated with the net
gain in our United States real property interests. We can provide no
assurance, however, that IRS will agree to such a reduced withholding
amount.
Effect
of Code Section 367
Code
Section 367 applies to certain non-recognition transactions involving foreign
corporations. When it applies, Code Section 367 has the effect of
imposing income tax on United States persons in connection with transactions
that would otherwise be tax free. Code Section 367 will apply to the
domestication under the circumstances discussed below even if the domestication
otherwise qualifies as a F reorganization or D reorganization.
Under
Code Section 367, a U.S. Holder who owns, directly or by attribution, 10% or
more of the combined voting power of all classes of stock of Altair Canada,
which we refer to as a 10% Shareholder, would be required to recognize as
dividend income the “all earnings and profits amount”, which we refer to as the
“all earnings and profits amount”, as determined under Section 1.367(b)-2 of the
United States Treasury Regulations, attributable to its shares in Altair
Canada.
A U.S.
Holder that is not a 10% Shareholder is not required to include the “all
earnings and profits amount” attributable to such U.S. Holder’s shares in Altair
Canada in income. Instead, absent making an election discussed below to include
the “all earnings and profits amount” attributable to such U.S. Holder’s shares
in Altair Canada in income, which we refer to as a Deemed Dividend Election,
such U.S. Holder must recognize gain, but will not recognize any loss, on his or
her shares if such shares have a fair market value of $50,000 or more on the
date of the domestication exchange and the fair market value of Altair Nevada
stock received by the U.S. Holder exceeds its tax basis of the shares of Altair
Canada deemed surrendered. However, such a U.S. Holder can make the
Deemed Dividend Election to instead include in income as a dividend the “all
earnings and profits amount” attributable to the shares owned by such U.S.
Holder in Altair Canada. If a U.S. Holder makes such an election,
then such holder does not recognize any gain on the exchange. A
Deemed Dividend Election can be made only if the Company gives the U.S. Holder
the information which provides the “all earnings and profits amount” for such
holder and the U.S. Holder elects and files certain notices with such holder’s
federal income tax return for the year in which the exchange
occurred. The Company will provide such “all earnings and profits
amount” information upon written request to any Shareholder making the Deemed
Dividend Election.
U.S.
Holders should consult with their own tax advisors regarding whether to make the
Deemed Dividend Election and, if advisable, the appropriate filing requirements
with respect to this election.
A U.S.
Holder that is not a 10% Shareholder and owns shares in Altair Canada with a
fair market value of less than $50,000 on the day of the domestication exchange
is not subject to U.S. federal income tax on the domestication under Code
Section 367.
The term
“all earnings and profits amount” as defined under Treasury Regulation Section
1.367(b)-2(d) means the net positive earnings (if any) of a foreign corporation
that are determined according to principles substantially similar to those
applicable to domestic corporations, but taking into account the adjustments
under the provisions of Code Section 312(k) relating to the computation of
depreciation, Code Section 312(n) relating to adjustments to earnings and
profits for certain items that more closely conform to economic gain or loss,
and the miscellaneous provisions under Code Section 964 relating to foreign
taxes and foreign corporation’s earnings and profits. Code Sections 964 and 986,
and the regulations thereunder, contain the rules for adjusting earnings and
profits under foreign GAAP to U.S. GAAP and U.S. tax accounting, as well as
rules for determining the currency in which earnings must be computed for U.S.
tax purposes.
Based on
available information, including an analysis by our independent certified public
accounting firm, Altair Canada believes that no U.S. Holder should have a
positive “all earnings and profits amount” attributable to such U.S. Holder’s
shares of Altair Canada, and accordingly that no U.S. Holder (neither a 10%
Shareholder nor a less than 10% Shareholder who makes a Deemed Dividend
Election) should be required to include any such amount in income on the
domestication under Code Section 367. However, no assurance can be
given that the IRS will agree with us. If it does not, a U.S. Holder may be
subject to adverse U.S. federal income tax consequences.
In
addition to the discussion under the heading “Effects of Code Section 367”
above, the domestication might be a taxable event to U.S. Holders if Altair
Canada is or ever was a passive foreign investment company, or a “PFIC,” under
Section 1297 of the Code, provided that Section 1291(f) of the Code is currently
effective.
Section
1291(f) of the Code generally requires that, to the extent provided in
regulations, a United States person who disposes of stock of a PFIC recognizes
gain notwithstanding any other provision of the Code. No final Treasury
regulations are currently in effect under Section 1291(f) of the Code. Proposed
Treasury Regulations under Section 1291(f) of the Code were promulgated in 1992
with a retroactive effective date. If finalized in their current form, those
regulations would generally require taxable gain recognition by a U.S. Holder
exchanging stock of Altair Canada for stock of Altair Nevada if Altair Canada
were classified as a PFIC at any time during such U.S.
Holder’s holding period in such stock and the U.S. Holder had not
made either a “qualified electing fund” election under Code Section 1295 for the
first taxable year in which the U.S. Holder owned Altair Canada shares or in
which Altair Canada was a PFIC, whichever is later; or a “mark-to-market”
election under Code Section 1296. The tax on any such gain so recognized would
be imposed at the rate applicable to ordinary income and an interest charge
would apply based on a complex set of computational rules designed to offset the
tax deferral to such stockholders on our undistributed earnings. We are unable
to predict at this time whether, in what form, and with what effective date,
final Treasury Regulations under Code Section 1291(f) will be
adopted.
Generally,
a foreign corporation is a PFIC if 75% or more of its gross income for a taxable
year is passive income or if, on average for such taxable year, 50% or more of
the value of its assets held by the corporation during a taxable year produce or
are held to produce passive income. Passive income includes dividends, interest,
rents and royalties, but excludes rents and royalties that are derived in the
active conduct of a trade or business and that are received from an unrelated
person, as well as interest, dividends, rents and royalties received from a
related person that are allocable to income of such related person other than
passive income. For purposes of these rules, Altair Canada would be considered
to own the assets of and recognize the income of any subsidiary corporations as
to which it owns 25% or more of the value of their outstanding stock, in
proportion to such ownership.
Based
upon a limited review by our independent certified public accounting firm,
Altair Canada does not believe that it was a PFIC for any tax year after
2001. Accordingly, based on that analysis, the domestication should
not be a taxable event under the PFIC rules for any U.S. Holder who first
acquired their shares in Altair Canada during or after 2002. Altair
Canada also believes, however, that it was a PFIC prior to tax year
2002. Therefore, US Holders who first acquired their shares of Altair
Canada prior to 2002 may be subject to taxation on the domestication transaction
to the extent their shares have a fair market value in excess of their tax
basis.
The
determination of whether Altair Canada is or has been a PFIC is primarily
factual and there is little administrative or judicial authority on which to
rely to make a determination of PFIC status. Accordingly, the IRS
might not agree with Altair Canada’s analysis of whether or not it is or was a
PFIC.
Consequences
to U.S. Holders of Owning Altair Nevada Shares
Dividends. If
Altair Nevada pays dividends on its shares to U.S. Holders after the
domestication, such dividends generally will be included in the recipient
U.S. Holder’s income as ordinary dividend income to the extent of our
current and accumulated earnings and profits determined under United States
federal income tax principles as of the end of our taxable year in which the
dividend is paid. However, with respect to dividends received by
certain non-corporate U.S. Holders, including individuals, for taxable
years beginning before January 1, 2011, such dividends generally will be
taxed at the lower applicable long-term capital gains rates up to 15%, provided
certain holding period and other requirements are
satisfied. Distributions by Altair Nevada in excess of our current
and accumulated earnings and profits will be treated as a return of capital to
the extent of a U.S. Holder’s adjusted tax basis in our common shares and
thereafter as capital gain from the sale or exchange of such shares. Dividends
received by a U.S. Holder that is a corporation may be eligible for a dividends
received deduction, subject to applicable limitations.
Disposition of
Shares. Upon the sale, certain qualifying redemptions, or
other taxable disposition of the shares of Altair Nevada, a U.S. Holder
generally will recognize capital gain or loss equal to the difference
between the amount of cash and the fair market value of any property
received upon such taxable disposition and the U.S. Holder’s adjusted tax
basis in the shares. Such capital gain or loss will be long-term capital gain or
loss if the U.S. Holder’s holding period in the shares is more than one
year at the time of the taxable disposition. Long-term capital gains recognized
by certain non-corporate U.S. Holders (e.g., individuals) will generally be
subject to a maximum U.S. federal income tax rate of 15%, which rate is
currently scheduled to increase to 20% for dispositions occurring during taxable
years beginning on or after January 1, 2011. Deductions for capital losses
are subject to complex limitations under the Code.
Information Reporting and Backup
Withholding Applicable to U.S. Holders. Information reporting
requirements generally will apply to payments of dividends on our shares and to
the proceeds of a sale of Altair Nevada shares paid to a U.S. Holder unless
the U.S. Holder is an exempt recipient such as a corporation. A backup
withholding tax will apply to those payments if the U.S. Holder fails to
provide its correct taxpayer identification number, or certification of exempt
status, or if the U.S. Holder is notified by the IRS that it has failed to
report in full payments of interest and dividend income. Any amounts withheld
under the backup withholding rules will be allowed as a refund or a credit
against a U.S. Holder’s United States federal income tax liability,
provided the required information is furnished in a timely manner to the
IRS.
Consequences
to Non-U.S. Holders of Owning Altair Nevada Shares
Dividends. If
Altair Nevada pays dividends on shares, such dividends paid to Non-U.S. Holders
will generally be subject to withholding of United States federal income tax at
the rate of 30%, or such lower rate as may be specified by an applicable income
tax treaty, provided Altair Nevada has received proper certification (generally
on IRS Form W-8BEN) of the application of such income tax treaty. A Non-U.S.
Holder that is eligible for a reduced rate of United States federal withholding
tax under an income tax treaty may obtain a refund or credit of any excess
amounts withheld by filing an appropriate claim for a refund with the IRS.
Pursuant to the income tax treaty between the United States and Canada (the
“Treaty”), dividends paid by a United States corporation to a Canadian resident
where each qualifies for benefits under the Treaty are subject to United States
federal withholding tax at a maximum rate of 15%. Non-U.S. Holders should
consult their tax advisors regarding their eligibility for claiming benefits
under the Treaty and regarding their particular circumstances to claim a tax
credit or tax deduction against their Canadian (or other) tax liability for any
United States federal withholding tax.
Dividends
that are effectively connected with a Non-U.S. Holder’s conduct of a trade or
business in the United States or, if provided in an applicable income tax
treaty, dividends that are attributable to a Non-U.S. Holder’s permanent
establishment in the United States, are not subject to the U.S. withholding tax,
but are instead taxed in the manner applicable to U.S. Holders. In that case, we
will not have to withhold United States federal withholding tax if the Non-U.S.
Holder complies with applicable certification and disclosure requirements
(generally on IRS Form W-8ECI). In addition, dividends received by a foreign
corporation that are effectively connected with the conduct of a trade or
business in the United States may be subject to a branch profits tax at a 30%
rate, or a lower rate specified in an applicable income tax treaty.
Disposition of
Shares. A Non-U.S. Holder of Altair Nevada shares generally
will not be subject to United States federal income tax, including by way of
withholding, on gain recognized on a sale or other disposition of those shares
unless any one of the following is true:
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the
gain is effectively connected with the Non-U.S. Holder’s conduct of a
trade or business in the United States and, if an applicable tax treaty
requires, attributable to a U.S. permanent establishment maintained by
such Non-U.S. Holder;
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the
Non-U.S. Holder is an individual who is present in the United States for
183 or more days in the taxable year of the sale, exchange or other
disposition and certain other requirements are met;
or
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the
stock of Altair Nevada constitutes a United States real property interest
by reason of Altair Nevada’s status as a “United States real property
holding corporation” (which we refer to as a “USRPHC”) for United States
federal income tax purposes at any time during the shorter of the period
during which such Non-U.S. Holder holds the stock of Altair Nevada; or the
5-year period ending on the date such Non-U.S. Holder disposes of the
stock of Altair Nevada and, in the event of common stock that is regularly
traded on an established securities market for tax purposes, the Non-U.S.
Holder held, directly or indirectly, at any time within the five-year
period preceding such disposition more than 5% of such regularly traded
common stock.
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We do not
anticipate that Altair Nevada will become a USRPHC. However, since
the determination of USRPHC status in the future will be based upon the
composition of Altair Nevada’s assets from time to time and there are
uncertainties in the application of certain relevant rules, there can be no
assurance that it will not become a USRPHC in the future.
Information Reporting and Backup
Withholding. A Non-U.S. Holder may have to comply with
specific certification procedures to establish that the holder is not a United
States person as described above (generally on IRS Form W-8BEN), or otherwise
establish an exemption, in order to avoid backup withholding and information
reporting tax requirements with respect to our payments of dividends on the
stock of Altair Nevada.
The
payment of the proceeds of the disposition of stock by a Non-U.S. Holder to or
through the United States office of a broker generally will be reported to the
IRS and reduced by backup withholding unless the Non-U.S. Holder either
certifies its status as a Non-U.S. Holder under penalties of perjury or
otherwise establishes an exemption and the broker has no actual knowledge to the
contrary. Information reporting requirements, but not backup withholding, will
also apply to payments of the proceeds from sales of our stock by foreign
offices of United States brokers or foreign brokers with certain types of
relationships to the United States, unless the broker has documentary evidence
in its records that the holder is a Non-U.S. Holder and certain other conditions
are met, or the holder otherwise establishes an exemption. Backup withholding is
not an additional tax. Any amounts that are withheld under the backup
withholding rules will be refunded or credited against the
Non-U.S. Holder’s United States federal income tax liability if
certain required information is furnished to the IRS. Non-U.S. Holders should
consult their own tax advisors regarding application of backup withholding in
their particular circumstance and the availability of and procedure for
obtaining an exemption from backup withholding under current United States
Treasury Regulations.
Canadian
Federal Income Tax Considerations
The
following summary fairly describes the principal Canadian federal income tax
considerations relating to legal continuance of the Company to Nevada in respect
of shareholders of the common shares who, for the purposes of the Income Tax Act
(Canada) (the “ITA”): (i) hold their common shares as capital property; (ii)
deal at arm’s length with us; (iii) are not affiliated with us, and (iv) in
respect of whom we are not a foreign affiliate within the meaning of the ITA, or
who hold more than 10% of the common shares. A shareholder will generally be
considered to hold common shares as capital property, unless the shareholder
holds the common shares in the course of carrying on a business, acquired the
common shares in a transaction that is an adventure in the nature of trade, or
holds the common shares as “mark-to-market” property for the purposes of the
ITA. Shareholders should consult their own tax advisors if they have questions
as to whether they in fact hold the common shares as capital property. Moreover,
shareholders who do not hold the common shares as capital property should
consult their own tax advisors regarding the consequences of the
continuance.
This
summary is not applicable to a shareholder: (i) that is a “financial
institution” for the purposes of the mark-to-market rules contained in the ITA;
(ii) that is a “specified financial institution” or “restricted financial
institution” as defined in the ITA; (iii) an interest in which is a “tax shelter
investment” as defined under the ITA, or (iv) to whom the functional currency
reporting rules in subsection 261 of the ITA would apply. Such shareholders
should consult their own tax advisors.
This
summary is based upon the current provisions of the ITA, the regulations
thereunder (the “Regulations”), the Canada-United States Income Tax Convention,
1980, as amended (the “Tax Treaty”), and counsel’s understanding of the current
administrative practices and policies of the Canada Revenue Agency (the “CRA”).
This summary also takes into account all specific proposals to amend the ITA and
the Regulations (the “Proposed Amendments”) announced by the Minister of Finance
(Canada) prior to the date hereof and assumes that all Proposed Amendments will
be enacted in their current form. However, there can be no assurance that the
Proposed Amendments will be enacted in the form proposed or at all. Except for
the Proposed Amendments, this summary does not take into account or anticipate
any changes in law, whether by legislative, governmental or judicial action or
decision, nor does it take into account provincial, territorial or foreign
income tax considerations, which may differ from the Canadian federal income tax
considerations discussed below. An advance income tax ruling will not be sought
from the CRA in respect of our continuance transaction.
Although
portions of this summary of “Canadian Federal Income Tax
Considerations” that are applicable to shareholders considered to be
resident of the United States for purposes of the Tax Treaty (the “US resident
shareholders”) may also apply to shareholders residing in other jurisdictions,
this summary does not specifically address the tax consequences to such other
shareholders and accordingly such other shareholders are urged to contact their
own tax advisors to determine the particular tax consequences applicable to
them.
The
following summary is based on the facts set out in this Circular and on
additional information provided to Canadian tax counsel by our
management.
All
amounts relevant to the computation of income under the ITA must be reported in
Canadian dollars. Any amount that is expressed or denominated in a currency
other than Canadian dollars, including adjusted cost base, proceeds of
disposition, and dividends must be converted into Canadian dollars based on the
currency exchange rate quoted by the Bank of Canada at noon on the particular
day or at such other rate of exchange that is acceptable by the
Minister.
This
summary is of a general nature only and is not exhaustive of all possible
Canadian federal income tax considerations. This summary is not intended to be,
nor should it be construed to be, legal or tax advice to any shareholder.
Accordingly, shareholders should consult their own tax advisers for advice as to
the income tax consequences having regard to their own particular
circumstances.
Tax
Consequences Applicable to Us
On the
continuance, we will be deemed to be resident in the United States, and to no
longer be resident in Canada. Under the ITA, the change in our residence from
Canada to the United States will cause our tax year to end immediately before
the continuance, and a new tax year to begin at the time of the
continuance.
Furthermore,
we will be deemed to have disposed of all of our property immediately before the
continuance for proceeds of disposition equal to the fair market value of our
property at that time. This deemed disposition may cause us to incur a Canadian
tax liability as a result of the deemed capital gain.
Furthermore,
we will be subject to a separate corporate emigration tax imposed by the ITA on
a corporation departing from Canada. The emigration tax will be
imposed on the amount by which the fair market value of all of our property
immediately before the continuance exceeds the aggregate of our liabilities at
that time (other than dividends payable and taxes payable in connection with
this emigration tax) and the amount of paid-up capital on all of our issued and
outstanding shares. Tax will be imposed at a rate of 5% on our net
assets determined under the foregoing formula, unless one of the main reasons
for our changing of residence to the United States was to reduce the amount of
this corporate emigration tax or the amount of Canadian withholding tax paid by
us, in which case the rate will be 25%.
With the
assistance of professional advisors, who have reviewed our assets, liabilities,
paid-up capital and other tax balances and assuming that the market price of our
common shares remains at approximately $0.75 per share, that the exchange
rate of the Canadian dollar to the U.S. dollar is CDN $1.00 equals $0.95, and
that the value of our property does not increase, it is anticipated that there
will not be any Canadian federal income tax arising on the continuance. This
conclusion is based in part on determinations of factual matters, including
determinations regarding the fair market value of our assets and tax attributes.
Furthermore, the facts underlying the assumptions and conclusions used by
management may change prior to the effective time of the continuance. We have
not applied to the CRA for a ruling as to the amount of Canadian taxes payable
as a result of the continuance and do not intend to apply for such a ruling
given the factual nature of the determinations involved. There can be no
assurance that the CRA will accept the valuations or management's estimate of
the amount of Canadian taxes that will be payable upon the continuance.
Accordingly, there is no assurance that the CRA will conclude after the
effective time of the continuance that no additional Canadian taxes are due as a
result of the continuance or that the amount of such additional Canadian taxes
will not be significant.
Due to
the change in residence upon the continuance, we will no longer be subject to
taxation under the ITA on our worldwide income. However, if we carry on business
in Canada or have other Canadian sources of income, we may be subject to
Canadian tax on our Canadian-source income.
Shareholders
Resident in Canada
The
following portion of this summary of “Canadian Federal Income Tax
Considerations” applies to our shareholders who are resident in Canada
for the purposes of the ITA.
Our
shareholders who remain holding the common shares after the continuance, will
not be considered to have disposed of their common shares by reason only of the
continuance. Accordingly, the continuance will not cause the Canadian resident
shareholders to realize a capital gain or loss on their common shares and there
will be no effect on the adjusted cost base of their common shares.
Following
the continuance, any dividends received by an individual (including a trust) who
is a Canadian resident shareholder will be included in computing the
individual’s income for tax purposes and will not be eligible for the gross-up
and dividend tax credit treatment generally applicable to dividends on common
shares of taxable Canadian corporations.
Any
dividends received by a corporate shareholder will be included in calculating
that corporation’s income for tax purposes and the corporation will not be
entitled to deduct the amount of such dividends in computing its taxable income.
A “Canadian-controlled private corporation” (as defined in the ITA) may be
liable to pay an additional refundable tax of 6 2/3% on its
“aggregate investment income” which is defined to include amounts in respect of
taxable capital gains and certain dividends. To the extent that U.S. withholding
taxes are imposed on dividends paid by us, the amount of such tax will generally
be eligible for a Canadian foreign tax credit or tax deduction subject to the
detailed rules and limitations under the ITA. Canadian resident shareholders are
advised to consult their own tax advisors with respect to the availability of
such a Canadian foreign tax credit or tax deduction having regard to their
particular circumstances.
Foreign
Property Information Reporting
A
shareholder that is a “specified Canadian entity” for a taxation year and whose
total cost amount of “specified foreign property” at any time in the year
exceeds C$100,000 (as such terms are defined under the ITA) will be required to
file an information return for the year to disclose certain prescribed
information. Subject to certain exceptions, a Canadian resident shareholder will
generally be a specified Canadian entity. The common shares should be classified
within the definition of “specified foreign property”. Canadian resident
shareholders should consult their own tax advisors as to whether they must
comply with these reporting requirements.
Dissenting
Shareholders
Although
the matter is not free from doubt, it is reasonable to conclude based on
administrative positions published by the CRA, that the dissenting Canadian
resident shareholder will be deemed to receive a taxable dividend equal to the
amount by which the amount received for their common shares, less an amount in
respect of interest, if any, awarded by the Court, exceeds the paid-up capital
of the dissenting Canadian resident shareholder’s common shares assuming the
shares were cancelled before the continuance became effective. The
tax treatment of deemed dividends received by a Resident Dissenting Shareholder
will generally be as described above under the heading “Shareholders Resident in
Canada.” However, in some circumstances, the amount of any such
deemed dividend realized by a corporation may be treated as proceeds of
disposition and not as a dividend. A dissenting Canadian resident
shareholder will also be considered to have disposed of the common shares for
proceeds of disposition equal to the amount paid to such dissenting Canadian
resident shareholder less an amount in respect of interest, if any, awarded by
the Court and the amount of any deemed dividend. Therefore, a
dissenting Canadian resident shareholder may realize a capital gain or sustain a
capital loss in respect of such a disposition.
If the
shares are cancelled after the continuance, although the matter is not free from
doubt, it is reasonable to conclude that the amount paid to a Canadian resident
shareholder who dissents to the continuance should be treated as receiving
proceeds of disposition for his common shares. Accordingly, in this
case the dissenting Canadian resident shareholder would recognize a capital gain
or loss to the extent that the amount received as proceeds for the disposition
of the common shares exceeds or is less than the shareholder’s adjusted cost
base of the common shares.
Interest
awarded by a court to a dissenting Canadian resident shareholder will be
included in the shareholder’s income for purposes of the ITA.
Dissenting
Canadian resident shareholders should consult their own tax advisers for advice
as to the income tax consequences to them of our continuance, having regard to
their own particular circumstances.
U.S.
Resident Shareholders
The
following portion of this summary of “Canadian Federal Income Tax
Considerations” applies to our shareholders who are residents of the
United States for purposes of the Tax Treaty and are entitled to the benefits
therein, and who do not use or hold their common shares in the course of
carrying on a business in Canada.
After the
continuance, U.S. resident shareholders will not be considered to have disposed
of their common shares by reason only of the continuance. Accordingly, the
continuance will not cause these U.S. resident shareholders to realize a capital
gain or loss on their common shares, and will have no effect on the adjusted
cost base of their common shares.
After the
continuance, U.S. resident shareholders will not be subject to Canadian
withholding tax on dividends received from us.
After the
continuance, the common shares will not be taxable Canadian property to U.S.
resident shareholders, and therefore will not cause such shareholders to be
subject to taxation in Canada on any subsequent disposition of such common
shares, provided that not more than 50% of the fair market value of the common
shares is derived directly or indirectly from one or any combination of real
property situated in Canada, Canadian resource properties and timber resource
properties and certain ownership tests are met. Based on representations from
management regarding the fair market value of our common shares, it is not
expected that the common shares will be classified as taxable Canadian
property.
Dissenting
U.S. Resident Shareholders
Although
the matter is not free from doubt, it is reasonable to conclude based on
administrative positions published by the CRA that the U.S. resident dissenting
shareholder will be deemed to receive a taxable dividend equal to the amount by
which the amount received, less an amount in respect of interest, if any,
awarded by the Court, exceeds the paid-up capital of the U.S. resident
dissenting shareholder’s common shares assuming the shares were cancelled before
the continuance became effective. The amount of the deemed dividend
will be subject to Canadian withholding tax at the rate of 25% of the gross
amount of the deemed dividend unless the rate is reduced under the provisions of
the Tax Treaty. A U.S. resident dissenting shareholder will also be
considered to have disposed of the common shares for proceeds of disposition
equal to the amount paid to such U.S. resident dissenting shareholder less an
amount in respect of interest, if any, awarded by the Court and the amount of
any deemed dividend, and will be subject to tax under the ITA on any gain
realized as a result unless relief is provided under the Tax
Treaty.
If the
shares are cancelled after the continuance, although the matter is not free from
doubt, it is reasonable to conclude that the amount paid to a non-resident
shareholder who dissents to the continuance should be treated as receiving
proceeds of disposition for his common shares. Accordingly, the
dissenting non-resident shareholder would recognize a capital gain or loss to
the extent that the amount received as proceeds for the disposition of the
common shares exceeds or is less than the shareholder’s adjusted cost base of
the common shares.
Interest
received by a U.S. resident shareholder consequent upon the exercise of the
dissent rights will be not subject to withholding tax under the
ITA.
Eligibility
for Investment
Following the continuance, the common
stock will continue to be listed on the NASDAQ Capital Market. Because the
common stock will continue to be listed on a designated stock exchange, the
common stock will continue to be a qualified investment for certain deferred
income plans under the ITA, namely trusts governed by deferred profit sharing
plans, registered retirement savings plans, registered retirement income funds,
registered education savings plans, registered disability saving plans and
tax-free savings accounts.
DESCRIPTION
OF OUR CAPITAL STOCK
Unless
the context provides otherwise, the following description of our capital stock
assumes the consummation of the domestication has already occurred. The
following description of Altair Nevada’ capital stock is not complete and is
subject to and qualified in its entirety by the proposed articles of
incorporation and bylaws of Altair Nevada, which are attached as Exhibits C and
D, respectively, to this Circular.
Altair
Nevada’s authorized capital stock consists of 500,000,000 shares of common
stock, par value $.001 per share; provided, however, if Altair Canada implements
a consolidation (a/k/a reverse stock split) of its common shares prior to the
domestication of Altair Canada to Nevada, the number of authorized shares of
common stock of Altair Nevada shall be reduced to the greater of (a)
the product of 500,000,000 multiplied by inverse of the consolidation ratio
selected by Altair Canada for its common shares (i.e. 1/7 for a 7 to 1
consolidation), and (b) 200,000,000. As of April 1, 2010, there were
105,400,728 common shares of Altair Canada issued and outstanding. Assuming the
domestication had occurred on April 1, 2010, there would have been 105,400,728
shares of Altair Nevada common stock issued and outstanding.
Altair
Nevada Common Stock
Holders
of common stock are entitled to one vote for each share held of record on all
matters on which stockholders are permitted to vote. Except as
otherwise provided by law, a matter submitted to the stockholders for approval
at a meeting at which a quorum is present is approved if the votes cast in favor
exceed the votes cast against. Under the Bylaws of Altair Nevada, a quorum is
present if at least two shareholders holding at least one-third of our total
outstanding shares of common stock are present in person or by proxy. There is
no cumulative voting for the election of directors, and holders of common stock
do not have preemptive rights. In the event of liquidation, holders
of common stock are entitled to share ratably in the distribution of assets
remaining after payment of liabilities, if any. The holders of common stock are
entitled to receive such dividends, if any, as may be declared from time to time
by the Board of Directors. There are no conversion rights, redemption
rights, sinking fund provisions or fixed dividend rights with respect to the
common stock. All outstanding shares of the common stock are fully paid and
nonassessable.
Change
of Control Provisions in the Rights Agreement
The
rights of the holders of the common stock of Altair Nevada will be governed by
the Rights Agreement with Equity Transfer Services Inc. in the same manner, and
to the same extent (subject to any limitations under the Nevada Revised
Statutes), as the rights of the common shares of Altair Canada.
Pursuant
to the Rights Agreement, on November 27, 1998, which is the record date, the
Board of Directors authorized and declared a distribution of one right with
respect to each common share issued and outstanding as of the record date and
each common share issued thereafter prior to the expiration time (as defined
below). The rights are subject to the terms and conditions of the
Rights Agreement. A copy of the Amended and Restated Shareholder
Rights Plan Agreement is attached as Exhibit 10.1 to the Current Report on Form
8-K filed with the SEC on November 18, 1999 and a copy of the Amendment No. 1 to
such agreement is attached as Exhibit 10.3 to the Current Report on Form 8-K
filed with the SEC on October 6, 2008. A copy of the Rights Agreement
is also available upon written request to us. Because it is a
summary, the following description of the rights and the Rights Agreement
necessarily omits certain terms, exceptions, or qualifications to the
affirmative statements made therein. The reader is advised to review
the entire Rights Agreement prior to making any investment
decision.
Certain
Key Terms of the Rights Prior to Flip-In Date.
Prior to
the date a transaction or event occurs by which a person, called an acquiring
person, becomes the owner of 15% or more of the outstanding shares of common
stock and other shares entitled to vote for the election of directors, which
event is a Flip-in Event, each right entitles the holder thereof to purchase
one-half share of common stock for the price of $20 (which exercise price and
number are subject to adjustment as set forth in the Rights
Agreement). Notwithstanding the foregoing, no Right shall be
exercisable prior to the commencement date. The commencement date is
the close of business on the eighth business day after the earlier of (a) the
date of a public announcement or disclosure by the company or an acquiring
person of facts indicating that a person has become an acquiring person, or (b)
the date of commencement of, or first public announcement of, the intent of any
person to commence a bid for a number of voting shares that would give the
bidder beneficial ownership of 15% of more of the issued and outstanding voting
shares, referred to as a Take-over Bid.
Certain
Key Terms of the Rights Following Flip-In Date.
Section
3.1 of the Rights Agreement includes a provision, referred to as a conversion
provision, which provides that, subject to certain exceptions, upon the
occurrence of a Flip-in Event, each right shall be adjusted so as to constitute
a right to purchase from us for $20, as adjusted, a number of shares of common
stock having an aggregate market price of four times $20 (as
adjusted). The market price is determined by averaging the closing
price of the shares of common stock on the primary exchange for the shares of
common stock for the 20 trading days preceding the date of
determination. In addition, upon the occurrence of any Flip-in Event
(if not subsequently deemed not to have occurred under the Rights Agreement),
any rights owned by the acquiring person, its affiliates, or certain assignees
become null and void. Any rights certificate subsequently issued upon
transfer, exchange, replacement, adjustment, or otherwise with respect to shares
of common stock owned by any of the foregoing persons shall bear a legend
indicating the extent to which such rights are void. Rights held by
us or our subsidiaries are also void.
Exceptions,
Redemption and Waiver.
The
definitions of Flip-in Event and certain related terms are subject to
exceptions, certain of which are summarized below. Nevertheless, to
understand each such exception and how they may interrelate, the reader is
advised to review the Rights Agreement. Despite a person's
acquisition of 15% or more of our voting shares, a Flip-in Event shall be deemed
not to have occurred or shall have no effect if:
(1) the acquiring person is
the Company or an entity controlled by the Company;
(2) the acquiring person is
an underwriter who becomes the beneficial owner of 15% or more voting shares in
connection with a distribution of securities pursuant to an underwriting
agreement with us;
(3) the transaction by which
the person becomes an acquiring person is a voting share reduction, which is an
acquisition or redemption of voting shares by us which, by reducing the number
of outstanding shares of common stock, has the incidental effect of increasing
the acquiring person's ownership percentage;
(4) the transaction by which
the person becomes an acquiring person is an acquisition with respect to which
our Board has waived the conversion provision because:
(a) our
Board has determined prior to the commencement date that a person became an
acquiring person by inadvertence and, within 10 days of such determination, such
person has reduced its beneficial ownership of shares of common stock so as not
to be an acquiring person;
(b) our
Board acting in good faith has determined, prior to the occurrence of a Flip-in
Event, to waive application of the conversion provision, referred to as a
discretionary waiver;
(c) our
Board determines within a specified time period to waive application of the
conversion provision to a Flip-in Event, provided that the acquiring person has
reduced, or agreed to reduce, its beneficial ownership of voting shares to less
than 15% of the outstanding issue of voting shares, referred to as a waiver
following withdrawal.
(5) the acquisition by which
the person becomes an acquiring person is an acquisition pursuant to (a) a
dividend reinvestment plan or share purchase plan made available to all holders
of voting shares; (b) a stock dividend, stock split or similar event pursuant to
which the acquiring person receives common shares on pro rata basis with all
members of the same class or series; (c) the acquisition or exercise of rights
to purchase voting shares distributed to all holders of voting shares; (d) a
distribution of voting shares or securities convertible into voting shares
offered pursuant to a prospectus or by way of a private placement, provided the
acquiring person does not thereby acquire a greater percentage of the voting
shares or convertible securities offered than the person's percentage of voting
shares beneficially owned immediately prior to such acquisition.
(6) such person is Al Yousuf,
LLC, a United Arab Emirates limited liability company (“Al Yousuf”); provided,
however, such exception is not applicable to Al Yousuf in the event that Al
Yousuf shall, after its execution of that certain Stock Purchase and Settlement
Agreement (the “Purchase and Settlement Agreement”), dated October 6, 2008, by
and between the Company and Al Yousuf (a) increase its beneficial ownership
percentage of voting shares by more than 1% above its beneficial ownership
percentage of voting shares as a result of its execution of the Purchase and
Settlement Agreement, other than through the issuance of shares pursuant to the
Purchase and Settlement Agreement, a voting share reduction, an exempt
acquisition or a pro rata acquisition, or (b) commence a Take-over Bid that
would, if consummated, increase its beneficial ownership percentage of voting
shares by more than 1% above its beneficial ownership percentage of voting
shares as a result of its execution of the Purchase and Settlement
Agreement.
In
addition, (i) when a Take-over Bid is withdrawn or otherwise terminated after
the commencement date has occurred, but prior to the occurrence of a Flip-in
Date, or (ii) if the Board of Directors grants a waiver following withdrawal,
our Board may elect to redeem all outstanding rights at the price of $.0000001
per right (as adjusted). Upon the rights being redeemed pursuant to
the foregoing provision, all provisions of the Rights Agreement shall continue
to apply as if the commencement date had not occurred, and we shall be deemed to
have issued replacement rights to the holders of its then outstanding shares of
common stock.
In
addition, our Board may, at any time prior to the first date of public
announcement or disclosure by us or an acquiring person of facts indicating that
a person has become an acquiring person, or announcement date, elect to redeem
all, but not less than all, of the then outstanding rights at the $.0000001 per
share (as adjusted). Moreover, in the event a person acquires voting
shares pursuant to a discretionary waiver, our Board shall be deemed to have
elected to redeem the rights at $.0000002 per share (as
adjusted). Within 10 days after our Board elects, or is deemed to
have elected, to redeem the rights, our Board shall give notice of redemption to
the holders of the then outstanding rights and, in such notice, described the
method of payment by which the redemption price will be paid. The
rights of any person under the Rights Agreement or any right, except rights to
receive cash or other property that have already accrued, shall terminate at the
expiration time, which is the date of a discretionary redemption or a deemed
redemption described in this paragraph.
Exercise
of the Rights.
The
rights shall not be exercisable prior to the commencement date. Until
the commencement date, each right shall be evidenced by the certificate for the
associated share of common stock and will be transferable only together with,
and will be transferred by the transfer of, its associated share of common
stock. New share certificates issued after the effective date of the
Rights Agreement will contain a legend incorporating the Rights Agreement by
reference. Certificates issued and outstanding at the effective date
of the Rights Agreement shall evidence one right for each common share evidenced
thereby, notwithstanding the absence of a legend incorporating the Rights
Agreement, until the earlier of the commencement date or the expiration
time. Each share of common stock issued for new value after the
effective date of the Rights Agreement, but prior to the expiration time, shall
automatically have one new right associated with it and shall bear the
appropriate legend.
From
and after the commencement date, the rights may be exercised, and the
registration and transfer of the rights shall be separate from and independent
of the shares of common stock. Following the commencement date, we
shall mail to each holder of shares of common stock as of the commencement date,
or such holder's nominee, a rights certificate representing the number of rights
held by such holder at the commencement date and a disclosure statement
describing the rights.
Rights
may be exercised in whole or in part on any business day after the commencement
date and prior to the expiration time by submitting to the rights certificate,
an election to exercise, and payment of the sum equal to $.0000001 per share (as
adjusted) multiplied by the number of rights being exercised. Upon
receipt of such materials, the Rights Agent will promptly deliver certificates
representing the appropriate number of shares of common stock to the registered
holder of the relevant rights certificate and, if not all rights were exercised,
issue a new rights certificate evidencing the remaining unexercised
rights.
The
foregoing description does not purport to be complete and is qualified by
reference to the definitive Rights Agreement.
Potential
Anti-takeover Effect of Nevada Law, Our Articles of incorporation and
Bylaws
Meeting and Voting
Provisions
Provisions
of the proposed articles of incorporation and bylaws of Altair Nevada providing
that only the Chairman of the Board, the Chief Executive Officer or any two
directors may call special meetings of stockholders, or providing that
stockholders are prohibited from taking action by written consent, may have the
effect of making it more difficult for a third party to acquire control of
Altair Nevada, or of discouraging a third party from attempting to acquire
control of Altair Nevada. In addition, the bylaws of Altair Nevada
include provisions requiring that shareholders wishing to nominate a director or
submit a proposal at a meeting provide advanced written notice or the nominee or
proposal to the Company.
Combinations
with Interested Stockholders
Sections
78.411 to 78.444 of the Nevada Revised Statutes contain provisions limiting
business combinations between “resident domestic corporations” and “interested
stockholders.” These sections provide that the resident domestic
corporation and the interested stockholder may not engage in specified business
“combinations” for three years following the date the person became an
interested stockholder unless the Board of Directors approved, before the person
became an interested stockholder, either the business combination or the
transaction that resulted in the stockholder becoming an interested
stockholder.
These
sections of Nevada corporate law also contain limitations on transactions
entered into with the interested stockholder after the expiration of the
three-year period following the date the person became an interested
stockholder. Certain exceptions to these restrictions apply if
specified criteria suggesting the fairness of a combination are
satisfied. For purposes of these provisions, “resident domestic
corporation” means a Nevada corporation that has 200 or more stockholders of
record, and, subject to certain exceptions, “interested stockholder” means any
person, other than the resident domestic corporation or its subsidiaries, who
is:
● the
beneficial owner, directly or indirectly, of ten percent or more of the voting
power of the outstanding voting shares of the resident domestic corporation;
or
● an
affiliate or associate of the resident domestic corporation and at any time
within three years immediately before the date in question was the beneficial
owner, directly or indirectly, of ten percent or more of the voting power of the
outstanding shares of the resident domestic corporation.
Business
combinations for this purpose include:
● a merger
or plan of share exchange between the resident domestic corporation or a
subsidiary and the interested stockholder or, after the merger or exchange, an
affiliate;
● any sale,
lease, mortgage or other disposition to the interested stockholder or an
affiliate of assets of the corporation having a market value equal to 5% or more
of the market value of the assets of the corporation, 5% or more of the
outstanding shares of the corporation or 10% or more of the earning power or net
income of the corporation;
● specified
transactions that result in the issuance or transfer of capital stock with a
market value equal to 5% or more of the aggregate market value of all
outstanding shares of capital stock of the corporation to the interested
stockholder or an affiliate; and
● certain
other transactions that have the effect of increasing the proportion of the
outstanding shares of any class or series of voting shares owned by the
interested stockholder.
Pursuant
to the articles of incorporation, Altair Nevada has opted out of these
provisions as permitted by Section 78.434(5) of the Nevada Revised Statutes;
however, were the articles of incorporation to be amended to eliminate the
opt-out provision, the above-described provisions of the Nevada corporate law
would limit certain transactions with interested stockholders.
Acquisition
of Controlling Interest
Sections
78.378-78.3793 of the Nevada Revised Statutes include “acquisition of
controlling interest” provisions. If applicable to a Nevada
corporation, the provisions restrict the voting rights of certain stockholders
that acquire or offer to acquire ownership of a “controlling interest” in the
outstanding voting stock of an “issuing corporation.” For purposes of
these provisions, a “controlling interest” means, with certain exceptions, the
ownership of outstanding voting stock sufficient to enable the acquiring person
to exercise one-fifth or more but less than one-third, one-third or more but
less than a majority, or a majority or more, of all voting power in the election
of directors, and “issuing corporation” means a Nevada corporation which has 200
or more stockholders of record, at least 100 of whom have addresses in Nevada
appearing on the stock ledger of the corporation, and which does business in
Nevada directly or through an affiliated corporation. The
restrictions of sections 78.38-78.3793 of the Nevada Revised Statutes will not
apply to shares of capital stock of Altair Nevada following the domestication
because Altair Nevada does not have a 100 or more stockholders of records with
addresses in Nevada and because Altair Nevada’s bylaws and articles of
incorporation opt out of such provisions; however, if any time Altair Nevada has
at least 100 Nevada stockholders of record located in Nevada and amend the
articles of incorporation to opt in to such provisions, the above-described
provisions of Nevada corporate law would limit certain transactions with persons
acquiring a controlling interest.
Listing
The
common stock of Altair Nevada will be listed on the NASDAQ Capital Market under
the trading symbol “ALTI.”
Transfer
Agent and Registrar
The
transfer agent and registrar for the common shares of Altair Canada is Equity
Transfer and Trust Company.
Proxies
from registered holders are to be sent to Equity Transfer and Trust Company at
200 University Avenue, Suite 400, Toronto, Ontario M5H 4H1, Canada.
The
transfer agent and registrar for the common stock of Altair Nevada will be
Registrar and Transfer Company.
PROPOSAL
No. 2 — ADJOURNMENT OF MEETING
Adjournment
If
it becomes necessary to obtain additional votes in favor of proposal No. 1,
regarding the domestication, a motion may be made to adjourn the special meeting
to a later time to permit further solicitation of proxies. If such a motion to
adjourn is made, it will require that more votes of the Company’s common shares
are cast in favor of the proposal than votes of its shares that are cast against
the proposal, even if a quorum is not present or represented at the special
meeting.
Vote
Required
Proposal
No. 2 requires that more votes of the Company’s common shares are cast in
favor of the proposal than votes of its shares that are cast against the
proposal. Accordingly, abstentions, withhold votes and broker non-votes will
have no effect on the outcome of proposal No. 2.
THE
BOARD OF DIRECTORS URGES YOU TO VOTE “FOR” THIS PROPOSAL NO. 2 TO ADJOURN
THE SPECIAL MEETING IF IT BECOMES NECESSARY TO ESTABLISH A QUORUM OR SOLICIT
ADDITIONAL VOTES IN FAVOR OF PROPOSAL NO. 1.
OUR
BUSINESS
Our
primary business is developing, manufacturing and selling our nano lithium
titanate battery products and providing related design, installation and test
services. Our primary focus is marketing our large-scale energy
storage solutions to power companies and electric grid operators throughout the
world. In addition, we market our battery products to the electric
and hybrid-electric mass-transit markets.
We also
provide contract research services on select projects where we can utilize our
resources to develop intellectual property and/or new products and
technology. Although contract services revenue comprised a
significant portion of our total revenues in recent years accounting for 65%,
87%, and 55%, respectively in 2009, 2008 and 2007, we expect this percentage to
decline as our battery sales increase.
Our
Power and Energy Group
Primary
Products
We are
developing, marketing, producing and selling our proprietary rechargeable
lithium ion batteries, which we refer to as our nano lithium titanate
batteries. As explained in greater detail below, the principal
features used to compare rechargeable batteries include charge and discharge
rates, power and energy density, cycle and calendar life, operational safety and
cleanliness, operating temperature range, and round trip
efficiency. In laboratory and field tests, our nano lithium titanate
batteries have performed extremely well in nearly all of these
categories. In particular, our nano lithium titanate batteries show
remarkable power, charge and discharge rates and cycle life, together with high
functionality at both high and low temperatures. In some categories
our batteries perform as much as an order of magnitude (a factor of 10) better
than those of rechargeable batteries currently being used for our targeted
applications. Battery uses requiring these strengths include electric
utility services for frequency regulation, the integration of renewable energy
generation sources into the grid, uninterruptible power supplies, hybrid
electric and full electric vehicles particularly in the mass-transit
market.
Our
Target Markets
Power and Grid Operators.
Power companies and grid operators are seeking cost effective ways to ensure
that electric power supply matches electric power demand. There is
essentially no inventory of electricity. Power and grid operators are
constantly trying to match the electricity generated with the load
demanded. They are very good at forecasting from hour to hour the
load expected, but they cannot project from minute to minute the exact load
anticipated. To maintain proper frequency of the grid (60Hz in the
U.S.), the generation and load must be balanced within very tight
tolerances. Maintaining these tolerances is typically achieved
through the use of auxiliary generators. If the load is either higher
or lower than the power being generated, an auxiliary generator is either
started or stopped. However, it takes these generators from generally
seven to 15 minutes to ramp up to full efficient operation or to shut
down. During that period the load may change directions and the grid
operator then must direct another auxiliary generator to shut down or ramp
up. This is a very inefficient process with the grid operators
constantly chasing a variable load. The process of managing these
very short-term changes in energy demand is referred to as “frequency
regulation.” The chart below depicts a typical workday for PJM
Regional Transmission Organization, which manages the electric grid in the
Mid-Atlantic states region, and how our battery can help smooth out the
fluctuations.
Electricity
demand on a typical workday in the PJM electric grid covering the Mid-Atlantic
states and District of Columbia
Utilities
can address frequency regulation issues by maintaining on-line generating
capacity at a level that is always higher than expected peak
demand. However this is an expensive solution. Most U.S.
utilities are required to maintain between 1% and 1.5% of their peak load
capacity to provide frequency regulation. As an example, for the PJM
Regional Transmission Organization, this requirement translates into a 900
megawatt daily requirement. In many foreign countries where the
electric grid is not as well developed as it is in the U.S., utilities need to
reserve up to 5% or more of their capacity strictly to provide frequency
regulation. GTM Research estimated in an August 2009 report that the
current market for ancillary services, including frequency regulation, is 7
gigawatts in the U.S. and 38 gigawatts globally. At the cost of $1
million per megawatt, this translates into a $38 billion global
market. To reduce the costs of providing frequency regulation,
utilities and grid operators are seeking “fast energy” storage
systems. When supply exceeds demand for a short period, these systems
accept a charge from the grid until operators reduce output; then when demand
exceeds supply for a short period, these fast energy storage systems deliver
electric energy back to the grid for a short period to give operators time to
reroute energy from another power generator or power-up a new power
source. Our large-scale nano lithium titanate battery systems are a
fast storage energy system designed to respond in milliseconds and meet this
need.
The need
for a fast energy storage technology like our large-scale nano lithium titanate
battery is enhanced by the increasing use of renewable energy
sources. Photo Voltaic (PV) solar and wind power generation by nature
are intermittent and unpredictable sources of energy that can fluctuate widely
in a very short period of time. For example, it is not uncommon for
the load of a PV array to fluctuate as much as 50% in less than 90
seconds. With a small rooftop array, such fluctuations are not an
issue, because the size of the generator is too small to
matter. However, with a 50+ megawatt array, problems arise as the
typical electric grid isn’t currently built to handle this kind of a
fluctuation. According to the Federal Energy Regulatory Commission,
29 states and the District of Columbia currently require the integration of
renewable energy generation sources into the electrical grid through legislated
renewable energy portfolio standards. Many of these states have
established targets requiring the integration of renewable energy generation
sources equal to or exceeding 25% of total generation within the next
decade. These levels of renewable source integration are
substantially higher than what is available today. The mandated
adoption of these renewable energy generation systems is likely to increase the
need for effective, efficient, clean energy storage technologies to provide
frequency regulation services and maintain the reliability and stability of the
associated electric grid systems.
Electric and Hybrid Electric
Buses. Large cities, counties and transit authorities are
increasingly turning to electric and hybrid electric buses to reduce pollution
and reliance on diesel fuel for their transportation systems. At this
stage of the market development, electric and hybrid electric vehicles generally
cost more than their conventional counterparts, although the upfront cost is
partially offset by subsequent lower operating costs and a potentially longer
operating life. Proterra LLC recently had one of its all-electric
buses using our batteries tested at the Altoona Test Track of Penn State
University and demonstrated between 17.5 to 29.5 miles per gallon fuel
equivalent as compared to a normal diesel bus that typically attains less than 4
miles per gallon efficiency. We estimate that this difference
translates into a fuel savings of about $350,000 over the average life of the
typical mass-transit bus. This is in addition to the expected savings
in maintenance costs over the life of the bus as a result of fewer mechanical
systems and moving parts to maintain. We believe that cities,
counties and mass transit operators will be willing to accept the higher upfront
costs in order to benefit from the expected savings in long-term operating costs
and potentially longer operating life, as well as the environmental
benefits.
As
compared to conventional mass-transit buses, electric and hybrid electric buses
require a significant amount of power, operate throughout the day, have a long
expected life and run in all temperatures. The relative strengths of
our nano lithium titanate batteries, including the high levels of power, rapid
charge and discharge rates, long cycle life and ability to function at
temperature extremes, are particularly well suited for electric and hybrid
electric buses, giving us what we believe is a compelling competitive advantage
in this market.
According
to the Center of Globalization, Governance & Competitiveness, associated
with Duke University, the global market for transit buses is currently a $3
billion market, and is projected to grow by 59% by 2017. With the
growing concern regarding the release of pollutants associated with burning
fossil fuels, the attractiveness of all electric and hybrid electric buses is
rapidly growing. Working with Proterra LLC and other potential
partners, we are attempting to establish our nano lithium titanate batteries as
the power source of choice in this emerging market.
Military
Uses. In the military market, we have focused on
opportunities that allowed us to leverage our research efforts. For
example, the M119 program we completed for the U.S. Army during 2009 has served
us well in the advancement of our product safety testing and commercial
development. In the near term, it has resulted in the development of
a battery module that is an excellent fit for the Army’s M119 Howitzer
Program. If the current Army testing demonstrates our battery can
safely power an artillery piece in a high-intensity battlefield situation, it
will provide a strong endorsement for its use in much less stressful civilian
environments. Our work with the Office of Naval Research to develop a
2.5 megawatt battery to serve as back-up on navy warships is also progressing
well. We completed Phase I of a four phase program during 2009 and
should complete Phase II in mid 2010 with Phase III anticipated to begin shortly
after completion of Phase II.
Key
Features of Our Nano Lithium Titanate Batteries
One of
the principal advantages of our nano lithium titanate battery is its rapid
charge and discharge rate. The charge rate is the rate at which a
battery’s energy is replenished, and discharge rate is the rate at which the
energy stored in a battery is transferred (or, in the case of self-discharge,
leaked). Through the optimization of materials used in the negative
electrode of our nano lithium titanate battery cells, our current cells are
capable on average of recharge times of 10 minutes to reach 95% or more of
initial battery capacity. The rapid recharge ability is
important in our target markets of frequency regulation and mass-transit
buses.
Our nano
lithium titanate batteries also discharge rapidly, symmetrical with their
charging ability. This balanced charge and discharge capability can
be important in frequency regulation. If a battery cannot be charged
at the same rate at which it discharges, then over time, with random high rate
up and down regulation, a less capable battery system may ultimately be fully
discharged and therefore incapable of further regulation.
Our nano
lithium titanate batteries have both a longer cycle life and calendar life than
commercially available rechargeable battery technologies such as conventional
lithium ion, nickel-metal hydride (NiMH) batteries and nickel cadmium (NiCd)
batteries. The ability of any rechargeable battery to store energy
will diminish as a result of repeated charge/discharge cycles. A
battery’s “cycle life” is the number of times it can be charged and discharged
without a significant reduction in its energy storage capacity. Our
nano lithium titanate is termed a zero strain material, meaning that the
material essentially does not change shape upon the entry and exit of a lithium
ion into and from the material. Graphite, the most common material in
conventional lithium ion batteries, will expand and contract as much as 8% with
each charge/discharge cycle. This constant change in volume leads to
significantly shorter calendar and cycle life than with our nano lithium
titanate anodes. In a January 2007 test, we completed 25,000 deep
charge/discharge cycles of our innovative cells. Even after 25,000
cycles, the cells still retained over 80% of their original charge capacity.
This represents a significant improvement over conventional batteries, which
typically retain that level of charge capacity only through approximately 1,000
to 3,000 deep charge/discharge cycles.
Our nano
lithium titanate batteries also represent a breakthrough in low and
high-temperature performance. Nearly 90% of room temperature charge
retention is realized at -30°C from our nano lithium
titanate battery cells. In contrast, common lithium ion technology
possesses virtually no charging capabilities at this low temperature, and the
other rechargeable battery types such as lead acid, NiMH and NiCd take 10 to 20
times longer to charge at this low temperature. This breakthrough
performance at extreme temperatures is important in our target markets, in which
large vehicles, large-scale fast storage batteries and military batteries are
expected to function in a wide range of temperature conditions. Mass-transit
buses, for example, need to function equally well in the cold New England
winters and the hot summers of the Southwest.
We also
believe that relative safety is one of the strengths of our nano lithium
titanate battery technology. Any battery cell or large battery unit with lithium
ion cell technology must take into account safety considerations, the most
important of which is thermal runaway. Thermal runaway is the temperature
at which the battery chemistry will break down causing the battery to overheat
and potentially explode or catch fire. This temperature is often
referred to as the critical temperature. Critical temperature for lithium
ion battery cells using conventional graphite anodes is around 130°C, a direct result of
chemical reaction between the graphite and the electrolyte. With our
current nano lithium titanate anode in place of graphite and an appropriate
cathode material, that critical temperature is near 180°C, an increase in safety
margin of approximately 50°C. Materials we
are working on in our lab are approaching 250oC
before the critical temperature is reached. The batteries we and our
partners are developing for high power applications often consist of dozens or
even thousands of battery cells working together as part of a single modular
battery unit. When a large number of cells are aggregated into a single
battery unit, the likelihood of, and risks associated with, thermal runaway
increases. In this context, we believe that the additional temperature
margin our individual battery cells experience before reaching the critical
temperature makes our battery cells better suited than competing lithium ion
batteries for the high-power applications we are targeting.
The
current generation of batteries made with our nano lithium titanate exhibit
lower energy density at room temperatures than conventional lithium ion
systems. Energy density is normally described as watt-hours per
kilogram or watt-hours per liter and refers to the available energy per unit
weight or per unit volume. A battery with high energy density will
deliver more energy per unit weight or volume than a battery with lower energy
density. Batteries made with our nano lithium titanate have energy
densities, watt-hours per kilogram, that are better than conventional lead acid,
NiCd and NiMH batteries and approximately 50-70% of conventional lithium ion
batteries; however, our nano lithium titanate batteries have a lower energy
density than 30-50% of conventional lithium ion batteries. When
compared to conventional lithium ion batteries, however, this energy density
disadvantage is significantly less as the operating temperature moves away from
room temperature, particularly to colder environments, and is less significant
in environments such as large vehicles and utilities in which battery volume is
not a significant issue. When the end use of the battery requires
constant performance across a wide range of temperatures, such as the need for a
hybrid mass-transit bus to function comparably in both winter and summer, we
believe that our nano lithium titanate cells may be the preferred
solution. Also, conventional lithium ion batteries prefer to cycle
between approximately 30% and 80% state of charge to achieve optimum cycle
life. As a result, they only use about 50% of their nominal available
energy.
Sources
of Supply and Raw Materials
An
important consideration as we begin to grow our revenue stream is to ensure that
we have access to the various components and raw material we need to manufacture
and assemble our various products. With a small product volume,
having multiple suppliers for each component is not practical. As we
anticipate larger orders, establishing multiple sources for key components is
becoming much more important to us.
We
currently have a single contract manufacturer for our nano lithium titanate
cells. We have experienced a product quality issue with this critical
cell manufacturing supplier that has limited our supply of new
cells. We are in active discussions with this supplier to identify
the root cause of the quality problem and rectify it. The cells in
question are under warranty, and although we do not expect a material financial
impact, the delay in rectifying this problem, if it continues for an extended
period, may have an adverse impact on the delivery of product sales during the
first half of 2010. We are actively working with a second
manufacturer and anticipate having them qualified and providing an additional
source of cells by the end of 2010.
Two raw
materials are key components in the manufacture of our nano lithium titanate
powder that is the basic building block of our battery products, namely
compounds of lithium and titanium. We currently source our lithium
compound from two of the largest producers in the world and do not foresee any
problems in scaling up our purchases as our volume of business
increases. We source our titanium compound from a single
provider who is a global leader in the field, and we are in the process of
identifying and qualifying a second supplier for this key
material. At this point we are not anticipating any problems or
disruptions to our supply of these raw material compounds.
All of
the other components and materials used in the manufacture of our nano lithium
titanate battery products are readily available from multiple
suppliers.
Key
Business Developments in Power and Energy
Frequency
Regulation. As part of a multi-year development program
with AES Energy Storage, LLC (“AES”), a subsidiary of global power leader The
AES Corporation, we delivered a 2 megawatt battery system, consisting of two
53-foot container-sized 1 megawatt units, to AES in late 2007. AES
successfully completed testing of this 2 megawatt battery system in May
2008. The test consisted of AES connecting the battery to the
electrical grid at a substation in Indiana and then performing a number of
stringent tests to determine if it was capable of providing the services
required. These tests were designed and overseen by KEMA, Inc., an
independent outside engineering company, and demonstrated that the battery
performed well in every respect, meeting or exceeding all of our test
expectations. Since then, one of the 1 megawatt units has been put
into commercial operation in Pennsylvania. We understand from AES that they are
in the process of moving the second 1 megawatt unit to a location in Texas to
provide the same kind of service in that location.
Since May
2008, we have been refining our energy storage solution for the electrical power
industry and meeting with potential customers. Because of the
significant cost and customization involved in the purchase and sale of a
multi-megawatt battery storage system, lead times are long in this industry.
However, we are in active negotiations with a number of potential purchasers and
have begun building and storing inventory in anticipation of early 2010
orders.
Hybrid Electric and All Electric
Buses. After extensive
testing of numerous battery technologies over a two-year period, Proterra LLC, a
Golden, Colorado-based leading designer and manufacturer of heavy-duty drive
systems, energy storage systems, vehicle control systems and transit buses,
selected our nano lithium titanate battery to power its electric and hybrid
electric buses. In August 2009, we signed a $900,000 contract with
Proterra to deliver battery modules to them. Of this amount, $616,000
was recognized in 2009 with the balance of $284,000 to be delivered in 2010. The
modules will be used by Proterra for building several electric and hybrid
electric buses for municipalities and transportation authorities within the
United States. The buses are predominately all-electric, 35-foot Proterra FCBE
35 transit buses. Proterra’s initial product, its 35-foot
all-electric transit bus, has been designed from the ground up to enable transit
agencies to replace conventional diesel buses with all-electric
buses. The all-electric bus is designed to achieve upwards of 17
miles per gallon diesel fuel equivalent fully loaded with 68
passengers. We understand that, currently, 23 public transit agencies
in 11 states (California, Colorado, Florida, Illinois, Nevada, New Jersey, New
York, North Carolina, South Carolina, Texas, Washington) and the District of
Columbia have submitted grant requests to obtain funds to purchase Proterra
buses and charging stations. Additionally, Proterra informs us that
it is negotiating agreements to supply its buses to several international
customers. As Proterra continues to ramp up its business, we
anticipate the development of a longer-term mutually beneficial relationship
with them.
Military Relationships. In
January 2008, we entered into a development agreement with the Office of Naval
Research for $2,490,000. This is a cost reimbursement agreement
whereby we are developing a proof of concept battery system consisting of two
50-80 kilowatt-hour batteries. Successful completion of this
development work is required to qualify for further military grants with the
Office of Naval Research (“ONR”). All testing associated with Phase I
of the project was successfully completed in November 2008. We
entered into Phase II in May of 2009 and expect to successfully complete all
work in this phase in the second quarter of 2010. The U.S. Congress appropriated
funds for Phase III in the fall of 2008 and for Phase IV in December,
2009. We anticipate entering into a contract for Phase III with ONR
in mid 2010 and beginning work shortly after completion of Phase
II. During 2008 we also entered into development agreements with the
U.S. Army and the United Kingdom’s Ministry of Defense for different battery
systems to be used in field artillery units and other naval applications
respectively. Both of these contracts were completed during 2009 and
as of December 31, 2009 we are awaiting notification on the anticipated next
steps for both programs. All development and testing results to date
have met or exceeded customer expectations and we anticipate a continuation of
these programs into 2010.
Proprietary
Rights
We have
been awarded 12 U.S. and 32 international patents protecting portions of our
nano lithium titanate technology including: 1) a method for producing catalyst
structures, 2) a method for producing mixed metal oxides and metal oxide
compounds, 3) processing for making lithium titanate, and 4) a method for making
nano-sized and sub-micron-sized lithium-transition metal oxides. The
U.S. patents expire beginning in 2020.
We have
filed 13 U.S. patent applications directed to a variety of inventions related to
aspects of our electrochemical cells including: “Nano-Materials – New
Opportunities for Lithium Ion Batteries”; “Methods for Improving Lithium-Ion
Battery Safety”; “Method for Preparing a Lithium-Ion Cell”; “Method for
Preparing a Lithium-Ion Battery”; and “Method for Synthesizing Nano-Sized
Lithium Titanate Spinel.”
Competition
Frequency Regulation and Fast Energy
Storage. A number of battery producers have stated an
intent to compete in the frequency regulation and fast energy storage markets;
however, to date there are only two that we have directly competed against in
customer frequency regulation opportunities and renewable energy integration
projects. They are A123 Systems, Inc. (“A123”) and Beacon Power
Corporation (“Beacon”). As we or others begin to demonstrate traction in this
market we expect to see increasing levels of competition from other credible
suppliers. A123 has installed a 2 megawatt battery system in Southern
California working with The AES Corporation to demonstrate its ability to
provide a frequency regulation service. Unlike the independently
conducted stress and performance tests that our 2 megawatt battery system was
subjected to in Indianapolis in 2008 where the conclusions of the tests were
made publicly available, we have not seen any publicly available conclusions
resulting from this A123 installation. We are not aware of any direct
sales of Beacon’s frequency regulation product to end customers, but do believe
that Beacon is intending to construct several 20 megawatt installations to
provide frequency regulation services on its own as a system
operator. Unlike A123 or Altair, Beacon employs a flywheel technology
rather than a battery technology to provide frequency regulation.
We
usually find that our products are competing against existing or alternative
technologies for providing frequency regulation and renewable energy integration
rather than a competitor battery manufacturer. However, we expect
this situation to change as the market accepts this storage technology to a
greater degree. Today most utilities and regional transmission
organizations use existing coal, gas and diesel generating sources to provide
frequency regulation. Although these sources are inefficient and
highly polluting compared to our solution, they are known quantities and
accepted by the various regulators and utilities. In many instances,
particularly in the U.S., we are attempting to displace this accepted way of
doing things. Consequently, there is a longer education and
justification period required to help the customer understand the true costs of
their current approach and the benefits, both financial and environmental, of
switching to our solution. Once this new energy storage capability
starts to get market traction, we expect the rate of acceptance to
accelerate. Until then, however, we are experiencing a long sales
cycle and don’t expect that to materially change in the near
future. We believe that once we demonstrate revenue traction and
establish the fact that the market does exist and is very large, other larger
suppliers may also target this market.
Electric and Hybrid Electric Bus and
Military Applications. In the automotive area there are a
large number of battery manufacturers and systems integrators currently serving
the market. Many of them are larger companies with substantially
stronger financial resources than we have. We believe this market
will be driven by low margins and volume. As a result we believe that
only larger, well-capitalized companies will ultimately be successful in this
market. The mass-transit market, on the other hand, presents a
different set of dynamics. The characteristics of our batteries are
an excellent fit to satisfy the requirements of this market, and the needs here
are different than in the general consumer automotive market. We
believe that we can be a successful competitor in this segment of the overall
automotive market.
With
respect to the electric and hybrid electric mass-transit market, we are not
aware of any commercially available products that have similar performance
attributes as our nano lithium titanate batteries. Nonetheless,
competitors have announced advanced lithium ion batteries and battery products
aimed at these markets. Some may have advantages over our nano
lithium titanate batteries with respect to features such as energy
density. However, we believe that these batteries do not match the
cycle life, rapid charge and discharge rates and performance at temperature
extremes of our nano lithium titanate batteries.
Currently,
NiMH batteries dominate the hybrid electric vehicle market, including the
mass-transit market. NiMH batteries
improve upon the energy capacity and power capabilities of older alternatives,
such as NiCd (for the same size cell) by 30% to 40%. Since they
contain fewer toxins than NiCd batteries, NiMH batteries are more
environmentally friendly than NiCd batteries, although we believe that they are
not as environmentally friendly as our nano lithium titanate
battery. Like NiCd batteries, NiMH batteries can be charged in about
3 hours. Charging rates must be reduced by a factor of 5 to 10 at
temperatures below 0°C (32°F) and above 40°C (104°F). NiMH batteries
suffer from poor deep cycle ability (i.e. the ability to be discharged to 10% or
less of their capacity), possessing a recharge capability following deep
discharge on the order of 200 to 300 cycles. While NiMH batteries are
capable of high power discharge, dedicated usage in high power applications
limits cycle life even further. NiMH batteries also possess high
self-discharge rates, which is unintentional leaking of a battery’s
charge. NiMH batteries are intolerant to elevated temperature and, as
a result, performance and capacity degrade sharply above room
temperature. The most serious issue with NiMH, though, involves
safety accompanying recharge. The temperature and internal pressure
of a NiMH battery cell rises sharply as the cell nears 100% state of charge,
necessitating the inclusion of complex cell monitoring electronics and
sophisticated charging algorithms in order to prevent thermal
runaway. A potential limiting factor for the widespread use of NiMH
batteries may be the supply of nickel, potentially rendering the technology
economically infeasible for these applications as demand continues to
rise.
Producers
of electric and hybrid electric vehicles are seeking to replace NiMH batteries
with lithium ion batteries for several reasons. The demand for these
vehicles is placing pressures on the limited supply of nickel, potentially
rendering the technology economically infeasible for these applications as the
demand continues to rise. Compared to NiMH batteries, conventional
lithium ion batteries are stable, charge more rapidly (in hours), exhibit low
self-discharge, and require very little maintenance. Except as
explained below, the safety, cycle life, calendar life, environmental impact and
power of lithium ion batteries is comparable to those of NiMH and NiCd
batteries.
Conventional
lithium ion batteries are the batteries of choice in small electronics, such as
cell phones and portable computers, where high energy density and light weight
are important. These same attributes are desired for electric
vehicle, hybrid electric vehicle, fast energy storage and other markets.
However, these applications are principally high power demand applications and
may pose other demands on usage, such as extremes of temperature, need for
extremely short recharge times, and even longer extended
lifetimes. Because of safety concerns related principally to the
presence of graphite in conventional lithium ion batteries, conventional
graphite-based lithium ion batteries sufficiently large for such power uses may
raise safety concerns. In addition, current lithium ion technology is
capable of about 1,000 to 3,000 cycles and has a life of about three years,
whereas the vehicles in which they are used may have lifetimes as long as 10 to
15 years and require much larger cycle life. Conventional lithium ion
batteries also do not function well at extremely hot or cold
temperatures. Our batteries --which we believe are safer, have a
longer cycle life, rapid charge and discharge rates and function well at extreme
temperatures -- are designed to address the power market by providing the key
benefits of lithium ion batteries without the shortcomings relative to the power
market.
Our
All Other Division
Background
During
2008, we operated as three separate divisions – A Power and Energy Group, a
Performance Materials Division and a Life Sciences Division. For
nearly all of 2009, we were organized into two divisions; a Power and Energy
Group and an All Other division. Our All Other division includes the
remnants of our Performance Materials and Life Sciences divisions.
Based on
the results of a comprehensive review of all our activities, strengths,
weaknesses, competitive opportunities and the overall market that was conducted
during 2008, we determined to focus our future efforts exclusively in the Power
and Energy arena. As a result, we began in late 2008 and early 2009
to eliminate or sell our assets and efforts in the Life Sciences and Performance
Materials divisions. As of December 31, 2009, all new efforts in the
Life Sciences area have been stopped and the intellectual property rights
associated with that division were assigned to Spectrum Pharmaceuticals, Inc.
pursuant to an amendment to our existing license agreement. There is
still a small amount of residual work being done in the Performance Materials
market to fulfill commitments with existing customers, but these efforts require
a minimal level of resources.
AlSher
Titania LLC
Our All
Other division consists primarily of our interest in the AlSher Titania joint
venture with Sherwin-Williams. AlSher Titania LLC was formed in April
2007. This joint venture was formed for the development and
production of high quality titanium dioxide pigment for use in paint and
coatings and nano titanium dioxide materials for use in a variety of
applications including those related to removing contaminants from air and
water. Construction of a 100-ton pigment processing pilot plant in
connection with the joint venture agreement was completed, and the plant was
commissioned in February 2008. Testing under the pilot program
commenced, and although results were positive, we suspended full operations in
late 2008 after generating and compiling considerable data into an engineering
data package. Based on review of this package, its impact on
financial projections, and input from our partner, we decided in 2009 not to
undertake a more detailed engineering cost study relating to the potential scale
up to a significantly larger demonstration plant. Neither Altair nor
Sherwin-Williams has expressed a willingness to finance the construction of the
development scale plant that would be required as the next major
milestone. Throughout 2009, AlSher Titania LLC, Altair and
Sherwin-Williams have been actively seeking a partner or partners to participate
in this next phase and to buy our interests in AlSher Titania LLC. In
May 2009, the services of 5iTech were engaged to assist in this
effort. An interested party has been identified and as of December
31, 2009 discussions were underway with this party to try and structure an
agreement that satisfies the needs of all parties involved. Because
of the length of time that the AlSher Titania LLC assets have been idle and the
unwillingness of either party to finance the next phase of development, these
assets have been deemed to be impaired and written down to their fair market
value as of December 31, 2009.
We are in
negotiations with Sherwin-Williams with respect to their potential acquisition
of our interest in AlSher Titania LLC.
We have
been awarded four U.S. and 15 international patents protecting this technology,
all of which have been licensed to AlSher Titania, including: 1) processing
titaniferous ore to titanium dioxide pigment, 2) processing aqueous titanium
chloride solutions to ultrafine titanium dioxide, 3) processing aqueous titanium
solutions to titanium dioxide pigment and 4) a method for producing mixed metal
oxides and metal oxide compounds. The U.S. patents expire in 2020 and
2021. Two new patent applications have also been filed
recently.
Nanosensor
Initiative
Our All
Other division also includes our nanosensors initiative. Since
September 2003, pursuant to a teaming/research agreement with Western Michigan
University funded by the Department of Energy, we have been engaged in the
development of a technology used in the detection of chemical, biological and
radiological agents. Late in 2008, we were awarded a $1.8 million
Army Research Office (“ARO”) grant to continue the nanosensor program. The ARO
formalized the contract with us to continue this work in September
2009. Under the terms of this grant and contract, Western Michigan
University will receive about half of the grant funds as a subcontractor to
Altair. We completed $139,000 of this contract during 2009 and will
complete the $1.6 million balance through September 2010. The scope
of work associated with this grant further builds upon the accomplishments and
progress made under the prior grants and will focus on a second-generation
hand-held device currently being developed using a new as well as a previously
developed library of sensing molecules for identification of a multiplicity of
agents.
Life
Sciences
Our Life
Sciences division was focused on the development and marketing of RenazorbTM
products, which were designed to support phosphate control in patients with
Chronic Kidney Disease, hyperphosphatemia, and high phosphate levels in blood,
associated with End Stage Renal Disease. Based on a comprehensive
review of the Life Sciences division, its existing and potential products, the
resources available, market opportunity and competition, among other
considerations, a decision was made in late 2008 to exit the life sciences
arena. Consistent with this decision, in August 2009 we announced an
agreement in which we assigned ownership of all patent rights associated with
Renazorb™ and Renalan™ to Spectrum Pharmaceuticals, Inc. (Nasdaq: SPPI). The
patent assignment amends and restates an existing, limited licensing agreement
for Renazorb™ and Renalan™ compounds to Spectrum Pharmaceuticals, which was
announced in January 2005. Spectrum Pharmaceuticals now has exclusive worldwide
rights to Renazorb™, Renalan™, and any related compounds in any field of
use.
Under
terms of the agreement, Altairnano received $750,000 in Spectrum Pharmaceuticals
common stock, which was restricted until February 2010. In addition to the
royalty and other payments we were to receive under the prior license agreement,
we will now receive 10% of any fees Spectrum Pharmaceuticals may receive from
the sublicensing of Renazorb™, Renalan™, and any related
compounds. With the execution of this contract with Spectrum
Pharmaceuticals, we have completed our efforts to exit the life sciences market
and there are no further Company resources devoted to this area.
Other
Nanomaterials Research
In August
2008, we entered into a contract with the Environmental Protection Agency to
collaborate in researching the safety and potential health hazards of inhalation
of lithium titanate nanoparticles in the worker environment. This is
a new area of development with very little specific data upon which to establish
recommendations for product handling and design of effective engineering
controls in the manufacturing environment. We are committed to
producing products that are both safe for their ultimate consumers, and also for
the people involved in their manufacture. The study involved
the instillation of lithium titanate, as well as control materials, into the
respiratory tract of laboratory rats followed by microscopic examination of lung
and trachea tissues at various exposure times. As of December 31,
2009, the study was completed and identified no potential health
hazards. A final report will be completed in the first half of
2010.
Research
and Development Expenses
Total
research and development expenses were $10.3 million, $16.9 million and $15.4
million for the years ended December 31, 2009, 2008 and 2007, respectively,
while research and development costs funded by customers were $2.9 million, $5.0
million and $5.0 million, for the years ended December 31, 2009, 2008 and 2007,
respectively.
Dependence
on Significant Customers
During
the year ended December 31, 2009, we recorded revenues from three major
customers in the Power and Energy Group who accounted for 27%, 15% and 11% of
revenues as follows: Office of Naval Research revenues of $1.2
million, Proterra LLC revenues of $635,000 and BAE Systems of
$482,000. Our largest customer in the All Other Division, Spectrum
Pharmaceuticals, had revenues of $751,000, or 17% of total
revenues.
Government
Regulation
Most of
our current and proposed activities are subject to a number of federal, state,
and local laws and regulations concerning machine and chemical safety and
environmental protection. Such laws include, without limitation, the
Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act,
and the Comprehensive Environmental Response Compensation Liability
Act. We are also subject to laws governing the packaging and shipment
of some of our products, including our nano lithium titanate
batteries. Such laws require that we take steps to, among other
things, maintain air and water quality standards, protect threatened, endangered
and other species of wildlife and vegetation, preserve certain cultural
resources, reclaim processing sites and package potentially flammable materials
in appropriate ways and pass stringent government mandated testing standards
before shipping our battery products.
Expenses
associated with compliance with federal, state, or local laws or regulations
represents a small part of our present budget. If we fail to comply
with any such laws or regulations, however, a government entity may levy a fine
on us or require us to take costly measures to ensure compliance. Any
such fine or expenditure may adversely affect our development.
We are
committed to complying with and, to our knowledge, are in compliance with, all
governmental regulations. We cannot predict the extent to which
future legislation and regulation could cause us to incur additional operating
expenses, capital expenditures, or restrictions and delays in the development of
our products and properties.
Government
Contracts
A
substantial portion of our current revenue is derived from government grants and
contracts. The government grants and contracts we enter into are subject
to termination or delay of funding at the election of the
government. As a result, any termination of such agreements would
significantly reduce revenue and the capital to sustain operations and
research.
Environmental
Regulation and Liability
Any
proposed processing operation at our main operating facility in Reno, Nevada or
any other property we use will be subject to federal, state, and local
environmental laws. Under such laws, we may be jointly and severally
liable with prior property owners for the treatment, cleanup, remediation, or
removal of substances discovered at any other property used by us; to the extent
the substances are deemed by the federal or state government to be toxic or
hazardous. Courts or government agencies may impose liability for,
among other things, the improper release, discharge, storage, use, disposal, or
transportation of hazardous substances. We use hazardous substances
in our testing and operations and, although we employ reasonable practicable
safeguards to prevent any liability under applicable laws relating to hazardous
substances, companies engaged in materials production are inherently subject to
substantial risk that environmental remediation will be required.
Financial
Information about Segments and Foreign Sales
Information
with respect to assets, net sales, loss from operations and depreciation and
amortization for the Power and Energy Group, and All Other Division is presented
in Note 18, Business Segment Information, of Notes to Consolidated Financial
Statements included herein.
Information
with respect to foreign and domestic sales and related information is also
presented in Note 18, Business Segment Information, of Notes to Consolidated
Financial Statements included herein.
Subsidiaries
Altair
Nanotechnologies Inc. was incorporated under the laws of the province of
Ontario, Canada in April 1973 under the name Diversified Mines Limited, which
was subsequently changed to Tex-U.S. Oil & Gas Inc. in February 1981, then
to Orex Resources Ltd. in November 1986, then to Carlin Gold Company Inc. in
July 1988, then to Altair International Gold Inc. in March 1994, then to Altair
International Inc. in November 1996 and then to Altair Nanotechnologies Inc. in
July 2002. In July 2002, Altair Nanotechnologies Inc. redomesticated
from the Ontario Business Corporations Act to Canada’s federal corporate
statute, the Canada Business Corporations Act.
Altair US
Holdings, Inc. was incorporated by Altair in December 2003 for the purpose of
facilitating a corporate restructuring and consolidation of all U.S.
subsidiaries under a U.S. holding company. At the completion of the
corporate restructuring, Fine Gold, MRS, and Altairnano, Inc. (f/k/a Altair
Nanomaterials, Inc.) were direct wholly-owned subsidiaries of Altair US
Holdings, Inc., while Tennessee Valley Titanium, Inc., previously a wholly-owned
subsidiary of MRS, was dissolved on July 7, 2006.
Altair
acquired Fine Gold in April 1994. Fine Gold has earned no operating
revenues to date. Fine Gold acquired the intellectual property associated with
the now defunct Altair jig, a fine particle separation device for use in
minerals processing, in 1996. Fine Gold was formally dissolved on
December 30, 2008.
Mineral
Recovery Systems, Inc., or MRS, was incorporated in April, 1987 and was formerly
known as Carlin Gold Company. MRS previously has been involved in the
exploration for minerals on unpatented mining claims in Nevada, Oregon and
California and the holding of mineral leases in Tennessee. Other than
a single mineral lease related to a remediation site in Tennessee, MRS does not
continue to hold any properties or other significant leases.
Altair
Nanomaterials, Inc. was incorporated in 1998 as a wholly-owned subsidiary of MRS
and holds all of our interest in our nanomaterials and titanium dioxide pigment
technology and related assets. Altair Nanomaterials Inc. was
subsequently renamed Altairnano, Inc. on July 6, 2006.
AlSher
Titania LLC was incorporated in April 2007 as a joint venture company which is
70% owned by Altairnano, Inc. This company was formed to combine
certain technologies of Altairnano, Inc. with the Sherwin-Williams Company in
order to develop, market, and produce titanium dioxide pigment for use in a
variety of applications.
Corporate
History
Altair
Nanotechnologies Inc. was incorporated under the laws of the Province of
Ontario, Canada in April 1973 for the purpose of acquiring and exploring mineral
properties. It was redomesticated in July 2002 from the Business
Corporations Act (Ontario) to the Canada Business Corporations Act, a change
that causes Altair to be governed by Canada's federal corporate
statute. The change reduced the requirement for resident Canadian
directors from 50% to 25% of the Board of Directors, which gave us greater
flexibility in selecting qualified nominees to our board.
During
the period from inception through 1994, we acquired and explored multiple
mineral properties. In each case, sub-economic mineralization was
encountered and the exploration was abandoned.
Beginning
in 1996, we entered into leases for mineral property near Camden, Tennessee and
owned the rights to the Altair jig. However, we have terminated our
leases on all of the Tennessee mineral properties and during 2009 disposed of
the remaining centrifugal jigs and abandoned the applicable patents since we
were unable to identify an interested party to purchase them.
In
November 1999, we acquired all the rights of BHP Minerals International, Inc.,
or BHP, in the nanomaterials and titanium dioxide pigment technologies and the
nanomaterials and titanium dioxide pigment assets from BHP. We are employing the
nanomaterials technology as a platform for the sale of contract services,
intellectual property licenses and for the production and sale of metal oxide
nanoparticles in various applications including our nano lithium titanate
batteries.
We have
experienced an operating loss in every year of operation. In the
fiscal year ended December 31, 2009, we experienced a net loss of $21.3
million.
Employees
Our
business is currently managed by Dr. Terry Copeland, President and Chief
Executive Officer, Mr. John Fallini, Chief Financial Officer, Dr. Bruce Sabacky,
Chief Technology Officer, Mr. Steven Balogh, Vice President Human Resources, Mr.
Dan Voelker, Vice President Operations, and Mr. C. Robert Pedraza, Vice
President Corporate Strategy and Business Development. We have 99
additional regular employees. As of December 31, 2009, we have
employment agreements with Messrs. Copeland, Fallini, Balogh, Pedraza, Sabacky
and Voelker.
During
2010, we may hire additional employees, primarily in operations, sales and
engineering. Such additional hiring, if it occurs, will be dependent
upon business volume growth.
Enforceability
of Civil Liabilities against Foreign Persons
We are a
Canadian corporation, and two of our directors and our Canadian legal counsel
are residents of Canada. Two directors are residents of Dubai. As a
result, investors may be unable to effect service of process upon such persons
within the United States and may be unable to enforce court judgments against
such persons predicated upon civil liability provisions of the U.S. securities
laws. It is uncertain whether Canadian or Dubai courts would enforce judgments
of U.S. courts obtained against us or such directors, officers or experts
predicated upon the civil liability provisions of U.S. securities laws or impose
liability in original actions against us or our directors, officers or experts
predicated upon U.S. securities laws.
Properties
Our
corporate headquarters is located at 204 Edison Way, Reno, Nevada 89502 in a
building we purchased in August 2002. Our nanomaterials and titanium
dioxide pigment assets are located in this building, which contains
approximately 85,000 square feet of production, laboratory, testing and office
space. We had pledged our corporate headquarters and associated land
to secure a promissory note we issued to BHP Minerals International, Inc. in the
amount of $3.0 million, at an interest rate of 7%. This note was paid
in full in January 2010 and the assignment has been released.
We are
party to a lease agreement effective as of July 1, 2007, for 30,000 square feet
of space in the Flagship Business Accelerator Building located at 3019
Enterprise Drive, Anderson, Indiana. The space is used for the
production of prototype batteries and battery systems. The lease is
for an initial term of five years with a single one-year renewal
term. On March 1, 2008, we signed an addendum to this lease that
increased the space leased by 40,000 square feet and set forth corresponding
adjustments in our rent. Total rent to be paid over the five year
term including real estate taxes is $1.3 million. In addition to the
Flagship lease, we rent another 2,210 square feet of space at 1305 W. 29th
Street, Anderson, Indiana, on a month to month basis.
We also
maintain a registered office at 360 Bay Street, Suite 500, Toronto, Ontario M5H
2V6. We do not lease any space for, or conduct any operations out of,
the Toronto, Ontario registered office.
We have
terminated the mineral leases on all but the primary lease for our Tennessee
mineral property that is subject to remediation. Remediation work on
the properties has been completed and reviewed by the applicable regulatory
authorities. Final inspections and full release is expected to occur
in the first half of 2010. Future remediation costs are not expected
to be significant.
Legal
Proceedings
In 2009,
we filed a collection action against Designline International Holdings, LLC in
the Wake County District Court of North Carolina under Case Number 09-CVD-17792
for collection of $354,000 for payment of product and services previously
provided by us. The matter was subsequently transferred to the State of North
Carolina, County of Mecklenburg, General Court of Justice, Superior Court
Division, under Case Number 09 CvS 30107. On January 15, 2010, Designline
International Holdings, LLC filed its answer denying our allegations and filing
counterclaims alleging breach of contract, breach of implied warranty of
merchantability and breach of implied warranty of fitness for a particular
purpose in response to our complaint. We have not yet filed our answer to their
counterclaims. The matter remains pending.
Beside
the matter stated above we are not a party to any pending or threatened
litigation, the outcome of which could be expected to have a material adverse
effect upon our financial condition, our results of operations or cash
flows.
CERTAIN
MATTERS RELATED TO OUR COMMON SHARES
Market
Price
Our
common shares are traded on the NASDAQ Capital Market under the symbol
"ALTI." The following table sets forth, during the periods indicated,
the high and low sales prices for our common shares, as reported on our
principal trading market.
|
Fiscal
Year Ended December 31, 2010
|
|
Low
|
|
|
High
|
|
|
|
1st
Quarter
|
|
$ |
0.70 |
|
|
$ |
0.96 |
|
|
|
Fiscal
Year Ended December 31, 2009
|
|
Low
|
|
|
High
|
|
|
|
1st
Quarter
|
|
$ |
0.60 |
|
|
$ |
1.28 |
|
|
|
2nd
Quarter
|
|
$ |
0.86 |
|
|
$ |
1.55 |
|
|
|
3rd
Quarter
|
|
$ |
0.79 |
|
|
$ |
1.45 |
|
|
|
4th
Quarter
|
|
$ |
0.80 |
|
|
$ |
1.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended December 31, 2008
|
|
Low
|
|
|
High
|
|
|
|
1st
Quarter
|
|
$ |
1.97 |
|
|
$ |
4.81 |
|
|
|
2nd
Quarter
|
|
$ |
1.63 |
|
|
$ |
2.73 |
|
|
|
3rd
Quarter
|
|
$ |
1.45 |
|
|
$ |
2.94 |
|
|
|
4th
Quarter
|
|
$ |
0.75 |
|
|
$ |
2.40 |
|
|
The last
sale price of our common shares, as reported on the NASDAQ Capital Market on
April 12, 2010, was $0.75 per share.
Outstanding
Shares and Number of Shareholders
As of
April 8, 2010, the number of common shares outstanding was 105,400,728 held by
approximately 427 holders of record. In addition, as of the same
date, we have reserved 6,287,495 common shares for issuance upon exercise of
options that have been, or may be, granted under our employee stock option plans
and 7,028,440 common shares for issuance upon exercise of outstanding
warrants.
Dividends
We have
never declared or paid cash dividends on our common shares. Moreover,
we currently intend to retain any future earnings for use in our business and,
therefore, do not anticipate paying any dividends on our common shares in the
foreseeable future.
Securities
Authorized for Issuance under Equity Compensation Plans
We have
stock option plans administered by the Compensation Committee of our Board of
Directors that provide for the granting of options to employees, officers,
directors and other service providers of the Company. Security
holders have approved all option plans. The following table sets
forth certain information with respect to compensation plans under which equity
securities are authorized for issuance at December 31, 2009:
|
Number
of
securities
to be
issued
upon exercise
of
outstanding
options,
warrants
and
rights
|
Weighted-average
exercise
price of
outstanding
options,
warrants
and
rights
|
Number
of securities
remaining
available
for
future issuance
under
equity
compensation
plans
(excluding
securities
reflected
in column (a)
|
Plan
Category
|
(a)
|
(b)
|
(c)
|
Equity
compensation plans approved by security holders
|
4,920,209
|
$2.396
|
4,107,317
|
Equity
compensation plans not approved by security holders
|
None
|
N/A
|
None
|
Total
|
4,920,209
|
$2.396
|
4,107,317
|
Recent
Sales of Unregistered Securities
Except as
previously reported, we did not sell any securities in transactions that were
not registered under the Securities Act in the quarter ended December 31,
2009.
Transfer
Agent and Registrar
The
Transfer Agent and Registrar for our common shares is Equity Transfer Services,
Inc., 200 University Ave, Suite 400, Toronto, Ontario, M5H 4H2.
CERTAIN
FINANCIAL INFORMATION
Selected
Financial Data
The
following table sets forth selected consolidated financial information with
respect to the Company and its subsidiaries for the periods
indicated. The data is derived from financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America (“U.S. GAAP”). The selected financial data should be read in
conjunction with the section entitled “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and the consolidated financial
statements and accompanying notes included herein. All amounts are
stated in thousands of U.S. dollars.
For
the Year Ended December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STATEMENTS OF
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
4,371 |
|
|
$ |
5,726 |
|
|
$ |
9,108 |
|
|
$ |
4,324 |
|
|
$ |
2,806 |
|
|
Operating
expenses
|
|
$ |
(27,232 |
) |
|
$ |
(35,852 |
) |
|
$ |
(42,176 |
) |
|
$ |
(22,005 |
) |
|
$ |
(13,288 |
) |
|
Interest
expense
|
|
$ |
(107 |
) |
|
$ |
(97 |
) |
|
$ |
(134 |
) |
|
$ |
(172 |
) |
|
$ |
(207 |
) |
|
Interest
income
|
|
$ |
188 |
|
|
$ |
982 |
|
|
$ |
1,101 |
|
|
$ |
655 |
|
|
$ |
750 |
|
|
(Loss)
/ gain on foreign exchange
|
|
$ |
(2 |
) |
|
$ |
(10 |
) |
|
$ |
(1 |
) |
|
$ |
(2 |
) |
|
$ |
2 |
|
|
Realized
gain (loss) on investment
|
|
$ |
851 |
|
|
$ |
(89 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
Loss
from continuing operations before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
non-controlling
interest’s share
|
|
$ |
(21,931 |
) |
|
$ |
(29,340 |
) |
|
$ |
(32,102 |
) |
|
$ |
(17,200 |
) |
|
$ |
(9,937 |
) |
|
Non-controlling
interest’s share
|
|
$ |
619 |
|
|
$ |
272 |
|
|
$ |
631 |
|
|
$ |
- |
|
|
$ |
- |
|
|
Net
loss
|
|
$ |
(21,312 |
) |
|
$ |
(29,068 |
) |
|
$ |
(31,471 |
) |
|
$ |
(17,200 |
) |
|
$ |
(9,937 |
) |
|
Basic
and diluted net loss per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
share
|
|
$ |
(0.21 |
) |
|
$ |
(0.34 |
) |
|
$ |
(0.45 |
) |
|
$ |
(0.29 |
) |
|
$ |
(0.17 |
) |
|
Cash
dividends declared per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
share
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET
DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
capital
|
|
$ |
22,118 |
|
|
$ |
26,067 |
|
|
$ |
39,573 |
|
|
$ |
25,928 |
|
|
$ |
21,483 |
|
|
Total
assets
|
|
$ |
40,317 |
|
|
$ |
48,071 |
|
|
$ |
73,859 |
|
|
$ |
43,121 |
|
|
$ |
33,464 |
|
|
Current
liabilities
|
|
$ |
(
4,055 |
) |
|
$ |
(
3,647 |
) |
|
$ |
(14,329 |
) |
|
$ |
(3,500 |
) |
|
$ |
(2,428 |
) |
|
Long-term
obligations
|
|
$ |
(37 |
) |
|
$ |
(608 |
) |
|
$ |
(1,200 |
) |
|
$ |
(1,800 |
) |
|
$ |
(2,400 |
) |
|
Non-controlling
interest in subsidiary
|
|
$ |
(541 |
) |
|
$ |
(1,098 |
) |
|
$ |
(1,369 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
Net
shareholders' equity
|
|
$ |
(35,684 |
) |
|
$ |
(42,718 |
) |
|
$ |
(56,961 |
) |
|
$ |
(37,821 |
) |
|
$ |
(28,636 |
) |
|
Supplementary
Financial Data
The
following Supplementary Financial Information for the fiscal quarters ended
March 31, June 30, September 30 and December 31 in each of the years 2009 and
2008 was derived from our unaudited quarterly consolidated financial statements
filed by us with the SEC in our Quarterly Circulars on Form 10-Q with
respect to such periods (except for 4th quarter data).
Supplementary
Financial Information by Quarter, 2009 and 2008
|
(Unaudited
– in 000s)
|
|
|
Quarter
Ended
|
|
|
Quarter
Ended
|
|
|
Quarter
Ended
|
|
|
Quarter
Ended
|
|
|
|
March
31
|
|
|
June
30
|
|
|
September
30
|
|
|
December
31
|
|
Year
Ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
902 |
|
|
$ |
- |
|
|
$ |
1,667 |
|
|
$ |
1,805 |
|
Operating
expenses
|
|
$ |
7,374 |
|
|
$ |
6,482 |
|
|
$ |
5,906 |
|
|
|