Under the terms of the agreement, Altair will ship 47 battery packs purchased by Phoenix in 2007 to Phoenix for use exclusively in demonstration all-electric vehicles. In addition, Altair entered into a letter of agreement with Phoenix formally terminating the existing supply agreement and mutually releasing each other from any claims under such agreement.

We are pleased to have worked with Phoenix to resolve this concern in a timely and practical manner that allows them to use the original batteries with a simple safety system addition.

—Terry Copeland, Altair CEO

Based upon the Principles of Agreement Letter, in the second quarter of 2008, Altair reversed the $2.8 million warranty liability associated with this transaction and wrote off a $1.7 million note payable due to Altair from Phoenix. The result of the transaction, which is outlined in the Principles of Agreement Letter filed July 24, 2008 with a Form 8K, is a credit to cost of goods sold of $2.8 million and a debit to operating expense of $1.7 million for a net positive impact of $1.1 million to net income in the second quarter 2008 financial results.

In addition to the approximate net impact of the $1.1 million credit, the demonstration vehicles are expected to qualify for zero-emission vehicle ("ZEV") credits under the California Air Resources Board (CARB) Type III program. Altair will receive ten percent of the monetized value of any ZEV credits awarded for cars containing its battery packs. Each car qualifying under the Type III program will generate forty ZEV credits in calendar year 2008.

Phoenix Motorcars is developing battery-electric, freeway-speed vehicles, including SUTs and SUVs. The company is currently working with Altair to obtain battery modules for future vehicle production runs, according to Daniel Elliott, Phoenix CEO.

In May, Phoenix announced plans to offer multiple battery options for its lithium-ion battery-powered vehicles. While the Altairnano pack will continue to be featured in the first delivered product, the company will begin to offer integrated battery systems from Electrovaya as a option. (Earlier post.)