Lithium Technology Corp. Announces Strategic Alliance and Investment Agreement with Frazer-Nash Research Ltd. and Affiliates

April 10, 2011 by Jeff Shepard

Lithium Technology Corp. announced that it had entered into a strategic alliance with Frazer-Nash Research Ltd. and its affiliates (collectively referred to as the FN Group) for the supply of large format Lithium-Ion cell battery packs with proprietary battery management systems cells for automotive applications. The two parties executed several definitive agreements relating to this strategic alliance on March 30, 2011 and closed the transaction on April 1, 2011. A member of the FN Group previously invested $2 million in equity of LTC in October, 2010, as previously reported by LTC.

The initial amount of cells will be used to build a test fleet of Plug-in Hybrid Vehicles with range extender as well as a certain number of Electric Vehicles for an Asian vehicle manufacturer. As part of this program FN Research will supply its proprietary battery management system as well as its proprietary electric and hybrid electric drive train.

This test fleet will be built using LTC’s and FN Research’s time-tested and proven technologies for data gathering and refinement before embarking on mass production.

As part of the strategic alliance, pursuant to the terms of the Securities Purchase Agreements between LTC and affiliate members of the FN Group, the FN Group has agreed to provide $10 million of fresh capital to LTC, $5 million in the form of a purchase of LTC’s common equity (including the $2 million purchased on 25 October 2010) and $5 million in the form of a committed convertible loan facility. After the closing of the common equity investment, the FN Group holds an initial equity stake of 10.25%, which will increase to 35.00% if and when the convertible loan facility is fully funded and converted into common equity. This initial equity stake also includes the initial commercial supply contracts for delivery of battery cells between LTC and FN Research. The fresh capital will be used primarily for the construction of a volume production facility for LTC’s large format Lithium-Ion cells and general corporate development.

Through the strategic cooperation between the parties, LTC will gain access to an OEM cooperation and supply relationship with automotive manufacturers. LTC intends to supply battery cells to a range of electrically-powered vehicles. Depending on the commercial success and value created out of this relationship between the parties, as measured by the unit sales volume of supply contracts and actual deliveries, the parties have agreed that the FN Group will receive warrants to purchase additional common stock in LTC which may allow the FN Group to increase its equity stake in LTC to greater than 50%. The award of warrants is tied to the achievement of a series of performance targets with the last target being in 2015. In summary, the maximum number of shares issuable to the FN Group under the terms of the warrants is 4.9 billion and will be awarded to the FN Group when the cumulative volume of contracts for LTC derived through the FN Group reaches approximately 100 times the current annual manufacturing capacity of LTC. In the opinion of LTC management, this will represent a very significant growth for LTC and may represent a substantial value opportunity for existing LTC investors. In case the FN Group makes use of its option to exercise the warrants on a "cashless" basis, the resulting dilution would be less than implied by the maximum number of warrants awarded to the FN Group.

Further, LTC and a member of the FN Group have agreed to enter into a joint venture pursuant to the terms of a Joint Venture and Shareholder’s Agreement, which will develop, market and manufacture Complete Energy Management Systems (CEMS). CEMS consist of LTC’s large format Lithium-Ion battery cells and FN Research’s electronics including battery management system, charger and dc-dc converter. The intent of the parties surrounding the Joint Venture is to provide to the market a complete energy management solution for use in future electric and hybrid electric vehicle power trains. The parties will share equally in the investment in and income from the Joint Venture, while a member of the FN Group will hold 70% of the voting rights of the Joint Venture.