Lithium Technology Corporation enters strategic alliance and investment agreement with FN Group for large format Li-ion packs for automotive applications
Lithium Technology Corporation (LTC) (earlier post) has entered into a strategic alliance with Frazer-Nash Research Ltd. (FN Research) and its affiliates (collectively, FN Group) for the supply of large format Lithium-ion battery packs with proprietary battery management systems cells for automotive applications.
The two parties executed several definitive agreements relating to this strategic alliance on 30 March 2011 and closed the transaction on 1 April 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.
As part of the strategic alliance, 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.
Before becoming a strategic investor in LTC, FN Research had been a customer of LTC for several years. The proprietary extrusion process used by LTC for the manufacturing of its electrodes as well as its optimized proprietary cell design led the FN Group to the belief that LTC will be able to compete in the highly competitive automotive landscape in addition to its traditional niche markets.
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.
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 convertor. 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.
LTC will contribute its experience with several other automotive applications for its battery cells such as Volkswagen’s Flottenversuch, Karmann’s electric vehicle, and eRUF’s and DesignLine’s hybrid buses, which are operational in Baltimore, MD, New York, NY and at the Charlotte, NC Airport.
As part of the transaction, William Chia, Director of Operations of FN Research, will join LTC’s Board of Directors as well as sit on LTC’s audit committee.
FN Research is a UK-based research and development company principally engaged in the development of fully integrated and optimized proprietary systems, sub-systems and components for hybrid electric and electric drive trains.