Agreement, Issue of Equity & Investment

("Torotrak" or the "Company")

£6.0 million licensing and a 5 per cent. equity issue to Allison Transmission, Inc., raising

approximately £2.5 million;

20 per cent. stake in Flybrid Automotive Limited

Torotrak (LSE: TRK) today announces that the Company has concluded negotiations, under a Licence and Exclusivity Agreement dated March 2009, with its licensee, Allison Transmission, Inc. ("Allison") under which Allison will pay £6.0 million for continued exclusivity to manufacture and sell Torotrak main drive transmissions in commercial vehicle market segments; this exclusivity excludes Torotrak's other commercial vehicle licensees, Tata Motors and the European Truck and Bus Manufacturer ("ETBM").

Allison has also subscribed for an additional 8,248,434 new ordinary shares in Torotrak at a price of 30.255p per share, representing a 20 per cent. premium to the average mid-market closing price of a Torotrak share for the 10 business days prior to the date of this announcement, raising approximately £2.5 million.

Separately, and in line with Torotrak's strategy to take greater control of routes to market and broaden its technology base, the Company also announces today that it has invested £3.0 million to acquire a 20 per cent. stake in Flybrid Automotive Limited ("Flybrid"), together with an exclusive option to acquire the remaining 80 per cent. by 20 December 2013. The Company's core product is a high-speed flywheel based Kinetic Energy Recovery System ("KERS") and Flybrid is able to offer customers a full service including design, manufacture, assembly, development and support of its KERS device. This can be applied to obtain both performance and fuel economy benefits for commercial vehicle and passenger car applications, as well as for Formula 1, where the technology was first exposed.

Highlights

Allison

·; Cash inflow from today's licence agreement and share subscription of £8.5 million in total, of which £4.5 million is payable prior to 31 March 2013 and the balance before 31 March 2014

·; Discount to the original Licence and Exclusivity Agreement ("LEA") of £2.1 million negotiated in return for a 35 per cent. increase in royalties payable on first 10,000 units of production per annum

·; This arrangement is in line with the recent strategy announced in November 2012, whereby Torotrak takes greater influence and reward in bringing its technology to market

Flybrid

·; 20 per cent. stake acquired for £3.0 million in cash with an exclusive option to acquire the remaining 80 per cent. by 20 December 2013

·; 18 employees, based at Silverstone's technology park

·; Secures access to flywheel technology at an advanced stage of technology readiness

·; Enables immediate commitment to low volume production for flywheel hybrid products for commercial vehicles

·; Company at break even for the 12 months to 31 December 2012, generating revenues of approximately £1.45 million

Financial/Engineering

·; Following these arrangements and after the initial investment in Flybrid, cash balances are estimated at c £9.0 million at 31 March 2013

·; Further licence payments due from Allison during the year ended 31 March 2014 are £4.0 million

·; In addition, engineering services to be provided by Torotrak over the next two years to Allison are estimated at £3.0 million

·; Torotrak to lead, in conjunction with key partners such as Univance Corp., the delivery into the Allison programme of specialist core components to the required specification

·; Core component responsibility is in line with strategy announced in November 2012 to take increased control of key areas essential to the successful introduction of Torotrak's technology

Jeremy Deering, Chief Executive of Torotrak, said: "The announcement of the Allison agreement, and our investment in Flybrid, represent collectively an important milestone and I believe a true turning point for the Company. The strategy we set out to achieve in November of a more diversified Company with greater control of its routes to market, has taken a good step forward today. We are determined to get mechanical hybrid technology to market and with Flybrid we are setting up the supply and manufacturing arrangements to achieve that."

Lawrence E. Dewey, Chairman, President and Chief Executive Officer of Allison Transmission, Inc., said: "Allison is committed to introducing fuel efficient, emissions reducing technologies and our licensing decision today with Torotrak reflects our determination to be a global leader in this field. A purely mechanical energy recovery system is in many ways an engineer's dream, but with the anticipated technology advancement and closer working relationship between Torotrak and Flybrid, we see the investment as having all the potential ingredients to make this a reality."

He added: "As an investor, we are pleased with the progression of the Company following the strategy announced in November 2012. In particular, we wanted to support the investment arrangements with Flybrid, which are forward looking and offer the potential for growth."

Jon Hilton, Managing Director of Flybrid Automotive, said: "This is a key announcement in the development of the Flybrid business. In Torotrak we have found a technology-focused investor with in depth understanding of our market space and a number of areas of common aspiration. The Flybrid technology is proven in prototype vehicles and products in several key markets are being made ready for production now. The time is perfect to expand the business both in manufacturing and in licensing, and we look forward to bringing our product to market in collaboration with Torotrak."

For more information, please visit www.torotrak.com or contact:

Allison Transmission, Inc.

Since signing the initial Licence and Exclusivity Agreement ("LEA") with Allison in March 2009, £17.7 million of licensing fees have been paid to Torotrak. The further commitments announced today will bring the cumulative value of licence fees to £23.7 million. In addition, in March 2009 Allison subscribed for 14,608,290 new ordinary shares in Torotrak at a cost of approximately £2.41 million and has today subscribed for an additional 8,248,434 new ordinary shares in Torotrak at a price of 30.255p per share, representing a 20 per cent. premium to the average mid-market closing price of a Torotrak share for the 10 business days prior to the date of this announcement, raising approximately £2.5 million. Following the subscription, Allison will hold approximately 13.1 per cent. of the enlarged issued share capital of the Company.

Application has been made to the Official List of the UK Listing Authority and to the London Stock Exchange for the admission of the 8,248,434 new ordinary shares of 10p each in the Company subscribed for by Allison. The new ordinary shares will be issued fully paid and will, upon issue, rank pari passu in all respects with the Company's existing issued shares. Admission is expected to occur on 22 March 2013. Following admission of the new ordinary shares, the total issued share capital of the Company will increase to 174,958,022 ordinary shares.

Allison, formerly a division of General Motors Corporation, was acquired by affiliates of The Carlyle Group and Onex Corporation in August 2007. Allison Transmission Holdings, Inc. (NYSE: ALSN) is the parent company of Allison. Allison is the world's largest manufacturer of fully-automatic transmissions for medium- and heavy-duty commercial vehicles, medium- and heavy-tactical U.S. military vehicles and hybrid-propulsion systems for transit buses. Allison transmissions are used in a variety of applications including on-highway trucks (distribution, refuse, construction, fire and emergency), buses (primarily school and transit), motor homes, off-highway vehicles and equipment (primarily energy and mining) and military vehicles (wheeled and tracked). Founded in 1915, the Allison business is headquartered in Indianapolis, Indiana, U.S.A. and employs approximately 2,800 people. Allison has manufacturing facilities and customization centres located in China, The Netherlands, Brazil, India and Hungary, with a global presence, serving customers in North America, Europe, Asia, Australia, South America and Africa. Allison also has approximately 1,400 independent distributor and dealer locations worldwide. More information about Allison is available at www.allisontransmission.com.

In March 2009, Torotrak and Allison concluded the LEA. Under the terms of the LEA, Allison secured worldwide licence and exclusivity options to use Torotrak's full-toroidal traction drive technology in the below 14,000 kilogram gross vehicle weight commercial vehicle market, together with options to secure global manufacturing and sales exclusivity in this sector (except for Torotrak's existing licensees in this field) as well as the right to secure further licences for applications in large commercial vehicles at a later date. Allison paid an initial £8.4 million for these rights and options. In addition to the licence and exclusivity payments, the LEA provided for per unit royalties to be payable to Torotrak upon start of production based on a percentage of the manufactured value of each transmission produced.

Allison paid £3.5 million in April 2011, and a further £3.25 million in March 2012, to secure rights to a non-exclusive licence in 2013 in the above 14,000 kilogram gross vehicle weight commercial vehicle market together with further exclusivity rights. In addition, the payment allowed Allison a period of two years up to March 2013 during which the Company agreed not to pursue further licensing with other parties in key areas within the commercial vehicle market ("Exclusivity Rights"). Following this two year period, under the LEA, Allison had the option to continue with its Exclusivity Rights on a perpetual basis for a further payment of £10.6 million, of which £2.5 million was paid in May 2012. Of the remaining £8.1 million, a £2.1 million reduction has today been agreed in return for a 35 per cent. increase in future per unit royalty payments on the first 10,000 units of production per annum.

The final licence payment of £6.0 million will be paid in three instalments: £2.0 million on 29 March 2013, £1.4 million by 1 July 2013 and £2.6 million by 31 March 2014. This, together with the share subscription of approximately £2.5 million and the £3.0 million investment in Flybrid, will result in cash balances at the Company's 31 March 2013 financial year end of approximately £9.0 million.

Allison's Production Intent Programme

The next steps in Allison's programme are to focus on a final design to optimise performance, size and weight. Torotrak is taking responsibility for core component testing and to establish a fully conformed supply into the Allison programme. This is an important element of the programme and one that the board of Torotrak believes is critical in terms of reducing lead times. In addition, Torotrak will assist Allison with product design and validation process support in Europe.

The Company sees big opportunities for its IVT Transmission in reducing CO2 emissions and cutting fuel costs for commercial vehicle operators. As recently announced, the Company's own predictions of up to 20 per cent. fuel economy benefit on urban delivery trucks and buses and substantial reduction in NOx emissions, have been confirmed independently with our licensee, ETBM. The Company is also encouraged by its recent technology developments that offer up increased fuel economy savings for longer haul applications too.

Investment in Flybrid Automotive Limited

The Company also announces that it has today acquired a 20 per cent. stake in flywheel hybrid innovator Flybrid Automotive Limited ("Flybrid"), for £3.0 million payable in cash. The Company also has an exclusive option, exercisable solely at Torotrak's discretion, to acquire the remaining 80 per cent. of Flybrid by 20 December 2013.

Background to Flybrid

Flybrid was founded by two technology entrepreneurs who had previously worked within Formula 1 and at Ricardo plc. The Company's core product is a high-speed flywheel based Kinetic Energy Recovery System ("KERS") and Flybrid is able to offer customers a full service including design, manufacture, assembly, development and support of its KERS device.

Flybrid has 18 employees and has spent over five years developing its significant IP in flywheel technology and has been able to build up some material relationships with Tier 1s and leading commercial and passenger vehicle manufacturers. Flywheels are not a new technology, but the use of carbon fibre and innovation in safety containment, bearings, seals and coupling methodology provides a step change in bringing a cost effective, package friendly alternative to battery or hydraulic energy storage. Flybrid's patents and know how cover key aspects of all of these new developments and, together with the long development lead times, provide strong barriers to entry for potential new entrants.

The technology has been proven in motorsport and validated fuel economy results have been obtained in prototype vehicles including a collaboration with Jaguar. Flybrid is currently engaged on a prototype programme in the bus market in the UK (a market that Torotrak believes offers the best near term entry point) with Wrightbus. Flybrid is also active in the off-highway market and is also working in the passenger car market with Volvo.

Independent analysis, data and charts around flywheel and KERS technology are available at www.torotrak.com.

Benefits to Torotrak

Torotrak's investment in Flybrid is in line with the Company's strategy announced in November 2012 to take greater control of routes to market and to broaden the Company's technology remit. There are natural synergies between the two technologies and the two companies will immediately begin to work together to achieve a unified approach to customers and maximise the benefits of this collaboration:

·; All flywheel hybrid programmes will be managed in engineering delivery terms through Flybrid, with appropriate commercial arrangements between Torotrak and Flybrid to support this;

·; Customers will have the benefit of a combined technical offering, including the option to utilise either Flybrid's clutch based transmission system ("CFT") or Torotrak's traction drive option ("CVT"). Each has different merits and the aim is to encourage the most pragmatic and economic route to early market entry as a first stage.

Through this investment in Flybrid, Torotrak will be working directly with a market leading flywheel technology that is at an advanced stage of technology readiness. It can fully utilise the technology know-how within Flybrid to continue its drive into the KERS market and allows Torotrak to focus on delivery of its other core commercialisation programmes: main drive transmissions for commercial vehicles and V-Charge boosting for downsized engines.

Terms of the Transaction

Under the terms of the agreement, Torotrak has paid £3.0 million in cash to secure a 20 per cent. equity stake in Flybrid. The cash is principally being repaid to the Flybrid vendors but also provides working capital for Flybrid for 12 - 24 months. In addition, the Company has negotiated an exclusive option, exercisable at Torotrak's sole discretion, to acquire the remaining 80 per cent. of Flybrid for a further £8.0 million (of which £6.0 million would be payable in cash and £2.0 million to be satisfied by the issue of Torotrak shares) with an earn-out of up to a maximum of £15.0 million based on the future performance of Flybrid. The earn-out is based on the future revenues generated by Flybrid from engineering services, licence fees, manufacturing fees and future royalties from the technology and is designed to ensure the successful commercialisation and market introduction of the flywheel technology. This exclusive option may be exercised by Torotrak between 1 June 2013 and 20 December 2013 and would be subject to shareholder approval.

Jeremy Deering, Torotrak CEO, will join the Flybrid Board immediately.

The two shareholders and Directors of Flybrid are Jon Hilton and Doug Cross.

Jon Hilton is Managing Director and co-founder of Flybrid. He started his career at Rolls Royce, where he designed gas turbine engines for helicopters, later moving to Cosworth and becoming Chief Engineer of the Formula 1 programme. Following five years at TWR Arrows F1, he joined the Renault F1 team as Technical Director: Engine Division. He is a Trustee of the Institution of Mechanical Engineers.

Doug Cross is Technical Director and co-founder of Flybrid. He started his career at Ricardo designing engines for road car customers before moving on to Toyota, where he designed engines for Formula 1. Following this, he worked at the Renault F1 team, where he was responsible for their first 19, 000 rpm 2.4L V8 engine.

Under the terms of the Option agreement, if full control is acquired, then Jon Hilton will join the Torotrak plc board as Executive Director and Doug Cross will become Group Chief Technical Officer, a role that he will also contribute to in an advisory capacity up to that potential point in time.

Flybrid financial profile

As at 31 December 2012, Flybrid's gross assets were approximately £11.7 million (net assets of approximately £11.0 million mainly representing intellectual property) and for the 12 months to 31 December 2012 the Flybrid business generated revenues of approximately £1.45 million and broke even (a £nil million profit/loss). Flybrid is based at Silverstone's technology park.

NOTES TO EDITORS

About Torotrak

Torotrak (LSE: TRK) is the leading global developer of gearless traction drive technologies, focussing on applications that increase efficiency and reduce CO2 emissions in vehicles. These include the V-Charge variable-drive supercharger, engine auxiliary drives, IVT and CVT main drive transmissions and a variable speed transmission that enables efficient energy recovery using a mechanically-driven flywheel (M-KERS). The company's engineering team works with proven, global tier-one technology partners to provide a validated route from prototypes to production. Customers include major vehicle manufacturers and their suppliers in the light duty, heavy duty and off-highway sectors.

Further Information on the Market, Flywheel Technology and Flybrid

Market Drivers

In both the passenger car and commercial vehicle market legislative CO2 and fuel economy targets and fines for non-compliance in both Europe and North America require major reductions from global OEMs' current fleet profile position. There are a number of different technologies in the market to try and address this requirement with many vehicle manufacturers exploring battery electric hybrid systems. However, neither the substantial cost nor the high weight of batteries have fallen as much as anticipated, and there are other costly issues to resolve such as training emergency services and vehicle dealerships to work with high voltages, and the need to provide an environmentally responsible end-of-life solution. This presents a considerable opportunity for affordable hybrid technologies that eliminate the need for high-voltage batteries.

The Technology

Flybrid's core technology relates to design, development, manufacture and control of high-speed flywheels (up to 60,000 rpm) for use in passenger car, bus and commercial vehicle applications. The flywheel is connected to the vehicle via a transmission with the manipulation of the gear ratio across the transmission enabling braking energy to be smoothly and efficiently recovered in the flywheel and then released back into the driveline. The device has very high specific power, allowing it to be used as a fuel efficiency technology, or as a performance device, or both. The technology has the smallest package size and weight of all known hybrid systems, is extremely efficient and at a fraction of the cost of an electric hybrid.

A key feature of the mechanical flywheel technology is that it offers vehicle manufacturers precisely the right measure of grams per CO2 saving required to achieve legislative standards, and one of the most cost effective ways of achieving this in terms of cost per gram reduced. In low to mid volumes in the commercial vehicle market, we believe this cost equation to be around £40 - £50/gram, depending upon application. The view of leading automotive consultancy Ricardo Strategic Consulting is that, in higher volume production, a mechanical flywheel hybrid could mitigate around 235 grams of CO2 for a cost of around £15/gram, placing the technology in an unprecedented competitive position in terms of today's options open to manufacturers.

This view of mechanical flywheel technology being capable of strong market adoption is further supported by E4tech, an independent research consultancy specialising in sustainable energy and low carbon vehicles (advisors to Department of Transport). Their research concludes that the Flybrid technology is well suited to the bus market, medium volume market entry in the commercial vehicle market and passenger cars; and can match or improve upon electric hybrid fuel economy improvements of at least 15 per cent. Their view is that a flywheel's performance is less likely to be degraded by real world usage than electric hybrids, and that the considerably reduced costs would enable it to become an established low carbon technology ahead of likely fuel cell introduction, which in their view could take until 2035 to gain mass-market traction.

Longer term, the passenger car market is also an opportunity. Flybrid's technology has already been built and demonstrated within a Jaguar and Volvo vehicle (utilising Torotrak's drive system). In the Jaguar, in conjunction with a stop-start system, fuel economy gains of 22.4 per cent. was measured using the ARTEMIS test cycle, which emulates "real world" usage patterns. From a market perspective, Ricardo Strategic Consulting predicts that for passenger cars and in higher volume production, flywheel hybrid technology could reduce emissions of CO2 by up to 30g/km at a cost of around £20 per gram. This compares favourably with their estimate of £20 - £45 per gram for enhanced Internal Combustion Engine technologies and up to £90 per gram for electric hybrids.  

First market segment for introduction

The first flywheel hybrid application is aimed at the urban commercial vehicle sector, starting with the midi-sized bus market in the UK. In this market alone, there are 3,000 units per annum of sales with an existing stock for potential retrofit of 50,000 units. The strategy is to work from fleet trial through to increasing levels of manufacturing and supply volume. The system is a "parallel hybrid", meaning that it can be disconnected from normal driving operations at any time and minimises any risk of vehicle down time. This makes it easier for fleet trial partners to engage much earlier in the development cycle.

Fuel economy in this sector is the critical market driver, as well as reduction in NOx emissions. Payback of between 2 and 4 years is expected to be achieved on fuel economy savings of up to 20 per cent., depending upon cycle and system strategy. The payback period compared to electric hybrids is very favourable, where these periods can extend to 10 years and hence the investment is often only feasible with subsidy. If on-costs such as battery replacement and end of life disposal are added in, then the advantage of flywheels is improved further.

The medium duty sector, especially within urban environments where delivery vehicles and refuse trucks, has significant stop and start driving cycles and so will also benefit from the energy recovery capability of KERS technology. In the longer term, passenger cars also present a material opportunity. An independent study by Ricardo predicts market entry in passenger cars by mechanical flywheel hybrids with a (non-mature) c 3 per cent. penetration by 2020.

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