Torotrak PLC Regulatory News (TRK)

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED IN IT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO OR FROM ANY JURISDICTION WHERE TO DO SO MIGHT CONSTITUTE A VIOLATION OF LOCAL APPLICABLE SECURITIES LAWS OR REGULATIONS.

THIS ANNOUNCEMENT IS AN ADVERTISEMENT AND IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES. IT IS NOT A CIRCULAR, A PROSPECTUS OR PROSPECTUS EQUIVALENT DOCUMENT. INVESTORS SHOULD NOT SUBSCRIBE FOR OR PURCHASE ANY SHARES REFERRED TO IN THIS ANNOUNCEMENT EXCEPT SOLELY ON THE BASIS OF INFORMATION CONTAINED IN THE PROSPECTUS TO BE PUBLISHED BY TOROTRAK PLC IN CONNECTION WITH THE PROPOSED FUNDRAISING AND ACQUISITION.

13 December 2013

Torotrak plc

("Torotrak", the "Company" or the "Group")

Proposed Firm Placing of 54,021,005 New Ordinary Shares,

Proposed Placing and Open Offer of 22,161,819 New Ordinary Shares,

Proposed Subscription for 12,706,064 New Ordinary Shares by Allison Transmission, Inc.

each at an Issue Price of 18 pence per Ordinary Share

Proposed Acquisition of 80 per cent. of the issued share capital of

Flybrid Automotive Limited and proposed issue of 7,836,990 Consideration Sharesand

Notice of General Meeting

Torotrak (LSE: TRK), a leading developer and supplier of emissions reduction and fuel efficiency technology for vehicles, today announces that it has entered into an Acquisition Agreement to acquire, subject to Shareholder approval, the remaining 80 per cent. of the issued ordinary shares in Flybrid for a maximum consideration of up to £23.0 million, of which £15.0 million is subject to performance targets.

In addition, the Company is pleased to announce that it has conditionally raised funds of £16.0 million (before expenses) by way of an equity fundraising of an aggregate of 88,888,888 New Ordinary Shares at an issue price of 18 pence per share, comprising a Firm Placing, a Placing and Open Offer and a Subscription by Allison Transmission, Inc.

The net proceeds of the Issue will be used to finance the initial cash consideration payable in connection with the Acquisition, to finance the investment required for the commercialisation of Flybrid's first manufactured product for the commercial vehicle market and to finance the on-going design, development and testing of Torotrak's V-Charge technology and Flybrid's M-KERS technology for the passenger car markets, as well as enhancing Torotrak's testing and engineering capabilities.

Further details of the Acquisition and the Issue are set out in this announcement and in the Prospectus being published today.

Highlights

Flybrid

· Acquisition of the remaining 80 per cent. of the issued ordinary share capital of Flybrid not already owned by Torotrak for a maximum consideration of up to £23.0 million, of which £8.0 million is payable on Completion (£6.0 million in cash and £2.0 million in new Ordinary Shares). The remaining £15.0 million (of which a maximum of £5.0 million can be satisfied through the issue of new Ordinary Shares) is to be paid subject to the satisfaction of certain performance targets.

· The Directors believe that the acquisition of Flybrid provides Torotrak with the leading commercially viable flywheel technology in the market, offering low cost, high performance hybrid systems for mass market adoption in passenger cars and commercial vehicles.

· The integration of Flybrid and Torotrak provides the platform for a joint development and launch of M-KERS as the Company continues to take greater control of routes to market for its technology.

· Jon Hilton (currently Managing Director of Flybrid) will join the board of Torotrak plc and, together with Doug Cross (currently Technical Director of Flybrid), will be key members of the Enlarged Group's executive team.

Market window and opportunity

· The Group intends exploiting a market window from 2015 to 2020 where new technologies are being demanded to achieve tough new EU CO2 targets applying to vehicle manufacturers' overall fleets.

· The Directors believe that electric hybrid and plug in solutions will for the foreseeable future only address a small element of the market and remain expensive. This leaves Torotrak's technologies that improve the internal combustion engine's performance well positioned as affordable, mainstream solutions in the mass car markets.

· In commercial vehicles, Flybrid M-KERS offers affordable hybrid efficiency within a five year pay back period. The Group intends launching this product into the market in trials in 2014 and into production in 2015 to achieve a first to market advantage and providing growing product revenues from 2015 onwards.

The Issue

· Placing of 76,182,824 New Ordinary Shares with existing and new institutional investors at an Issue Price of 18 pence per share of which 54,021,005 New Ordinary Shares have been placed firm.

· Open Offer to existing shareholders on the basis of 1 Open Offer Share for every 8 Existing Ordinary Shares at 18 pence per share. Qualifying Shareholders can also subscribe for Excess Shares under the Excess Application Facility, subject to availability. All of the Open Offer Shares have been conditionally placed with institutional investors subject to clawback by existing investors under the Open Offer

· Allison has agreed to subscribe for a further 12,706,064 New Ordinary Shares at the Issue Price, which would result in Allison holding 12.98 per cent. of the Company's Enlarged Issued Share Capital.

· The Issue will raise gross proceeds of £16.0 million.

Notice of General Meeting

· A notice convening the General Meeting, to be held at the offices of Tavistock Communications at 131 Finsbury Pavement, London EC2A 1NT at 11.00 a.m. on 8 January 2014 will be contained in the Prospectus.

Jeremy Deering, Chief Executive of Torotrak, said:

"Today's announcement marks a significant step in our strategy to capitalise on the substantial opportunities in global automotive markets in the next few years.

"The acquisition of Flybrid enables the Group to commercialise an affordable hybrid system (Flybrid M-KERS), that the Directors believe is capable of mass market adoption. The funds raised support our plans for low volume manufacturing and accelerated testing facilities for a start of production in 2015 to supply initially the UK bus market. For mass car markets, the strategy over the next 12 to 24 months is to increase our engagement with vehicle OEM and Tier 1 manufacturers to maximise the opportunities for take up of our V-Charge and Flybrid M-KERS technologies from 2017 onwards as tougher new CO2 regulatory targets are implemented.

"The combination of the Flybrid and Torotrak teams creates a new energy and a new looking enterprise, with Formula 1 heritage, Flybrid's entrepreneurial track record and Torotrak's well respected development and commercial capability, combining in one team. Innovation, delivery and forming lasting customer relationships lie at the heart of this.

"The response from our strategic shareholder Allison Transmission, Inc. and from institutional investors in supporting the fund raise has been excellent and the Open Offer provides an opportunity for private and other shareholders to participate at the Issue price."

Jon Hilton, Managing Director of Flybrid, said: "The combination of Flybrid's entrepreneurial, performance focused culture with Torotrak's depth of engineering expertise will create a competitive group with the ability to access a large proportion of the world's auto manufacturers and Tier 1 and 2 suppliers. The team at Flybrid are very enthusiastic and excited about the prospects. Doug Cross and I are looking forward to joining the new executive team at Torotrak and delivering success for the Group."

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

IMPORTANT NOTICE

This announcement is not a prospectus but an advertisement and Qualifying Shareholders should not acquire any New Ordinary Shares referred to in this announcement except on the basis of the information contained in the Prospectus.

Neither the content of the Company's website nor any website accessible by hyperlinks to the Company's website is incorporated in, or forms part of, this announcement. The distribution of this announcement, the Prospectus and any other documentation associated with the Proposals into jurisdictions other than the United Kingdom may be restricted by law. Persons into whose possession these documents come should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws or regulations of any such jurisdiction. In particular, such documents should not be distributed, forwarded to or transmitted, directly or indirectly, in whole or in part, in, into or from the United States, Canada, Japan or Australia or any other jurisdiction where to do so may constitute a violation of the securities laws or regulations of any such jurisdiction (each an "Excluded Territory").

No action has been taken by the Company or any other person that would permit an offer of the New Ordinary Shares or possession or distribution of this announcement, the Prospectus or any other documentation or publicity material or the Application Forms in any jurisdiction where action for that purpose is required, other than in the United Kingdom.

The New Ordinary Shares have not been and will not be registered under the US Securities Act 1933 (as amended) (the "US Securities Act") or with any securities regulatory authority of any state or other jurisdiction of the United States and, accordingly, may not be offered, sold, resold, taken up, transferred, delivered or distributed, directly or indirectly, within the United States except in reliance on an exemption from the registration requirements of the US Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States.

There will be no public offer of the New Ordinary Shares in the United States. The New Ordinary Shares are being offered and sold outside the US in reliance on Regulation S under the US Securities Act. The New Ordinary Shares have not been approved or disapproved by the US Securities and Exchange Commission, any state securities commission in the US or any other US regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the offering of the New Ordinary Shares or the accuracy or adequacy of the Application Form or this announcement. Any representation to the contrary is a criminal offence in the US.

The New Ordinary Shares have not been and will not be registered under the relevant laws of any state, province or territory of any Excluded Territory and may not be offered, sold, resold, taken up, transferred, delivered or distributed, directly or indirectly, within any Excluded Territory except pursuant to an applicable exemption from registration requirements. There will be no public offer of New Ordinary Shares in Canada, Japan, or Australia.

This announcement is for information purposes only and does not constitute or form part of any offer to issue or sell, or the solicitation of an offer to acquire, purchase or subscribe for, any securities in any jurisdiction and should not be relied upon in connection with any decision to subscribe for or acquire any of the New Ordinary Shares. In particular, this announcement does not constitute or form part of any offer to issue or sell, or the solicitation of an offer to acquire, purchase or subscribe for, any securities in the United States.

This announcement has been issued by, and is the sole responsibility of, the Company. No person has been authorised to give any information or to make any representations other than those contained in this announcement and, if given or made, such information or representations must not be relied on as having been authorised by the Company, Charles Stanley Securities or N+1 Singer. Subject to the UKLA Rules, the issue of this announcement shall not, in any circumstances, create any implication that there has been no change in the affairs of the Company since the date of this announcement or that the information contained in it is correct at any subsequent date.

Charles Stanley Securities, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting for the Company and no one else in connection with the Proposals and will not regard any other person (whether or not a recipient of this announcement) as a client in relation to the Proposals and will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Proposals or any matters referred to in this announcement.

N+1 Singer, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting for the Company and no one else in connection with the Proposals and will not regard any other person (whether or not a recipient of this announcement) as a client in relation to the Proposals and will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Proposals or any matters referred to in this announcement.

Apart from the responsibilities and liabilities, if any, which may be imposed on Charles Stanley Securities or N+1 Singer by the Financial Services and Markets Act 2000 or the regulatory regime established thereunder, neither Charles Stanley Securities or N+1 Singer accepts any responsibility whatsoever for the contents of this announcement, and makes no representation or warranty, express or implied, for the contents of this announcement, including its accuracy, completeness or verification, or for any other statement made or purported to be made by them, or on their behalf, in connection with the Company or the New Ordinary Shares or the Proposals, and nothing in this announcement is or shall be relied upon as, a promise or representation in this respect whether as to the past or future. Charles Stanley Securities or N+1 Singer accordingly disclaim to the fullest extent permitted by law all and any liability whether arising in tort, contract or otherwise (save as referred to above) which they might otherwise have in respect of this announcement or any such statement.

No statement in this announcement is intended to be a profit forecast or estimate and no statement in this announcement should be interpreted to mean that earnings per share of the Company for the current or future financial years would necessarily match or exceed the historical published earnings per share of the Company.

This announcement may include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "will", or "should" or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include matters that are not historical facts. They appear in a number of places throughout this announcement and include statements regarding the Directors' current intentions, beliefs or expectations concerning, among other things, the Company's results of operations, financial condition, liquidity, prospects, growth, strategies and the Company's markets. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Actual results and developments could differ materially from those expressed or implied by the forward-looking statements. Forward-looking statements may and often do differ materially from actual results. Any forward-looking statements in this announcement are based on certain factors and assumptions, including the Directors' current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Company's operations, results of operations, growth strategy and liquidity. Whilst the Directors consider these assumptions to be reasonable based upon information currently available, they may prove to be incorrect. Save as required by law or by the UKLA Rules, the Company undertakes no obligation to release publicly the results of any revisions to any forward-looking statements in this announcement that may occur due to any change in the Directors' expectations or to reflect events or circumstances after the date of this announcement.

This announcement should not be considered a recommendation by the Company, Charles Stanley Securities or N+1 Singer or any of their respective directors, officers, employees, advisers or any of their respective affiliates, parent undertakings, subsidiary undertakings or subsidiaries of their parent undertakings in relation to any purchase of or subscription for the New Ordinary Shares. Price and volumes of, and income from, securities may go down as well as up and an investor may not get back the amount invested. It should be noted that past performance is no guide to future performance. You are advised to read this announcement and, once available, the Prospectus and the information incorporated by reference therein, in their entirety for a further discussion of the factors that could affect the Group's future performance and the industry in which it operates. Persons needing advice should consult an independent financial adviser.

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED IN IT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO OR FROM ANY JURISDICTION WHERE TO DO SO MIGHT CONSTITUTE A VIOLATION OF LOCAL APPLICABLE SECURITIES LAWS OR REGULATIONS.

THIS ANNOUNCEMENT IS AN ADVERTISEMENT AND IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES. IT IS NOT A CIRCULAR, A PROSPECTUS OR PROSPECTUS EQUIVALENT DOCUMENT. INVESTORS SHOULD NOT SUBSCRIBE FOR OR PURCHASE ANY SHARES REFERRED TO IN THIS ANNOUNCEMENT EXCEPT SOLELY ON THE BASIS OF INFORMATION CONTAINED IN THE PROSPECTUS TO BE PUBLISHED BY TOROTRAK PLC IN CONNECTION WITH THE PROPOSED FUNDRAISING AND ACQUISITION.

13 December 2013

Torotrak plc

("Torotrak", the "Company" or the "Group")

Proposed Firm Placing of 54,021,005 New Ordinary Shares,

Proposed Placing and Open Offer of 22,161,819 New Ordinary Shares,

Proposed Subscription for 12,706,064 New Ordinary Shares by Allison Transmission, Inc.

each at an Issue Price of 18 pence per Ordinary Share

Proposed Acquisition of 80 per cent. of the issued share capital of

Flybrid Automotive Limited and proposed issue of 7,836,990 Consideration Sharesand

Notice of General Meeting

1. Introduction

On 18 March 2013, the Company announced that it had acquired a 20 per cent. interest in Flybrid for £3.0 million. The Company today announces that it has entered into an Acquisition Agreement to acquire, subject to Shareholder approval, the remaining 80 per cent. of the issued ordinary shares in Flybrid for a maximum consideration of up to £23.0 million, partly based on the future performance of Flybrid. Of this consideration, £8.0 million is payable on Completion (of which £6.0 million is to be satisfied in cash and £2.0 million by the issue of the Consideration Shares) with up to a further £15.0 million being a share of the future revenue and earnings of Flybrid on a sliding scale up until 31 March 2021.

The Company also announces the Issue (through the proposed Subscription, Firm Placing and Placing and Open Offer) to raise approximately £14.8 million net of costs. The net proceeds of the Issue will be used to finance the initial cash consideration of the Acquisition, to finance the investment required for the commercialisation of Flybrid's first manufactured product for the commercial vehicle market and to finance the on-going design, development and testing of Torotrak's V-charge technology and Flybrid's M-KERS technology for the passenger car markets, as well as enhancing Torotrak's testing and engineering capabilities.

The Acquisition sits in the context of a strategic decision to re-position Torotrak with multiple CO2 emissions reduction technologies and enhanced engineering capabilities. The Directors believe that the vehicle industry is looking for new technology solutions to meet the challenging new CO2 emissions reduction and fuel efficiency regulations. For example, new passenger car legislation in the EU requires a significant reduction in passenger car CO2 emissions from 130 g/km in 2015 to a proposed 95 g/km phased in from 2020 and further reductions expected to be targeting 68-78 g/km by 2025. With recent studies confirming that the rate of progress in battery technology is unlikely to deliver the breakthrough required in either cost or energy storage to displace the ICE, vehicle manufacturers require mechanical solutions to meet these targets. The Directors believe that the narrow time window for vehicle manufacturers to select new CO2 reduction technologies to achieve these regulatory targets creates a significant opportunity for the Enlarged Group to establish a significant market position in support of international vehicle and equipment manufacturers.

Flybrid's high speed M-KERS flywheel technology has demonstrated the potential to deliver significant fuel savings and improvements in vehicle performance that can enable vehicle manufacturers to meet the challenging fleet average CO2 emissions reduction targets cost-effectively in time to meet the regulatory changes. The Enlarged Group will benefit from the combination of Torotrak's well-established engineering and licensing skills with Flybrid's entrepreneurial motorsport heritage and recognised technology development capability. The Directors believe that the Enlarged Group will be a market-leading, independent technology group offering highly differentiated, cost-effective, solutions at a critical time for vehicle manufacturers needing mass market products and engineering resources to meet the rapidly approaching regulatory hurdles.

The Acquisition constitutes a Class 1 transaction pursuant to Chapter 10 of the Listing Rules and therefore requires prior approval from Shareholders at the General Meeting. Shareholders will therefore be asked to approve the Resolutions, including the Acquisition Resolution, at a General Meeting which will be convened for 11.00 a.m. on 8 January 2014 at the offices of Tavistock Communications, 131 Finsbury Pavement, London EC2A 1NT.

The Firm Placing is conditional on Shareholders approving the Firm Placing Resolutions, including the Acquisition Resolution to approve the Acquisition, at the General Meeting.

The Subscription and the Placing and Open Offer are not conditional upon the completion of the Acquisition and will occur if the Open Offer Resolutions are passed at the General Meeting.

As at 12 December 2013 (being the latest practicable date prior to the publication of this announcement and the posting of the Prospectus), Allison owns 22,856,724 Existing Ordinary Shares which represent 12.89 per cent. of the Company's existing issued share capital and therefore is regarded as a related party pursuant to Chapter 11 of the Listing Rules. Therefore, the Subscription is regarded as a related party transaction which requires Shareholder approval. The Subscription is therefore conditional on the Subscription Resolution being passed by Shareholders at the General Meeting.

2. Background to and reasons for, the Acquisition and the Enlarged Group's strategy

Following the appointment of Jeremy Deering as Chief Executive Officer of Torotrak, the Company announced a new strategy in November 2012, departing from the traditional licensing model and taking greater control of routes to market for its technology to enable faster, more certain growth for the Group. The new strategy involves:

· expanding the portfolio of technologies beyond traction main drive to offer a range of leading CO2 emissions reduction technologies across the commercial and passenger vehicle markets;

· investing in more prototype platforms thereby reducing barriers to entry for potential customers;

· creating low volume manufacturing capabilities to allow the technology to establish itself in the market; and

· growing Torotrak's engineering services offering, in order to support and create long term customer relationships and, once adopted, increase recurring revenue to the Company.

The acquisition of Flybrid meets the Company's strategic objectives by expanding Torotrak's core technology portfolio whilst also enhancing the capability for low volume manufacturing and enhanced engineering services and development capability.

Flybrid is focused on performance enhancing, CO2 reducing technologies for commercial vehicles and passenger cars and is based in Silverstone, Northamptonshire. The core product is a high-speed flywheel based M-KERS and storage system, which has had over five years of development and testing and has been operated successfully in the motorsport sub-sector. When combined with a transmission, such as Torotrak's patented CVT drive system or Flybrid's more conventional patented clutched CFT system, the M-KERS system is a more power-dense equivalent of a battery driven electric hybrid system. It is the Directors' belief that these systems may deliver fuel efficiency enhancements at lower cost and reduced weight when compared with an equivalent power electric system. Successful prototype tests with Volvo and Jaguar have demonstrated the fuel saving and performance enhancement potential of Flybrid's M-KERS product.

Torotrak has conducted a detailed analysis of the alternative technologies in the market and has had the benefit of working directly with Flybrid and other flywheel technology providers. Based on this evaluation and supported by independent research by E4tech, a business consultancy in sustainable energy, the Directors' judgement is that Flybrid's M-KERS is the leading commercially viable flywheel technology in the market, offering low cost, high performance for mass market adoption in passenger cars and commercial vehicles. The Directors believe that Flybrid's M-KERS is well placed to offer an alternative mainstream hybrid technology to existing battery electric hybrid systems being introduced in low volumes in vehicle markets.

Flybrid's technology can be installed in both passenger cars and commercial vehicles providing effective hybrid performance that is affordable for vehicle manufacturers and users and can address the challenges of tightening fuel efficiency and emissions regulation with effect from 2015 onwards for multiple territories and vehicle classes.

Research conducted by E4tech, found that most major global automotive on highway segments show significant opportunities for M-KERS penetration and the growth of M-KERS technology. In particular, E4tech concluded that:

· M-KERS appears to offer significant levels of CO2 reduction at one of the lowest technology costs across multiple application segments;

· M-KERS appears to have high specific power compared to battery-based hybrid systems, making it especially suitable for vehicles used in conditions with frequent acceleration and deceleration, such as urban cars, buses and delivery trucks; and

· unlike batteries, M-KERS suffers little degradation of performance over service life and remains efficient in aggressive, real-world operation.

The passenger car industry requires new technologies in order to achieve the material step reductions in CO2 emissions mandated by the EU from 2020 and beyond. Taking into account the long development lead times for new car platforms of around five to seven years from concept to launch, this leaves a relatively short window for vehicle manufacturers to evaluate and select the required technologies. The Enlarged Group's strategy is therefore to concentrate business and engineering development with manufacturers over the coming two years in order to assist manufacturers to comply with these regulations. This will enable manufacturers to evaluate the technology, incorporate the design of the technology in the planning of potential future solutions (so called "package protect") and secure development and manufacturing licences leading to mass market commercial launch.

With at least five years of development by Flybrid and Torotrak on M-KERS, around three years on V-Charge and building upon significant prior CVT development, this investment presents important barriers to entry for the Enlarged Group's competitors.

The Directors believe that the increased demand from vehicle manufacturers for new technologies to help meet their 2020 CO2 obligations is likely to stimulate a range of competing technologies to be developed and commercialised. The Directors also believe that the global market opportunity is so large that multiple different technologies will be required to satisfy the demands of OEMs and Tier 1 partners.

Following the successful prototype tests of Flybrid's flywheel technology with Volvo and Jaguar, the Directors consider that a key opportunity is to target passenger car programmes with introduction from 2017 onwards, as manufacturers respond to the more onerous test regimes and prepare for the 2020 CO2 targets. Discussions are on-going with a number of international Tier 1 partners as potential manufacturers and suppliers into vehicle manufacturers. These discussions are the first stages of potential licensing interest and have been prompted both by Torotrak and Flybrid's business development and also by direct interest from car manufacturers.

In the commercial vehicle market, Flybrid is on target for first-to-market M-KERS trials in the second quarter of 2014 in a Wrightbus Streetlite bus operated by Arriva. This will test Flybrid's M-KERS on a public route with the expectation that by the end of 2014, assuming a successful completion of the trials, this would lead to production of around a further 25 prototype units for further trials with bus operators around the UK. Assuming successful completion of the second stage trials, the Directors believe that orders would be placed for production commencing in 2015. In-house manufacturing capability will be supplemented with further investment creating manufacturing capacity for up to 1,700 flywheel assemblies per annum. Assembly will commence using low automated production processes, appropriate for high value and high margin products, which can be scaled up to satisfy volume supply up to 20,000 per annum in collaboration with The Proving Factory.

Analysis conducted by Torotrak and supported by independent analysis by E4tech indicates that the cost of manufacture for a M-KERS system has the potential to deliver a low unit cost, capable of volume manufacture. Based on Torotrak's and Flybrid's previous experiences and extensive simulation, the Directors believe that M-KERS fuel savings can deliver an unsubsidised bus operator payback of five years or less over an operating life of at least 10 years, together with an attractive gross margin in line with new technology products for the Enlarged Group. The Directors believe that M-KERS can be sold at significantly lower cost than non-subsidised equivalent power electric hybrid platforms and comparable systems. This is an important driver for market uptake, offering bus manufacturers and operators a commercially attractive fuel efficiency and emissions reduction technology, and near term product sales and earnings opportunities for the Enlarged Group from 2015 onwards.

Flybrid's M-KERS and, the Directors believe, Torotrak's V-Charge technology, as key enabling technologies, each have the potential to combine fuel saving/CO2 emissions reduction and performance enhancement benefits in a cost effective-package. The Directors believe that, in the case of V-Charge, performance enhancement is a key enabler for the achievement of mass market adoption by passenger car manufacturers that have to balance meeting required CO2 regulatory targets with the driveability that end customers demand. Fuel savings alone are not, in the Directors' opinion, a sufficient condition for success in this market going forward. In the case of M-KERS, the Directors believe that the option of enhanced performance could be a major differentiator that encourages early adoption in premium vehicles ahead of widespread adoption in high volumes.

The more diverse range of technologies and capabilities of the Enlarged Group will, in the Directors' view, help support close, continuing relationships with Tier 1 and OEM customers, thereby providing potentially higher quality recurring future earnings over the long programme times of each vehicle manufacturer.

Following the acquisition by Torotrak of a 20 per cent. interest in Flybrid in March 2013, Torotrak and Flybrid have already been working closely together on the development of a single M-KERS product offering using either Torotrak's CVT or Flybrid's CFT transmission drive. The Group has prepared an integration plan led by the senior executives of Torotrak and Flybrid including a new organisation structure and identifying opportunities to share combined engineering, test and build resources. The current plan assumes that Torotrak and Flybrid will continue to operate from their existing premises with existing staffing, with the potential to combine manufacturing and assembly in a new facility ahead of scale up for commercial sales of the Enlarged Group's technologies.

The Directors believe that the Acquisition will significantly strengthen the Group's existing business model, its product offering and speed to market and help underpin its future growth opportunities and objectives. In the event that the Acquisition is not approved by Shareholders, the Directors believe that Torotrak will be unable to develop an alternative commercially viable M-KERS technology in time to be adopted by OEMs/Tier 1s in vehicle platforms to meet the 2020 CO2 regulations.

3. Market drivers, technology portfolio and technology benefits

Whether to reduce its carbon footprint or to meet the challenging new CO2 emissions targets, the vehicle industry, from cars to buses, trucks and construction equipment is looking to new technologies to meet the challenging new CO2 emissions reduction and fuel efficiency regulations. Worldwide regulations with severe financial penalties attached are driving a technology revolution as vehicle manufacturers try to meet the new demanding targets at an affordable cost. The Directors believe that regulation of CO2 emissions and fuel economy is now the most dominant technology driver in the light duty vehicle markets.

ICEs are likely to remain the dominant light duty vehicle propulsion technology beyond 2030 and in the Directors' view the main reduction in CO2 emissions will be achieved by making the ICE more efficient. This can be helped considerably through: engine downsizing; engine down-speeding; energy conservation, storage and release; and by making existing technology work better with vehicles being lighter and having less drag. Small scale incremental improvements to existing engine technology will not enable vehicle manufacturers to meet the required emissions standards. With electric developments lagging considerably behind where the industry expected when making forward technology plans five years ago, the Directors believe that the Enlarged Group's products are ideally placed to meet vehicle manufacturers' requirements in relation to improving ICE performance, reducing fuel consumption and enabling fuel-saving smaller engines to become driveable.

Passenger cars

In major passenger car markets, the key drivers for adoption of new technology by vehicle manufacturers are new CO2 emissions and fuel economy legislation. Specifically:

· new EU legislation from 2015 requires a significant reduction in CO2 emissions of new cars to 130 g/km in 2015 and then to a proposed 95 g/km phased in from 2020 and falling to a proposed new threshold of 68-78 g/km by 2025; and

· in the USA, new regulation requires escalating fuel targets to be met rising to 54.5 US mpg by 2025.

These new regulations are enforced through significant financial penalties for failure to meet the targets which are levied against vehicle manufacturers. Importantly, a new World Light Duty Test Cycle is likely to be phased in from 2017/18 requiring vehicles to be tested for compliance based on longer cycles and under more representative real world driving conditions. These new tests include: more acceleration cycles; inclusion of ancillary powered devices such as air conditioning; and quicker accelerations, requiring an engine to work harder. This will expose certain technologies currently testing at what the Directors believe to be overstated efficiency levels when operated under real world conditions. The Directors therefore believe that the introduction of a new World Light Duty Test Cycle together with the potential introduction of random testing for compliance of cars in service favours the Enlarged Group's technologies which, can deliver material efficiency savings under real driving conditions rather than just "beat the test cycle".

The Enlarged Group's technology portfolio has the potential to deliver the required reduction in emissions at an affordable cost and can be easily integrated with current and future car platforms:

· V-Charge - This is a variable speed boost device that has the potential to enable a downsized engine to deliver the required performance across the entire engine speed operating range, even at lower engine speeds. The technology avoids the problems of "lag" with conventional boosting devices and promises to meet the challenging requirements of an affordable single-stage mass market device. It can also operate effectively as part of a multi-stage system, more prevalent in higher specified cars and, in the Directors' opinion, may be an affordable alternative to high voltage electric boost systems which require expensive 48 volt electrical systems that achieve a similar performance to V-Charge; and

· M-KERS - Flybrid's mechanical hybrid high-speed flywheel device provides a lighter and potentially lower cost alternative to either electrical or hydraulic hybrid technologies. Critically, the high power, efficient mechanical system enables a high proportion of the available energy to be captured during braking. A M-KERS device installed in a Volvo S60 has demonstrated the potential to achieve fuel savings of up to 25 per cent. when compared like-for-like in terms of vehicle performance, enabling engine downsizing with larger engine performance being maintained. The high flywheel speed enables M-KERS to be smaller, and lighter than its electric hybrid counterpart.

To meet the aggressive new emissions and fuel efficiency targets at an affordable cost and acceptable performance for the mass market, vehicle manufacturers are being required to focus their attention on making the ICE more fuel efficient and avoiding wasted energy. Electric hybrid, electric plug-in hybrid and electric vehicles will, the Directors believe, remain a niche supply into the market and therefore make only a marginal contribution to achieving fleet average CO2 emission reductions.

Electric options were considered to be a key opportunity based on a technology roadmap that was considered as consensus by leading industry figures around five years ago. This consensus saw electric options (such as hybrids and plug-ins) as the key technology to deliver the vehicle industry's required CO2 reduction targets in the period 2015 to 2025. This roadmap assumed that by 2014 there would have been a breakthrough in battery storage and greater investment in electric charging infrastructure today. However, this electric storage breakthrough has not substantively occurred and it is apparent that investment in the enabling infrastructure for a mass market electric or hydrogen future is not being introduced to any material level.

Accordingly, the Directors believe that electric solutions are not going to be the material driver of CO2 emission reductions across mainstream vehicle fleets in the next 15 years. Post 2025, the Directors' view is that the ICE will still dominate vehicle powertrains, and that the Enlarged Group's technologies have the capability to play a major enabling role either as a cost effective hybrid or in support of more broad minded electric strategies. For example, Flybrid's flywheel system has one of the highest specific powers of any near term technology, and therefore has the capability to mitigate significant volumes of CO2 on "stop/start" urban cycles through regenerative braking. The technology is also based on conventional mechanical solutions. The Directors believe that either alone or in conjunction with other advanced engine and powertrain technologies, adding M-KERS can potentially enable a lower mass and more cost effective solution for CO2 reduction compared with electric hybridisation.

According to analysis of a number of forecasts by E4tech, the world passenger car market is predicted to grow at a CAGR of 3.7 per cent. to 2020, with a CAGR of 4.1 per cent. and 1.6 per cent. in the markets of Western Europe and North America respectively. E4tech estimates that mechanical flywheel hybrid devices like Flybrid's M-KERS and micro and full hybrid vehicles have the potential to grow substantially as the new CO2 emissions legislation tightens by 2020, with the key markets being North America and Europe:

Source: E4tech

The addressable KERS market forecast by E4tech is larger than the combined electric hybrid forecast because KERS offers better value, thus enlarging the market.

The Directors' view, supported by research from E4tech, is that a successful launch of M-KERS into the market in the 2015 to 2020 timeframe has the potential to deliver a significant addressable market and secure mass market uptake from 2020 onwards. Beyond 2025, M-KERS systems have the potential to take significant further market share, outperforming electric hybrid vehicles in key attributes including power, cost, life cycle and package.

Commercial vehicles

Estimates analysed by E4tech show the global commercial vehicle market is forecast to grow by a CAGR of 9.5 per cent. between 2015 and 2020 to five million vehicles per annum. There is also a significant opportunity in the retrofit market given the large fleet of vehicles ("parc") already in use. Recent government grants are addressing the global need for cleaner buses, both new build and retrofit, with flywheel technology a potential focus for government funding.

In the commercial vehicle market, the drivers for new technology uptake are end-user demand for increased fuel efficiency and tightening air quality and CO2 emissions regulations. Medium and heavy-duty, on-highway commercial vehicles such as trucks and buses have historically been mainly regulated by particulates emissions standards. With fuel being a major operating cost for commercial vehicle operators, rising fuel prices continue to drive end-user demand for more fuel efficient technologies.

To address these key drivers, technologies which enable the engine to operate at optimum speed and maximising energy efficiency will continue to increase. Therefore, the Directors believe that vehicle manufacturers will continue to pursue increased automation in transmissions, down-speeding of engines, engine downsizing and boosting. The Enlarged Group's technologies can address these opportunities as follows:

· The Group's main drive transmission uses a patented system to replace gears with a seamless variable drive, managing the engine at optimum speed and maximising energy efficiency. The technology can improve fuel efficiency by up to 23 per cent. compared to a conventional automatic, on typical urban drive cycles. Noxious emissions are also dramatically reduced. The Directors believe that the technology has the potential to combine with the V-Charge and M-KERS technologies in the future.

· M-KERS installed in commercial vehicles with a high "stop/start" frequency such as urban buses has the potential to deliver significant fuel consumption savings and an attractive payback to vehicle operators. The compact, low weight and low cost M-KERS unit can address both the new and retrofit bus market, providing an attractive addressable market opportunity. The Directors believe that other opportunities exist including off-highway construction and other vehicles. As in the passenger car market, M-KERS can potentially offer an affordable alternative to larger, more expensive electric hybrid systems.

The Directors believe that M-KERS has an excellent opportunity to be introduced into the commercial vehicle market as a cost-effective hybrid energy recovery device, capable of delivering significant fuel savings, especially on shorter haul drive cycles such as urban buses, delivery trucks, refuse trucks and light trucks and vans. The Group's market entry strategy is to launch Flybrid's M-KERS product initially into the UK bus segment with Wrightbus from 2015 onwards, following the anticipated successful completion of fleet trials in early 2014 with Arriva. Initial volumes of up to 1,700 flywheel units per annum can be supplied using planned assembly and manufacturing facilities operated by the Company, in conjunction with identified and qualified partner suppliers to serve the UK and EU bus markets. Opportunities also exist to address the UK/EU the technology retrofit bus market and the bus segment in North America.

4. Summary information on Torotrak and its technology

The Company has developed and owns the intellectual property rights for a range of next generation, highly fuel efficient and cost-effective mechanical transmission, engine boosting and energy recovery devices. These technologies can replace more conventional technologies and deliver fuel savings and emissions reductions in a range of vehicles including both on and off-highway commercial vehicles as well as passenger cars.

Historically, the Group has principally licensed its technology, earning revenues through up-front licence payments from Tier 1 and OEM international manufacturers. These payments are "early stage" and payable during the product development phase, with future per unit royalties then payable once production commences. In addition, the Group has earned revenues from providing engineering services in support principally of its licensees.

The Group has received more than £29.0 million in up-front licensing revenues and engineering services income over the last five years. This has allowed the Company to substantially fund research and development; retaining the right to exploit the resultant intellectual property to generate on-going licence revenues from the portfolio.

Torotrak has 59 employees based in Leyland in the United Kingdom, with an extensive range of engineering services capabilities including test and prototype build. The Group's low volume prototype build capability has been enhanced with the acquisition of the business and assets of Motorsport Components Limited which provides the Group and its customers with a complete range of machining, fabrication and assembly services. In February 2013, the Group joined a UK initiative for shared lower volume manufacturing capability, "The Proving Factory", backed by Tata Steel, Jaguar Land Rover, Schaeffler Group and Mira. The Directors expect that The Proving Factory can provide the Enlarged Group with a reliable route to manufacture volumes of up to 20,000 units per annum and benefits from UK industry support and UK government funding.

The Group's main technologies and services are as follows:

Main drive transmission

The Group's main drive IVT and CVT use a patented system that replaces gears with seamless variable drive. Torotrak's transmission technology is currently focused mainly on the commercial vehicle market in the form of IVT where the Directors believe its key benefits when compared with incumbent technologies are as follows:

· the technology is capable of improving fuel economy by up to 23 per cent. in key urban drive cycles for buses and delivery trucks;

· has the potential to reduce NOx emissions by up to 50 per cent.; and

· it introduces a considerably improved level of driveability and smoothness of ride, allowing enhanced driver comfort and control.

The Group's major licensee for on-highway commercial vehicles is Allison, the world's largest manufacturer of fully-automatic commercial vehicle transmissions. To date, Allison has paid £21.0 million in licensing and other fees with future royalties being based on a percentage of the value of each transmission produced using Torotrak's technology.

Allison sold approximately 62 per cent. of all fully automatic transmissions for medium- and heavy-duty on highway commercial vehicle applications in the US in 2012 and is well placed to introduce Torotrak's licensed transmission technology into buses, trucks and other commercial vehicles. Allison is also a 12.89 per cent. strategic shareholder in Torotrak (as at the date of this announcement). Torotrak has actively supported Allison over the last 54 months in its development programme and in March 2013 it concluded the final licensing arrangements that secured Allison's ongoing exclusivity. Exclusivity in this respect means that Torotrak has agreed not to grant any further rights in this market other than to its two other licensees in this market segment: a ETBM and Tata Motors.

In North America, the automatic transmission is in ascendance whilst the forecast for manuals is set to decline across medium- and heavy-duty commercial vehicles. An increase in fuel efficiency, a focus on driver safety and comfort, and lower maintenance costs are driving higher adoption rates. The same can be said for Europe with fully automatic transmissions expected to show significant market share growth at the expense of manual transmissions.

The current focus of the Group is to complete the accelerated testing of disc and roller components with Allison and move to the next stage prototype, incorporating design improvements relating to packaging and fuel efficiency.

In the off-highway vehicle market, the Group has previously licensed its technology to Carraro and is currently reviewing the opportunities for further exploitation in this market.

V-Charge

The Group's V-Charge product is a variable speed boost device, which compresses air into the engine combustion chamber, increasing volumetric efficiency and providing the ability for an engine to deliver more power. Unlike conventional fixed ratio turbochargers and superchargers, V-Charge allows airflow and boost pressure to be managed independently of engine speed. This is critical in enabling a downsized engine to deliver the required performance under all operating conditions, particularly at low speeds.

With the need to significantly reduce passenger car emissions, demand for engine boosting is forecast to more than double to 70 million light duty vehicles by 2020. The Directors believe that with a combination of its low cost, compact packaging and variable speed, V-Charge can address both the premium and mass volume passenger car market. V-Charge offers vehicle manufacturers the opportunity to boost downsized engines up to the required performance levels without the need for costly in-vehicle high voltage electrical systems required by E-Boost devices.

The Group has demonstrated V-Charge on a Renault Clio demonstrator vehicle and is now working to develop the next generation hardware to demonstrate the fuel savings that can be achieved in specific passenger car segments.

M-KERS

Torotrak's M-KERS is a mechanical hybrid that stores braking energy in a compact flywheel and releases it back to the driveline when required. A combination of Torotrak's CVT and a mechanical flywheel enables a high proportion of the available vehicle energy to be recovered, stored and efficiently used, particularly in vehicles such as city buses which have a high level of "stop/start" on their routes.

The Group has previously collaborated with flywheel technology provider Ricardo and bus manufacturer Optare in a Technology Strategy Board-sponsored "Flybus" project to install a M-KERS device in a bus and demonstrate driveability and concept. Torotrak has also worked closely with Flybrid demonstrating a combination of Torotrak's CVT and Flybrid's high-speed flywheel in a Jaguar demonstrator passenger car vehicle. Following this successful demonstration, Torotrak and Flybrid have also collaborated to demonstrate the CVT/Flywheel system with Volvo for a volume passenger car application.

The Group has concluded that a combination of Torotrak's best-in-class CVT technology and Flybrid's market-leading flywheel technology represents the best commercial opportunity which would leave the Enlarged Group well positioned to secure mass market uptake of a mechanical flywheel based hybrid solution in both the commercial vehicle and passenger car market.

Following the acquisition by Torotrak of a 20 per cent. interest in Flybrid, the Group has focused its M-KERS development through Flybrid. Following Completion, customers will be offered the alternative of either a CVT or Flybrid's CFT clutch based transmission drive in conjunction with Flybrid's flywheel technology. Each drive system carries different pros and cons, with the clutch based system being suitable for earlier market entry in certain key segments.

Engineering services

The Group's strategy is to develop a full service offering to support its licensees and other customers. The Group can offer its customers a range of services including design and systems architecture development, modelling and analysis, product test and validation, system integration and prototype manufacture and assembly. The Group can offer customers a unique combination of highly experienced engineers, well-developed software and modelling tools, test and build facilities and capability in low volume prototyping services.

The acquisition earlier this year of the business and assets of Motorsport Components Limited has extended this capability further with specialist precision machinery and manufacturing supporting key customers such as Chevron Cars Limited and the Enlarged Group's own prototype build requirements.

5. Summary information on Flybrid

Flybrid is currently 80 per cent. owned by the Vendors; two technology entrepreneurs who had previously worked within Formula 1 and founded the Company in 2007. Flybrid's core product is a high-speed flywheel based M-KERS and it offers customers a full service including design, development, manufacture, assembly, test and support of its M-KERS device.

One of the key benefits of the Flybrid M-KERS device is the flywheel rotates at up to 60,000 RPM. This enables the flywheel to be much smaller and lighter and easier to fit into existing vehicle architecture whilst storing the same amount of energy. For example, a typical Flybrid flywheel for a road car is only 200mm in diameter and weighs five kilograms.

Flybrid has also developed an alternative transmission technology, CFT, which improves upon conventional clutch systems. This offers an additional technology for the combined Torotrak and Flybrid operations and facilitates alternative routes into the market.

Flybrid has 24 employees based in Silverstone in the UK and has spent over six years developing its significant intellectual property in flywheel technology and has established some important relationships with Tier 1s and leading commercial and passenger vehicle manufacturers. Flywheels are not a new technology, but Flybrid's use of carbon fibre and innovation in safety containment, bearings, seals and coupling methodology offers vehicle manufacturers a cost-effective, package friendly alternative to battery or hydraulic energy storage systems. Furthermore, Flybrid's M-KERS has a long life span without the degradation suffered by battery solutions.

Flybrid's patented 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 the Directors believe offers the best near term entry point) with Wrightbus and Arriva. Flybrid is also working in the passenger car market with Volvo where an S60 passenger car fitted with Flybrid's M-KERS has demonstrated increased acceleration and an additional 80 horse power when fitted as a performance enhancement device. When combined with a downsized engine Volvo has claimed that the M-KERS may achieve fuel savings of up to 25 per cent. at a similar performance.

6. Principal terms and conditions of the Acquisition

Pursuant to the Acquisition, the Group has agreed to purchase the remaining 80 per cent. of the issued ordinary share capital of Flybrid that it does not already own for a maximum consideration of up to £23.0 million, of which £8.0 million is payable on Completion (£6.0 million in cash and £2.0 million in new Ordinary Shares). The remaining £15.0 million (of which a maximum of £5.0 million can be satisfied through the issue of new Ordinary Shares) is to be paid to the Vendors subject to Flybrid achieving certain performance targets during the period up to and including 31 March 2021. These performance targets are linked to the successful development and commercialisation of Flybrid's technology including meeting minimum revenues and gross margins from the sale of M-KERS units, licensing, royalties and engineering services.

The Company's obligation to pay £1.8 million of the £6.0 million cash consideration due at Completion will be discharged in full by the Company making the payment to Flybrid in full and final satisfaction of the outstanding directors' loans from Flybrid to the Vendors.

When Torotrak acquired its 20 per cent. interest in Flybrid in March 2013 (satisfied by the issue of 250,025 ordinary shares in Flybrid) for £3.0 million, 2,800,130 redeemable shares of £1.00 each in Flybrid were issued to the Vendors by Flybrid. As part of the Acquisition, these redeemable shares are being transferred to Torotrak in consideration for the issue of loan notes by Torotrak with an aggregate value of £2,800,130 to the Vendors. The loan notes will be unsecured and will not attract any interest. The loan note instrument, pursuant to which the loan notes will be constituted, contains terms in respect of redemption and repayment which are linked to certain revenue performance criteria for Flybrid.

The Acquisition Agreement is conditional, amongst other things, upon the Placing Agreement becoming unconditional and the Acquisition Resolution being passed by the Shareholders at the General Meeting. A summary of the Acquisition Agreement will be set out in the Prospectus.

7. Information on the related party transaction

As at 12 December 2013 (being the latest practicable date prior to this announcement) Allison holds approximately 12.89 per cent. of the Existing Ordinary Shares. On 18 March 2013, Allison subscribed for 8,248,434 Ordinary Shares.

Allison has agreed to subscribe for a further 12,706,064 New Ordinary Shares at the Issue Price, on the terms and subject to the conditions of the Subscription Agreement, further details of which will be set out in the Prospectus. Assuming: (i) the size of the Issue is approximately £16.0 million and 54,021,005 Firm Placed Shares will be issued through the Firm Placing and 22,161,819 Open Offer Shares will be issued through the Placing and Open Offer; and (ii) the Consideration Shares are issued to the Vendors, the issue of new Ordinary Shares to Allison will result in Allison holding approximately 12.98 per cent. of the Enlarged Issued Share Capital. The Subscription will raise gross proceeds of approximately £2.3 million.

The Subscription (together with the subscription by Allison in March 2013) constitutes a related party transaction under Chapter 11 of the Listing Rules as a result of Allison being a substantial shareholder (as such term is defined in the Listing Rules). As a consequence, Shareholder approval is required with regard to the Subscription. The Subscription Resolution seeks, by way of ordinary resolution, the approval of Shareholders for the Subscription. Pursuant to the requirements of Chapter 11 of the Listing Rules, Allison will not vote on the Subscription Resolution and has undertaken to take all reasonable steps to ensure that its associates will not do so either. The Subscription is not conditional on Shareholder approval of the Acquisition.

8. Summary of the principal terms of the Issue

Pursuant to the Subscription, the Company will raise gross proceeds of approximately £2.3 million at the Issue Price. In addition, Torotrak intends to raise gross proceeds of approximately £13.7 million in total through the issue of 76,182,824 New Ordinary Shares pursuant to the Firm Placing and the Placing and Open Offer at the Issue Price. In aggregate, therefore, the Issue will raise gross proceeds of £16.0 million.

The Placing Agreement

Charles Stanley Securities and N+1 Singer have entered into the Placing Agreement with the Company pursuant to which they have, on the terms and conditions set out therein, procured Placees to subscribe for; (i) the Firm Placed Shares at the Issue Price; and (ii) the Open Offer Shares at the Issue Price subject to claw-back by Qualifying Shareholders in order to satisfy valid applications under the Open Offer.

The Firm Placing

Pursuant to the Firm Placing, Charles Stanley Securities and N+1 Singer have conditionally placed the Firm Placed Shares, which represent approximately 61 per cent. of the New Ordinary Shares, at the Issue Price with institutional and other investors, conditional, amongst other things, upon Admission pursuant to the Placing Agreement and the Acquisition. The Firm Placed Shares will not be subject to claw-back from Qualifying Shareholders. The net proceeds of the Firm Placing are expected to be approximately £8.9 million.

The Placing and Open Offer

The Directors recognise the importance of pre-emption rights to Shareholders and consequently 22,161,819 Open Offer Shares are being offered to existing Shareholders by way of the Open Offer. The Open Offer provides Qualifying Shareholders with an opportunity to participate in the Issue by both subscribing for their respective Basic Entitlements and by subscribing for Excess Shares under the Excess Application Facility, subject to availability.

Basic Entitlements

The Open Offer Shares will be offered to Qualifying Shareholders on the following basis:

1 Open Offer Share for every 8 Existing Ordinary Shares

held by them and registered in their names on the Record Date and so in proportion to any other number of Existing Ordinary Shares then held.

Pursuant to the Placing Agreement, Charles Stanley Securities and N+1 Singer have conditionally placed the Open Offer Shares with institutional investors subject to claw-back by Qualifying Shareholders pro rata to their current holdings to satisfy valid applications under the Open Offer.

Basic Entitlements under the Open Offer will be rounded down to the nearest whole number and any fractional entitlements to Open Offer Shares will not be allocated but will be aggregated and sold for the benefit of the Company under the Excess Application Facility and/or the Placing.

If Shareholders have sold or otherwise transferred all of their Existing Ordinary Shares before the ex-entitlement date, they are not entitled to participate in the Open Offer.

Qualifying Shareholders are also being offered the opportunity to subscribe for Excess Shares in excess of their Basic Entitlements pursuant to the Excess Application Facility as described below.

Fractions

Fractions of Open Offer Shares will not be allocated to Qualifying Shareholders in the Open Offer and fractional entitlements under the Open Offer will be aggregated and sold in the market for the benefit of the Company under the Excess Application Facility and/or the Placing.

Excess Application Facility

Qualifying Shareholders may apply for Excess Shares using the Excess Application Facility. Excess applications will be satisfied only to the extent that corresponding applications for Basic Entitlements are not made by other Qualifying Shareholders or are made for less than their pro rata entitlements. The total number of Open Offer Shares is fixed and will not be increased in response to any applications under the Excess Application Facility. If there is an oversubscription resulting from excess applications, allocations in respect of such excess applications will be scaled down pro rata to the number of Excess Shares applied for under this Excess Application Facility by Qualifying Shareholders and no assurances can be given that the applications by Qualifying Shareholders will be met in full, in part or at all.

Further details of the Open Offer and the terms and conditions on which it is being made, including the procedure for application and payment, will be contained in the Prospectus and, in respect of Qualifying Non-CREST Shareholders only, on the accompanying Application Form.

The Placing and Open Offer is not underwritten, but through the Placing, Charles Stanley Securities and N+1 Singer have conditionally pre-placed all of the Open Offer Shares at the Issue Price with institutional investors (subject to claw-back by Qualifying Shareholders in order to satisfy valid applications made under the Open Offer).

General

The Board considers the Firm Placing and the Placing and Open Offer to be a suitable fundraising structure as they will allow access to a wide variety of new investors to broaden the Company's shareholder base, whilst providing existing Shareholders with the opportunity to participate in the fundraising through the Open Offer.

All elements of the Issue have the same Issue Price. The Issue Price was set based on the Directors' assessment of market conditions following discussions with a number of institutional investors and has been decided upon in order to obtain the level of new funds to be received by the Company under the Firm Placing and in order to facilitate the introduction of new institutional investors capable of supporting the long-term development of the Company as Shareholders in Torotrak. The Issue Price represents a discount of 18 per cent. to the closing middle market price of 22 pence per Existing Ordinary Share of the Company on 12 December 2013 (being the last business day prior to the publication of this announcement). Because the Issue Price is at a discount of more than 10 per cent. to the middle market price of the Existing Ordinary Shares at the date of publication of this announcement, Shareholder approval is required under Chapter 9 of the Listing Rules. Such Shareholder approval will be sought by way of an ordinary resolution at the General Meeting. The Directors believe that the Issue Price and the discount are appropriate.

Under the terms of the placing letters entered into between the Placees, Charles Stanley Securities and N+1 Singer, each Placee has agreed to subscribe for its placing commitment at the Issue Price (amounting to an aggregate of 54,021,005 New Ordinary Shares). The Issue and the Placees' obligations under the placing letters are conditional upon the Placing Agreement having become unconditional in all respects and not having been terminated in accordance with its terms prior to Admission.

The Placing Agreement is conditional upon, amongst other things:

in respect of the Placing and Open Offer:

· the passing of the Open Offer Resolutions; and

· Open Offer Admission occurring on or before 8.00 a.m. on 9 January 2014 (or such later date as the Company, Charles Stanley Securities and N+1 Singer may jointly agree, being not later than the Longstop Date).

in respect of the Firm Placing:

· the passing of the Firm Placing Resolutions;

· the Acquisition Agreement becoming unconditional in all respects (other than as regards any condition concerning admission of the Consideration Shares and as regards any condition as to the Placing Agreement having become unconditional); and

· Firm Placing Admission occurring on or before 8.00 a.m. on 9 January 2014 (or such later date as the Company, Charles Stanley Securities and N+1 Singer may jointly agree, being not later than the Longstop Date).

The Placing Agreement contains warranties from the Company in favour of Charles Stanley Securities and N+1 Singer in relation to, amongst other things, the accuracy of the information in the Prospectus and this announcement and other matters relating to the Group and its business. In addition, the Company has agreed to indemnify Charles Stanley Securities and N+1 Singer in respect of certain liabilities which they may incur in respect of the Proposals. Each of Charles Stanley Securities and N+1 Singer has the right to terminate both Charles Stanley Securities' and N+1 Singer's obligations under the Placing Agreement in certain circumstances prior to Admission, including in the event of a breach of the warranties or a force majeure event.

The New Ordinary Shares will, when issued and fully paid, rank pari passu in all respects with the Existing Ordinary Shares. Applications will be made to the FCA for the New Ordinary Shares to be admitted to the premium segment of the Official List and to the London Stock Exchange for the New Ordinary Shares to be admitted to trading on the London Stock Exchange's main market for listed securities. It is expected that Admission will become effective and dealings in the New Ordinary Shares will commence at 8.00 a.m. on 9 January 2014.

Further details of the Issue, the terms and conditions on which it is being made and details of the procedure for application and payment for the Open Offer Shares will be set out in the Prospectus and, in respect of Qualifying Non-CREST Shareholders only, in the Application Form.

9. Use of proceeds of the Issue

Pursuant to the Subscription and Issue, the Company intends to raise net proceeds of £14.8 million.

The net proceeds of the Issue will be used to fund the following:

· £6.0 million to fund the cash element of the initial consideration to acquire Flybrid;

· approximately £4.6 million to complete the bus trials of Flybrid's M-KERS technology with Arriva during 2014, validate the design for manufacture, assembly and durability of the M-KERS design and to invest in additional flywheel manufacture and assembly capability ahead of the anticipated commercial sales in buses from early 2015; and

· approximately £4.2 million to complete the design, development and testing of the next generation V-Charge and M-KERS prototypes, explore the opportunities to collaborate with partners, such as the government backed 'The Proving Factory' to manufacture lower volumes for special vehicle operations and continue to invest in testing and engineering services capabilities.

The Directors believe that maintaining and demonstrating a strong financial position is an important part of the Group's strategy and a key requirement in its ongoing discussions with Tier 1s and OEMs as it looks to secure further programmes and licensing agreements in the mass passenger car markets in relation to the V-Charge and M-KERS opportunities.

Should the Acquisition not complete, the Company would not need to fund the consideration payable pursuant to the terms of the Acquisition Agreement nor would it fund the completion of the bus trials. However, as set out in paragraph 2 above, there are significant opportunities that exist for Torotrak's technology. Therefore, should the Acquisition not complete, the Company intends to utilise the proceeds of the Subscription and the Placing and Open Offer to advance the progress it has made with its technologies and enable it to capitalise on the opportunities it sees based on the discussions that the Company has been having with potential customers. Without the proceeds of the Placing and Open Offer and the Subscription, the Company would need to source additional capital to fund the investment required to take advantage of the opportunities that the Directors believe exist for the Group's technologies. Engagement with multiple OEMs and Tier 1 manufacturers for the Group's products confirms that the Directors' strategy to invest in the Group's technologies is the most appropriate strategy for the Company. Therefore if the Issue does not proceed, within the next 18 months the Company would explore alternative sources of funding (which could include trade partners and/or joint ventures) to accelerate the development of these technologies to take advantage of the current opportunities. Should the Company be unable to find such additional capital it could have an adverse impact on the Company's business prospects and its financial condition and the Directors of the Company would need to consider the options available to them, including whether to concentrate its resources on those of its existing technologies which have the most viable near term commercialisation opportunities.

Over the last three years, Torotrak has achieved pre-production, early stage licence income of £11.6 million, which have largely covered its development costs over that period. However, given the timeframe for the regulatory and legislative changes to be implemented, over the next 18 months, the Company has to accelerate the development of its V-Charge offering, the M-KERS opportunity and improved engineering capabilities. Should the Acquisition not complete, the net proceeds of £5.9 million pursuant to the Subscription and the Placing and Open Offer will therefore be applied over the next 18 months to this end. In conjunction with the proceeds of the Placing and Open Offer, the Directors believe that there is similar potential to achieve continued early stage licence agreements to further support future development costs of the Group (both on a standalone basis and as enlarged by the Acquisition) over the coming three year period, whilst building growing underlying earnings from engineering services and product sales. It is anticipated that the proceeds of the Issue will fund the Company through to the delivery of commercialisation of its technologies.

10. Admission to trading of the New Ordinary Shares and the Consideration Shares

Applications will be made to the FCA and to the London Stock Exchange, respectively, for the New Ordinary Shares and the Consideration Shares to be admitted to listing on the premium segment of the Official List and to trading on the London Stock Exchange's main market for listed securities. Subject to the conditions to the Issue having been satisfied (or, if applicable, waived) it is expected that Admission will occur at 8.00 a.m. on 9 January 2014. Existing Ordinary Shares are already admitted to listing on the premium segment of the Official List, the London Stock Exchange's main market for listed securities and to CREST. It is expected that the New Ordinary Shares and the Consideration Shares, when allotted and issued, credited as fully paid, will be capable of being held and transferred by means of CREST.

11. Current trading and prospects

The Directors believe that prospects for the Group have strengthened since the audited annual report and accounts for Torotrak for the financial year ended 31 March 2013 were published in May 2013 in terms of future market uptake of its technologies. Torotrak has seen high levels of engagement with multiple prospective licensees and customers in relation to M-KERS and V-Charge.

Outcomes for the Group will be influenced materially, as in previous years, by the timing and quantum of up-front licence fees. However, based on the current level of engagement with prospective international manufacturers and potential licensees, the Directors expect to achieve an agreement with at least one such manufacturer in the next 12 months for the passenger car market.

Main drive transmissions

The Group has allocated a significant amount of resource to achieving the key milestone on the Allison commercial vehicle programme. By 31 March 2014, Allison is due to pay the Group £2.6 million which is the final tranche of the £6.0 million licence fee announced in March 2013 for Allison to maintain exclusivity to manufacture and sell Torotrak main drive transmissions in commercial vehicle market segments. £2.0 million of the £2.6 million licence payment is contingent upon the Group successfully completing disc and roller durability testing using representative-sized components. The Group has been focused on achieving this milestone, including building six new component test rigs, conducting multiple tests of different components and working with Univance to develop new manufacturing processes for the supply of disc and roller components suitable for volume production. From the work it has done, the Directors believe that the Group has established a high level of understanding of the factors affecting lifetime and performance of the disc and roller components. The test programme is continuing and the amount of this final tranche of the licence fee has yet to be determined.

V-Charge

Significant progress has been made by the Group in moving the V-Charge product towards a commercialisation programme. The Group is actively engaged with multiple Tier 1 and OEM prospective customers who are currently evaluating the V-Charge prototype hardware for incorporation in passenger car platforms.

The Group has delivered a number of the milestones and is on track to deliver the remaining targets in the current financial year. The Group has successfully installed the V2 next generation prototype into the Renault Clio demonstrator vehicle and is engaged in V2 testing with multiple customer applications, including a partner vehicle manufacturer for a special vehicle operation.

Engineering services

The Group's focus in the first half of the current financial year has been on product development and the disc and roller support activities relating to its major licensee, Allison. Whilst external revenue growth has not been the major priority in the first half of the current financial year, the Group has built its engineering services capability and during the current financial year, the staff and machinery of Motorsport Components Limited were successfully relocated to the Group's premises in Leyland with minimal disruption to customer programmes. The Group has seen the benefit of the new specialist precision machining and manufacturing capabilities switching production of prototype components in-house. In addition, the Group has successfully designed and built six new durability test rigs to support the Allison and other customer development programmes.

The Group has bid for a number of new engineering services contracts and active discussions are underway with a number of parties that could lead to the Group securing new engineering services revenue streams in design, build and test of systems and sub-systems. Leveraging the Group's considerable capability and growing this source of revenue is a key objective for the Group going forward.

M-KERS

Since the acquisition of a 20 per cent. stake in Flybrid was made in March 2013, Flybrid has made significant progress in developing its M-KERS hybrid technology and securing widespread interest in its technology from Tier 1 and OEMs across all sectors including passenger cars, buses and off-highway commercial vehicles. The development programme in partnership with Wrightbus is progressing well and is on track to commence bus trials with Arriva in the second quarter of 2014. This will be an important real world validation of the fuel savings potential of the M-KERS technology leading to commercial production and sales from 2015 onwards.

In the passenger car market, following the successful demonstration of fuel savings in a Volvo S60, Flybrid is engaged in commercial discussions with multiple Tier 1 and OEMs about licensing the technology into the premium and mass car segments.

The financial results of the Group for the six months ended 30 September 2013 show revenue of £1.7 million (2012: £4.7 million). As in previous years, the Group's revenue continues to be dominated by the timing and quantum of up-front licence payments from major customers. Following the decision by Allison earlier this year to exercise its rights to continue exclusivity, £1.4 million was received in July 2013 and the final licence payment of £2.6 million is due to be paid by March 2014, subject to a successful outcome of the component testing of discs and rollers. The operating loss for the period was £1.5 million, which compares to a profit in the six months ended 30 September 2012 of £1.4 million. The loss is driven by the lower licensing revenues. Exceptional costs incurred in the period and relating to the Acquisition were £0.1 million.

Net operating cash outflow of £1.8 million (2012: £0.4 million inflow) primarily arises from the operating loss for the period and a lower net working capital outflow of £0.9 million (2012: £1.4 million). Closing cash was £6.7 million (2012: £10.7 million), reflecting the on-going operating costs, capital expenditure of £0.5 million (2012: £0.3 million) during the period and the cash outflow in the six month period to 31 March 2013 relating to acquisitions of £3.2 million partly funded by £2.5 million of new Ordinary Shares issued to Allison in March 2013.

Following the Acquisition, the Enlarged Group will focus in 2014 and 2015 on commercialising M-KERS into the bus market, and on supporting passenger car manufacturers to select M-KERS and V-Charge for platform launches post 2015. Following this period of investment for growth, the Directors believe the Enlarged Group will be well placed to deliver recurring revenue growth through licensing agreements, per unit sales and engineering services.

12. Board Changes, Directors and key personnel of the Enlarged Group

Following Completion and with effect from Admission, Jonathan Hilton will be appointed Commercial Director of Torotrak and Douglas Cross will be appointed Chief Technology Officer of the Enlarged Group. Garry Wilson will step down as Executive Director for engineering and programme delivery following Completion and with effect from Admission and will leave the Group on 31 March 2014. The Board would like to express its thanks to Garry Wilson for his hard work and support.

13. General Meeting

A notice convening the General Meeting, to be held at the offices of Tavistock Communications at 131 Finsbury Pavement, London EC2A 1NT at 11.00 a.m. on 8 January 2014 will be contained in the Prospectus. At the General Meeting, Resolutions will be proposed to:

· approve the Acquisition for the purposes of Chapter 10 of the Listing Rules;

· approve the allotment of the Subscription Shares to Allison pursuant to Chapter 11 of the Listing Rules;

· approve an increase to the authorised issued share capital of the Company to enable the issue of the Consideration Shares and the New Ordinary Shares;

· grant the Directors authority to allot shares in the capital of the Company generally and in connection with the issue of the Consideration Shares and the New Ordinary Shares;

· disapply where relevant statutory pre-emption rights set out in section 561 of the Act;

· approve the issue of the New Ordinary Shares at an Issue Price which represents a discount of more than 10 per cent. to the middle market price of the Existing Ordinary Shares at the date of publication of the Prospectus; and

· allow the Company to call general meetings (other than an AGM) on 14 clear days' notice.

14. Further information

Shareholders should read the whole of the Prospectus, being published later today, and not just rely on the information contained in this announcement.

15. Directors' intentions regarding the Issue

The Directors are fully supportive of the Issue. John Weston, Jeremy Deering, Rex Vevers, Nick Barter and John McLaren intend to subscribe for, in aggregate, a total of 1,194,442 Firm Placed Shares. Following the Issue, the Directors will beneficially own, in aggregate, approximately 0.8 per cent. of the Enlarged Share Capital.

16. Importance of vote

The Resolutions to be put to Shareholders are very important for the Company. In the event that the Acquisition is not approved by Shareholders, the Directors believe that Torotrak will be unable to develop an alternative commercially viable M-KERS technology in time to be adopted by OEMs/Tier 1s in vehicle platforms to meet the 2020 CO2 regulations. In addition, should the Issue not proceed, the Company would need to source additional capital to fund the investment required to take advantage of the opportunities that the Directors believe exist for the Group's technologies. Engagement with multiple OEMs and Tier 1 manufacturers for the Group's products confirms that the Directors' strategy to invest in the Group's technologies is the most appropriate strategy for the Company. Therefore if the Issue does not proceed, within the next 18 months the Company would explore alternative sources of funding (which could include trade partners and/or joint ventures) to accelerate the development of these technologies to take advantage of the current opportunities. Should the Company be unable to find such additional capital it could have an adverse impact on the Company's business prospects and its financial condition and the Directors of the Company would need to consider the options available to them, including whether to concentrate its resources on those of its existing technologies which have the most viable near term commercialisation opportunities. Accordingly, it is very important that Shareholders vote in favour of the Resolutions in order that the Issue and the Acquisition can proceed.

17. Recommendation

The Board, which has received financial advice from Charles Stanley Securities, considers that the Proposals are in the best interests of the Group and Shareholders as a whole. In providing its advice to the Board, Charles Stanley Securities has relied upon the Board's commercial assessments of the Proposals.

The Board, which has been so advised by Charles Stanley Securities, the Company's sponsor, considers that the terms of the Subscription are fair and reasonable so far as the Shareholders are concerned. In providing its advice to the Board, Charles Stanley Securities has taken into account the Board's commercial assessments of the Subscription.

Accordingly, the Board intends unanimously to recommend Shareholders to vote in favour of the Resolutions to be proposed at the General Meeting, as it intends to do (or as the case may be, procure) in respect of the 951,349 Ordinary Shares in which members of the Board or their spouses are beneficially interested, representing approximately 0.5 per cent. of the existing issued share capital of the Company.

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

ISSUE STATISTICS

DEFINITIONS

The following definitions apply throughout this announcement unless the context otherwise requires:

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