17th Mar 2005 15:32
STOCK EXCHANGE ANNOUNCEMENTUnder arrangements approved at the Annual General Meeting on 5th May 2004,Rolls-Royce Group plc (the 'Company') will issue B shares to ordinaryshareholders in place of a final dividend. These B Shares can be redeemedfor cash or converted into ordinary shares in the Company. The Conversion ShareValue, being the value at which shareholders may have their B Shares convertedinto Ordinary Shares, has been set at 253p. The full statement to ordinaryshareholders under rule 5.28 (a) of the Listing Rules is reproduced below.For further information please contact Peter Barnes-Wallis, Director, FinancialCommunications, Rolls-Royce plc, tel. no. 020 7227 9141 or John Warren, DeputyCompany Secretary, Rolls-Royce Group plc, tel. no. 01332 245878.Date: 17 March 2005THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. Whenconsidering what action you should take, you are recommended to seek your ownfinancial advice from your stockbroker, bank manager, solicitor, accountant orother independent financial adviser duly authorised under the FinancialServices and Markets Act 2000.If you have sold or otherwise transferred all of your Rolls-Royce Group plcOrdinary Shares on or before March 11, 2005, please send this document to thepurchaser or transferee or to the stockbroker, bank or other agent through whomthe sale or transfer was effected for transmission to the purchaser ortransferee.Application will be made to the competent authority in the UK for the B Sharesto be admitted to the Official List and for admission to trading on the LondonStock Exchange. It is expected that Admission of the B Shares will becomeeffective on July 1, 2005. Rolls-Royce Group plc ISSUE OF B SHARES RULE 5.28(a) STATEMENT To be valid, Redemption/Conversion Mandates must be returned in the prescribedmanner to Computershare Investor Services PLC, The Pavilions, Bridgwater Road,Bristol, BS13 8FA or by hand (during normal business hours) to ComputershareInvestor Services PLC, 2nd Floor, Vintners Place, 68 Upper Thames Street,London, EC4V 3BJ so as to be received by no later than 5.00 p.m. on June 3,2005.If you have any queries in relation to this proposal or the completion of theRedemption/Conversion Mandate, you may call Computershare Investor Services PLCon 0870 703 0162 between 8.30 a.m. and 5.30 p.m. on any Business Day.Computershare Investor Services PLC will not provide advice on the merits ofthe proposals set out in this document or give any financial or taxationadvice.This document is issued in accordance with Rule 5.28(a) of the Listing Rules ofthe UK Listing Authority. A copy of the original circular issued in relation toB Shares on March 22, 2004 can be found in the Investors section on the Group'swebsite www.rolls-royce.com or may be requested from the Company during normaloffice hours.PART 1: DETAILS OF B SHARES AND THE PROPOSED REDEMPTION AND CONVERSION OFFER1. Allotment of B Shares and AdmissionThe sum of ‚£200 million standing to the credit of the Company's merger reserveis to be capitalised and applied in paying up the B Shares with a nominal valueof 0.1 pence each. On July 1, 2005 B Shares will be issued to Shareholders whoappear on the Company's register of members on the Record Date on the basis of50 B Shares for each Ordinary Share then held. As fractions of B Shares cannotbe issued, the total number of B Shares to be issued to you will be roundeddown to the nearest whole B Share. The last date on which transfers of OrdinaryShares will be accepted for registration for participation in this issue ofB Shares is March 9, 2005.These B Shares are referred to as the July 2005 B Shares. The total number ofJuly 2005 B Shares to be issued will be 86,808,218,900 which will bring thetotal amount of the B Shares in issue to 91,581,111,796. None of the July 2005B Shares will be marketed or made available in whole or in part to the public.Application will be made for the July 2005 B Shares to be admitted to theOfficial List and dealings are expected to commence on the London StockExchange on July 1, 2005. The B Shares previously issued by the Company (whichhave not been redeemed or converted), are listed on the Official List andtraded on the London Stock Exchange.2. Features of B SharesB Shares are non-cumulative redeemable convertible preference shares with anominal value of 0.1 pence (one tenth of a penny) each. The following is abrief summary of the rights and restrictions of B Shares, the full terms ofwhich are reflected in the articles of association of the Company:(a) Income(i) Out of the profits available for distribution, the holders of the B Sharesshall be entitled, in priority to any payment of a dividend to the holders ofOrdinary Shares, to be paid a non-cumulative preferential dividend per B Shareat such rate on the nominal value thereof (exclusive of any associated taxcredit relating thereto or withholding tax deductible therefrom) as calculatedin accordance with sub-paragraph (ii) below, such dividend to be paidhalf-yearly in arrears in respect of Calculation Periods (as defined below) onJanuary 2 and July 1 in each year or, if any such date is not a Business Day,on the next day which is a Business Day (without any interest or payment inrespect of such delay) (each a ``Payment Date''). The first dividend on theJuly 2005 B Shares will be paid on January 3, 2006 in respect of the dividendCalculation Period commencing on July 1, 2005.(ii) Each of the periods commencing on January 1 and ending on June 30 andcommencing on July 1 and ending on December 31 (as applicable) is called a``Calculation Period''. The rate per annum of the B preferential dividend foreach Calculation Period shall be 75 per cent of LIBOR on the first Business Dayimmediately preceding the relevant first day of the Calculation Period.(iii) Payments of B preferential dividends in respect of the Calculation Periodcommencing on July 1, 2005 shall be made to holders on the register ofB Shareholders on November 25, 2005iv. The holders of the B Shares shall not be entitled to any further right of participation in the profits of the Company. (v) All B preferential dividends which are unclaimed for a period of 12 yearsfrom the date when the dividend became due for payment shall be forfeited andshall revert to the Company.(b) CapitalThe B Shares will not rank pari passu with the existing Ordinary Shares. On areturn of capital on a winding-up, the holders of the B Shares shall beentitled, in priority to any payment to the holders of Ordinary Shares, to therepayment of the nominal capital paid up or credited as paid up on the B Sharesheld by them, together with a sum equal to the outstanding preferentialdividend which will have accrued but not been paid until the date of the returnof capital. The aggregate amount due to each B Shareholder on the return ofcapital on a winding-up will be rounded down to the nearest whole penny.The holders of the B Shares shall not be entitled to any further right ofparticipation in the profits or assets of the Company. If, on a return ofcapital, the amounts available for payment are insufficient to cover in fullthe amounts payable on the B Shares, the holders of such shares will share prorata in the distribution of assets (if any) in proportion to the fullpreferential amounts to which they are entitled.(c) Voting and general meetingsThe B Shares will carry limited voting rights. The holders of B Shares shallnot be entitled in respect of their holdings of such shares to receive noticeof any general meeting of the Company or to attend, speak or vote at any suchgeneral meeting except any general meeting at which a resolution to wind up theCompany is to be considered in which case the holders of the B Shares shallhave the right to attend the general meeting and shall be entitled to speak andvote only on such resolution. Where the holders of B Shares are entitled tovote at a general meeting of the Company upon any such resolution beingproposed at such general meeting, on a show of hands every holder of B Shareswho (being an individual) is present in person or (being a corporation) ispresent by representative will have one vote and on a poll every B Shareholderpresent in person or, being a corporation, by representative or by proxy willhave one vote for every 200 B Shares held by such holder.(d) Redemption and Conversion RightsThe B Shares are redeemable for cash in accordance with the Redemption Offer orFuture Redemption Offer or can be converted into Ordinary Shares in accordancewith the Conversion Offer or Future Conversion Offer as set out below inparagraphs 5 and 6 respectively.(e) TransfersThe B Shares will be transferable by instrument of transfer in usual or commonform. The B Shares already issued and not redeemed or converted aretransferable in CREST if held in uncertificated form.3. Form in which B Shares will be issued and Shareholders to whom they will beissuedAll Shareholders holding Ordinary Shares on the Record Date will have theirnames entered into the Company's B Share register on July 1, 2005, to reflecttheir holding of the July 2005 B Shares. B Shares will be in registered form.B Shares issued in certificated form may be dematerialised and held throughCREST.Shareholders who have made an Evergreen Election to redeem or convert B Shareswill receive cash or Ordinary Shares (in accordance with their election) as setout below in paragraphs 5 and 6 respectively and also paragraph 9. Shareholderswho wish to change or cancel their election should contact the Registrar on0870 703 0162 between 8.30 a.m. and 5.30 p.m. on a Business Day prior to thePrescribed Time to request a form to effect such change or cancellation.Unless they complete and return the Redemption/Conversion Mandate by thePrescribed Time, those Shareholders who have not previously made an EvergreenElection will be sent a B Share certificate or (where they currently holdB Shares through CREST) will have their CREST accounts credited with B Sharesas more fully set out in paragraph 9 below.4. Holders of Existing B SharesShareholders who currently hold B Shares should note that their election in theRedemption/Conversion Mandate applies to this issue of B Shares and to anyfuture issues of B Shares but not to their existing holding of B Shares.(a) Holders of existing B Shares in certificated formExisting holders of B Shares in certificated form must complete the electionmandates printed on the reverse side of their existing B Share certificates andreturn them to the Registrar as set out in paragraphs 5 and 6 below in order toredeem or convert their existing B Shares. This mandate must be returned to theRegistrar by the Prescribed Time to be valid.Any Shareholder who currently holds certificated B Shares will therefore haveto complete both the Redemption/Conversion Mandate and make an election on thereverse of their B Share certificate if they wish to redeem or convert boththis issue of B Shares (the July 2005 B Shares) and any currently heldcertificated B Shares.(b) Holders of existing B Shares in uncertificated form (i.e. in CREST)Existing holders of B Shares in uncertificated form will be given a separateoption to redeem or convert those shares via a CREST notification. This CRESTnotification will not apply to the July 2005 B Shares but only to the B Sharesin CREST on the Record Date ("Crest Currently Held B Shares"). Any Shareholderwho has CREST Currently Held B Shares will therefore have to complete both theRedemption/Conversion Mandate and make an election through CREST as set outbelow if they wish to redeem or convert both this issue of B Shares (theJuly 2005 B Shares) and any CREST Currently Held B Shares.CREST Currently Held B Shares should be redeemed or converted by following theprocedure set out below.(i) The prescribed form of redemption or conversion is an Unmatched Stock EventInstruction (USE instruction) which, on its settlement, will have the effect ofcrediting a stock account of the Registrar, under the participant ID and memberaccount ID specified below, with the number of CREST Currently Held B Shares tobe redeemed or converted.(ii) The USE instruction must be properly authenticated in accordance withCRESTCo Limited's specifications and must contain, in addition to the otherinformation that is required for settlement in CREST, the following details:1. the number of CREST Currently Held B Shares to be redeemed or converted;2. the participant ID of the holder of the CREST Currently Held B Shares;3. the member account ID of the holder of the CREST Currently Held B Sharesfrom which the CREST Currently Held B Shares are to be debited;4. the participant ID of the Registrar, i.e. 3RA53;5. the member account ID of the Registrar, i.e. to redeem = "REDEEM"; and toconvert = "CONVERT";6. the corporate action number (which will be allocated by CRESTCo Limited andcan be found by viewing the relevant corporate action details);7. the corporate ISIN, i.e. GB0034223551; and8. the intended settlement date which must be on or before 5p.m. on June 3,2005.In order for an uncertificated redemption or conversion to be valid, the USEinstruction must comply with the requirements as to authentication and contentsset out above.CREST members and (where applicable) their CREST sponsors should note that thelatest time at which a USE instruction may settle is 3.00 p.m. GMT (the CRESTdeadline for settlement).Redemption proceeds or Ordinary Shares are expected to be credited to CRESTaccounts on July 4, 2005.5. Redemption OfferThe Company offers to redeem for cash all B Shares currently in issue and allthe July 2005 B Shares, in accordance with the provisions of this paragraph 5and paragraph 9 below.(a) Circumstances under which B Shares can be redeemedDuring the Election Period or a Future Election Period, and in accordance withthe terms and conditions of the Redemption Offer or the relevant FutureRedemption Offer (as the case may be), holders of B Shares may elect toexercise their Redemption Right. The Company expects to set Future ElectionPeriods twice a year and may at any other time, by notifying Members in any wayit deems appropriate, allow B Shareholders to elect to have their B Sharesredeemed at their 0.1 pence nominal value (subject to rounding in the mannerthe Company deems appropriate) and on the terms and conditions announced by theCompany at those times (or to have their B Shares converted into OrdinaryShares at the Conversion Share Value determined by the Company in accordancewith paragraph 6 below).In addition, the Company may, at its discretion, redeem all unredeemed B Sharesremaining in issue in the following circumstances:(i) at any time, if the aggregate number of B Shares in issue is less than 10%of the aggregate number issued; or(ii) at the Company's option, at any time, in the following circumstances:(aa) a proposed capital restructuring of the Company by way of a creation and/or issue of new or existing securities (other than B Shares); or(bb) a new holding company being inserted above the Company; or(cc) an acquisition of the Company; or(dd) a demerger from the Group.All B Shares which are redeemed will be cancelled and will not be reissued.(b) Manner in which Members may redeem their B SharesMembers who have made an Evergreen Election to redeem will have their July 2005B Shares redeemed automatically and will have cash sent to them in accordancewith paragraph 9 below unless they change or cancel their election inaccordance with paragraph 3 above.All other Members (including those who have made an Evergreen Election butchange it in accordance with paragraph 3 above) may elect during the ElectionPeriod to redeem the July 2005 B Shares and any B Shares that may be issued inthe future, for cash by completing the Redemption/Conversion Mandate in theprescribed manner and ensuring that it is received by the Registrar by thePrescribed Time (mandates received after this time will not be processedexcept, in exceptional circumstances, at the discretion of the Company).Holders of B Shares may also elect to redeem for cash the B Shares currentlyheld by them in certificated form by completing the election mandates printedon the reverse side of their existing B Share certificates and ensuring thatthey are received by the Registrar by the Prescribed Time (mandates receivedafter this time will not be processed except, in exceptional circumstances, atthe discretion of the Company).Members holding existing B Shares in CREST should note the provisions ofparagraph 4 regarding steps to be taken for the redemption of existing holdingsof B Shares in CREST.The Company reserves the right at its sole discretion to reject any Redemption/Conversion Mandates or other election mandates if redemption pursuant to themwould be illegal.6. Conversion offerThe Company offers to convert into Ordinary Shares all B Shares currently inissue and all the July 2005 B Shares, in accordance with provisions of thisparagraph 6 and paragraph 9 below.(a) Manner in which Members may convert their B SharesMembers who have made an Evergreen Election to convert will have theirJuly 2005 B Shares converted automatically into Ordinary Shares and havecertificates in respect of these Ordinary Shares sent to them or have theirCREST accounts credited in accordance with paragraph 9 below, unless theychange or cancel their election prior to the Prescribed Time and in accordancewith paragraph 3 above.All other Members (including those who have made an Evergreen Election butchange it in accordance with paragraph 3 above) may elect during the ElectionPeriod to convert their July 2005 B Shares and any B Shares that may be issuedin the future, into Ordinary Shares by completing the Redemption/ConversionMandate and ensuring it is received by the Registrar by the Prescribed Time(mandates received after this time will not be processed except, in exceptionalcircumstances, at the discretion of the Company).Holders of B Shares may also elect to convert into Ordinary Shares the B Sharescurrently held by them in certificated form by completing the election mandateprinted on the reverse side of their existing B Share certificate and ensuringthat they are received by the Registrar by the Prescribed Time (mandatesreceived after this time will not be processed except, in exceptionalcircumstances, at the discretion of the Company).Members holding existing B Shares in CREST should note the provisions ofparagraph 4 regarding steps to be taken for the conversion of existing holdingsof B Shares in CREST.The Company reserves the right at its sole discretion to reject any Redemption/Conversion Mandates or other election mandates if conversion pursuant to themwould be illegal.(b) Manner in which the conversion will be performed and calculatedDuring the Election Period or a Future Election Period, and in accordance withthe terms and conditions of the Conversion Offer or the relevant FutureConversion Offer (as the case may be), holders of B Shares may elect toexercise their Conversion Right.Article 6A(e) of the Company's articles of association provides that holders ofB Shares exercising their Conversion Right, subject to the terms and conditionsof the Conversion Offer or any Future Conversion Offer (as the case may be),will be entitled to the number of Ordinary Shares as are calculated byreference to the following formula:NO = (NB ƒ· 10) ƒ· CSVwhere:NO is the number of Ordinary Shares a holder of B Shares is entitled to onconversion, on the basis that fractions are rounded down to the nearest wholenumber;NB is the number of B Shares which the holder of B Shares has elected toconvert; andCSV is the Conversion Share Value in pence.The Conversion Share Value in respect of this Election Period will be 253pence.The Company will, at its discretion, perform or procure the performance of theconversions in any manner permitted in Article 6A(e) of the Company's articlesof association.No Member shall be entitled to a fraction of an Ordinary Share on conversion ofB Shares; as a result all fractional entitlements (namely, the balance of theB Shares held by any Shareholder which were insufficient to convert intoOrdinary Shares) shall be consolidated with those B Shares of other Memberswhich also constitute fractional entitlements, and the shares so resultingshall be converted into Ordinary Shares as set out in Article 6A(e) of theCompany's articles of association. The Ordinary Shares resulting from theconsolidation of such fractional entitlements will then be sold and the netproceeds of the sale will be held on account for the Members (the Proceeds) bythe Registrar in proportion to each Member's respective entitlements. UnlessMembers request the return of their proportion of the Proceeds, they will berolled over to be used (when sufficient and at such time as the Board deemsappropriate), together with all fractional entitlements rolled forward fromprevious scrip dividends currently held by the Registrar on the Members'behalf, to obtain Ordinary Shares for such Members in the future. Should theProceeds (net of expenses) due to any Member be ‚£3.00 or less, the Companyshall be entitled to retain such sums.7. Number of B Shares that may be redeemed or converted and Evergreen ElectionsThe Redemption/Conversion Mandate allows an Evergreen Election to be madeeither to redeem for cash or convert into Ordinary Shares the July 2005B Shares and all B Shares that may be issued by the Company in the future. Inaddition, when sufficient funds are available in a Shareholder's account andthe Shareholder has made an election to convert B Shares, those funds will alsobe converted into Ordinary Shares.Shareholders who wish to redeem and/or convert only some of the B Sharescurrently held by them and/or some of the July 2005 B Shares to be issued tothem, or who wish to redeem or convert either part of the B Shares currentlyheld by them and/or all or part of the July 2005 B Shares to be issued to themonly (not future issues of B Shares) should contact the Registrar by calling0870 703 0162 between 8.30 a.m. and 5.30 p.m. on any Business Day before thePrescribed Time to obtain the necessary form which is to be completed andreceived by the Registrar by the Prescribed Time.8. Retention of B Shares, future redemption and conversion opportunities, andfuture B Share issuesHolders of B Shares who wish to retain their current holding of B Shares andthe July 2005 B Shares should take no action. Shareholders who have previouslycompleted an Evergreen Election in relation to B Shares but who now wish toretain their July 2005 B Shares should cancel their election pursuant toparagraph 3 (above) prior to the Prescribed Time.As long as there is a tax benefit in doing so, the Company expects to offerB Shares rather than dividends on an ongoing basis. Future Election Periods areexpected to be set to allow redemptions and conversions in the months ofJanuary and July on a yearly basis. Shareholders will on such occasions be ableto redeem or convert any retained B Shares.9. Dealings and despatch of documents and method of redemption paymentsShareholders who have not previously made an Evergreen Election and who do notcomplete a Redemption/Conversion Mandate prior to the Prescribed Time will, asa condition of issue of the July 2005 B Shares, be sent a B Share certificateon or within five Business Days of July 4, 2005, or will have their CRESTaccounts credited with B Shares on July 1, 2005 depending on whether or notthey hold any B Shares through CREST on the Record Date. Those Members withCREST Currently Held B Shares will have their B Shares issued directly intoCREST if they have not previously made an Evergreen Election and do notcomplete a Redemption/Conversion Mandate.Shareholders who have elected to redeem their B Shares in accordance with theterms and conditions of the Redemption Offer will be sent redemption paymentcheques or have their CREST accounts credited with the redemption payment onJuly 4, 2005 depending on whether they hold their Ordinary Shares in CREST onthe Record Date.Shareholders who do not hold their Ordinary Shares in CREST and who havepreviously instructed the Company to pay dividends to them directly intodesignated accounts and if these instructions are still valid (``StandingInstructions'') redemption payments will be made to them in accordance withtheir Standing Instructions. Shareholders who have not established StandingInstructions and who wish to receive their redemption payment in an account orin a specified manner should contact the Registrar by calling 0870 703 0162between 8.30 a.m. and 5.30 p.m. on any Business Day to request a StandingInstructions form or alternatively should visit the Investors section on theGroup's website www.rolls-royce.com to obtain the form. This form must becompleted and received by the Registrar no later than five Business Days beforethe Prescribed Time in order to be effective for this issue of B Shares.As a condition of issue, Shareholders who have elected to convert theirB Shares in accordance with the terms and conditions of the Conversion Offerwill have sent to them share certificates in respect of their Ordinary Shareson or within five Business Days of July 4, 2005, or will have their CRESTaccounts credited with the Ordinary Shares on July 4, 2005 depending on whetherthey hold their Ordinary Shares in certificated or uncertificated form on theRecord Date. The number of Ordinary Shares sent or credited to the Shareholderwill be based upon the number of July 2005 B Shares to be issued to themtogether with the number of B Shares currently held by such Shareholder whichthe Shareholder elects to convert in accordance with paragraph 4.All certificates, cheques and other documents in relation to the B Shares willbe dispatched to Members at their risk and any B Share and/or Ordinary Sharecertificates sent by the Company to Members will be dispatched at the Members'own risk. In the case of joint Members, all documents will be posted to theregistered address of the first named Member (as applicable) on the Company'sregister of Members.Temporary documents of title will not be issued and the documents of titleissued are not renounceable.Pending dispatch of definitive share certificates or crediting of CRESTaccounts, transfers of B Shares which have not been redeemed or converted willbe certified against the B Shareholder register held by the Registrar.10. GeneralAll questions as to validity, form and eligibility in relation to theRedemption/Conversion Mandate, the mandate on the reverse of B Sharecertificates and CREST USE instructions, will be determined by the Company(which may delegate this power in whole or part to the Registrar) and suchdetermination shall be final and binding.No authority conferred by or agreed to by execution of the Redemption/Conversion Mandate, the mandate on the reverse of B Share certificates andCREST USE instructions, shall be affected by, and all such authority shallsurvive, the death or incapacity of the Shareholder executing such form. Allobligations of such Shareholders shall be binding upon the heirs, personalrepresentatives, successors and assignees of such Shareholders.The expenses of, or in connection with, the issue of the July 2005 B Shares areestimated to amount to approximately ‚£80,000 (excluding value added tax, ifany).B Shares will be in registered form and may be settled through CREST if inuncertificated form. Future redemptions and conversions of B Shares may takeplace via CREST.11. Non-United Kingdom resident ShareholdersShareholders who are not resident in the United Kingdom should consult theirprofessional advisers to ascertain whether the effect of the Redemption andConversion Offer or subsequent disposal of B Shares by them will be subject toany restrictions or require compliance with any formalities imposed by the lawsor regulations of, or any body or authority located in, the jurisdiction inwhich they are resident or to which they are subject. In particular, it is theresponsibility of any Shareholder not resident in the United Kingdom wishing toredeem B Shares or otherwise dispose of any shares in the Company to satisfyhimself or herself fully as to observance of any government, exchange controlor other consents which may be required or the compliance with other necessaryformalities needing to be observed and the payment of any issue, transfer orother taxes or duties in such jurisdiction. The distribution of this documentin certain jurisdictions may be restricted by law. Persons into whosepossession this document comes should inform themselves about and observe anysuch restrictions. Neither this document nor any other document issued or to beissued by or on behalf of the Company in connection with the redemption orconversion of B Shares constitutes an invitation or offer to redeem or convertB Shares in any jurisdiction in which such invitations or offers are unlawful.In the event that the Board is advised that the allotment and/or issue ofB Shares would or might infringe the laws of any jurisdiction outside theUnited Kingdom, or would or might require the Company to obtain governmental orother consent, or effect any registration, filing or other formality withwhich, in the opinion of the Company, it would be unable to comply or which itregards as unduly onerous, the Company will have the right to issue theB Shares to which such Shareholders are entitled, to a nominee on behalf ofsuch Shareholders which nominee shall be entitled to sell or redeem suchB Shares for cash with the net proceeds of such sale or redemption (as the casemay be) being remitted to such Shareholders. Any remittance of the net proceedsof sale or redemption shall be at the risk of the relevant Shareholder.In particular, but without prejudice to the generality of the foregoing, theB Shares, and the Ordinary Shares into which they may be converted, have notbeen and will not be registered under the US Securities Act of 1933 (asamended) or the state securities laws of any state of the United States andsuch shares may not be offered or sold in the United States except pursuant toan exemption from, or in a transaction not subject to, the registrationrequirements of such laws.This document is not a Securities Sales Prospectus within the meaning of theGerman Securities Sales Prospectus Act of September 9, 1998 as amended and hasnot been filed or approved by the German Federal Financial Services SupervisoryAuthority (Bundesanstalt fƒ¼r Finanzdienstleistungsaufsicht) or any othercompetent German authority under the relevant laws.Prices and values of, and income from, shares may go down as well as up. Itshould be noted that past performance is not a guide for future performance.Persons needing advice should consult an independent professional adviser.12. Shareholder AuthorityThe B Shares are proposed to be issued pursuant to resolution 11 of the noticeof the AGM dated March 9, 2005.13. Future Payments to ShareholdersThe Company expects that any future payments to Shareholders will be madeeither through the issue of further B Shares or in the form of dividends. TheCompany will revert to paying dividends when it considers that it isappropriate to do so.14. PEPs and ISAsThe B Shares will be qualifying investments for the purposes of the relevantPEP and ISA regulations and any Ordinary Shares issued on conversion will bequalifying investments.15. ADR HoldersOn behalf of the ADR holders, the Bank of New York, as depositary, has advisedthe Company that, in accordance with the terms of the Deposit Agreement, itwill effectively sell the B Shares to be issued to it back to the Company, byelecting to redeem all these B Shares. The Bank of New York will distribute theproceeds of the redemption to the ADR holders.16. US RegistrationThe B Shares, and the Ordinary Shares into which they may be converted, havenot been and will not be registered under the US Securities Act of 1933 (asamended) or the state securities law of any state of the United States and suchshares may not be offered or sold in the United States except pursuant to anexemption from, or in a transaction not subject to, the registrationrequirements of such laws.PART 2: TAXATIONUnited Kingdom TaxationThe following paragraphs, which are intended as a guide only, are based oncurrent UK legislation and published Inland Revenue practice at the date ofthis document and are therefore subject to change. They only summarise certainlimited aspects of the UK taxation treatment of the proposed issue of B Shares.They relate only to the position of Shareholders who are resident or ordinarilyresident in the UK for tax purposes, who will hold their B Shares as aninvestment and are the absolute beneficial owners of the B Shares. This sectionis not intended to be, and should not be construed to be, legal or taxationadvice to any particular Shareholder. If you are in any doubt as to yourtaxation position, you are recommended to seek your own taxation adviceimmediately from an independent professional adviser.The issue of B Shares1. The allotment and issue of B Shares will not itself create any charge to UKincome tax or UK taxation of chargeable gains.2. For the purposes of UK taxation of chargeable gains, the allotment and issueof B Shares by the Company will be treated as a reorganisation of its sharecapital. Accordingly:(a) a Shareholder receiving an entitlement to B Shares will not be treated asmaking a disposal of all or part of that Shareholder's existing holding ofOrdinary Shares by reason thereof;(b) the B Shares will be treated as the same asset as, and as having beenacquired at the same time as, the Shareholder's existing holding of OrdinaryShares. Accordingly the new combined holding of B Shares and Ordinary Shares(together the ``New Holding'') will have the same aggregate base cost as theexisting holding of shares in the Company immediately before this issue; and(c) on a subsequent disposal (including a redemption) of the whole or part ofthe New Holding, the Shareholder's base cost in respect of the New Holding willbe apportioned between the Ordinary Shares and the B Shares by reference totheir respective market values on the first day after issue on which prices arequoted or published for both classes of shares, as derived from the OfficialList.Redemption of B Shares3. The payment by the Company of the nominal value of the B Shares on theirredemption will not constitute an income distribution for UK tax purposes.Accordingly:(a) no part of the proceeds received by a Shareholder pursuant to theredemption will be an income receipt in that Shareholder's hands for UK taxpurposes. Those proceeds will not carry any entitlement to a tax credit and, inthe hands of a corporate Shareholder, will not constitute franked investmentincome; and(b) a Shareholder who disposes of the whole or part of that Shareholder'sholding of B Shares pursuant to the Redemption Offer may, depending on thatShareholder's circumstances, be charged to capital gains tax or (in the case ofa company) corporation tax on the amount of any chargeable gain realised. Incomputing such gain, the base cost of the B Shares is calculated in the mannerdescribed at paragraph (2)(c) above.4. Where the Shareholder is an individual:(a) no tax will be payable on any gain realised on the redemption if the amountof the chargeable gain, when aggregated with any other chargeable gainsrealised by the Shareholder in the year of assessment in question, does notexceed the annual allowance of tax-free gains; and(b) if a Shareholder acquired his existing Ordinary Shares on June 23, 2003, asa result of the Company being introduced as the new holding company of theGroup in place of the previous holding company Rolls-Royce plc, and thatShareholder had acquired the Ordinary Shares in Rolls-Royce plc (which werecancelled and replaced with his existing Ordinary Shares) prior to April 1,1998, indexation allowance will be available in respect of part of the basecost in the existing Ordinary Shares (apportioned to the B Shares in the mannerdescribed in paragraph (2)(c) above) until the end of April 1998 (save to theextent that this creates or increases a capital loss). No indexation allowancewill be available where an individual Shareholder acquired his Rolls-Royce plcshares after March 31, 1998 or acquired his existing Ordinary Shares afterJune 23, 2003. In either of these cases taper relief may apply so that theeffective rate of capital gains tax on any gain on a redemption of B Shares byan individual will be reduced the longer existing Ordinary Shares (and anyprior holding of shares in Rolls-Royce plc) and then the B Shares are held, upto a maximum of ten years.5. Set out below are two examples of the capital gains tax computation on aredemption of B Shares by an individual. However, the actual calculation woulddepend on the tax position of each Shareholder and Shareholders should consulttheir professional advisers. The examples are for illustrative purposes onlyand the prices used are not intended to relate to the actual price of theOrdinary Shares.In the examples, it is assumed that fifty B Shares (issued in respect of oneOrdinary Share) are held. It is also assumed that the market quotation of theOrdinary Shares immediately after the bonus issue of B Shares is 350 pence eachand that the market quotation of the B Shares at the same time is 0.1 penceeach.Example 1If the historic cost for capital gains tax purposes of the Ordinary Shares was275 pence each, then ignoring indexation and taper relief: Pence Proceeds from redemption of fifty B Shares = (50 x 0.1) 5.00 Cost of fifty B Shares = 275 x ((50 x 0.1)/(350 + (50 x 0.1)) 3.87 Unindexed gain before any indexation allowance or taper relief 1.13 Example 2 If the historic cost for capital gains tax purposes of the Ordinary Shares was 450 pence each, then: Pence Proceeds from redemption of fifty B Shares = (50 x 0.1) 5.00 Cost of fifty B Shares = 450 x ((50 x 0.1)/(350 + (50 x 0.1)) 6.34 Allowable loss (1.34) Conversion of B Shares6. A Shareholder who elects to convert his B Shares into Ordinary Sharespursuant to the Conversion Option will not be treated as making a disposal ofhis B Shares. Instead ``roll-over'' treatment should apply, which means theOrdinary Shares will be treated for the purposes of taxation on chargeablegains as the same asset as the B Shares and as having been acquired at the sametime as the B Shares were treated as acquired.7. If a Shareholder becomes entitled to receive a further Ordinary Sharepursuant to the Company's proposed method of dealing with fractionalentitlements to Ordinary Shares arising on conversion (i.e. the Shareholder hassufficient cash held by the Registrar to entitle him to an Ordinary Share),such additional share is likely, in practice, to be treated as receiving the``rollover'' treatment discussed above, rather than being treated as a separatecash subscription for an Ordinary Share.8. No charge to income tax should arise in relation to the conversion ofB Shares pursuant to the Conversion Option. If, in relation to a Shareholder'sentitlement in respect of fractions, the Registrar pay to him the cash held onhis behalf (rather than issuing him with an Ordinary Share once he has asufficient cash entitlement - as discussed above), in practice the amount ofthat cash is likely to be treated not as the proceeds of a part disposal but asreducing the base cost of the Shareholder's Ordinary Shares by an amount equalto the cash received.9. A Shareholder who subsequently disposes of Ordinary Shares may, depending onthat Shareholder's circumstances, be charged to capital gains tax or (in thecase of a company) corporation tax on the amount of any chargeable gainrealised.Stamp duty and stamp duty reserve tax10. No stamp duty or stamp duty reserve tax should arise on the issue,redemption or conversion of B Shares.Dividends11. The United Kingdom tax treatment of dividends paid on the B Shares will bethe same as the tax treatment of dividends paid on the Ordinary Shares.Accordingly under current tax law, the Company will not be required to withholdtax at source from dividend payments it makes on the B Shares and willtherefore not assume responsibility for the withholding of tax at source.(a) IndividualsAn individual shareholder who is resident in the UK for tax purposes and whoreceives a dividend from the Company on a B Share will be entitled to a taxcredit which may be set off against his total income tax liability on thedividend. Such an individual shareholder's liability to income tax iscalculated on the aggregate of the dividend and the tax credit (the ``grossdividend'') which will be regarded as the top slice of the individual's income.The tax credit will be equal to 10% of the ``gross dividend'' (i.e. the taxcredit will be one-ninth of the amount of the dividend).Shareholders who are not liable to income tax in respect of the gross dividendwill not be entitled to reclaim any part of the tax credit.A UK resident shareholder who is liable to income tax at the lower or basicrate will be subject to income tax on the dividend at the rate of 10% of thegross dividend so that the tax credit will satisfy in full such shareholder'sliability to income tax on the dividend. A UK resident individual shareholderliable to income tax at the higher rate will be subject to income tax on thegross dividend at 32.5%. After taking into account the tax credit, such ashareholder will have to account for additional tax equal to 22.5% of the grossdividend (an effective tax rate of 25% of the net cash dividend received).(b) CompaniesA corporate shareholder resident in the UK for tax purposes will not normallybe subject to corporation tax on any dividend received from the Company on aB Share. Such corporate shareholders will not be able to claim repayment of thetax credit attaching to any dividend.(c) Pension funds and charitiesUK pension funds and charities will not be entitled to reclaim the tax creditattaching to any dividend paid by the Company on a B Share.Section 703 of the Income and Corporation Taxes Act 1988 (ICTA)12. There is an anti-avoidance provision, section 703 ICTA, which the InlandRevenue may apply where they have reason to believe that a person obtains a taxadvantage in consequence of certain transactions in securities. Were the InlandRevenue to seek to apply section 703 ICTA to the B Share proposals, onepossible effect would be to tax the redemption proceeds as income. However, inthe opinion of the Company and its taxation advisers, the B Share proposals aresuch that section 703 ICTA should not apply to Shareholders.United States TaxationThe following paragraphs contain a summary based on present law of the materialUS federal income tax consequences relevant to the receipt and ownership ofB Shares and, following a conversion, Ordinary Shares. The discussion addressesonly beneficial owners that are US persons (within the meaning of section 701(a)(30) of the Internal Revenue Code) that will hold B Shares and OrdinaryShares as capital assets and use the US dollar as their functional currency(``US Holders''). The discussion does not consider the circumstances of holderssubject to special rules. Shareholders should consult their own tax advisersregarding their specific circumstances.Taxation on receipt, redemption or conversion of B Shares1. The receipt of the B Shares by a US Holder will be taxable as a dividend inan amount equal to the fair market value of the B Shares received whether ornot the B Shares are immediately redeemed or converted. The dividend generallywill be included in the gross income of a US Holder as ordinary income fromforeign sources and generally will constitute ``qualified dividend income'' toeligible non-corporate US Holders subject to tax at the favourable ratesgenerally applicable to long-term capital gains. A US Holder's tax basis inB Shares will equal the US dollar amount included as a dividend.A US Holder who elects for immediate redemption of B Shares will have noadditional US tax consequences.2 A US Holder who receives B Shares and elects for the Company to redeem them at a later date may be treated as receiving a further dividend in an amountequal to the redemption proceeds (converted into US dollars at the spot rate onthe date of receipt) unless the redemption results in a meaningful reduction ofsuch holders proportionate interest in the Company. If redemption proceeds areincluded in gross income as a dividend, a US Holder's tax basis in the redeemedB Shares would be added to such shareholder's remaining B Shares and/orOrdinary Shares. If a redemption of B Shares results in sale treatment, the USHolder would be subject to the same rules as are described in ``Sale or otherdisposition of B Shares and Ordinary Shares'' below. It is not possible to saywhich treatment will apply as this depends, amongst other things, on theelections to redeem or convert B Shares made by other Shareholders. US Holdersare urged to consult their own tax advisers regarding the specific taxconsequences of tendering issued and outstanding B Shares for redemption.3. Conversion of B Shares into Ordinary Shares, either at the time of issue orat a later date, should have no consequences for a US Holder. The tax basis ofOrdinary Shares received on conversion of B Shares will equal the US Holder'sadjusted tax basis in the converted B Shares (less any basis in respect ofB Shares attributable to a fraction of an Ordinary Share). A US Holder'sholding period in the Ordinary Shares will include the holding period of theconverted B Shares.Dividends paid on B Shares4. Cash dividends paid in respect of outstanding B Shares generally will beincluded in the gross income of a US Holder (converted into US dollars at thespot rate on the date of receipt) as ordinary income from foreign sources andwill constitute ``qualified dividend income'' to non-corporate US Holders.Sale or other disposition of B Shares and Ordinary Shares5. A US Holder generally will recognise capital gain or loss arising from USsources on the sale or other disposition of B Shares or Ordinary Shares equalto the difference between the US dollar value of the amount realised from suchsale or other disposition (generally converted at the spot rate on the date ofreceipt) and the US Holder's adjusted tax basis (determined in US dollars) forsuch B Shares or Ordinary Shares. The deductibility of capital losses issubject to limitations.Foreign exchange gain or loss6. Dividends and proceeds of redemption or sale that are paid in poundssterling generally will be taken into account for tax in a US dollar amountbased on the exchange rate in effect on the date of receipt whether or not thepayment is converted into US dollars at that time. A US Holder's tax basis inpounds sterling will equal such US dollar amount. Any gain or loss realised ona subsequent conversion of the pounds sterling for a different amount will beUS source ordinary income or loss.Backup withholding and information reporting7. Backup withholding and information reporting may apply to dividends paid inrespect of B Shares and Ordinary Shares (including the initial distribution ofB Shares) or the proceeds received on the sale or exchange of B Shares orOrdinary Shares by non-corporate US Holders.Other overseas ShareholdersThis summary only considers UK and US taxation. Any other overseas Shareholdersshould seek tax advice in their jurisdiction of residency.PART 3: DEFINITIONSThe following terms apply throughout this document unless the context otherwiserequires.ACT means advance corporation tax; Admission means admission of the B Shares to the Official List becoming effective in accordance with the Listing Rules of the UK Listing Authority and to trading on the London Stock Exchange; ADR means American Depositary Receipt; ADR Programme means the American Depositary Receipt Programme between The Bank of New York, the Company and the owners and holders of depository receipts, set up pursuant to a deposit agreement dated May 1990; AGM or Annual General means the Annual General Meeting of the Company to be Meeting held at 11.30 a.m. on May 4, 2005; B preferential means the non-cumulative preferential dividend to be dividend paid to holders of the B Shares more fully set out in paragraph 2 of Part 1 of this document; B Shares means the non-cumulative redeemable convertible preference shares of 0.1 pence each in the capital of the Company issued from time to time on the terms and conditions set out in this document; B Shareholder means a holder of B Shares on the date of this document; Board or Directors means the directors of the Company as at the date of this document and from time to time; Business Day means a day upon which pounds sterling deposits may be dealt in on the London interbank market and commercial banks are generally open in London; Calculation Period means each six-monthly period ending on the last day in June and December each year by reference to which the B preferential dividend is calculated; Companies Act means the Companies Act 1985 (as amended); Company means Rolls-Royce Group plc; Conversion Offer means the offer made by the Company in paragraph 6 of Part 1 of this document to convert any or all of the B Shares in issue and July 2005 B Shares into Ordinary Shares on the terms and conditions set out in this document; Conversion Right means the right of holders of B Shares to convert their B Shares into Ordinary Shares when the Company makes the Conversion Offer or a Future Conversion Offer, more fully set out in paragraph 6 of Part 1 of this document; Conversion Share means the arithmetical mean (rounded down to the Value nearest whole number) of the middle market quotations expressed in pence as derived from the daily Official List for one Ordinary Share for the period of any five consecutive dealing days chosen by the Company to end before the commencement of the Election Period or any Future Election Period (as applicable); CREST means the relevant system (as defined in the Uncertificated Securities Regulation 1995) in respect of which CRESTCo Limited is the operator; CREST Currently Held means B Shares that are held in CREST on the Record B Shares Date; Election Period means the period during which all holders of B Shares may elect for any of the B Shares (including the July 2005 B Shares) issued to them to be redeemed for cash or converted into Ordinary Shares in accordance with the terms and conditions of the Redemption and Conversion Offer commencing on March 11, 2005, and ending at the Prescribed Time; Evergreen Election means an election made by Shareholders to either redeem or convert all B Shares issued to them from time to time, until such time as the Shareholder cancels that election in the prescribed manner; Future Conversion means any offer (other than the Conversion Offer) made Offer by the Company after the expiry of the Conversion Offer, to convert B Shares into Ordinary Shares; Future Redemption means any offer (other than the Redemption Offer) made Offer by the Company after the expiry of the Redemption Offer, to redeem B Shares for cash; Future Election means any period or periods after the Election Period Period or Periods when the Company gives holders of B Shares an opportunity to redeem and/or convert B Shares; Group means the Company and its subsidiary undertakings (as defined in the Companies Act) from time to time; July 2005 B Shares means the B Shares to be issued on July 1, 2005 to Shareholders holding Ordinary Shares on the Record Date; Members means Shareholders and holders of B Shares; LIBOR means London inter-bank offered rate for six month deposits in pounds sterling per annum which appears on the display designated as page 3750 on the Telerate Monitor (or such other page or service as may replace it for the purpose of displaying LIBOR of leading banks for pounds sterling deposits) at or about 11.00 a.m. (London time) on the relevant date; London Stock Exchange means London Stock Exchange plc; Official List means the Official List of the UK Listing Authority; Ordinary Shares means ordinary shares of 20 pence each in the share capital of the Company; Prescribed Time means no later than 5.00 p.m. on June 3, 2005; Proceeds means the net proceeds of the sale of the Ordinary Shares resulting from the consolidation of fractional entitlements only on the conversion of B Shares; Record Date means March 11, 2005, being the record date for the proposed bonus issue of B Shares to take place in July 2005; Redemption/Conversion means the form that allows Shareholders to elect to Mandate either redeem all their B Shares or convert all their B Shares (other than their existing holding) during the Election Period subject to the conditions referred to therein; Redemption Offer means the offer made by the Company in paragraph 5 of Part 1 of this document to redeem any or all of B Shares currently in issue and the July 2005 B Shares for cash on the terms and conditions set out in this document; Redemption Right means the right of holders of B Shares to redeem their B Shares for cash when the Company makes the Redemption Offer or a Future Redemption Offer, more fully set out in paragraph 5 of Part 1 of this document; Redemption and means the Redemption Offer and the Conversion Offer; Conversion Offer Registrar means Computershare Investor Services PLC, or such other agent as the Company may appoint from time to time; Shareholder means a holder of Ordinary Shares; UK orUnited Kingdom means the United Kingdom of Great Britain and Northern Ireland; and US or United States means the United States of America and its territories and possessions, any state of the United States of America and the District of Columbia. 16ENDROLLS-ROYCE GROUP PLCRelated Shares:
Rolls-Royce