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BAE MAKES OFFER FOR ALVIS

03 June 2004. RECOMMENDED CASH OFFER FOR ALVIS PLC BY GOLDMAN SACHS INTERNATIONAL ON BEHALF OF BAE SYSTEMS PLC AND (IN THE UNITED STATES) BY BAE SYSTEMS PLC

SUMMARY

The boards of BAE SYSTEMS plc (“BAE SYSTEMS”) and Alvis plc (“Alvis” or the “Company”) announce that they have agreed to the terms of a recommended cash offer for the entire issued and to be issued share capital of Alvis, other than those Alvis Shares which BAE SYSTEMS already holds, to be made by Goldman Sachs International on behalf of BAE SYSTEMS outside the United States, and by BAE SYSTEMS in the United States (“the Offer”). The Offer for each Alvis Share will be 320 pence in cash, and values the existing issued share capital of Alvis at approximately £355 million. A Loan Note Alternative will also be made available.

The Offer represents a premium of approximately:
– 15.5 per cent. to the closing middle-market price of 277 pence per Alvis Share on 2 June 2004, the last business day prior to the date of this announcement; and
— 52.0 per cent. to the closing middle-market price of 210.5 pence per Alvis Share on 10 March 2004, the last business day prior to the date of the recommended cash offer for Alvis by Morgan Stanley & Co. Limited (“Morgan Stanley”) on behalf of General Dynamics Holdings Limited (“General Dynamics Holdings”) (the “General Dynamics Offer”).

The Board of Alvis, who has been so advised by Lazard & Co., Limited
(“Lazard”), considers the terms of the Offer to be fair and reasonable so far as Alvis Shareholders taken as a whole are concerned and intends to recommend that Alvis Shareholders accept the Offer. Accordingly, the Board has withdrawn its earlier recommendation of the cash offer made by General Dynamics on 8 April 2004 at 280 pence per Alvis Share.

BAE SYSTEMS currently holds 31,882,534 Alvis Shares, representing approximately 28.7 per cent. of the existing issued share capital of Alvis. In addition, BAE SYSTEMS has received an irrevocable commitment to accept the Offer in respect of 10,210,469 shares (the “Irrevocable Commitment”) and further irrevocable commitments (the “CFD Commitments”) in respect of up to an additional 7,719,152 shares from certain investors who hold contracts for differences or other similar arrangements (“CFDs”) in respect of those shares, giving total irrevocable commitments over up to 17,929,621 shares (representing up to approximately 16.2 per cent. of Alvis’ total issued share capital). There can be no assurance that the shares held under the CFD Commitments will be assented to the Offer. Further details of these arrangements are set out in Section 4 of Part 2 of this announcement.

With BAE SYSTEMS’ current shareholding in Alvis having been acquired at a cost of 230 pence per share, full acceptance of the Offer would result in BAE SYSTEMS having paid an average price of 294 pence per existing issued Alvis Share.

Commenting on the Offer, Mike Turner, Chief Executive of BAE SYSTEMS, said: “BAE SYSTEMS has demonstrated a track record in delivering cost effective through-life support for customers in the armed forces. Alvis is a highly successful business with a major presence in the European land sector. We believe the acquisition of Alvis offers substantial opportunities to build on BAE SYSTEMS’ support services strategy in the land sector where the very large equipment base presents opportunities for business growth and cost reduction to the benefit of customer, industry and shareholders alike. By combining the complementary businesses of Alvis and BAE SYSTEMS’ RO Defence, the UK’s Land Systems capabilities will be strengthened to the benefit of future MoD programmes and the UK Armed Forces.”

Commenting on the Offer, Nicholas Prest, Chairman and Chief Executive of Alvis, said: “BAE SYSTEMS is a leading international defence contractor whose activities complement those of Alvis. In view of the significant premium offered by BAE SYSTEMS compared to the offer from General Dynami

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