7th Mar 2005 07:02
BAE SYSTEMS PLC07 March 2005 Not for release, publication or distribution in or into the United States, Canada, Australia, Japan or the Republic of Ireland. BAE SYSTEMS PLC PROPOSED ACQUISITION OF UNITED DEFENSE INDUSTRIES, INC. AND PLACING TO RAISE APPROXIMATELY £375 MILLION BAE Systems plc ("BAE Systems" or the "Company") announces that its wholly-ownedU.S. subsidiary, BAE Systems North America Inc. ("BAE Systems North America"),has entered into a definitive merger agreement to acquire United DefenseIndustries, Inc. ("UDI") (the "Proposed Acquisition") for $75 per share in cash,representing a total consideration for UDI's fully diluted share capital ofapproximately $3,974 million (£2,092 million)(1). Including the assumption ofnet debt of $218 million (£115 million)(2), the transaction values theenterprise at $4,192 million (£2,207 million). UDI is a leading U.S. defence company which generated annual sales in 2004 of$2,292 million. It designs, develops and produces combat vehicles, artillerysystems, naval guns, missile launchers and precision munitions, used by the U.S.Department of Defense and allies worldwide, and provides non-nuclear shiprepair, modernisation and conversion to the U.S. Navy and other U.S. Governmentagencies. UDI employs approximately 8,000 people in 25 locations in the U.S.and Sweden. Highlights: • The Proposed Acquisition is a significant step in the delivery of BAESystems' strategy to grow as the premier transatlantic aerospace and defencecontractor by: • expanding and developing its business in North America • creating a global land systems business • developing its worldwide through-life support and services capabilities • UDI, together with BAE Systems' existing UK and Swedish land systemsbusinesses, will form part of a newly created global land systems business,which will be headquartered and led in the U.S., as part of BAE Systems NorthAmerica, by the highly regarded and experienced UDI management team • The combined business creates a leading international position in thefast growing land systems sector. As a result of the global war on terror andongoing operations in Iraq and Afghanistan, the U.S. Department of Defense hassignificantly shifted its priorities and budget towards land systems • UDI is also well placed to benefit from the shift in U.S. defencespending to prioritise the refurbishment and upgrade of existing systems untilthe next of generation of vehicles is deployed. In addition, the plannedrestructuring of the U.S. Army is likely to require an upgrade of the largeinventory of Bradley and other UDI vehicles • UDI is responsible for the repair and upgrade of a large number ofcombat vehicles for the U.S. Armed Forces, including, in particular the Bradleyprogramme of over 7,000 vehicles. The 2005 U.S. defence budget and supplementalrequest include approximately $1.3 billion for resets and upgrades to theBradley vehicle fleet • The enlarged land systems business will hold a significant positionwithin the Future Combat Systems programme, the U.S. Army's largest procurementprogramme, and offers enhanced opportunities in relation to programmes such asthe UK's FRES and Sweden's SEP, and in the export market • UDI's weapons systems positions and leading technological capabilitiescomplement BAE Systems North America's advanced electronic systems andsubsystems in areas such as targeting, communications, protection andsituational awareness, creating significant synergy potential • The Proposed Acquisition further develops BAE Systems' through-lifesupport and services capabilities by adding to its operations the U.S. Navy'slargest non-nuclear ship repair and overhaul business • The Proposed Acquisition is expected to be immediately accretive to BAESystems' earnings, with a step up expected in the first full year (2006)(3) aswell as delivering returns in excess of BAE Systems' cost of capital in thesecond full year (2007) following the Proposed Acquisition(4) The Proposed Acquisition is conditional, amongst other things, upon receivingthe required regulatory clearances, UDI shareholder approval and the approval ofBAE Systems shareholders at an Extraordinary General Meeting and is expected toclose by mid 2005. The Proposed Acquisition will be financed through a placing of 150 million newordinary shares in BAE Systems (the "Placing"), which is expected to raiseapproximately £375 million(5), before expenses, a new debt facility of $3,000million and existing internal resources. The Placing, which is being launchedtoday, is not conditional upon the completion of the Proposed Acquisition. Commenting on the Proposed Acquisition, Mike Turner, Chief Executive of BAESystems, said: "UDI is a strong business with an excellent track record, outstanding growthprospects and a highly regarded management team. By combining UDI with BAESystems' existing land systems and North American operations, our capabilitieswill be strengthened to the benefit of current and future U.S. Department ofDefense, UK and Swedish Ministries of Defence programmes and their respectivearmed forces. This global land systems business will also build on its existingstrong position in export markets." Mark Ronald, President and CEO of BAE Systems North America, added: "The combination of UDI with our existing land systems and U.S. operations willcreate a world class business, better able to meet the ever more demandingrequirements of our military customers with innovative capabilities, productsand solutions. BAE Systems North America has a demonstrable track record ofexcellent stewardship of its acquired U.S. businesses, having increasedinvestment, grown jobs, improved performance and consistently achieved doubledigit annual growth. We look forward to welcoming UDI's management team andemployees into BAE Systems North America. Culturally, it's a great match - BAESystems and UDI have common values and a similar heritage, with long historiesof innovation and commitment to national security." This summary should be read in conjunction with the full text of thisannouncement. A presentation to analysts and journalists regarding the Proposed Acquisitionwill be held today at Goldman Sachs, River Court Building, 120 Fleet St, LondonEC4A at 09:00am and at 11:30am respectively. BAE SystemsCharlotte Lambkin (Group Communications Director) Tel: +44 1252 383 836Andy Wrathall (Investor relations) Tel: +44 1252 383 820Richard Coltart (Press relations) Tel: +44 1252 384 875 Goldman Sachs International (Financial adviser to BAE Systems)Simon Dingemans Tel: +44 20 7774 1000Basil Geoghegan Gleacher Shacklock LLP (Financial adviser to BAE Systems)Tim Shacklock Tel: +44 20 7484 1150James Dawson This announcement is for information purposes only and does not constitute anoffer or invitation to acquire or dispose of any securities or investment advicein any jurisdiction. Goldman Sachs International, which is authorised and regulated by the FinancialServices Authority, is acting exclusively for BAE Systems and for no one else inconnection with the Proposed Acquisition and will not be responsible to anyoneother than BAE Systems for providing the protections afforded to the customersof Goldman Sachs International or for providing advice in relation to theProposed Acquisition. Gleacher Shacklock LLP, which is authorised and regulated by the FinancialServices Authority, is acting exclusively for BAE Systems and for no one else inconnection with the Proposed Acquisition and will not be responsible to anyoneother than BAE Systems for providing the protections afforded to the customersof Gleacher Shacklock LLP or for providing advice in relation to the ProposedAcquisition. Hoare Govett Limited and ABN AMRO Bank N.V. (London branch), which areauthorised and regulated by the Financial Services Authority, are actingexclusively for BAE Systems and for no one else solely in connection with thePlacing and will not be responsible to anyone other than BAE Systems forproviding the protections afforded to the customers of Hoare Govett Limited andABN AMRO Bank N.V. (London branch) or for providing advice in relation to thePlacing. Dresdner Bank AG, London Branch and Dresdner Kleinwort Wasserstein SecuritiesLimited, which are authorised and regulated by the Financial Services Authority,are acting exclusively for BAE Systems and for no one else solely in connectionwith the Placing and will not be responsible to anyone other than BAE Systemsfor providing the protections afforded to the customers of Dresdner Bank AG andDresdner Kleinwort Wasserstein Securities Limited or for providing advice inrelation to the Placing. This announcement includes "forward-looking statements". All statements otherthan statements of historical facts included in this announcement, including,without limitation, those regarding the Company's financial position, businessstrategy, plans and objectives of management for future operations, the expectedtiming and strategic and financial effects of the Proposed Acquisition andtrends in the U.S. defence budget and the defence industry, are forward-lookingstatements. Such forward-looking statements involve known and unknown risks,uncertainties and other important factors which could cause the actual results,performance or achievements of the Company or the markets and economies in whichthe Company operates to be materially different from future results, performanceor achievements expressed or implied by such forward-looking statements,including, without limitation, risks related to: the integration of UDI'sbusiness with the Company's, the costs related to the Proposed Acquisition,inability to obtain, or meet conditions imposed for, required governmental andregulatory approvals and consents and inability to obtain the approval of theshareholders of UDI or the Company for the Proposed Acquisition. The Companycannot give any assurance that the Proposed Acquisition will be completed orthat it will be completed on the terms described in this announcement. This announcement is not an offer for sale within the United States of anysecurity of the Company. Securities of the Company, including its ordinaryshares, may not be offered or sold in the United States absent registrationunder the U.S. securities laws or unless exempt from registration under suchlaws. Not for release, publication or distribution in or into the United States, Canada, Australia, Japan or the Republic of Ireland. BAE SYSTEMS PLC PROPOSED ACQUISITION OF UNITED DEFENSE INDUSTRIES, INC. AND PLACING TO RAISE APPROXIMATELY £375 MILLION 1. Introduction BAE Systems plc ("BAE Systems" or the "Company") announces that its wholly-ownedU.S. subsidiary, BAE Systems North America Inc. ("BAE Systems North America"),has entered into a definitive merger agreement to acquire United DefenseIndustries, Inc. ("UDI") (the "Proposed Acquisition") for $75 per share in cash,representing a total consideration for UDI's fully diluted share capital ofapproximately $3,974 million (£2,092 million)(6). Including the assumption ofnet debt of $218 million (£115 million)(7), the transaction values theenterprise at $4,192 million (£2,207 million). UDI is a leading U.S. defence company which designs, develops and producescombat vehicles, artillery systems, naval guns, missile launchers and precisionmunitions, used by the U.S. Department of Defense and allies worldwide, andprovides non-nuclear ship repair, modernisation and conversion to the U.S. Navyand other U.S. Government agencies. UDI will become part of a newly createdglobal land systems business, together with BAE Systems' existing UK and Swedishland systems businesses, and will operate as part of BAE Systems North America. The Proposed Acquisition is conditional, amongst other things, upon receivingthe required regulatory clearances, UDI shareholder approval and the approval ofBAE Systems shareholders at an Extraordinary General Meeting. The ProposedAcquisition is expected to close by mid 2005. BAE Systems also announces a placing of 150 million new ordinary shares (the "Placing Shares") in BAE Systems, representing 4.9 per cent. of BAE Systems'existing issued share capital (the "Placing"), which is expected to raiseapproximately £375 million(8) before expenses. The Placing, which is beinglaunched today, is not conditional upon the completion of the ProposedAcquisition. The Proposed Acquisition will be financed through the Placing, a new debtfacility (the "Facility") and existing internal resources. Goldman Sachs International and Gleacher Shacklock LLP are acting as financialadvisers to BAE Systems. Hoare Govett Limited ("Hoare Govett") is acting as Sole Global Coordinator andHoare Govett and Dresdner Kleinwort Wasserstein Securities Limited are acting asJoint Bookrunners in respect of the Placing. 2. Information on UDI UDI is a leading producer of military ground combat vehicles and also suppliesartillery systems, naval weapons systems, missile launchers and precisionmunitions to U.S. and international customers. It also provides services innon-nuclear naval ship repair, modernisation, and conversion. UDI is listed on the New York Stock Exchange and is headquartered in Arlington,Virginia. It employs approximately 8,000 people in 25 locations in the U.S. andSweden. It gained a presence in Sweden following the acquisition of BoforsDefence in 2000. UDI currently comprises two business segments - Defense Systems and Ship Repairand Maintenance. • Defense Systems comprises the activities involved in the development,production, upgrade and maintenance of land weapons systems, military groundvehicles and weapons systems. UDI has a substantial installed base of over100,000 combat vehicles for the U.S. Armed Forces and international allies.Military ground vehicle applications include the Bradley fighting vehicle andderivatives (over 7,000 vehicles in active service), the M88 tank recoveryvehicle and the M113 armoured personnel carrier. UDI also has secured a majorrole on the future manned ground vehicle and armed robotic vehicle requirementsfor the U.S. Army's Future Combat Systems ("FCS") programme. Key weapon systemsplatforms include the Mk45 Naval Gun System and the Mk41 Vertical LaunchingSystem. UDI is well positioned as the provider of gun systems for the U.S.Navy's next generation combat ships, the DD(X) and the Littoral Combat Ship.For the year ended 31 December 2004, Defense Systems reported sales of $1,719million (75% of total sales) • Ship Repair and Maintenance operations comprise the United States MarineRepair, Inc. business acquired by UDI in July 2002, consisting of a total offour operating shipyards. These yards perform a full range of non-nuclear shiprepair, overhaul and modernisation services for the U.S. Navy, U.S. Coast Guard,U.S. Maritime Administration, U.S. Army and commercial customers and provide asecure and stable revenue stream. For the year ended 31 December 2004, ShipRepair and Maintenance reported sales of $573 million (25% of total sales) The table below presents UDI's sales and profit before interest and tax (PBIT)for the three years ended 31 December 2004, in accordance with U.S. GAAP: Year Ended 31 December 2002 2003 2004 $m $m $mRevenue 1,725 2,053 2,292PBIT 180 239 293 As at 30 September 2004, UDI reported net assets of $225 million(9). 3. Background to, and reasons for, the Proposed Acquisition A key strategic objective of BAE Systems is to expand its presence in the U.S.defence market and grow as the premier transatlantic aerospace and defencegroup. The combination of the high priority afforded to U.S. national security,a strong commitment to research and development and contracting terms thatbalance risk and reward provide a healthy environment for the U.S. defenceindustry. Furthermore, BAE Systems regards the land systems sector as a key area of futuregrowth in the defence industry, with attractive opportunities for upgrade of theinstalled product base, growing systems content and developing integratedthrough-life support. In recent years, armed conflicts in Afghanistan and Iraqhave underscored the importance of land systems within the context of militaryoperations. This is reflected in emerging defence spending trends. In August2004, BAE Systems acquired Alvis plc to enhance significantly its presence inthe land systems sector, building on the strengths of its existing RO Defencebusiness. BAE Systems North America is a leading defence, national security, aerospace andinformation systems business. It is a leading provider of electronic andinformation-based systems and knowledge-based solutions. BAE Systems NorthAmerica employs over 27,000 people at sites across the U.S and in the year ended31 December 2004 generated $5,078 million in sales. It ranks among the top tensuppliers to the U.S. military. Since it was formed in 1999, BAE Systems NorthAmerica has made twelve acquisitions in the U.S. defence market, includingSanders, DigitalNet and ALPHATECH, and has a track record of successfulintegration and delivering shareholder value. Together BAE Systems and UDI will have an enhanced capability to meet therequirements of their U.S., UK, Swedish and export customers. In particular,BAE Systems believes that the Proposed Acquisition of UDI will: • Represent a significant step in the delivery of BAE Systems' strategy togrow as the premier transatlantic aerospace and defence contractor by: • expanding and developing its business in North America • creating a global land systems business • developing its worldwide through-life support and services capabilities • Create a leading international position in the fast growing land systemssector. As a result of the global war on terror and ongoing operations in Iraqand Afghanistan, the U.S. Department of Defense has significantly shifted itspriorities and budget towards land systems • Position the new global land systems business to take advantage of theU.S. Department of Defense's mission and funding outlook, which is expected toprioritise the evolutionary and affordable development of military platforms andthe refurbishment and upgrade of existing systems. The planned restructuring ofthe U.S. Army is also likely to require an upgrade of the large inventory ofBradley and other UDI vehicles. The 2005 U.S. defence budget and supplementalrequest include approximately $1.3 billion for resets and upgrades to theBradley vehicle fleet • Provide the enlarged land systems business with a significant positionwithin the Future Combat Systems programme, the U.S. Army's largest procurementprogramme, as well as enhanced opportunities on programmes such as the UK's FRESand Sweden's SEP, and in the export market • Complement BAE Systems North America's advanced electronic systems andsubsystems in areas such as targeting, communications, protection andsituational awareness, creating significant synergy potential • Further develop BAE Systems' through-life support and servicescapabilities by adding to its operations the U.S. Navy's largest non-nuclearship repair and overhaul business The Proposed Acquisition is expected to be immediately accretive to BAE Systems'earnings, with a step-up expected in the first full year (2006)(10) as well asdelivering returns in excess of BAE Systems' cost of capital in the second fullyear (2007) following the Proposed Acquisition(11). 4. Board, Management and Employees On completion of Proposed Acquisition, UDI will become part of a newly createdglobal land systems business, together with BAE Systems' existing UK and Swedishland systems businesses, which will be headquartered and led in the U.S., aspart of BAE Systems North America, by the highly regarded and experienced UDImanagement team. 5. Termination Arrangements and Fees The merger agreement for the Proposed Acquisition provides that UDI will pay toBAE Systems North America a termination fee of approximately $119 million upontermination by UDI to accept a superior proposal or termination in certaincircumstances following the making of a competing proposal. 6. Current Trading and Prospects As stated at the time of its preliminary results for the year ended 31 December2004, which were announced on 24 February 2005, BAE Systems expects that theoverall performance of the company's defence businesses will continue to improvein 2005 albeit at a lower rate of growth than that achieved in 2004. The board of BAE Systems believes that the Proposed Acquisition will providesignificant opportunities for UDI and the new global lands systems business.Accordingly, the board of BAE Systems has confidence in the trading prospects ofthe enlarged group. 7. Approvals and Consents The Proposed Acquisition will be subject to the approval of BAE Systemsshareholders at an Extraordinary General Meeting. A circular to shareholderssetting out the notice of this meeting, including the Directors' recommendationto vote in favour of the Proposed Acquisition, will be dispatched in due course. The Proposed Acquisition is also conditional, amongst other things, uponreceiving the required regulatory clearances and UDI shareholder approval. The Proposed Acquisition is expected to close in mid 2005. 8. The Placing The Placing, by Hoare Govett and Dresdner Kleinwort Wasserstein SecuritiesLimited, of 150 million new ordinary shares representing approximately 4.9percent of BAE Systems' existing issued share capital, is expected to raiseapproximately £375 million before expenses and will contribute to the fundingfor the Proposed Acquisition. The Placing has been underwritten by Hoare Govettand Dresdner Bank AG, London Branch, and is not conditional on the completion ofthe Proposed Acquisition. The Placing Shares will rank equally in all respects with the existing ordinaryshares of the Company, including the right to receive all future dividends andother distributions hereafter, including the final dividend for the year ended31 December 2004 of 5.8 pence per ordinary share announced on 24 February 2005.Subject to shareholder approval, the final dividend will be paid on 1 June 2005to shareholders registered on 22 April 2005. The ex-dividend date is 20 April2005. Application will be made for the Placing Shares to be admitted to the OfficialList maintained by the UKLA and to be admitted for trading by the London StockExchange on its main market for listed securities. Admission of the PlacingShares is expected to take place on 10 March 2005. In connection with thePlacing, BAE Systems has agreed not to issue ordinary shares (other than thePlacing Shares) for a period beginning on the date of this Announcement andending 90 days after Admission. This agreement is subject to certain customaryexceptions, including, with the prior consent of the Bookrunners. Attention is drawn to the detailed terms and conditions of the Placing describedin Appendix 1 to this announcement and, in particular, the requirement that aPlacee must either have made a nationality declaration (which is still in effectand correct) or must make a nationality declaration in accordance with theprovisions of the Company's articles of association before the directors of theCompany are entitled to register a Placee's allocation. This declaration can bemade through CREST or via a declaration form which can be obtained from eitherof the Bookrunners. 9. The Facility In addition to the Placing, BAE Systems will finance the Proposed Acquisitionwith a new debt facility of $3,000 million. The Facility has been underwrittenby Goldman Sachs Credit Partners L.P. and Dresdner Bank AG, London Branch. This announcement is for information purposes only and does not constitute anoffer or invitation to acquire or dispose of any securities or investment advicein any jurisdiction. Goldman Sachs International, which is authorised and regulated by the FinancialServices Authority, is acting exclusively for BAE Systems and for no one else inconnection with the Proposed Acquisition and will not be responsible to anyoneother than BAE Systems for providing the protections afforded to the customersof Goldman Sachs International or for providing advice in relation to theProposed Acquisition. Gleacher Shacklock LLP, which is authorised and regulated by the FinancialServices Authority, is acting exclusively for BAE Systems and for no one else inconnection with the Proposed Acquisition and will not be responsible to anyoneother than BAE Systems for providing the protections afforded to the customersof Gleacher Shacklock LLP or for providing advice in relation to the ProposedAcquisition. Hoare Govett Limited and ABN AMRO Bank N.V. (London branch), which areauthorised and regulated by the Financial Services Authority, are actingexclusively for BAE Systems and for no one else solely in connection with thePlacing and will not be responsible to anyone other than BAE Systems forproviding the protections afforded to the customers of Hoare Govett Limited andABN AMRO Bank N.V. (London branch) or for providing advice in relation to thePlacing. Dresdner Bank AG, London Branch and Dresdner Kleinwort Wasserstein SecuritiesLimited, which are authorised and regulated by the Financial Services Authority,are acting exclusively for BAE Systems and for no one else solely in connectionwith the Placing and will not be responsible to anyone other than BAE Systemsfor providing the protections afforded to the customers of Dresdner Bank AG andDresdner Kleinwort Wasserstein Securities Limited or for providing advice inrelation to the Placing. This announcement includes "forward-looking statements". All statements otherthan statements of historical facts included in this announcement, including,without limitation, those regarding the Company's financial position, businessstrategy, plans and objectives of management for future operations, the expectedtiming and strategic and financial effects of the Proposed Acquisition andtrends in the U.S. defence budget and the defence industry, are forward-lookingstatements. Such forward-looking statements involve known and unknown risks,uncertainties and other important factors which could cause the actual results,performance or achievements of the Company or the markets and economies in whichthe Company operates to be materially different from future results, performanceor achievements expressed or implied by such forward-looking statements,including, without limitation, risks related to: the integration of UDI'sbusiness with the Company's, the costs related to the Proposed Acquisition,inability to obtain, or meet conditions imposed for, required governmental andregulatory approvals and consents and inability to obtain the approval of theshareholders of UDI or the Company for the Proposed Acquisition. The Companycannot give any assurance that the Proposed Acquisition will be completed orthat it will be completed on the terms described in this announcement. This announcement is not an offer for sale within the United States of anysecurity of the Company. Securities of the Company, including its ordinaryshares, may not be offered or sold in the United States absent registrationunder the U.S. securities laws or unless exempt from registration under suchlaws. APPENDIX 1: TERMS AND CONDITIONS OF THE PLACING THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO THE UNITED STATES, CANADA, AUSTRALIA, JAPAN OR THE REPUBLIC OF IRELAND IMPORTANT INFORMATION FOR PLACEES ONLY ON THE PLACING MEMBERS OF THE PUBLIC ARE NOT ELIGIBLE TO TAKE PART IN THE PLACING. THEANNOUNCEMENT AND THIS APPENDIX AND THE TERMS AND CONDITIONS SET OUT HEREIN AREDIRECTED ONLY AT PERSONS WHOSE ORDINARY ACTIVITIES INVOLVE THEM IN ACQUIRING,HOLDING, MANAGING AND DISPOSING OF INVESTMENTS (AS PRINCIPAL OR AGENT) FOR THEPURPOSES OF THEIR BUSINESS AND WHO HAVE PROFESSIONAL EXPERIENCE IN MATTERSRELATING TO INVESTMENTS AND WHO FALL WITHIN ARTICLE 19(5) OF THE FINANCIALSERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2001, AS AMENDED (THEORDER) OR ARE PERSONS WHO FALL WITHIN ARTICLE 49(2)(A) TO (D) ("HIGH NET WORTHCOMPANIES, UNINCORPORATED ASSOCIATIONS, ETC") OF THE ORDER OR TO WHOM IT MAYOTHERWISE LAWFULLY BE COMMUNICATED (ALL SUCH PERSONS TOGETHER BEING REFERRED TOAS RELEVANT PERSONS). THE ANNOUNCEMENT AND THIS APPENDIX AND THE TERMS ANDCONDITIONS SET OUT HEREIN MUST NOT BE ACTED ON OR RELIED ON BY PERSONS WHO ARENOT RELEVANT PERSONS. ANY INVESTMENT OR INVESTMENT ACTIVITY TO WHICH THISAPPENDIX AND THE TERMS AND CONDITIONS SET OUT HEREIN RELATES IS AVAILABLE ONLYTO RELEVANT PERSONS AND WILL BE ENGAGED IN ONLY WITH RELEVANT PERSONS. THEANNOUNCEMENT AND THIS APPENDIX DOES NOT ITSELF CONSTITUTE AN OFFER FOR SALE ORSUBSCRIPTION OF ANY SECURITIES IN THE COMPANY. THE NEW ORDINARY SHARES THAT ARETHE SUBJECT OF THE PLACING (THE PLACING SHARES) REFERRED TO HEREIN HAVE NOT BEENAND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED(THE SECURITIES ACT) AND, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATESEXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THEREGISTRATION REQUIREMENTS OF THE SECURITIES ACT. Persons who are invited to and who choose to participate in the Placing bymaking an oral offer to subscribe for Placing Shares, will be deemed to haveread and understood the announcement (including this Appendix) in its entiretyand to be making such offer on the terms and conditions, and to be providing therepresentations, warranties, acknowledgements and undertakings, contained inthis Appendix. In particular each such Placee represents, warrants andacknowledges that it: 1. is a Relevant Person and undertakes that it will acquire, hold,manage or dispose of any Placing Shares that are allocated to it for thepurposes of its business; and 2. is subscribing for the Placing Shares for its own account or issubscribing for the Placing Shares for an account with respect to which itexercises sole investment discretion and that (i) it (and any such account) isoutside the United States, within the meaning of Regulation S under theSecurities Act; or (ii) if it is not outside the United States, is a qualifiedinstitutional buyer (QIB) as such term is defined in Rule 144A under theSecurities Act (Rule 144A) and has duly executed an investment letter in theform provided to it and has delivered the same to either Dresdner KleinwortWasserstein Securities LLC or ABN AMRO Incorporated. The announcement and this Appendix do not constitute an offer to sell or issueor the solicitation of an offer to buy or subscribe for Placing Shares in anyjurisdiction including, without limitation, the United Kingdom, the UnitedStates, Canada, Australia, Japan or the Republic of Ireland or any otherjurisdiction in which such offer or solicitation is or may be unlawful. Theannouncement and the information contained in this Appendix is not forpublication or distribution, directly or indirectly, to persons in the UnitedStates, Canada, Australia, Japan or in any jurisdiction in which suchpublication or distribution is unlawful. The Placing Shares referred to in the announcement have not been and will not beregistered under the Securities Act and may not be offered, sold or transferredwithin the United States except pursuant to an exemption from, or as part of atransaction not subject to, the registration requirements of the Securities Act.The Placing Shares are being offered and sold (i) in reliance on Regulation Sunder the Securities Act and (ii) to QIBs as defined in Rule 144A in reliance onRule 144A or another exemption from, or in a transaction not subject to, theregistration requirements of the Securities Act. The Placing Shares have not been approved or disapproved by the U.S. Securitiesand Exchange Commission, any state securities commission or other regulatoryauthority, nor have the foregoing authorities endorsed the merits of thisoffering or the accuracy or adequacy of the offering materials. Anyrepresentation to the contrary is unlawful. The distribution of the announcement (including this Appendix) and the Placingand/or issue of the Placing Shares in certain jurisdictions may be restricted bylaw. No action has been taken by BAE Systems PLC (the Company) or Dresdner BankAG, London Branch (DrAG) or Hoare Govett Limited (Hoare Govett and, togetherwith DrAG, the Managers) that would permit an offer of Placing Shares orpossession or distribution of the announcement (including this Appendix) or anyother offering or publicity material relating to such Placing Shares in anyjurisdiction where action for that purpose is required. Persons to whoseattention the announcement (including this Appendix) is drawn are required bythe Company and the Managers to inform themselves about and to observe any suchrestrictions. Details of the Placing Agreement and the Placing Shares The Managers have entered into a placing agreement (the Placing Agreement) withthe Company whereby each of the Managers has (whether through it or itsaffiliates including, in the case of DrAG and without limitation, DresdnerKleinwort Wasserstein Securities Limited (DrKW) and, in the case of Hoare Govettand without limitation, ABN AMRO Bank N.V. (London branch)), on and subject tothe terms and conditions set out therein, agreed severally, and not jointly norjointly and severally, as agent for and on behalf of the Company, to use itsreasonable endeavours to seek to procure Placees for the Placing Shares and,failing which, to subscribe for its relevant proportion of the Placing Shares atthe Placing Price in accordance with the provisions of the Placing Agreement. The Placing Shares will, when issued, be credited as fully paid and will rankpari passu in all respects with the existing issued ordinary shares of 2.5 penceper share in the capital of the Company (the Ordinary Shares), including theright to receive all dividends and other distributions declared, made or paid onor in respect of such Ordinary Shares after the date of issue of the PlacingShares and, in particular, the right to receive the final dividend for the yearended 31 December 2004 of 5.8 pence per Ordinary Share announced on 24 February2005. Subject to shareholder approval, the final dividend will be paid on 1June 2005 to shareholders registered on 22 April 2005. The ex-dividend date is20 April 2005. In this Appendix, unless the context otherwise requires, Placee means a person(including individuals, funds or others) on whose behalf a commitment tosubscribe for Placing Shares has been given. Application for listing and admission to trading Application will be made to the UK Listing Authority (the UKLA) for admission ofthe Placing Shares to the Official List of the UKLA (the Official List) and toLondon Stock Exchange plc (the London Stock Exchange) for admission to tradingof the Placing Shares on the London Stock Exchange's market for listedsecurities (together Admission). It is expected that Admission will becomeeffective at 8:00 a.m. on Thursday, 10 March 2005 and that dealings in thePlacing Shares will commence at that time. Bookbuild Commencing today each of the Managers will be conducting an acceleratedbookbuilding process (the Bookbuilding Process) to determine demand forparticipation in the Placing by Placees. This Appendix gives details of theterms and conditions of, and the mechanics of participation in, the Placing. Nocommissions will be paid to Placees or by Placees in respect of any PlacingShares. The Managers will be entitled to effect the Placing by such alternative methodto the Bookbuilding Process as they may, in their sole discretion, determine. Tothe fullest extent permissible by law, neither of the Managers nor any holdingcompany thereof, nor any subsidiary, branch or affiliate of the Banks or anyholding company thereof (each an Affiliate) shall have any liability to Placees(or to any other person whether acting on behalf of a Placee or otherwise). Inparticular, neither of the Managers nor any Affiliate thereof shall have anyliability in respect of its conduct of the Bookbuilding Process or of suchalternative method of effecting the Placing as the Managers may determine. Participation in, and Principal terms of, the Bookbuilding Process By participating in the Bookbuilding Process and the Placing, Placees will bedeemed to have read and understood the announcement (including this Appendix)in its entirety and to be participating and making an offer for Placing Shareson the terms and conditions, and to be providing the representations,warranties, acknowledgements and undertakings, contained in this Appendix. Afurther announcement will be made following the close of the BookbuildingProcess detailing the Placing Price at which the Placing Shares are being placed(the Pricing Announcement). Each of DrAG and Hoare Govett (whether through themselves or their respectiveAffiliates) is arranging the Placing severally, and not jointly nor jointly andseverally, as an agent of the Company. Each of the Managers and their respective Affiliates is entitled to participateas principal in the Bookbuilding Process. The Bookbuilding Process will establish a single price (the Placing Price)payable to the Managers by all Placees. Any discount to the market price of theOrdinary Shares of the Company will be determined in accordance with the ListingRules as published by the UKLA pursuant to Part IV of the Financial Services andMarkets Act 2000 (the FSMA). The Bookbuilding Process is expected to close no later than 6.30 p.m. Londontime on Monday, 7 March 2005, but may be closed earlier at the sole discretionof the Managers. Each of the Managers may, at its sole discretion, accept bidsthat are received after the Bookbuilding Process has closed. A bid in the Bookbuilding Process will be made on the terms and conditions inthis Appendix and will not be capable of variation or revocation after the closeof the Bookbuilding Process. A Placee who wishes to participate in the Bookbuilding Process shouldcommunicate its bid by telephone to the usual sales contact at ABN AMRO BankN.V. (London branch) or DrKW. If successful, an allocation will be confirmedorally following the close of the Bookbuilding Process, and a conditionalcontract note will be dispatched as soon as possible thereafter. Hoare Govett'sor DrKW's oral confirmation will constitute a legally binding commitment uponthe Placee to subscribe for the number of Placing Shares allocated to thatPlacee at the Placing Price set out in the Pricing Announcement and otherwise onthe terms and conditions set out in this Appendix and in accordance with theCompany's Memorandum and Articles of Association. Each Placee will be required to make a 'nationality declaration' (see 'Registration and Settlement' below for further details). Each Placee's obligations will be owed to the Company and to the Manager throughwhom such Placee submitted its bid. Each Placee will also have an immediate,separate, irrevocable and binding obligation, owed to the relevant Manager, topay to it (or as it may direct) in cleared funds an amount equal to the productof the Placing Price and the number of Placing Shares such Placee has agreed tosubscribe for. The relevant Manager will procure the allotment by the Companyof such Placing Shares to each Placee following each Placee's payment to therelevant Manager of such amount. All obligations under the Placing will be subject to fulfilment of theconditions referred to below under "Conditions of the Placing". Conditions of the Placing The Placing is conditional upon the Placing Agreement becoming unconditional andnot having been terminated in accordance with its terms. The obligations of the Managers under the Placing Agreement are conditionalupon, inter alia: 1. the Pricing Announcement being published through a RegulatoryInformation Service by 6:30 p.m. on Monday, 7 March 2005 (or such later time and/or date as the Company and the Managers may agree in writing); 2. the Company allotting, subject only to Admission, the Placing Sharesand having complied with its obligations under the Placing Agreement to procurethat, immediately upon Admission, the Placing Shares are credited to the CRESTstock account of ABN AMRO Bank N.V. (London branch) (CREST ID: 521); and 3. Admission and Commencement of Trading occurring by no later than 9.00a.m. on Thursday, 10 March 2005 (or such later time and/or date as the Companyand the Managers may agree in writing). If (a) any of the conditions contained in the Placing Agreement is not fulfilledor waived by both of the Managers by the time and date specified or referred totherein (or such later time and/or date as the Company and the Managers mayagree), or (b) the Placing Agreement is terminated in the circumstancesspecified below, the Placing will lapse and the Placee's rights and obligationshereunder shall cease and terminate at such time and each Placee agrees that noclaim can be made by or on behalf of the Placee (or any person on whose behalfthe Placee is acting) in respect thereof. By participating in the Bookbuilding Process, each Placee agrees that its rightsand obligations cease and terminate only in the circumstances described aboveand will not be capable of rescission or termination by it. The Managers may, at their discretion and upon such terms as they jointly thinkfit, waive compliance by the Company with, or extend the time and/or date forfulfilment by the Company of, the whole or any part of any of the Company'sobligations in relation to the conditions in the Placing Agreement, save thatcondition 3 above may not be waived. Any such extension or waiver will notaffect Placees' commitments as set out in the announcement (including thisAppendix). Neither of the Managers shall have any liability to any Placee (or to any otherperson whether acting on behalf of a Placee or otherwise) in respect of anydecision the Managers may make as to whether or not to waive or to extend thetime and/or date for the satisfaction of any condition to the Placing nor forany decision any of them may make as to the satisfaction of any condition or inrespect of the Placing generally. The Placing Agreement, and therefore the Placing, are not conditional on theproposed acquisition of United Defense Industries, Inc. (UDI). A subsidiary ofthe Company has entered into a merger agreement providing for the proposedacquisition as described elsewhere in the announcement . However, no assurancecan be given that the proposed acquisition will be completed or completed on theterms described in the announcement (including in relation to the considerationpayable). Right to terminate under the Placing Agreement Either of the Managers may, at any time before Admission, terminate the PlacingAgreement by giving notice to the Company if: 1. in the bona fide opinion of such Manager, any of the representationsand warranties set out in the Placing Agreement is untrue, inaccurate ormisleading or, if repeated at any time up to and including Admission, would beuntrue, inaccurate or misleading by reference to the facts then subsisting inany respect which such Manager regards as material in the context of the Placingand/or Admission; 2. in the bona fide opinion of such Manager, the Company is in breach ofany of its obligations under this Agreement in any respect which such Managerregards as material in the context of the Placing and/or Admission; 3. in the bona fide opinion of such Manager, there has been a materialadverse change in the financial or trading position or prospects of the Companyand/or the Company and its subsidiary undertakings from time to time; or 4. in the absolution discretion of such Manager, there has been a changein national or international financial, political, economic or stock marketconditions (primary or secondary); an incident of terrorism, outbreak orescalation of hostilities, war, declaration of martial law or any other calamityor crisis; a suspension or material limitation in trading of the Ordinary Sharesor securities generally on any stock exchange; any change in currency exchangerates or exchange controls or a disruption of settlement systems or a materialdisruption in commercial banking as would be, in the bona fide opinion of suchManager, likely to prejudice the success of the Placing. If the Managers' obligations under the Placing Agreement are terminated inaccordance with its terms, the rights and obligations of each Placee in respectof the Placing as described in the announcement (including this Appendix) shallcease and terminate at such time and no claim can be made by any Placee inrespect thereof. By participating in the Placing each Placee agrees with the Managers that theexercise by the Managers of any right of termination or other discretion underthe Placing Agreement shall be within the absolute discretion of such Manager(as the case may be) and that such Manager need not make any reference to suchPlacee and that the Managers shall have no liability whatsoever to the Placee(or to any other person whether acting on behalf of a Placee or otherwise) inconnection with any such exercise. No Prospectus No offering document or prospectus or listing particulars has been or will besubmitted to be approved by the UKLA or filed with the Registrar of Companies inEngland and Wales in relation to the Placing and Placees' commitments will bemade solely on the basis of the information contained in the announcement(including this Appendix) and any information that is publicly available,including any Exchange Information (as defined below). Each Placee, by acceptinga participation in the Placing, agrees that the content of the announcement(including this Appendix) and the Pricing Announcement is exclusively theresponsibility of the Company and confirms that it has neither received norrelied on any other information, representation, warranty, or statement made byor on behalf of the Managers or the Company or any other person and neither ofthe Managers nor the Company nor any other person will be liable for anyPlacee's decision to participate in the Placing based on any other information,representation, warranty or statement which the Placees may have obtained orreceived. Each Placee acknowledges and agrees that it has relied on its owninvestigation of the business, financial or other position of the Company inaccepting a participation in the Placing. Nothing in this paragraph shallexclude the liability of any person for fraudulent misrepresentation. Registration and Settlement Settlement of transactions in the Placing Shares (ISIN: GB0002634946) followingAdmission will take place within the CREST system, subject to certainexceptions. Each of the Managers reserves the right to require settlement forand delivery of the Placing Shares to Placees in such other means that it deemsnecessary if delivery or settlement is not possible or practicable within theCREST system within the timetable set out in the announcement (including thisAppendix) or would not be consistent with the regulatory requirements in thePlacee's jurisdiction. Each Placee allocated Placing Shares in the Placing will be sent a tradeconfirmation stating the number of Placing Shares allocated to it, the PlacingPrice, the aggregate amount owed by such Placee to the relevant Bank andsettlement instructions. In the case of Hoare Govett, ABN AMRO Bank N.V. isacting as its settlement agent and Placees should settle against CREST ID: 521,and in the case of DrAG, DrKW is acting as its settlement agent and Placeesshould settle against CREST ID: 318. It is expected that such tradeconfirmation will be despatched on 7 March 2005 and that this will also be thetrade date. Each Placee agrees that it will do all things necessary to ensurethat delivery and payment is completed in accordance with either the standingCREST or certificated settlement instructions which it has in place with therelevant Manager. Each Placee will be required to make a 'nationality declaration' as part of thesettlement process. Under the Company's Articles of Association every person(whether or not an existing holder of Ordinary Shares) seeking to purchase or beallotted Ordinary Shares must make a nationality declaration before thedirectors of the Company are entitled to register such person as a holder ofsuch Ordinary Shares. A Placee which is settling its subscription for PlacingShares through CREST can make the nationality declaration through CREST. APlacee which is not settling its subscription for Placing Shares through CRESTmust apply to one of the Managers for a nationality declaration form andcomplete and return such form to one of the Managers no later than noon on theday before Admission. If a Placee does not make the required nationalitydeclaration or if a completed nationality declaration indicates that theallocation of Placing Shares to such Placee would be in breach of the Company'sArticles of Association, no allocation of Placing Shares will be made to suchperson. It is expected that settlement will be on Thursday, 10 March 2005 on a T+3 basisin accordance with the instructions set out in the trade confirmation. Interest is chargeable daily on payments not received from Placees on the duedate in accordance with the arrangements set out above at the rate of 2percentage points above the base rate of Barclays Bank Plc. Each Placee is deemed to agree that if it does not comply with theseobligations, the relevant Manager may sell any or all of the Placing Sharesallocated to that Placee on such Placee's behalf and retain from the proceeds,for the Manager's account and benefit, an amount equal to the aggregate amountowed by the Placee plus any interest due. The relevant Placee will, however,remain liable for any shortfall below the aggregate amount owed by it and may berequired to bear any stamp duty or stamp duty reserve tax (together with anyinterest or penalties) which may arise upon the sale of such Placing Shares onsuch Placee's behalf. If Placing Shares are to be delivered to a custodian or settlement agent,Placees should ensure that the trade confirmation is copied and deliveredimmediately to the relevant person within that organisation. Insofar as Placing Shares are registered in a Placee's name or that of itsnominee or in the name of any person for whom a Placee is contracting as agentor that of a nominee for such person, such Placing Shares should, subject asprovided below, be so registered free from any liability to UK stamp duty orstamp duty reserve tax. No participant will be entitled to receive any fee orcommission in connection with the Placing. Representations and Warranties By participating in the Bookbuilding Process each Placee (and any person actingon such Placee's behalf): 1. represents and warrants that it has read the announcement (includingthis Appendix) in its entirety; 2. represents and warrants that it has not received a prospectus,listing particulars, or other offering document in connection with the Placingand acknowledges that no prospectus, listing particulars or other offeringdocument has been prepared in connection with the Placing; 3. acknowledges that the ordinary shares of the Company, nominal value2.5p each are listed on the Official List of the UKLA, and the Company istherefore required to publish certain business and financial information inaccordance with the rules and practices of the UKLA (collectively, the ExchangeInformation), which includes a description of the nature of the Company'sbusiness and the Company's most recent balance sheet and profit and lossaccount, and similar statements for preceding financial years, and that it isable to obtain or access the Exchange Information without undue difficulty; 4. acknowledges that none of the Managers, nor any of their respectiveAffiliates nor any person acting on such Manager's or Affiliate's behalf hasprovided, and will not provide it with any other material regarding the PlacingShares or the Company; nor has it requested the Managers, any of theirrespective Affiliates or any person acting on such Manager's or Affiliate'sbehalf to provide it with any such information; 5. acknowledges that the content of the announcement (including thisAppendix) is exclusively the responsibility of the Company and that neither theManagers, nor any of their respective Affiliates nor any person acting on suchManager's or Affiliate's behalf has or shall have any liability for anyinformation, representation or statement contained in the announcement(including this Appendix) or any information previously published by or onbehalf of the Company and will not be liable for any Placee's decision toparticipate in the Placing based on any information, representation or statementcontained in the announcement (including this Appendix) or otherwise. EachPlacee further represents, warrants and agrees that the only information onwhich it is entitled to rely and on which such Placee has relied in committingto subscribe for the Placing Shares is contained in the announcement (includingthis Appendix) and any information that is publicly available, including anyExchange Information, such information being all that it deems necessary to makean investment decision in respect of the Placing Shares and that it has reliedon its own investigation with respect to the Placing Shares and the Company inconnection with its decision to subscribe for the Placing Shares andacknowledges that it is not relying on any investigation that either of theManagers, any of their respective Affiliates or any person acting on suchManager's or Affiliate's behalf may have conducted with respect to the PlacingShares or the Company and none of such persons has made any representations toit, express or implied, with respect thereto; 6. acknowledges that it has not relied on any information relating tothe Company contained in any research reports prepared by any of the Managers,any of their respective Affiliates or any person acting on such Manager's orAffiliate's behalf and understands that (i) none of the Managers, nor any oftheir respective Affiliates nor any person acting on such Manager's orAffiliate's behalf has or shall have any liability for public information or anyrepresentation; (ii) none of the Managers, nor any of their respectiveAffiliates nor any person acting on such Manager's or Affiliate's behalf has orshall have any liability for any additional information that has otherwise beenmade available to such Placee, whether at the date of publication, the date ofthe announcement or otherwise; and that (iii) none of the Managers, nor any oftheir respective Affiliates nor any person acting on such Manager's orAffiliate's behalf makes any representation or warranty, express or implied, asto the truth, accuracy or completeness of such information, whether at the dateof publication, the date of the announcement or otherwise; 7. represents and warrants that it, or the beneficial owner, asapplicable, is entitled to subscribe for and/or purchase Placing Shares underthe laws of all relevant jurisdictions which apply to it, or the beneficialowner, as applicable, and that it has fully observed such laws and obtained allsuch governmental and other guarantees and other consents in either case whichmay be required thereunder and complied with all necessary formalities; 8. represents and warrants that it is, or at the time the Placing Sharesare acquired that it will be, the beneficial owner of such Placing Shares, orthat the beneficial owner of such Placing Shares is not a resident of Australia,Canada, Japan or the Republic of Ireland; 9. acknowledges that the Placing Shares have not been and will not beregistered under the securities legislation of the United States, Australia,Canada, Japan or the Republic of Ireland and, subject to certain exceptions, maynot be offered, sold, taken up, renounced or delivered or transferred, directlyor indirectly, within those jurisdictions; 10. if the Placing Shares were offered to it in the United States,represents and warrants that in making its investment decision, (i) it hasrelied on its own examination of the Company and the terms of the Placing,including the merits and risks involved, (ii) it has made its own assessment ofthe Company, the Placing Shares and the terms of the Placing based on suchinformation as is publicly available, (iii) it has consulted its own independentadvisors or otherwise has satisfied itself concerning, without limitation, theeffects of United States federal, state and local income tax laws and foreigntax laws generally and the U.S. Employee Retirement Income Security Act of 1974,the U.S. Investment Company Act of 1940, as amended and the Securities Act and(iv) it has received all information that it believes is necessary orappropriate in order to make an investment decision in respect of the Companyand the Placing Shares; 11. represents and warrants that it is either (i) a QIB and it has dulyexecuted an investment letter in the form provided to it by the Managers, or(ii) purchasing the Placing Shares in an "offshore transaction" in accordancewith Regulation S under the Securities Act, and if it is a QIB, (i) it issubscribing for the Placing Shares for its own account, or for one or moremanaged accounts, for investment purposes, and not with a view to anydistribution within the meaning of U.S. securities laws and (ii) has suchknowledge and experience in financial and business matters as to be capable ofevaluating the merits and risks of its investment in the Placing Shares, and itand each managed account (i) are each able to bear the economic risk of its ortheir investment in the Placing Shares, (ii) will not look to theabove-mentioned names for all or part of any such loss or losses it or they maysuffer, (iii) are able to sustain a complete loss on its or their investment inthe Placing Shares, (iv) have no need for liquidity with respect to its or theirinvestment in the Placing Shares and (v) have no reason to anticipate any changein its or their circumstances, financial or otherwise, which may cause orrequire any sale or distribution by it or them of all or any part of the PlacingShares;Related Shares:
BAE Systems