Offer for Alvis plc

BAE SYSTEMS PLC
03 June 2004


Part 1 of 3



 Not for release, publication or distribution, in whole or in part, in, into or
                        from Canada, Australia or Japan


                                                                    3 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  Accordingly, the Board has withdrawn its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 Dynamics, the Alvis Board recommends
acceptance of the Offer.'

This summary should be read in conjunction with the full text of the following
announcement.  Appendix III to the following announcement contains definitions
of certain terms used in this summary and the following announcement.

Enquiries

BAE SYSTEMS


George Rose                             Tel:  [phone]
Andy Wrathall (Investor relations)      Tel:  [phone]
Richard Coltart (Press relations)       Tel:  [phone]


Goldman Sachs International (Financial adviser to BAE SYSTEMS)
Simon Dingemans                         Tel:  [phone]



Bell Pottinger
Charlotte Lambkin                       Tel:  [phone]


Alvis
Nicholas Prest                          Tel:  [phone]
Martin Greenslade


Lazard (Financial adviser to Alvis)
William Rucker                          Tel:  [phone]


Smithfield
John Kiely                              Tel:  [phone]
Rupert Trefgarne



Goldman Sachs International is acting as financial adviser to BAE SYSTEMS in
connection with the Offer and no one else and will not be responsible to anyone
other than BAE SYSTEMS for providing the protections afforded to customers of
Goldman Sachs International nor for providing advice in relation to the Offer.

Dresdner Kleinwort Wasserstein Limited, which is authorised and regulated by the
Financial Services Authority, is acting as broker to BAE SYSTEMS in connection
with the Offer and no one else and will not be responsible to anyone other than
BAE SYSTEMS for providing the protections afforded to customers of Dresdner
Kleinwort Wasserstein Limited nor for providing advice in relation to the Offer.

Lazard is acting for Alvis and no one else in connection with the Offer and will
not be responsible to anyone other than Alvis for providing the protections
afforded to clients of Lazard nor for providing advice in connection with the
Offer, the contents of this announcement or any transaction or arrangement
referred to herein.

Hoare Govett is acting for Alvis and no one else in connection with the Offer
and will not be responsible to anyone other than Alvis for providing the
protections afforded to clients of Hoare Govett nor for providing advice in
connection with the Offer, the contents of this announcement or any other
transaction or arrangement referred to herein.

The Offer will not be made, directly or indirectly, in or into Canada, Australia
or Japan and will not be capable of acceptance from within Canada, Australia or
Japan.  Accordingly, copies of this announcement and all other documents
relating to the Offer are not being, and must not be, mailed or otherwise
forwarded, distributed or sent in, into or from Canada, Australia or Japan.
Persons receiving such documents (including, without limitation, nominees,
trustees and custodians) should observe these restrictions and must not mail or
otherwise forward, distribute or send such documents in, into or from Canada,
Australia or Japan.  Doing so may invalidate any related purported acceptance of
the Offer.

BAE SYSTEMS will prepare the Offer Document to be distributed to Alvis
Shareholders.  BAE SYSTEMS urges Alvis Shareholders to read the Offer Document
when it becomes available because it will contain important information relating
to the Offer.  Alvis Shareholders may obtain a free copy of the Offer Document,
when it becomes available, from Goldman Sachs International.  This communication
shall not constitute an offer to sell or the solicitation of an offer to buy
securities under the laws of the United States or under the laws of any state of
the United States.

The Loan Notes have not been, and will not be, registered under the US
Securities Act or under the applicable securities laws of any state, district or
other jurisdiction of the United States, or of Canada, Australia or Japan and no
regulatory clearances in respect of the Loan Notes have been, or will be,
applied for in any jurisdiction.  Accordingly, unless an exemption under the US
Securities Act or other relevant securities laws is applicable, the Loan Notes
are not being, and may not be, offered, sold, resold, delivered or distributed,
directly or indirectly, in or into the United States, Canada, Australia or Japan
or to, or for the account or benefit of, any US Person or person resident in
Canada, Australia or Japan.

The Offer will be open to the US shareholders of Alvis.  The Offer in the United
States will be made directly by BAE SYSTEMS and not by Goldman Sachs
International.

The Offer will be made for the securities of a non-US company.  The Offer will
be made in accordance with the requirements of the Code and will be subject to
disclosure and procedural requirements that are different from those under
United States law.  Financial statements included in the Offer Document will be
prepared in accordance with non-US accounting standards that may not be
comparable to those used to prepare the financial statements of US companies.

This announcement does not constitute an offer to sell or the solicitation of an
offer to purchase or subscribe for any securities.

MORE TO FOLLOW

END


Part 2 of 3



 Not for release, publication or distribution, in whole or in part, in, into or
                        from Canada, Australia or Japan



                                                                     3 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





1.  Introduction

The boards of BAE SYSTEMS and Alvis announce that they have agreed 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 for each Alvis Share
will be 320 pence in cash. The Offer values the existing issued share capital of
Alvis at approximately £355 million.

With BAE SYSTEMS' current holding of 31,882,534 Alvis Shares 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.

Goldman Sachs International is acting as financial adviser to BAE SYSTEMS in
relation to the Offer.  Dresdner Kleinwort Wasserstein Limited is acting as
broker to the Offer.  Lazard and Hoare Govett are acting as financial adviser
and corporate broker, respectively, to Alvis in relation to the Offer.

2.  The Offer

The Offer will be made by Goldman Sachs International on behalf of BAE SYSTEMS
outside the United States, and by BAE SYSTEMS in the United States, to acquire
the whole of the issued and to be issued share capital of Alvis, other than
those Alvis Shares which BAE SYSTEMS already holds, on the terms and subject to
the conditions set out below and in Appendix I of this announcement, and to be
set out in the Offer Document and the accompanying Form of Acceptance.

The Offer will be made on the following basis:

 for each Alvis Share                                         320 pence in cash

The Offer values the existing issued share capital of Alvis at approximately
£355 million.

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
General Dynamics Offer.

The Board of Alvis, who has been so advised by Lazard, considers the terms of
the Offer to be fair and reasonable so far as Alvis Shareholders taken as a
whole are concerned.  In providing advice to the Board of Alvis, Lazard has
taken into account the commercial assessments of the Board.

The Board of Alvis therefore intends to recommend Alvis Shareholders to 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.

The Alvis Shares will be acquired pursuant to the Offer fully paid and free from
all liens, charges, equitable interests, encumbrances, rights of pre-emption and
any other rights and interests of any nature whatsoever and together with all
rights now and hereafter attaching thereto, including voting rights and the
right to receive and retain in full all dividends and other distributions (if
any) declared, made or paid on or after the date of this announcement.  The
Alvis Board is not recommending a final dividend for 2003. Should the Offer be
unsuccessful and Alvis remain an independent company, the Alvis Board intends to
declare an interim dividend of 4.0 pence per share in lieu of the 2003 final
dividend.

Whilst BAE SYSTEMS has set the initial acceptance condition at the customary
level of 90 per cent., once the regulatory conditions are satisfied, BAE SYSTEMS
intends in the usual way to reduce the acceptance condition to 50.1 per cent.

The Offer Document will be posted in due course.

3.  Loan Note Alternative

Alvis Shareholders (other than certain overseas Shareholders) who validly accept
the Offer will be entitled to elect to receive Loan Notes to be issued by BAE
SYSTEMS instead of some or all of the cash consideration to which they would
otherwise be entitled pursuant to the Offer.

The Loan Note Alternative will be made available on the following basis:

 for every whole £1 in cash consideration             £1 nominal value of Loan
                                     Notes

The Loan Notes, which will be governed by English law, will be unsecured and
will be issued credited as fully paid in amounts and integral multiples of £1
nominal value.  All fractional entitlements to the Loan Notes will be
disregarded.  No application will be made for the Loan Notes to be issued or
dealt in on any stock exchange and they will not be transferable.

The Loan Notes will bear interest at 0.5 per cent. below six-month sterling
LIBOR.  Interest will be payable by half-yearly instalments in arrears (less any
tax required to be deducted or withheld) on 30 June and 31 December in each
year. The first payment of interest will be made on 31 December 2004 (the 'First
Payment Date'). On the First Payment Date, interest will be paid in respect of
the period from (and including) the date of issue of the relevant Loan Notes to
(but excluding) the First Payment Date. The Loan Notes will be redeemable in
whole or in part for cash at the option of noteholders on 31 December 2005 and
subsequent anniversaries thereof. In certain circumstances, BAE SYSTEMS will
have the right to redeem all of the Loan Notes. If not previously redeemed, the
final redemption date will be 31 December 2009.

No Loan Note will be issued unless, on or before the date on which the Offer
becomes or is declared unconditional in all respects, valid elections have been
received in respect of at least £500,000 in nominal value of Loan Notes. If
insufficient elections are received, Alvis Shareholders electing for the Loan
Note Alternative will instead receive cash in accordance with the terms of the
Offer.

Subject as aforesaid, the Loan Note Alternative will remain open for acceptance
for so long as the Offer remains open for acceptance. The Loan Note Alternative
will be conditional upon the Offer becoming or being declared unconditional in
all respects.

Further details of the Loan Notes will be contained in the Offer Document.

4.  Undertakings to accept the Offer

As at the date of the Offer, BAE SYSTEMS controls and holds 31,882,534 Alvis
Shares, representing approximately 28.7 per cent. of the existing issued share
capital of Alvis ('the BAE SYSTEMS Holding').  BAE SYSTEMS announced the
acquisition of the BAE SYSTEMS Holding from GKN plc ('GKN') on 22 August 2003.
On 21 November 2003, the Office of Fair Trading announced that whilst it
believed that the acquisition by BAE SYSTEMS of GKN's shareholding in Alvis
conferred on BAE SYSTEMS the ability materially to influence the policy of Alvis
for the purposes of section 26 of the Enterprise Act and that a relevant merger
situation was created, it had decided not to refer the merger to the Competition
Commission under section 22(1) of the Enterprise Act.

BAE SYSTEMS has received an irrevocable commitment to accept the Offer in
respect of 10,210,469 ordinary shares in Alvis (the 'Irrevocable Commitment').
In addition, BAE SYSTEMS has received further irrevocable commitments from
certain investors which have entered into contracts for differences or other
similar arrangements ('CFDs') in respect of an additional 7,719,152 ordinary
shares in Alvis (the 'CFD Commitments').   These institutions have irrevocably
committed, subject to confirmation that compliance with the terms of the CFD
Commitments is permissible under US law, to request physical settlement of the
CFDs in accordance with market practice to the extent that such settlement can
be procured without the need to effect any on or off market purchases of
ordinary shares in Alvis and then to assent to the Offer all shares received by
them as a result of this physical settlement process.  Each of these irrevocable
commitments and undertakings will lapse if BAE SYSTEMS does not post the Offer
Document on or before the date 28 days from the date of this announcement or the
Offer, once made, lapses, or is withdrawn, or if BAE SYSTEMS shall not have
given notice to the giver of the Irrevocable Commitment or the CFD Commitments
that they should assent the relevant Alvis Shares to the Offer on or before the
date 60 days after the posting of the Offer Document.  In addition, the CFD
Commitments will lapse if BAE SYSTEMS shall not have given the givers of the CFD
Commitments notice that compliance with the terms of the CFD Commitments is
permissible under US law on or before the date 60 days after the posting of the
Offer Document.  BAE SYSTEMS has therefore received irrevocable commitments over
a total of up to 17,929,621 shares (representing approximately 16.2 per cent. of
Alvis' total issued share capital).

Accordingly BAE SYSTEMS holds, or has received irrevocable commitments in
respect of, a total of up to 49,812,155 ordinary shares in Alvis (representing
up to approximately 44.9 per cent. of Alvis' total issued share capital), though
there can be no assurance that the maximum number of shares in respect of which
the CFDs have been entered into will be received by the institutions and
assented to the Offer as a result of the CFD Commitments.

5.  Background to and reasons for the Offer

BAE SYSTEMS regards the land sector as a key area of future growth with
attractive opportunities for growing systems content and developing integrated
through life support for a large installed base of platforms.

Alvis is one of the world's leading manufacturers of armoured vehicles with an
installed base of around 30,000 vehicles.  It has leading positions in the UK
and Sweden as well as a significant export presence in over 40 countries.

UK land forces are refocusing their requirements in response to the changing
nature of the threat and a need to support longer range operations.  As a
result, greater emphasis is being placed on delivering a more rapid reaction
force in support of expeditionary operations. Key to achieving this objective
will be an integrated logistics infrastructure and the introduction of Network
Enabled Capabilities.

Through its RO Defence business, BAE SYSTEMS already works closely with Alvis
and supplies weapons systems for many of its vehicle platforms.  Together, BAE
SYSTEMS and Alvis will have an enhanced capability to deliver a coherent
industrial response to support the UK's commitment to a sustained capability in
this sector.  In particular, BAE SYSTEMS believes the complementary skills of RO
Defence and Alvis will:

•       Allow BAE SYSTEMS to deliver more attractive and lower cost combined
support and upgrade packages to the UK's Defence Logistics Organisation for the
Army's current vehicle base;

•       Facilitate the delivery of enhanced systems capabilities and the
integration of these platforms as part of the UK's drive for Network Enabled
Capability;

•       Create a stronger export offering through BAE SYSTEMS' global marketing
reach and the combined platform and systems integration capabilities of RO
Defence and Alvis; and

•       Position BAE SYSTEMS more competitively for key roles in the Ministry of
Defence's future land programmes, including the Future Rapid Effect System
programme ('FRES').

Following completion of the transaction, BAE SYSTEMS intends to integrate Alvis
and its RO Defence business.

The Directors of BAE SYSTEMS believe that the acquisition of Alvis will generate
cost-saving opportunities and will be earnings accretive and deliver returns
above BAE SYSTEMS' cost of capital in the first full year following completion.
This statement should not be interpreted to mean that earnings per share will
necessarily be greater than those in the full year prior to completion.

6.  Information on Alvis

Alvis is a UK based company, headquartered in London, with interests in armoured
fighting vehicles and other specialist vehicles for military application. Alvis
has a global reach with major manufacturing facilities in Scandinavia, South
Africa and the UK; a global installed base of more than 30,000 vehicles; and
active customer relationships in more than 40 countries.

In September 2002 Alvis enhanced its position in the UK with the acquisition of
Vickers Defence Systems, the supplier of the Challenger 2 main battle tank and
the Trojan Engineer and Titan Bridgelayer vehicles. The combined UK business was
renamed Alvis Vickers Ltd. The transaction also saw the addition of two new
companies to the Group: Alvis Bridging, a leading international supplier of
military bridging equipment; and Alvis South Africa, South Africa's primary
armoured vehicle supplier, a world leader in wheeled armoured vehicles and
mine-protected vehicle technology and a specialist manufacturer of transmissions
and drivelines for local and foreign original equipment manufacturers.

Alvis offers the full spectrum of armoured vehicle capability including main
battle tanks, armoured infantry fighting vehicles, armoured personnel carriers
and light armoured vehicles. It is a specialist in the integration of high
technology defence systems and digital technology. Its leading edge technology
base is already equipping military vehicles with fighting capabilities to rival
those of modern military aircraft, offering enhanced protection including
stealth, electric armour and defensive aids, and hybrid and electric drive
systems.

Alvis Shares are traded on the London Stock Exchange. Based on 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), Alvis has a market
capitalisation of approximately £307 million.

For the year ending 31 December 2003, Alvis reported turnover of £348.8 million
(2002: £225.7 million), pre-exceptional profit before tax and goodwill
amortisation of £19.8 million (2002: £16.5 million).  As at 31 December 2003,
Alvis had a total order book of £892.6m (2002: £781.1m) and net assets of £53.2
million (2002: £33.3 million).

7.  Information on BAE SYSTEMS

BAE SYSTEMS is engaged in the development, delivery and support of advanced
defence and aerospace systems in the air, on land, at sea and in space.  It
designs, manufactures and supports military aircraft, surface ships, submarines,
radar, avionics, communications, electronics and guided weapon systems.

RO Defence is an international business within Customer Solutions & Support,
supplying integrated weapon systems worldwide.  The business specialises in
providing firepower solutions - from the fire platform to explosive munition
effects.  It is contracted to build the UK's new Terrier armoured vehicle as
well as the US's M777 Lightweight Howitzer programme.

BAE SYSTEMS ordinary shares are traded on the London Stock Exchange. Based on
the closing middle-market price of 208 pence per BAE SYSTEMS share on 2 June
2004 (the last business day prior to the date of this announcement), BAE SYSTEMS
has a market capitalisation of approximately £6,365 million.

For the year ended 31 December 2003, BAE SYSTEMS reported turnover of £12,572
million (2002: £12,145 million), pre-exceptional profit before tax and goodwill
amortisation of £760 million (2002: £796 million). As at 31 December 2003, BAE
SYSTEMS had net assets of £5,606 million (2002: £5,685 million).

8.  Current Trading and Prospects of BAE SYSTEMS

BAE SYSTEMS reconfirms that its outlook for 2004 remains consistent with
previous statements.

Good sustained underlying growth is anticipated across BAE SYSTEMS' operations
in North America and in International Partnerships with some recovery in the
Avionics business.  The performance of the Programmes business is expected to
continue to be restrained with some Ministry of Defence production programmes
still in early phases of maturity.  Margins in Customer Solutions & Support are
likely to continue to trend downwards.  Overall, underlying performance of BAE
SYSTEMS' defence businesses in 2004 is expected to be slightly ahead of 2003.

Airbus plans a volume of activity for 2004 similar to 2003, with a slightly
lower value mix of deliveries.

In addition, BAE SYSTEMS continues to experience cash flows ahead of
expectations.

9.  Management and Employees

The board of BAE SYSTEMS confirms that following the Offer becoming or being
declared unconditional in all respects, the existing employment rights,
including pension rights, of all employees of the Alvis Group will be fully
safeguarded.

10.  Alvis Share Option Schemes

The Offer will extend to all Alvis Shares unconditionally allotted or issued
prior to the date when the Offer is declared unconditional as to acceptances (or
such earlier time as BAE SYSTEMS may, subject to the provisions of the Code or
with the consent of the Panel, decide) as a result of the exercise of options
granted under the Alvis Share Option Schemes.

As soon as practicable after the Offer becomes or is declared unconditional in
all respects, BAE SYSTEMS will make appropriate proposals to holders of
unexercised options granted under the Alvis Share Option Schemes.

11.  Compulsory Acquisition, De-listing and Re-registration

If BAE SYSTEMS receives acceptances under the Offer in respect of, and/or
otherwise acquires, 90 per cent. or more of the Alvis Shares to which the Offer
relates and the Offer becomes or is declared unconditional in all respects, BAE
SYSTEMS intends to exercise its rights pursuant to the provisions of sections
428 to 430F (inclusive) of the Act to acquire compulsorily the remaining Alvis
Shares to which the Offer relates.

After the Offer becomes or is declared unconditional in all respects, and
subject to the requirements of the London Stock Exchange, BAE SYSTEMS intends to
procure the making of an application by Alvis to the UK Listing Authority for
the cancellation of the listing of Alvis Shares on the Official List and to the
London Stock Exchange for the cessation of trading of Alvis Shares on its market
for listed securities. It is anticipated that cancellation of listing and
trading will take effect no earlier than 20 business days after the Offer
becomes or is declared unconditional in all respects. De-listing would
significantly reduce the liquidity and marketability of any Alvis Shares not
assented to the Offer.

It is also proposed that following the Offer becoming or being declared
unconditional in all respects and after the Alvis shares are de-listed, Alvis
will be re-registered as a private company.

12.  Disclosure of Interests in Alvis

Save for the BAE SYSTEMS Holding, neither BAE SYSTEMS nor any of the directors
of BAE SYSTEMS nor any other BAE SYSTEMS subsidiary, nor, so far as BAE SYSTEMS
is aware, any person acting in concert with BAE SYSTEMS for the purposes of the
Offer, owns, controls or holds any Alvis Shares or any securities convertible or
exchangeable into, or rights to subscribe for, purchase or holds any options to
purchase any Alvis Shares or has entered into any derivative referenced to Alvis
Shares which remains outstanding.

In view of the requirement for confidentiality, BAE SYSTEMS has not made any
enquiries in this respect of certain parties who may be deemed by the Panel to
be acting in concert with it for the purposes of the Offer.

13.  General

The Offer will be made on the terms and subject to the conditions set out herein
and in Appendix I, and to be set out in the Offer Document and the accompanying
Form of Acceptance.  These will be despatched to Alvis Shareholders (other than
those with addresses in Canada, Australia or Japan) and for information only, to
holders of options granted under the Alvis Share Option Schemes, in due course.
The Offer and acceptances thereof will be governed by English law. The Offer
will be subject to the applicable requirements of the Code, the Panel, the
London Stock Exchange and the UK Listing Authority.

The availability of the Offer to persons not resident in the United Kingdom may
be affected by the laws of the relevant jurisdictions. Such persons should
inform themselves of, and observe, any applicable requirements.

Appendix I to this announcement contains the conditions and certain further
terms of the Offer.  Details of the sources and bases of certain information set
out in this announcement are included in Appendix II. Certain terms used in this
announcement are defined in Appendix III.

This announcement does not constitute, or form any part of, any offer for, or
solicitation of any offer for securities. Any acceptance or other response to
the Offer should be made only on the basis of the information contained in the
Offer Document and the Form of Acceptance accompanying the Offer Document.

Enquiries

BAE SYSTEMS


George Rose                                 Tel:  [phone]
Andy Wrathall (Investor relations)          Tel:  [phone]
Richard Coltart (Press relations)           Tel:  [phone]


Goldman Sachs International (Financial adviser to BAE SYSTEMS)
Simon Dingemans                             Tel:  [phone]


Bell Pottinger
Charlotte Lambkin                           Tel:  [phone]


Alvis
Nicholas Prest                              Tel:  [phone]
Martin Greenslade



Lazard (Financial adviser to Alvis)

William Rucker                              Tel:  [phone]



Smithfield
John Kiely                                  Tel:  [phone]
Rupert Trefgarne



Goldman Sachs International is acting as financial adviser to BAE SYSTEMS in
connection with the Offer and no one else and will not be responsible to anyone
other than BAE SYSTEMS for providing the protections afforded to customers of
Goldman Sachs International nor for providing advice in relation to the Offer.

Dresdner Kleinwort Wasserstein Limited, which is authorised and regulated by the
Financial Services Authority, is acting as broker to BAE SYSTEMS in connection
with the Offer and no one else and will not be responsible to anyone other than
BAE SYSTEMS for providing the protections afforded to customers of Dresdner
Kleinwort Wasserstein Limited nor for providing advice in relation to the Offer.

Lazard is acting for Alvis and no one else in connection with the Offer and will
not be responsible to anyone other than Alvis for providing the protections
afforded to clients of Lazard nor for providing advice in connection with the
Offer, the contents of this announcement or any transaction or arrangement
referred to herein.

Hoare Govett is acting for Alvis and no one else in connection with the Offer
and will not be responsible to anyone other than Alvis for providing the
protections afforded to clients of Hoare Govett nor for providing advice in
connection with the Offer, the contents of this announcement or any other
transaction or arrangement referred to herein.

The Offer will not be made, directly or indirectly, in or into Canada, Australia
or Japan and will not be capable of acceptance from within Canada, Australia or
Japan.  Accordingly, copies of this announcement and all other documents
relating to the Offer are not being, and must not be, mailed or otherwise
forwarded, distributed or sent in, into or from Canada, Australia or Japan.
Persons receiving such documents (including, without limitation, nominees,
trustees and custodians) should observe these restrictions and must not mail or
otherwise forward, distribute or send such documents in, into or from Canada,
Australia or Japan.  Doing so may invalidate any related purported acceptance of
the Offer.

BAE SYSTEMS will prepare the Offer Document to be distributed to Alvis
Shareholders.  BAE SYSTEMS urges Alvis Shareholders to read the Offer Document
when it becomes available because it will contain important information relating
to the Offer.  Alvis Shareholders may obtain a free copy of the Offer Document,
when it becomes available, from Goldman Sachs International.  This communication
shall not constitute an offer to sell or the solicitation of an offer to buy
securities under the laws of the United States or under the laws of any state of
the United States.

The Loan Notes have not been, and will not be, registered under the US
Securities Act or under the applicable securities laws of any state, district or
other jurisdiction of the United States, or of Canada, Australia or Japan and no
regulatory clearances in respect of the Loan Notes have been, or will be,
applied for in any jurisdiction.  Accordingly, unless an exemption under the US
Securities Act or other relevant securities laws is applicable, the Loan Notes
are not being, and may not be, offered, sold, resold, delivered or distributed,
directly or indirectly, in or into the United States, Canada, Australia or Japan
or to, or for the account or benefit of, any US Person or person resident in
Canada, Australia or Japan.

The Offer will be open to the US shareholders of Alvis.  The Offer in the United
States will be made directly by BAE SYSTEMS and not by Goldman Sachs
International.

The Offer will be made for the securities of a non-US company.  The Offer will
be made in accordance with the requirements of the Code and will be subject to
disclosure and procedural requirements that are different from those under
United States law.  Financial statements included in the Offer Document will be
prepared in accordance with non-US accounting standards that may not be
comparable to those used to prepare the financial statements of US companies.

This announcement does not constitute an offer to sell or the solicitation of an
offer to purchase or subscribe for any securities.

MORE TO FOLLOW

END


 Part 3 of 3



                                   Appendix I

               Conditions and certain further terms of the Offer

The Offer, which will be made by Goldman Sachs International on behalf of BAE
SYSTEMS (outside the United States) and (in the United States) by BAE SYSTEMS,
will comply with the rules and regulations of the Financial Services Authority
and the London Stock Exchange and the City Code on Takeovers and Mergers (the '
Code');

Part A:  Conditions of the Offer

The Offer will be subject to the following conditions:

a)      valid acceptances being received (and not, where permitted, withdrawn)
by not later than 3.00 pm (London time) on the day following the twentieth
business day following the date of the Offer document, (or such later time(s)
and/or date(s) as BAE SYSTEMS may, with the consent of the Panel or in
accordance with the Code, and with US federal securities law (except to the
extent that exemptive relief has been granted by the SEC) decide) in respect of
not less than 90 per cent. (or such lower percentage as BAE SYSTEMS may decide)
in nominal value of the Alvis Shares to which the Offer relates, provided that
this condition shall not be satisfied unless BAE SYSTEMS and/or any of its
wholly-owned subsidiaries shall have acquired or agreed to acquire, whether
pursuant to the Offer or otherwise, shares in Alvis carrying in aggregate more
than 50 per cent. of the voting rights then normally exercisable at general
meetings of Alvis (including shares in Alvis held by BAE SYSTEMS prior to the
date of this announcement); and provided further that this condition shall be
capable of being satisfied only at a time when all other conditions have been
satisfied or waived.  For the purposes of this condition:

         i.            shares which have been unconditionally allotted but not
issued before the Offer becomes or is declared unconditional as to acceptances,
whether pursuant to the exercise of any outstanding subscription or conversion
rights or otherwise, shall be deemed to carry the voting rights they will carry
on being entered into the Register of Members of Alvis; and

       ii.            the expression 'Alvis Shares to which the Offer relates'
shall be construed in accordance with sections 428 to 430F of the Companies Act
1985, as amended;

b)

         i.            to the extent that it has jurisdiction to review the
proposed acquisition of Alvis by BAE SYSTEMS, the European Commission having
adopted a decision under Article 6(1)(b) of Council Regulation (EEC) 139/2004
(the 'Regulation'), in terms and in a form reasonably satisfactory to BAE
SYSTEMS, that declares the proposed acquisition of Alvis by BAE SYSTEMS (or
those parts of it that are not referred to a competent authority of a Member
State under Article 9(3) of the Regulation or to a Party to the Agreement on the
European Economic Area (the 'EEA Agreement') under Article 6(1) of Protocol 24
of the EEA Agreement) to be compatible with the common market and, if relevant,
the functioning of the EEA Agreement, or the European Commission being deemed to
have done so under Article 10(6) of the Regulation;

       ii.            to the extent that the European Commission has
jurisdiction under the Regulation to review the proposed acquisition of Alvis by
BAE SYSTEMS, in the event that a request has been made by a Member State under
Article 9(2) of the Regulation and/or a Party to the EEA Agreement with regard
to Article 6(1) of Protocol 24 to the EEA Agreement, the European Commission
having adopted a decision not to refer the proposed acquisition of Alvis by BAE
SYSTEMS or any part of it to a competent authority of that Member State or Party
to the EEA Agreement in accordance with Article 9(3) of the Regulation or
Article 6(1) of Protocol 24 to the EEA Agreement, as the case may be;

      iii.            to the extent that they have jurisdiction to review the
proposed acquisition of Alvis by BAE SYSTEMS under any provisions of the
Enterprise Act 2002 (as amended), confirmation having been received in writing
by BAE SYSTEMS from the Office of Fair Trading (the 'OFT') or, if appropriate,
the Secretary of State for Trade and Industry (the 'Secretary of State'), in
terms and in a form reasonably satisfactory to BAE SYSTEMS, that the OFT or, as
the case may be, the Secretary of State do not intend to refer the proposed
acquisition of Alvis by BAE SYSTEMS to the Competition Commission;

     iv.            no indication having been made that a Member State and/or
Party to the EEA Agreement is actively contemplating taking appropriate measures
to protect legitimate interests pursuant to Article 21(4) of the Regulation (or
Article 7(1) of the EEA Agreement, as the case may be) in respect of the
proposed acquisition of Alvis by BAE SYSTEMS;

c)      there being no provision of any agreement, arrangement, licence, permit
or other instrument to which any member of the wider Alvis Group is a party or
by or to which any such member or any of its assets may be bound, entitled or
subject, which in consequence of the Offer or the proposed acquisition of any
shares or other securities in Alvis or because of a change in the control or
management of Alvis or otherwise, could or might result in, to an extent which
is material in the context of the wider Alvis Group as a whole:

         i.            any moneys borrowed by or any other indebtedness (actual
or contingent) of, or grant available to any such member, being or becoming
repayable or capable of being declared repayable immediately or earlier than
their or its stated maturity date or repayment date or the ability of any such
member to borrow moneys or incur any indebtedness being withdrawn or inhibited
or being capable of becoming or being withdrawn or inhibited;

       ii.            any such agreement, arrangement, licence, permit or
instrument or the rights, liabilities, obligations or interests of any such
member thereunder being terminated or modified or affected or any obligation or
liability arising or any action being taken thereunder;

      iii.            any assets or interests of any such member being or
falling to be disposed of or charged or any right arising under which any such
asset or interest could be required to be disposed of or charged;

     iv.            the creation or enforcement of any mortgage, charge or other
security interest over the whole or any part of the business, property or assets
of any such member;

      v.            the rights, liabilities, obligations or interests of any
such member in, or the business of any such member with, any person, firm or
body (or any arrangement or arrangements relating to any such interest or
business) being terminated, adversely modified or affected;

     vi.            the value of any such member or its financial or trading
position or prospects being prejudiced or adversely affected;

    vii.            any such member ceasing to be able to carry on business
under any name under which it presently does so; or

  viii.            the creation of any liability, actual or contingent, by any
such member,

and no event having occurred which, under any provision of any agreement,
arrangement, licence, permit or other instrument to which any member of the
wider Alvis Group is a party, or by or to which any such member or any of its
assets may be bound, entitled or subject, could result in any of the events or
circumstances as are referred to in sub-paragraphs (i) to (viii) of this
paragraph (c);

d)      no government or governmental, quasi-governmental, supranational,
statutory, regulatory, environmental or investigative body, court, trade agency,
association, institution or any other body or person whatsoever in any
jurisdiction (each a 'Third Party') having decided to take, institute, implement
or threaten any action, proceeding, suit, investigation, enquiry or reference,
or enacted, made or proposed any statute, regulation, decision or order, or
having taken any other steps which would or might be reasonably expected to:

         i.            require, prevent or delay the divestiture, or materially
alter the terms envisaged for any proposed divestiture by any member of the
wider BAE SYSTEMS Group or any member of the wider Alvis Group of all or any
portion of their respective businesses, assets or property or impose any
limitation on the ability of any of them to conduct their respective businesses
(or any of them) or to own any of their respective assets or properties or any
part thereof which, in any such case, is material in the context of the wider
BAE SYSTEMS Group or the wider Alvis Group in either case taken as a whole;

       ii.            require, prevent or delay the divestiture by any member of
the wider BAE SYSTEMS Group of any shares or other securities in Alvis;

      iii.            impose any limitation on, or result in a delay in, the
ability of any member of the wider BAE SYSTEMS Group directly or indirectly to
acquire or to hold or to exercise effectively any rights of ownership in respect
of shares or loans or securities convertible into shares or any other securities
(or the equivalent) in any member of the wider Alvis Group or the wider BAE
SYSTEMS Group or to exercise management control over any such member;

     iv.            otherwise adversely affect the business, assets, profits or
prospects of any member of the wider BAE SYSTEMS Group or of any member of the
wider Alvis Group in a manner which is adverse to and material in the context of
the BAE SYSTEMS Group or the Alvis Group in either case taken as a whole;

       v.            make the Offer or its implementation or the acquisition or
proposed acquisition by BAE SYSTEMS or any member of the wider BAE SYSTEMS Group
of any shares or other securities in, or control of, Alvis void, illegal, and/or
unenforceable under the laws of any jurisdiction, or otherwise, directly or
indirectly, restrain, restrict, prohibit, delay or otherwise materially
interfere with the same, or impose additional conditions or obligations with
respect thereto, or otherwise challenge or interfere therewith;

     vi.            require any member of the wider BAE SYSTEMS Group or the
wider Alvis Group to offer to acquire any shares or other securities (or the
equivalent) or interest in any member of the wider Alvis Group or the wider BAE
SYSTEMS Group owned by any third party;

    vii.            impose any limitation on the ability of any member of the
wider Alvis Group to co-ordinate its business, or any part of it, with the
businesses of any other members which is adverse to and material in the context
of the group concerned taken as a whole; or

  viii.            result in any member of the wider Alvis Group ceasing to be
able to carry on business under any name under which it presently does so;

and all applicable waiting and other time periods during which any such Third
Party could institute, implement or threaten any action, proceeding, suit,
investigation, enquiry or reference or any other step under the laws of any
jurisdiction in respect of the Offer or the acquisition or proposed acquisition
of any Alvis Shares having expired, lapsed or been terminated;

e)      all necessary filings or applications having been made in connection
with the Offer and all statutory or regulatory obligations in any jurisdiction
having been complied with in connection with the Offer or the acquisition by any
member of the wider BAE SYSTEMS Group of any shares or other securities in, or
control of, Alvis and all authorisations, orders, recognitions, grants,
consents, licences, confirmations, clearances, permissions and approvals
reasonably deemed necessary or appropriate by BAE SYSTEMS or any member of the
wider BAE SYSTEMS Group for or in respect of the Offer including without
limitation, its implementation and financing or the proposed acquisition of any
shares or other securities in, or control of, Alvis by any member of the wider
BAE SYSTEMS Group having been obtained in terms and in a form reasonably
satisfactory to BAE SYSTEMS from all appropriate Third Parties or persons with
whom any member of the wider Alvis Group has entered into contractual
arrangements and all such authorisations, orders, recognitions, grants,
consents, licences, confirmations, clearances, permissions and approvals
together with all material authorisations orders, recognitions, grants,
licences, confirmations, clearances, permissions and approvals necessary or
appropriate to carry on the business of any member of the wider Alvis Group
which is material in the context of the BAE SYSTEMS Group or the Alvis Group as
a whole remaining in full force and effect and all filings necessary for such
purpose have been made and there being no notice or intimation of any intention
to revoke or not to renew any of the same at the time at which the Offer becomes
otherwise unconditional and all necessary statutory or regulatory obligations in
any jurisdiction having been complied with;

f)        except as publicly announced by Alvis prior to 2 June 2004, no member
of the wider Alvis Group having, since December 31, 2003:

         i.            save as between Alvis and wholly-owned subsidiaries of
Alvis or for Alvis Shares issued pursuant to the exercise of options granted
under the Alvis Share Option Schemes, issued, authorised or proposed the issue
of additional shares of any class;

       ii.            save as between Alvis and wholly-owned subsidiaries of
Alvis or for the grant of options under the Alvis Share Option Schemes, issued
or agreed to issue, authorised or proposed the issue of securities convertible
into shares of any class or rights, warrants or options to subscribe for, or
acquire, any such shares or convertible securities;

      iii.            other than to another member of the Alvis Group,
recommended, declared, paid or made or proposed to recommend, declare, pay or
make any bonus, dividend or other distribution whether payable in cash or
otherwise;

     iv.            save for intra-Alvis Group transactions, merged or demerged
with any body corporate or acquired or disposed of or transferred, mortgaged or
charged or created any security interest over any asset or any right, title or
interest in any asset (including shares and trade investments) or authorised or
proposed or announced any intention to propose any merger, demerger, acquisition
or disposal, transfer, mortgage, charge or security interest, in each case,
other than in the ordinary course of business;

       v.            save for intra-Alvis Group transactions, made or authorised
or proposed or announced an intention to propose any change in its loan capital;

     vi.            issued, authorised or proposed the issue of any debentures
or (save for intra-Alvis Group transactions), save in the ordinary course of
business, incurred or increased any indebtedness or become subject to any
contingent liability;

    vii.            purchased, redeemed or repaid or announced any proposal to
purchase, redeem or repay any of its own shares or other securities or reduced
or, save in respect to the matters mentioned in sub-paragraph (i) above, made
any other change to any part of its share capital;

  viii.            implemented, or authorised, proposed or announced its
intention to implement, any reconstruction, amalgamation, scheme, commitment or
other transaction or arrangement otherwise than in the ordinary course of
business or entered into or changed the terms of any contract with any director
or senior executive;

     ix.            entered into or varied or authorised, proposed or announced
its intention to enter into or vary any contract, transaction or commitment
(whether in respect of capital expenditure or otherwise) which is of a long
term, onerous or unusual nature or magnitude or which is or could be materially
restrictive on the businesses of any member of the wider Alvis Group or the
wider BAE SYSTEMS Group or which involves or could involve an obligation of such
a nature or magnitude or which is other than in the ordinary course of business
and which is material in the context of the wider Alvis Group taken as a whole;

       x.            (other than in respect of a member which is dormant and was
solvent at the relevant time) taken any corporate action or had any legal
proceedings started or threatened against it for its winding-up, dissolution or
reorganisation or for the appointment of a receiver, administrative receiver,
administrator, trustee or similar officer of all or any of its assets or
revenues or any analogous proceedings in any jurisdiction or had any such person
appointed;

     xi.            entered into any contract, transaction or arrangement which
would be restrictive on the business of any member of the wider Alvis Group or
the wider BAE SYSTEMS Group other than to a nature and extent which is normal in
the context of the business concerned;

    xii.            waived or compromised any claim otherwise than in the
ordinary course of business;

  xiii.            entered into any contract, commitment, arrangement or
agreement otherwise than in the ordinary course of business or passed any
resolution or made any offer (which remains open for acceptance) with respect to
or announced any intention to, or to propose to, effect any of the transactions,
matters or events referred to in this condition;

  xiv.            entered into or made an offer (which remains open for
acceptance) to enter into, or materially change the terms of, any agreement,
contract, commitment or arrangement with any of the directors or senior
executives of the wider Alvis Group;

   xv.            made or agreed or consented to any material change to the
terms of the trust deeds constituting the pension schemes established for its
directors and/or employees and/or their dependants or to the benefits which
accrue, or to the pensions which are payable, thereunder, or to the basis on
which qualification for, or accrual of or entitlement to, such benefits or
pensions are calculated or determined or to the basis upon which the liabilities
(including pensions) of such pension schemes are funded or made, or agreed or
consented to any change to the trustees involving the appointment of a trust
corporation;

  xvi.            been unable, or having admitted in writing that it is unable,
to pay its debts or having stopped or suspended (or threatened to stop or
suspend) payment of its debts generally or ceased or threatened to cease
carrying on all or a substantial part of its business; or

xvii.            made any alteration to its memorandum or articles of
association, or other incorporation documents

and, for the purposes of paragraphs (iii),(iv), (v) and (vi) of this condition,
the term 'Alvis Group' shall mean Alvis and its wholly-owned subsidiaries;

g)      since December 31, 2003 and save as disclosed in the accounts for the
year then ended and save as publicly announced in accordance with the Listing
Rules by Alvis prior to 2 June 2004 and which is material in the context of the
wider Alvis Group taken as a whole:

         i.            no adverse change or deterioration having occurred in the
business, assets, financial or trading position or profits or prospects of any
member of the wider Alvis Group;

       ii.            no litigation, arbitration proceedings, prosecution or
other legal proceedings to which any member of the wider Alvis Group is or may
become a party (whether as a plaintiff, defendant or otherwise) and no
investigation by any Third Party against or in respect of any member of the
wider Alvis Group having been instituted announced or threatened by or against,
or remaining outstanding in respect of any member of the wider Alvis Group which
in any such case might be reasonably expected to adversely affect any member of
the wider Alvis Group;

      iii.            no contingent or other liability having arisen or become
apparent to BAE SYSTEMS which would be likely to adversely affect any member of
the wider Alvis Group;

     iv.            no steps having been taken which are likely to result in the
withdrawal, cancellation, termination or modification of any licence held by any
member of the wider Alvis Group which is necessary for the proper carrying on of
its business; and

       v.            no inquiry or investigation by, or complaint or reference
to, any Relevant Authority or other investigative body in respect of any member
of the wider Alvis Group and no such inquiry, investigation complaint or
reference having been threatened announced or instituted or remaining
outstanding which in any such case might have an adverse affect on the wider
Alvis Group has been made.

h)      Save as publicly announced in accordance with the Listing Rules by Alvis
prior to 2 June 2004 or as otherwise fairly disclosed in writing to the BAE
SYSTEMS prior to that date by any member of the Alvis Group, BAE SYSTEMS not
having discovered:

         i.            that any financial, business or other information
concerning the wider Alvis Group as contained in the information publicly
disclosed at any time by or on behalf of any member of the wider Alvis Group is
materially misleading, contains a material misrepresentation of fact or omits to
state a fact necessary to make that information not misleading;

       ii.            that any member of the wider Alvis Group, partnership,
company or other entity in which any member of the wider Alvis Group has a
significant economic interest and which is not a subsidiary undertaking of Alvis
is subject to any liability (contingent or otherwise) which is not disclosed in
the annual report and accounts of Alvis for the year ended December 31, 2003 and
which is material in the context of the wider Alvis Group taken as a whole; or

      iii.            any information which affects the import of any
information disclosed at any time by or on behalf of any member of the wider
Alvis Group and which is material in the context of the wider Alvis Group taken
as a whole.

i)        BAE SYSTEMS not having discovered that:

         i.            any past or present member of the wider Alvis Group has
failed to comply with any and/or all applicable legislation or regulation, of
any jurisdiction with regard to the disposal, spillage, release, discharge, leak
or emission of any waste or hazardous substance or any substance likely to
impair the environment or harm human health or animal health or otherwise
relating to environmental matters, or that there has otherwise been any such
disposal, spillage, release, discharge, leak or emission (whether or not the
same constituted a non-compliance by any person with any such legislation or
regulations, and wherever the same may have taken place) any of which disposal,
spillage, release, discharge, leak or emission would be likely to give rise to
any liability (actual or contingent) on the part of any member of the wider
Alvis Group and which is material in the context of the wider Alvis Group taken
as a whole; or

       ii.            there is, or is likely to be, for that or any other reason
whatsoever, any liability (actual or contingent) of any past or present member
of the wider Alvis Group to make good, repair, reinstate or clean up any
property or any controlled waters now or previously owned, occupied, operated or
made use of or controlled by any such past or present member of the wider Alvis
Group, under any environmental legislation, regulation, notice, circular or
order of any government, governmental, quasi-governmental, state or local
government, supranational, statutory or other regulatory body, agency, court,
association or any other person or body in any jurisdiction and which is
material in the context of the wider Alvis Group taken as a whole; or

      iii.            circumstances exist whereby a person or class of persons
would be reasonably likely to have any claim or claims in respect of any
product, by-product or process of manufacture or service or materials used
therein now or previously manufactured, supplied, sold or in anyway dealt with
or handled by any member of the wider Alvis Group.

For the purposes of these conditions the 'wider Alvis Group' means Alvis and its
subsidiary undertakings, associated undertakings and any other undertaking in
which Alvis and/or such undertakings (aggregating their interests) have a
significant interest and the 'wider BAE SYSTEMS Group' means BAE SYSTEMS and its
subsidiary undertakings, associated undertakings and any other undertaking in
which BAE SYSTEMS and/or such undertakings (aggregating their interests) have a
significant interest and for these purposes 'subsidiary undertaking', '
associated undertaking' and 'undertaking' have the meanings given by the
Companies Act 1985, other than paragraph 20(1)(b) of Schedule 4A to that Act
which shall be excluded for this purpose, and 'significant interest' means a
direct or indirect interest in ten per cent. or more of the equity share capital
(as defined in that Act).

BAE SYSTEMS reserves the right to waive, in whole or in part, all or any of the
above conditions, except condition (a).

Conditions (c) to (i) (inclusive) must be fulfilled or waived by midnight on the
21st day after the later of the first closing date of the Offer and the date on
which condition (a) is fulfilled (or in each such case such later date as BAE
SYSTEMS may, with the consent of the Panel, decide).  BAE SYSTEMS shall be under
no obligation to waive or treat as satisfied any of the conditions (b) to (i)
(inclusive) by a date earlier than the latest date specified above for the
satisfaction thereof, notwithstanding that the other conditions of the Offer may
at such earlier date have been waived or fulfilled and that there are at such
earlier date no circumstances indicating that any of such conditions may not be
capable of fulfilment.

If BAE SYSTEMS is required by the Panel to make an offer for Alvis Shares under
the provisions of Rule 9 of the Code, BAE SYSTEMS may make such alterations to
any of the above conditions as are necessary to comply with the provisions of
that Rule.

The Offer will lapse (unless otherwise agreed by the Panel) if, before 3:00 p.m.
on the later of the first closing date or the date on which the Offer becomes or
is declared unconditional as to acceptances, the Secretary of State or the OFT
(as the case may be) announces a reference of the proposed acquisition of Alvis
by BAE SYSTEMS to the Competition Commission and/or the European Commission
initiates proceedings under Article 6(1)(c) of the Regulation in relation to the
proposed acquisition of Alvis by BAE SYSTEMS.

This Offer will be governed by English law and be subject to the jurisdiction of
the English courts, and to the conditions set out below and in the formal Offer
Document and related Form of Acceptance, or as may be required to comply with
the provisions of the Code.

Part B:  Certain further terms of the Offer

The making of the Offer in, or to Alvis Shareholders resident in, or to citizens
or nationals of, jurisdictions outside the UK or the United States, or to
persons who are custodians, nominees or trustees for citizens or nationals or
residents of jurisdictions outside the UK or the United States ('overseas
persons') may be prohibited or affected by the laws of the relevant overseas
jurisdiction.  Such overseas persons should inform themselves about and observe
any applicable legal requirement.  It is the responsibility of any such overseas
persons wishing to accept the Offer to satisfy himself/herself as to the full
observance of the laws of the relevant jurisdiction in connection therewith,
including the obtaining of any governmental, exchange control or other consents
which may be required, the compliance with other necessary formalities and the
payment of any issue, transfer or other taxes or duties due in that
jurisdiction.  Any such overseas person will be responsible for any such issue,
transfer or other taxes or duties by whomsoever payable and BAE SYSTEMS and
Goldman Sachs International (and any person acting on behalf of either of them)
shall be fully indemnified and held harmless by such overseas person for any
such issue, transfer or other taxes or duties or other requisite payments as BAE
SYSTEMS or Goldman Sachs International may be required to pay.

Alvis Shares will be acquired under the Offer free from all liens, equities,
charges, encumbrances and other interests and together with all rights attaching
thereto.


                                  Appendix II

                Sources of information and bases of calculation

         i.            The value placed by the Offer on the existing share
capital of Alvis is based on 110,918,352 Alvis Shares in issue on 2 June 2004.

       ii.            The closing middle-market prices of Alvis Shares are
derived from the Official List of the London Stock Exchange for the relevant
dates.

      iii.            The financial information relating to Alvis is extracted
from the audited financial statements of Alvis for the relevant financial year.

     iv.            The value of the existing share capital of BAE SYSTEMS is
based on 3,060,076,408 BAE SYSTEMS shares outstanding at 2 June 2004.

       v.            The closing price of BAE SYSTEMS shares as at 2 June 2004
is derived from the Official List of the London Stock Exchange.

     vi.            The financial information relating to BAE SYSTEMS is
extracted from the audited financial statements of BAE SYSTEMS for the relevant
financial year.


                                  Appendix III

                                  Definitions

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

'Act' or 'Companies Act'                            the Companies Act 1985, as amended

'Alvis' or the 'Company'                            Alvis plc (company no. 731159)

'Alvis Group' or the 'Group'                        Alvis and its subsidiary undertakings and where
                                                    the context permits, each of them
'Alvis Shareholder(s)' or 'Shareholders'            holders of Alvis Shares

'Alvis Share Option Schemes'                        the various Alvis share option schemes known as
                                                    the Key Employee Share Option Scheme, the
                                                    Executive Share Option Scheme, the Option
                                                    Incentive Plan and the Inland Revenue approved
                                                    SAYE Scheme

'Alvis Share(s)'                                    the existing unconditionally allotted or issued
                                                    and fully paid ordinary shares of 25 pence each
                                                    in the capital of Alvis and any further such
                                                    shares which are unconditionally allotted or
                                                    issued prior to the time at which the Offer
                                                    ceases to be open for acceptance (or, subject to
                                                    the provisions of the Code, such earlier time and
                                                    /or date as BAE SYSTEMS may decide)

'BAE SYSTEMS'                                       BAE SYSTEMS plc (company no. 1470151)
'business day'                                      any day, other than a Saturday, Sunday or public
                                                    or bank holiday, on which banks are generally
                                                    open for business in the City of London and in
                                                    New York

'CFDs'                                              Contracts for differences or other similar
                                                    arrangements

'CFD Commitments'                                   as defined in Part 1 of this announcement

'Code'                                              the City Code on Takeovers and Mergers

'Form of Acceptance'                                the form of acceptance, authority and election
                                                    relating to the Offer

'Lazard'                                            Lazard & Co., Limited

'Listing Rules'                                     the listing rules of the UK Listing Authority

'Loan Note(s)'                                      the loan notes of BAE SYSTEMS to be issued
                                                    pursuant to the Loan Note Alternative

'Loan Note Alternative'                             the alternative under which Alvis Shareholders
                                                    who validly accept the Offer are entitled to
                                                    elect to receive Loan Notes instead of all or
                                                    part of the cash consideration to which they
                                                    would otherwise have been entitled under the
                                                    Offer

'London Stock Exchange'                             London Stock Exchange plc

'Network Enabled Capabilities'                      encompasses linking sensors, decision makers and
                                                    weapon systems so that information can be
                                                    translated into synchronised and overwhelming
                                                    military effect rapidly and reliably

'Offer'                                             the recommended offer being made by Goldman Sachs
                                                    International on behalf of BAE SYSTEMS outside
                                                    the United States, and by BAE SYSTEMS in the
                                                    United States, to acquire all the Alvis Shares
                                                    not already owned by BAE SYSTEMS and including,
                                                    where the context so permits, the Loan Note
                                                    Alternative and, where the context so requires,
                                                    any subsequent revision, variation, extension or
                                                    renewal thereof
'Offer Document'                                    the document containing and setting out the terms
                                                    and conditions of the Offer

'Official List'                                     the Official List of the UK Listing Authority

'Panel'                                             the Panel on Takeovers and Mergers

'UK' or 'United Kingdom'                            United Kingdom of Great Britain and Northern
                                                    Ireland

'UK Listing Authority'                              the Financial Services Authority acting in its
                                                    capacity as the competent authority for the
                                                    purposes of Part VI of the Financial Services and
                                                    Markets Act 2000

'US' or 'United States'                             the United States of America, its territories and
                                                    possessions, any State of the United States of
                                                    America and the District of Columbia, and all
                                                    other areas subject to its jurisdiction
'US Person'                                         a US person as defined in Regulation S under the
                                                    US Securities Act
'US Securities Act'                                 the US Securities Act of 1933, as amended, and
                                                    the rules and regulations promulgated thereunder

'£', 'sterling' and 'pence'                         means the lawful currency of the United Kingdom

All times referred to are London time unless otherwise stated.







                      This information is provided by RNS
            The company news service from the London Stock Exchange