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	Sincerely,
	Thomas W. Rabaut
	President and Chief Executive Officer

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	•	to consider and vote upon a proposal to adopt the Agreement and Plan of Merger dated as of March 6, 2005, among UDI, BAE Systems North America Inc., a Delaware corporation, or BAE Systems, and Ute Acquisition Company Inc., a Delaware corporation and a wholly owned subsidiary of BAE Systems, or Acquisition Sub, pursuant to which, upon the merger becoming effective:

	•	Acquisition Sub will be merged with and into UDI with UDI continuing as the surviving corporation and a wholly owned subsidiary of BAE Systems, and
	•	each share of common stock, par value $0.01 per share, of UDI issued and outstanding immediately prior to the merger becoming effective (other than shares owned by UDI, BAE Systems, or Acquisition Sub, or any of their wholly owned subsidiaries), will be converted into the right to receive $75.00 in cash, without interest;

	•	to elect nine directors to serve on our board of directors;
	•	to consider and vote upon a proposal to adjourn the annual meeting, if necessary, to solicit additional proxies in favor of adoption of the merger agreement; and
	•	to consider such other business as may properly come before the meeting or any adjournment or postponement thereof.

	By Order of the Board of Directors
	David V. Kolovat
	Secretary

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			Page
QUESTIONS AND ANSWERS ABOUT THE MERGER				1
SUMMARY				4
	The Proposed Transaction			4
	When the Merger will be Completed			4
	The Companies			4
	Recommendation of Our Board of Directors			5
	Opinions of Our Financial Advisors			5
	Matters to be Considered			5
	The Annual Meeting			5
	Material U.S. Federal Income Tax Consequences of the Merger to Our U.S. Stockholders			6
	Interests of Directors and Executive Officers in the Merger			6
	Conversion of Shares; Procedures For Exchange of Certificates			7
	Regulatory Approvals Required for the Merger			7
	Merger Consideration			8
	Treatment of Stock Options and Restricted Stock			8
	Stockholders Seeking Appraisal			8
	Conditions to the Merger			9
	No Solicitation of Other Offers; Adverse Recommendation Change			9
	Termination of the Merger Agreement			9
	Termination Fee			10
THE ANNUAL MEETING OF OUR STOCKHOLDERS				11
	Date, Time, Place, and Purpose of Annual meeting			11
	Stock Entitled to Vote; Record Date			11
	Vote Required; Quorum			11
	Abstentions and Broker Non-Votes			11
	Share Ownership of Directors and Executive Officers			12
	Voting by Proxy			12
	Revocability of Proxies			12
	Solicitation of Proxies			12
	Other Business			13
	Adjournments and Postponements			13
THE COMPANIES				14
	United Defense Industries, Inc.			14
	BAE Systems North America Inc.			14
	Ute Acquisition Company Inc.			14
THE MERGER				15
	Background of the Merger			15
	Our Reasons for the Merger			20
	Recommendation of Our Board of Directors			22
	Opinion of Our Financial Advisors — JPMorgan and Lehman Brothers			22
	Financing Condition			26
	Material U.S. Federal Income Tax Consequences of the Merger to Our U.S. Stockholders			26
	Interests of Directors and Executive Officers in the Merger			28
	Appraisal Rights			29
	Form of the Merger			31
	Conversion of Shares; Procedures for Exchange of Certificates			31
	Regulatory Approvals Required for the Merger			32
THE MERGER AGREEMENT				34
	Structure and Effective Time of the Merger			34
	Merger Consideration			34
	Directors and Officers			34
	Treatment of Stock Options and Restricted Stock			34
	Stockholders Seeking Appraisal			34
	Payment for the Shares			35

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			Page
	Representations and Warranties			35
	Conduct of Business Pending the Merger			36
	Efforts to Complete the Merger			38
	Conditions to the Merger			38
	Annual Meeting; Proxy Statement			40
	BAE Parent Letter			40
	No Solicitation of Other Offers; Adverse Recommendation Change; Termination to Accept a Superior Proposal			41
	Termination of the Merger Agreement			43
	Termination Fee			43
	Indemnification Obligations			44
	Employee Obligations			44
	Amendment, Extension and Waiver			45
ELECTION OF DIRECTORS				46
	Recommendation of the Board of Directors			47
	The Board of Directors and Committees			47
	Executive Officers			50
	Executive Compensation			52
	Employment Agreements			56
	Compensation Committee Report on Executive Compensation			57
	Compensation Committee Interlocks and Insider Participation			59
	Security Ownership of Certain Beneficial Owners and Management			59
	Performance Graph			61
	Certain Relationships and Related Transactions			61
	Section 16(a) Beneficial Ownership Reporting Compliance			61
	Relationship with Independent Public Accountants			62
	Fees and Services of Ernst & Young LLP			62
MARKET PRICE OF OUR COMMON STOCK AND DIVIDEND INFORMATION				63
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS				64
MULTIPLE STOCKHOLDERS SHARING ONE ADDRESS				64
STOCKHOLDER PROPOSALS				64
ANNUAL REPORT ON FORM 10-K AND WHERE YOU CAN FIND MORE INFORMATION				65
ANNEX A — Merger Agreement
ANNEX B — Opinion of J.P. Morgan Securities Inc.
ANNEX C — Opinion of Lehman Brothers Inc.
ANNEX D — Section 262 of the General Corporation Law of the State of Delaware
ANNEX E — Charter of the Audit and Ethics Committee of the Board of Directors

ii

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Q.		What is the proposed transaction?
A.		The proposed transaction provides for the acquisition of UDI by BAE Systems. The proposed transaction would be accomplished through a merger of Acquisition Sub, a wholly owned subsidiary of BAE Systems, with and into UDI, with UDI surviving, which we refer to as the merger. As a result of the merger:
		• UDI will become a wholly owned subsidiary of BAE Systems,
		• our common stock will cease to be listed on the New York Stock Exchange, or the NYSE, and will no longer be publicly traded, and
		• each outstanding share of our common stock (other than shares owned by UDI, BAE Systems, or Acquisition Sub, or any of their wholly owned subsidiaries) will be converted into the right to receive $75.00 in cash, without interest.
Q.		What is the purpose of the annual meeting?
A.		At the annual meeting we will be asking our stockholders to adopt the agreement and plan of merger among BAE Systems, Acquisition Sub, and UDI, which we refer to as the merger agreement, pursuant to which the merger will occur. We will also be asking our stockholders to elect nine directors to serve on our board of directors and to approve the adjournment, if necessary, of the annual meeting.
Q.		Where and when is the annual meeting?
A.		The annual meeting will take place at the Hyatt Regency Crystal City, 2799 Jefferson Davis Highway, Arlington, Virginia 22202 on May 10, 2005 at 11:00 a.m. local time.
Q.		Who is entitled to vote at the annual meeting?
A.		Only holders of record of our common stock as of the close of business on March 21, 2005 are entitled to receive notice of the annual meeting and to vote the shares of our common stock that they held on that date at the annual meeting, or at any adjournments or postponements of the annual meeting. As of the close of business on March 21, 2005, 50,846,626 shares of our common stock were outstanding.
Q.		What vote of stockholders is required to adopt the merger agreement?
A.		Adoption of the merger agreement requires the affirmative vote of stockholders holding a majority of the outstanding shares of our common stock entitled to vote at the annual meeting. Each share of our common stock is entitled to one vote.
Q.		How does the board of directors recommend that I vote?
A.		Our board of directors unanimously (with one director not participating) recommends that our stockholders vote FOR adoption of the merger agreement. You should read “The Merger — Our Reasons for the Merger” for a discussion of the factors that our board of directors considered in deciding to recommend adoption of the merger agreement.
Q.		What other matters am I being asked to vote on?
A.		In addition to the adoption of the merger agreement, we will also be asking you to elect nine directors to serve on our board of directors, to approve a proposal to adjourn the annual meeting, if necessary, to solicit additional proxies in favor of adoption of the merger agreement, and to approve any other matters that may properly come before the annual meeting.

1

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Q.		If the merger is completed, what will I receive for my shares of UDI common stock?
A.		In the merger, each share of our common stock that is issued and outstanding (other than shares owned by UDI, BAE Systems, or Acquisition Sub, or any of their wholly owned subsidiaries) will be converted into the right to receive $75.00 in cash, without interest, which we refer to as the merger consideration. As a result of the merger, upon the surrender of your stock certificate(s), you will receive a total amount equal to the product obtained by multiplying the merger consideration by the number of shares of our common stock that you own. In the event of a transfer of ownership of common stock that is not registered in the records of our transfer agent, the merger consideration may, subject to certain requirements, be paid to a person other than the person in whose name the certificate so surrendered is registered. See “The Merger — Conversion of Shares; Procedures for Exchange of Certificates.”
Q.		Will the merger consideration I receive in the merger increase if the results of operations of UDI improve or if the price of UDI common stock increases above $75.00 per share?
A.		No. The value of the merger consideration is fixed. The merger agreement does not contain any provision that would adjust the merger consideration based on fluctuations in the price of our common stock, the amount of working capital we hold at the consummation of the merger, or improvements in our results of operations prior to the consummation of the merger.
Q.		Is the merger subject to the fulfillment of certain conditions?
A.		Yes. Before completion of the merger, UDI, BAE Systems, and Acquisition Sub must fulfill or waive the closing conditions contained in the merger agreement. If these conditions are not satisfied or waived, the merger will not be completed. See “The Merger Agreement — Conditions to the Merger.”
Q.		Am I entitled to appraisal rights?
A.		Yes. You are entitled to appraisal rights under the General Corporation Law of the State of Delaware, which we refer to as the DGCL, in connection with the merger. See “The Merger — Appraisal Rights.”
Q.		What happens if a third party makes an offer to acquire UDI before the merger is completed?
A.		Prior to the adoption of the merger agreement by our stockholders, our board of directors may, subject to certain requirements and rights of BAE Systems under the merger agreement, terminate the merger agreement in order to enter into a superior acquisition agreement with a third party contemplating the acquisition of UDI if our board of directors determines in good faith after consultation with a financial advisor of nationally recognized reputation that the consideration payable to our stockholders under that superior acquisition agreement has a higher value than the consideration to be received by our stockholders in the merger and that the transaction contemplated by the superior acquisition agreement is reasonably capable of being completed. See “The Merger Agreement — Termination of the Merger Agreement.” In the event that our board of directors terminates the merger agreement in order for UDI to enter into a superior acquisition agreement with a third party, as well as in certain other circumstances, we would be obligated to pay BAE Systems a termination fee of $119,233,768. See “The Merger Agreement — Termination Fee.”
Q.		When is the merger expected to be completed?
A.		We expect the merger to occur in the second quarter of 2005 as soon as possible after all the conditions to the merger are satisfied or waived. In order to complete the merger, we must obtain stockholder approval and satisfy the other closing conditions under the merger agreement.
Q.		What do I need to do now?
A.		After carefully reading and considering the information contained in this proxy statement, including its annexes, please complete, sign, and date the enclosed proxy card and return it in the postage prepaid envelope provided as soon as possible.
Q.		May I vote in person?
A.		Yes. You may attend the annual meeting and vote your shares in person rather than by signing and returning your proxy card. If you wish to vote in person and your shares are held by a broker or other nominee, you need to obtain a proxy from the broker authorizing you to vote your shares held in the broker’s name.

2

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Q.		May I vote via the Internet or telephone?
A.		Yes, if your shares are held through a broker or bank and such a service is provided by your broker or bank, you may vote by completing and returning the voting form provided by your broker or bank or via the Internet or by telephone through your broker or bank. To vote via the Internet or telephone, you should follow the instructions on the voting form provided by your broker or bank. If your shares are registered in your name, you may only vote by returning a signed proxy card or voting in person at the annual meeting, and you will not be able to vote via the Internet or telephone.
Q.		What happens if I do not vote?
A.		Because the required vote of our stockholders to adopt the merger agreement is based upon the total number of outstanding shares of our common stock, rather than upon the shares actually voted, the failure to return your proxy card or to otherwise vote will have the same effect as voting AGAINST adoption of the merger agreement. Failure to vote or voting to abstain will have no effect on approval of the other matters being considered at the annual meeting. If you return a properly signed proxy card but do not indicate how you want to vote, your proxy will be counted as a vote FOR adoption of the merger agreement, FOR approval of any proposal to adjourn the annual meeting to solicit additional proxies in favor of adoption of the merger agreement, and FOR the election of the nine director nominees named in this proxy statement to serve on our board of directors.
Q.		If my shares are held in “street name” by my broker, will my broker vote my shares for me?
A.		Yes, but your broker will only be permitted to vote your shares of UDI common stock on the adoption of the merger agreement and the proposal to adjourn the annual meeting if you instruct your broker how to vote. Your broker may have authority under the rules of the NYSE to vote your shares of UDI common stock on the election of directors even if you do not instruct your broker how to vote. You should follow the procedures provided to you by your broker regarding how to instruct your broker to vote your shares.
Q.		Should I send in my stock certificates now?
A.		No. After the merger is completed, you will be sent detailed instructions informing you how to send in your stock certificates in order to receive the merger consideration. You will receive the merger consideration as soon as practicable after receipt by the paying agent for the merger consideration of your stock certificates, together with the completed documents required in the instructions. Do not send any stock certificates with your proxy.
Q.		Will I owe taxes as a result of the merger?
A.		Generally, the merger will be a taxable transaction for U.S. holders of our common stock. As a result, assuming you are a U.S. holder, any gain you recognize as a result of the merger will be subject to United States federal income tax and also may be taxed under applicable state, local, and other tax laws. In general, you will recognize gain or loss equal to the difference between (1) the amount of cash you receive and (2) the adjusted tax basis of your shares of our common stock converted in the merger. See “The Merger — Material U.S. Federal Income Tax Consequences of the Merger to Our U.S. Stockholders” for a more detailed explanation of the tax consequences of the merger. You should consult your tax advisor on how specific tax consequences of the merger apply to you.
Q.		Where can I find more information about UDI?
A.		We file periodic reports and other information with the Securities and Exchange Commission, which we refer to as the SEC. You may read and copy this information at the SEC’s public reference facility. Please call the SEC at 1-800-SEC-0330 for information about this facility. This information is also available on the internet site maintained by the SEC at http://www.sec.gov. For a more detailed description of the information available, please refer to the section entitled “Where You Can Find More Information.”
Q.		Who can help answer my questions?
A.		If you have questions about the annual meeting or the merger after reading this proxy statement, or would like additional copies of this proxy statement or the proxy card, you should contact MacKenzie Partners, Inc. at (800) 322-2885 (toll-free) or (212) 929-5500 (collect).

3

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	•	UDI will become a wholly owned subsidiary of BAE Systems,
	•	our common stock will cease to be listed on the NYSE and will no longer be publicly traded, and
	•	each outstanding share of our common stock (other than shares owned by UDI, BAE Systems, or Acquisition Sub, or any of their wholly owned subsidiaries) will be converted into the right to receive $75.00 in cash, without interest.

	United Defense Industries, Inc. (page 14)

	BAE Systems North America Inc. (page 14)

	Ute Acquisition Company Inc. (page 14)

4

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	•	determined that the terms of the merger, the merger agreement, and the other transactions contemplated by the merger agreement are fair to, and in the best interest of, our stockholders;
	•	approved the merger and the merger agreement and declared the merger and the merger agreement advisable; and
	•	recommended that our stockholders adopt the merger agreement.

	J.P. Morgan Securities Inc. (page 22)

	Lehman Brothers Inc. (page 23)

	•	Date, Time, and Place (page 11)

	•	Record Date and Voting (page 11)

5

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	•	Required Vote (page 11)

	•	Quorum (page 11)

	•	Voting by Proxy (page 12)

	•	Revocability of Proxy (page 12)

	•	sending a later-dated proxy;
	•	giving written notice of revocation to the Secretary of UDI at our principal executive offices; or
	•	voting in person at the annual meeting.

	•	our directors and executive officers will have their unvested stock options and restricted stock accelerated and their vested and unvested stock options and restricted stock “cashed out” in connection with the merger, meaning that they will receive cash payments for each share underlying their options

6

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		equal to the excess of $75.00 per share over the exercise price per share of their options and $75.00 per share of restricted stock, subject to any required withholding for taxes;
	•	our executive officers may be entitled to benefits under their employment or severance agreements, which generally provide for lump sum cash payments in an amount equal to the equivalent of (i) one, two, or three times their annual salaries and their target bonuses and (ii) a pro rata target bonus for the year of termination and continued employee benefits for the period their annual salaries continue, in each case, in the event that an executive officer’s employment is terminated by us other than for cause or by the executive for good reason, and provide for an additional “gross-up” lump sum payment to cover the costs of excise taxes, if any, to which our executive officers may be subject;
	•	certain indemnification and insurance arrangements for our current and former directors and officers will be continued following completion of the merger;
	•	Thomas W. Rabaut, our president and chief executive officer, has been offered the position of head of BAE Systems’ global land systems business following the merger. Discussions regarding the terms on which Mr. Rabaut would take on this role are in progress and no definitive agreement has been reached by the parties;
	•	Additionally, discussions have commenced regarding BAE Systems’ potential employment of other UDI executive officers; and
	•	BAE Systems has begun discussions with one or more members of our current board of directors about joining the board of directors of BAE Systems following completion of the merger.

7

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8

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	•	by mutual written consent of BAE Systems, Acquisition Sub, and UDI;
	•	by either BAE Systems or UDI:

	•	if the merger has not been consummated by December 6, 2005, except that a party who has willfully and materially breached the merger agreement cannot terminate on this basis;
	•	if a governmental entity permanently enjoins the consummation of the merger and such action has become final and nonappealable;
	•	if our stockholders do not adopt the merger agreement; or
	•	if the shareholders of BAE Parent do not approve the merger.

	•	by BAE Systems:

	•	if we have breached the merger agreement and such breach would cause the condition to the merger relating to our representations and warranties or our covenants and agreements not to be satisfied, and such breach cannot be or has not been cured within 30 days of notice; or
	•	our board of directors changes in any manner adverse to BAE Systems or withdraws its recommendation that our stockholders adopt the merger agreement, approves or recommends a takeover proposal from a third party, or determines that the merger agreement or the merger is no longer advisable or recommends that our stockholders reject the merger agreement, the merger, or the related transactions.

	•	by UDI:

	•	if either BAE Systems or Acquisition Sub has breached the merger agreement and such breach would cause the condition to the merger relating to their representations and warranties or their covenants and agreements not to be satisfied, and such breach cannot be or has not been cured within 30 days of notice;
	•	if we enter into a definitive agreement for a superior proposal and pay the termination fee to BAE Systems and Acquisition Sub; or
	•	if the board of directors of BAE Parent does not recommend the approval of the merger by the shareholders of BAE Parent in the circular sent to shareholders of BAE Parent or the board of directors of BAE Parent changes in a manner adverse to us or withdraws its recommendation of the merger to the shareholders of BAE Parent or recommends that the shareholders of BAE Parent reject the merger.

9

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10

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11

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	•	submitting another properly completed proxy bearing a later date;
	•	giving written notice of revocation to UDI, addressed to the Secretary (United Defense Industries, Inc., 1525 Wilson Blvd., Suite 700, Arlington, Virginia 22209); or
	•	attending the annual meeting and voting by in person.

12

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13

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14

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15

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16

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17

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18

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19

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	•	approved the merger agreement, the merger, and the related transactions;
	•	determined that the terms of the merger, the merger agreement, and the related transactions are fair to and in the best interests of our stockholders;
	•	declared the merger agreement and the merger advisable; and
	•	recommended that our stockholders adopt the merger agreement.

	•	Other strategic alternatives available to us, including pursuing growth through strategic corporate acquisitions and continuing to operate as an independent public company. Although our board of directors believed that our prospects remained strong as an independent company, a sale of UDI as a whole at the price offered by BAE Systems was more likely to maximize stockholder value than remaining an independent company and other alternatives. Moreover, our board of directors considered that there were risks and uncertainties associated with remaining an independent public company.
	•	The merger consideration of $75.00 per share to be received by our stockholders represents a substantial premium to the historic trading prices of our common stock. The merger consideration represents a 28.7% premium over the closing price of our common stock on March 4, 2005 (the last trading day preceding the announcement of the merger agreement), a 43.3% premium over the average closing price of our common stock over the 30 calendar days preceding March 4, 2005, a 67.7% premium over the average closing price of our common stock over the 180 calendar days preceding March 4, 2005, and a 91.1% premium over the average closing price of our common stock over the one year period preceding March 4, 2005.
	•	The merger consideration consists solely of cash, which provides certainty of value to our stockholders.
	•	The general terms and conditions of the merger agreement, including the parties’ representations, warranties and covenants, the conditions to their respective obligations as well as the likelihood of the consummation of the merger, the proposed transaction structure, the termination provisions of the merger agreement, and our board of directors’ evaluation of the likely time period necessary to close the merger.
	•	BAE Systems’ obligation to consummate the merger is not subject to any financing contingencies.
	•	Our board of directors’ view of BAE Systems’ ability to fund the merger consideration either directly or with the support of its ultimate parent company, BAE Parent.
	•	Our board of directors’ and management’s view that it is unlikely that any other party would propose to enter into a transaction more favorable to our stockholders.
	•	Prior to adoption of the merger agreement by our stockholders, the merger agreement permits us, under certain conditions and subject to certain requirements and rights of BAE Systems, to provide information to, and negotiate with, any third party that makes an unsolicited acquisition proposal if our board of directors determines in good faith that the acquisition proposal is reasonably likely to result in a superior proposal.
	•	Prior to adoption of the merger agreement by our stockholders, the merger agreement can be terminated by us if our board of directors receives a superior proposal, subject to certain requirements and rights of BAE Systems and payment of a termination fee.

20

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	•	The likelihood that the merger would be approved by the requisite regulatory authorities.
	•	The presentation of JPMorgan on March 6, 2005 and its opinion that, as of March 6, 2005, and based upon and subject to the factors and assumptions set forth in its opinion, the $75.00 in cash per share of UDI common stock to be received by our stockholders pursuant to the merger agreement was fair, from a financial point of view, to our stockholders. The full text of the written opinion of JPMorgan, dated March 6, 2005, which sets forth the assumptions made, matters considered, and limitations on the review undertaken in connection with the opinion, is attached as Annex B to this proxy statement.
	•	The presentation of Lehman Brothers on March 6, 2005 and its opinion that, as of March 6, 2005, and based upon and subject to the factors and assumptions set forth in its opinion, the $75.00 in cash per share of UDI common stock to be received by our stockholders pursuant to the merger agreement was fair, from a financial point of view, to our stockholders. The full text of the written opinion of Lehman Brothers, dated March 6, 2005, which sets forth the assumptions made, matters considered, and limitations on the review undertaken in connection with the opinion, is attached as Annex C to this proxy statement.

	•	The merger agreement precludes us from actively soliciting alternative proposals, although, prior to adoption of the merger agreement by our stockholders, our board of directors is permitted to provide information to, and negotiate with, any third party that makes an unsolicited acquisition proposal if the board determines in good faith that the acquisition proposal is reasonably likely to result in a superior proposal.
	•	We are obligated to pay BAE Systems a termination fee of $119,233,768 if the merger agreement is terminated under certain circumstances. It is possible that these provisions could discourage a competing proposal to acquire us or reduce the price in an alternative transaction.
	•	The merger consideration consists solely of cash and will therefore generally be taxable to our U.S. stockholders for U.S. federal income tax purposes. In addition, because our stockholders are receiving cash for their stock, they will not participate after the closing in future dividends, our future growth, or the benefits of synergies potentially resulting from the merger.
	•	The merger is subject to, among other things, the approval of the shareholders of BAE Parent.
	•	Certain of our directors and executive officers may have conflicts of interest in connection with the merger, as they may receive certain benefits that are different from, and in addition to, those of our other stockholders. See “— Interests of Directors and Executive Officers in the Merger.”
	•	We may incur significant risks and costs if the merger does not close, including the diversion of management and employee attention during the period after the signing of the merger agreement, potential employee attrition, and the potential effect on our business and customer relations. In that regard, under the merger agreement, we must conduct our business in the ordinary course and we are subject to a variety of other restrictions on the conduct of our business prior to completion of the merger or termination of the merger agreement, which may delay or prevent us from undertaking business opportunities that may arise or preclude actions that would be advisable if we were to remain an independent public company.

21

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	Opinion of JPMorgan

	•	reviewed a draft dated March 5, 2005 of the merger agreement;
	•	reviewed certain publicly available business and financial information concerning UDI and the industries in which we operate;
	•	compared the proposed financial terms of the merger with the publicly available financial terms of certain transactions involving companies JPMorgan deemed relevant and the consideration received for such companies;
	•	compared our financial and operating performance with publicly available information concerning certain other companies JPMorgan deemed relevant and reviewed the current and historical market prices of our common stock and certain publicly traded securities of such other companies;
	•	reviewed certain internal financial analyses and forecasts prepared by our management relating to our business; and
	•	performed such other financial studies and analyses and considered such other information as JPMorgan deemed appropriate for the purposes of its opinion.

22

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	Opinion of Lehman Brothers

	•	the merger agreement and the specific terms of the merger, including the necessary regulatory approvals;
	•	publicly available information concerning us that Lehman Brothers believed to be relevant to its analysis, including, our earnings announcement for the fiscal year 2004 that was filed on Form 8-K on January 27, 2005, our Annual Report on Form 10-K for the fiscal year ended December 31, 2003, and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2004;
	•	financial and operating information with respect to our business, operations, and prospects furnished to Lehman Brothers by us, including a draft of our Annual Report on Form 10-K for the fiscal year ended December 31, 2004;
	•	a trading history of our common stock from its commencement of trading on the NYSE on December 14, 2001 to March 4, 2005 and a comparison of that trading history with those of other companies that Lehman Brothers deemed relevant;
	•	a comparison of our historical financial results and present financial condition with those of other companies that Lehman Brothers deemed relevant;
	•	a comparison of the financial terms of the merger with the financial terms of certain other recent transactions that Lehman Brothers deemed relevant;
	•	independent research analysts’ estimates of our future financial performance published by The Institutional Brokers Estimate System, or I/B/E/S; and

23

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	•	the results of our efforts and the efforts of Lehman Brothers and JPMorgan to solicit indications of interest from third parties with respect to a sale of UDI.

	Summary of the Financial Analyses Performed by Our Financial Advisors

	Public Trading Multiples

	•	Boeing
	•	Lockheed Martin
	•	Northrop Grumman
	•	General Dynamics
	•	Raytheon
	•	L-3 Communications
	•	Alliant Techsystems
	•	DRS Technologies

24

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	•	Armor Holdings
	•	EDO Corp.

	Selected Transaction Analysis

	•	Northrop Grumman’s acquisition of Newport News
	•	L-3 Communications’ acquisition of Aircraft Integration Systems
	•	Our acquisition of United States Marine Repair
	•	General Dynamics’ acquisition of Advanced Technical Products
	•	Northrop Grumman’s acquisition of TRW
	•	General Dynamics’ acquisition of General Motors Defense
	•	DRS’ acquisition of Integrated Defense
	•	General Dynamics’ acquisition of Alvis (acquisition proposed, but not consummated)
	•	BAE Parent’s acquisition of Alvis

	Discounted Cash Flow Analysis

25

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	General

26

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	•	an individual citizen or resident of the United States;
	•	a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any state thereof or the District of Columbia;
	•	an estate whose income is subject to U.S. federal income tax regardless of its source; or
	•	a trust (a) if a U.S. court is able to exercise primary supervision over the trust’s administration and one or more U.S. persons have the authority to control all substantial decisions of the trust; or (b) which has a valid election in place to be treated as a U.S. person.

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	Stock Options and Restricted Stock

	Employment Agreements and Severance Agreements

	Employment Agreements with Messrs. Rabaut, Raborn, Krekich, Kolovat, and Wagner

	Severance Agreements with Messrs. Doty and Howe

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	Indemnification of Officers and Directors

	Post-Merger Opportunities

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	•	You must deliver to us a written demand for appraisal of your shares before the vote on the merger agreement is taken. A demand for appraisal must reasonably inform us of the identity of the holder of record of our common stock and that such holder intends thereby to demand appraisal of his or her shares of our common stock. This written demand for appraisal must be in addition to and separate from any proxy or vote abstaining from or voting against approval and adoption of the merger agreement and the merger. Voting against or failing to vote for approval and adoption of the merger agreement and the merger by itself does not constitute a demand for appraisal within the meaning of Section 262.
	•	You must not vote in favor of adoption of the merger agreement. A vote in favor of the adoption of the merger agreement, by proxy or in person, will constitute a waiver of your appraisal rights in respect of the shares so voted and will nullify any previously filed written demands for appraisal.

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	•	the certificate is properly endorsed or otherwise is in proper form for transfer; and
	•	the person requesting such payment (a) pays any transfer or other taxes resulting from the payment to a person other than the registered holder of the certificate or (b) establishes to BAE Systems’ satisfaction that the tax has been paid or is not applicable.

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	•	our and our subsidiaries’ organization, standing and power, and other corporate matters;
	•	our and our subsidiaries’ capitalization;
	•	the authorization, execution, delivery, and enforceability of the merger agreement;
	•	the absence of conflicts or violations under our organizational documents, contracts, instruments or law, and required consents and approvals;
	•	the filing of all reports, schedules, forms, statements, and other documents required to be filed with the SEC and the accuracy of the information in those documents;
	•	the absence of undisclosed liabilities;
	•	the maintenance of internal accounting controls and disclosure controls and procedures;
	•	the accuracy and completeness of the information supplied for this proxy statement and the circular distributed to shareholders of BAE Parent;
	•	the conduct of our business since December 31, 2004 and the absence of certain changes related thereto;
	•	tax matters;
	•	employee benefit plans and labor relations and compliance with applicable laws relating thereto;
	•	the absence of proceedings, audits, inquiries and investigations against us;
	•	our compliance with applicable laws;

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	•	our compliance with environmental matters;
	•	our material contracts;
	•	our customers and suppliers;
	•	our title to properties;
	•	our intellectual property;
	•	the brokers’ and finders’ fees and other expenses payable by us with respect to the merger; and
	•	our receipt of fairness opinions.

	•	organization, standing and power, and other corporate matters;
	•	Acquisition Sub’s limited business conduct and its capitalization;
	•	authorization, execution, delivery, and enforceability of the merger agreement, subject to the approval of holders of not less than a majority of ordinary shares of BAE Parent present in person or by proxy who are entitled to vote at a meeting of the shareholders of BAE Parent;
	•	the absence of conflicts or violations under charter documents, contracts, instruments, or law, and required consents and approvals, subject to the approval of holders of ordinary shares of BAE Parent;
	•	the accuracy and completeness of information supplied for this proxy statement and the circular distributed to shareholders of BAE Parent;
	•	the brokers’ and finders’ fees payable by BAE Systems with respect to the merger;
	•	BAE Systems’ and Acquisition Sub’s ownership of our common stock; and
	•	BAE Systems’ financial capability to pay the aggregate merger consideration.

	•	declare, set aside, or pay any dividend or other distribution in respect of any of our capital stock other than dividends and distributions by one of our direct or indirect wholly owned subsidiaries to its parent and quarterly cash dividends payable to our stockholders in an amount not to exceed $0.125 per share of our common stock;
	•	effect any reorganization or recapitalization or split, combine, or reclassify any of our capital stock;
	•	purchase, redeem or otherwise acquire any shares of our capital stock or other voting securities or equity interests of us or our subsidiaries or any awards, warrants, calls, options or similar rights of value;
	•	issue, deliver, sell, grant, pledge or otherwise encumber or subject to any lien any shares of capital stock or other ownership interests of any class (other than the issuance of common stock upon the exercise of outstanding options as of the date of the merger agreement and in accordance with their terms), securities convertible or exchangeable into capital stock or other ownership interests, or any awards, warrants, calls, options, or other similar rights of value;
	•	amend our certificate of incorporation or bylaws or other comparable organizational documents;

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	•	acquire or agree to acquire (by merger, consolidation or purchase of stock or assets) any business or any corporation, partnership or other business organization or division, or acquire any assets, in each case, that are material, individually or in the aggregate, to us and our subsidiaries taken as a whole, other than the possible acquisition disclosed to BAE Systems prior to the date of the merger agreement;
	•	take the following employee-benefits related actions:

	•	adopt, enter into, amend or terminate any collective bargaining agreement (except for the entry into of collective bargaining agreements negotiated in the ordinary course of business consistent with past practice), benefit plan, other agreement or policy involving us or our subsidiaries and present or former directors, officers or, except in the ordinary course of business consistent with past practice, any employees or consultants;
	•	except in the ordinary course of business consistent with past practice, increase the compensation, bonus, or fringe or other benefits payable or to become payable to, or pay any bonus to, any of our present or former directors, officers, employees, or consultants;
	•	grant or pay any change of control, severance or termination compensation to, or increase such compensation of, any present or former director, officer, employee, or consultant, other than in accordance with our severance policy in effect at the time of the merger agreement;
	•	take any action to fund or secure payment, or to accelerate the vesting or payment, of compensation or benefits under any benefit plan, except withdrawals by individual participants in our non-qualified deferred compensation plans; or
	•	materially change any actuarial or other assumption used to calculate funding for pension plans or change the manner in which contributions to any pension plans are made or the basis on which contributions are determined;

	•	except as may be required as a result of a change under U.S. generally accepted accounting principles, or GAAP, make any change in our accounting methods, principles or practices materially affecting our reported consolidated assets, liabilities or results of operations;
	•	sell, lease, license, or otherwise dispose of, or subject to any lien, any material assets, including intellectual property rights, except in the ordinary course of business and consistent with past practice;
	•	repurchase, prepay, or incur any indebtedness for borrowed money or guarantee any debt obligations of another person, issue or sell any debt securities or warrants or other rights to acquire any debt securities, enter into any agreement to maintain any financial statement condition of another person, except for short-term borrowings incurred in the ordinary course of business consistent with past practice, in an amount not to exceed $25,000,000, or make any loans, advances, or capital contributions to, or investments in, any other person, except to us or in our subsidiaries in an amount not to exceed $5,000,000 in the aggregate;
	•	make or agree to make any new capital expenditure or expenditures, other than an allowable contract expense under government contracts, that, individually, are in excess of $3,000,000 or, in the aggregate, are in excess of $20,000,000;
	•	pay, discharge, settle, or satisfy any claims, liabilities or obligations (other than in the ordinary course of business consistent with past practice or as required by their terms), liabilities reflected or reserved against in the most recent consolidated financial statements or incurred since the date of such financial statements or cancel any material indebtedness or waive any claims or rights of substantial value;
	•	agree in writing to modify in any manner or consent to any matter with respect to which consent is required under any material confidentiality or standstill agreement;
	•	enter into a contract or make a bid for a contract that if accepted would lead to a contract that if entered into would result in a gross profit loss to us or any of our subsidiaries, be a fixed price development contract, or be a contract that restricts our ability to conduct our business in any geographic territory, or amend, revise, or renew any such contract;

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	•	enter into any contract under which the consummation of the merger is reasonably likely to conflict with or result in a violation or breach of, or default under, or give rise to a right of, or result in, termination, cancellation, or acceleration of any obligation or to a loss of a material benefit under, or result in a lien upon any of the properties or assets of us or our subsidiaries under, or give rise to any increased, additional, accelerated or guaranteed right or entitlements of any third party under, or result in any material alteration of, any provision of such contract;
	•	revalue any assets that are material to us and our subsidiaries, taken as a whole, except as required by GAAP; or
	•	make or change any material tax election or settle or compromise any material tax liability without BAE Systems’ prior written consent or enter into any transaction that would result in a material recognition of income or gain other than transactions expressly required by the merger agreement or effected in the ordinary course of business consistent with past practice.

	Conditions to Each Party’s Obligations

	•	The merger agreement shall have been adopted by our stockholders;
	•	The merger shall have been approved by the shareholders of BAE Parent;
	•	Any waiting period (and any extensions thereof) applicable to the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall have been terminated, any applicable approvals, clearances, or consents, pursuant to foreign competition, antitrust or similar laws shall have been obtained, no governmental entity shall have taken any action to revoke the license under the Swedish Act on War Equipment granted to Bofors and, any and all other authorizations, consents, orders or approvals of, or declarations or filings with, or expirations of waiting periods imposed by, any

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		governmental entity necessary for the consummation of the merger or the related transactions shall have been obtained or filed or shall have occurred (other than those not reasonably likely to have a material adverse effect on the business, assets, financial condition or results of operations of us and our subsidiaries, taken as a whole, or BAE Systems and its subsidiaries, taken as a whole);
	•	the period of time for any applicable review process by the CFIUS under Exon-Florio shall have expired, and the President of the United States shall not have taken action to prevent the consummation of the merger or the related transactions; and
	•	no temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or law prohibiting the consummation of the merger or the related transactions shall be in effect.

	Conditions to BAE Systems’ and Acquisition Sub’s Obligations.

	•	Our representations and warranties in the merger agreement, without regard to any qualifiers relating to materiality or material adverse effect, as defined below, shall be true and correct as of the closing date of the merger as though made on the closing date, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties shall be true and correct, without regard to any qualifiers relating to materiality or material adverse effect, as of such earlier date), except where the failure of such representations and warranties to be true and correct is not reasonably likely, individually or in the aggregate, to have a material adverse effect;
	•	Our representations and warranties in the merger agreement relating to: our capital structure; our Annual Report on Form 10-K for the year ended December 31, 2004 as filed with the SEC as compared to the draft provided to BAE Systems; the absence of any threatened or existing governmental audit, inquiry or investigation involving us or our subsidiaries; compliance with all legal requirements under the Foreign Corrupt Practices Act and under certain anti-bribery laws; and portions of our representations and warranties relating to our and our subsidiaries’ material government contracts that are qualified as to materiality or material adverse effect shall be true and correct and those not so qualified shall be true and correct in all material respects, as of the date of the merger agreement and as of the closing date of the merger as though made on the closing date, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties qualified as to materiality or material adverse effect shall be true and correct, and those not so qualified shall be true and correct in all material respects, on and as of such earlier date);
	•	We shall have performed in all material respects all obligations required to be performed by us under the merger agreement at, or prior to, the closing date of the merger;
	•	BAE Systems shall have received a certificate signed on our behalf by our chief executive officer and chief financial officer to the effect of the preceding three bullets;
	•	There shall not be pending or threatened in writing any suit, proceeding, or other action that has a reasonable likelihood of success by any governmental entity located in the United States, challenging the acquisition by BAE Systems or Acquisition Sub of any of our issued and outstanding common stock, seeking to prohibit, limit or impose restrictions on or requirements relating to the ownership or operation by us, BAE Systems, or any of our or its affiliates of any material portion of the business or assets of us, BAE Systems or any of our or its affiliates or to compel us, BAE Systems or any of our or its affiliates to dispose of or hold separate any material portion of the business or assets of us, BAE Systems or any of our or its affiliates, as a result of the merger or any other related transaction, seeking to impose limitations on the ability of BAE Systems to acquire or hold, or exercise full rights of ownership of, any shares of capital stock of the surviving corporation, or seeking to prohibit BAE

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		Systems or any of its affiliates from effectively controlling in any material respect the business or operations of the surviving corporation; and
	•	Since December 31, 2004, there shall not have been any material adverse change relating to us.

	Conditions to Our Obligations.

	•	BAE Systems’ and Acquisition Sub’s representations and warranties in the merger agreement, without regard to any qualifiers relating to materiality or material adverse effect, as defined below, shall be true and correct as of the closing date of the merger as though made on the closing date, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties shall be true and correct, without regard to any qualifiers relating to materiality or material adverse effect, as of such earlier date), except where the failure of such representations and warranties to be true and correct is not reasonably likely, individually or in the aggregate, to have a material adverse effect;
	•	BAE Systems and Acquisition Sub shall have performed in all material respects all obligations to be performed by them under the merger agreement at or prior to the closing date of the merger; and
	•	we shall have received a certificate signed on BAE Systems’ behalf by its chief executive officer and chief financial officer to the effect of the preceding two bullets.

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	•	solicit, initiate or knowingly encourage, or take any other action to knowingly facilitate any inquiry or the making of any proposal that constitutes or is reasonably likely to lead to a takeover proposal, as defined below, or
	•	enter into, otherwise participate in any discussions or negotiations with respect to or otherwise cooperate in any way with any takeover proposal.

	•	will, and will use our reasonable best efforts to cause each of our subsidiaries and our representatives to, immediately cease and cause to be terminated all existing discussions or negotiations with any person conducted prior to the date of the merger agreement with respect to any takeover proposal and request from each person that has executed a confidentiality agreement with us the prompt return or destruction of all confidential information previously furnished to such person or its representatives; and
	•	will promptly (but in no case later than 24 hours after receipt thereof) advise BAE Systems orally and in writing of any takeover proposal or inquiry or request for information with respect to, or that could reasonably be expected to lead to, any takeover proposal, the identity of the person making such takeover proposal, inquiry or request and the material terms of such takeover proposal, inquiry or request and will provide BAE Systems promptly after receipt or delivery thereof (but in no case later than 24 hours after receipt or delivery thereof) with copies of such takeover proposal, inquiry or request.

	•	our board of directors determines in good faith after consultation with a financial advisor of nationally recognized reputation that the takeover proposal constitutes or is reasonably likely to lead to a superior proposal (as defined below) and
	•	the takeover proposal did not result from a breach of the prohibition of our solicitation of takeover proposals and we have complied with our obligations under the non-solicitation covenant (including providing BAE Systems prior written notice of our decision to take such action).

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	•	recommend the approval or adoption of any takeover proposal;
	•	determine that the merger agreement or the merger is no longer advisable;
	•	withdraw or modify in a manner adverse to BAE Systems or Acquisition Sub the approval of the merger agreement, the merger or any of the related transactions;
	•	recommend that our stockholders reject the merger agreement, the merger or any of the related transactions;
	•	resolve, agree or propose publicly to take any of the above actions (any action described in this bullet or the preceding four bullets being referred to as an “adverse recommendation change”);
	•	adopt or approve any takeover proposal or withdraw its approval of the merger agreement or resolve, agree, or propose publicly to do any of the foregoing; or
	•	cause or permit us to enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement, or similar agreement constituting or related to, or which is intended to or is reasonably likely to lead to, a takeover proposal, or resolve, agree or propose to take any such actions;

	•	any direct or indirect acquisition or purchase of assets or businesses that constitute or represent 20% or more of the revenues, net income or assets of us and our subsidiaries, taken as a whole, or 20% or more of any class of our equity securities; or
	•	any merger, consolidation, business combination, recapitalization, liquidation, dissolution, joint venture, binding share exchange or similar transaction involving us or any of our subsidiaries, in each case, other than the transactions contemplated by the merger agreement.

	•	if consummated would result in such third party or its stockholders acquiring, directly or indirectly, more than 50% of the voting power of our common stock or all or substantially all of the assets of us and our subsidiaries, taken as a whole, for consideration that our board of directors determines, in good faith and after consultation with a financial advisor of nationally recognized reputation, to have a higher value than the consideration to be received by our stockholders in connection with the merger, taking into account, among other things, any changes to the terms of the merger agreement proposed by BAE Systems; and
	•	is reasonably capable of being completed, taking into account all financial, legal, regulatory and other aspects of the offer, including all conditions contained therein.

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	•	by mutual written consent of us, BAE Systems and Acquisition Sub;
	•	by either BAE Systems or us:

	•	if the merger is not completed on or before December 6, 2005, except that a party who has willfully and materially breached the merger agreement cannot terminate on this basis;
	•	if any governmental entity has issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the merger and such order, decree, ruling or other action has become final and nonappealable;
	•	if our stockholders do not adopt the merger agreement; or
	•	if the shareholders of BAE Parent do not approve the merger.

	•	if we have breached or failed to perform any of our representations, warranties, covenants or agreements contained in the merger agreement, if such breach or failure to perform would cause failure of the condition to the merger relating to our representations and warranties or our covenants and agreements and such breach or failure to perform cannot be or has not been cured within 30 days after the giving of written notice to us of such breach; or
	•	in the event our board of directors makes an adverse recommendation change within 10 days after the occurrence of such adverse recommendation change.

	•	if BAE Systems or Acquisition Sub has breached or failed to perform any of its representations, warranties, covenants or agreements contained in any document relating to the merger, if such breach or failure to perform would cause failure of any condition set forth under “— Conditions to the Merger — Conditions to Our Obligations” and such breach or failure to perform cannot be or has not been cured within 30 days after giving written notice to BAE Systems or Acquisition Sub;
	•	if before our stockholders have adopted the merger agreement, in response to a superior proposal that did not result from a breach of our non-solicitation obligations pursuant to the applicable provisions of the merger agreement, we enter into the terms of a binding agreement containing the terms of a superior proposal as described in more detail under “— No Solicitation of Other Offers; Adverse Recommendation Change; Termination to Accept a Superior Proposal,” and shall have given notice as described above and paid the termination fee described below; or
	•	if the board of directors of BAE Parent has failed to recommend the approval of the merger by the shareholders of BAE Parent in the circular sent to shareholders of BAE Parent or the board of directors of BAE Parent has changed in a manner adverse to us or withdrawn its recommendation of the merger to the shareholders of BAE Parent or recommended that the shareholders of BAE Parent reject the merger, in each case, within 10 days after the occurrence of the event giving us the right to terminate.

	•	(a) a takeover proposal is made to us, or directly to our stockholders, or a takeover proposal has become otherwise publicly known, (b) thereafter either BAE Systems or we terminate the merger agreement either because (i) the closing of the merger does not occur on or before December 6, 2005 or (ii) our stockholders do not adopt the merger agreement and (c)(i) any time on or prior to the six-month anniversary of termination of the merger agreement, we or any of our subsidiaries enter into an acquisition agreement with respect to any takeover proposal or any transaction contemplated by a takeover proposal is consummated or (ii) on or after the six-month and prior to the one-year anniversary of the termination of the merger agreement, we or any of our subsidiaries enter into an

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		acquisition agreement with respect to any takeover proposal by a designated party, as defined below, or any transaction contemplated by a takeover proposal is consummated by a designated party;
	•	we terminate the merger agreement to enter into an agreement with respect to a superior proposal; or
	•	BAE Systems terminates the agreement because our board of directors makes an adverse recommendation change and either prior to such termination a takeover proposal shall have been made or otherwise become publicly known or at any time prior to the one-year anniversary of such termination, we or any of our subsidiaries enters into an acquisition agreement with respect to a takeover proposal or any transaction contemplated by a takeover proposal is consummated.

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	Nominating and Corporate Governance Committee

	Stockholder Communication with Board of Directors Members

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	Board of Directors Attendance at Annual Meetings

	Director Independence

	Audit and Ethics Committee

	•	the appointment, compensation, retention, and oversight of our independent public accountants;
	•	reviewing with the independent public accountants the plans and results of the audit engagement;
	•	approving professional services provided by the independent public accountants;
	•	reviewing our critical accounting policies, our Annual and Quarterly reports on Forms 10-K and 10-Q, and our earnings releases;
	•	reviewing the independence of the independent public accountants; and
	•	reviewing the adequacy of our internal accounting controls and overseeing our ethics program.

	Audit and Ethics Committee Report

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	Audit and Ethics Committee:
	C. Thomas Faulders, III
	John M. Shalikashvili
	J. H. Binford Peay, III
	Peter J. Clare

	Compensation Committee

	Director Compensation

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	Summary Compensation Table

															Long-Term Compensation
															Awards
			Annual Compensation												Restricted				Securities				All Other
															Stock Awards				Underlying				Compensation
Name and Principal Position			Year				Salary ($)				Bonus ($)				($)(1)				Options (#)				($)(2)
Thomas W. Rabaut				2004				540,750				713,790				477,000				75,000				58,651
	President and Chief			2003				515,000				615,940				—				300,000				46,009
	Executive Officer			2002				500,000				598,000				—				—				43,127
Francis Raborn				2004				296,208				281,842				238,500				37,500				30,689
	Vice President and Chief			2003				282,103				287,040				—				153,000				24,474
	Financial Officer			2002				271,249				275,105				—				—				21,535
Alexander J. Krekich				2004				275,000				256,850				127,200				20,000				42,031	(4)
	President — United States			2003				275,000				246,400				—				102,000				50,641
	Marine Repair(3)			2002				137,500				356,208				—				—				15,000	(5)
E Elmer L. Doty				2004				252,252				248,342				152,640				24,000				23,900
	Vice President and General			2003				238,700				227,123				—				102,000				21,120
	Manager — Ground			2002				228,927				237,517				—				—				17,206
	Systems Division
Keith B. Howe				2004				240,316				211,479				152,640				24,000				22,705
	Vice President and General			2003				228,873				230,360				—				102,000				21,799
	Manager — Armament			2002				213,900				216,467				—				—				13,220
	Systems Division

(1)	As of December 31, 2004, each of Messrs. Rabaut, Raborn, Krekich, Doty, and Howe held 15,000, 7,500, 4,000, 4,800, and 4,800 shares of restricted stock, respectively, and the values of such holdings were $708,750, $354,375, $189,000, $226,800, and $226,800, respectively. Dividends will be paid on the shares of restricted stock on the same basis and to the extent any dividends are paid with respect to the shares of our common stock.
(2)	Comprised of matching contributions under our qualified and nonqualified thrift plans for salaried employees for 2004, 2003, and 2002, value of personal use of an automobile provided by us (automobile allowance in the case of Mr. Krekich) and for the portion of term-life and accidental death and dismemberment insurance premiums paid by us in 2004.
(3)	Mr. Krekich became one of our executive officers upon our acquisition of United States Marine Repair in July 2002.
(4)	Also includes contributions to both the United States Marine Repair Deferred Compensation and Profit Sharing Plans and club dues.
(5)	Comprised of contributions to both the United States Marine Repair Deferred Compensation and Profit Sharing Plans made by us after our acquisition of United States Marine Repair and automobile allowances.

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	Option Grants in Fiscal 2004

		Individual Grants
						% of Total
		Number of				Options												Potential Realizable Value at
		Securities				Granted to				Exercise								Assumed Rates of Stock Price
		Underlying				Employees				or Base								Appreciation for Option Term
		Options				in Fiscal				Price				Expiration
Name		Granted				Year				($/Sh)				Date				5% ($)				10% ($)
Thomas W. Rabaut			75,000				15.00				31.80				1/20/2014				1,499,913.68				3,801,075.77
Francis Raborn			37,500				7.50				31.80				1/20/2014				749,956.84				1,900,537.88
Alexander J. Krekich			20,000				4.00				31.80				1/20/2014				399,976.98				1,013,620.20
Elmer L. Doty			24,000				4.80				31.80				1/20/2014				479,972.38				1,216,344.25
Keith B. Howe			24,000				4.80				31.80				1/20/2014				479,972.38				1,216,344.25

	Aggregated Option Exercises in Fiscal 2004 and Fiscal Year-End Option Values

	•	“Exercise” means an employee’s acquisition of shares of common stock, “exercisable” means options to purchase shares of common stock that have already vested and that are subject to exercise, and “unexercisable” means all other options to purchase shares of common stock that have not vested.

										Number of Securities
										Underlying								Value of Unexercised
										Unexercised Options at								In-the-Money Options at
		Shares Acquired								Fiscal Year-End (#)								Fiscal Year-End ($)
		on Exercise				Value
Name		(#)				Realized ($)				Exercisable				Unexercisable				Exercisable				Unexercisable
Thomas W. Rabaut			120,000			$	3,227,600				452,270				99,980			$	13,999,805			$	1,977,018
Francis Raborn			13,750			$	368,278				140,010				50,490			$	3,266,116			$	1,000,559
Alexander J. Krekich			—			$	—				91,673				30,327			$	2,151,650			$	615,550
Elmer L. Doty			21,000			$	582,585				144,006				56,619			$	4,355,555			$	1,668,142
Keith B. Howe			42,503			$	502,265				50,503				32,994			$	1,147,922			$	656,755

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	Retirement and Pension Plans

				Years of Credited Service
Final Average
Earnings				15				20				25				30				35
$	150,000			$	30,276			$	40,367			$	50,459			$	60,551			$	70,643
	250,000				52,776				70,367				87,959				105,551				123,143
	350,000				75,276				100,367				125,459				150,551				175,643
	550,000				120,276				160,367				200,459				240,551				280,643
	650,000				142,776				190,367				237,959				285,551				333,143
	900,000				199,026				265,367				331,709				398,051				464,393
	1,100,000				244,026				325,367				406,709				488,051				569,393
	1,300,000				289,026				385,367				481,709				578,051				674,393

	•	Compensation included in the final average earnings for the pension benefit computation includes base annual salary and annual bonuses, but excludes payments for most other compensation.
	•	Unreduced retirement pension benefits are calculated pursuant to the UDLP Employees Pension Plan’s benefit formula as an individual life annuity payable at age 65. Benefits may also be payable as a joint and survivor annuity or a level income option.
	•	Final average earnings in the above table means the average of covered remuneration for the highest 60 consecutive calendar months out of the 120 calendar months immediately preceding retirement.
	•	Benefits applicable to a number of years of service or final average earnings different from those in the above table are equal to the sum of:
	•	1% of allowable Social Security Covered Compensation ($46,326) for a participant retiring at age 65 in 2004 times years of credited service; and 1.5% of the difference between final average earnings and allowable Social Security Covered Compensation times years of credited service.
	•	The Employment Retirement Income Security Act, or ERISA, limits the annual benefits that may be paid from a tax-qualified retirement plan. Accordingly, as permitted by ERISA, we have adopted the UDLP Excess Pension Plan for United Defense Limited Partnership and Affiliates to maintain total benefits upon retirement at the levels shown in the table.

	Credited Years of Service under Pension Plan for Named Executive Officers

Thomas W. Rabaut			28
Francis Raborn			28
Elmer L. Doty			26
Keith B. Howe			25

	United Defense Incentive Award Plan

54

---

 

	Equity Compensation Plan Information

Number of Shares

Number of Securities

to be Issued Upon

Weighted-Average

Remaining Available

Exercise of

Exercise Price of

for Future Issuance

Outstanding

Outstanding

Under Equity

Options,

Options,

Compensation Plans

Warrants and

Warrants and

(excluding

Plan Category

Rights

Rights

Column(a))

(a)

(b)

(c)

Equity Compensation Plans Approved by Shareholders United Defense Incentive Award Plan

2,693,172

$

25.01

3,245,964

Equity Compensation Plans Not Approved by Shareholders None

—

—

—

Total

2,693,172

3,245,964

	Management Incentive Plan

	USMR Executive Bonus Plan

	Special Bonuses

55

---

 

	•	a payment equal to a multiple of the executive’s base pay and target bonus. For Mr. Krekich this severance period will last two years, while for each of Messrs. Raborn and Rabaut the severance period will last three years;
	•	a prorated discretionary bonus for that portion of the calendar year in which he was terminated;
	•	the right to continue to participate in our health, life and accidental death and dismemberment and long-term disability benefits plan for the severance period at the rates in effect for active employees; and
	•	an additional “gross-up” lump sum payment to cover the costs of excise taxes, if any, to which he may be subject.

56

---

 

	Salary

	Bonus

57

---

 

	Incentive Award Plan

	Other Compensation

58

---

 

	Tax Deductibility of Compensation

	Compensation Committee:
	William E. Conway, Jr.
	Robert J. Natter
	J. H. Binford Peay, III

	•	the compensation committee was comprised of Peter J. Clare, and J. H. Binford Peay, III until August 2004 at which point Mr. Clare rotated off the committee and Messrs. Conway and Natter joined the committee;
	•	none of the members of the compensation committee was an officer (or former officer) or employee of us or any of our subsidiaries;
	•	none of the members of the compensation committee entered into (or agreed to enter into) any transaction or series of transactions with us or any of our subsidiaries in which the amount involved exceeds $60,000;
	•	none of our executive officers served on the compensation committee (or another board committee with similar functions) of any entity where one of that entity’s executive officers served on our compensation committee;
	•	none of our executive officers was a director of another entity where one of that entity’s executive officers served on our compensation committee; and
	•	none of our executive officers served on the compensation committee (or another board committee with similar functions) of another entity where one of that entity’s executive officers served as a director on our board of directors.

	•	each person or group who beneficially owns more than 5% of our capital stock on a fully diluted basis;
	•	certain of our executive officers;
	•	each of our directors; and
	•	all of our directors and executive officers as a group.

59

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Name of Beneficial Owner		Number				Percentage
Barclays group(1)			5,390,061				10.6	%
Putnam, LLC d/b/a Putnam Investments(2)			4,568,636				9.0	%
FMR Corp.(3)			3,289,309				6.5	%
Wellington Management Company(4)			3,212,900				6.3	%
William E. Conway, Jr.(5)			199,493				*
Robert J. Natter			1,000				*
Peter J. Clare(5)			11,916				*
Frank C. Carlucci(5)			30,146				*
J.H. Binford Peay, III			65,325				*
John M. Shalikashvili			15,682				*
Thomas W. Rabaut			467,270				*
Francis Raborn			390,010				*
C. Thomas Faulders, III			1,000				*
Elmer L. Doty			178,931				*
Keith B. Howe			55,303				*
Alexander J. Krekich			95,673				*
All Current Directors and Executive Officers as a Group (15 persons)			1,662,806				3.3	%

*	Denotes less than 1% beneficial ownership
(1)	The information regarding this stockholder is derived from a Schedule 13G filed by the stockholder with the Securities and Exchange Commission on February 15, 2005. The address of this stockholder is 45 Fremont Street, San Francisco, California 94105.
(2)	The information regarding this stockholder is derived from a Schedule 13G filed by the stockholder with the Securities and Exchange Commission on February 11, 2005. The address of this stockholder is One Post Office Square, Boston, Massachusetts 02109.
(3)	The information regarding this stockholder is derived from a Schedule 13G/ A filed by the stockholder with the Securities and Exchange Commission on February 14, 2005. The address of this stockholder is 82 Devonshire Street, Boston, Massachusetts 02109.
(4)	The information regarding this stockholder is derived from a Schedule 13G filed by the stockholder with the Securities and Exchange Commission on February 14, 2005. The address of this stockholder is 75 State Street, Boston, Massachusetts 02109.
(5)	The address of such person is c/o The Carlyle Group, 1001 Pennsylvania Avenue, NW, Washington, D.C. 20004.

60

---

 

	Carlyle Management Fee

	Employment Agreements

61

---

 

			Fees
Service			2004				2003
			($ In thousands)
Audit Fees
Consolidated Audit				2850				815
Statutory Audit				238				103
SEC Filings				48				93
	Total			3,136				1,011
Audit-Related Fees
Audit of defined benefit and postretirement plans				7				83
Audit of USMR LS-513 report (workers compensation)				0				5
Consultation regarding Sarbanes Oxley Section 404 compliance				0				9
	Total			7				97
Tax Fees
Tax Consulting Services				9				60
	Total			9				60
Other Fees
Access to E&Y web-based accounting research material and purchase of E&Y proprietary software (FAS123)				3				0
IT support (balanced scorecard)				18				0
	Total			21				0
Total			$	3,173			$	1,168

62

---

 

			High				Low
Calendar Year 2003:
	First Quarter		$	24.75			$	20.06
	Second Quarter			27.12				21.00
	Third Quarter			29.69				25.19
	Fourth Quarter			34.15				28.33
Calendar Year 2004:
	First Quarter		$	34.31			$	28.72
	Second Quarter			35.75				31.55
	Third Quarter			40.24				33.45
	Fourth Quarter			48.98				38.34
Calendar Year 2005:
	First Quarter (through April 5, 2005)		$	73.91			$	43.59

63

---

 

64

---

 

65

---

 

A-1

---

 

						Page
ARTICLE I The Merger
	SECTION  1.01.			The Merger			A-7
	SECTION  1.02.			Closing			A-7
	SECTION  1.03.			Effective Time			A-7
	SECTION  1.04.			Effects			A-7
	SECTION  1.05.			Certificate of Incorporation and Bylaws			A-8
	SECTION  1.06.			Directors			A-8
	SECTION  1.07.			Officers			A-8
ARTICLE II Effect on the Capital Stock of the Constituent Corporations; Exchange of Certificates
	SECTION  2.01.			Effect on Capital Stock			A-8
	SECTION  2.02.			Exchange of Certificates			A-9
ARTICLE III Representations and Warranties of the Company
	SECTION  3.01.			Organization, Standing and Power			A-10
	SECTION  3.02.			Company Subsidiaries; Equity Interests			A-11
	SECTION  3.03.			Capital Structure			A-11
	SECTION  3.04.			Authority; Execution and Delivery; Enforceability			A-12
	SECTION  3.05.			No Conflicts; Consents			A-13
	SECTION  3.06.			SEC Documents; Undisclosed Liabilities			A-14
	SECTION  3.07.			Information Supplied			A-15
	SECTION  3.08.			Absence of Certain Changes or Events			A-15
	SECTION  3.09.			Taxes			A-17
	SECTION  3.10.			Absence of Changes in Benefit Plans; Labor Relations			A-18
	SECTION  3.11.			ERISA Compliance; Excess Parachute Payments			A-18
	SECTION  3.12.			Proceedings			A-20
	SECTION  3.13.			Compliance with Applicable Laws			A-20
	SECTION  3.14.			Compliance with Environmental Laws			A-21
	SECTION  3.15.			Contracts			A-22
	SECTION  3.16.			Customers and Suppliers			A-24
	SECTION  3.17.			Title to Properties			A-24
	SECTION  3.18.			Intellectual Property			A-24
	SECTION  3.19.			Brokers; Schedule of Fees and Expenses			A-25
	SECTION  3.20.			Opinions of Financial Advisors			A-25
ARTICLE IV Representations and Warranties of Parent and Sub
	SECTION  4.01.			Organization, Standing and Power			A-25
	SECTION  4.02.			Sub			A-25
	SECTION  4.03.			Authority; Execution and Delivery; Enforceability			A-25
	SECTION  4.04.			No Conflicts; Consents			A-26
	SECTION  4.05.			Information Supplied			A-26
	SECTION  4.06.			Brokers			A-26
	SECTION  4.07.			Section 203 of the DGCL			A-26
	SECTION  4.08.			Financial Capability			A-26

A-2

---

 

						Page
ARTICLE V Covenants Relating to Conduct of Business
	SECTION  5.01.			Conduct of Business			A-27
	SECTION  5.02.			No Solicitation			A-30
ARTICLE VI Additional Agreements
	SECTION  6.01.			Preparation of Proxy Statement and UK Parent Circular; Stockholders Meeting			A-32
	SECTION  6.02.			Access to Information; Confidentiality			A-33
	SECTION  6.03.			Reasonable Best Efforts; Notification			A-33
	SECTION  6.04.			Stock Options; Restricted Stock			A-34
	SECTION  6.05.			Employee Matters			A-35
	SECTION  6.06.			Indemnification			A-35
	SECTION  6.07.			Fees and Expenses			A-36
	SECTION  6.08.			Public Announcements			A-37
	SECTION  6.09.			Transfer Taxes			A-37
	SECTION  6.10.			Stockholder Litigation			A-37
ARTICLE VII Conditions Precedent
	SECTION  7.01.			Conditions to Each Party’s Obligation To Effect The Merger			A-37
	SECTION  7.02.			Conditions to Obligations of Parent and Sub			A-38
	SECTION  7.03.			Conditions to Obligations of the Company			A-39
ARTICLE VIII Termination, Amendment and Waiver
	SECTION  8.01.			Termination			A-39
	SECTION  8.02.			Effect of Termination			A-40
	SECTION  8.03.			Amendment			A-40
	SECTION  8.04.			Extension; Waiver			A-40
	SECTION  8.05.			Procedure for Termination, Amendment, Extension or Waiver			A-41
ARTICLE IX General Provisions
	SECTION  9.01.			Nonsurvival of Representations, Warranties and Agreements			A-41
	SECTION  9.02.			Notices			A-41
	SECTION  9.03.			Definitions			A-42
	SECTION  9.04.			Interpretation			A-42
	SECTION  9.05.			Severability			A-43
	SECTION  9.06.			Counterparts			A-43
	SECTION  9.07.			Entire Agreement; No Third-Party Beneficiaries			A-43
	SECTION  9.08.			Disclosure Generally			A-43
	SECTION  9.09.			Governing Law			A-43
	SECTION  9.10.			Assignment			A-43
	SECTION  9.11.			Enforcement			A-43

A-3

---

 

Term		Section
Acquisition Agreement			5.02(b)
Adverse Recommendation Change			5.02(b)
affiliate			9.03
Affiliated Group			3.09(a)
AJC Act			5.01(a)(v)
Anti-Bribery Laws			3.13(c)
Appraisal Shares			2.01(d)
Bid			3.15(c)
Bofors			3.05(b)
business day			9.03
Certificate of Merger			1.03
Certificates			2.02(b)
CFIUS			6.03(b)(i)
Closing			1.02
Closing Date			1.02
Code			2.02(h)
Commonly Controlled Entity			3.10
Company			Preamble
Company Benefit Agreements			3.08(e)(ii)
Company Benefit Plans			3.10
Company Board			3.04(a)
Company Bylaws			3.03(b)
Company Capital Stock			3.03(a)
Company Charter			3.03(b)
Company Common Stock			Recitals
Company Credit Agreement			3.03(f)
Company Disclosure Letter			Article III
Company Financial Statements			3.06(b)
Company Government Contract			3.15(c)
Company Government Subcontract			3.15(c)
Company Lease			3.17
Company Material Adverse Change			9.03
Company Material Adverse Effect			9.03
Company Pension Plan			3.11(b)
Company Preferred Stock			3.03(a)
Company Restricted Stock			3.03(a)
Company SEC Documents			3.06(a)
Company Stock-Based Awards			3.03(b)
Company Stockholder Approval			3.04(b)
Company Stockholders’ Meeting			6.01(b)
Company Stock Options			3.03(a)
Company Stock Plan			3.03(a)
Company Subsidiaries			3.01
Confidentiality Agreement			6.02
Consent			3.05(b)
Continuing Employees			6.05(a)

A-4

---

 

Term		Section
Contract			3.05(a)
Contract with a Related Person			3.08(j)
Deferred Arrangements			5.01(a)(v)
Designated Party			6.07(b)
DGCL			1.01
DOJ			6.03(b)(ii)
Draft 2004 10-K			Article III
Effective Time			1.03
Environmental Claim			3.14(b)
Environmental Laws			3.14(b)
Environmental Permits			3.14(a)(ii)
ERISA			3.11(a)
Exchange Act			3.05(b)
Exchange Fund			2.02(a)
Exon-Florio			3.05(b)
Export Control Laws			3.13(b)
Filed Company SEC Documents			Article III
FTC			6.03(b)(ii)
GAAP			3.06(b)
Governmental Entity			3.05(b)
Hazardous Materials			3.14(b)
HSR Act			3.05(b)
Indemnified Party			6.06(a)
Intellectual Property Rights			3.18
IRS			3.09(c)
Joint Filing			6.03(b)(i)
Judgment			3.05(a)
Law			3.05(a)
Liens			3.02(a)
Material Company Contract			3.15(a)
Maximum Premium			6.06(b)
Merger			Recitals
Merger Consideration			2.01(c)(2)
Outside Date			8.01(b)(i)
Parent			Preamble
Parent Material Adverse Effect			9.03
Paying Agent			2.02(a)
Permits			3.13(a)
person			9.03
Post-Signing Returns			5.01(b)(i)
Proxy Statement			3.05(b)
Release			3.14(b)
Representatives			5.02(a)
SEC			Article III

A-5

---

 

Term		Section
Section 262			2.01(d)
Securities Act			3.06(b)
SOX			3.06(b)
Sub			Preamble
subsidiary			9.03
Superior Proposal			5.02(e)
Surviving Corporation			1.01
Takeover Proposal			5.02(e)
taxes			3.09(j)(i)
tax return			3.09(j)(ii)
Termination Fee			6.07(b)
Transfer Taxes			6.09
UKLA			4.04(b)
UK Parent			4.03
UK Parent Circular			6.01(c)
UK Parent Letter			6.01(c)
UK Parent Shareholder Approval			4.03
UK Parent Shareholder Meeting			6.01(c)
Voting Company Debt			3.03(c)

A-6

---

 

A-7

---

 

	(a) Capital Stock of Sub. Each issued and outstanding share of capital stock of Sub shall be converted into and become one fully paid and nonassessable share of common stock, par value $0.01 per share, of the Surviving Corporation.
	(b) Cancelation of Treasury Stock and Parent-Owned Stock. Each share of Company Common Stock that is owned by the Company, Parent, Sub or by any of their respective wholly owned subsidiaries shall automatically be canceled and retired and shall cease to exist, and no consideration shall be delivered or deliverable in exchange therefor.
	(c) Conversion of Company Common Stock. (1) Subject to Sections 2.01(b) and 2.01(d), each issued and outstanding share of Company Common Stock shall be converted into the right to receive $75.00 in cash.
	(2) The cash payable upon the conversion of shares of Company Common Stock pursuant to Section 2.01(c)(1) is referred to as the “Merger Consideration.” As of the Effective Time, all such shares of Company Common Stock shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such shares of Company Common Stock shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration and certain dividends or other distributions in accordance with Section 2.02(c) upon surrender of such certificate in accordance with Section 2.02, in each case, without interest.
	(d) Appraisal Rights. Notwithstanding anything in this Agreement to the contrary, shares (“Appraisal Shares”) of Company Common Stock that are outstanding immediately prior to the Effective Time and that are held by any person who is entitled to demand and properly demands appraisal of such Appraisal Shares pursuant to, and who complies in all respects with, Section 262 of the DGCL (“Section 262”) shall not be converted into the right to receive Merger Consideration as provided in Section 2.01(c), but rather the holders of Appraisal Shares shall be entitled to payment of the fair market value of such Appraisal Shares in accordance with Section 262; provided, however, that if any such holder shall fail to perfect, or otherwise shall waive, withdraw or lose, the right to appraisal under Section 262, then the right of such holder to be paid the fair value of such holder’s Appraisal Shares shall cease and such Appraisal Shares shall be deemed to have been converted as of the Effective Time into, and to have become exchangeable solely for the right to receive, Merger

A-8

---

 

Consideration as provided in Section 2.01(c). The Company shall serve prompt notice to Parent of any demands received by the Company for appraisal of any shares of Company Common Stock, and Parent shall have the right to participate in and direct all negotiations and proceedings with respect to such demands. Prior to the Effective Time, the Company shall not, without the prior written consent of Parent, make any payment with respect to, or settle or offer to settle, any such demands, or agree to do any of the foregoing.

A-9

---

 

A-10

---

 

A-11

---

 

A-12

---

 

A-13

---

 

A-14

---

 

	(a) any Company Material Adverse Change;
	(b) any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to any Company Capital Stock or any repurchase or redemption for value by the Company of any Company Capital Stock, other than the declaration of a cash dividend on the Company Common Stock in the amount of $0.125 per share payable on March 1, 2005 to holders of record of Company Common Stock as of February 15, 2005;
	(c) any purchase, redemption or other acquisition of (i) any shares of Company Capital Stock or other voting securities or equity interests of the Company or any Company Subsidiary, (ii) any Company Stock-Based Awards, options, warrants, calls, rights, convertible or exchangeable securities,

A-15

---

 

	commitments, Contracts, arrangements or undertakings of any kind to which the Company or any Company Subsidiary is a party or by which any of them is bound, obligating the Company or any Company Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, shares of capital stock or other voting securities or equity interests of, or any security convertible or exercisable for or exchangeable into any capital stock or other voting securities or equity interests of, the Company or any Company Subsidiary or (iii) any other rights the value of which is in any way based upon or derived from, or that give any person the right to receive any economic benefit or right similar to or derived from the economic benefits and rights accruing to holders of, capital stock or other voting securities or equity interests of the Company or any Company Subsidiary;
	(d) any split, combination or reclassification of any Company Capital Stock or any issuance, or the authorization of any issuance, of any other securities in respect of, in lieu of or in substitution for shares of Company Capital Stock;
	(e) (i) any granting by the Company or any Company Subsidiary to any director, officer, employee or consultant, or any former director, officer, employee or consultant, of the Company or any Company Subsidiary of (A) any increase in compensation, bonus, fringe or other benefits, except for normal increases in cash compensation or granting of bonuses, incentive compensation and fringe or other benefits, in each case, in the ordinary course of business consistent with past practice (1) to officers and other employees or (2) as was required under any Company Benefit Agreement or Company Benefit Plan in effect as of December 31, 2004 in accordance with its terms in effect on such date, or (B) any change of control, severance or termination compensation or benefits or increase therein to any current employee of the Company or any Company Subsidiary, (ii) any entry by the Company or any Company Subsidiary into, or any amendment to or termination of, (A) any employment, deferred compensation, consulting, severance, change of control, loan, termination or indemnification agreement or (B) any other agreement the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving the Company of a nature contemplated by this Agreement with, or providing benefits to, any director, officer, employee or consultant, or any former director, officer, employee or consultant, of the Company or any Company Subsidiary (such items set forth in clauses (A) and (B) of this clause (ii) being referred to collectively as “Company Benefit Agreements”), (iii) any adoption of, entry into, any amendment to or any termination of, any collective bargaining agreement or any Company Benefit Plan, except as required to comply with applicable Law or any Company Benefit Agreement or Company Benefit Plan in effect as of December 31, 2004 in accordance with its terms in effect on such date and except for the entry into of collective bargaining agreements negotiated in the ordinary course of business consistent with past practice or (iv) any action taken to fund or in any other way secure the payment, or to accelerate the vesting or payment, of compensation or benefits under any Company Benefit Plan (or any grant or award thereunder) or Company Benefit Agreement;
	(f) any change in accounting methods, principles or practices by the Company or any Company Subsidiary materially affecting the consolidated assets, liabilities or results of operations of the Company, except insofar as may have been required by a change in GAAP;
	(g) any (i) elections with respect to taxes by the Company or any Company Subsidiary, (ii) settlement or compromise by the Company or any Company Subsidiary of any tax liability or refund, (iii) filing by the Company of an amended tax return or (iv) other action by the Company that is reasonably likely to have the effect of materially increasing the tax liability or materially decreasing a tax asset of the Company or any Company Subsidiary;
	(h) any revaluation by the Company or any Company Subsidiary of any assets that are material to the Company and the Company Subsidiaries, taken as a whole;
	(i) any sale, lease, license or other disposition of, or subjecting to any Lien, any material assets of the Company or any Company Subsidiary (including Intellectual Property Rights), except in the ordinary course of business consistent with past practice;

A-16

---

 

	(j) any entry by the Company or any Company Subsidiary into any Contract with any affiliate of the Company (any such Contract, a “Contract with a Related Person”); or
	(k) any authorization of, or commitment or agreement to take, any of the actions described in clauses (b) through (j).

A-17

---

 

	(i) “tax” or “taxes” means (A) all supranational, national, federal, state, provincial, local or municipal (whether domestic or foreign) taxes, assessments, duties, fees, levies or similar charges of any kind, including all sales, payroll, employment and other withholding taxes, and including all obligations under any tax sharing agreement, tax indemnity obligation or similar written or unwritten agreement, arrangement or practice, and including all interest, penalties and additions imposed with respect to such amounts, (B) all liability for the payment of any amounts of the type described in the foregoing clause (A) as a result of being a member of an affiliated, consolidated, combined, unitary or aggregate group and (C) all liability for the payment of any amounts as a result of being party to any tax sharing agreement or as a result of any express or implied obligation to indemnify any other person with respect to the payment of any amounts of the type described in the foregoing clause (A) or (B); and
	(ii) “tax return” means all tax returns, declarations, statements, reports, schedules, forms and information returns and any amended tax return relating to taxes.

A-18

---

 

A-19

---

 

A-20

---

 

	(i) the Company and the Company Subsidiaries are in compliance with all Environmental Laws, and neither the Company nor any of the Company Subsidiaries has received any written notice that alleges that the Company or any of the Company Subsidiaries is, or may be, in violation of, or has, or may have, any liability under, any Environmental Law;
	(ii) the Company and the Company Subsidiaries have obtained, maintained and complied with all Permits necessary under any Environmental Law for them to own, lease or operate their respective assets as currently held and to carry on their respective businesses as presently conducted (“Environmental Permits”);
	(iii) there are no Environmental Claims pending or, to the knowledge of the Company, threatened in writing, against the Company or any Company Subsidiary; and
	(iv) there have been no Releases of any Hazardous Material that is reasonably likely to form the basis of any Environmental Claim against the Company or any Company Subsidiary.

	“Environmental Claim” means any and all administrative, regulatory or judicial claims, suits, proceedings, investigations or other actions, Judgments, written demands, written directives, Liens or written notices of noncompliance or violation, in any such case, by or from any person alleging liability of whatever kind or nature (including liability or responsibility for the costs of investigations, remediation or governmental response, natural resources damages, property damages, personal injuries, penalties, contribution, indemnification or injunctive relief) arising out of, based on or resulting from (i) the presence or Release of, or exposure of persons to, any Hazardous Materials, (ii) the failure to comply with any Environmental Law or (iii) liabilities or obligations arising under any Environmental Law;
	“Environmental Laws” means all applicable national, federal, state, local, provincial and municipal (whether domestic or foreign) Laws, Judgments or Permits issued, promulgated or entered into by or with any Governmental Entity, relating to Release, treatment, storage or other disposal of or exposure of persons to Hazardous Materials or protection of the environment;

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	“Hazardous Materials” means any petroleum or petroleum products, radioactive materials or wastes, asbestos in any form and polychlorinated biphenyls, and any other chemical, material or substance designated a “hazardous substance,” “hazardous waste,” “hazardous material,” “contaminant,” “pollutant” or “toxic substance” under any applicable Environmental Law ; and
	“Release” means any release, spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching or migration into or through the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or within any building, structure, facility or fixture.

	(i) each such Company Government Contract or Company Government Subcontract was, to the knowledge of the Company, legally awarded, is binding on the parties thereto, and is in full force and effect, except any failure to be legally awarded or in full force and effect that, individually or in the aggregate, is not reasonably likely to have a Company Material Adverse Effect; provided that for purposes of this clause (i), the terms Company Government Contract and Company Government Subcontract shall not include any Bids;
	(ii) no reasonable basis exists to give rise to (A) a material claim for fraud (as such concept is defined under the state or federal Laws of the United States) in connection with any Company Government Contract or Company Government Subcontract or under the United States False Claims

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	Act or the United States Procurement Integrity Act or (B) a claim under the United States Truth in Negotiations Act where the amount in dispute is in excess of $10,000,000;
	(iii) neither the United States government nor any prime contractor, subcontractor or other person or entity has notified the Company or any Company Subsidiary, in writing, that the Company or any Company Subsidiary has, or may have, breached or violated in any material respect any Law, certification, representation, clause, provision or requirement pertaining to such Company Government Contract or Company Government Subcontract, and all facts set forth or acknowledged by any representations, claims or certifications submitted by or on behalf of the Company or any Company Subsidiary in connection with such Company Government Contract or Company Government Subcontract were current, accurate and complete in all material respects on the date of submission;
	(iv) neither the Company nor any Company Subsidiary has received any notice of termination for convenience, notice of termination for default, cure notice or show cause notice (or, in the case of Contracts governed by Laws other than the state or federal Laws of the United States, the functional equivalents thereof, if any) pertaining to such Company Government Contract or Company Government Subcontract, and the Company is not aware of any basis for any such notice, except any notice that, individually or in the aggregate, is not reasonably likely to have a Company Material Adverse Effect, provided that this clause (iv) shall not apply to any notice received more than 12 months prior to the date of this Agreement, which notice related to a program that is no longer ongoing as of the date of this Agreement;
	(v) no cost in excess of $1,000,000 incurred by the Company or any Company Subsidiary pertaining to such Company Government Contract or Company Government Subcontract has been questioned or challenged, is the subject of any audit or, to the knowledge of the Company, investigation or has been disallowed by any government or governmental agency, except any investigation, audit or disallowance (or, in the case of Contracts governed by Laws other than the state or federal Laws of the United States, the functional equivalents thereof, if any) that, individually or in the aggregate, is not reasonably likely to have a Company Material Adverse Effect;
	(vi) no payment in excess of $1,000,000 due to the Company or any Company Subsidiary pertaining to such Company Government Contract or Company Government Subcontract has been withheld or set off, and the Company and the Company Subsidiaries are entitled to all progress or other payments received to date with respect thereto, except any payment or claim that, individually or in the aggregate, is not reasonably likely to have a Company Material Adverse Effect; and
	(vii) the Company and the Company Subsidiaries have complied in all material respects with all requirements of such Company Government Contract or Company Government Subcontract and any Law relating to the safeguarding of, and access to, classified information (or, in the case of Contracts governed by Laws other than the state or federal Laws of the United States, the functional equivalent thereof, if any).

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	(i) (A) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, other than (1) dividends and distributions by a direct or indirect wholly owned subsidiary of the Company to its parent and (2) quarterly cash dividends payable to the holders of shares of the Company Common Stock in an amount not to exceed $0.125 per share of Company Common Stock, (B) effect any reorganization or recapitalizations or split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or (C) purchase, redeem or otherwise acquire (1) any shares of Company Capital Stock or other voting securities or equity interests of the Company or any Company Subsidiary, (2) any Company Stock-Based Awards, options, warrants, calls, rights, convertible or exchangeable securities, commitments, Contracts, arrangements or undertakings of any kind to which the Company or any Company Subsidiary is a party or by which any of them is bound, obligating the Company or any Company Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, shares of capital stock or other voting securities or equity interests of, or any security convertible or exercisable for or exchangeable into any capital stock or other voting securities or equity interests of, the Company or any Company Subsidiary or (3) any other rights the value of which is in any way based upon or derived from, or that give any person the right to receive any economic benefit or right similar to or derived from the economic benefits and rights accruing to holders of, capital stock or other voting securities or equity interests of the Company or any Company Subsidiary;
	(ii) issue, deliver, sell or grant, pledge or otherwise encumber or subject to any Lien, (A) any shares of Company Capital Stock or other voting securities or equity interests of the Company or any Company Subsidiary, other than the issuance of Company Common Stock upon the exercise of Company Stock Options outstanding on the date of this Agreement and in accordance with their terms as in effect on the date of this Agreement, (B) any Company Stock-Based Awards, options, warrants, calls, rights, convertible or exchangeable securities, commitments, Contracts, arrangements or undertakings of any kind to which the Company or any Company Subsidiary is a party or by which any of them is bound, obligating the Company or any Company Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, shares of capital stock or other voting securities or equity interests of, or any security convertible or exercisable for or exchangeable into any capital stock or other voting securities or equity interests of, the Company or any Company Subsidiary or (C) any other rights the value of which is in any way based on or derived from, or that give any person the right to receive any economic benefit or right similar to or derived from the economic benefits and rights accruing to holders of, capital stock or other voting securities or equity interests of the Company or any Company Subsidiary;
	(iii) amend its certificate of incorporation, bylaws or other comparable charter or organizational documents;

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	(iv) other than the possible acquisition disclosed to Parent prior to the date of this Agreement, acquire or agree to acquire (A) by merging or consolidating with, or by purchasing a substantial equity interest in or portion of the assets of, or by any other manner, any business or any corporation, partnership, joint venture, association or other business organization or division thereof or (B) any assets, in each case, that are material, individually or in the aggregate, to the Company and the Company Subsidiaries, taken as a whole;
	(v) except as required to ensure that any Company Benefit Plan or Company Benefit Agreement is not then out of compliance with applicable Law or to comply with any Contract, Company Benefit Plan or Company Benefit Agreement entered into prior to the date of this Agreement and in accordance with their respective terms in effect as of the date of this Agreement, (A) adopt, enter into, amend or terminate (1) any collective bargaining agreement or Company Benefit Plan (or any grants or awards thereunder), except for the entry into of collective bargaining agreements negotiated in the ordinary course of business consistent with past practice, or (2) any Company Benefit Agreement or other agreement, plan or policy involving the Company or any Company Subsidiary and one or more of their respective directors or officers, or former directors or officers, or, other than in the ordinary course of business consistent with past practice, any other employee or consultant, or former employee or consultant (except, in each case, (x) as required to bring any plan, policy, arrangement or award (the “Deferred Arrangements”) into compliance with the requirements of Section 409A of the Code as amended by the American Jobs Creation Act of 2004 (the “AJC Act”) or to preserve the grandfathered status of amounts accrued under the Deferred Arrangements under Section 885(d) of the AJC Act, provided that no such action shall be taken by the Company without prior consultation with Parent and (y) previously authorized change-of-control arrangements that have been disclosed to Parent prior to the date of this Agreement), (B) other than in the ordinary course of business consistent with past practice, increase in any manner the compensation, bonus or fringe or other benefits of, or pay any bonus of any kind or amount whatsoever (including making discretionary grants or awards under any Company Benefit Plan or Company Benefit Agreement) to, any director, officer, employee or consultant, or any former director, officer, employee or consultant, (C) other than in accordance with the Company’s severance policy as in effect on the date of this Agreement, grant or pay any change of control, severance or termination compensation or benefits or increase in any manner the change of control severance or termination compensation or benefits of any director, officer, employee or consultant, or any former director, officer, employee or consultant, of the Company or any Company Subsidiary, (D) take any action to fund or in any other way secure the payment, or to accelerate the vesting or payment, of compensation or benefits under any Company Benefit Plan (or any grant or award thereunder) or Company Benefit Agreement, except withdrawals by individual participants in the Company’s non-qualified deferred compensation plans, or (E) materially change any actuarial or other assumption used to calculate funding obligations with respect to any Company Pension Plan, or change the manner in which contributions to any Company Pension Plan are made or the basis on which such contributions are determined;
	(vi) make any change in accounting methods, principles or practices materially affecting the reported consolidated assets, liabilities or results of operations of the Company, except insofar as may have been required by a change in GAAP;
	(vii) sell, lease (as lessor), license or otherwise dispose of, or subject to any Lien, any material assets (including Intellectual Property Rights), except in the ordinary course of business consistent with past practice;
	(viii) (A) repurchase, prepay or incur any indebtedness for borrowed money or guarantee any such indebtedness of another person, issue or sell any debt securities or warrants or other rights to acquire any debt securities of the Company or any Company Subsidiary, guarantee any debt securities of another person, enter into any “keep well” or other agreement to maintain any financial statement condition of another person or enter into any arrangement having the economic effect of any of the foregoing, except for short-term borrowings incurred in the ordinary course of business consistent with past practice in an amount not to exceed $25,000,000 in the aggregate, or (B) make any loans,

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	advances or capital contributions to, or investments in, any other person, other than to or in the Company or any direct or indirect wholly owned Company Subsidiary, in an amount not to exceed $5,000,000 in the aggregate;
	(ix) make or agree to make any new capital expenditure or expenditures (other than a capital expenditure that constitutes an allowable contract expense under a Company Government Contract or Company Government Subcontract) that, individually, is in excess of $3,000,000 or, in the aggregate, are in excess of $20,000,000;
	(x) (A) pay, discharge, settle or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, in the ordinary course of business consistent with past practice or as required by their terms, of (1) liabilities reflected or reserved against in, or contemplated by, the most recent consolidated financial statements (or the notes thereto) of the Company included in the Filed Company SEC Documents or (2) liabilities incurred since the date of such financial statements in the ordinary course of business consistent with past practice or (B) cancel any material indebtedness (individually or in the aggregate) or waive any claims or rights of substantial value;
	(xi) agree in writing to modify in any manner, or consent to any matter with respect to which its consent is required under, any material confidentiality agreement or any standstill or similar agreement to which the Company or any Company Subsidiary is a party;
	(xii) (A) enter into a Contract, or make a Bid that if accepted would lead to a Contract, which if entered into would (1) result in a gross profit loss to the Company or any Company Subsidiary, (2) be a fixed price development Contract or (3) be a Contract of the type described in Section 3.15(b) or amend, revise or renew any such Contract or (B) enter into any Contract under which the consummation of the Merger and the other transactions contemplated hereby or compliance by the Company with the provisions of this Agreement are reasonably likely to conflict with, or result in a violation or breach of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of, or result in, termination, cancelation or acceleration of any obligation or to a loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of the Company or any Company Subsidiary under, or give rise to any increased, additional, accelerated, or guaranteed right or entitlements of any third party under, or result in any material alteration of, any provision of such Contract;
	(xiii) revalue any assets that are material to the Company and the Company Subsidiaries, taken as a whole, except insofar as required by GAAP; or
	(xiv) authorize, or commit or agree to take, any of the foregoing actions.

	(ii) The Company shall not and shall not permit any Company Subsidiary to enter into or effect any transaction that would result in a material recognition of income or gain by the Company or any Company Subsidiary, other than the transactions expressly required by this Agreement or transactions entered into or effected in the ordinary course of business consistent with past practice.

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“Takeover Proposal” means any proposal or offer from any person relating to, or that is reasonably likely to lead to, (i) any direct or indirect acquisition or purchase, in one transaction or a series of transactions, including by way of tender offer, exchange offer, stock acquisition, asset acquisition or acquisition of the stock of a Company Subsidiary, of assets or businesses that constitute or represent 20% or more of the revenues, net income or assets of the Company and the Company Subsidiaries, taken as a whole, or 20% or more of any class of equity securities of the Company, or (ii) any merger, consolidation, business combination, recapitalization, liquidation, dissolution, joint venture, binding share exchange or similar transaction involving the Company or any of the Company Subsidiaries, in each case, other than the transactions contemplated by this Agreement.

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“Superior Proposal” means any bona fide written offer made by a third party that (i) if consummated would result in such third party (or in the case of a direct merger between such third party and the Company, the stockholders of such third party) acquiring, directly or indirectly, more than 50% of the voting power of the Company Common Stock or all or substantially all the assets of the Company and the Company Subsidiaries, taken as a whole, for consideration consisting of cash and/or securities, that the Company Board determines in its good faith judgment (after consultation with a financial advisor of nationally recognized reputation) to have a higher value than the consideration to be received by the Company’s stockholders in connection with the Merger, taking into account, among other things, any changes to the terms of this Agreement offered by Parent in response to such Superior Proposal or otherwise and (ii) is reasonably capable of being completed, taking into account all financial, legal, regulatory and other aspects of such proposal, including all conditions contained therein.

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	(i) (A) the Company and Parent shall promptly submit a joint filing and any requested supplemental information (collectively, the “Joint Filing”) to the Committee on Foreign Investment in the United States (“CFIUS”) pursuant to 31 C.F.R. Part 800 with regard to the transactions contemplated hereby, (B) Parent shall take responsibility for preparation and submission of the Joint Filing and (C) the Company hereby agrees promptly to provide to Parent all necessary information and otherwise to assist Parent promptly in order for Parent to complete preparation and submission of the Joint Filing in accordance with this Section 6.03(b)(i), to respond to any inquiries from CFIUS or any other interested Governmental Entity and to take all reasonable steps to secure the approval of CFIUS of the transactions contemplated hereby,
	(ii) each party shall (A) promptly take all actions reasonably necessary to (1) file the notification and report form required for the transactions contemplated hereby and provide any supplemental information in connection therewith pursuant to the HSR Act and (2) make any filings required under any applicable competition, antitrust or similar Law of any jurisdiction outside the United States, and shall furnish to the other such necessary information and assistance as the other may reasonably request in connection with its preparation of any filing with, or submission or response to, inquires from the Federal Trade Commission (the “FTC”), the Antitrust Division of the Department of Justice (the “DOJ”) or any other Governmental Entity in connection with obtaining approval under the HSR Act and any applicable competition, antitrust or similar Law of any jurisdiction outside the United States, (B) keep the other party apprised of the status of any inquiries or requests for additional information from, the FTC or the DOJ or any Governmental Entity in connection with obtaining approval under any applicable competition, antitrust or similar Law of any jurisdiction outside the United States and take all reasonable steps to comply promptly with any such inquiry or request and (C) participate in any interviews or meetings reasonably requested by the FTC or the DOJ or any Governmental Entity in connection with obtaining approval under any applicable

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	competition, antitrust or similar Law of any jurisdiction outside the United States in connection with the consummation of the transactions contemplated hereby; and
	(iii) the Company and the Company Board shall (A) take all action necessary to ensure that no state takeover statute or similar statute or regulation is or becomes applicable to any transactions contemplated hereby or this Agreement and (B) if any state takeover statute or similar statute or regulation becomes applicable to this Agreement, take all action necessary to ensure that the Merger and the other transactions contemplated hereby may be consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise to minimize the effect of such statute or regulation on the Merger and the other transactions contemplated hereby.

	(i) provide that each unexercised Company Stock Option outstanding immediately prior to the Effective Time (whether vested or unvested) shall be converted at the Effective Time into the right to receive an amount of cash equal to (A) the excess, if any, of (1) the Merger Consideration per share of Company Common Stock over (2) the exercise price per share of Company Common Stock subject to such Company Stock Option, multiplied by (B) the number of shares of Company Common Stock constituting the unexercised portion of such Company Stock Option, which amount shall be paid as soon as practicable following (but in no event more than 15 days after) the Effective Time, without interest;
	(ii) provide that each share of Company Restricted Stock outstanding immediately prior to the Effective Time shall become at the Effective Time fully vested and free of restrictions on transfer and the holder thereof shall be entitled to receive the Merger Consideration subject to the terms and conditions of Article II hereof; and
	(iii) make such other changes to the Company Stock Plan as the Company and Parent may agree are appropriate to give effect to the Merger and the terms of this Agreement.

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	(i) (A) a Takeover Proposal has been made to the Company or its stockholders or a Takeover Proposal shall have otherwise become publicly known, (B) thereafter this Agreement is terminated by either Parent or the Company pursuant to Section 8.01(b)(i) or Section 8.01(b)(iii) and (C) at any time (1) on or prior to the six-month anniversary of such termination, the Company or any Company Subsidiary (x) enters into any Acquisition Agreement with respect to any Takeover Proposal or (y) the transactions contemplated by any Takeover Proposal are consummated or (2) after the six-month anniversary but prior to the 12-month anniversary of such termination, the Company or any Company Subsidiary (x) enters into any Acquisition Agreement with respect to any Takeover Proposal made by a Designated Party or (y) the transactions contemplated by any Takeover Proposal are consummated by a Designated Party;
	(ii) this Agreement is terminated by the Company pursuant to Section 8.01(f); or
	(iii) this Agreement is terminated by Parent pursuant to Section 8.01(c) and either (A) prior to such termination a Takeover Proposal has been made to the Company or its stockholders or a

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	Takeover Proposal shall have otherwise become publicly known or (B) at any time prior to the 12-month anniversary of such termination, the Company or any Company Subsidiary enters into any Acquisition Agreement with respect to any Takeover Proposal or the transactions contemplated by any Takeover Proposal are consummated,

	(a) Company Stockholder Approval. The Company shall have obtained the Company Stockholder Approval.

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	(b) Governmental Approvals. (i) Any waiting period (and any extensions thereof) applicable to the Merger under the HSR Act shall have been terminated, (ii) the period of time for any applicable review process under Exon-Florio shall have expired, and the President of the United States shall not have taken action to prevent the consummation of the Merger or the transactions contemplated hereby, (iii) any applicable approvals pursuant to any competition, antitrust or similar Law of any jurisdiction outside the United States shall have been obtained, (iv) no Governmental Entity shall have taken any action to revoke the license under the Swedish Act on War Equipment granted to Bofors and (v) any and all other authorizations, consents, orders or approvals of, or declarations or filings with, or expirations of waiting periods imposed by, any Governmental Entity necessary for the consummation of the Merger or the transactions contemplated by this Agreement shall have been obtained or filed or shall have occurred, except any authorization, consent, order, approval, declaration, filing or expiration the failure of which to be obtained or filed or to occur is not reasonably likely to have a material adverse effect on the business, assets, financial condition or results of operations of (x) the Company and the Company Subsidiaries, taken as a whole, or (y) Parent and its subsidiaries, taken as a whole.
	(c) No Injunctions or Restraints. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or Law prohibiting the consummation of the Merger or the transactions contemplated hereby shall be in effect.
	(d) UK Parent Shareholder Approval. UK Parent shall have obtained the UK Parent Shareholder Approval.

(a) Representations and Warranties. (i) The representations and warranties of the Company in this Agreement shall be true and correct, without regard to any materiality or Company Material Adverse Effect qualifiers contained therein, as of the Closing Date (as though made on the Closing Date), except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties shall be true and correct, without regard to any materiality or Company Material Adverse Effect qualifiers contained therein, as of such earlier date), except where the failure of such representations and warranties to be true and correct, individually or in the aggregate, is not reasonably likely to have a Company Material Adverse Effect.

	(ii) The representations and warranties of the Company set forth in Sections 3.03, 3.06(k), 3.12(b), 3.13(c), 3.15(b), 3.15(c)(ii), 3.15(c)(iii) and 3.15(d) that are qualified as to materiality or Company Material Adverse Effect shall be true and correct and those not so qualified shall be true and correct in all material respects, as of the date of this Agreement and as of the Closing Date (as though made on the Closing Date), except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties qualified as to materiality or Company Material Adverse Effect shall be true and correct, and those not so qualified shall be true and correct in all material respects, on and as of such earlier date).
	(iii) Parent shall have received a certificate signed on behalf of the Company by the chief executive officer and the chief financial officer of the Company to the effect of clauses (i) and (ii) above.

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	(a) Representations and Warranties. The representations and warranties of Parent and Sub in this Agreement shall be true and correct, without regard to any materiality or Parent Material Adverse Effect qualifiers contained therein, as of the Closing Date (as though made on the Closing Date), except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties shall be true and correct, without regard to any materiality or Parent Material Adverse Effect qualifiers contained therein, as of such earlier date), except where the failure of such representations and warranties to be true and correct, individually or in the aggregate, is not reasonably likely to have a Parent Material Adverse Effect, and the Company shall have received a certificate signed on behalf of Parent by the chief executive officer and the chief financial officer of Parent to such effect.
	(b) Performance of Obligations of the Parent and Sub. Parent and Sub shall have performed in all material respects all obligations to be performed by them under this Agreement at or prior to the Closing Date, and the Company shall have received a certificate signed on behalf of Parent by the chief executive officer and the chief financial officer of Parent to such effect.

	(a) by mutual written consent of Parent, Sub and the Company;
	(b) by either Parent or the Company:

	(i) if the Merger is not consummated on or before December 6, 2005 (such date, as extended, the “Outside Date”), unless the failure to consummate the Merger is the result of a wilful and material breach of this Agreement by the party seeking to terminate this Agreement;
	(ii) if any Governmental Entity issues an order, decree or ruling or takes any other action permanently enjoining, restraining or otherwise prohibiting the Merger and such order, decree, ruling or other action shall have become final and nonappealable;
	(iii) if the Company Stockholder Approval shall not have been obtained by reason of the failure to obtain the required vote at the Company Stockholders’ Meeting duly convened for the purpose of obtaining the Company Stockholder Approval or any adjournment or postponement thereof; or

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	(iv) if the UK Parent Shareholder Approval shall not have been obtained by reason of the failure to obtain the required vote at the UK Parent Shareholder Meeting duly convened for the purpose of obtaining the UK Parent Shareholder Approval or any adjournment or postponement thereof;

	(c) by Parent, in the event an Adverse Recommendation Change has occurred within 10 days after the occurrence of such Adverse Recommendation Change;
	(d) by Parent, if the Company breaches or fails to perform any of its representations, warranties, covenants or agreements contained in this Agreement, which breach or failure to perform (i) would give rise to the failure of a condition set forth in Section 7.02(a) or 7.02(b), and (ii) cannot be or has not been cured within 30 days after the giving of written notice to the Company of such breach (provided that Parent is not then in material breach of any representation, warranty or covenant contained in this Agreement);
	(e) by the Company, if Parent or Sub breaches or fails to perform any of its representations, warranties, covenants or agreements contained in this Agreement, which breach or failure to perform (i) would give rise to the failure of a condition set forth in Section 7.03(a) or 7.03(b), and (ii) cannot be or has not been cured within 30 days after the giving of written notice to Parent and Sub of such breach (provided that the Company is not then in material breach of any representation, warranty or covenant contained in this Agreement); or
	(f) by the Company, at any time prior to obtaining the Company Stockholder Approval, in accordance with Section 5.02(b); provided, however, that the Company shall have complied with all provisions of Section 5.02, including the notification provisions thereof, and shall have paid the Termination Fee in accordance with Section 6.07(b); or
	(g) by the Company, if (i) the Board of Directors of UK Parent shall have failed to recommend the approval of the Merger by the shareholders of UK Parent in the UK Parent Circular or (ii) the Board of Directors of UK Parent (or any committee thereof) shall have made a Change in UK Parent Recommendation (as defined in the UK Parent Letter), whether or not permitted by the terms hereof, in each case, within 10 days after the occurrence of the event giving the Company the right to terminate under this Section 8.01(g).

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	BAE Systems North America Inc.
	1601 Research Boulevard
	Rockville, MD 20850
	Phone: (301) 838-6000
	Fax: (301) 838-6942
	Attention: Sheila C. Cheston, Esq.
	with a copy to:
	Cravath, Swaine & Moore LLP
	825 Eighth Avenue
	New York, NY 10019
	Phone: (212) 474-1000
	Fax: (212) 474-3700
	Attention:  Philip A. Gelston, Esq.
	Sarkis Jebejian, Esq.

	United Defense Industries, Inc.
	1525 Wilson Boulevard, Suite 700
	Arlington, VA 22209
	Phone: (703) 312-6156
	Fax: (703) 312-6196
	Attention: David V. Kolovat, Esq.

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	with a copy to:
	Gibson, Dunn & Crutcher LLP
	1050 Connecticut Avenue, N.W.
	Washington, D.C. 20036
	Phone: (202) 955-8593
	Fax: (202) 530-9598
	Attention:  Stephen I. Glover, Esq.
	Stephanie Tsacoumis, Esq.

	An “affiliate” of any person means another person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first person.
	A “business day” means any day, other than a Saturday, Sunday or one on which banks are authorized by Law to close in New York, New York or London, England.
	A “Company Material Adverse Change” means any event, change, effect or development that, individually or in the aggregate, is reasonably likely to have a Company Material Adverse Effect, other than events, changes, effects or developments arising out of, or caused by, (i) general economic conditions, (ii) conditions generally affecting the industries in which the Company operates, (iii) the financial markets in general, (iv) the entering into or the public announcement or disclosure of this Agreement or the consummation or proposed consummation of the Merger or the pendancy thereof, including any events, changes, effects or developments arising from UK Parent’s ownership or proposed ownership of the Company or (v) appropriations arising from the U.S. Fiscal Year 2005 Supplemental Budget or the U.S. Fiscal Year 2006 Budget. Without limiting the generality of the foregoing, any event, change, effect or development (whether or not previously disclosed in any document filed with, or furnished to, the SEC, the Company Disclosure Letter or otherwise) that, individually or in the aggregate, has resulted in the suspension or debarment of, or actions by the U.S. government relating to the suspension or debarment of, the Company (or any portion thereof) or any Company Subsidiary (or any portion thereof) from participation in the award of any Contract with any Governmental Entity located in the United States shall be deemed to constitute a Company Material Adverse Change.
	A “Company Material Adverse Effect” means a material adverse effect on (i) the business, assets, financial condition or results of operations of the Company and the Company Subsidiaries, taken as a whole, or (ii) the ability of the Company to consummate the Merger and the other transactions contemplated hereby.
	A “Parent Material Adverse Effect” means a material adverse effect on the ability of Parent or Sub to consummate the Merger and the other transactions contemplated hereby.
	A “person” means any individual, firm, corporation, partnership, company, limited liability company, trust, joint venture, association, Governmental Entity or other entity.
	A “subsidiary” of any person means another person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its board of directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first person.

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	BAE SYSTEMS NORTH AMERICA INC.,

	By:	/s/ Sheila Cheston

	Name: Sheila Cheston

	Title:	Senior Vice President and General Counsel

	UTE ACQUISITION COMPANY INC.,

	By:	/s/ Sheila Cheston

	Name: Sheila Cheston

	Title:	Vice President and Secretary

	UNITED DEFENSE INDUSTRIES, INC.,

	By:	/s/ Thomas W. Rabaut

	Name: Thomas W. Rabaut

	Title:	President and Chief Executive Officer

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	Very truly yours,
	/s/ J.P. MORGAN SECURITIES INC.
	J.P. MORGAN SECURITIES INC.

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	Very truly yours,
	LEHMAN BROTHERS

	By:	/s/ Leslie Fabuss

	Vice Chairman

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	(1) Provided, however, that no appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depository receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of and to vote at the meeting of stockholders to act upon the agreement of merger or consolidation, were either (i) listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the stockholders of the surviving corporation as provided in subsection (f) of § 251 of this title.
	(2) Notwithstanding paragraph (1) of this subsection, appraisal rights under this section shall be available for the shares of any class or series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to §§ 251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock anything except:

	a. Shares of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in respect thereof;
	b. Shares of stock of any other corporation, or depository receipts in respect thereof, which shares of stock (or depository receipts in respect thereof) or depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or held of record by more than 2,000 holders;
	c. Cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a. and b. of this paragraph; or
	d. Any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a., b. and c. of this paragraph.

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	(3) In the event all of the stock of a subsidiary Delaware corporation party to a merger effected under § 253 of this title is not owned by the parent corporation immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation.

	(1) If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for such meeting with respect to shares for which appraisal rights are available pursuant to subsection (b) or (c) hereof that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in such notice a copy of this section. Each stockholder electing to demand the appraisal of such stockholder’s shares shall deliver to the corporation, before the taking of the vote on the merger or consolidation, a written demand for appraisal of such stockholder’s shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such stockholder’s shares. A proxy or vote against the merger or consolidation shall not constitute such a demand. A stockholder electing to take such action must do so by a separate written demand as herein provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has complied with this subsection and has not voted in favor of or consented to the merger or consolidation of the date that the merger or consolidation has become effective; or
	(2) If the merger or consolidation was approved pursuant to § 228 or § 253 of this title, then either a constituent corporation before the effective date of the merger or consolidation or the surviving or resulting corporation within 10 days thereafter shall notify each of the holders of any class or series of stock of such constituent corporation who are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy of this section. Such notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such stockholders of the effective date of the merger or consolidation. Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of such notice, demand in writing from the surviving or resulting corporation the appraisal of such holder’s shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such holder’s shares. If such notice did not notify stockholders of the effective date of the merger or consolidation, either (i) each such constituent corporation shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any class or series of stock of such constituent corporation that are entitled to appraisal rights of the effective date of the merger or consolidation or (ii) the surviving or resulting corporation shall send such a second notice to all such holders on or within 10 days after such effective date; provided, however, that if such second notice is sent more than 20 days following the sending of the first notice, such second notice need only be sent to each stockholder who is entitled to appraisal rights and who has demanded appraisal of such holder’s shares in accordance with this subsection. An affidavit of the secretary or assistant secretary or of the transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of determining the stockholders entitled to receive either notice, each constituent corporation may fix, in advance, a record date that shall be not more than 10 days prior to the date the notice is given,

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	provided, that if the notice is given on or after the effective date of the merger or consolidation, the record date shall be such effective date. If no record date is fixed and the notice is given prior to the effective date, the record date shall be the close of business on the day next preceding the day on which the notice is given.

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	(i) The Committee shall obtain and review a report prepared by the independent auditor describing (a) the auditing firm’s internal quality-control procedures and (b) any material issues raised by the most recent internal quality-control review, or peer review, of the auditing firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the auditing firm, and any steps taken to deal with any such issues.
	(ii) The Committee shall discuss with the independent auditor its independence from the Company, and obtain and review a written statement prepared by the independent auditor describing all relationships between the independent auditor and the Company, consistent with Independence Standards Board Standard 1, and consider the impact that any relationships or services may have on the objectivity and independence of the independent auditor.
	(iii) The Committee shall confirm with the independent auditor that the independent auditor is in compliance with the partner rotation requirements established by the SEC.
	(iv) The Committee shall consider whether the Company should adopt a rotation of the annual audit among independent auditing firms.
	(v) The Committee shall, if applicable, consider whether the independent auditor’s provision of any permitted information technology services or other non-audit services to the Company is compatible with maintaining the independence of the independent auditor.

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