DRS Technologies to acquire Engineered Support Systems

PARSIPPANY, N.J., 22 Sept. 2005. DRS Technologies, Inc. and Engineered Support Systems, Inc. jointly announced today that they have signed a definitive agreement for DRS to acquire all of the outstanding stock of Engineered Support Systems, Inc. (ESSI) for $43 per share through a combination of cash and DRS common stock.

PARSIPPANY, N.J., 22 Sept. 2005. DRS Technologies, Inc. and Engineered Support Systems, Inc. jointly announced today that they have signed a definitive agreement for DRS to acquire all of the outstanding stock of Engineered Support Systems, Inc. (ESSI) for $43 per share through a combination of cash and DRS common stock.

Engineered Support Systems, headquartered in St. Louis, Mo., is a diversified supplier of integrated military electronics, support equipment and technical services focused on advanced sustainment and logistics support solutions for all branches of the U.S. armed services, major prime defense contractors, certain international militaries, homeland security forces and selected government and intelligence agencies.

DRS Technologies, headquartered in Parsippany, N.J., provides leading edge products and services to defense, government intelligence and commercial customers. Focused on defense technology, DRS develops and manufactures a broad range of mission critical systems.

Upon completion of the acquisition, ESSI will become DRS's third operating group, focused on support and services.

"The acquisition of Engineered Support Systems will create a strong, diverse company, adding a significant business base in technical and logistics support services, integrated military electronics and support equipment with broad access to a variety of government funding accounts, including procurement and operations and maintenance (O&M)," said Mark S. Newman, DRS Technologies' chairman, president and CEO.

"Engineered Support Systems is uniquely focused on sustainment of military forces and respected as a rapid-response solutions provider. The combination of the two companies will firmly establish DRS Technologies as a leading provider of defense electronics products and services with a run rate in excess of $2.5 billion in annual revenues and a major role in armed forces modernization, personnel mobility and O&M support. An important milestone in the growth of our company, this acquisition will strengthen our strategic position and expand our program participation and platform applications with all of the military services, while providing new opportunities for growth in intelligence and homeland security markets."

Gerald A. Potthoff, vice chairman and CEO of Engineered Support Systems, added, "This is another exciting chapter for ESSI, taking our company to the next level and delivering excellent value to our stockholders. DRS Technologies is a highly-regarded presence in defense technology, and with ESSI will become a sizable, diversified industry competitor, strategically positioned for exciting growth opportunities. We believe the combination will benefit customers, business associates, investors and employees. This transaction undoubtedly will bolster the combined company's ability to accomplish its mission to support the military's near-term force modernization and emerging transformation initiatives."

DRS Technologies said the acquisition offers opportunities to leverage synergies and to accomplish several objectives. It is expected to:
-- Enhance DRS's market leadership position, adding to its critical mass and extensive array of products and significantly expanding the company's logistics support and services business;
-- Complement the company's customer base, strengthening positions with the U.S. Army, Air Force and Navy, intelligence agencies, prime contractors and international military forces;
-- Increase access to government funding budgeted within the procurement and O&M accounts;
-- Increase content on military programs, including those related to power generation, conversion, distribution and power management; electro-optical and infrared (EO/IR) technology; vehicle diagnostics and automated test equipment; and radar systems;
-- Enhance technology capabilities in intelligence through satellite communications (SATCOM)/wireless services and systems integration;
-- Broaden DRS's homeland security capabilities;
-- Diversify the company's program base so that no single product or program accounts for more than 3 percent of annual revenues and the ten largest programs account for approximately 20 percent; and
-- Generate earnings accretion and strong free cash flow.

Under the terms of the acquisition, each share of ESSI common stock will be converted into the right to receive a combination of $30.10 in cash and a portion of a share of DRS common stock valued at $12.90, provided that the average closing price of DRS's common stock prior to the closing of the transaction is between $46.80 and $57.20. The exchange ratio will increase or decrease in proportion to the average closing price of DRS's common stock. A collar provides that the exchange ratio will not exceed 0.2756 of a share nor be less than 0.2255 of a share of DRS common stock.

The cash portion of the acquisition, together with the debt of ESSI to be refinanced, will aggregate approximately $1.49 billion at closing. Total consideration for the acquisition, including an estimated $88.3 million of ESSI's debt to be refinanced at closing, is approximately $1.97 billion.

DRS expects to finance the cash portion of the acquisition by utilizing existing excess cash on hand and through a combination of bank borrowings and the issuance of debt securities.

The acquisition is expected to be accretive for DRS in its first full fiscal year of operation with DRS ending March 31, 2007, contributing approximately $0.20 to earnings per share and approximately $1.23 billion to revenues.

"We have constructed an offer that balances prudent financing with our objective to deliver earnings accretion and top-line growth," said Richard A. Schneider, DRS Technologies' executive vice president and chief financial officer. "This approach is consistent with our experience on the acquisition of Integrated Defense Technologies in 2003, whereby we delivered on our commitment to deleverage net debt to earnings before income taxes, depreciation and amortization (EBITDA) from 4.0 to 2.9 in two years and achieve meaningful earnings accretion and growth."

The transaction is expected to close before the end of DRS's fiscal 2006 and is subject to customary regulatory approvals and other closing conditions, including approval by DRS's and ESSI's stockholders at respective special stockholder meetings.

Bear, Stearns & Co. Inc. is serving as financial advisor to DRS on the transaction and has provided committed financing necessary for DRS to consummate the acquisition and for ongoing working capital needs. Merrill Lynch & Co., Inc. also is serving as financial advisor to DRS for the purpose of rendering a fairness opinion. Lehman Brothers Inc. is serving as financial advisor to ESSI on the transaction.

Engineered Support Systems, headquartered in St. Louis, Mo., is a diversified supplier of integrated military electronics, support equipment and technical services focused on advanced sustainment and logistics support solutions for all branches of the U.S. armed services, major prime defense contractors, certain international militaries, homeland security forces and selected government and intelligence agencies. ESSI also produces specialized equipment and systems for commercial and industrial applications. Operating through two business segments -- support systems and support services -- ESSI is comprised of 14 subsidiaries and employs 3,600 people. Primary areas of expertise include engineering, logistics and training; advanced technology; asset protection systems; telecommunications and information technology; integrated logistics; systems integration; heavy and light military support equipment; power generation equipment and defense electronics systems. For more information, see www.engineeredsupport.com.

DRS Technologies, headquartered in Parsippany, N.J., provides leading edge products and services to defense, government intelligence and commercial customers. Focused on defense technology, DRS develops and manufactures a broad range of mission critical systems. The company employs 6,000 people worldwide. For more information, see www.drs.com.

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